The World Bank Annual Report 2004 Volume 1 THE WORLD BANK Year in Review The World Bank Annual Report 2004 Volume 1 THE WORLD BANK Year in Review Letter of Operational Summary, Fiscal 2004 Transmittal IBRD This Annual Report, which (millions of dollars) FY04 FY03 FY02 FY01 FY00 covers the period from July 1, Commitments 11,045 11,231 11,452 10,487 10,919 2003, to June 30, 2004, has Of which adjustment lending 4,453 4,187 7,384 3,937 4,426 been prepared by the Number of projects 87 99 96 91 97 Executive Directors of both Of which adjustment lending 18 21 21 15 14 the International Bank for Gross disbursements 10,109 11,921 11,256 11,784 13,332 Reconstruction and Of which adjustment lending 4,348 5,484 4,673 4,393 4,924 Development (IBRD) and the Principal repayments International Development (including prepayments) 18,479 19,877 12,025 9,635 10,398 Association (IDA) in accor- Net disbursements (8,370) (7,956) (769) 2,149 2,934 dance with the respective Loans outstanding 109,610 116,240 121,589 118,866 120,104 bylaws of the two institutions. Undisbursed loans 32,128 33,031 36,353 37,934 44,754 James D. Wolfensohn, Allocable net income 1,675 3,050 1,831 989 1,582 President of the IBRD and IDA and Chairman of the Usable capital and reserves 31,332 30,027 26,901 24,909 25,067 Board of Executive Directors, Equity-to-loans ratio 29.4% 26.6% 22.9% 21.5% 21.3% has submitted this report, together with the accompany- IDA (millions of dollars) ing administrative budgets FY04 FY03 FY02 FY01 FY00 and audited financial state- Commitments 9,035 7,282 8,068 6,764 4,358 ments, to the Board of Of which adjustment lending 1,698 1,831 2,443 1,826 682 Governors. Number of projects 158 141 133 134 126 Of which adjustment lending 23 24 23 15 9 Annual reports for the Gross disbursements 6,936 7,019 6,612 5,492 5,177 International Finance Of which adjustment lending 1,685 2,795 2,172 1,280 860 Corporation (IFC), the Principal repayments 1,398 1,369 1,063 997 920 Multilateral Investment Net disbursements 5,538 5,651 5,549 4,495 4,257 Guarantee Agency (MIGA), Credits outstanding 115,743 106,877 96,372 86,572 86,643 and the International Centre for Settlement of Investment Undisbursed credits 23,998 22,429 22,510 20,442 20,833 Disputes (ICSID) are pub- Undisbursed grants 2,358 1,316 148 -- -- lished separately. Development grant expenses 1,697 1,016 154 -- -- The World Bank Annual Report 2004 Volume 1 Year in Review About this photo: This bronze sculpture in Contents the atrium of the World Bank headquarters in Washington, D.C., represents a once typical scene Message from the President of the World Bank and in many African nations: the adult has been blinded Chairman of the Board of Directors 2 by a parasitic disease called onchocerciasis, or riverblindness, which is borne by blackflies that The Board of Executive Directors 5 breed in flowing rivers. The World Bank Group 8 While millions of people are still infected with riverblindness in a swath of Africa from Senegal to Chapter 1 The Development Agenda 10 Ethiopia and from Angola to Mozambique, the num- ber is half what it was in the early 1970s because of Chapter 2 Regional Perspectives 24 close collaboration among the partners in the West Africa 28 African Onchocerciasis Control Programme and the East Asia and Pacific 32 African Programme for Onchocerciasis Control, and South Asia 37 the use of a drug that relieves symptoms and helps Europe and Central Asia 41 stop transmission of the disease. The sculpture commemorates efforts that are Latin America and the Caribbean 46 helping to make the once commonplace image of Middle East and North Africa 51 blind adults being led from place to place by children a thing of the past. Chapter 3 Thematic Perspectives 56 Reducing Poverty and Improving Economic Management 58 Investing in People 61 Addressing the Challenges of Sustainable Development 65 Revitalizing Infrastructure 69 Supporting Private Sector Development 72 Building Strong Financial Systems 76 Promoting the Modernization of Legal and Judicial Systems 79 Chapter 4 Improving Development Effectiveness 82 About the cover: An estimated $60 billion is Chapter 5 Summary of Fiscal 2004 Activities 96 invested in water for developing countries each year. About 90 percent of investment comes from domes- tic sources. The World Bank accounts for about half List of Boxes, Figures, and Tables 118 of all external financing, or $3 billion a year, equal to Abbreviations 119 about 15 percent of all World Bank lending. Index 120 The challenge of achieving the Millennium Devel- opment Goal of halving the proportion of people About the World Bank without sustainable access to safe drinking water by Organizational Information 2015 is daunting. In February 2003, the Bank en- Fiscal 2004 Summaries of Operations Approved dorsed a new Water Resources Strategy aimed at Tables previously included in chapter 6 and providing more effective assistance to countries in as appendixes in volume 2 order to help meet the goal. Note This Annual Report is also available at www.worldbank.org. All dollar amounts are current U.S. dollars unless otherwise specified. Message from the President of the World Bank and Chairman of the Board of Directors President Wolfensohn meets with students at San Jose High Academy in California, United States. The past year has brought with it signs of hope and This year the Annual Meetings of the World Bank progress, but it has also brought signs of concern in the and the International Monetary Fund (IMF) were held fight against global poverty. in the Middle East for the first time. In Dubai, where On a positive note, new data this year show that the we met in the shadow of conflict and loss, I stressed number of poor people continues to fall. The propor- that the world I see today is a world out of balance. Of tion of people living on less than $1 a day decreased the 6 billion people in the world today, 1 billion people from 40 to 21 percent of the global population between in the wealthy countries account for 80 percent of the 1981 and 2001. Development indicators are clearly im- world's gross domestic product while the other 5 bil- proving in countries that have laid good foundations for lion have 20 percent. While rich countries spend growth. In Europe, for example, we saw Slovenia gradu- $700 billion a year for defense and transfer $325 billion ate from Bank borrower status and join the European to their agriculture, they devote just $68 billion to Union along with nine other Bank member countries. development assistance. The progress, though, is uneven across the globe. These global imbalances are reflected in the daily Growth in East Asia has meant that there were 500 mil- lives of poor people around the world. Two billion lion fewer people living below $1 a day in 2001 than in people have no access to clean water, 115 million 1981. The number of poor people has also fallen in children never get the chance to go to school, and South Asia and in the Middle East and North Africa, some 38 million people, more than 95 percent of though less dramatically than in East Asia. However, them in developing countries, are HIV-positive, with the absolute number of poor people has risen in Africa, little hope of receiving treatment. Latin America and the Caribbean, and Europe and It was only four years ago, in 2000, that world lead- Central Asia. ers gathered at the Millennium Summit in New York 2 The World Bank Annual Report 2004 President Wolfensohn among World Youth representatives at the Youth, Development, and Peace Conference 2003 in Paris, France. and committed themselves to cut poverty in half by These young people are not only the future--they 2015. They agreed on Millennium Development Goals are the now. Almost half the people of the world for health, education, women, and the environment. today are under 24 years old. Nine out of 10 of these At our Spring Meetings this year, the Bank launched young people live in developing countries. A billion the first Global Monitoring Report, which highlights the of them will need jobs in the next decade. An ever- policies and actions we all need to reach those goals. increasing number will leave their home countries The report, a joint effort with the IMF, sounded an to find work. alarm bell: most of the goals will not be met in most We need to face these realities, and we need to act countries by the 2015 deadline. on three issues in particular. So the world is at a tipping point: either we in the First, world trade talks--which can reduce agricul- international community recommit to delivering on tural protectionism and thus poverty in developing the goals, or the targets we set in a fanfare of publicity nations--must be pushed forward. Developing coun- will be missed, the world's poor will be left even tries would gain nearly $325 billion by 2015 as a result, further behind, and our children will be left to face the enough to lift 140 million people out of poverty. consequences. Second, aid flows need to rise well above current During the next 25 years, about 2 billion more commitments, and they need to be used more effec- people will be added to the global population, but only tively. Although some increases have been made in re- 50 million of them will be in the richer countries. The cent years, almost a doubling of current development vast majority will be born with the prospect of growing assistance levels will be required to meet the Millen- up in poverty and becoming disillusioned with a world nium Development Goals. It is essential that donor they will inevitably view as inequitable and unjust. countries fully replenish the International Develop- Terrorism is often bred in places where a fast-growing ment Association (IDA)--the fund that delivers proven youth population has no hope. results for the world's poorest nations. We cannot ignore the rise of this more youthful Third, we must push forward in relieving the debt world. In the past year, I met with youth from all over burdens of the poorest countries by providing a larger the world at places as varied as Tsinghua University in proportion of additional aid in the form of grants Beijing and Brandeis University in Massachusetts. rather than loans. The World Bank Annual Report 2004 3 For these actions to be successful, the bargain be- On the AIDS front, the Bank joined with the United tween rich and poor nations struck at the Monterrey Nations Children's Fund; the Global Fund to Fight Conference in 2002 must be more effectively imple- AIDS, Tuberculosis and Malaria; and the Clinton mented. The developing countries must do more to re- Foundation to provide generic drugs at a fraction of form their economies and cut out corruption, and the the current cost. We are also working with partners to developed countries must back those reforms with develop HIV/AIDS prevention programs in countries increased support. with high risk. In the global fight against poverty, the World Bank One highlight of the year was the development con- is--and should be--playing a central role. The Bank's ference we cohosted with the Chinese government in strategy continues to focus on the two pillars for pov- Shanghai, the culmination of nine months of studying erty reduction: empowering people and improving the development experiences. Leaders from developing investment climate. These pillars support the Bank's countries shared their successes and failures with other Country Assistance Strategies and are reflected in the leaders. We learned that feeling good about individual Poverty Reduction Strategy Papers of poorer countries projects is not enough. We learned that we must "scale and the development strategies of wealthier ones. The up" our development efforts. It is not 10 schools we Bank continued its client-oriented approach this year, are trying to help build. It is 10,000 schools. It is not supporting development of Poverty Reduction Strategy 5 bridges we are trying to help construct. It is Papers in low-income countries that receive IDA cred- 5,000 bridges. It is not thousands of people we are its, and doing more to tailor its lending instruments for trying to support. It is billions of people. middle-income countries that borrow from the Inter- We at the World Bank believe that the disadvan- national Bank for Reconstruction and Development taged of the world should be seen not as objects of (IBRD). We are also continuing to work with countries charity but as assets in the fight against poverty. We be- experiencing weak policies, institutions, and often lieve overcoming poverty is a moral, social, economic, internal conflict through a special initiative known as and security imperative. We will continue to state this Low-Income Countries under Stress. Donor partner- view loud and clear as we work tirelessly to support all ships are critical to success. who seek to achieve the Millennium Development The Heavily Indebted Poor Countries Initiative Goals. gained momentum this year, with progress toward its goal of cutting poor countries' debt to manageable levels. Twenty-seven countries--two-thirds of those eligible--are now participating and are receiving debt relief that will total more than $52 billion from all creditors over time. With our partners, we are working to move beyond debt relief to debt sustainability. James D. Wolfensohn 4 The World Bank Annual Report 2004 The Board of Executive Directors From left to right: (standing) Per Kurowski, Terrence O'Brien, Otaviano Canuto, Paolo Fernando Gomes, Nuno Mota Pinto, Pierre Duquesne, Thorsteinn Ingolfsson, Tanwir Ali Agha, Tom Scholar, Kurt Richard Bayer, Eckhard Karl Deutscher, Alexey G. Kvasov, Toshio Oya, Louis A. Kasekende, Yahya A. Alyahya, Rapee Asumpinpong; (seated) Guangyao Zhu, Pietro Veglio, Carole Brookins, Mahdy Ismail Aljazzaf, Gobind Ganga, Tamara Solyanyk, and Alieto A. Guadagni. The Executive Directors are responsible for the con- perspectives of member countries on the strategy and duct of the World Bank's general operations, perform- operations of the Bank Group. In this regard, the Oper- ing their duties under powers delegated by the Board ations Evaluation Department provides independent of Governors. As provided in the Articles of Agree- advice to the Board on the relevance, sustainability, ment, the member countries having the largest number efficiency, and effectiveness of operations. The depart- of shares appoint 5 of the 24 Executive Directors; the ment is directly accountable to the Board for perform- rest are elected by the other member countries, which ing evaluations as set out in its Board-approved poli- form constituencies in an election process conducted cies, strategies, and work program. every two years. The Executive Directors regularly meet at Bank Executive Directors consider and decide on IBRD headquarters to carry out their responsibilities, in for- loan and guarantee proposals and IDA credit, grant, mal Board meetings as the Committee of the Whole and guarantee proposals made by the President, and as well as in informal meetings. Directors also serve on they decide on policies that guide the Bank's general one or more standing committees: Audit, Budget, De- operations. They are also responsible for presenting to velopment Effectiveness (CODE), Governance and Ex- the Board of Governors, at the Annual Meetings, an ecutive Directors' Administrative Matters (COGAM), audit of accounts, an administrative budget, and an an- and Personnel. With the committees' help, the Board nual report (this report) on the Bank's operations and discharges its oversight responsibilities through in- policies as well as other matters that require submis- depth examinations of policies and practices. Commit- sion to the Board of Governors. The Board of Execu- tees are not empowered to make decisions for the tive Directors (the Board) also exercises an important entire Board. role in shaping Bank policy and its evolution. It is in In fiscal 2004 the Audit Committee revised its terms this role that the Board takes into account the evolving of reference, taking into consideration emerging best The World Bank Annual Report 2004 5 practices in the areas of governance and oversight as Strategic Framework well as the special status of the World Bank Group as The Board's work during fiscal 2004 focused on the a multilateral organization. The revised terms of refer- continued implementation of its Strategic Framework, ence are now the foundation for continued enhance- last reviewed and updated in fiscal 2002. Management ments in the governance and control framework within presented the Executive Directors with several papers the World Bank Group. The Budget Committee se- on the strategic directions for the Bank Group for the cured management's commitment to the Board's early fiscal 2004­06 period, including a medium-term strat- engagement in the Bank budget process and plans to egy and finance paper. The Board reviewed these papers work with management toward developing an integrat- and expressed strong support for the continued focus ed multiyear framework. CODE, as part of the Bank's on implementation and results toward attaining the simplification and harmonization efforts, discussed the MDGs, and on greater selectivity, trade-offs, redeploy- eligibility of expenditures in World Bank lending. ment, and efficiency gains. COGAM approved a new code of conduct for Board members and continued its discussion of Board effec- The Bank's Role in Poverty Reduction tiveness and the issue of voice and participation of de- The Board's agenda continued to emphasize the Bank's veloping and transition countries in the Bretton Woods role and contributions toward meeting the MDGs. This institutions. The Personnel Committee recommended, year, in addition to the first Global Monitoring Report, and the Board approved, an employment policy for a Directors also reviewed other papers including the more flexible work force. "Progress Report on Financing Modalities toward the Executive Directors and Alternate Executive Direc- MDGs" and "Supporting Sound Country Policies with tors periodically visit borrowing countries to review Adequate and Appropriate Financing: Implementing Bank assistance in progress. They meet a wide variety the Monterrey Consensus at the Country Level." The of people, including project managers, beneficiaries, Board reviewed a report on poverty reduction entitled and government officials, as well as representatives of "Poverty Reduction Strategy Papers: Progress in Imple- civil society organizations, the business community, mentation and Detailed Analysis of Progress in Imple- other development partners, financial institutions, and mentation." It also considered 12 Poverty Reduction resident Bank staff. During fiscal 2004 Directors visited Strategy Papers (PRSPs) and 20 PRSP Progress Bosnia and Herzegovina, Serbia and Montenegro, Reports. Kosovo, Vietnam, Lao People's Democratic Republic, On the related issue of debt reduction, the Board and Samoa. focused on the enhanced Heavily Indebted Poor Coun- Directors also play an active role in preparing the tries (HIPC) Initiative. In fiscal 2004 it considered 6 agenda and issues papers for the semiannual meetings HIPC completion point documents. (The completion of the joint World Bank and International Monetary point is the point at which all creditors provide, uncon- Fund (Bank-Fund) Development Committee. In fiscal ditionally, the remainder of their share of debt relief 2004 the Development Committee continued to ad- agreed on at the decision point, the point at which the dress the Bank's strategy for monitoring progress in international community agrees on the amount of debt fighting poverty and achieving the internationally relief a country needs and begins providing it. The agreed-upon goals of the Millennium Declaration. To- completion point is tied to implementation of key ward that end the Development Committee reviewed reforms and policies outlined in a country's PRSP.) The the first progress report, known as the Global Monitor- Board also considered a number of joint Bank-Fund ing Report, on achieving the Millennium Development papers on the HIPC Initiative, including the annual Goals (MDGs). (See chapter 4 of this volume and the HIPC progress report and papers on the HIPC sunset Development Committee Communiqués on the clause--the deadline for these countries to adopt pro- enclosed CD-ROM.) grams of adjustment and reforms, supported by IDA and the International Monetary Fund and leading to the decision point--and the topping-up framework, STRATEGIC ISSUES within which additional debt relief is provided at the The Board emphasized the following areas during the completion point in exceptional cases where exogenous fiscal year. factors have led to a fundamental change in a country's 6 The World Bank Annual Report 2004 economic situation. In addition, the Board considered sustainability in low-income countries. Other areas the new joint Bank-Fund work on long-term debt of collaboration included supporting anti-money- sustainability in low-income countries. laundering activities and combating the financing of terrorism, improving the international financial archi- Country Programs tecture, providing implementation updates on the PRSP Country Assistance Strategies (CASs) and the princi- and HIPC processes, and strengthening Bank-Fund ples underlying the Comprehensive Development country programs and conditionality. The Board also Framework and PRSPs remained the cornerstone of reviewed the progress of global programs and partner- Bank Group work at the country level. Directors ships and the development of a framework for moni- continued their call for a closer link between the CAS toring cooperation among multilateral institutions. and the PRSP process and for grounding CASs in a realistic, measurable, results-based framework that can OVERSIGHT AND FIDUCIARY RESPONSIBILITY be monitored. The Board reviewed 38 CASs, 6 of which are results-based, and CAS products during the fiscal The Board exercises oversight and fiduciary responsi- year. It emphasized the need for these strategies bility on behalf of its shareholders, in part through its to be more focused and selective by building on Audit Committee. The committee advises the Board on partnerships. The Board also stressed the need to a broad range of financial management and other gov- pay greater attention to implementation, capacity ernance issues with the goal of strengthening the over- building, and risks. all control environment and Board decision making on the Bank's financial policy and direction. Global Programs and Partnerships The Bank has continued to respond to demands for its ADMINISTRATIVE BUDGET involvement in and support of global partnerships and international initiatives with the International Mone- The total administrative budget for fiscal 2004 was tary Fund, other multilateral institutions, the United $1,865.2 million, net of reimbursements, and included Nations system, bilateral aid agencies, and civil society. $178.2 million for the Development Grant Facility. The The managements of both the Bank and the Fund de- net administrative budget of $1,438.3 million repre- cided to strengthen the Joint Implementation Commit- sented a 2.5 percent real increase over the fiscal 2003 tee, giving it a renewed mandate to address issues that budget (a 6 percent nominal increase). In June 2004 affect both middle- and low-income countries. Areas the Executive Directors approved a total administrative of collaboration include scaling up activities in support budget, net of reimbursements, of $2,000.3 million for of middle-income countries and increasing debt fiscal 2005. The World Bank Annual Report 2004 7 The World Bank Group The World Bank Group, The International Bank for The International Development Reconstruction and Development Association with a mission to fight Established 1945 184 Members Established 1960 165 Members Cumulative lending: $394 billion Cumulative commitments: $151 billion poverty and improve Fiscal 2004 lending: $11 billion for Fiscal 2004 commitments: $9 billion for 87 new operations in 33 countries 158 new operations in 62 countries living standards for people in the develop- ing world, is among the world's leading devel- opment institutions. It provides loans, policy advice, technical assis- tance, and knowledge- A comprehensive program to support the re- A villager harvests rice on the high plains of construction of Timor-Leste won the President's Madagascar. Because of widespread deforesta- sharing services. IBRD Award for Excellence in 2002. tion and consequent soil erosion, the country must now supplement its rice production with and IDA--together, the Asian imports. IBRD aims to reduce poverty in Contributions to IDA enable the "World Bank"--are middle-income and creditworthy World Bank to provide approxi- poorer countries by promoting mately $6 billion to $9 billion a year owned by member sustainable development through in highly concessional financing to loans, guarantees, and (nonlend- the world's 81 poorest countries countries that carry ing) analytical and advisory ser- (home to 2.5 billion people). IDA's vices. The income that IBRD interest-free credits and grants are ultimate decision- has generated over the years has vital because these countries have allowed it to fund several develop- little or no capacity to borrow on making power. The mental activities and to ensure its market terms. In most of these financial strength, which enables it countries, the great majority of World Bank Group to borrow in capital markets at low people live on less than $2 a day. cost and offer clients good borrow- IDA's resources help support today consists of five ing terms. IBRD's 24-member country-led poverty reduction Board is made up of 5 appointed strategies in key policy areas, in- closely associated and 19 elected Executive Directors, cluding raising productivity, pro- who represent its 184 member viding accountable governance, institutions. countries. improving the private investment climate, and improving access to education and health care for poor people. 8 The World Bank Annual Report 2004 The International Finance The Multilateral Investment The International Centre for Corporation Guarantee Agency Settlement of Investment Disputes Established 1956 176 Members Established 1988 164 Members Established 1966 140 Members Committed portfolio: $23.5 billion (in- Cumulative Guarantees1 Issued: Total cases registered: 159 cludes $5.5 billion in syndicated loans) $13.5 billion Fiscal 2004 cases registered: 30 Fiscal 2004 commitments: $4.8 billion Fiscal 2004 guarantees issued: for 217 projects in 65 countries $1.1 billion IFC invested in Asaka Bank in Uzbekistan to MIGA guaranteed a coffee processing facility in A third of ICSID's current cases involve projects make more term financing available to the Uganda, which introduced cost-effective pro- in the energy sector. private sector, including small and medium cessing techniques and buys the bulk of its enterprises. coffee from small-scale farmers. IFC promotes economic develop- MIGA helps promote foreign direct ICSID helps encourage foreign in- ment through the private sector. investment in developing countries vestment by providing internation- Working with business partners, it by providing guarantees to investors al facilities for conciliation and ar- invests in sustainable private enter- against noncommercial risks, such bitration of investment disputes, prises in developing countries with- as expropriation, currency incon- thereby helping foster an atmo- out accepting government guaran- vertibility and transfer restrictions, sphere of mutual confidence be- tees. It provides equity, long-term war and civil disturbance, and tween states and foreign investors. loans, structured finance and risk breach of contract. MIGA's capacity Many international agreements management products, and adviso- to serve as an objective intermedi- concerning investment refer to ry services to its clients. IFC seeks ary and to influence the resolution ICSID's arbitration facilities. ICSID to reach businesses in regions and of potential disputes enhances in- also issues publications on dispute countries that have limited access to vestors' confidence that they will be settlement and foreign investment capital. It provides finance in mar- protected against these risks. In ad- law. kets deemed too risky by commer- dition, MIGA provides technical as- cial investors in the absence of IFC sistance and advisory services to participation and adds value to the help countries attract and retain projects it finances through its cor- foreign investment and to dissemi- porate governance, environmental, nate information on investment op- and social expertise. portunities to the international business community. 1. Amounts include funds leveraged through the Cooperative Underwriting Program. The World Bank Annual Report 2004 9 First Annual Meeting of the Board of Governors of the IBRD and the IMF, September 27, 1946. President Eugene Meyer is pictured third from right. Mr. Eugene Meyer, first World Bank President, 1946. Mr. John J. McCloy, center, World Bank President, 1947­1949. Eugene Meyer (1946) 2 United Nations 5 Twenty-nine Inaugural meeting 4 44 Monetary and 4 governments sign 46 of the Boards of 19 Financial Conference Articles of Governors of the 19 19 draws up Bank Agreement in 19 World Bank and Articles of Agreement Washington, D.C. the International 40s19 at Bretton Woods; 44 Monetary Fund held countries represented. in March. The Development Agenda 1 Post-war industrial investment in France. Mr. John J. McCloy, Chairman, at an IBRD Meeting of Executive Directors, Washington D.C., May 1949 The World Bank loan to France financed post-war reconstruction. John J. McCloy (1947­1949) Eugene R. Black (1949­1963) 7 First loan made--$250 8 First development 9 The Bank's technical 4 million to France. 4 loan made--$13.5 4 assistance program million to Chile. begins. 19 19 19 FISCAL 2004 HIGHLIGHTS The Global Conference on Poverty Reduction endorsed by the World Health Organization. held in Shanghai, China, in May 2004 brought the (See chapter 3.) development community together to consider Slovenia "graduated" on March 17, 2004, from concrete actions to accelerate progress on the being a recipient of Bank financial and technical development agenda. One hundred case studies, assistance and expressed its intention to become undertaken for the conference, helped to identify an IDA donor in the 14th Replenishment. Slovenia: poverty solutions that work and that can be From Yugoslavia to the European Union was pub- applied around the world. (See chapter 1, box 1.1, lished by the Bank in April 2004. Slovenia and and chapter 5.) nine other World Bank member countries--Cyprus, IBRD approved 87 projects for $11 billion in fiscal the Czech Republic, Estonia, Hungary, Latvia, 2004 in 33 countries. IDA made commitments Lithuania, Malta, Poland, and the Slovak of $9 billion for 158 operations in 62 countries. Republic--joined the European Union in May 2004. (See chapter 5.) The Bank has loaned a total of $10.6 billion The 16th Annual Bank Conference on to these countries since 1990. (See chapter 2.) Development Economics (ABCDE) was held in The first Global Monitoring Report was published Washington, D.C., and Europe in May 2004. The in June 2004, produced jointly by Bank and IMF Washington, D.C., conference, on May 3 and 4, staff in close collaboration with partner agencies. featured keynote addresses by Nobel Laureate It assesses progress on the policies and actions by Vernon Smith and Bank Senior Vice President and developing countries, developed countries, and Chief Economist François Bourguignon. The theme development agencies to achieve the Millennium of the conference was "Lessons of Experience." Development Goals. (See chapter 4.) The Bank will publish the conference proceedings As part of its results action plan, the Bank devel- in fiscal 2005. At the ABCDE Europe conference, on oped and began to implement the Statistical May 10 and 11, some 350 policy makers, academics, Capacity Building Program to help developing journalists, and representatives of youth countries strengthen statistical systems, organizations and civil society organizations institutional capacity, and planning. discussed the theme "Doha, Monterrey, and In fiscal 2004 the Bank conducted a review of Johannesburg: Are We on Track?" its activities with middle-income countries and In April 2004 World Bank President James D. approved an action plan for enhancing services to Wolfensohn appeared before the United Nations those countries. Almost 70 percent of the world's Security Council in New York and called for a War poor people live in middle-income countries, on AIDS. He cited the devastation that AIDS has hence the need for a strong Bank role. Action on caused in developing countries, most notably in the plan began in fiscal 2004. (See chapter 1.) Africa, and warned that AIDS is turning the clock The Bank worked to simplify and modernize its back on development and undermining economic lending policies and procedures to make it easier and social hope. AIDS in Africa has already claimed for clients to borrow. It also worked with develop- 13 million African lives and orphaned 10 million ment partners to harmonize processes for the children. benefit of borrowing countries. (See chapter 4.) In April 2004 the Bank joined in partnership with In cooperation with the United Nations, the Bank the Global Fund to Fight AIDS, Tuberculosis and produced a Joint Iraq Needs Assessment, which Malaria; the United Nations Children's Fund; and identified Iraq's reconstruction and development the Clinton Foundation to make generic drugs requirements and estimated the financing needed available to people infected with HIV/AIDS in more for reconstruction. The two organizations made than 100 poor countries. The program will reduce provisions for trust funds to help donors channel the cost of drugs to about one-third to one-half their resources and coordinate support. the cost of the cheapest drugs available commer- (See chapter 5.) cially; diagnostic tests will cost about one-fifth The Bank's Post-Conflict Fund is now benefiting of the market price. The drugs have been 36 countries. It provided three grants to Iraq this 12 The World Bank Annual Report 2004 year for knowledge sharing in the areas of human Marketplace has awarded more than $24 million development, water, and power. Other countries in grants to some 370 projects receiving support include Côte d'Ivoire, Haiti, (www.developmentmarketplace.org). Liberia, and Somalia. The Fund has approved a On the eve of the Cancún trade talks in total of more than $61 million for grants for the September 2003, the Bank launched Global period 1998­2005. The Africa region is the largest Economic Prospects 2004: Realizing the beneficiary of the funds. (See chapter 3.) Development Promise of the Doha Agenda. It pre- The Bank created a new $25 million trust fund for sents a detailed overview of the world economy low-income countries under stress, which will tar- and an analysis of global trade issues, particularly get governance reforms and social services. (See those on the agenda for the Doha round of trade chapter 1.) negotiations. In February 2004 negotiations for the 14th Replen- At the Youth, Development, and Peace Conference ishment of IDA were launched when donor and in Paris in September 2003, President James D. borrower representatives met in Paris. Commit- Wolfensohn and Managing Director Mamphela ments to IDA14 will be especially important to Ramphele met with participants from youth orga- developing countries as they strive to reach the nizations worldwide, many of whom are active Millennium Development Goals by 2015. in development programs in their countries. (See chapter 5.) Mr. Wolfensohn assured them that the Bank is At the global Development Marketplace held ready to engage them more substantially in its in December 2003, 183 finalists from 65 coun- work. The conference was jointly organized by tries presented innovative proposals for solving the Bank, the European Youth Forum, and the development problems. Winning projects-- World Organization of the Scout Movement. groundbreaking ideas in the fight against (See chapter 3.) poverty--ranged from expanding health care World Bank President James D. Wolfensohn's outreach and medical supplies in Mozambique speech at the Annual Meetings in Dubai in to improving landfill management and conserving September 2003 pointed to the inequity and an endangered plant species in Brazil by recycling imbalance between rich and poor, which he said coconut husks. Since 1998 the Development was both unsustainable and a source of global instability. The speech challenged governments and organizations to scale up their efforts toward meeting the Millennium Development Goals. In July 2003 the Bank launched its Infrastructure Action Plan. The plan sets the stage for increased support for infrastructure service delivery through a balanced public sector­private sector approach and the mobilization of financing from multiple sources. (See chapter 3.) The Development Marketplace Global Competition was held December 3­4, 2003, in Washington, D.C. Chapter 1 The Development Agenda 13 Chapter 1 The Development Agenda THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (IBRD) AND THE INTERNATIONAL DEVELOPMENT ASSOCIATION (IDA) TOGETHER MAKE UP THE WORLD BANK, AN INTERNATIONAL FINANCIAL ORGANIZATION WHOSE MISSION IS TO FIGHT WORLD POVERTY. THE BANK HELPS CLIENT COUNTRIES ACHIEVE SUSTAINABLE DEVELOPMENT BY HARNESSING RESOURCES AND FORMING PARTNERSHIPS WITH OTHERS, INCLUDING DEVELOPMENT INSTITUTIONS AND CIVIL SOCIETY ORGANIZATIONS. Developing countries have made much progress in living in extreme poverty fell from just under 40 per- recent decades. Globally, life expectancy at birth has cent in 1981 to 21 percent in 2001. In countries that risen by 20 years over the past 40 years, and adult have laid good foundations for growth, indicators of illiteracy has been cut in half over the past 30 years. social development are improving. Strong health pro- Poverty rates have fallen: the proportion of people grams in Brazil, Thailand, and Uganda are controlling the spread of HIV/AIDS (human immunodeficiency ERADICATE EXTREME POVERTY AND HUNGER virus/acquired immune deficiency syndrome), and Thailand has reduced the number of new infections from 140,000 a year in the early 1990s to 30,000 in 2001. The success stories of many developing countries prove that progress is possible when countries have good policies and the support of partners. But progress has been un- even. Slow growth, low educational achievement, civil disturbances, and poor health remain obstacles for many countries. At the end of 2003, some 38 million adults and children were living with HIV/AIDS--more than 95 percent of them in developing countries and 70 percent of them in Africa. Almost a million new cases emerged in South and East Asia, where more than 7 million people now live with the disease. To accelerate the development agenda, the global community embraced the Millennium Development Goals (MDGs), eight common goals that identify clear targets for eradicating poverty and other sources of human deprivation and for promoting sustainable development by 2015. In September 2000, 189 coun- tries signed the Millennium Declaration. The agenda is unfinished, and the challenge is immense. Some 2.8 billion people--more than half of the population in developing countries--still live on less than $2 a day, and 1.1 billion of these people live on less than $1 a day. The task of helping these people 14 The World Bank Annual Report 2004 ACHIEVE UNIVERSAL PRIMARY EDUCATION The Millennium Development Goals 1 Eradicate extreme poverty and hunger Halve the number of people in extreme poverty, and the number of people who suffer from hunger, by 2015 2 Achieve universal primary education Ensure by 2015 that all children will be able to complete a full course of primary schooling 3 Promote gender equality and empower women Eliminate gender disparity in primary and move from poverty to prosperity while the world's secondary education by 2005, and in all levels population continues to grow is enormous. (Figure 1.1 of education by 2015 4 shows poverty rates by region since 1990.) Reduce child mortality Reduce by two-thirds the under-five mortality MONITORING PROGRESS rate by 2015 5 With broad agreement on the goals, the international Improve maternal health community forged a shared development strategy Reduce by three-quarters the maternal at meetings in Doha, Monterrey, and Johannesburg, mortality rate by 2015 where trade, financing for development, and sus- 6 tainable development were discussed. In Monterrey Combat HIV/AIDS, malaria, and other diseases world leaders formed a consensus on mutual Halt the spread of HIV/AIDS, malaria, and other responsibilities: developing countries are called upon major diseases, and begin to reverse the to improve policies and governance, and developed spread, by 2015 countries are called upon to step up support by 7 providing more and better aid and more open access Ensure environmental sustainability to their markets. Halve the proportion of people without The first Global Monitoring Report, published in sustainable access to safe drinking water June 2004, looks at the progress made toward the by 2015 MDGs, the constraints blocking action, and how all 8 parties are doing in delivering on their commitments. Develop a global partnership for development The report, produced jointly by the staffs of the World Further develop an open, rule-based, Bank and the International Monetary Fund (IMF) in predictable, nondiscriminatory trading and close collaboration with partner agencies, assesses the financial system policies and actions needed to attain the MDGs and related outcomes. Its findings present the sobering as- sessment that, while the first goal of halving poverty will likely be met globally, given current trends, most countries will not meet most of the goals. A significant and immediate increase in resources and concentrated effort by all parties is needed to avoid falling far short of the goals. (See "Global Monitoring of Policies and Actions toward the MDGs" in chapter 4.) Chapter 1 The Development Agenda 15 No country truly committed to poverty reduction the quantity and quality of development assistance and to meeting the MDGs should be denied the chance to countries with sound policies to help them of achieving these goals because of lack of resources. accelerate their progress toward the MDGs. (See Yet that is what is happening. Development assistance figure 1.2.) has risen since the meeting in Monterrey, where donors It is clear that the goals remain a great challenge and pledged additional support, but the increase largely that hard work lies ahead for the entire international reflects debt relief and technical cooperation grants. community. The Bank is deeply committed to respond- By all estimates, there is a gap between the amounts ing to the challenge and playing the important role pledged and the amount necessary to achieve the expected of it in the new global architecture for MDGs. It is critical--and urgent--to increase development. Figure 1.1 Population Living below $1 and $2 a Day | percent Africa East Asia and Pacific 50 44.6 50 42.3 46.5 29.6 25 22.3 25 14.8 15.6 2.3 0 0 1990 2001 2015 1990 2001 2015 South Asia Europe and Central Asia 50 50 41.3 31.1 25 20.6 25 19.7 12.3 10.3 16.4 3.7 0.5 1.3 0 0 0.3 1990 2001 2015 1990 2001 2015 Latin America and the Caribbean Middle East and North Africa 50 50 28.4 24.5 23.2 25 20.5 25 21.4 11.3 9.5 10.2 7.6 2.3 2.4 1.2 5.6 0 0 1.2 1990 2001 2015 1990 2001 2015 Actual $1-a-day poverty rate Projected path ($1 a day) Actual $2-a-day poverty rate Projected path ($2 a day) Path to $1-a-day goal Note: The graphs for Africa, East Asia and Pacific, and South Asia do not include figures for $2 a day. Source: World Bank. 2004. World Development Indicators 2004. Washington, D.C. 16 The World Bank Annual Report 2004 REDUCING POVERTY BOX 1.1 SHARING DEVELOPMENT EXPERIENCES The most effective development strategy is one that is More than 1,000 people from the international country owned and country led, promotes economic community met in China in May 2004 for a unique growth, and ensures that poor people participate in forum on poverty reduction. The Shanghai Confer- and benefit from their country's development. Reduc- ence on Poverty Reduction, and the nine-month ing poverty effectively depends on many factors. learning process that preceded it, provided an op- Foremost among these are a conducive development portunity for participants to identify development climate and the participation of all people in their successes and failures and to jointly explore ways to country's development. (See box 1.1.) These two pillars build on success. form the basis of the Bank's strategy, set forth in the Participants from developing and developed Strategic Framework in 2001. countries, including heads of state and representa- tives from civil society and the private sector, dis- Building the Climate for Investment, Jobs, cussed some 100 case studies of poverty reduction and Sustainable Growth projects. They identified development solutions Entrepreneurship, investment, and innovation by the that work, that endure, and that can be applied private sector drive economic growth, but they will around the world to meet the Millennium Develop- not occur without the right environment. A good ment Goals. The conference made it clear that the economic climate spurs domestic economic activity global community has the knowledge and re- and attracts domestic and foreign investment. Such a sources to meet the goals, but that redoubled climate can be identified by its positive characteristics: action is needed to deliver better lives for the sound macroeconomic policies, openness to trade, world's poor. good governance and institutions, strong financial As the review of the Millennium Summit in markets that channel savings to productive uses and 2005 approaches, and with only a decade left until broaden access to finance, and the availability of key the target date of 2015, moving forward with the physical infrastructure (transportation, power, and lessons learned in Shanghai is essential. (See also telecommunications). Since 1999 many countries have "Capacity Enhancement" in chapter 5.) improved their private business environments, accord- ing to evidence from Country Policy and Institutional Assessments conducted by the Bank using a number of indicators rated on a scale of one to six. (See figure 1.3.) Average ratings for business environment are rising but are still relatively low, showing continued weakness. Figure 1.3 Countries Are Improving Their Private Business Environment | scale of 1 to 6 Figure 1.2 Aid Is Rising but Is Well Short of What Is 3.7 Needed | billions of dollars 3.5 120 3.3 110 Additional $50 billion 0.35 percent of donors` projected 3.1 100 GNI in the latter half of the 2000s, roughly the same as in the early 1990s. 2.9 90 80 2.7 Sept. 2003 Development 70 Committee Paper 2.5 $30 billion 60 2.3 $18.6 billion 1999 2000 2001 2002 2003 50 Monterrey commitments Competitive environment Factor and product 40 (low income) markets (all) 1990 1992 1994 1996 1998 2000 2002 2004 2006 Competitive environment Property rights and Note: GNI gross national income. (all) governance (low income) Source: Organisation for Economic Co-operation and Development. 2004. Factor and product Property rights and Development Cooperation Report 2003. Paris. Development Committee. 2003. markets (low income) governance (all) "Supporting Sound Policies with Adequate and Appropriate Financing." DC 2003­0016. Washington, D.C. Source: World Bank Country Policy and Institutional Assessment ratings, 2003. Chapter 1 The Development Agenda 17 The Bank has also launched more than 50 investment REDUCE CHILD MORTALITY climate surveys. (See "Supporting Private Sector Development" in chapter 3.) Investing in Poor People and Empowering Them to Participate in Development The capabilities of poor people can be increased by widening their access to key services and by fostering social inclusion. Better access to quality education and health care expands opportunities for poor people to improve their own well-being. Access to social protec- tion is also important--well-targeted safety nets pro- tect poor and vulnerable people from the unforeseen shocks and dislocations that accompany necessary re- forms. To be effective, the strategy must also include mechanisms that foster poor people's participation in decisions that affect them. Cutting across this agenda is the empowerment of women, achieved by removing barriers to their fuller participation in the development approaches are developed for low-income countries, process. Data gathered since 1993 show that citizens low-income countries under stress (LICUS), and are increasingly participating in processes that can middle-income countries. influence policy making and hold their leaders accountable. (See figure 1.4.) Country Assistance Strategies The CAS is based on a country's own vision for devel- opment. It contains a diagnosis of proposed policies ACTING ON COUNTRY PRIORITIES and outlines the Bank's program to support the vision. The Country Assistance Strategy (CAS) is the business Oriented toward results, the strategy is prepared in plan that guides Bank activities in a client country. The consultation with country authorities, development Bank tailors its strategy to the country's needs. Various partners, civil society organizations, and other stake- holders. It is the central tool used by the Bank's man- agement and Board of Executive Directors to review PROMOTE GENDER EQUALITY AND EMPOWER WOMEN Figure 1.4 Participatory Processes Are Improving in Developing Countries | percent 80 70 60 50 40 30 20 10 1993 1994 1995 1996 1997 1998 1999 2000 Middle-income countries Low-income countries under stress Low-income countries Note: Values denote percentage of country chief executives elected in multiparty elections with less than 75 percent of the vote. Source: Beck and others. 2000. "New Tools and New Tests in Comparative Political Economy. " Policy Research Working Paper 2283. World Bank, Washington, D.C. 18 The World Bank Annual Report 2004 Armenia, Brazil, Cameroon, Mozambique, Ukraine, IMPROVE MATERNAL HEALTH and Zambia--in fiscal 2004. Each pilot drew lessons from the completion report for the previous CAS, which evaluated the extent to which results had been achieved. (The Bank's Operations Evaluation Department reviews these completion reports. See chapter 4.) Low-Income Countries Reducing poverty is particularly difficult in low- income countries, where the incidence of poverty is high, the institutional constraints are severe, the investment climate may not be conducive to sustain- able growth, and access to resources is limited. A key tool in the Bank's support for low-income countries is the Poverty Reduction Strategy Paper (PRSP), introduced at the end of calendar 1999. PRSPs are country-authored, results-oriented, comprehensive and guide the Bank's country programs, and it is a plans based on broad consultation with internal and vehicle for gauging the impact of the Bank's work. external partners and stakeholders. Intended to serve as During fiscal 2004 the Bank aligned Country the framework for domestic policies and cross-sectoral Assistance Strategies and Progress Reports for IDA- borrowing members with country-owned poverty reduction strategies in Armenia, Benin, Bolivia, COMBAT HIV/AIDS, MALARIA, AND OTHER Cameroon, Chad, Ghana, Kenya, Madagascar, Mali, DISEASES Mongolia, Mozambique, Pakistan, Vietnam, and Zambia. It also prepared Country Assistance Strategies and Progress Reports for several IBRD- and blend- borrowing countries, including Argentina, Brazil, Costa Rica, the Dominican Republic, Indonesia, the former Yugoslav Republic of Macedonia, Mexico, Nigeria, Paraguay, the Slovak Republic, Tunisia, Turkey, and Ukraine. In fiscal 2004 the Board discussed six Transitional Support Strategies (TSS) for postconflict settings, in- cluding the Democratic Republic of Congo, the Repub- lic of Congo, Kosovo, Serbia and Montenegro, and the West Bank and Gaza, and a TSS update for Comoros. It also prepared an Interim Strategy Note for Iraq. As part of its work to engage low-income countries under stress, the Bank prepared Country Re-engagement Notes for Liberia and Sudan. In fiscal 2004, 15 Country Assistance Strategies and CAS Progress Reports were prepared jointly with IFC. All of the 38 fiscal 2004 CAS documents have been or are in the process of being disclosed to the public. The Bank is paying particular attention to improv- ing the results orientation of Country Assistance Strategies. Following the first pilot CAS based on a results framework--for Sri Lanka, in fiscal 2003--the Board discussed six additional pilot strategies--for Chapter 1 The Development Agenda 19 PRSP-based IDA assistance to low-income countries ENSURE ENVIRONMENTAL SUSTAINABILITY includes Poverty Reduction Support Credits, which support country-owned poverty-reduction priorities. These credits focus on building government capacity and institutions, particularly capacity and institutions that serve poor people. This fiscal year the Bank's Board of Executive Directors approved nine such credits for eight countries. A new PRSP-linked results measurement system has been proposed for use during the 14th Replenishment of IDA (IDA14, fiscal years 2006­08). It will measure results in terms of both aggregate country outcomes and IDA's contribution to country outcomes. The new measurement system is designed to reflect the priorities of national poverty reduction strategies, to be linked to the MDGs, to show aggregated results in IDA coun- tries, and to assess IDA's contribution to development results. The IDA14 replenishment will be a key instrument in helping low-income countries meet the MDGs. Since IDA funds typically disburse over a period of about 8 years, the IDA14 funds will be an important factor as the year 2015 approaches. (See also "IDA Resources" in chapter 5.) Low-Income Countries under Stress Low-income countries under stress are the world's most fragile states, characterized by weak policies, in- stitutions, and governance and often by internal con- flict. Child mortality in these countries is twice as high programs that reduce poverty, they are the basis for as in other low-income countries, and the death rate development aid, including IDA financing. During the from malaria is three times as high. Some 500 million process of developing the strategy papers, countries of the world's poorest people live in these countries, identify their special circumstances and needs. The Bank plays an active role in helping clients strengthen the role of stakeholders in this process. (See "Reducing Poverty and Improving Economic Management" in DEVELOP A GLOBAL PARTNERSHIP FOR chapter 3.) The Bank also encourages countries to inte- DEVELOPMENT grate the Millennium Development Goals into their strategy papers, considering the cross-sectoral actions needed to achieve the goals. This approach will help ensure that country strategies address the trade-offs inherent in achieving the MDGs. The PRSP process can be complex and time con- suming. To ensure that it does not prevent IDA conces- sional lending or Heavily Indebted Poor Countries (HIPC) debt relief from reaching low-income coun- tries, the Bank introduced interim Poverty Reduction Strategy Papers. These PRSPs use a simpler format, and can thus be prepared more quickly, than full PRSPs. 20 The World Bank Annual Report 2004 Institutional Assessment and the Post-Conflict Progress Indicators. In fiscal 2004 the Bank increased staffing resources for work on these countries and created a $25 million trust fund. The fund, which will focus on countries that lack access to regular IDA financing, is helping these countries implement early reforms. Donor partnerships are critical to success in low- income countries under stress. The Bank has developed a new tool--the transitional results framework--to foster an integrated approach that includes peace building and support for economic, social, and institu- tional recovery in postconflict situations. Joint efforts are under way with the United Nations and bilateral donors to use this approach in the Central African Republic, Haiti, Liberia, and Timor-Leste. The Bank and other donors have also supported the establishment of a learning and advisory group within the Organisation for Economic Co-operation and Development (OECD) Development Assistance Committee. The new group is undertaking a strong program of policy research on aid allocation, delivery mechanisms, and donor coordination issues in these countries. Middle-Income Countries Despite numerous advances, poverty and social chal- lenges still exist in many middle-income countries, where hundreds of millions of poor people live. These which often lack the capacity to use finance effectively countries face many development hurdles: promoting to reduce poverty. The LICUS Initiative is a new approach to engage- ment in these countries. It anchors its strategies in strong political and economic analysis, promoting do- mestic demand and capacity for change, supporting simple entry-level reforms, and strengthening social service delivery mechanisms. Since the initiative was launched in 2002, the Bank's Board has discussed 7 LICUS country strategies, and 13 LICUS teams have started to develop innovative country approaches. These approaches include activi- ties that improve transparency in the management of oil revenue in Angola, support the provision of basic public goods in Somalia, and build leadership capacity in Sudan. Analytical services to these countries in- creased, with in-country missions undertaken in all the countries currently in arrears on their outstanding loans. The Bank is also improving its ability to measure country performance at the bottom of the perfor- mance spectrum by revising its Country Policy and Chapter 1 The Development Agenda 21 high and sustained growth in order to provide produc- plan are to reestablish the Bank as the partner of choice tive employment, reducing poverty while reducing in development knowledge and finance for middle- inequality, reducing the volatility of access to private income countries, and to play a more proactive role in financial markets while developing safety nets to cush- working with other partners to support development ion the impact of volatility, and strengthening the insti- and reduce poverty. Implementation will continue in tutional and governance structures that underpin fiscal 2005. viable market-based economies. Supporting progress Activities include strengthening partnerships with in these areas enables the Bank to significantly increase bilateral donors, improving the quality and timeliness its contribution to the global development agenda, of the Bank's knowledge services and response to particularly the MDGs. clients by removing a number of internal Bank The Bank helps middle-income countries through obstacles, building increased flexibility into Country a combination of knowledge, lending, and financial Assistance Strategies that will enable staff to respond to services tailored to each country's specific needs and new lending opportunities, developing and promoting circumstances. The Bank is attempting to increase the new financial products such as local currency lending, value of services to middle-income countries by ensur- and working with IFC and MIGA to better exploit po- ing that its Country Assistance Strategies better re- tential synergies, particularly in supporting investment spond to their diverse needs and that countries can in infrastructure and other sectors through public- take advantage of the increased flexibility of the Bank's private partnerships. financial offerings. By supporting policy and institu- tional reforms, the Bank also plays a catalytic role in WORKING WITH PARTNERS attracting private sector investment as well as support from other development partners. The Bank's policy is to operate jointly with partners In fiscal 2004 the Bank conducted a review of its when addressing major development issues in both work with middle-income countries, recognizing that global and country program activities. It works closely it may have missed significant opportunities to support with the IMF, other multilateral development banks, their growth and poverty reduction efforts. (See governments, the United Nations and its agencies, "Innovations in Lending" in chapter 5.) It approved OECD's Development Assistance Committee, bilateral and began to implement an action plan for enhancing donors, the World Trade Organization, and civil society services to middle-income countries. The goals of the organizations. 22 The World Bank Annual Report 2004 As a global development institution with broad coverage of countries and issues, the Bank often plays a global strategic role in providing what more specialized agencies cannot because of their smaller size or narrower mandate. In carrying out its partner- ship activities, the Bank plays different roles--leader, follower, adviser, helper, and so on--depending on the need. At the global level, the Bank is working closely with its development partners to improve aid coordination by integrating poverty reduction efforts. (See "Simpli- fying and Harmonizing Policies and Procedures" in chapter 4.) In countries, the Bank is committed to strengthen- ing its emphasis on effective development results. A new poverty report and booklet--both entitled Part- nerships in Development: Progress in the Fight against Poverty, 2004--highlight this focus. The report aims to provide a more comprehensive assessment of how the Bank works with other organizations to help countries achieve the vision of poverty reduction embodied in the MDGs and the Monterrey Consensus. Using country examples, the publications highlight the broad security in Bolivia, Columbia, India, Latvia, Uganda, range of activities the Bank pursues to promote growth and Vietnam. A spotlight on Niger shows one way and reduce poverty in its multiple dimensions. in which the Bank is working more closely with its Partnerships in Development shows how the Bank partners to achieve better development results. The is helping clients develop broadly supported poverty booklet is available on the Bank's Web site, at reduction strategies in Egypt, Ethiopia, and Sierra www.worldbank.org/progress; the report is Leone. It describes how the Bank is addressing specific available at www.worldbank.org/poverty. problems related to the lack of opportunity, voice, and SHARING INFORMATION The Bank's Public Information Centers disseminate development-related information and documentation on World Bank operations and research to the public. The goal is to encourage dialogue, to enable people to make informed decisions on matters that affect their livelihood, and to encourage them to participate in their country's development. These centers facilitate the production of documents in local languages, and they develop and maintain Web sites in local languages. Through public lectures, seminars, workshops, and Web casts, the Bank and partner institutions worldwide make information on economic and social develop- ment widely available. Public Information Centers operate in about 70 capital cities, with more than 60 satellite centers in some 80 countries. By 2005 centers will be located in every country in which the World Bank operates. Chapter 1 The Development Agenda 23 Mr. Eugene R. Black, World Bank President 1949­1963. Annual Meetings, 1959. Pictured from left: World Bank President Eugene R. Black, IFC President Robert L. Garner, U.S. President Dwight D. Eisenhower. World Bank President Eugene R. Black with Haile Selassie, Emperor of Ethiopia. In 1952 the Bank made a loan to KLM Royal Dutch Airlines to replace part of its air fleet. Eugene R. Black (1949­1963) 1 First loan made to a First loan with joint 2 3 First loan to Japan, national development placement by a totaling $40.2 1950 bank--$2 million to 195 private lender-- million, approved. 195 195 the Ethiopian $50 million in Bank Development Bank. loans to South Africa plus $30 Bank lending reaches million from eight the one billion U.S. commercial dollar mark. banks. First loans completely repaid--$5 million by Finland and 1950s Yugoslavia. Sweden signs IBRD Articles of Agreement as 50th member of the Bank. Regional Perspectives 2 A steam locomotive being serviced at Ebute Mette workshops in Lagos, part of a 1958 railway construction project in Nigeria. World Bank President Eugene R. Black with Indian Prime Minister Jawaharlal Nehru. A railway station at Tambo, in the High Sierras of the Andes, part of a 1957 The Yanhee Dam across the Ping railway construction project in Peru. River, part of a 1957 hydroelectric power project in Thailand. Bank lending 5 International Finance 7 9 reaches the two Corporation (IFC) is billion dollar mark. established as affili- 1954 195 1956 195 195 ate of Bank, with authorized capital of $100 million and 31 member countries. First Country Office opens, in Karachi, Pakistan. Economic Develop- ment Institute (future World Bank Institute) opens. World Bank Regions, Country Offices, and Borrower Eligibility The World Bank today operates out of more than 100 offices worldwide. Increased presence in client countries is helping the Bank to better understand, work more closely with, and provide faster service to clients. Three-fourths of outstanding loans are managed by country directors located away from the Bank's Washington, D.C., headquarters. Over thirty percent of staff are now based in country offices. Chapter 2 Regional Perspectives 27 Countries Eligible for World Bank Borrowing: Angola Benin Botswana Burkina Faso Africa Claim the 21st Century? The Bank also chairs the Burundi Strategic Partnership for Africa. It participated as a Cameroon Cape Verde Several African countries have made remarkable co-organizer in the third Tokyo International Con- Central African progress in recent years. But the challenges the con- ference on African Development, held in September Republic Chad tinent must address to meet the Millennium Devel- 2003. The landmark session marked the 10th anni- Comoros opment Goals remain immense. Africa is home to versary of the conference and was aimed at ensuring Congo, Democratic 32 of the 48 poorest countries in the world, and the that regional priorities are fully addressed in Republic of proportion of poor people on the continent is harmony with the approach of NEPAD. Congo, Republic of growing. As of June 2004 the Bank was funding 334 Côte d'Ivoire In many respects Africa remains at the margins projects in Africa, with a net commitment of Equatorial of globalization. Its share of world exports dropped Guinea Eritrea from more than 3.5 percent in 1970 to about Ethiopia 1.4 percent by the end of 2002, a decline that Gabon The Gambia represents an income loss of $160 billion annually. BOX 2.1 FIGHTING THE HIV/AIDS PANDEMIC Ghana Despite being home to 11 percent of the world's IN AFRICA Guinea Guinea-Bissau population, Africa accounts for only about 1 percent Kenya of global gross domestic product (GDP), receives Africa remains the region most affected by the Lesotho Liberia 0.6 percent of the world's total foreign direct invest- HIV/AIDS pandemic. In 2003 an estimated 25 mil- Madagascar ment, and accounts for just 1 percent of the world's lion people in the region were living with HIV, Malawi Internet subscribers. With the African population including 3 million who became infected in Mali Mauritania growing at an average rate of 3 percent a year, GDP 2003. AIDS killed approximately 2.2 million Mauritius growth of 5 percent is needed just to keep the num- Africans the same year. Mozambique Namibia ber of poor people from rising. But many factors, Since late 2000 the Bank has provided more Niger including the HIV/AIDS pandemic, stand in the than $1 billion to 28 countries and two subre- Nigeria Rwanda way of achieving this level of economic growth. gional projects through its Multi-Country São Tomé and (See box 2.1.) HIV/AIDS Program (MAP) for Africa. More than Principe Senegal The World Bank is the largest provider of devel- 27,000 subprojects from civil society organiza- Seychelles opment assistance to Africa, where it supports tions and communities have received grants for Sierra Leone projects that contribute to economic growth and to HIV/AIDS. Over $80 million has been allocated Somalia South Africa meeting the Millennium Development Goals. Its for various capacity enhancement activities, and Sudan strategic objectives in the region are in line with pri- about $150 million has been committed to pub- Swaziland Tanzania orities identified by African governments through lic health agencies. In June 2004 the Bank ap- Togo the Poverty Reduction Strategy Paper process. The proved a $60 million Treatment Acceleration Uganda Zambia Bank's work in Africa is based on partnerships with Program. Its pilot phase will, from September Zimbabwe African countries and builds on the vision of 2004, provide grants for innovative public, African leaders as articulated in the New Partner- private, and civil society partnerships in HIV/ ship for Africa's Development (NEPAD). It is an- AIDS treatment in Burkina Faso, Ghana, and chored in the Strategic Framework for Assistance to Mozambique. Africa and the findings of the study Can Africa 28 The World Bank Annual Report 2004 Africa Fast Facts Total population | billion: 0.7 Population growth | percent: 2.1 Life expectancy at birth | years: 46 $16.6 billion, or 41 percent of IDA commitments Infant mortality per 1,000 births: 103 worldwide. The medium- to long-term objective is Female youth literacy | percent: 77 to direct 50 percent of all new IDA commitments 2003 GNI per capita | dollars: 490 to Africa. During fiscal 2004, 45 percent of new Number of people living with HIV/AIDS | million: 25.2 IDA commitments went to Africa. Note: Life expectancy at birth and infant mortality rate per 1,000 live births are for 2002; female youth literacy is for the most recent year available, 2002; other indicators are for 2003; from the World Development Indicators Database. BUILDING THE CLIMATE FOR INVESTMENT The term gross national income (GNI) is now used instead of gross national product (GNP). To sustain growth and eventually achieve economies of scale, African countries must reach regional and Total FY04 Total FY04 world markets. But growth is held back by the trade Commitments Disbursements barriers and subsidies in the countries of the Organisa- IBRD $0 million IBRD $42.8 million tion for Economic Co-operation and Development IDA $4,115.9 million IDA $3,292.5 million (OECD). Africa's greatest comparative advantage is in agriculture, but the $325 billion in annual subsidies to Portfolio of projects under implementation as of June 30, agriculture in OECD countries make it difficult for 2004: $16.6 billion Africa to compete. These subsidies--equivalent to the combined GDP of all African countries--cost West African cotton producers about $250 million a year. The Bank is promoting several initiatives that seek to sustain growth and diversify the African economy. It is supporting policy and institutional reforms to im- prove the investment climate and make Africa a good business destination. It has worked with regional insti- tutions to formulate regional integration strategies that promote the liberalization of intraregional trade, the harmonization of macroeconomic policies, capacity building for regional institutions, the growth of capital markets, and the building of regional infrastructure, including transportation corridors. The demands are enormous: Africa's infrastructure needs alone are estimated at about $18 billion a year. FOSTERING PARTICIPATION IN DEVELOPMENT One key to reducing poverty is investing in people-- by improving access to education and health services c. 1960. A World Bank loan to Kenya helped settlers create individually owned small holdings to replace tribal systems of cultivation. and providing other social interventions that benefit vulnerable groups. The Bank is funding 37 education projects in The Bank also has increased its commitment to Africa, totaling $1.5 million. Many of these projects protecting human capital by supporting the reform support countries' efforts to attain universal primary of pension programs and skills training for men and education, for girls as well as boys, by 2015. Some of women in the African labor force. the projects seek to improve access to secondary and tertiary education. More progress must be made to IMPROVING GOVERNANCE AND raise the level of secondary school enrollment in RESOLVING CONFLICT Africa from barely 25 percent of the age group to the 60 percent level achieved in developing countries Civil wars lower per capita GDP by 2.2 percent a year, generally. on average, and divert scarce development resources Chapter 2 Regional Perspectives 29 Umm Bedda Water Supply, Omdurman, Sudan. PROVIDING DEBT RELIEF AND DEVELOPMENT ASSISTANCE to defense and security spending. Reducing conflict is thus consistent with the Bank's goal of increasing The Bank increased debt relief in fiscal 2004 and growth and alleviating poverty. During fiscal 2004 the encouraged policy makers to invest the freed-up Bank increased support to African countries emerging funds in poverty reduction programs, including or recovering from conflict, a group that includes 8 of programs to combat HIV/AIDS. One more African the 10 poorest African countries. country reached the decision point (the point at which The Bank is engaged in 44 projects in 7 postconflict the amount of debt relief is determined and interim countries. These countries received $490 million in debt relief begins) in fiscal 2004, and three others grants from the Post-Conflict Fund. Bank-supported reached the completion point (the point at which projects in this area address the profound political donor countries provide all of the remaining debt and economic development failures that trigger such relief promised at the decision point). Through the conflicts. They also aim to improve the management Heavily Indebted Poor Countries Initiative, these of revenue from resources such as oil and diamonds, countries will receive total debt relief with a net which often fund African conflicts. The Bank is present value of almost $4 billion. This relief is addressing conflict prevention while tackling the expected to reduce the ratio of debt service to GDP in challenges of postconflict reconstruction and peace these countries from 3.4 percent in 1998 to 1.7 percent consolidation. during 2004. 30 The World Bank Annual Report 2004 Table 2.1 World Bank Lending to Borrowers in Africa, by Theme and Sector, Fiscal 1995­2004 | millions of dollars 1995­97 1998­99 (annual (annual average) average) 2000 2001 2002 2003 2004 THEME Economic Management 134.4 165.0 78.2 138.5 138.7 37.8 67.8 Environmental and Natural Resource Management 272.9 156.0 172.4 110.0 159.9 227.0 195.3 Financial and Private Sector Development 543.4 509.0 466.7 625.8 780.7 383.6 810.9 Human Development 216.6 267.7 208.5 399.4 739.0 811.4 618.2 Public Sector Governance 270.7 291.7 495.3 429.6 851.9 432.4 818.5 Rule of Law 40.1 21.0 26.7 34.0 22.5 34.5 28.3 Rural Development 189.2 393.6 151.8 296.3 329.2 384.1 360.7 Social Development, Gender, and Inclusion 153.4 167.6 210.5 491.8 347.4 420.0 374.3 Social Protection and Risk Management 77.8 117.2 140.5 376.4 98.3 543.7 209.2 Trade and Integration 152.0 120.5 53.7 261.5 46.4 37.2 371.5 Urban Development 201.1 253.8 154.9 206.1 279.6 425.5 261.2 Theme Total 2,251.5 2,463.2 2,159.1 3,369.6 3,793.5 3,737.2 4,115.9 SECTOR Agriculture, Fishing, and Forestry 157.2 170.0 111.5 212.0 210.4 303.4 268.5 Education 161.6 304.4 189.8 209.5 472.6 423.6 362.9 Energy and Mining 209.5 244.0 176.3 198.0 490.3 324.4 365.8 Finance 125.6 48.8 118.4 200.1 192.8 67.2 165.8 Health and Other Social Services 263.7 273.6 183.1 889.9 616.6 775.9 723.1 Industry and Trade 334.7 94.3 104.7 170.6 266.7 92.7 95.4 Information and Communication 6.9 36.7 17.3 21.1 33.8 41.4 52.9 Law and Justice and Public Administration 542.0 615.8 838.2 880.8 906.9 721.8 1,004.1 Transportation 266.8 533.5 263.9 229.8 491.1 690.5 716.6 Water, Sanitation, and Flood Protection 183.6 142.0 155.9 357.8 112.2 296.3 360.8 Sector Total 2,251.5 2,463.2 2,159.1 3,369.6 3,793.5 3,737.2 4,115.9 Of which IBRD 45.6 31.2 97.7 0.0 41.8 15.0 0.0 Of which IDA 2,206.0 2,432.0 2,061.4 3,369.6 3,751.6 3,722.2 4,115.9 Note: Due to a recalculation of allocations by the system, lending by theme figures may differ from those in the 2003 Annual Report. For the Law and Justice and Public Administration sector, changes in figures reflect the retroactive remapping of projects to a new Compulsory Health Finance sector code under this category. For the Finance sector, changes in figures reflect the retroactive remapping of projects to a new Compulsory Health Finance sector code under Law and Justice and Public Administration. Numbers may not add to totals because of rounding. Figure 2.1 Africa: IBRD and IDA Lending by Theme, Fiscal Figure 2.2 Africa: IBRD and IDA Lending by Sector, Fiscal 2004 | share of total of $4.1 billion 2004 | share of total of $4.1 billion Urban Development 6% Economic Management 2% Water, Sanitation & Agriculture, Fishing & Flood Protection 9% Forestry 7% Trade & Integration 9% Environmental & Natural Resource Education 9% Social Protection & Management Risk Management 5% Transportation 5% 17% Energy & Financial & Mining 9% Social Private Sector Development, Development Finance 4% Gender & 19% Inclusion 9% Human Law & Justice & Rural Development Public Administration Health & Other Development 9% 15% 24% Social Services 18% Information & Public Sector Communication 1% Industry & Trade 2% Rule of Law 1% Governance 20% Chapter 2 Regional Perspectives 31 Countries Eligible for World Bank Borrowing: Cambodia China Fiji Indonesia East Asia and Pacific WORLD BANK ASSISTANCE Kiribati Korea, Republic of The increasingly integrated economies of the East To assist this diverse region, the World Bank has tai- Lao People's Asia and Pacific region are growing at a solid pace, lored its approaches to country circumstances while Democratic Republic which is improving economic opportunities for the working toward a set of five regional objectives: Malaysia region's 1.9 billion people. Marshall Islands Micronesia, Fueled by growing exports, low interest rates, Achievinghighratesof growth Federated and high investment in China, Thailand, and Improvingglobalandintraregionalintegration States of Mongolia Vietnam, East Asia's economy is expected to grow Enhancingsocialstability Myanmar by more than 7 percent in 2004--the strongest Reducingpoverty,improvinghealth,and Palau growth since the beginning of the global slowdown expanding education Papua New Guinea in early 2000. This strong recovery bodes well for Reducingcorruptionandimprovinggovernance Philippines an estimated 49 million of the region's poor, whose Samoa Solomon Islands incomes are projected to rise above the $2-a-day Lending to support these objectives reached Thailand poverty line. $2.57 billion ($907 million in IDA and $1.67 billion Timor-Leste Tonga China has been the driver of regional growth; in IBRD) during fiscal 2004. Establishing good Vanuatu its imports surged 40 percent in 2003. Intraregional governance--reducing corruption, strengthening Vietnam trade still accounts for about 70 percent of the financial management, creating effective legal growth in exports of East Asia's developing and judicial systems, stopping the unsustainable economies, as it has since 2002. But this trend will exploitation of natural resources, and strengthening likely slow as current rapid growth rates in China corporate governance--continues to be a challenge. level off. The Bank is addressing this challenge through its The rest of the world is also paying more atten- projects, research, and advisory services. New tion to East Asia's successful growth. Foreign direct Country Assistance Strategies were formulated for investment continues to grow, and net portfolio Indonesia and Mongolia. Mongolia's was based on flows to the five postcrisis economies--Indonesia, the country's own poverty reduction strategy. The the Republic of Korea, Malaysia, the Philippines, Bank also updated its Country Assistance Strategy and Thailand--are also estimated to have risen to for Vietnam. around $33 billion in calendar 2003. Net foreign ex- change reserves of East Asian developing economies BUILDING THE CLIMATE FOR INVESTMENT now stand at over $1 trillion. The region's rapid growth, structural shifts, and Indonesia's new Country Assistance Strategy demographic changes have increased demand for demonstrates how the Bank is working to build the natural resources. Sustainable management will be a climate for investment in East Asia while addressing key condition for improving the quality of people's governance challenges that hamper development. lives and enhancing the opportunities of future The Bank is supporting Indonesia in its efforts generations to share the benefits of economic to maintain a stable economy and create stronger development. financial and private sectors, build infrastructure, 32 The World Bank Annual Report 2004 East Asia and Pacific Fast Facts Total population | billion: 1.9 Population growth | percent: 0.8 Life expectancy at birth | years: 69 and create income opportunities for poor households Infant mortality per 1,000 births: 32 and farmers. Because governance reforms are essential Female youth literacy | percent: 98 to raising investment and improving the quality of ser- 2003 GNI per capita | dollars: 1,080 vices, the Bank's program in Indonesia focuses on im- Number of people living with HIV/AIDS | million: 2.3 proving the quality, responsiveness, and accountability of public institutions, giving preference to local gov- Note: Life expectancy at birth and infant mortality rate per 1,000 live births are for 2002; female youth literacy is for the most recent year available, 2000; other ernments willing to adopt more transparent and more indicators are for 2003; from the World Development Indicators Database. efficient practices. The term gross national income (GNI) is now used instead of gross national product (GNP). Infrastructure played a central role in East Asia's de- velopment, as evidenced in Japan; Hong Kong; Korea; Total FY04 Total FY04 Singapore; Taiwan, China; and more recently, mainland Commitments Disbursements China and Vietnam. Sound economic policies and IBRD $1,665.5 million IBRD $1,720.6 million investments in power, transportation, water supply, IDA $907.2 million IDA $856.6 million telecommunications, education, and health services accounted for East Asia's initial success in reducing Portfolio of projects under implementation as of June 30, poverty. In fiscal 2004 the World Bank, the Asian De- 2004: $21.2 billion velopment Bank, and the Japan Bank for International Cooperation launched a joint study to assess infra- structure needs in the region and examine ways to rebuild the climate for infrastructure investment, particularly by harnessing the private sector. To engage the corporate sector, the Bank is working with the Hills Program on Governance to promote best corporate practices in the region. The program has established two Hills Centers--in Manila and Seoul-- to foster good corporate governance through advocacy, research, and training. Improving the livability of cities is a key issue for both investment and development. In response to the devastation caused by the tropi- cal cyclone Heta, the Bank approved an emergency grant operation for Samoa to help restore and strengthen roads, bridges, and the coastline, and to help make both the natural and built environments more resilient to storms. EMPOWERING POOR PEOPLE Programs such as Indonesia's Kecamatan Development Project have been extremely effective in channeling funds directly to communities to build roads, schools, health clinics, and drinking-water systems. Under the program, which now covers 28,000 villages and about 35 million rural poor, communities determine their needs, design activities, seek technical help, and make informed choices about how to use limited resources. c. 1970. Loading rubber at the Port of Singapore, where a World Bank loan of $15 million assisted the construction of additional deep-water The third phase of the program, approved in fiscal 2004, berths, a new plant yard and workshop, and cargo handling equipment. aims to have local governments compete for program funding as an incentive for better local governance. In 6 communities and has been replicated in more than the Philippines the $100 million KALAHI Project, which 1,300 communities across 67 municipalities. In addition adapts the Indonesian model, began as a pilot project in to building capacity, these projects build confidence and Chapter 2 Regional Perspectives 33 Visitors view a booth for a project on disability access at the Country help people influence local governance. In Cambodia Innovation Day in the Philippines. the Rural Investment and Local Governance Project is working through the Seila Program to improve local BOX 2.2 COUNTRY INNOVATION DAYS services and community monitoring. A key feature of the Bank's strategy in low-income To support community-level work by civil society countries is assisting governments in developing organizations, the Bank's Development Market- poverty reduction strategies. In fiscal 2004 the Lao place organized two Innovation Days in fiscal 2004, People's Democratic Republic and Mongolia complet- one in the Philippines and another in Vietnam. The ed poverty reduction strategies. In Vietnam the Bank is Philippines Innovation Marketplace, called Pani- financing its third Poverty Reduction Strategy Credit to bagong Paraan (New Approaches), brought togeth- support the government's strategy. er 117 finalist teams in the Philippines' largest and Empowering and giving voice to people are critical busiest shopping mall to present their ideas and for development. In Indonesia the Justice for the Poor compete for more than $1.2 million in funding for Initiative is working to help people understand their innovative ways to make services work for the poor. rights and strengthen village institutions that settle Former President Corazon C. Aquino delivered the disputes. For its part, the Bank established Web sites keynote address for the competition, which was in Chinese, Khmer, and Vietnamese and increased its funded by a dozen donor groups and companies. offerings in Bahasa, Lao, Mongolian, Tetum, Thai, and One of the winners, Recycling War Trash for Peace, other languages. In China the Bank is producing a aims to turn spent bullets and rocket casings into Chinese-language newsletter, and in Cambodia the craft items symbolizing peace, such as bells and local press routinely draws stories from the Bank's gongs. In addition to cleaning up the litter of con- Khmer-language newsletter. Public Information flict, the project will provide work for out-of-school Centers now operate in 11 of the region's country youth. offices. Sixteen provincial information centers in China, Indonesia, the Philippines, and Vietnam have been established, with more planned, and local librarians are being trained on the Bank's operations and policies. In fiscal 2004 the Bank and the government of Japan launched a new Tokyo Global Development Learning Network Center. The Japan­World Bank 34 The World Bank Annual Report 2004 Distance Learning Partnership Project (Tokyo Project), tuberculosis control project. The Bank's new HIV/ funded by the Japanese government, aims to make a AIDS strategy for the region provided input to the substantial intellectual contribution to the region's de- Fifteenth International AIDS Conference in Bangkok velopment by making the Tokyo learning center a re- in July 2004. source for building capacity throughout the region. By the end of 2004, there will be 20 Global Development Fostering Trade and Regional Integration Learning Network centers in the East Asia and Pacific East Asia Integrates, a flagship study completed in fiscal region, including at least one in each of the Bank's key 2004, urges policy makers to broaden their approach countries. These centers will be able to work on region- beyond technical trade policies to emphasize develop- al integration and knowledge sharing with institutions ment outcomes and links to social stability. At a joint such as the Association of South East Asian Nations conference, the Boao Forum for Asia and the Bank and the Organization for Asia-Pacific Economic agreed on a three-year program of economic studies Cooperation. (See also box 2.2.) and promotion of international networks of expertise on Asian economic cooperation and integration. In addition to its work with China on membership ADDRESSING GLOBAL PRIORITIES in the World Trade Organization (WTO) and its impli- The Bank's East Asia and Pacific region is focusing cations for the financial sector, the Bank is helping activities on the following global priorities. Cambodia and the Lao People's Democratic Republic analyze the impact of trade integration and implement Combating Communicable Diseases trade policies that promote growth and reduce poverty. The Bank acted quickly to assist China and Vietnam It is advising Vietnam on WTO accession issues and is after the recent bouts of sudden acute respiratory identifying reforms needed for accession. Similar work syndrome (SARS) and avian flu. The SARS and Infec- is under way for the Lao People's Democratic Republic. tious Disease Response Program supports the Chinese In Indonesia the Bank is working on a trade and inte- government's efforts to strengthen the capacity of the gration study. public health system to prevent infectious diseases and set up alert and response mechanisms to address public Improving the Environment health crises. The Bank is also preparing an emergency The Bank is working with city governments, compa- assistance program that will help Vietnam improve its nies, donors, and civil society organizations through preparedness for dealing with avian flu. In China the the Clean Air Initiative for Asian Cities to promote Bank and the United Kingdom's Department for Inter- innovative ways to improve the air quality of Asian national Development are cosponsoring a second cities, which are among the world's most polluted. Chapter 2 Regional Perspectives 35 Table 2.2 World Bank Lending to Borrowers in East Asia and Pacific, by Theme and Sector, Fiscal 1995­2004 | millions of dollars 1995­97 1998­99 (annual (annual average) average) 2000 2001 2002 2003 2004 THEME Economic Management 39.5 280.0 0.0 0.0 4.8 29.7 0.0 Environmental and Natural Resource Management 1,009.7 932.4 880.4 399.3 102.3 232.3 432.2 Financial and Private Sector Development 1,287.7 4,441.8 627.6 310.9 512.8 458.8 553.9 Human Development 433.1 406.1 81.1 52.6 226.4 152.7 164.6 Public Sector Governance 258.7 543.1 556.2 65.1 127.4 341.5 299.0 Rule of Law 70.4 19.2 9.3 3.8 20.3 7.3 67.3 Rural Development 991.7 855.6 430.3 341.6 360.9 411.7 400.9 Social Development, Gender, and Inclusion 172.8 273.5 72.1 248.0 173.0 143.7 167.2 Social Protection and Risk Management 169.6 708.4 55.2 239.4 138.7 161.5 5.5 Trade and Integration 136.5 333.2 36.2 40.0 43.3 138.0 82.9 Urban Development 757.0 900.8 230.6 433.1 63.6 233.6 399.2 Theme Total 5,326.6 9,694.2 2,979.1 2,133.8 1,773.6 2,310.8 2,572.7 SECTOR Agriculture, Fishing, and Forestry 359.0 803.8 118.4 109.7 151.2 106.7 290.4 Education 447.1 411.6 84.4 14.8 134.6 225.7 118.6 Energy and Mining 1,659.2 517.0 640.5 142.2 314.5 254.3 67.2 Finance 230.8 3,163.7 34.4 87.5 219.2 22.7 49.0 Health and Other Social Services 261.1 581.6 118.4 217.3 243.8 184.1 84.3 Industry and Trade 260.4 1,569.8 28.8 151.8 9.4 32.5 78.7 Information and Communication 117.4 51.9 20.0 12.5 11.1 6.6 0.0 Law and Justice and Public Administration 375.2 1,083.6 592.2 257.4 115.2 385.1 257.5 Transportation 1,034.2 1,133.3 584.4 729.7 540.2 684.3 1,209.9 Water, Sanitation, and Flood Protection 582.1 377.9 757.7 410.8 34.4 408.7 417.1 Sector Total 5,326.6 9,694.2 2,979.1 2,133.8 1,773.6 2,310.8 2,572.7 Of which IBRD 4,306.4 8,800.9 2,495.3 1,136.1 982.4 1,767.1 1,665.5 Of which IDA 1,020.2 893.3 483.8 997.7 791.2 543.7 907.2 Note: Due to a recalculation of allocations by the system, lending by theme figures may differ from those in the 2003 Annual Report. For the Law and Justice and Public Administration sector, changes in figures reflect the retroactive remapping of projects to a new Compulsory Health Finance sector code under this category. For the Finance sector, changes in figures reflect the retroactive remapping of projects to a new Compulsory Health Finance sector code under Law and Justice and Public Administration. Numbers may not add to totals because of rounding. Figure 2.3 East Asia and Pacific: IBRD and IDA Lending by Figure 2.4 East Asia and Pacific: IBRD and IDA Lending by Theme, Fiscal 2004 | share of total of $2.6 billion Sector, Fiscal 2004 | share of total of $2.6 billion Urban Development 16% Environmental & Water, Sanitation & Agriculture, Fishing & Natural Resource Flood Protection Forestry 11% Trade & Integration Management 16% 3% 17% Education 5% Social Protection & Energy & Mining Risk Management 3% Financial & 1% Private Sector Finance 2% Social Development Development, 21% Health & Other Gender & Social Services Inclusion 6% 3% Rural Human Industry & Trade Development 16% Development 6% 3% Public Sector Law & Justice Rule of Law 3% Governance 12% & Public Transportation Administration 47% 10% 36 The World Bank Annual Report 2004 Countries Eligible for World Bank Borrowing: Afghanistan Bangladesh Bhutan South Asia unstable security and political situation in Nepal is India Maldives stalling further development there. Nepal South Asia's development is at a critical juncture. Pakistan Sri Lanka Economic growth in the region is relatively strong, WORLD BANK ASSISTANCE but human development is uneven, both within and across countries. South Asia has the world's The World Bank lent $3.4 billion to South Asia highest illiteracy rate (45 percent), and the region in fiscal 2004. To help improve the investment accounts for one-third of all maternal deaths in climate, the Bank is assisting countries with policy the world. Given South Asia's size, reducing poverty reforms, drawing on an extensive program of and achieving the Millennium Development Goals analytical work delivered in the form of studies, in the region will be critical to achieving the goals workshops, policy notes, and policy dialogue. The worldwide. Bank is investing in infrastructure and leveraging Along with East Asia, South Asia is playing an private sector investments, as well as helping increasingly important role in the global recovery. countries meet the Millennium Development Goals Gross domestic product (GDP) grew by more by supporting efforts to improve service delivery than 6 percent during calendar year 2003, and the in health, education, energy, water supply, and outlook for continued growth remains positive. sanitation. India, which accounts for 77 percent of GDP in The Bank discussed a new Country Assistance the region, grew by 6.8 percent in 2003, with agri- Strategy for Nepal, which recognizes Nepal's reform cultural output rising and productivity--propelled program, despite the country's continued instability, by the service industry--increasing. GDP rose and links the level of assistance to the pace of fur- about 5.5 percent in Bangladesh, Pakistan, and ther reforms. It also approved a $70 million Poverty Sri Lanka. Reduction Support Credit to help Nepal implement The signing of a free trade agreement by South its poverty reduction strategy. The Bank's Board of Asian countries in January 2004 is providing new Directors discussed a progress report on the Coun- opportunities for economic integration. But the try Assistance Strategy for Pakistan, concluding that need to develop infrastructure within and between the country has remained on the ambitious path for countries and to identify regulators and service fiscal consolidation envisioned in its initial Poverty providers is constraining the ability of the private Reduction Strategy Paper (see box 2.3). sector to respond to the new trading environment. Assistance to the region is focusing on The growing rapprochement between India and sectorwide policy interventions. One example Pakistan has renewed hopes in the region and is the $100 million credit to help the province should positively affect economic performance. of Punjab in Pakistan address its educational However, concerns about the possibility of violence needs. Another is a $55 million public sector undermining the development process remain vivid capacity-building project that will support across parts of the region: for example, the security Pakistan's ongoing economic reform situation in Afghanistan remains volatile; and the program. Chapter 2 Regional Perspectives 37 South Asia Fast Facts Total population | billion: 1.4 Population growth | percent: 1.7 Life expectancy at birth | years: 63 Improving roads and other travel infrastructure is a Infant mortality per 1,000 births: 68 critical component of the Bank's work in South Asia. Female youth literacy | percent: 62 These efforts have had a major impact on reducing 2003 GNI per capita | dollars: 510 poverty by cutting transportation costs and increasing Number of people living with HIV/AIDS | million: 5.2 poor people's access to markets, education, and health Note: Life expectancy at birth and infant mortality rate per 1,000 live births are care. To increase trade competitiveness in Pakistan, the for 2002; female youth literacy is for the most recent year available, 2000; other indicators are for 2003; from the World Development Indicators Database. Bank approved a $200 million loan and credit to revi- The term gross national income (GNI) is now used instead of gross national talize the national highway system. In India a $240 mil- product (GNP). lion loan will help reduce transportation constraints by Total FY04 Total FY04 building a bypass to divert traffic from the historic city Commitments Disbursements of Allahabad in Uttar Pradesh. IBRD $439.5 million IBRD $891.8 million In Nepal a $75.5 million financial sector reform IDA $2,982.1 million IDA $1,835.0 million project is expected to help modernize the country's fragile banking system. The Bank also approved the Portfolio of projects under implementation as of June 30, $220 million Second Andhra Pradesh Economic 2004: $18.2 billion Reform Loan and Credit for India's fifth-largest state. That loan will help the state achieve fiscal health and sustainability, strengthen public administration, enhance service delivery, promote private sector development, and create a platform for accelerating reforms. FOSTERING PARTICIPATION IN DEVELOPMENT Central to the Bank's strategy in the region is the no- tion that South Asia's main resource is its people. Bank assistance is geared toward ensuring that the standard of living is improved across the entire spectrum of so- ciety and that obstacles that prevent people from par- ticipating in development and sharing its benefits are removed. Innovative nonlending work involves an extensive dialogue with counterparts on better ways to target welfare programs. During fiscal 2004 the Bank expanded its support to c. 1959. One of the world's largest railroad modernization and expansion microcredit, rural water and sanitation, irrigation, edu- programs was that of the Indian Railways, where new electric locomo- tives, bought with Bank loans, replaced older equipment. cation, and health. In Pakistan it lent $238 million to the Poverty Alleviation Fund, an autonomous institu- tion created by the government, to expand the fund's BUILDING THE CLIMATE FOR INVESTMENT earlier efforts. A similar initiative in Nepal is expected Assessments in Bangladesh, Bhutan, India, Pakistan, to bring much-needed credit to poor communities in and Sri Lanka suggest that inadequate infrastructure rural areas. The Bank also approved a $181 million is hurting the investment climate. Bureaucracy and credit to bring sustainable drinking water and sanita- excessive rules and regulations also represent bottle- tion to poor people in the Indian state of Maharashtra, necks, as do the rigid labor markets and lack of access a $64.7 million credit to improve access to basic social to long-term finance and credit for the private sector. and economic infrastructure services to North East ar- In Afghanistan two Bank loans are helping the eas of Sri Lanka, a $40 million credit to bring safe water government rebuild the country's infrastructure. to rural communities in Afghanistan, and a $25.3 mil- A $22 million credit is revitalizing telephone lines lion credit to support rural water supply and sanitation and the postal service. A $31 million credit will help in Nepal. increase revenue from trade by streamlining customs In education the Bank awarded a $500 million and transit regulations. credit to help India attain its goals of universal 38 The World Bank Annual Report 2004 BOX 2.3 IMPORTANT BENEFITS ARE BEGINNING TO EMERGE FROM THE PRSP PROCESS Countries in South Asia are making significant progress in developing Poverty Reduction Strategy Papers (PRSPs), where they are increasingly per- ceived as useful vehicles for national planning and decision making. Three countries--Nepal, Pakistan, and Sri Lanka--have completed full PRSPs that have been discussed with the Bank and the International Monetary Fund. All three countries have received In many parts of the developing world, access to water remains a luxury Poverty Reduction Support Credits. few can afford. In Sri Lanka, the World Bank's work in water safety and sanitation is ensuring that communities in rural areas have access to clean The shift to a programmatic approach to lend- and safe water. ing through Poverty Reduction Support Credits has made it easier for IDA and other donors to align their assistance with countries' own priorities in The Bank is supporting a health system project in different sectors, as elaborated in the PRSPs. Assis- the state of Rajasthan, in India, with an $89 million tance through Poverty Reduction Support Credits-- credit. In Sri Lanka a $60 million credit will help the which includes strengthening the capacity to government implement its health sector strategy. monitor public expenditure--promotes a performance-based approach that benefits the ADDRESSING GLOBAL PRIORITIES countries' entire investment program. The PRSP process is also helping harmonize donor lending. More than 5 million people in South Asia are currently living with HIV/AIDS. Throughout the region the prevalence of HIV/AIDS among the general population is believed to be low, but rates are much higher among elementary school enrollment and completion. The subpopulations that engage in high-risk behaviors. loan represents the Bank's first sectorwide program for And despite low overall prevalence rates, India has one India. The Bank also provided a $150 million credit of the largest numbers of people with HIV/AIDS in to help Bangladesh develop primary education. This the world. The Bank has stepped up its assistance to innovative sectorwide project is supported jointly by national programs working to prevent the spread of $504 million from the Asian Development Bank, the HIV/AIDS among highly vulnerable subpopulations, World Bank, and eight other donors in an attempt by young people, and the general population in South the donor community to respond with one voice to a Asia. In addition, it is facilitating dialogue among national development issue. The Bank also approved countries to share lessons learned and good practices a $31 million credit to Bhutan to expand access to of intervention. primary and secondary education. Recognizing that development in the region can be In Afghanistan a $95 million credit is helping achieved only through inclusion and participation, the strengthen the National Solidarity Program, which Bank is completing gender assessments in Afghanistan, supports local governance and provides communities Nepal, and Pakistan. Similar assessments are under way with resources for reconstruction and development in other countries. These assessments involve substan- activities. In Sri Lanka a $51 million credit is helping tial analytical work and dialogue aimed at better un- the rural poor improve their livelihood and quality derstanding what kinds of policies may lead to greater of life. gender balance in the countries' development. Chapter 2 Regional Perspectives 39 Table 2.3 World Bank Lending to Borrowers in South Asia, by Theme and Sector, Fiscal 1995­2004 | millions of dollars 1995­97 1998­99 (annual (annual average) average) 2000 2001 2002 2003 2004 THEME Economic Management 2.5 85.3 35.2 47.4 232.5 123.5 7.7 Environmental and Natural Resource Management 454.6 266.8 80.8 587.8 295.2 94.2 94.8 Financial and Private Sector Development 614.7 639.2 265.4 865.9 381.6 689.1 689.9 Human Development 316.4 627.5 276.2 124.8 30.2 546.9 760.6 Public Sector Governance 29.7 254.9 212.7 261.0 678.0 467.3 669.8 Rule of Law 33.7 89.1 56.5 36.1 59.3 12.5 2.9 Rural Development 395.1 377.0 426.1 379.5 417.2 403.7 314.1 Social Development, Gender, and Inclusion 407.7 328.9 261.5 240.5 414.2 197.3 642.8 Social Protection and Risk Management 119.8 162.8 168.0 118.4 164.0 184.4 98.6 Trade and Integration 0.0 84.5 29.4 398.3 70.0 197.3 52.7 Urban Development 275.7 297.1 300.7 186.8 766.2 2.6 87.8 Theme Total 2,649.9 3,213.2 2,112.4 3,246.6 3,508.4 2,918.7 3,421.6 SECTOR Agriculture, Fishing, and Forestry 318.4 534.4 65.0 116.1 328.1 212.6 251.9 Education 279.3 385.1 171.4 206.4 95.9 364.6 665.8 Energy and Mining 411.8 545.9 277.8 746.2 504.8 150.6 130.8 Finance 314.0 168.2 46.0 209.7 310.0 185.8 331.4 Health and Other Social Services 447.7 589.3 393.3 188.1 278.7 369.0 334.6 Industry and Trade 10.0 68.3 85.3 34.0 443.1 144.9 46.1 Information and Communication 7.9 35.3 54.6 17.7 12.4 11.5 16.9 Law and Justice and Public Administration 277.7 436.3 407.0 377.4 632.5 372.3 925.5 Transportation 227.9 354.1 590.6 1,294.3 758.1 1,067.6 444.8 Water, Sanitation, and Flood Protection 355.4 96.4 21.4 56.8 144.9 40.0 273.7 Sector Total 2,649.9 3,213.2 2,112.4 3,246.6 3,508.4 2,918.7 3,421.6 Of which IBRD 1,124.3 1,034.0 934.3 2,035.0 893.0 836.0 439.5 Of which IDA 1,525.6 2,179.2 1,178.1 1,211.6 2,615.4 2,082.7 2,982.1 Note: Due to a recalculation of allocations by the system, lending by theme figures may differ from those in the 2003 Annual Report. For the Law and Justice and Public Administration sector, changes in figures reflect the retroactive remapping of projects to a new Compulsory Health Finance sector code under this category. For the Finance sector, changes in figures reflect the retroactive remapping of projects to a new Compulsory Health Finance sector code under Law and Justice and Public Administration. Numbers may not add to totals because of rounding. Figure 2.5 South Asia: IBRD and IDA Lending by Theme, Figure 2.6 South Asia: IBRD and IDA Lending by Sector, Fiscal 2004 | share of total of $3.4 billion Fiscal 2004 | share of total of $3.4 billion Urban Development 3% Economic Management 1% Water, Sanitation & Agriculture, Fishing & Flood Protection 8% Forestry 7% Trade & Integration 2% Environmental & Natural Resource Social Protection & Management 3% Risk Management Transportation Education 19% 3% 13% Financial & Social Private Sector Development, Development Gender & 20% Energy & Law & Justice Inclusion 19% Mining 4% & Public Administration Finance 10% Rural 28% Development 9% Human Health & Other Public Sector Development Social Services 10% Information & Governance 20% 21% Communication 1% Industry & Trade 1% 40 The World Bank Annual Report 2004 Countries Eligible for World Bank Borrowing: Albania Armenia Azerbaijan Europe and Central agenda relating to building the institutions of a Belarus Bosnia and Asia market economy and diversifying their economies. Herzegovina The development of natural resources and the Bulgaria Croatia performance of the Russian economy are likely to Czech Republic The Europe and Central Asia region remains very be key drivers of growth for these countries. Estonia Georgia diverse in terms of poverty, human development, Hungary and individual country prospects for attaining the Kazakhstan WORLD BANK ASSISTANCE Millennium Development Goals. At one end of Kyrgyz Republic Latvia the spectrum, ten Bank member countries--the Lending during fiscal year 2004 reached $3.6 billion, Lithuania Czech Republic, Cyprus, Estonia, Hungary, Latvia, ($3 billion in IBRD lending and $546 million in Macedonia, former Lithuania, Malta, Poland, the Slovak Republic, and IDA credits). Analytical and advisory services Yugoslav Slovenia--joined the European Union (EU) May 1, included 186 reports and 58 technical assistance Republic of Moldova 2004. Four of these EU accession countries are activities. Use of programmatic and cross-sectoral Poland members of the Organisation for Economic Co- Romania Russian operation and Development, as is Turkey. Slovenia Federation moved from World Bank borrower to donor status Serbia and on March 17, 2004. BOX 2.4 THE BANK'S PROGRAMMATIC Montenegro Slovak Republic At the other end of the spectrum, more than APPROACH TO NONLENDING ACTIVITY Tajikistan half the population in some of the countries of Turkey The Bank is increasingly taking a program- Turkmenistan the Commonwealth of Independent States (CIS) matic approach to nonlending activity in Ukraine lives in poverty, which stems in part from geo- Uzbekistan the Europe and Central Asia region. In the graphic isolation and lack of integration into the Russian Federation it is engaged--with high- Slovenia gradu- global economy. level Russian counterparts and in partnership ated from bor- rower status in Growth in the region was strong in 2003, with with the United Kingdom's Department for fiscal 2004. output increasing at an average rate of 6.5 percent. International Development--in a multiyear Output rose 3.9 percent in the EU accession coun- program of analytical and capacity-building This section also reports tries, 4.3 percent in South Eastern Europe, and work on poverty. The program is designed to on Kosovo, 7.9 percent in the CIS. Twelve countries in the be completed in two phases and to produce Serbia and Montenegro. region grew more than 5 percent, while no country a series of timely outputs to meet the needs experienced a decline in output. of both the government and the Bank. Phase Further integration into Europe is likely to one, completed in December 2003, signifi- cantly increased capacity in survey methods provide an impetus for reform in the EU accession and policy analysis. It opened up access to countries and South Eastern Europe, which includes household survey data sets and made con- countries for which negotiations for EU accession crete recommendations on how to improve are under way (Bulgaria and Romania), those that survey data. A collaborative Poverty Assess- are candidates or whose candidacy is under consid- ment Report is planned for 2004. eration (Turkey and Croatia), and countries in the (See www.worldbank.org/eca/ Western Balkans, for which accession is a longer- knowledgefair.) term prospect. The CIS countries face an unfinished Chapter 2 Regional Perspectives 41 Europe and Central Asia Fast Facts Total population | billion: 0.5 Population growth | percent: 0.1 Life expectancy at birth | years: 69 Individual Country Assistance Strategies also recog- Infant mortality per 1,000 births: 31 nize the diversified needs of the subregions. In the poor Female youth literacy | percent: 99 countries of the CIS, the emphasis is on supporting 2003 GNI per capita | dollars: 2,570 sound economic management and private sector­led Number of people living with HIV/AIDS | million: 1.3 growth, promoting human development and equity, Note: Life expectancy at birth and infant mortality rate per 1,000 live births are and improving governance. In the EU accession coun- for 2002; female youth literacy is for the most recent year available, 2000; other indicators are for 2003; from the World Development Indicators Database. tries, the focus is increasingly on investments to en- The term gross national income (GNI) is now used instead of gross national hance the benefits of accession and knowledge services. product (GNP). In South Eastern Europe and the larger countries of Total FY04 Total FY04 the CIS (Kazakhstan, the Russian Federation, and Commitments Disbursements Ukraine), the emphasis is on supporting growth with IBRD $3,012.9 million IBRD $2,005.0 million equity and improvements in governance--in the con- IDA $546.2 million IDA $446.1 million text of a wider EU agenda where relevant. Throughout the region, where issues go beyond the borders of a sin- Portfolio of projects under implementation as of June 30, gle country, as they do in the case of communicable 2004: $14.6 billion diseases, water resources, trade and investment regimes, energy markets, and regulatory frameworks, the Bank is taking a multicountry approach. BUILDING THE CLIMATE FOR INVESTMENT The region's strong economic performance is a testa- ment to improvements in the business climate-- improvements that are confirmed in part by firm- level survey data. The perception of corruption as an obstacle to business has declined significantly in some countries since 1999. But in seven countries, investors continue to perceive corruption as a serious problem, and in two countries that perception has worsened significantly. Support for the investment climate depends on A 2003 conference supporting the integration of Roma people drew country needs. In Ukraine the Second Programmatic top officials as well as Roma community leaders. Two initiatives were launched: the Roma Decade of Inclusion 2005­2015 and the Roma Adjustment Loan focuses on regulatory reform, creat- Education Fund. ing and protecting property rights, and improving public sector accountability. In Turkey the Second Export Finance Intermediation Loan aims to provide instruments--Programmatic Adjustment Loans in working capital to facilitate export growth while IBRD countries and Poverty Reduction Support improving quality, safety, and access to finance in the Credits in IDA countries--increased in an attempt to private financial sector. It follows a first loan, which better support reforms. successfully provided medium- and long-term This programmatic approach also carried over funding to banks and export companies, whose into nonlending services. (See box 2.4 on page 41.) The exports grew 11­40 percent a year during the project Bank developed Country Assistance Strategies for period. Armenia, Lithuania, Macedonia, the Slovak Republic, The Bank is also supporting the investment climate Turkey, and Ukraine; and Transition Support Strategies through nonlending activities. It has completed for Kosovo and Serbia and Montenegro. The strategies Investment Climate Assessments in the Kyrgyz for Armenia and Serbia and Montenegro were accom- Republic, Moldova, Poland, Uzbekistan, and Tajikistan. panied by Poverty Reduction Strategy Papers (PRSPs). In conjunction with the International Monetary Fund, PRSP Progress Reports were submitted for Albania, the Bank continued its Financial Sector Assessment Azerbaijan, the Kyrgyz Republic, and Tajikistan. Program in Azerbaijan, Macedonia, and Romania. 42 The World Bank Annual Report 2004 Community Development Fund Project empower local communities to demand improvements in service delivery and to assist in implementing changes. The Bank has also helped raise awareness of poverty and human development outcomes for the Roma, the largest and most vulnerable minority in Central and Eastern Europe. (See www.worldbank.org/eca/ecshd.) ADDRESSING GLOBAL PRIORITIES The Bank's efforts in Europe and Central Asia focus on several global priorities. Education for All Albania is the only country in the region eligible for the Education for All Fast-Track Initiative. The Bank has helped several other countries, including Moldova and Tajikistan, to meet the requirements for eligibility, but the availability of funding remains in question. As many as eight other countries in the region may need help meeting the Education for All goal. HIV/AIDS Together with its partners, the Bank has been at the forefront of raising awareness of HIV/AIDS in the region and helping countries address the problem. HIV/AIDS is spreading more quickly in Europe and Central Asia than in any A regional support strategy and subregional studies other region of the world. In 2003 it claimed some 30,000 lives, and an estimated 230,000 people became infected, bringing the total number of were completed for Poland and the Baltics, South people living with HIV/AIDS in the region to an estimated 1.5 million. Eastern Europe, and Central Asia, and a policy note was written on Georgia. In collaboration with the The Bank has also undertaken analytical work on Joint United Nations Programme on HIV/AIDS, the knowledge economy in Latvia, Poland, and the Bank developed a Directory of Technical and Turkey. Managerial Resources to improve access to technical advice for HIV/AIDS programs in the region (www.cee-trd.unaids.org). Work is under way on FOSTERING PARTICIPATION IN DEVELOPMENT a study of HIV/AIDS in the Western Balkans, and Human development indicators in Europe and Central a multicountry project on HIV/AIDS in Central Asia are generally strong, but the quality of public Asia, and Bank-supported projects are being imple- services has deteriorated. As a result, many of the mented in Moldova, the Russian Federation, and Millennium Development Goals will probably not be Ukraine. met, particularly in the region's poorer countries. To address the problem, several Bank operations Water Supply and Sanitation focus on improving public services. The second Access to water supply and sanitation in the Europe Poverty Reduction Strategy Credit in Albania supports and Central Asia region is relatively good, but systems improved access to and quality of education and health are often poorly maintained, compromising quality services. It follows the first credit, which improved the and reliability. The Bank program of assistance ad- policy on textbooks and reversed the sharp decline in dresses the sustainability of water supply and sanitation operations and maintenance expenditures that had systems. A new strategy for delivering infrastructure contributed to a deterioration of facilities. The Kyrgyz services addresses the different policy challenges in the Village Improvement Project and the Second Kosovo subregions of Europe and Central Asia. Chapter 2 Regional Perspectives 43 c. 1956. A drainage canal regulates water supplies in the Catania Plain targets contained in the Millennium Development as part of the Cassa Per II Mezzogiorno project in Southern Italy, which Goals. It also began implementing new projects to included irrigation, roads, power and industry, and better housing. enhance energy efficiency in Croatia, Moldova, and Environmental Sustainability Serbia and Montenegro; develop renewable energy During fiscal 2004 the Bank undertook new analytical sources in Turkey; and rehabilitate irrigation systems work to help define and measure the environmental in Romania. 44 The World Bank Annual Report 2004 Table 2.4 World Bank Lending to Borrowers in Europe and Central Asia, by Theme and Sector, Fiscal 1995­2004 | mil- lions of dollars 1995­97 1998­99 (annual (annual average) average) 2000 2001 2002 2003 2004 THEME Economic Management 464.6 723.2 98.6 127.4 636.1 19.5 242.0 Environmental and Natural Resource Management 344.1 404.3 301.7 161.3 157.5 122.7 309.4 Financial and Private Sector Development 1,847.7 1,908.0 890.7 1,074.0 2,210.8 483.3 950.2 Human Development 268.8 219.3 278.9 51.1 138.3 550.4 297.1 Public Sector Governance 437.4 546.0 227.8 95.6 1,313.7 317.7 895.1 Rule of Law 44.1 80.1 160.2 77.4 106.6 289.8 132.3 Rural Development 239.2 331.5 213.4 137.6 309.9 194.9 117.4 Social Development, Gender, and Inclusion 45.5 126.9 43.6 65.1 188.8 55.9 33.9 Social Protection and Risk Management 288.6 575.6 530.1 381.2 363.9 288.5 305.3 Trade and Integration 261.5 91.6 143.5 138.4 32.5 130.6 182.6 Urban Development 352.0 248.9 153.6 383.9 65.4 216.7 93.6 Theme Total 4,593.5 5,255.1 3,042.2 2,693.1 5,523.6 2,670.0 3,559.1 SECTOR Agriculture, Fishing, and Forestry 205.9 114.5 317.8 139.0 470.4 335.4 168.6 Education 92.8 299.2 22.7 62.5 83.2 395.0 164.0 Energy and Mining 915.6 849.2 398.6 336.6 218.0 262.9 352.2 Finance 552.8 468.2 175.8 802.3 1,284.9 195.8 836.9 Health and Other Social Services 390.6 359.3 277.8 281.9 524.7 415.3 244.3 Industry and Trade 775.7 817.4 604.7 296.5 552.1 269.0 126.3 Information and Communication 1.6 4.5 151.9 8.7 9.6 1.0 7.0 Law and Justice and Public Administration 948.5 1,584.7 797.2 446.4 2,181.9 698.9 1,176.8 Transportation 576.0 533.1 207.1 118.3 67.1 30.6 321.2 Water, Sanitation, and Flood Protection 134.0 225.0 88.5 200.7 131.7 66.3 162.0 Sector Total 4,593.5 5,255.1 3,042.2 2,693.1 5,523.6 2,670.0 3,559.1 Of which IBRD 4,088.4 4,406.3 2,733.1 2,154.0 4,894.7 2,089.2 3,012.9 Of which IDA 505.1 848.8 309.1 539.0 628.9 580.8 546.2 Note: Due to a recalculation of allocations by the system, lending by theme figures may differ from those in the 2003 Annual Report. For the Law and Justice and Public Administration sector, changes in figures reflect the retroactive remapping of projects to a new Compulsory Health Finance sector code under this category. For the Finance sector, changes in figures reflect the retroactive remapping of projects to a new Compulsory Health Finance sector code under Law and Justice and Public Administration. Numbers may not add to totals because of rounding. Figure 2.7 Europe and Central Asia: IBRD and IDA Lending Figure 2.8 Europe and Central Asia: IBRD and IDA Lending by Theme, Fiscal 2004 | share of total of by Sector, Fiscal 2004 | share of total of $3.6 billion $3.6 billion Urban Development 3% Economic Management Water, Sanitation & Agriculture, Fishing & 7% Flood Protection 5% Forestry 5% Trade & Integration 5% Education 5% Social Protection & Environmental & Transportation 9% Risk Management 9% Natural Resource Energy & Management Social Development, Mining 10% 9% Gender & Inclusion 1% Law & Justice & Rural Public Development 3% Administration Finance 23% 32% Rule of Law Financial & 4% Private Sector Development 26% Information & Communication 1% Health & Other Industry & Trade 4% Social Services 7% Public Sector Governance 25% Human Development 8% Chapter 2 Regional Perspectives 45 Countries Eligible for World Bank Borrowing: Antigua and Barbuda Argentina Latin America and Belize direct investment, however, continued its decline, Bolivia Brazil the Caribbean falling from a peak of $88 billion in 1999 to an Chile estimated $36 billion in 2003. Exports from the Colombia Costa Rica region grew 9.2 percent--after rising just 2.2 per- Dominica The World Bank serves 30 countries in Latin cent in 2002--and the region's current account Dominican America and the Caribbean, a region of staggering deficit fell to 0.5 percent of GDP, down from Republic Ecuador diversity. The region is home to 525 million people, 4.5 percent in 1998. Tourism revenues and workers' El Salvador who speak Spanish, Portuguese, English, French, remittances also improved, and commodity prices Grenada Guatemala and some 400 indigenous languages. Three-quarters were generally strong. Guyana of the region's people live in and around cities, Growth and investment have improved in the Haiti Honduras making it the most urbanized region in the develop- region, but poverty remains pervasive. Poverty Jamaica ing world. Natural resources and agriculture are rates have stagnated in the region as a whole and Mexico Nicaragua nevertheless important to the region's economies. increased markedly in Argentina, Uruguay, and the Panama Despite immense resources and dynamic societies, República Bolivariana de Venezuela. A Bank study Paraguay deep poverty and gaping inequality persist in the released in 2003--Inequality in Latin America: Peru St. Kitts and region. Breaking with History?--showed that income, assets, Nevis Modest growth returned to Latin America and voice, and access to basic services, education, and St. Lucia St. Vincent and the Caribbean in 2003, with regional gross domestic opportunities are highly unequal in the region and the Grenadines product (GDP) growing by an average of 1.3 per- that this inequality reduces the positive impact of Suriname Trinidad and cent, after contracting 0.8 percent in 2002. Argentina growth on poverty reduction. Tobago continued recovering rapidly from the acute crisis Uruguay Venezuela, that hit the country in 2001. Brazil, Mexico, and WORLD BANK ASSISTANCE República Uruguay shared in the broadening of economic re- Bolivariana de covery. Central America grew at an average rate of The World Bank addresses inequality in the region 3.1 percent. The Andean countries also performed by targeting the poorest areas and supporting mea- well, with growth exceeding 3 percent in Chile, sures to empower excluded groups. Its support in Colombia, and Peru. Elsewhere performance was the region uses the full range of instruments, in- less encouraging. Ongoing political uncertainties cluding innovative financial instruments such as caused the República Bolivariana de Venezuela's the deferred drawdown option in Chile and local economy to deteriorate further in the first half of currency options in Mexico. New Country Assis- calendar 2003, and continued fiscal difficulties and tance Strategies for Argentina, Bolivia, Brazil, Costa external challenges caused the Caribbean to grow Rica, Mexico, and Paraguay are breaking new less rapidly than the region as a whole. ground for Bank support to the region through The external environment for Latin America and closer alignment with clients' needs and priorities, the Caribbean improved significantly in 2003. With more flexible lending instruments, and a stronger investor confidence returning and domestic condi- focus on results. tions improving, gross private financial inflows in Bank lending to Latin America and the 2003 increased by 40 percent over 2002. Net foreign Caribbean reached $5.3 billion in fiscal 2004 46 The World Bank Annual Report 2004 Latin America and the Caribbean Fast Facts Total population | billion: 0.5 Population growth | percent: 1.7 Life expectancy at birth | years: 71 ($5 billion in IBRD lending and $338 million in IDA Infant mortality per 1,000 births: 28 credits). Major loans included $1 billion to Brazil Female youth literacy | percent: 95 for social protection and sustainable and equitable 2003 GNI per capita | dollars: 3,260 growth, $750 million to Argentina for maternal and Number of people living with HIV/AIDS | million: 2.1 child health, and $303 million to Mexico for integrated irrigation modernization. Note: Life expectancy at birth and infant mortality rate per 1,000 live births are for 2002; female youth literacy is for the most recent year available, 2000; other The Bank's analytical and advisory support to the indicators are for 2003; from the World Development Indicators Database. region included studies of trade-related issues, research The term gross national income (GNI) is now used instead of gross national product (GNP). on innovation (development of intellectual capital) in selected countries, and a range of technical assistance Total FY04 Total FY04 efforts, such as urban management training for public Commitments Disbursements officials in Colombia. The Bank proposed a new devel- IBRD $4,981.6 million IBRD $4,905.2 million opment strategy for Mexico's southern states, pub- IDA $338.2 million IDA $323.0 million lished a report on Caribbean youth development, pro- vided policy advice for Jamaica on achieving sustained Portfolio of projects under implementation as of June 30, growth, and developed a guide for Latin American 2004: $19.3 billion mayors on how to implement urban crime and vio- lence prevention programs. Nicaragua and Guyana both reached the comple- tion point (see page 6) under the enhanced Heavily Indebted Poor Countries Initiative in fiscal 2004, allow- ing them to benefit from debt relief with a net present value of about $3.3 billion in Nicaragua and $335 mil- lion in Guyana. BUILDING THE CLIMATE FOR INVESTMENT The Bank is assisting countries throughout the region in their efforts to improve the investment climate and strengthen growth and competitiveness. In Brazil the Bank is supporting the new government's economic reforms with a $505 million programmatic loan. The reforms aim to reduce logistical costs; enhance the business environment; improve the efficiency, access, and soundness of the financial sector; One of 400 microenterprises created under a World Bank­Inter-American and increase technological progress and Development Bank rural road project, with the participation of men and women from poor rural communities, performs routine maintenance on a innovation. rural road in the Peruvian Sierra. The Bank provided a $150 million loan to Peru to support the government's decentralization and competitiveness program. The loan will enable the access to water in Paraguay, and strengthening regula- authorities to modernize ports, roads, and other infra- tion in the transportation sector in Brazil. Other loans structure, thereby promoting foreign investment and to the region are described in the Summaries of Opera- economic growth. tions Approved on the enclosed CD-ROM. The Bank is supporting Nicaragua's poverty reduc- As part of its analytical and diagnostic work, the tion strategy with a $70 million IDA credit to promote Bank is carrying out Investment Climate Assessments human capital, build public institutions, and to help identify reform priorities in each country in strengthen growth and competitiveness. the region. It has completed, or nearly completed, Bank assistance is facilitating trade and enhancing assessments in Brazil, Chile, Ecuador, El Salvador, productivity in Peru and Honduras, helping to increase Guatemala, Honduras, and Nicaragua and has Chapter 2 Regional Perspectives 47 BOX 2.5 HELPING SMALL RURAL COMMUNITIES launched assessments in Grenada, Jamaica, Mexico, IN HONDURAS THROUGH A ROAD PROJECT and Paraguay. A road project in Honduras is helping small rural FOSTERING PARTICIPATION IN DEVELOPMENT communities create productive employment and maintain the country's infrastructure. Under a Across the region the Bank is supporting efforts to $66.5 million IDA credit, the project has created improve poor people's access to basic services and 50 microenterprises and trained their personnel to increase the participation of excluded groups. In repair potholes, clear landslides, and maintain road Paraguay the Bank provided $24 million for an shoulders, signals, and bridges. The 50 firms main- education reform project to increase secondary tain 2,300 kilometers of roads--80 percent of enrollment among the rural poor. In Lima, Peru, a Honduras' paved network. The government is $45 million loan from the Bank is supporting efforts to expected to institutionalize the program for the en- make the public transportation system more efficient tire road network once IDA funding expires in 2004. and reliable as well as more accessible to people with Almost 700 small entrepreneurs own the micro- disabilities. In Peru and Honduras, Bank projects are enterprises, and some 4,160 men, women, and helping create microenterprises to provide road main- children benefit directly from them. Eighty-two per- tenance. (See box 2.5). cent of microenterprise members now own a house In response to Argentina's efforts toward economic or are building one and, thanks to an agreement recovery and growth, the Bank provided $500 million with the Ministry of Education, many of the adult to help the government address financial and utilities members have become literate after returning to sector reform, government transparency, and private school alongside their children. sector competitiveness. In Colombia the Bank provided a $200 million loan for labor reform and social devel- opment. In Brazil and Chile the Bank is supporting the governments' social protection programs including the Bolsa Familia and the Chile Solidario Initiative, which help the poorest households with a $572 million adapt- able program loan for Brazil, and a $200 million ad- justment loan with a deferred drawdown option and an accompanying $11 million technical assistance loan for Chile. The Bank also funds initiatives to reach the 30 mil- lion indigenous people in the region, about 80 percent of whom are poor. In fiscal 2004 the Bank made a $25 million land administration loan to Honduras that will benefit indigenous populations and people of African descent. In Mexico it provided $21.3 million for a project to help up to 200 indigenous communities and ejidos (communal landholding entities) improve the management and conservation of their forest resources. ADDRESSING GLOBAL PRIORITIES The Latin America and the Caribbean region has the potential to achieve many of the Millennium Develop- ment Goals. The Bank is helping the region make fur- ther progress by investing in basic education in Brazil, c. 1955. Workmen repair bridges, relay track, install new ties, and rebuild Guatemala, Mexico, and Uruguay and in child and along the Pacific railroad in Mexico. The Bank also financed the purchase of railway stock. maternal health in Argentina, Brazil, and Paraguay. 48 The World Bank Annual Report 2004 Three boys play on the river in Riberia Azul, Salvador do Bahia, where approved grants to the Caribbean Community the Bank is supporting efforts to improve the living conditions of the and to Guyana in fiscal 2004 and helped prepare urban poor. projects in St. Lucia and in St. Vincent and the Grenadines. In fiscal 2004 the Bank provided a $136 million loan Bank support for environmental sustainability to Argentina to help meet the health needs of poor, in the region comprises 64 active projects totaling uninsured mothers and children. about $3.4 billion. These include the Biodiversity Pro- HIV/AIDS poses a serious challenge in the tection Project in Bolivia, the Clean Air Initiative for Caribbean, which has the highest adult HIV prevalence Latin American Cities, the Mesoamerican Biological rate outside of Africa. The Bank has provided more Corridor, and the Pilot Program to Conserve the than $550 million in funding for HIV/AIDS prevention Brazilian Rainforest. In fiscal 2004 the Bank provided and control programs in Latin America and the $60 million to support sustainable regional develop- Caribbean. Under its AIDS initiative, the Bank ment in the Brazilian state of Tocantins. Chapter 2 Regional Perspectives 49 Table 2.5 World Bank Lending to Borrowers in Latin America and the Caribbean, by Theme and Sector, Fiscal 1995­2004 | millions of dollars 1995­97 1998­99 (annual (annual average) average) 2000 2001 2002 2003 2004 THEME Economic Management 435.8 694.0 587.6 570.1 391.0 567.2 111.2 Environmental and Natural Resource Management 403.2 164.8 270.8 68.8 187.4 240.3 159.1 Financial and Private Sector Development 1,229.3 1,626.9 1,056.1 985.4 965.4 819.8 912.4 Human Development 569.8 786.9 157.7 471.2 560.4 1,171.7 1,046.7 Public Sector Governance 531.4 825.2 519.9 1,099.7 1,182.8 798.6 672.0 Rule of Law 63.6 94.1 111.7 202.2 15.5 138.8 270.9 Rural Development 471.4 613.3 103.0 580.8 168.3 415.9 249.6 Social Development, Gender, and Inclusion 244.8 359.1 141.5 371.7 248.9 123.1 268.9 Social Protection and Risk Management 559.3 1,002.4 901.2 530.0 310.4 1,050.3 926.9 Trade and Integration 91.9 144.6 160.7 218.3 83.9 59.6 364.6 Urban Development 419.7 576.9 53.3 202.0 251.9 435.2 337.6 Theme Total 5,020.2 6,888.3 4,063.5 5,300.1 4,365.8 5,820.5 5,319.8 SECTOR Agriculture, Fishing, and Forestry 228.4 326.4 104.1 72.3 85.0 58.4 379.6 Education 536.2 659.8 62.8 529.1 560.4 785.5 218.3 Energy and Mining 239.2 98.1 79.3 107.6 445.6 96.2 50.5 Finance 666.6 1,004.7 1,191.8 946.7 593.5 973.0 405.1 Health and Other Social Services 588.5 1,150.5 360.2 904.7 660.5 1,574.1 1,558.9 Industry and Trade 93.6 204.2 165.3 38.3 51.4 183.4 428.0 Information and Communication 16.9 17.2 28.7 97.8 16.5 52.4 14.0 Law and Justice and Public Administration 1,246.0 2,293.8 1,791.0 1,726.7 1,440.0 1,564.9 1,521.3 Transportation 927.5 875.6 11.6 650.3 463.1 146.4 675.7 Water, Sanitation, and Flood Protection 477.3 258.0 268.7 226.6 49.8 386.2 68.4 Sector Total 5,020.2 6,888.3 4,063.5 5,300.1 4,365.8 5,820.5 5,319.8 Of which IBRD 4,733.3 6,406.4 3,898.1 4,806.7 4,188.1 5,667.8 4,981.6 Of which IDA 286.9 481.9 165.4 493.4 177.8 152.7 338.2 Note: Due to a recalculation of allocations by the system, lending by theme figures may differ from those in the 2003 Annual Report. For the Law and Justice and Public Administration sector, changes in figures reflect the retroactive remapping of projects to a new Compulsory Health Finance sector code under this category. For the Finance sector, changes in figures reflect the retroactive remapping of projects to a new Compulsory Health Finance sector code under Law and Justice and Public Administration. Numbers may not add to totals because of rounding. Figure 2.9 Latin America and the Caribbean: IBRD and IDA Figure 2.10 Latin America and the Caribbean: IBRD and Lending by Theme, Fiscal 2004 | share of total IDA Lending by Sector, Fiscal 2004 | share of of $5.3 billion total of $5.3 billion Urban Development 6% Economic Management Water, Sanitation & Flood Agriculture, Fishing & 2% Protection 1% Forestry 7% Trade & Integration Environmental & Education 4% 7% Natural Resource Transportation 13% Energy & Mining Management 3% Social Protection & 1% Risk Management Financial & Finance 8% 17% Private Sector Law & Justice Development Social & Public 17% Development, Administration Gender & 29% Health & Other Inclusion 5% Human Social Services Development 29% Rural Development 20% 5% Information & Public Sector Communication 1% Industry & Trade 8% Rule of Law 5% Governance 13% 50 The World Bank Annual Report 2004 Countries Eligible for World Bank Borrowing: Algeria Djibouti Egypt, Arab Middle East and Bank lending in fiscal 2004 totaled $1.1 billion, Republic of Iran, Islamic North Africa which supported 15 projects in 8 countries. These Republic of projects supported basic social services delivery to Iraq Jordan vulnerable groups, agricultural investments, public Lebanon The Middle East and North Africa region is an eco- works enhancement, educational reform, large in- Morocco nomically diverse area whose economic fortunes frastructure development, and natural resources Syrian Arab Republic over much of the past quarter century have been management. Tunisia heavily influenced by the price of oil and by eco- In addition to lending, the Bank is delivering a Yemen, Republic of nomic policies and structures dominated by the wide range of knowledge services that serve as a cat- state. The region's heavy dependence on a few alyst for change and policy reforms. Economic and This section also reports on the export markets and commodities makes it highly sector reports highlighted the challenges and issues West Bank and vulnerable to economic volatility. Sustainable and in water management, education, public expendi- Gaza. higher growth requires fundamental transformation ture management, pensions, and poverty. Gender to more open, more diversified economies in which assessments are also under way in several countries. the private sector plays a larger role. In response to increasing demand from the region Unemployment in the region averages more for knowledge transfer, the Bank established a than 15 percent, and it disproportionately affects the Knowledge Hub in Marseilles, France, to facilitate young, the better educated, and women. Employing the exchange of knowledge and learning activities today's jobless workers and new entrants into the la- to and from the Middle East and North Africa. bor market requires the creation of nearly 100 mil- Gulf countries whose high income makes them lion new jobs over the next two decades--more ineligible for Bank lending have been tapping into than double the current number of jobs available the Bank's knowledge services for three decades in the region. through the Reimbursable Technical Assistance Pro- gram. In Saudi Arabia the Bank is providing policy advice on public sector reforms, privatization, and WORLD BANK ASSISTANCE small and medium-size enterprise development. In response to the region's daunting labor market Kuwait is drawing on the program for policy advice challenge, the Bank has placed employment creation on reforming education, generating employment, at the core of its strategy. In fiscal 2004 it published increasing transparency, and fighting corruption. In four flagship reports--on governance, trade, gender, Bahrain the program has expanded to include the and employment in the region. The reports call restructuring of fiscal management to prepare the for a transition from public sector­dominated to government for the Gulf states' monetary union private sector­led economies, from closed to more in 2010. open economies, and from volatile, oil-dominated In areas affected by conflict, the Bank is address- economies to more stable and diversified econo- ing emergency needs and helping establish the insti- mies. The transition requires better governance, tutional foundations for long-term development. including greater inclusiveness and accountability, In cooperation with the United Nations, the Bank a larger role for women in the public sphere, and produced a Joint Iraq Needs Assessment, which improvements in the quality of education. identified Iraq's reconstruction and development Chapter 2 Regional Perspectives 51 Middle East and North Africa Fast Facts Total population | billion: 0.3 Population growth | percent: 1.9 Life expectancy at birth | years: 69 requirements in 14 sectors. To help donors channel Infant mortality per 1,000 births: 44 their resources and coordinate their support for Iraq's Female youth literacy | percent: 82 reconstruction, the Bank and the United Nations de- 2003 GNI per capita | dollars: 2,210 signed the International Reconstruction Fund Facility, Number of people living with HIV/AIDS | million: 0.1 with each organization managing a trust fund. The Note: Life expectancy at birth and infant mortality rate per 1,000 live births are trust fund administered by the Bank is financing proj- for 2002; female youth literacy is for the most recent year available, 2001; other indicators are for 2003; from the World Development Indicators Database. ects on capacity building for Iraqi civil service, educa- The term gross national income (GNI) is now used instead of gross national tion, community-based rural infrastructure, and infra- product (GNP). structure reconstruction. Total FY04 Total FY04 In the West Bank and Gaza, the Bank maintains a Commitments Disbursements balance between emergency work and medium-term IBRD $946.0 million IBRD $543.6 million development projects. (See box 2.6.) Since September IDA $145.0 million IDA $183.2 million 2000 approximately $329 million has been disbursed to the Palestinian Authority. Disbursement levels were Portfolio of projects under implementation as of June 30, increased significantly during fiscal 2004 to sustain the 2004: $5.22 billion Palestinian Authority and slow the decline of economic and social indicators. The Bank's portfolio in the West Bank and Gaza consists of 15 active projects, including an emergency services support project to sustain edu- cation, health, and social services. The Bank also con- tributed $20 million to the Reform Fund, a general budget support facility established in 2004 at the request of international donors. The Bank supports countries that have been struck by natural disasters. In the aftermath of the Bam earth- quake in December 2003, and at the request of the Iranian government, the Bank sent a team to assess the economic damage and prepare a reconstruction program. BUILDING THE CLIMATE FOR INVESTMENT A World Bank Group Business Road Show in Kuwait, Saudi Arabia, and the United Arab Emirates brought together people from the private sector to discuss how to boost their investments in the region and develop new business activities. The Bank also sponsored the Second Annual Knowledge for Development Confer- ence. Held in Marseilles, the conference aimed at help- ing countries develop knowledge-based economies that will enhance their competitiveness and increase trade. In one of the largest projects in the region, the Bank lent $335 million to the Arab Republic of Egypt to finance the development of airport infrastructure. The project is expected to increase foreign exchange earn- ings from tourism. To enhance the competitiveness of the private sector, a separate loan is promoting market- driven skills for Egypt's workers. To improve public efficiency, the Bank is supporting Access to better education expands opportunities for the poor in the region. an ambitious decentralization program adopted by 52 The World Bank Annual Report 2004 The Bank sponsors activities aimed at increasing private investment and BOX 2.6 PARTNERING WITH CSOs TO CREATE JOBS creating jobs in the region. IN THE WEST BANK AND GAZA the government of the Republic of Yemen that gives In December 2000 the Bank allocated $23 million local authorities greater responsibility in revenue from its Emergency Response Project to finance job management. The project is expected to promote creation projects in the West Bank and Gaza productive local investments and economic growth. through civil society organizations (CSOs). By 2003 In Lebanon a Bank project is supporting good the CSO Employment Generation Program had cre- governance by improving a land registration system ated 162,500 employment opportunities. The proj- that was disrupted by civil war. ects included creating embroidery production units; rehabilitating youth centers, kindergartens, soccer fields, water wells, and houses of poor families; and FOSTERING PARTICIPATION IN DEVELOPMENT hiring and training psychological counselors. By In response to the socioeconomic realities in the re- 2004 the Palestinian CSO Project, managed by the gion, the Bank's strategy focuses on expanding oppor- Welfare Association Consortium, attracted consider- tunities for poor people through access to better educa- able cofinancing and disbursed $5 million to proj- tion, health services, social protection, infrastructure, ects aimed at creating jobs, especially in social and other areas needed for development. As part of a service delivery. regional strategy to enhance education, the second phase of an education improvement project in Tunisia is ensuring that education corresponds to the needs of the job market. In the Republic of Yemen, where half of the population lives below the poverty line, the third phase of the Social Fund for Development project is delivering basic services in education, water, health, and social protection to vulnerable groups, such as women and children. Chapter 2 Regional Perspectives 53 Financed by the World Bank Trust Fund for the in the Middle East and North Africa: The Costs of Inac- West Bank and Gaza, an Emergency Water Project will tion, if the current infection rate is left unchecked, by provide a clean, affordable, and consistent water supply 2025 it could cost the region one-third of today's gross by rehabilitating the water supply and distribution domestic product. The report urges policy makers to system in the West Bank. In response to village surveys increase surveillance while prevalence is still low. Some revealing that water and access are top priorities for countries in the region have already taken action. communities, a rural infrastructure project in Morocco Tunisia piloted a project for young people that provides is building on the success of a Bank-funded project education, counseling, and testing. The Islamic Repub- that increased access to potable water from 18 percent lic of Iran established a needle-exchange program. And to 40 percent among the rural population. The project Morocco introduced a large-scale plan to upgrade ser- will also link remote villages to a network of rural vices for treating sexually transmitted diseases. roads. More than half of the population in the region is In Djibouti, one of the poorest countries in the re- under the age of 25. Conflict, an economic downturn, gion, the Bank helped the government develop its first and urban migration have left children and young Poverty Reduction Strategy Paper, in close consultation people vulnerable to dropping out of school and to with civil society organizations. using drugs. To address these problems, the Bank is integrating consideration of children and young people into all its projects. The Second Basic Education Project ADDRESSING GLOBAL PRIORITIES in the Republic of Yemen is providing learning oppor- During fiscal 2004 the Bank supported activities in tunities for working children that will not compromise the region that addressed two key global priorities: their income opportunities. In Egypt a Child Labor HIV/AIDS, and children and youth. Prevention Grant will help prevent child labor by iden- The level of HIV infection remains low, at just tifying children at risk and seeking ways to integrate 0.3 percent. But according to a Bank report, HIV/AIDS them into schools while supporting their families. 54 The World Bank Annual Report 2004 Table 2.6 World Bank Lending to Borrowers in Middle East and North Africa, by Theme and Sector, Fiscal 1995­2004 | millions of dollars 1995­97 1998­99 (annual (annual average) average) 2000 2001 2002 2003 2004 THEME Economic Management 52.4 5.2 0.0 11.9 5.0 0.0 0.0 Environmental and Natural Resource Management 131.9 94.2 123.3 27.5 21.7 186.0 113.8 Financial and Private Sector Development 354.1 361.1 61.8 78.8 204.1 48.3 259.3 Human Development 83.9 179.0 187.9 35.7 61.9 140.9 192.1 Public Sector Governance 118.1 89.8 130.6 102.6 93.3 106.6 19.6 Rule of Law 22.6 59.5 9.3 56.5 49.1 48.0 1.7 Rural Development 131.8 175.3 89.2 86.4 14.5 100.6 65.1 Social Development, Gender, and Inclusion 78.6 64.5 71.6 52.5 13.4 63.1 70.7 Social Protection and Risk Management 73.8 87.4 100.0 5.6 11.0 96.1 31.6 Trade and Integration 33.0 38.8 3.0 3.4 24.8 3.6 158.3 Urban Development 84.9 125.9 143.5 46.7 55.8 262.7 178.7 Theme Total 1,165.1 1,280.8 920.0 507.5 554.5 1,056.0 1,091.0 SECTOR Agriculture, Fishing, and Forestry 126.0 147.9 120.6 46.5 2.9 196.7 27.2 Education 116.2 94.2 197.1 72.3 38.0 154.3 154.9 Energy and Mining 24.6 56.8 0.0 0.0 1.3 0.0 0.0 Finance 179.7 176.4 5.3 0.0 110.5 1.9 20.8 Health and Other Social Services 101.6 159.8 158.9 39.3 41.7 124.2 52.0 Industry and Trade 187.0 168.6 47.9 27.0 71.7 74.3 23.4 Information and Communication 1.3 33.8 1.3 59.2 69.9 2.3 0.0 Law and Justice and Public Administration 153.9 250.5 108.9 161.5 74.7 213.6 93.6 Transportation 153.7 81.7 59.6 82.8 70.9 107.9 409.6 Water, Sanitation, and Flood Protection 121.2 110.9 220.5 19.0 73.1 180.9 309.5 Sector Total 1,165.1 1,280.8 920.0 507.5 554.5 1,056.0 1,091.0 Of which IBRD 990.6 955.5 760.2 355.2 451.8 855.6 946.0 Of which IDA 174.5 325.3 159.8 152.3 102.7 200.4 145.0 Note: Due to a recalculation of allocations by the system, lending by theme figures may differ from those in the 2003 Annual Report. For the Law and Justice and Public Administration sector, changes in figures reflect the retroactive remapping of projects to a new Compulsory Health Finance sector code under this category. For the Finance sector, changes in figures reflect the retroactive remapping of projects to a new Compulsory Health Finance sector code under Law and Justice and Public Administration. Numbers may not add to totals because of rounding. Figure 2.11 Middle East and North Africa: IBRD and IDA Figure 2.12 Middle East and North Africa: IBRD and IDA Lending by Theme, Fiscal 2004 | share of total Lending by Sector, Fiscal 2004 | share of total of $1.1 billion of $1.1 billion Urban Development Environmental & Water, Sanitation & Agriculture, Fishing & 16% Natural Resource Flood Protection Forestry 2% Management 10% 28% Education 14% Finance 2% Trade & Health & Other Financial & Integration 15% Social Services Private Sector 5% Development Social 24% Industry & Trade Protection & 2% Risk Management 3% Law & Justice & Public Social Development, Human Development Administration Gender & Inclusion 6% 18% Transportation 38% 9% Rural Development 6% Rule of Law 1% Public Sector Governance 2% Chapter 2 Regional Perspectives 55 World Bank Presidents Eugene R. Black and George D. Woods sit below portraits of World Bank Presidents Eugene Meyer and John J. McCloy. IDA extends the first development credit--a $9 million loan to Honduras for highway development--in 1961. The first education loan--$5 million from IDA to Tunisia for school construction-- was made in 1962. In 1961 the Bank lent $80 million to Japan to help finance the "bullet train." Eugene R. Black (1949­1963) George D. Woods (1963­1968) International First IDA credit The first First group arrives First IDA 60 16 Development is made, to education 63 for the Junior 64 replenishment, 19 Association (IDA) 19 Honduras for 9621 loan is 19 Professional recruit- providing established as highway made, to ment and training 19 $976 million. affiliate of the development. Tunisia. program (now the 60s19 Bank, with initial Young Professionals First credit to subscriptions of program). China, for a $1,390 million. harbor dredging Guinea signs IBRD Indus Waters project. articles of agreement Treaty is signed as 100th member of by Pakistan, India, the Bank. and the Bank. Thematic Perspectives 3 A microwave relay station atop Mt. Chingal (elevation 9,000 feet) near Lae, Papua New Guinea, part of a 1968 telecommunications project. U.S. President John F. Kennedy addresses the Annual Meetings in autumn 1963. Telephone operators at a PABX board in Singapore, part of a 1967 telecommuni- cations project. Robert S. McNamara (1968­1981) Bank commitments International France, Germany, The second exceed $1 billion 66 Centre for 76 Japan, the United 68 96 replenishment 9651 for the first time. 19 Settlement of 19 Kingdom, and the 19 of IDA, Investment United States form 19 providing Disputes (ICSID) the Group of 5 to $1.4 billion. established. convene meetings of finance ministers and governors of central banks. The group became the G7 in 1976, with the addition of Italy and Canada. With the inclusion of the Russian Federation, the group is now known as the G8. Reducing Poverty and Improving Economic Management The Poverty Reduction and Economic Management Network seeks to expand the knowledge needed to design policies that foster an enabling international environment for economic growth that benefits poor people. POVERTY REDUCTION STRATEGY PAPERS AND RELATED ACTIVITIES About 1.1 billion people--one-fifth of the world's population--live on less than $1 a day. The Bank's strategy for fighting poverty in low-income countries is based on the Poverty Reduction Strategy Paper (PRSP) approach (www.worldbank.org/prsp). This approach has resulted in broader country ownership of the poverty reduction agenda as well as improved partici- pation. During fiscal 2004 the Executive Directors con- c. 1966. A modern harvester shown reaping sorghum in an irrigated field sidered 12 country-owned full PRSPs and 2 interim reclaimed from desert land in Iran. The project raised living standards for 12,000 villagers who formerly lived under primitive conditions. PRSPs (I-PRSPs), bringing the total to 42 PRSPs. An additional 14 countries have I-PRSPs. Twenty-three countries have produced at least one Progress Report. 2004. The Bank increased the number of training (See www.povertynet.org.) events for staff and clients and developed new guide- The PRSP process has led to dialogue and openness. lines on conducting PSIAs. It also strengthened its co- It also appears to have spurred spending that aims to ordination with other donors to facilitate collaboration benefit poor people. Challenges remain, however, in with them on PSIAs, and it expanded the PSIA Web several areas, including establishing stable participatory site (www.worldbank.org/poverty/psia). processes, developing focused strategies with clear pri- orities, and better aligning donor support with country GOVERNANCE AND PUBLIC SECTOR REFORM priorities. The Bank's work on poverty reduction is guided by Bank lending for governance, public sector reform, and an emphasis on economic growth that benefits the rule of law--all key to poverty reduction--totaled poor, poverty and social impact analysis, and empow- $3.9 billion in fiscal 2004. The Bank also increased erment. Substantial progress was achieved in all three its learning and outreach programs on governance areas in fiscal 2004. issues, hosting nearly 50 seminars and training Growth is essential for poverty reduction, but sus- sessions on topics such as governance and accountabil- tained, successful poverty reduction also requires that ity in a decentralized social sector, reinventing govern- poor people participate in and benefit from growth. In ment, values and ethics, and judicial reform. fiscal 2004 the Bank did much to foster such growth. The Bank and the International Monetary Fund (See www.worldbank.org/poverty/inequal.) Bank staff (IMF) continue to work closely on public financial prepared framework papers on defining and measuring management through the Heavily Indebted Poor pro-poor growth and on the extent to which pro-poor Countries expenditure-tracking initiative. Working and pro-growth policies involve trade-offs. closely with client countries, Bank and IMF staff are The Bank also helped 50 countries evaluate the reassessing public finance systems, updating action potential impact of policy reforms on the welfare of plan progress, and developing new action plans. The poor and vulnerable people, initiating more than Bank has also increased its diagnostic and advisory 40 Poverty and Social Impact Analyses (PSIAs) in fiscal work in public financial management. It has 58 The World Bank Annual Report 2004 collaborated with partners to develop a performance measurement framework for assessing public finance systems, as well as an analytical approach that supports government-led capacity building. During fiscal 2004 the Bank supported implemen- tation of the Financing for Development Consensus, which reinforces the importance of domestic resource mobilization and aims to enhance relations between international organizations and national authorities on tax reform issues. The Bank, the IMF, and the Organisation for Economic Co-operation and Devel- opment signed a memorandum of understanding on establishing an international tax dialogue. (See www.worldbank.org/publicsector.) GENDER AND DEVELOPMENT Gender equality issues are now integrated into most Country Assistance Strategies, and Poverty Reduction Strategy Papers are increasingly gender sensitive. Gender issues are also important in Bank-financed projects, particularly in education, health, and social protection. Numerous Bank-supported operations are promot- ing gender equality, including education projects in Chad, Eritrea, Kenya, and Sierra Leone; an Early Child- The outcome of the Doha Development Round of Trade Negotiations matters a great deal to the world's poor. An agreement that slashed trade hood Development Project in Brazil; an HIV/AIDS, barriers, particularly in agriculture, would, in the long term, stimulate Malaria, and Tuberculosis Control Project in Djibouti; trade and raise incomes around the world, leading to a substantial reduction in global poverty. a Rural Women's Development and Empowerment Project in India; and a Land Titling Project in the Lao People's Democratic Republic. TRADE The Trust Fund for Gender Mainstreaming in the World Bank, financed by the governments of Research shows that trade boosts productivity, which the Netherlands and Norway, is supporting capacity in turn enhances growth. The Bank's work on interna- building among women in indigenous communities tional trade promotes a world trading system that is in Honduras, entrepreneurial opportunities for more conducive to economic development and helps women in Tajikistan, and gender- and HIV/AIDS- developing countries capture the benefits of global op- related activities in Africa. An economic policy initiative portunities. (See box 3.1.) Established nearly two years is developing a body of analytical work on such areas as ago, the Bank's International Trade Group supports trade, competitiveness, and public sector downsizing. the successful conclusion of the Doha Development The Bank also participates in partnerships to pro- Round and strengthens partnerships with international mote gender equality and empower women at the mu- organizations to enhance coherence and coordination nicipal, regional, and country levels. Its November 2003 in support of trade reforms. workshop on Gender Equality and the Millennium During fiscal 2004 Bank researchers investigated Development Goals--organized jointly with United the impact of trade liberalization on poverty, the ways Nations agencies, multilateral development banks, and in which multilateral and regional trade agreements bilateral donors--conveyed the message that gender can support the development process, the effect of in- equality is critical to achieving all of the goals and iden- ternational product standards on trade volumes and tified strategies for ensuring gender-sensitive actions. patterns, and the impact of liberalizing trade in infra- (See www.worldbank.org/gender.) structure services such as telecommunications, port Chapter 3 Thematic Perspectives 59 BOX 3.1 TRADE: WORKING TOWARD RESULTS Through the Trade Facilitation Initiative, the Bank is AT THE COUNTRY LEVEL involved in more than 130 trade-related operations in more than 60 countries. In September 2003, at the The Bank's regional trade work is being comple- World Trade Organization Ministerial Conference in mented with country work. The Integrated Frame- Cancún, Mexico, the Bank announced a new program work (IF) Initiative to help the less-developed to help countries seize opportunities offered by the countries integrate into the world economy is an current round of trade talks by reforming trade- important part of this program. Trade diagnostic related institutions and addressing barriers to trade studies have been completed for Burundi, stemming from inadequate ports, roads, and customs Cambodia, Djibouti, Ethiopia, Guinea, Lesotho, procedures. Madagascar, Malawi, Mali (near completion), The Bank also works through the Global Trade Mauritania, Nepal, Senegal, and the Republic of Facilitation Partnership for Transportation and Yemen. Integrated Framework dissemination work- Trade--a collaboration of more than 150 international shops have been organized in these countries. partners--to create a worldwide constituency for the Donor meetings have been held in Mauritania reform of trade logistics and trade facilitation. (November 2002), Senegal (June 2003), Nepal (See www.worldbank.org/research/trade.) (November 2003), and Madagascar (January 2004). Several major studies on the impacts of Russia's ECONOMIC POLICY accession to the World Trade Organization have also recently been completed. The Bank's economic policy work focused on several The Bank's CIS-7 trade initiative, which covers key areas in fiscal 2004--all involving growth. These the poorest countries in the Commonwealth of In- included economic growth and employment dependent States, focuses on trade, integration, strategies; economic growth through technological and competitiveness, and provides technical assis- change; the role of fiscal policy in promoting growth tance for export and investment facilitation. Other and employment; debt and volatility issues affecting important diagnostic studies are under way for the sustainability of growth; fiscal, growth, and em- Central America (in the context of the Central ployment issues at the subnational level; and integra- America Free Trade Agreement), the Caribbean tive policy analysis and tools for macroeconomic region, the Dominican Republic, Kenya, Nigeria, analysis. Pakistan, Tajikistan, and Ukraine, with many more The Bank's Economic Policy Group produced in advanced planning stages. handbooks on fiscal sustainability, tax expenditures, management of volatility and crises, and subnational fiscal reform, as well as papers on government­private facilities, and international transportation. In fiscal sector interaction and technological change; wages, 2004 the Bank published several books on trade topics, employment, and growth; export-promotion zones including Agriculture and the WTO, Poor People's and growth; competitiveness and growth; and fiscal Knowledge: Promoting Intellectual Property in Develop- policy and growth. (See www.worldbank.org/ ing Countries, and other titles that examine regional poverty.) and cross-cutting trade issues. The Bank continues to support country develop- Capacity-building efforts through the World Bank ment efforts through diagnostic reports, such as the Institute included new courses on standards, trade Development Policy Review and country economic facilitation, and services. The Bank also supported memoranda, which provide integrated views of a Vietnam's accession to the World Trade Organization, country's development priorities and cross-sectoral the Doha negotiations, and national trade policies in links to poverty reduction. In fiscal 2004 it con- Africa, and it continued its regional program in sup- ducted development policy reviews of Cape port of African researchers. Verde, Ecuador, Indonesia, Malaysia, Nepal, the Bank lending operations reflect the growing impor- Philippines, the Seychelles, Sri Lanka, Tunisia, tance of trade in country development agendas. and Uganda. 60 The World Bank Annual Report 2004 Investing in People Investing in services that enable poor people to break Education projects in Indonesia enable poor children in rural areas to attend school. the cycle of poverty has never been more important. Bank support to country clients to expand and deepen the impact of their spending on health, education, and Initiative. In its first 20 months, the initiative promoted other key services is stronger than ever. The Bank also faster policy reform, improved donor coordination, aims to strengthen the services that protect vulnerable and mobilized additional resources, doubling funds people, including children and youth, people with dis- to the first seven participating countries. Most signifi- abilities, and people in crisis. From international part- cantly, the initiative created a global framework for re- nerships geared at scaling up the effort to meet the solving issues arising along the Education for All path. Millennium Development Goals (MDGs) to country- At a landmark meeting in Oslo in November 2003, based programs at the local and household level, attended by representatives of the Bank, donors, and putting people first is at the heart of the Bank's client countries, participants agreed to expand the commitment. Fast-Track Initiative to all eligible low-income coun- tries and to launch a Bank-managed Catalytic Fund with initial commitments of $250 million to provide EDUCATION start-up funding to countries implementing good Helping countries build education systems that can policies but lacking sufficient donor support. respond to the poverty and knowledge challenges In addition to accelerating progress toward univer- of the 21st century is a fundamental objective of the sal primary education--including support to help edu- World Bank. Restoring momentum toward the goal cational systems respond to the impact of HIV/AIDS-- of universal primary school completion by 2015 has the Bank is committed to helping countries build the been the objective of the Education for All Fast-Track advanced skills they need to compete in global markets. Chapter 3 Thematic Perspectives 61 COMBATING HIV/AIDS HIV/AIDS (UNAIDS), the Bank works closely with other U.N. agencies to strengthen HIV/AIDS work at country, Since the HIV/AIDS epidemic began, more than 60 mil- regional, and global levels. At the country level, the lion people have been infected with HIV and more Bank is actively engaged in policy dialogue and in help- than 20 million people have died of AIDS. Around the ing countries to use the Poverty Reduction Strategy world, an estimated 5 million people became infected Paper process and the Heavily Indebted Poor Countries with HIV in 2003 alone, bringing the total number of Initiative to release funds from debt relief for fighting adults and children living with HIV/AIDS to 38 million. HIV/AIDS. More than 95 percent of people living with HIV/AIDS The Bank's Global HIV/AIDS Program supports the are in developing countries, and about half of all new World Bank's efforts to address the HIV/AIDS pandemic adult infections occur among young people ages 15 from a cross-sectoral perspective and leads the moni- to 24. toring and evaluation efforts of UNAIDS partners AIDS threatens human welfare, socioeconomic ad- through the Global HIV/AIDS Monitoring and Evalua- vances, social cohesion, and even national security. In tion Support Team. This team works with countries and many countries AIDS is erasing decades of progress in diverse donors to strengthen monitoring and evalua- development and is orphaning millions of children. tion capacity at the country level and coordinates with Given the impact of the epidemic on development, donors to relieve countries from having multiple the World Bank has placed HIV/AIDS at the center reporting systems. of its development agenda. The World Bank is working with all major stake- The World Bank is one of the largest sources of holders in scaling up antiretroviral therapy; its recently financial support for the prevention, care, treatment, completed technical guide, "Battling HIV/AIDS: A and mitigation of HIV/AIDS through national, regional, Decision Maker's Guide to the Procurement of and subregional programs. Since 1990 the Bank has Medicines and Related Supplies," has been endorsed by committed more than $2.4 billion for HIV/AIDS-related U.N. agencies. The $60 million grant for the Treatment programs in grants, loans, and credits in every region Acceleration Project will pilot innovative public sector, to fight the disease. For the poorest countries, HIV/AIDS private sector, and civil society partnerships for scaling projects supported by IDA can be financed wholly by up comprehensive treatment in Burkina Faso, Ghana, grants rather than loans. In fiscal 2004 12 stand-alone and Mozambique. HIV/AIDS projects or projects with HIV/AIDS and related The Bank has entered into a partnership with the components were approved for nine countries, one United Nations Children's Fund; the Global Fund to region, and two subregions for total commitments of Fight AIDS, Tuberculosis and Malaria; and the Clinton $381 million. Of these, 12 projects were IDA grants. In Foundation to make it possible for developing coun- Africa and the Caribbean, nearly $1.2 billion has been tries to purchase high-quality AIDS medications at low made available since 2001 to support the implementa- prices. The drug agreements could save $150­$400 per tion of national HIV/AIDS strategies and subregional patient per year, allowing more people to be treated. HIV/AIDS activities through the Multicountry HIV/AIDS Agreements on diagnostic tests will result in savings of Programs (MAPs). Every eligible country in Africa is up to 80 percent. now receiving MAP support or preparing for MAP Today more than ever before, the Bank's efforts on funding, and by the end of fiscal 2004, the Caribbean HIV/AIDS are beginning to pay off. Within the Bank, MAP was supporting seven national projects and one HIV/AIDS has been placed squarely on the development regional program. agenda and AIDS work is reflected in health projects In addition to financial assistance, the Bank is also as well as projects in many other sectors, including a major provider of project support, through direct education, infrastructure, transportation, and water provision of expertise (especially in fiduciary matters), and sanitation. Internationally the Bank plays an im- the sharing of good practices and lessons learned, and portant role as a major contributor to the fight against sponsorship of intercountry learning. As a founding HIV/AIDS and as a trendsetter in new ways of dealing cosponsor of the Joint United Nations Programme on with the pandemic. (See www.worldbank.org/aids.) 62 The World Bank Annual Report 2004 c. 1974. An outdoor literacy class in a village near the Kita area in Mali Health systems performance remained a dominant was part of an Integrated Rural Development Project. theme in fiscal 2004, representing $546 million in new lending. Support to child health, nutrition, and popu- This assistance is provided through analytical and advi- lation programs and to reproductive health programs sory activities, which increased 25 percent in fiscal totaled more than $630 million, while support to 2004, and lending, which reached $1.68 billion in fiscal the fight against communicable diseases, including 2004, including $515 million of education components HIV/AIDS, reached $379 million. The Bank's commit- in 50 noneducation projects. Steady growth in integrat- ment to addressing the health and economic impact of ed support reflects a strategy of nesting education injury and noncommunicable disease was reflected in firmly in national poverty reduction programs and $315 million in new lending. other efforts that address vulnerability, health, private At a high level forum convened by the Bank and sector development, and public sector governance. the World Health Organization in Geneva in January The India Elementary Education Project offers a 2004, donor and country partners met to develop a good example of Bank efforts to support a highly com- consensus on ways to accelerate progress toward the mitted government: accelerated project processing of a health MDGs, such as making Poverty Reduction $500 million IDA credit in just nine months, and use of Strategy Papers more responsive to these goals. For a sectorwide approach permitting pooled funding, example, the Second Tanzania Health Sector Project joint supervision, and common reporting and moni- tracks the same indicators for health under both toring with other donors. (See www.worldbank.org/ national and sector programs. The project also ad- education.) dresses other critical constraints, such as the crisis of human resources in health caused by both HIV/AIDS and emigration, and the challenge of deploying health HEALTH, NUTRITION, AND POPULATION workers to underserved areas. Protecting people from the impoverishing effects of To better understand what works in delivering illness, malnutrition, and high fertility is at the core of health services to poor people, the Bank assessed the Bank's focus on health, nutrition, and population. dozens of interventions in Africa, Eastern Europe, and Good policies and effective health services are critical Latin America. Although many initiatives undertaken links in the chain of events that allow countries to with the objective of benefiting poor people--such as break out of the vicious cycle of poverty, and they are improvements in primary health care and efforts to central to the achievement of several MDGs. Better ensure attended births--are falling short of their goals, health and nutrition lead to greater productivity, others are performing well. Measles immunization higher incomes, and economic growth. campaigns have had good results in Ghana and Chapter 3 Thematic Perspectives 63 BOX 3.2 DISABILITY AS A FUNDAMENTAL ISSUE poor are essential for reducing household vulnerability. Adequate and sustainable social protection policies Roughly 400 million people with disabilities live in help improve the investment climate, and they posi- developing countries. Poor nutrition, dangerous tively affect economic growth, incomes, and poverty. working and living conditions, limited access to Social safety nets reduce the severity of poverty and adequate health care, poor hygiene, inadequate help promote health and education. Bank-supported information about the causes of impairments, social funds and public works programs have improved war, conflict, and natural disasters all help explain roads, schools, and health facilities. Interventions also why the number is so high. Disability exacerbates have targeted vulnerable groups, such as the elderly, the poverty by reducing access to education and public disabled, orphans, and children affected by harmful services and the opportunity to earn a living. This child labor. (See box 3.2.) In fiscal 2004, 77 percent of vicious cycle affects not only the individual but the $1.6 billion in new social protection lending went often the entire family and community. to risk prevention and mitigation activities (pensions, A Bank-supported operation in India is training unemployment insurance, and social funds), with the disabled people in development work so that they remaining 23 percent spent enhancing the ability of can help empower other disabled people and their households to cope with welfare downturns (social families. It strives to reduce stigma and raise the so- safety net operations). cial and economic status of people with disabilities More countries undertook assessments of risk, vul- by building institutions that support the provision nerability, and social safety nets, and more poverty as- of accessible services and promote disability preven- sessments included a vulnerability focus in fiscal 2004. tion activities. The Bank has made it a priority to By comparing the main risks countries face with the ensure that all activities it finances, including policy instruments used to manage those risks, these procurement and project design criteria, consider analyses identified programs with insufficient coverage the needs of people with disabilities. (See or inadequate emphasis on preventing or mitigating www.worldbank.org/disability.) recurrent shocks, helping policy makers improve the effectiveness of their interventions. For example, with assistance from development partners, including the Zambia, and government contracts with civil society Bank, the Ethiopian government is shifting away from organizations to operate district health systems have a system dominated by emergency humanitarian aid produced a patient mix in Cambodia that is more toward a productive and protective safety net aimed at beneficial to the poor. reducing vulnerability. (See www.worldbank.org/sp.) The Argentina Maternal and Child Health Insur- ance Program responds to the urgent needs of poor ENGAGING WITH CHILDREN AND YOUTH mothers and children. The loan uses an innovative matching grant mechanism from the federal budget to A priority for the Bank in fiscal 2004 was to bring chil- target indigenous people in the nine poorest provinces. dren and youth into the policy dialogue on global de- Other innovations include reducing the cost of bor- velopment issues and have them inform national and rowing for polio prevention in Nigeria and Pakistan local decision making. The objective is to give young and for tuberculosis prevention and treatment pro- people a voice at the table where discussions on the grams in China, in partnership with foundations and Country Assistance Strategy, Poverty Reduction Strate- bilateral donors. (See www.worldbank.org/hnp.) gy Paper, and other projects take place. To do so, the Bank launched the New Voices Initiative, an effort at the country level to engage young adults directly in PROTECTING VULNERABLE PEOPLE development activities. At the Youth, Development, Crises, natural or otherwise, have devastating effects on and Peace Conference that took place in Paris in poor households, robbing them of security, assets, and September 2003, the Bank and young leaders identified incomes. Social protection measures that help individ- five themes for future youth involvement: education, uals, households, and communities better manage employment, risky behavior and HIV/AIDS, conflict risks and that provide support for the chronically and peace, and participation and empowerment. 64 The World Bank Annual Report 2004 Addressing the Challenges of Sustainable Development Sustainable development is central to poverty reduc- home to some 490 million of the world's poor. Lending tion. The Bank bases its policies on an environmentally to agriculture rose in fiscal 2004, and is projected to in- and socially integrated approach, including a focus on crease significantly over the next two years, along with agriculture and rural areas, where 70 percent of the forest and rural water lending. poor now live. Implementation of the Bank's rural development Responsible Growth for the New Millennium: strategy, Reaching the Rural Poor, has already had a Integrating Society, Ecology, and the Economy describes significant impact on many of the Bank's activities in the Bank's long-term strategy for addressing the future rural areas. The strategy has made rural development challenges of technology change, natural resource a multisector activity, enhancing cooperation among management, and social balance. To further this strate- the many Bank units active in rural areas. (See gy the Bank is encouraging countries to address global www.worldbank.org/ruralstrategy.) concerns with appropriate solutions, customizing Rural poor people are increasingly involved in country approaches that can address challenges planning national rural-development strategies. ranging from water scarcity and climate change Eleven countries have used participatory processes to to rural growth and social development. (See develop people-centered national rural-development www.worldbank.org/sustainabledevelopment.) strategies. With Bank support, another 10 countries-- including Bangladesh, Ethiopia, India, Kenya, and the Philippines--are preparing water resource assistance AGRICULTURE AND RURAL DEVELOPMENT strategies. Some 45 percent of rural development lending in fiscal Lending for rural infrastructure now represents 2004 went to South Asia and Africa; the former is a third of all rural lending. Infrastructure is key to A Sri Lankan village shop is lit by solar lamps. Chapter 3 Thematic Perspectives 65 time, it is committed to the Millennium Development Goal of ensuring environmental sustainability and endorses the global commitments made at the 2002 World Summit on Sustainable Development. (See www.worldbank.org/environmentstrategy.) Poverty and the Environment New programmatic lending instruments that provide loans for long-term change are helping the Bank sup- port policy and institutional reforms that address links between poverty reduction and the environment. One example is the Third Poverty Reduction Support Project in Uganda, which improved the quality of water and sanitation services and increased access for the poor. Poverty Reduction Strategy Papers and Country Assistance Strategies are also incorporating environmental objectives, recognizing and strengthen- ing the environmental impacts of development assis- tance and country actions. Analytical and Cross-Sector Work To further enhance its environmental dialogue with client governments, the Bank, during fiscal 2004, conducted Country Environmental Analyses (such as in Bangladesh, Colombia, and Ethiopia); Strategic Environmental Assessments (such as the Assessment c. 1965. Tea is picked in Ragati, in Kenya. Two Bank loans and three IDA of Macroeconomic Impact of Climate in Mali); credits helped the development of agriculture and the improvement of roads in the tea-growing areas. Environment Monitors (in, for example, Cambodia and Thailand); and Energy-Environment Reviews (in, revitalizing the agricultural sector, and increasing for example, Rwanda and Turkey). Cross-sector work, agricultural productivity is, in turn, critical to increasingly owned by client countries, also strengthens promoting economic growth in rural areas. The the links with the water and sanitation, transportation, Bank has strengthened its partnership with the urban, energy, and rural development sectors. Consultative Group on International Agricultural Research to ensure the supply of new and adapted Environment Lending technologies for enhancing agricultural productivity. The Bank approved 67 new projects with environmen- (See www.cgiar.org.) It is continuing its efforts to tal content in fiscal 2004, for a total of $1.3 billion in convince governments in industrial and developing new lending for such projects. The loans represent countries to allow a more open agricultural trade about 6.5 percent of total new lending by the Bank, regime and to reduce trade-distorting agricultural an increase from 4.7 percent in 2002 and 6 percent in subsidies. (See www.worldbank.org/rural.) 2003. Examples of loans that support the environment include the First Programmatic Reform Loan for Environmental Sustainability in Brazil and the Water ENVIRONMENT Supply and Sanitation Project in Iran. The Bank is in the third year of implementing its environment strategy. It continues to make progress Environmental Benefits toward achieving the key objectives of improving the The Bank is building synergies between local and quality of life, improving the quality of growth, and global environmental benefits. In partnership with the protecting regional and global commons. At the same Global Environment Facility (www.gefweb.org), the 66 The World Bank Annual Report 2004 Montreal Protocol, and the Bank's carbon finance busi- BOX 3.3 CARBON FINANCE AS A POWERFUL ness (see box 3.3), the Bank is addressing global envi- DEVELOPMENT TOOL ronmental issues. As an implementing agency of the Global Environment Facility, the Bank is preparing Carbon finance is proving to be a powerful tool for projects in two new areas--land degradation and improving the viability of clean technology invest- persistent organic pollutants. Along with other partici- ments that address climate change. Bank client pants at the September 2003 World Parks Congress, countries provide high-quality carbon emission and as one of the largest financiers of biodiversity reductions in exchange for development dollars, projects, the Bank highlighted the importance of technological know-how, and clean technologies integrating local livelihoods into protected area for sustainable development. Through "learning management and of complying with the Convention by doing" and targeted technical assistance, the on Biological Diversity. (See www.worldbank.org/ Bank is helping to build developing countries' montrealprotocol.) capacity to participate in this emerging market. (See www.carbonfinance.org.) Greening the Bank The carbon finance business has substantial Internally, the Bank launched the Environmental and private sector involvement. It catalyzes investment Social Sustainability Initiative, its own approach to in renewable energy and provides a source of rev- corporate social responsibility. The initiative seeks to enues after most Bank financing ceases, thus sus- improve the environmental impacts of its physical taining project activities long after a project is facilities as well as its corporate and operational completed. procurement (See www.worldbank.org/ess; With more than $420 million under manage- www.worldbank.org/environment.) ment and approximately $350 million in projects approved or under preparation, funds supporting carbon finance include the Prototype Carbon Fund, SOCIAL DEVELOPMENT a public-private partnership; the Community Devel- Social development is fundamental to the Millennium opment Carbon Fund, which extends carbon fi- Development Goals. Evidence presented in the OED nance to smaller poorer countries; the BioCarbon Review of Social Development in Bank Operations shows Fund, which applies carbon finance to forestry and that projects that take social dimensions into account land use projects; and industrial country funds such have better development outcomes, are more sustain- as those of the Netherlands or Italy, which expand able, and are more likely to develop effective institu- carbon market development to involve the private tions. Incorporating recommendations from this re- sector. view, the Bank drafted a strategic priorities paper, Social Development in World Bank Operations: Results and Way Forward. The paper, which is currently under- going global consultations, proposes ways in which financed projects. It is also developing tools for Bank-financed projects and programs can better inte- engaging with civil society in conflict-affected areas, grate the operational principles of social sustainability: exploring the links between conflict and natural inclusion, cohesion, and accountability. resource management, adapting community-driven A key area for Bank support in fiscal 2004 was the development approaches to conflict settings, develop- scaling up of community-driven development. Efforts ing guidelines for assessing postconflict needs, and to better integrate this approach into country pro- applying conflict analysis to the poverty reduction grams intensified, with analytical work on program strategy process to ensure more effective poverty design and implications in all regions. Efforts are in- reduction in conflict-affected countries. (See creasingly moving toward strengthening local gover- www.worldbank.org/caf.) nance, particularly the links between local governments During fiscal 2004 the Bank's Post-Conflict and community-based organizations. Fund approved more than $8.5 million in grants The Bank has developed a Conflict Analysis to support conflict-affected countries. (See Framework to enhance conflict sensitivity in Bank- www.worldbank.org/conflict.) Chapter 3 Thematic Perspectives 67 In collaboration with partners, the Bank provided environment and social impacts and risks. It conducted operational and cofinancing support for Poverty and an extensive program of capacity-building activities Social Impact Assessments. Country-level social indica- on safeguards for staff and clients and continued to tors are being tracked through a new online database, support harmonization processes with the Bank's and a framework for country-level social analysis is development partners. being tested. Fiscal 2004 also saw the approval of the Global Fiscal 2004 also saw the launching of the Commu- Fund for Indigenous Peoples (www.worldbank.org/ nity of Practice on Social Accountability, with a series indigenous), which finances a grant facility that of workshops and lectures aimed at enhancing knowl- provides small grants directly to indigenous peoples' edge sharing, networking, and the mainstreaming of organizations for development-related activities. social accountability in Bank operations. The Bank also conducted a capacity-building To integrate the safeguard review and clearance program for leaders of indigenous peoples in the process into the Bank's work, the Bank's Quality Andean region and worked to strengthen the United Assurance and Compliance Unit updated procedures Nations Permanent Forum on Indigenous Issues. for regional review of projects with moderate or low (See www.worldbank.org/socialdevelopment.) 68 The World Bank Annual Report 2004 Revitalizing Infrastructure Infrastructure is a key factor in reducing poverty, supporting growth, and reaching the Millennium Development Goals in developing countries. But existing infrastructure is often poor, access limited, and funds to improve it inadequate. The World Bank supports a wide range of infra- structure services in transportation; water supply and sanitation; urban services; telecommunications; and energy, including electricity and extractive industries such as oil, gas, and mining (see also "External Evalua- tion" in chapter 4). It supports infrastructure service delivery, reform, and institution building through policy dialogue and physical investments. It also acts as a catalyst to leverage financial and other assistance from development partners and the private sector to support technical assistance. The Bank made a new commitment in fiscal 2004 to infrastructure with the launch of the Infrastructure Action Plan. POVERTY ALLEVIATION, THE MDGs, AND GROWTH Estimates show that in the late 1990s infrastructure in- vestments reduced poverty by as much as 2.1 percent in low-income countries and 1.4 percent in middle- income countries. Improving infrastructure services such as water supply and sanitation is an explicit target in the Millennium Development Goals, and improving services such as housing and information and commu- nication technologies is at least implicit in the goals. Infrastructure services also have an impact on the goals relating to health, education, and gender. Increasing access to clean water, for example, has reduced the Solar energy lights a village shop in Sri Lanka. probability of child mortality by 55 percent overall. Paved roads have significantly increased--and in one case doubled--the attendance of girls at school. Infrastructure also has important links to economic during the 1980s and 1990s. A recent study of Latin growth. Infrastructure investment is particularly im- America estimated that the lack of investment in infra- portant to growth during the early stages of a country's structure during the 1990s reduced long-term growth development, when infrastructure is scarce and basic by 1 to 3 percentage points, depending on the country. networks have not been completed. One study found At the project level, World Bank infrastructure projects that if the stocks of telecommunications and power- have had an average economic rate of return of 2 per- generation infrastructure in Africa had been compara- cent, and in recent years the return has averaged 3 per- ble to those in East Asia, the continent's annual growth cent. Infrastructure is also a critical element in building rate would have been about 1 percentage point higher the investment climate: the private sector consistently Chapter 3 Thematic Perspectives 69 ranks lack of infrastructure as one of the key impedi- ments to investment. ACCESS, QUALITY, AND FINANCING NEEDS The unmet access, quality, and financing needs for in- frastructure services in developing countries remain staggering. In rural areas in low-income countries, only 2 percent of the population has access to electricity, and less than 2 percent has access to a mainline tele- phone. Infrastructure needs are sizable in most middle- income countries and in urban areas as well. Lack of access is compounded by the low quality of infrastructure services. Relative to OECD (Organisa- tion for Economic Co-operation and Development) countries adopting best practices, energy losses are twice as large, water losses four times as high, and faulty telephone lines ten times more common in low- income countries. Eighty percent of roads are paved in c. 1955. The Anchicaya dam and power station serve the fast-growing city of Cali and were financed by loans from the World Bank totaling OECD countries, compared with just 29 percent in $8.03 million. low-income countries. A recent study of seven Latin American countries suggests that the poor quality of public infrastructure renders it only about 74 percent strengthening its own instruments and approaches. as effective as infrastructure in industrial countries. (See box 3.4.) This translates into a long-run cost that is equivalent The Bank has made significant progress in imple- to about 40 percent of real per capita income. menting the recommendations of the Infrastructure Meeting the challenge of increasing access to Action Plan and in reengaging in infrastructure devel- good-quality infrastructure services will require opment. It has signaled a more flexible approach to sizable investments over the medium term. Current supporting infrastructure service delivery and provid- estimates point to financing needs of about 7 percent ing guidance on the roles of the public and private of gross domestic product (GDP) for all developing sectors. It is developing guidance notes on specific countries--for both new investment and operations types of infrastructure services. A note on public and and maintenance expenditures. Financing needs in private sector roles in the supply of electricity services low-income countries could be as high as 9 percent of addresses the range of options, from purely private to GDP. These figures suggest that investment and opera- purely public, that most Bank client countries will tions and maintenance allocations for infrastructure, face as they work with Bank staff to reform their which average about 3.5 percent of GDP in developing power sectors and improve efficiency and growth. countries, may have to double. (See www.worldbank.org/infrastructure.) The Bank also increased infrastructure lending, provided more policy advice, and strengthened donor THE INFRASTRUCTURE ACTION PLAN coordination in fiscal 2004. It began rebuilding its In July 2003 the Bank launched its Infrastructure Ac- country knowledge base by introducing the Recent tion Plan. The plan sets the stage for increased support Economic Developments in Infrastructure, a new for infrastructure service delivery through a balanced standardized infrastructure diagnostic. It invested in public sector­private sector approach and the mobi- infrastructure sector performance data to improve lization of financing from multiple sources. It commits results measurement and monitoring. Together with the Bank to responding to increased client demand for other multilateral development banks and bilateral infrastructure, to analyzing the effectiveness of and organizations, it built common analytical and policy need for infrastructure in developing countries, and to platforms. The Bank also strengthened its instruments 70 The World Bank Annual Report 2004 BOX 3.4 INNOVATIVE APPROACHES TO The Cambodia Provincial and Peri-Urban Water and INFRASTRUCTURE SERVICE DELIVERY Sanitation Project uses an output-based aid approach to finance water connections for poor households. The Bank is taking an innovative approach to deliver- Under the project, the government (supported by IDA ing infrastructure in several new operations launched grants) will make fixed subsidy payments for each con- in fiscal 2004. The South Africa Regional Gas Project nection made by private sector operators to households (SASOL) will mobilize private sector investment to gen- identified as being below the poverty line. Payments erate revenues by developing and exporting natural will be made only after successful connection and proof gas from Mozambique to South Africa. A World Bank of reliable service. Group project, SASOL involves an IBRD partial risk guar- The Trade and Transport Facilitation in South East antee, MIGA guarantees (which help private sponsors Europe Program is a regional initiative that fosters raise commercial debt on reasonable terms), and IFC trade and integration across eight countries by working equity. It is also the first IBRD enclave guarantee--in to reduce nontariff costs to trade and transportation, which IBRD resources are being used for an IDA-only reduce smuggling and corruption at border crossings, country--as well as the first IBRD local currency guaran- and strengthen and modernize customs administrations tee, denominated in rand. and other border control agencies. and approaches by creating a cross-sectoral Infra- also at the state and municipal levels. As it revitalizes structure Economics and Finance Department. The its infrastructure business, the Bank will continue to department acts as a focal point for infrastructure apply its social and environmental safeguards, which finance, strengthens risk mitigation instruments, and are critical to ensuring high-quality infrastructure explores engagement not just at the national level but projects. Chapter 3 Thematic Perspectives 71 Supporting Private Sector Development The Private Sector Development Network identifies the regulatory reforms, policies, and institutional capacities needed to create a vibrant investment climate. Building such a climate is crucial to promoting growth where poor people live. Research and practice show that such growth is key to reducing poverty. Growth has not taken hold in many countries, despite the important reforms of the 1980s and 1990s. Those reforms focused largely on macroeconomic stabilization, neglecting important microeconomic reforms, including streamlining the rules governing the establishment and operation of a business. Such reforms are crucial, as many microeconomic factors-- including laws and regulations, public institutions, and civic habits that make it difficult for entrepre- neurs to start formal businesses, borrow money, and hire workers--limit the potential for economic growth. The Bank's strategy is to develop a second genera- tion of reforms focused on improving microeconomic conditions for private sector investment and growth. The network is providing better data through new survey tools that can be used to analyze the elements of a good investment climate and to translate that knowledge into Bank lending and advisory services that support actual reforms in developing countries. The strategy includes promoting responsible business practices and corporate governance; targeting support for micro-, small, and medium-size enterprises, and advancing privatization policies that work in suitable, competitive contexts so that the private sector can successfully offer goods and services. Private sector development work spans many parts of the Bank. This cross-cutting theme, found in both lending instruments and economic and sector Vendors sell a variety of produce at the Xai Xai Market. work, is organizationally linked with the International Finance Corporation, providing coordination for pri- vate sector programs throughout the World Bank RESEARCH AND ASSESSMENT Group. The Private Sector Development Network is implementing the Bank Group's private sector strategy A Bank-IFC report, Doing Business in 2004: Understand- by combining better research on business environment ing Regulation, released this year, provides microeco- constraints with country programs that strengthen nomic data from 133 countries on five key indicators: policies and institutions. It also facilitates important starting a company, hiring and firing workers, enforcing dialogue between government and the private sector a contract, obtaining credit, and going bankrupt. (See about reform. box 3.5.) Doing Business generated global media 72 The World Bank Annual Report 2004 coverage and a new interest in reform in many coun- BOX 3.5 DOING BUSINESS IN 2004 tries. Research showed that cumbersome regulation is associated with lower productivity. (See figure 3.1.) Doing Business in 2004: Understanding Regulation Doing Business complements investment climate is an example of groundbreaking World Bank­IFC surveys launched in 52 countries in the past three research that makes a complex issue accessible to years, with some 20 more planned in fiscal 2005. To the general public. The report, which includes data help identify priority areas for reform, these standard- on the business climate in 133 countries, has raised ized firm surveys identify policy, regulatory, and important questions about the red tape affecting institutional factors that constrain private investment business. Why, for instance, does it take 152 days in and link these constraints to firm-level performance. Brazil, 168 in Indonesia, and 210 in Angola to start Together with other sources, the surveys underpin a business and only 2 in Australia, 4 in Puerto Rico, Investment Climate Assessments, key country reports and 8 in Singapore? Why does this process cost five on the business environment. Some 26 Investment times per capita income in Cambodia and less than Climate Assessments have been completed. These 1 percent in Canada? Doing Business concludes that assessments have influenced 11 Country Assistance poor countries regulate business in ways that are Strategies and helped shape some 30 new Bank lending associated with bad outcomes (greater government operations in Africa, East Asia and Pacific, Latin inefficiency, more corruption, higher unemploy- America and the Caribbean, and South Asia. Invest- ment, and less investment). It also maintains that ment Climate Assessment findings and Doing Business best practices are transferable from one country to indicators are also being incorporated into Poverty another. What works in industrial countries can Reduction Strategy Papers. work in developing countries, and innovations from In several poor countries, Doing Business and developing countries can be broadly replicated. Investment Climate Assessments have helped spur Planned as an annual report, Doing Business governments to cut red tape. Many national and inter- will examine three new indicators (property titling, national agencies, including the Dutch Department corporate governance, and business licenses) in of Economic Development, the U.S. government's 2005 and another three (taxes, trade, and law and Millennium Challenge Account, the Summit of the order) in 2006. (See http://rru.worldbank.org/ Americas, and the European Bank for Reconstruction doingbusiness.) and Development, are using Doing Business indicators to help determine how to allocate aid or monitor country progress. IDA has adopted policy reform targets that are based on Doing Business indicators. Figure 3.1 Cumbersome Regulation Is Associated with In response, a dozen countries have carried out Lower Productivity | labor productivity, $1,000 promising reforms. The spotlight on regulatory per worker reforms will intensify with the World Development Report 2005: A Better Investment Climate for Everyone. 40 The Foreign Investment Advisory Service (FIAS), a joint service of the Bank and IFC, provides govern- 30 ments with analyses and recommendations for increas- ing foreign direct investment. (Figure 3.2 identifies 20 resource flows to developing countries.) The service completed about 60 advisory projects on policy re- forms or capacity building in fiscal 2004. Almost 10 70 percent of FIAS policy recommendations have been fully or partially implemented within three years of 0 1 2 3 4 submission. An example is Albania, which began Fewer procedures More procedures implementing recommendations to remove red tape Countries ranked by procedures to start a business (quartiles) and root out corruption, such as streamlining its cus- Sources: World Bank Doing Business Database. Washington, D.C. toms procedures. (See www.fias.net.) World Bank. 2003. World Development Indicators 2003. Washington, D.C. Chapter 3 Thematic Perspectives 73 c. 1961. The World Bank has supported the development of many private completed to date are serving as the basis for policy industries. Cement stacks are shown being loaded onto a customer's dialogue, legal reforms, and new capacity-building truck at the Pacasmayo Cement Plant in Peru. projects in many countries. The Arab Republic of Egypt, for example, has adopted several corporate In fiscal 2004 the Bank's Corporate Governance governance recommendations, including establishing Unit completed 10 country assessments analyzing listing rules for its stock exchange and creating an how well securities laws, corporate laws, and business institute to train directors on corporate boards. practices comply with principles of corporate gover- nance developed by the Organisation for Economic LENDING, TECHNICAL ASSISTANCE, Co-operation and Development. The 28 assessments AND ADVISORY SERVICES The Bank made commitments for 95 new projects with Figure 3.2 Net Long-Term Resource Flows to Developing Countries, 1993­2003 | billions of dollars private sector development components in fiscal 2004, which will amount to over $4 billion of its portfolio. 200 These figures underscore the Bank's commitment to new and innovative lending for investment climate 150 reforms. The Bank's total portfolio now includes 488 projects with private sector development compo- 100 nents, amounting to more than $16 billion of lending. IDA and IFC launched a pioneering $225 million 50 pilot project in several African countries to address 0 the main roadblocks to the growth of small and medium-size companies. In Brazil the Bank provided a 50 $505 million adjustment loan, based partly on Invest- 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003a ment Climate Assessment findings, to help make firms Official net resource flows Foreign direct investment more competitive by reducing logistics costs caused Capital market flows by bottlenecks in customs and transportation. Doing a. Estimate. Net long-term resource flows are defined as net liability Business indicators will be used to assess progress. transactions or original maturity of greater than one year. In Nigeria the Bank is helping design a small and Source: World Bank. 2004. Global Development Finance 2004. Washington, D.C. medium-size enterprise development project that uses 74 The World Bank Annual Report 2004 Doing Business indicators and Investment Climate and government. The Bank is actively facilitating such Assessments for monitoring performance. dialogue around the world and working to create open Private sector research also influences advisory ser- environments that allow business and government to vices and technical assistance. The network coordinates put difficult issues on the table for candid discussion. closely with many of the 10 IFC donor-supported Business-government dialogues regularly accompany funds, called Project Development Facilities. These the dissemination of Doing Business, Investment facilities provide technical assistance to small firms Climate Assessments, FIAS reports, and corporate gov- and business organizations for work on improving ernance reports. In Brazil the Doing Business forum led difficult business environments. In Chengdu, China, to the formation of a private sector group to propose to expand credit to small businesses, the Doing reforms to the government. As part of a new gender Business team provided the municipal government initiative, consultations on the impact of regulation on with information on global best-practice credit women were held with women's business associations bureaus. With the support of the Doing Business team from 13 countries. In Nigeria the Investment Climate and the facility, FIAS is working with the People's Bank Assessment provided the basis for launching the Better of China on crafting recommendations for reforming Business Initiative, which has spurred a dialogue be- the country's collateral laws and improving creditor tween the private sector and the government on key in- rights protections. vestment climate policies. In India the private sector The Private Sector Development Rapid Response has taken the lead in launching follow-up investment Unit launched a new version of its highly rated climate surveys to monitor progress in policy reforms. knowledge-management Web site, which allows Bank In Ghana, Senegal, Tanzania, and Uganda, investor staff, policy makers, and reformers to hold policy councils composed of leading government and busi- discussions and access the leading research, databases, ness officials have begun operating, and an investor and privatization tool kits. The site is on target to reach council was formed in Turkey in 2004 with FIAS assis- 1 million visits a year. (See http://rru.worldbank.org.) tance. The Global Corporate Governance Forum, a multidonor trust fund founded by the Organisation for Economic Co-operation and Development and the PRIVATE SECTOR DIALOGUE Bank, supports private-public roundtables at which An important element of most successful investment participants discuss policies and identify areas for climate reforms has been dialogue between business urgent improvement. Chapter 3 Thematic Perspectives 75 Building Strong Financial Systems The World Bank has long recognized that poverty re- both publications and data, can be downloaded from duction and economic growth depend on effective and the Bank's Web site (www.worldbank.org/finance). strong national financial systems. Financial systems In fiscal 2004 the Bank was at the forefront of analysis that develop unevenly and lack transparency and prop- on several issues that are critical to mitigating risk and er regulation are more vulnerable to financial shocks. developing sound financial markets, such as financial Extensive Bank research shows that these shocks and sector governance, risk management, corporate re- crises disproportionately affect poor people. Weak structuring, and electronic finance and security. financial systems in developing countries contribute to (See box 3.6.) poverty by providing inadequate access to financial In many countries, people lack access to financial services to individuals and to the small and medium- services. The Bank has developed analytic frameworks size enterprises that are key to economic growth and for assessing poor people's access to services and iden- empowerment. The Bank contributes to strengthening tifying the impediments to expanding it. Simultaneous the financial sector in three ways: by generating and studies in several Latin American countries, including disseminating knowledge, by providing country diag- Brazil, Colombia, and Mexico, surveyed access to nostic services, and through lending and technical financial services by individuals and examined the assistance. actual and potential role of different types of financial institutions--private and public banks, microfinance institutions, informal arrangements--in providing KNOWLEDGE GENERATION access. Results on individual countries have been AND DISSEMINATION widely disseminated, cross-country comparisons are In collaboration with outside groups, the Bank pro- now under way, and studies are being conducted in duces cutting-edge contributions on financial sector other countries, including India and South Africa. topics to help practitioners and governments make bet- These efforts should help policy makers understand ter policy decisions. The vast majority of this research, what factors limit access to financial services. The Financial Sector Learning Program comple- ments ongoing research by offering financial sector policy makers, regulators, private sector practitioners, World Bank staff, and academics cutting-edge policy advice and forums in which they can share multidisci- plinary perspectives. A number of programs were conducted this year, including a collaboration with RiskWaters, a private firm specializing in providing information on financial services (including risk man- agement). It addressed the development of sound frameworks to implement the new Basel Accord, which highlights improved risk management, enhanced supervisory authority, and disclosure and transparency for banking systems. In addition, the World Bank stepped up efforts to assist countries at risk of crisis. A conference on dealing with systemic financial distress brought together policy makers and academics to develop a handbook for au- thorities based on lessons learned. The Bank also took c. 1976. A skilled worker in a Bangalore watch factory tends a modern the lead in several regional seminars on bank insolven- machine purchased with foreign exchange made available by the cy, including events held in Malaysia, South Africa, and Industrial Development Bank of India, which received a Bank loan and an IDA credit. Tunisia. The seminars were targeted to reach senior 76 The World Bank Annual Report 2004 legal officials in central banks and drew on the findings BOX 3.6 MEETING THE CHALLENGE of the Global Seminar on Regulatory Aspects of Finan- OF ELECTRONIC FINANCE cial Stability, held in Basel, Switzerland. Last, the Bank launched a new Corporate Restructuring Initiative in Electronic finance provides great opportunities to fiscal 2004, which was followed by a global seminar on reduce the costs of financial and commercial trans- international best practices in corporate restructuring. actions, but it also poses new security risks. The In the wake of the financial crises of the late 1990s, Financial Sector publication Electronic Safety and the link between corporate restructuring and bank Soundness: Securing Finance in a New Age offers restructuring is widely recognized. For more practical information on how to mitigate risks so information about the Financial Sector Learning that emerging economies can enjoy the benefits of Program, including the calendar of events, visit these new technologies. The paper was disseminat- www.financelearning.org. ed at events such as the Asia Pacific Regional Con- This past year, the World Bank put increased focus ference on Electronic Safety and Soundness for on the role of global remittances, acknowledging that Financial Services, held in Singapore May 17­18, they are an important source of capital for developing 2004. The conference provided policy makers with economies. Inadequate financial infrastructure, advice on crafting safe and sound platforms for however, and impediments to cross-border financial electronic financial services and increasing cross- transactions, hamper their flow through formal chan- border collaboration to help regulatory authorities nels. People who send money home often pay high fees and policy makers improve their capacity for miti- or use informal financial channels. Transaction costs gating electronic security risk. amount to billions of dollars each year and could be reduced substantially by promoting greater competi- tion and better outreach and payments infrastructure in the formal financial system. Besides lowering costs, these practices would also ensure greater transparency by channeling remittance flows through appropriately regulated formal channels. Addressing these issues will also help develop the financial sectors in recipient countries, provide greater access to financial services, and support the Bank's efforts to prevent money laun- dering and to block the financing of terrorism, both increasing global concerns. The relative impact of natural disasters on develop- ing countries is greater and more disruptive than it is on developed ones, largely because the infrastructure in developing countries is less resilient, the building stan- dards are lower, and the coping resources and mecha- nisms are fewer. Yet because domestic insurance mar- A money exchange market in Somalia, 2002. kets are less developed in these countries, little of the risk is transferred to international reinsurance markets, leaving developing countries to retain most of the risk of natural disaster. In response to such a problem, the other developing countries to develop similar schemes World Bank worked together with the Turkish govern- for better managing the risks of natural disasters. In ment, domestic insurers, and international reinsurers India the Bank delivered a comprehensive report on to develop the Turkish Catastrophe Insurance Pool, a disaster risk management to the government. The heart state-mandated pool that, by arranging sources of risk of the report consists of an estimate of the potential financing before a natural catastrophe occurs, can add loss from earthquakes, floods, and cyclones in four to the availability of funds and access to liquidity in the states that have suffered major disasters in the past two event of a disaster and thus can contribute to better decades. Key recommendations included establishing a risk management. The World Bank is working with central disaster risk-management facility to further Chapter 3 Thematic Perspectives 77 develop country and state disaster response and miti- the partnership has funded $15 million for 89 projects gation capacity and linking such an initiative to the de- globally. velopment of a formal contingency-funding capacity, To help build secure investment climates, the Bank including, where appropriate, contingent debt and intensified its technical assistance to countries and modern risk-transfer technologies. The Indian govern- regional organizations to strengthen anti-money- ment recently established the core of a formal risk laundering efforts and combat the financing of terror- management unit in the Ministry of Home Affairs, ism (AML/CFT). These efforts followed the comple- where senior staff are using the Bank report to further tion of a pilot program, undertaken jointly with the the debate in India. International Monetary Fund, of 33 country assess- ments measuring compliance with international AML/CFT standards. Assistance has involved providing COUNTRY DIAGNOSTIC WORK advice on drafting laws and regulations, implementing The World Bank joins the international community preventive measures in the financial system, and train- that has embarked on a range of initiatives to strengthen ing evaluators. The Bank has also launched an external the international financial architecture. International AML/CFT Web site, which is available at the Bank's financial architecture refers broadly to the framework main Web site at www.worldbank.org. and institutional context that can help manage crises and even prevent them from occurring. The joint World LENDING, POLICY ADVICE, AND Bank­International Monetary Fund Financial Sector TECHNICAL ASSISTANCE Assessment Program, established in 1999, helps identify financial system strengths and vulnerabilities and helps The Bank provides loans, advice, and technical assis- reduce the potential for crisis. As of June 2004, 86 coun- tance to client countries interested in reforming or re- tries have had an initial assessment. Of these, 66 assess- structuring their financial sectors. Lending for financial ments have been completed. An additional 20 countries sector reform amounted to $1.3 billion in fiscal 2004 have formally requested an initial assessment. and covered topics ranging from payment systems and Many systemically important countries--where capital markets to financial sector restructuring. For an internal financial crisis could spill over to other example, in West Africa the Bank financed a project to countries--have been assessed, including, for instance, build institutional capacity in the regional financial more than half of the G-20 group of developing coun- market. With technical assistance and an IDA credit, tries. The mix of countries now entering the program the project helped to strengthen the regulatory frame- includes an increasing share of poorer and smaller work and build the capacity of regional institutions developing and transition countries. Although the for capital market operations. The credit provided program will provide initial assessments to some medium- and long-term financing for projects that will 17 countries, the number of reassessments and updates promote regional integration among the West Africa is expected to increase in the future. A new multidonor Economic and Monetary Union countries. It also de- partnership, the Financial Sector Reform and Strength- veloped political risk mitigation instruments that can ening Initiative, has been established as a mechanism catalyze longer-term commercial financing in support to support technical assistance follow-up to the Finan- of small and medium-size infrastructure projects in cial Sector Assessment Program and others. To date, West African countries. 78 The World Bank Annual Report 2004 Promoting the Modernization of Legal and Judicial Systems Effective legal frameworks and institutions are critical The Bank continued to promote the improvement to alleviating poverty. For this reason, strengthening of investment climates and to strengthen the rule of the rule of law is a high-priority goal for the Bank, law in a series of legal and judicial sector reform client countries, other international financial institu- assessments and projects in numerous countries. (See tions, bilateral donors, and civil society organizations. box 3.7.) These assessments identify issues and offer The Bank's Legal Vice Presidency works closely with recommendations that encourage dialogue between the all other Bank units to increase assistance to borrower Bank and borrowing countries and help coordinate the countries in modernizing their legal systems. To work of the donor community in this sector. Typically, strengthen these efforts, Bank plans call for a future they also lead the Bank and donors to support legal Legal Reform Trust Fund as a multidonor grant facility. and judicial reform as necessary to promote sound in- This fund will promote knowledge sharing and devel- vestment climates. A Bank-supported legal and judicial opment, research, capacity building, legal education, development project in Morocco, for example, has con- and civil society activities in the field of legal modern- tributed to strengthening commercial courts and reg- ization. One of the priority areas for Institutional De- istries, prompting wide interest from other countries in velopment Fund grants is legal and judicial reform that the region. (See www.worldbank.org/ljr.) supports the rule of law. As part of this process, the Bank is now elaborating POVERTY ALLEVIATION AND THE LAW on a sector strategy for legal modernization in light of experience. The strategy aims to measurably improve The Bank has also focused on how the justice sector the development benefits delivered by legal systems. serves poor people. The Indonesian Justice for the Poor Program, supported by the Bank, led to the develop- ment of a community-driven strategy for legal reform. ENHANCING THE INVESTMENT CLIMATE The strategy is based on extensive case studies demon- BY STRENGTHENING LAWS strating that informal village institutions are widely As part of its effort to build the climate for investment, perceived as quicker, cheaper, and easier to deal with the Bank is helping strengthen the international finan- than formal courts in resolving the most pressing dis- cial architecture. It recently finalized its Principles for putes. Many disputes involve allegations of corruption. Effective Insolvency and Creditor Rights Systems and has assessed some 25 countries against these principles under a joint International Monetary Fund­World Bank program to develop Reports on Observance of Standards and Codes. These assessments have led to Bank-provided technical assistance in 8 countries. The online Global Insolvency Law Database, which covers more than 75 countries, has expanded knowledge out- reach. So, too, have regional conferences such as the Forum on Insolvency in Latin America, organized in collaboration with the Organisation for Economic Co-operation and Development and other partners, and the Third Forum on Asian Insolvency Reform in the Republic of Korea. The Bank, the International Monetary Fund, and the United Nations Commission on International Trade Law are also exploring ways to By consulting the Internet in Mauritania's eastern village of Aioun Al promote unified standards on insolvency and creditor Atrous, two residents learn of the right of the indigenous local population to defend their remaining trees against tree-cutters from Nouakchott, the rights. (See www.worldbank.org/gild.) capital. Chapter 3 Thematic Perspectives 79 BOX 3.7 IMPROVING THE LEGAL ENVIRONMENT While village institutions succeed in resolving some IN IRAQ cases, most fail because of the large power imbalance between villagers and the perpetrators of corruption. Helping create positive climates for investment and Successful cases are those in which community leaders finance is particularly difficult in countries in the mobilize at the grassroots, have links to civil society, midst or aftermath of a military conflict. In fiscal and have the backing of strong outside institutions. 2004 the Bank provided legal support on opera- These lessons are now shaping Bank assistance to the tional issues, international law, and institutional sector in other countries, including Cambodia. issues in postconflict situations around the world. Cambodia's Land Management and Administration In collaboration with the International Monetary Project (II)--funded by the Bank and the German So- Fund and the United Nations, the Bank worked ciety for Technical Cooperation--ensures that disad- within the framework of United Nations Security vantaged parties in land disputes receive legal assistance Council resolutions, existing Iraqi law, and the mea- and that systematic titling of land occurs. The project sures adopted by the Coalition Provisional Authori- supports a system of land mediation boards under the ty to identify the possible contribution of the Bank Ministry of Lands. The system, through which a na- to the reconstruction and development of Iraq. As tional committee renders final decisions on conflicting part of this effort, the Bank is supporting a project claims, is proving to be a more user-friendly mecha- to build public and private capacity by training Iraqi nism for land dispute resolution than local courts. lawyers to draft and negotiate construction, com- Many poor people in rural areas cannot obtain rele- mercial, and financial contracts. vant legal information in a form they can understand. To address the problem, an Institutional Development Fund grant is financing a pilot project in Mauritania that puts the official texts of statutes, such as the coun- try's recently enacted Code Pastoral, on the Internet in Arabic and French. The code devolves ownership of natural resources, such as grazing land and trees, back to the people living in outlying areas. Those able to access laws on the Internet in turn make the essence of such laws available to illiterate people using poems and pictograms. Through these sorts of innovative presen- tations, access to relevant laws is empowering local villagers. ADDRESSING GENDER EQUALITY In fiscal 2004 the Bank launched a program to provide advisory and technical support to promote gender equality and justice. In Guatemala, Honduras, Peru, and República Bolivariana de Venezuela, the Bank examined the extent to which international standards, as established under international conventions on gen- der equality, are applied. Through distance dialogues via videoconferences with Costa Rica, Guatemala, Honduras, Mexico, and República Bolivariana de Venezuela, the Bank proposed strategies for promoting equal access to justice by women, particularly in cases of gender-based violence, a priority issue voiced by local stakeholders. The Bank has also strengthened ongoing partnerships with other international A tribal court near Ulundi, South Africa, deals with food shortage issues. organizations--including the Office of the United 80 The World Bank Annual Report 2004 Nations High Commissioner for Human Rights, the sions, and contributes to international efforts to fight United Nations Development Fund for Women, the corruption. Through its Department of Institutional International Labour Organization, the Organization Integrity, it investigates allegations of fraud and cor- of American States, the Economic Commission for ruption in World Bank Group operations. Based on Latin America and the Caribbean, and the Pan these investigations, the Bank's Sanctions Committee American Health Organization--in the area of determines whether there is sufficient evidence that a women's human rights, developing subregional initia- firm has engaged in any fraudulent or corrupt practice tives to improve the implementation and monitoring in connection with a Bank-financed contract. Where it of relevant conventions. In addition, the Bank has finds evidence of fraud or corruption, the committee provided Institutional Development Fund grants in identifies an appropriate sanction, such as debarment various countries, including Chile, Ghana, Kenya, and for a specified period. The Bank is considering devel- Nigeria, to empower women to enforce their rights oping a first-of-its-kind program for an international through legal literacy and training. organization that will encourage firms to come forward voluntarily with information about fraud and corruption in Bank-financed projects. (See COUNTERING FRAUD AND CORRUPTION www.worldbank.org/integrity.) The Bank helps countries combat corruption, assesses corruption in its country analyses and lending deci- Chapter 3 Thematic Perspectives 81 Visit to Zambia, November 15­18, 1972, by World Bank President Robert S. McNamara. Women who have given birth are given a family planning lecture at the Victoria Jubilee Hospital in Kingston, Jamaica, before going home, as part of the Bank's first family planning project, financed in 1970. Robert S. McNamara, World Bank President 1968­1981. World Bank President Robert S. McNamara on a visit to Tunisia in 1973. Robert S. McNamara (1968­1981) 0s 0 Bank Group Japan becomes one 2 Third replenishment 3 President Robert commitments of the Bank's five of IDA, providing S. McNamara 197 exceed $2 billion 1971 largest shareholders. 197 $2.9 billion. 197 delivers the for the first time. Nairobi Annual The Consultative Bank commitments Meeting speech, Group on Interna- exceed $3 billion for in which, for the tional Agricultural the first time. first time, poverty Research (CGIAR) World Bank Staff is placed at the is founded. Association is top of the Bank's established. agenda. 197 Improving Development Effectiveness 4 Workers remove soil from the banks of the Suez Canal as part of the 1974 Suez Canal Rehabilitation Project to widen and deepen the canal. The 1977 Sanaa Water Supply and Sewerage Project, in Yemen, built wells and a reservoir and provided pumps and pipelines. The 1974 Tarbela Dam Project in Pakistan, financed by a $500 million dollar interna- tional agreement signed by Canada, France, Italy, Pakistan, the United Kingdom, the United States, and the World Bank. A doctor provides medical services in Calcutta, part of the 1973 Calcutta Urban Development Project. 5 IBRD and IDA 6 First nutrition loan 7 Fifth IDA 8 First World 9 Bank commitments commit nearly $1 is made, for $19 replenishment, Development exceed $10 billion 197 billion in one fiscal million to Brazil. 197 197 providing 197 Report: Review 197 for the first time. year for rural devel- $7.7 billion. of Development Bank begins lending opment projects. Experience, for health projects. 1950­75 is First environment published. loan is made, to Finland for water pollution control. Fourth IDA replenishment, providing $4.5 billion. Chapter 4 Improving Development Effectiveness Concern for global stability and prosperity requires future work. The plan emphasizes action in three development efforts that achieve measurable results. areas: Desirable outcomes can include raising greater num- bers of people out of poverty, achieving higher levels Incountries--whereresultsareachieved,to of education for more people, and lowering infant strengthen the planning, statistical, monitoring, mortality rates. Countries need to focus on such and evaluation capacity needed to manage for results so that they can make better policy decisions results, and to build public demand for greater and design better strategies for their own develop- accountability for results. ment. The new partnership for development calls for IntheBank--tobeamorerelevantandeffective countries to measure their achievement toward the partner by strengthening the focus on results in Millennium Development Goals (MDGs). In fiscal strategies, instruments, incentives, and reporting 2004 the Bank began to implement its own results systems. agenda--an action plan to enhance its effectiveness Acrossdevelopmentagencies--tofosteraglobal as a development agency. With its development partnership that manages for results by encourag- partners, it also produced the first Global Monitoring ing common approaches and better coordinated Report, which provided an assessment of progress support to strengthen country capacity. on the policies and actions needed to attain the MDGs. Progress was made in all three areas in fiscal 2004. Strengthening Capacity in Countries MANAGING FOR DEVELOPMENT RESULTS The motivation and capacity of developing countries Managing for development results--using information to manage for results are fundamental for success. to improve decision making and to steer country-led Progress requires the political will to demand informa- development processes toward well-defined goals--is tion on results as well as the institutions and expertise at the forefront of the global development agenda and to produce the information and use it to make in- a core element of the Bank's strategic objectives. It formed policy and management decisions. But many builds on the Bank's efforts to increase aid effectiveness countries lack basic data on development outcomes, by improving the quality of lending and nonlending monitoring and evaluation systems, and institutional activities. A conceptual framework and Bank-wide mechanisms for providing information on results to action plan on managing for results were developed managers and policy makers. in fiscal 2003. During fiscal 2004 the Bank began to The Bank contributes to countries' efforts to meet implement the action plan. these challenges by supporting a focus on results in The framework recognizes that the Bank needs their national poverty reduction strategies, by assessing to focus on results throughout the project cycle: the readiness of their institutions to manage for results, early on, for strategic planning and program design; and by helping them employ results-based approaches during implementation, for day-to-day management in government institutions through sharpened ana- and corrections to program design; and toward the lytical work, public sector reform, and better fiscal end, for evaluation and feedback that can inform management. An important advance in fiscal 2004 was 84 The World Bank Annual Report 2004 the development and initial implementation of an um- BOX 4.1 RESULTS-BASED COUNTRY ASSISTANCE brella lending program--the Statistical Capacity Build- STRATEGIES ing Program--to strengthen statistical systems, institu- tional capacity, and planning in developing countries. Results-based Country Assistance Strategies help The Bank's knowledge-sharing activities--in which it Bank staff select the most relevant and effective distills and disseminates experience on activities that mix of Bank support for developing countries. achieve results under various country circumstances-- These strategies have the following key features: are another vehicle the Bank uses to help countries achieve development results. (See also "Knowledge Explicit statements of the results that Bank- Sharing and Advisory Services" in chapter 5.) supported activities aim to achieve and of the links between Bank support and those results Increasing the Bank's Contribution to Better monitoring and evaluation to help the Development Results Bank and countries steer toward agreed results The Bank's purpose has always been to achieve devel- Greater emphasis on strengthening country opment results. Historically, however, it gauged its capacity to manage for results success mainly by measuring the volume and, more Learning from experience through a systematic recently, the quality of its individual lending opera- assessment of the previous Country Assistance tions. In recent years the widening array of Bank Strategy to inform the strategy and Bank activ- products and services--including analytical work, ities of the next one capacity-building initiatives, and global programs-- and a shift in focus from individual operations to the Six pilot results-based Country Assistance Strategies country level created a need for a broader understand- were approved in fiscal 2003 and fiscal 2004. Initial ing of results. feedback suggests that they lead to a better selec- The Bank is responding to this demand by increas- tion of Bank activities by encouraging discussions ing the focus on measurable results in its Country As- across sectors. They also strengthen the dialogue sistance Strategies and sector strategies, lending instru- between countries and the Bank. The pilot phase ments, reporting systems, and internal incentives. In will be formally evaluated in fiscal 2005 as the next fiscal 2004 the Bank introduced a pilot for the results- step toward general adoption of results-based based Country Assistance Strategy to better link the Country Assistance Strategies. Chapter 4 Improving Development Effectiveness 85 Coordinating with Other Development Agencies Achieving better results re- quires greater collaboration be- tween countries and develop- ment agencies and better coordination among development agencies them- selves. Development agencies need to align their require- ments for results reporting with countries' national monitoring and evaluation systems. At the same time, these agencies need to coordinate their support for countries' efforts to strengthen capacity to manage for results. In fiscal 2004 the Bank pro- moted these aims by helping establish and actively partici- Bank's products and services with country-level results pating in two formal partnerships on managing for (see box 4.1 on page 85). The Bank's Sector Boards results--one among multilateral development agen- have strengthened the results frameworks and outcome cies, the other between multilateral and bilateral devel- monitoring of their sector and thematic strategies. opment agencies. The Bank also cosponsored interna- Basic documents and procedures have been revised to tional events on managing for results, including the strengthen the articulation of outcome-oriented objec- Second International Roundtable on Managing for De- tives and the monitoring and evaluation of Bank oper- velopment Results, held in Morocco in February 2004. ations. The Bank is also developing a long-term learn- These partnerships and events enable agencies and ing strategy to help staff and management meet the countries to raise the profile of managing for results, growing demand for skills in results-based approaches. share good practices, and learn from one another. These approaches are becoming an increasingly impor- The cosponsors of the Second Roundtable endorsed tant and accepted part of the Bank's culture. core principles, a joint memorandum, and an action The Bank also developed an enhanced results mea- plan on managing for development results, providing a surement system for the 14th Replenishment of IDA basis for a broad consensus on what managing for re- (IDA14, covering fiscal 2006­08). The system will re- sults means and how to go about achieving it. At the flect the priorities of national poverty reduction strate- same roundtable, the international statistical commu- gies and will be linked with the Millennium Develop- nity reached agreement on a medium-term global ac- ment Goals. It will provide aggregated information tion plan to strengthen international statistical systems, on countries' progress toward achieving development including collaborative mechanisms. Through these results and on IDA's contribution to their progress. initiatives, the Bank and other development agencies Development of a more comprehensive results- are building the foundations for harmonized results- reporting system across the Bank--integrating country, based approaches and reporting. sector, and global results information--is an important goal of the results agenda. Because such a system will SIMPLIFYING AND HARMONIZING POLICIES be based on information from results-based Country AND PROCEDURES Assistance Strategies and from operations and pro- grams with a stronger focus on results, it will achieve To modernize and simplify its assistance to borrowers, its full potential only after these approaches are adopt- the Bank is streamlining and updating its policies ed throughout the Bank's work. for investment and adjustment lending. This effort 86 The World Bank Annual Report 2004 includes expanding the items eligible for financing under investment lending; modernizing mechanisms for disbursement, financial management, and procure- ment; streamlining procedures for fiduciary and safeguard reviews of projects; and harmonizing the Bank's policies with those of other development organizations. The international community has recognized that the quantity and variety of donor requirements at- tached to development financing generate additional transaction costs for developing countries. As a result, multilateral and bilateral development institutions are working to better coordinate their policies, procedures, and practices. Donor institutions are working to im- prove development effectiveness by eliminating du- plicative programs and aid requirements and by pro- viding assistance in line with their comparative advantage. The Bank is working with the Organisation for Eco- nomic Co-operation and Development to develop a harmonization toolkit in areas such as financial man- East Asia has already met the goal. Africa, however, is agement, procurement, environmental and social safe- seriously off track, with just eight countries, represent- guards, and analytical work. It is also developing a Web ing about 15 percent of Africa's population, likely to site that will bring together information about harmo- achieve the goal. In other regions that will probably nization for practitioners and a country-level tracking meet the goal at the aggregate level, a number of coun- tool for sharing experiences and best practices. tries will not. Low-income countries under stress, To ensure that laws adequately and consistently about half of which are in Africa, are especially at risk reflect Bank safeguard policies, the Bank is assisting of falling far short. Mexico, Poland, Sri Lanka, and other client countries Progress on the human development goals, in par- by reviewing their national laws and helping them ticular education and health, depends on the scale and design adequate national environmental and social effectiveness of interventions directed toward them. At management frameworks. the same time, the multiple factors that determine suc- cess in meeting these goals cut across sectors. Prospects for achieving the goals are brighter in education than GLOBAL MONITORING OF PROGRESS in health. Given current trends, several regions will TOWARD THE MDGs achieve or approach the goal of providing universal The first Global Monitoring Report, issued in April primary education. But shortfalls are likely in Africa 2004, reviewed global prospects for reaching the and are possible in South Asia and the Middle East and MDGs. It identified reasons for optimism, as well as North Africa. Gender gaps are the most serious in these reasons for grave concern. At the global level, the first three regions as well. Although the MDG target date for goal--of halving income poverty between 1990 and gender equality in primary and secondary education is 2015--will most likely be met, because of stronger eco- 2005, it appears that, globally, about a third of develop- nomic growth spurred by improvements in policies. ing countries will not achieve this goal even by 2015. The first Global Monitoring Report was the main agenda item for the spring 2004 meeting of the Development Committee, a forum of the World Bank and the International Monetary Fund (IMF) that works to build consensus on development issues. The report was prepared by Bank and IMF staff, collaborating closely with partner agencies, including other multilateral development banks, the Organisation for Eco- nomic Co-operation and Development, the United Nations, and the World Trade Organization. The report will underpin the Development Committee's regular monitoring of progress on the policy agenda for achieving the Millennium Development Goals and related developments and reinforce the accountabilities of the key actors--developed and developing countries, as well as multilateral agencies. Chapter 4 Improving Development Effectiveness 87 Middle-income countries are much better positioned to achieve the MDGs than low- income countries, and many of them have already met the goals or are well on the way to achieving them. Yet, even in those countries, hundreds of millions of people live in poverty. Urgent Action Is Needed The implication is clear. To achieve the MDGs, countries must substantially accelerate the pace of development--and do so swiftly. In line with the principles and partnership established at Monterrey, in March 2002, all parties--developing and developed In health, the prospects are grave. Just 15­20 per- countries, as well as multilateral agencies--must scale cent of countries are currently on track to achieve the up their action. The policy agenda for achieving the goals of reducing child and maternal mortality. If MDGs has three essential elements: current trends continue, most regions will not attain either goal. The incidence of HIV/AIDS, malaria, and Accelerateanddeepenreformstoachievestronger tuberculosis is rising, making the goal of halting and economic growth, which directly reduces income reversing their spread daunting. The spread of these poverty and expands resources for use toward the diseases exacerbates conditions that increase child and other goals. maternal mortality rates--and it has grim economic Empowerandinvestinpoorpeople,andimprove and social consequences. The risks of failure to halt the delivery of human development and related HIV/AIDS are especially high in Africa but are sub- key services. Deliver better education and health stantial in many countries in other regions as well. services, as well as related infrastructure services Large gaps in access to safe drinking water and basic such as water and sanitation and rural roads. sanitation make achieving the health goals more diffi- SpeedupactionontheMonterreypartnership, cult. The gaps are largest in Africa for water and in matching stronger reform efforts by developing South Asia for sanitation. To halve the proportion of countries with stronger support from developed people without access to safe water and sanitation by countries and international agencies. Developing 2015, another 1.5 billion people will need safe water, countries need expanded access to markets in and 2 billion will need sanitation. Since current rates of developed countries to increase exports and progress are about half what is needed, most regions spur growth, and they need more aid to finance will fall far short: only about 20 percent of countries development programs. will achieve the target on access. Among low-income countries, just 1 in 10 is expected to do so. The Global Monitoring Report provides an integrated Global and regional trends hide considerable varia- assessment of the policies and actions of all develop- tion within regions--and often within countries. East ment partners. It is an accountability framework for Asia provides a good example. The region's middle- monitoring how the various parties are living up to income countries have already met or will soon meet the commitments made at the Monterrey summit several of the MDGs. But its low-income countries are and for focusing attention on the priorities for action. unlikely to meet them, as are many poor countries in The framework for monitoring developing-country Africa. There is also diversity within countries, espe- policies classifies the policy agenda into four areas: cially large ones. economic and financial policies, public sector 88 The World Bank Annual Report 2004 governance, human develop- ment, and environmental management (figure 4.1). The Monterrey Consensus envisaged increased support by developed countries in two key areas that directly affect outcomes in the developing world: trade and aid. Policies in developed countries also greatly affect the outcomes of global collective action, such as the preservation of the global environmental com- mons. The monitoring framework focuses on four key aspects of developed- country policies: macrofinan- cial policies, trade policies, aid, and global public goods (figure 4.2). Monterrey summit, if realized, are still below the level The international financial institutions have an im- of the early 1990s relative to gross national income in portant role to play in helping countries achieve the recipient countries. A recent Bank study found that MDGs. The monitoring framework for assessing their countries with relatively good policies and institutions contribution focuses on four key dimensions: country could absorb a substantial increase in aid that could be programs, global programs, partnership, and results used effectively to boost progress toward the MDGs. As (figure 4.3). a conservative estimate, such countries could absorb at least $30 billion annually. As countries improve their The Cost of Achieving the MDGs policies and governance over time, the amount of aid Developed countries and financial institutions are that can be used effectively would increase to $50 bil- called upon to provide more and better aid, but there lion or more per year, the amount that most estimates is a concern that countries may not be able to absorb suggest is necessary to support adequate progress it effectively. However, aid increases pledged since the toward the MDGs. Figure 4.1 Monitoring: Dimensions of Developing-Country Figure 4.2 Monitoring: Dimensions of Developed-Country Policies Policies Economic and financial policies Macrofinancial policies · Macro · Private sector regulatory and · Policies supportive of economic · Trade institutional environment growth and stable capital flows · Financial sector · Infrastructure Public sector Trade policies governance · Agriculture and Human Aid · Public expenditure manufactures development and revenue · Quantity and · Services (including · Education and management quality of aid temporary movement health · Public · Debt relief of workers) · Social protection administration · Trade-related · Voice/inclusion · Transparency, assistance · Gender accountability, control of corruption Global public goods · Environment Environmental management · Others · Policies and institutions Source: World Bank. 2004. Global Monitoring Report 2004. Washington, D.C. Source: World Bank. 2004. Global Monitoring Report 2004. Washington, D.C. Chapter 4 Improving Development Effectiveness 89 Table 4.1 Bank Lending to MDGs, Fiscal 2004 Number of projects Commitments (millions of dollars) IBRD IDA IBRD/IDA IBRD IDA IBRD/IDA All projects 87.0 158.0 245.0 11,045.4 9,034.6 20,080.1 MDG-related projects 19.5 39.7 59.2 2,406.6 2,356.9 4,763.5 Achieve universal primary education 3.0 6.9 9.8 204.8 578.8 783.6 Promote gender equality and empower women 0.3 3.3 3.6 24.4 343.8 368.2 Reduce child mortality 0.8 0.5 1.3 274.5 63.3 337.7 Improve maternal health 0.5 2.2 2.7 212.6 79.7 292.3 Combat HIV/AIDS, malaria, and other diseases 0.3 8.7 9.0 25.0 354.2 379.2 Ensure environmental sustainability 9.1 12.7 21.8 788.4 516.2 1,304.6 Develop a global partnership for development 5.6 5.4 11.0 876.9 420.9 1,297.8 Note: Data are not given for the first Millennium Development Goal: eradicate extreme poverty and hunger. The Bank's overall mission is to reduce poverty. Therefore, all of its lending is linked to the first goal. The number of projects includes fractions because of the system employed for counting, which identifies projects that address more than one goal and is designed to avoid double counting or overreporting of deliverables. Numbers have been rounded. The cost of achieving the MDGs is difficult to esti- for each goal, and they cut across many sectors. The mate for several reasons. One is that putting a price interdependence of goals implies that costing each tag on achieving these goals requires distinguishing goal separately could result in double counting. between average and marginal cost. In education, the The effectiveness of additional expenditure also marginal cost of enrolling a child could be higher than depends on appropriate changes in policies and the average cost, because children not in school might institutions. be harder to induce to attend school or may live in more scattered populations. Another is that progress Bank Lending for the MDGs on one goal contributes to progress on other goals. In fiscal 2004 the Bank analyzed the level of all new For example, safe drinking water and good sanitation commitments in relation to the individual Millennium promote better health. There are multiple determinants Development Goals. Table 4.1 shows the breakdown of lending aimed at goals 2­8. Figure 4.3 Monitoring: Dimensions of Development Agency Support ASSESSING THE QUALITY OF BANK ACTIVITIES Country programs The Bank's Quality Assurance Group has a mandate · Strategic alignment--with country-owned to monitor the quality of the Bank's projects and priorities for poverty reduction and other MDGs analytical work. It reports directly to senior manage- · Relevance and selectivity in program design ment but shares its reports with the Board. (The re- ports are posted at www.worldbank.org.) Its assess- Partnership Global programs ments are conducted by peer review panels that draw · Harmonization · Support to country of policies and capacity building for on several hundred senior staff as well as seasoned practices RPGs/GPGs professionals from other development agencies, think · Coordination · Anchor role in of support international system tanks, universities, and civil society organizations. This programs for key RPGs/GPGs approach lends credibility and allows the Bank to provide timely feedback to frontline operations. Results The Quality Assurance Group assesses the quality of · Focus on quality and results new projects in "real time," providing immediate feed- · Systems for monitoring, reporting, and evaluation back to task teams and their managers when a project is approved (quality at entry) and during implementa- Note: GPGs global public goods; RPGs regional public goods. Source: World Bank. 2004. Global Monitoring Report 2004. Washington, D.C. tion (quality of supervision). It also assesses Bank 90 The World Bank Annual Report 2004 analytical and advisory services, known as economic Figure 4.4 Active Project Portfolio by Region as of June 30, 2004 | share of net commitments and sector work, just after delivery to client countries. of $95.1 billion In fiscal 2004 the Quality Assurance Group initiated a pilot program for assessing country lending portfolios South Asia 19% Africa 17% on demand from country managers. Its flagship Annu- al Report on Portfolio Performance explores the scale, structure, performance, and quality of the active Middle East & portfolio. It also presents an analytical perspective on North Africa 5% East Asia & one or two key challenges to ongoing Bank operations. Pacific 23% Quality indicators derived from quality assurance reviews have documented broad improvement over the past several years, although the trend for quality at entry has flattened somewhat over the past two years. Latin America & Europe & Central the Caribbean 21% Asia 15% During fiscal 2003, 85 percent of projects received satisfactory ratings for quality at entry--down from the average of 90 percent for fiscal 2000­02. For fiscal 2002, 90 percent of projects were rated satisfactory in terms of quality of supervision, and 92 percent of Figure 4.5 Active Project Portfolio by Theme as of projects received satisfactory ratings for their economic June 30, 2004 | share of net commitments of $95.1 billion and sector work. The fiscal 2003 Annual Report on Portfolio Performance notes that the proportion of sat- Urban Development 12% Economic Management 1% isfactory development outcomes as evaluated by the Trade & Integration Environmental & Operations Evaluation Department (OED) in projects 4% Natural Resource Management exiting the portfolio fell. Project supervision ratings of Social Protection & 13% Risk Management performance had failed to give sufficient early warning 7% Financial & of the decline in outcomes. Based on these findings, Private Sector Social Development Bank management has initiated a comprehensive pro- Development, 17% Gender & gram to enhance development outcomes and increase Inclusion 9% Human the reliability of project performance monitoring and Development Rural 13% reporting. Figures 4.4, 4.5, and 4.6 show the Bank's Development 14% Public Sector Active Project Portfolio by region, theme, and sector. Rule of Law 2% Governance 8% INDEPENDENT EVALUATION The Operations Evaluation Department is an indepen- dent unit within the World Bank that reports directly to the Bank's Board of Executive Directors. OED's eval- Figure 4.6 Active Project Portfolio by Sector as of uations seek to provide an objective basis for gauging June 30, 2004 | share of net commitments of $95.1 billion the results of the Bank's work, to ensure accountability in the achievement of the Bank's objectives, and to Water, Sanitation & Agriculture, Fishing & allow Bank staff to learn from experience. OED helps Flood Protection 10% Forestry 10% improve Bank work by identifying and disseminating the lessons learned from experience and by framing Education 9% recommendations drawn from evaluation findings. Transportation 20% Energy & The overall objective of OED's flagship Annual Mining 9% Review of Development Effectiveness is to apprise the Finance 6% Bank's Board of Executive Directors of the Bank's Law & Justice & Public development effectiveness. The 2003 Annual Review Administration 16% Health & Other Social Services 15% of Development Effectiveness: The Effectiveness of Bank Information & Support for Policy Reform found that the Bank's current Communication 1% Industry & Trade 4% Chapter 4 Improving Development Effectiveness 91 adequate consideration of country-specific factors. Duringfiscal2002,79percentof projectoutcomes were satisfactory, exceeding the strategic compact target of 75 percent. About 84 percent of the fiscal 2003 projects have been evaluated, and of these, 74 percent are rated satisfactory (see figure 4.7). Corporate Evaluations Corporate evaluations are produced in response to a Board request or to address particular concerns. They assess ongoing activities for overall effectiveness, effi- ciency, and consistency with stated objectives. The corporate evaluations completed in fiscal 2004 included Comprehensive Development Framework and Sharing Knowledge: Innovations and Remaining Challenges. The Comprehensive Development Framework evalua- tion concluded that to achieve the benefits of this approach, countries need to put disciplined budget processes in place; donors need to support efforts to strengthen budget processes and align their assistance with national development strategies; and all donors, particularly the World Bank, need to show leadership in developing better mechanisms for designing and implementing cross-sectoral programs. strategy treats policy reform and institutional develop- Sharing Knowledge: Innovations and Remaining ment as instruments for creating an environment Challenges found that more strategic direction and conducive to pro-poor growth and widespread, oversight of the Bank's knowledge processes are re- sustainable poverty reduction. The report examined quired and that network and regional units should link the Bank's effectiveness in helping client countries their knowledge-sharing activities more closely to core put in place policies conducive to sustainable operational processes. The evaluation stated that the poverty reduction and emerged with three key Bank's commitment to a comprehensive knowledge messages: Two-thirdsof developingcountriesimprovedtheir Figure 4.7 Project Performance Trends, 1974­2004 | satisfactory project outcomes, percent economic and social policies over the past four years. Countries that did so grew at about twice 100 the rate of countries that did not. In many cases Bank programs (including all forms of Bank support, not just adjustment lending) contributed 80 to policy improvements. Bankcountryassistancehadsatisfactoryoutcomes in about 70 percent of the cases evaluated by 60 OED. Where outcomes were not satisfactory, contributing factors included inadequate country knowledge, poor alignment between programs 40 and country policy-making styles, overoptimism FY74 FY78 FY82 FY86 FY90 FY94 FY98 FY02 about debt sustainability, and attempts to Note: Data for fiscal 2003 are partial. transplant policies or institutions without Source: World Bank, Operations Evaluation Department calculations. 92 The World Bank Annual Report 2004 initiative was timely and appropriate and that Bank knowledge can now be accessed more quickly and easily, but it concluded that improved oversight, monitoring, and incentives are needed. Country Assistance Evaluations Country Assistance Evaluations examine Bank perfor- mance in a particular country, usually over the previous four to five years. They assess how well per- formance conforms to the relevant Bank Country Assistance Strategy, and they evaluate the overall effectiveness of the strategy. The fiscal 2004 Country Assistance Evaluation for Armenia concluded that Bank assistance should focus on improving the envi- ronment for private sector development and support- well they conform to Bank policy and good practice ing public sector reform. Together, progress in these and on how well Bank objectives have been met. The areas can generate the job creation and export expan- Review of Social Development in Bank Activities helped sion necessary to sustain progress. The Bosnia and define the Bank's work on social development, showed Herzegovina evaluation found that the Bank needs to its importance to development effectiveness, and pro- work closely with the International Monetary Fund vided messages on how social development work could and the European Union to present a common be made more effective. OED recommended that the approach on critical reforms. Bank identify and promote the use of social-thematic Since 1990 the Bank has played an important sup- combinations that improve outcomes. It suggested that portive role, through policy advice and institution strategic planning needs to address current skills, building, in China's enormous progress. In fiscal 2004 monitoring, and evaluation. OED's report Promoting OED recommended that the Bank continue to play a Improvements in Ghana's Basic Education concluded role in China. However, with a reduced lending pro- that the delivery of hardware inputs to Ghana's basic gram and without IDA resources, both the Bank and education system has had a substantial impact on high- China will need to adapt their policies and procedures er enrollments, as well as on better learning outcomes, to make the best use of Bank assistance. but it recommended that more attention be paid to In Croatia the Bank should turn its attention to less privileged schools. fostering growth, attacking unemployment, and The Extractive Industries and Sustainable Develop- strengthening debt sustainability through private sector ment evaluation highlights the need to address gover- development, including working to create a better envi- nance issues squarely, strengthen project implementa- ronment for new firms. In Rwanda OED recommend- tion, and use the Bank's convening power to reach out ed that IDA assistance focus on reducing poverty and to stakeholders more vigorously. The evaluation found inequality, using the Millennium Development Goals that to enhance extractive industries' contribution to as an organizing framework. OED concluded that ana- sustainable development, the World Bank Group needs lytical and advisory work and adaptation of projects to to formulate and implement integrated strategies at the country conditions are crucial for Rwanda's develop- sector and country levels. The Transition Economies ment. A joint evaluation on Tunisia undertaken with evaluation showed how the Bank supported the huge the Islamic Development Bank recommended that the transition that took place in the former socialist World Bank help the government improve the environ- countries of Eastern Europe and the Soviet Union. ment for private investment, enhance the efficiency and It pointed out that an earlier focus on governance, quality of social spending, and strengthen institutions growing poverty, and the privatization process would and safety nets in the rural sector. have helped the transition economies. OED con- cluded that Bank assistance was largely successful but Sector and Thematic Evaluations recommended that active programs of stakeholder in- Sector and thematic evaluations examine Bank perfor- clusion should be widely replicated and that Country mance and experience in a lending sector or a cross- Assistance Strategies should be used to bolster reform cutting theme over 5 to 10 years and report on how capacity. Chapter 4 Improving Development Effectiveness 93 OED Reviews of CAS Completion Reports The Executive Directors decide, on the recommen- An important change introduced in OED's fiscal 2004 dation of the Panel, whether an investigation will take work program was the OED review of piloted CAS place. The Inspection Panel provides a vehicle for pri- (Country Assistance Strategy) Completion Reports. vate citizens, and especially poor people, to directly These completion reports are important new self- access the World Bank's highest governing body, the evaluation instruments that are validated by OED Board of Executive Directors. The process for address- reviews. OED reviews of the completion reports are ing claims has empowered and given voice to people expected to be mainstreamed starting in fiscal 2005, who may have been adversely affected by World with an eventual 20­25 reviews undertaken each year. Bank­financed projects. In fiscal 2004 OED undertook reviews of the Brazil, As one of the World Bank's mechanisms for ad- Cameroon, Mozambique, Ukraine, and Zambia CAS dressing compliance, the existence of the Panel has Completion Reports. enabled the Bank to listen to complaints brought for- ward, consider the Panel's assessments of those claims, and adopt better policies and operational procedures INSPECTION PANEL to successfully implement the Bank's poverty reduction The Board created an independent Inspection Panel mission. in 1993 to address more closely the concerns of In fiscal 2004 the Panel received six new requests for people affected by Bank projects and to ensure that the inspection involving Bank projects in the Philippines Bank adheres to its operational policies and procedures (Manila Second Sewerage Project), Cameroon in designing, preparing, and implementing projects. (Petroleum Development and Pipeline Project), Any group of two or more people that believes it is or Mexico (Indigenous and Community Biodiversity may be harmed by a Bank-supported project may ask Project), Colombia (Cartagena Water Supply, Sewerage the Panel to investigate its complaint that such harm and Environmental Management Project), and India stems from the Bank's failure to abide by its policies (Mumbai Urban Transport Project, two requests). The and procedures. 94 The World Bank Annual Report 2004 Panel also published its second book, Accountability The review consisted of two evaluations by groups at the World Bank: The Inspection Panel 10 Years On, operating independently of Bank Group management: which traces the evolution of the Panel and reviews its one by the operations evaluation units of the World experiences over the years. It discusses eligibility issues Bank Group and the Compliance Advisor Ombudsman and the Panel's effect on World Bank practices and for IFC and MIGA (discussed above); and the other policies. The book was translated and published in through a stakeholder consultation process. The reviews French, Spanish, and Portuguese. found that Bank Group involvement in extractive pro- Thirty-three requests for inspection have been filed jects has resulted in positive contributions to sustain- since the Panel was established: 10 from Africa, 11 from able development, but not uniformly. The stakeholder Latin America and the Caribbean, 9 from South Asia, report, in particular, suggested reforms in a number of and 3 from East Asia and Pacific. Of the 33 formal areas, including a greater emphasis on renewable energy requests received, the Panel has recommended investi- sources, more transparent reporting of revenue figures, gations in 14 cases, 6 under the rules that applied be- increased consultation with local stakeholders, and fore the April 1999 clarifications to the resolution that fuller disclosure of project information. established the Panel, and 8 since those clarifications Bank Group management released a reform pro- were adopted. posal for the Bank Group's activities in the extractive Requests for inspection, Panel recommendations, industries on June 18, 2004. The proposal, released at Panel investigation reports, and management recom- the request of the Board of Directors, was available mendations for projects reviewed this fiscal year can be for public comment for 30 days in order to have the found at www.worldbank.org/inspectionpanel. benefit of additional views before the Board authorized an official Bank response. The full proposal, encom- passing a response to both internal and external re- EXTERNAL EVALUATION views, can be found at www.worldbank.org/ogmc. The World Bank Group began the Extractive Industries Additional information about the various extractive Review in 2000 to determine how effective its invest- industries reviews can be found at www.eireview.org, ments in the oil, gas, and mining industries have been www.ifc.org/oeg, and www.caoombudsman.org/ in advancing sustainable development--and to help ev.php. define the future role of such investments, which repre- Among the Bank's shareholder nations, broad sup- sent about 2 percent of annual lending commitments. port remains for involvement in extractive industries. Developing countries often find Bank Group involve- In addition to promoting and raising standards for ment crucial to achieving positive outcomes, and proj- industry, the Bank assists with public sector reforms, ects with Bank Group funding often set examples on provides technical advice and training, and offers environmental, social, and governance safeguards that expertise and innovative financing for environmental industry subsequently follows. protection and alternative energy. Chapter 4 Improving Development Effectiveness 95 World Bank President A. W. Clausen on a visit to Mexico. Barber B. Conable, World Bank President, 1986­1991. Alden W. Clausen, World Bank President, 1981­1986. In 1980, the World Bank approves a $200 million loan to Turkey to support economic recovery and structural adjustment. Robert S. McNamara (1968­1981) A. W. Clausen (1981­1986) First structural 2 Sixth IDA Bank establishes small 80 81 adjustment loan is 8 Replenishment, 83 grants program to pro- approved--$200 providing mote cooperation among 19 19 19 million for Turkey. 19$12 billion. NGOs, governments, aca- demics, and the media. People's Republic of Anne Krueger 80s19 China assumes repre- is appointed sentation for China first female and becomes one of Vice President the largest borrowers. (for Economics and Research). Timothy Thahane appointed first African Vice President. Summary of Fiscal 2004 Activities 5 The 1984 Industrial Credit Project in China supported the development of light industries like this metal shop. In 1985, Mr. Belisario Betancur (center) signs the documents for a $129 million loan to Colombia for expansion of the water supply system in Bogota. World Bank President A. W. Clausen is pictured on the right. Agricultural produce at the Mersin market in Southern Turkey, part of the 1981 Fruit and Vegetable Project. Barber B. Conable (1986­1991) NGO Working 7 Major reorganization Multilateral Investment 9 Bank's Executive 84 Group is established 86 8 of the Bank. New 88 Guarantee Agency 8 Board endorses to provide a world- Country Departments (MIGA), the newest directive on the 19 19 wide forum for 19 formed and the first 19affiliate of the World 19disclosure of dialogue about Environment Bank Group, established information. development issues Department created. with 29 signatories. with civil society. Chapter 5 Summary of Fiscal 2004 Activities As a group, developing countries grew much faster economies, which grew 5.7 percent in 2003, up from than developed economies in calendar 2003, although 3.6 percent in 2002. the accomplishments of individual economies varied Growth recovery in Latin America and the widely. Gross domestic product (GDP) per capita in Caribbean has been slower, partly because of uneven the low- and middle-income countries increased performance across countries. Regional GDP advanced 3.5 percent during the calendar year, more than twice 1.3 percent in 2003, following a contraction of 0.6 per- the 1.6 percent average growth rate experienced in cent during 2002. The region's GDP is expected to high-income countries. Developing countries benefited grow 3.8 percent in 2004. (Figure 5.1 shows GDP per from the revival of global investment, with capital capita by region, 1993 to 2003.) spending among the group growing 10.8 percent in Growth in developing countries overall is expected 2003, more than twice the rate at which it grew in to grow 5.4 percent in 2004--the strongest growth in 2002. two decades--before easing back toward 5 percent in The economies of Europe and Central Asia grew 2005­06. In this context, the Bank continues to adapt 5.5 percent in 2003, up from 4.6 percent the year be- its activities to respond to country needs for lending fore. The outlook for 2004 and beyond is for continued and advisory services. robust growth in the region as a whole. GDP in South Asia rose 6.5 percent in 2003, up from 4.3 percent in KNOWLEDGE SHARING AND ANALYTIC 2002, with domestic demand providing the impetus AND ADVISORY SERVICES for growth. Output in South Asia is expected to grow 7.2 percent in calendar 2004, followed by a period of The Bank's store of development knowledge has always moderation. At the forefront of the global turnaround been an important element of its assistance to client in investment are the developing countries of East Asia countries. Analytic and advisory services include eco- and the Pacific, which are expected to grow 7.4 percent nomic and sector work, technical assistance, and in 2004, led by continued rapid growth in China. research services. Capacity enhancement includes In contrast with accelerating growth in other devel- initiating outreach that enables client countries to oping regions, GDP growth in Africa slowed to 2.4 per- access global knowledge. cent in 2003, down from 3.3 percent in 2002. Over the next two years, the region should be able to accelerate Research GDP growth toward a range of 4 percent. Doing so will Country research--which forms the core of the Bank's require significant structural reforms--in addition to knowledge base--culminates in a number of knowl- good weather and greater political stability. Problems edge products, including Policy Research Working of disease and poor infrastructure still represent chal- Papers, development data, analyses of development lenges in the region. prospects, and a wide range of development publica- Despite severe disruption in the Middle East and tions. One flagship publication, the annual World De- North Africa--tied in large measure to the Iraq velopment Report, incorporates research from across conflict--GDP growth jumped from 3.3 percent in the Bank. Its findings form the basis for Bank activities 2002 to 5.1 percent in 2003, the strongest economic and are a catalyst for further research. performance since 1991. Underpinning the growth was World Development Report 2004: Making Services a sharp upturn in growth in the region's oil-exporting Work for Poor People focused on one pillar of the Bank's 98 The World Bank Annual Report 2004 San Juan del Sur, Nicaragua Figure 5.1 Gross Domestic Product per Capita Index, 1993­2003 Africa East Asia and Pacific South Asia 200 200 200 174 145 150 150 150 108 100 100 100 100 100 100 50 50 50 1993 2003 1993 2003 1993 2003 Europe and Central Asia Latin America and the Caribbean Middle East and North Africa 200 200 200 150 150 150 122 122 100 100 107 100 100 100 100 50 50 50 1993 2003 1993 2003 1993 2003 Source: World Bank World Development Indicators Database. Chapter 5 Summary of Fiscal 2004 Activities 99 Progresa in Argentina, Brazil, Ecuador, and China; community-driven development interventions in Georgia, Indonesia, Pakistan, and the Philippines; rural roads investments in Vietnam; sanitation pro- grams in Bangladesh and India; teacher and health worker incentives in several countries in Africa and Asia; and the use of the press and information cam- paigns in Uganda. World Development Report 2005: A Better Investment Climate for Everyone focuses on the other pillar of the Bank's strategy--building the climate for investment-- and notes that investment climate conditions vary tremendously across as well as within countries. The report draws on numerous data sources and country case studies to identify emerging lessons of experience in designing and carrying out investment climate im- provements that will contribute to growth and poverty reduction. It focuses on the four interrelated ways that governments influence the decisions of firms: through the cost of doing business, the risks associated with pursuing opportunities, the direct barriers to opportunities, and the competitive pressures that firms face. The World Development Report 2006: Equity and Development will assess the nature of inequality in the developing world and the role it plays in economic de- Turkish farmer with food intended for export. velopment and poverty reduction. High levels of in- equality make it harder to reduce poverty in its various dimensions and to meet the Millennium Development strategy--investing in and empowering poor people-- Goals. The report will describe levels of inequality and and included evidence from multiple impact evalua- recent trends within and across countries, examining tions on how best to deliver health, education, and the extent to which such inequalities matter and how infrastructure services. Such systematic evaluations they can be reduced in ways that promote growth and help policy makers decide how best to allocate scarce economic efficiency. resources--which programs and policies should be replicated, which should be modified, and which Economic and Sector Work should be eliminated. Economic and sector work (ESW) augments the Bank's The report cited the evaluation of the Progresa Pro- lending activities, increasing the impact on develop- gram in Mexico, which offers monthly cash payments ment. Economic and sector work products include core to poor families conditional on their children's school diagnostic reports for Country Assistance Strategies attendance and participation in health programs. The and overall policy dialogue, country advisory and re- rigorous independent evaluation convinced the Mexi- gional reports that provide advice on special topics, can authorities to expand the program to benefit and less formal products such as policy notes, work- 20 percent of the Mexican people. The knowledge ac- shops, and conferences. ESW increasingly empha- quired through this evaluation was relevant not only sizes country ownership, participatory processes, for Mexico but for other countries that are now carry- partnerships, and capacity building. ing out similar programs. The majority of advisory work in fiscal 2004 exam- The Bank's research department conducted several ined financial and private sector development and new impact evaluations in fiscal 2004. These included public sector governance. Much work also examined evaluations of targeted transfer programs similar to human development, social protection, and rural 100 The World Bank Annual Report 2004 development, which helped provide the basis for project design and country programming. The Bank's Investment Climate Assessment for Poland sought to identify features of the investment climate that matter most for productivity, particularly for poor men and women, as well as priority areas for reform. A policy note for the Indian authorities was delivered on a quick-response basis to identify measures that could be adopted to improve India's fiscal stance. Country Financial Accountability Assessments, undertaken for countries such as Djibouti and Uganda, analyzed the strengths and weaknesses of countries' public sector financial accountability arrangements and informed the governments' design of programs for building financial management capacity. Regional reports exploring such issues as trade, health, and income distribution supplemented country reports. During fiscal 2004 the Bank delivered 734 economic and sector work products to clients (table 5.1). Of these, 122 were core diagnostic reports that under- pinned Country Assistance Strategies, Poverty Reduc- tion Support Credits, and other adjustment lending An important goal of the Bank's Environment Network is to ensure that and that facilitated policy dialogue with clients. The actions taken to promote development and reduce poverty do not result Bank also produced a significant number of informal in environmental degradation. products, reflecting the increased emphasis on capacity building and the provision of "just-in-time" analysis Table 5.1 Economic and Sector Work (ESW) Product designed to help countries achieve quick results. Deliveries by Type, Fiscal 2003­04 About 30 percent of the fiscal 2004 program was delivered by the Bank's Africa region; another 21 per- Number of ESW products delivered cent was delivered by the Europe and Central Asia re- Product type 2003 2004 gion. The East Asia and Pacific region and the Middle East and North Africa region focused on increased use Reports 443 487 of programmatic economic and sector work, and the Core diagnostic reports 119 122 Middle East and North Africa region continued its in- Other products 283 247 volvement in the reimbursable Technical Cooperation Total ESW products 726 734 Program. (For more information on how the Bank is collaborating with bilateral and multilateral donors, Note: Includes deliveries by both regions and networks. see www.countryanalyticwork.net.) Capacity Enhancement They also help members solve problems and answer In fiscal 2004 the World Bank Institute (WBI) shifted questions that come up in their daily work. its strategy to supporting long-term institutional WBI was instrumental in organizing the six-month- capacity building and customizing its programs to long global learning and knowledge-sharing process specific country needs. At the same time, it continues leading up to the Shanghai Scaling Up Poverty to reach broader audiences through distance learning Reduction Conference held in China in May 2004. The on topics of global interest and to build informal conference brought together more than 1,200 partici- groups of decision makers who share knowledge on pants to discuss successful approaches to poverty re- common development problems. These "communities duction based on some 100 case studies about how of practice" contribute to a more informed dialogue, programs, policies, and projects could be replicated on often leading to improved development outcomes. a wide scale. Key decision makers shared insights with Chapter 5 Summary of Fiscal 2004 Activities 101 BOX 5.1 RESPONDING TO COUNTRY NEEDS As part of China's lifelong learning project, the World Bank Institute's Knowledge for Development Program organized a field visit by key Chinese representatives from various ministries. The group studied leading educational institutions and private sector companies in Mexico and the United States to assess models for quality and accreditation systems, distance education, and large-scale retraining. At the request of Madagascar's president, WBI prepared and conducted a retreat for senior politi- The GDLN Studio in the World Bank headquarters in Washington, D.C., where a dialogue with Afghan women is taking place. cal and administrative leaders of the new govern- ment to help them formulate a national develop- ment strategy. Enlisting a team of leaders and policy makers from countries around the world, enhancement. To date the institute has contributed to WBI was able to foster an intensive South-South 19 such strategies, including those for Brazil, India, and exchange on how to improve the investment Kenya. WBI has also responded to the Bank's results climate and governance. agenda by emphasizing monitoring and evaluation, In developing a Capacity Enhancement Needs with a focus on intermediate outcomes. In fiscal 2004 Assessment for Nigeria, WBI worked closely with it completed 12 outcome and impact evaluations, key stakeholders to identify their capacity enhance- and another 13 are being prepared. ment needs, inviting them to determine the con- As always, WBI provides traditional courses and tent as well as the methods to be used to build seminars. Today it also identifies other means of ex- capacity. It also encouraged them to develop a changing knowledge, such as networks and communi- shared vision of the future and a plan of action. In ties of practice, dialogues among stakeholders, peer addition to traditional courses and seminars, this learning, and mass communication. In addition, it has assessment identifies other means of knowledge developed diagnostic and analytical tools that help exchange through networks and communities of countries assess their governance practices and their practice, stakeholder dialogues, peer learning, and preparedness to compete in the global knowledge mass communication. economy. Part of WBI's new country focus has been to decen- tralize its programs gradually to take advantage of local expertise and combine efforts with local donors and learning organizations. Most recently, WBI and the peers from other developing and developed countries Middle East and North Africa region launched the about what worked, what did not, and why, within dif- Marseilles Knowledge Hub, which serves the Middle ferent economic, social, and institutional contexts. East and North Africa. This small office will draw on Some 20 multicountry, interactive videoconference local and global experts to exchange knowledge and dialogues were held before the Shanghai conference to help design programs on topics such as urban manage- give authors early feedback on the case studies being ment, governance, and education. WBI also maintains prepared for the conference. For example, a three-hour a presence in Almaty, Beijing, Cairo, Moscow, Paris, videoconference on scaling up poverty reduction and Tokyo. (See box 5.1.) through community-driven development was held at In partnership with local training centers and Global Development Learning Network sites in Beijing, through the Global Development Learning Network's Colombo, Delhi, Hanoi, and Paris in February 2004. distance-learning facilities, the World Bank Institute WBI works more and more closely with the Bank's delivered 1,016 training activities to 78,500 participants operational country teams to ensure that the Bank's in some 124 countries in fiscal 2004. (See box 1.1 in Country Assistance Strategies address capacity chapter 1.) 102 The World Bank Annual Report 2004 WORLD BANK LENDING IN FISCAL 2004 Figure 5.2 Total IBRD-IDA Lending by Region, Fiscal 2004 | share of total lending of $20.1 billion The World Bank comprises cooperative institutions that mobilize financing from member shareholder South Asia 17% Africa 20% equity by borrowing from international capital markets (for IBRD) and by means of outright contributions Middle East & from the richer member countries (for IDA). It chan- North Africa nels these resources to benefit poor people in borrow- 5% East Asia & Pacific 13% ing countries. Country lending reflects the Bank's focus on achiev- ing the Millennium Development Goals. It is tailored Latin America & Europe & to individual country needs, with lending instruments the Caribbean 27% Central Asia 18% that are becoming increasingly flexible. IBRD's clients are generally middle-income coun- tries and, because of the limitation on IDA resources, some of the larger low-income countries that are deemed creditworthy for borrowing. IBRD offers loans that have long maturities and reflect its own favorable market costs. In fiscal 2004 IBRD provided $11 billion in loans in support of 87 projects in 33 countries. Figure 5.3 Total IBRD-IDA Lending by Theme, Fiscal 2004 | share of total lending of $20.1 billion IDA's clients are the poorest countries, which usual- ly cannot afford to borrow on commercial terms. IDA Urban Development 7% Economic Management 2% offers grants and concessional, no-interest loans (called Trade & Integration 6% Environmental & "development credits") to these countries, which are Natural Resource normally repayable in 35­40 years including a 10-year Social Protection & Management 6% Risk Management grace period. In fiscal 2004 IDA provided $9 billion in 8% Financial & financing for 158 projects in 62 low-income countries. Social Private Sector Development, Poverty reduction is at the core of lending by both Development Gender & 20% IBRD and IDA, through investments that support Inclusion 8% Human growth as well as investments in basic public services. Rural Development Development 8% Through partnerships with other institutions, other 15% funds are also made available for projects. Figures 5.2, Public Sector Rule of Law 3% Governance 17% 5.3, and 5.4 show IBRD and IDA lending for fiscal 2004 by region, theme, and sector. Table 5.2 shows World Bank lending by theme and sector. A detailed explana- tion of the Bank's financing is contained in volume 2 of this Annual Report. Figure 5.4 Total IBRD-IDA Lending by Sector, Fiscal 2004 | The Role of IBRD share of total lending of $20.1 billion In fiscal 2004 countries with per capita income of less Water, Sanitation & Agriculture, Fishing & than $5,115 that were not IDA-only borrowers were Flood Protection 8% Forestry 7% eligible to borrow from IBRD. Countries with higher Education 8% per capita incomes were able to borrow under special Transportation Energy & circumstances or as part of a graduation strategy. It is 19% Mining 5% important to note, however, that the amount that Finance 9% IBRD is prepared to lend to eligible countries at any given time depends on their creditworthiness as indi- Law & Justice Health & Other & Public Social Services 15% vidual IBRD borrowers. Countries may be eligible to Administration 25% borrow but may not have access to IBRD resources Information & because of poor creditworthiness. Net IBRD loans Communication 1% Industry & Trade 4% Chapter 5 Summary of Fiscal 2004 Activities 103 Table 5.2 World Bank Lending by Theme and Sector, Fiscal 1995­2004 | millions of dollars 1995­97 1998­99 (annual (annual average) average) 2000 2001 2002 2003 2004 THEME Economic Management 1,129.2 1,952.7 799.6 895.3 1,408.0 777.7 428.6 Environmental and Natural Resource Management 2,616.5 2,018.6 1,829.4 1,354.6 924.0 1,102.6 1,304.6 Financial and Private Sector Development 5,876.9 9,486.0 3,368.4 3,940.9 5,055.4 2,882.9 4,176.6 Human Development 1,888.7 2,486.5 1,190.3 1,134.7 1,756.1 3,374.0 3,079.5 Public Sector Governance 1,646.0 2,550.7 2,142.5 2,053.7 4,247.2 2,464.1 3,374.0 Rule of Law 274.4 362.9 373.6 410.0 273.2 530.9 503.4 Rural Development 2,418.4 2,746.4 1,413.7 1,822.3 1,600.0 1,910.9 1,507.8 Social Development, Gender, and Inclusion 1,102.7 1,320.5 800.8 1,469.7 1,385.7 1,003.1 1,557.8 Social Protection and Risk Management 1,288.9 2,653.9 1,895.0 1,651.0 1,086.4 2,324.5 1,577.0 Trade and Integration 674.7 813.2 426.4 1,059.9 300.9 566.3 1,212.7 Urban Development 2,090.4 2,403.3 1,036.6 1,458.6 1,482.4 1,576.3 1,358.1 Theme Total 21,006.8 28,794.8 15,276.2 17,250.6 19,519.4 18,513.2 20,080.1 SECTOR Agriculture, Fishing, and Forestry 1,395.0 2,097.1 837.5 695.5 1,247.9 1,213.2 1,386.1 Education 1,633.2 2,154.3 728.1 1,094.7 1,384.6 2,348.7 1,684.5 Energy and Mining 3,459.9 2,311.0 1,572.4 1,530.7 1,974.6 1,088.4 966.5 Finance 2,069.6 5,029.9 1,571.6 2,246.3 2,710.8 1,446.3 1,808.9 Health and Other Social Services 2,053.2 3,114.1 1,491.7 2,521.2 2,366.1 3,442.6 2,997.1 Industry and Trade 1,661.3 2,922.7 1,036.7 718.3 1,394.5 796.7 797.9 Information and Communication 152.0 179.4 273.8 216.9 153.2 115.3 90.9 Law and Justice and Public Administration 3,543.2 6,264.7 4,534.6 3,850.2 5,351.2 3,956.5 4,978.7 Transportation 3,186.0 3,511.3 1,717.2 3,105.2 2,390.5 2,727.3 3,777.8 Water, Sanitation, and Flood Protection 1,853.5 1,210.2 1,512.6 1,271.7 546.0 1,378.3 1,591.6 Sector Total 21,006.8 28,794.8 15,276.2 17,250.6 19,519.4 18,513.2 20,080.1 Of which IBRD 15,288.5 21,634.3 10,918.6 10,487.0 11,451.8 11,230.7 11,045.4 Of which IDA 5,718.3 7,160.5 4,357.6 6,763.6 8,067.6 7,282.5 9,034.6 Note: Due to a recalculation of allocations by the system, lending by theme figures may differ from those in the 2003 Annual Report. For the Law and Justice and Public Admin- istration sector, changes in figures reflect the retroactive remapping of projects to a new Compulsory Health Finance sector code under this category. For the Finance sector, changes in figures reflect the retroactive remapping of projects to a new Compulsory Health Finance sector code under Law and Justice and Public Administration. Numbers may not add to totals because of rounding. outstanding to any individual borrowing country, borrowers. IBRD provides important support for irrespective of a borrower's creditworthiness, may not poverty reduction by helping clients gain access to exceed $13.5 billion. capital in larger volumes, on better terms, at longer Seventy-five percent of people who live on less than maturities, and in a more sustainable manner than $1 a day live in countries that receive IBRD lending. the market provides. The borrowers are typically middle-income countries IBRD is a AAA-rated financial institution--with that enjoy some access to private capital markets. Some some unusual characteristics. Its shareholders are sov- countries that are eligible for IDA lending as a result ereign governments. Its member borrowers have a of their low per capita incomes are also creditworthy voice in setting its policies. IBRD loans (and IDA cred- for some IBRD borrowing. These countries are known its) are typically accompanied by advisory services to as "blend borrowers." Even excluding IBRD loans to ensure more effective use of funds. Unlike commercial the blend countries, 25 percent of those who live on banks, IBRD is driven by development impact rather less than $1 a day live in countries that are IBRD than profit maximization. 104 The World Bank Annual Report 2004 IBRD Lending Figure 5.5 IBRD Lending by Region, Fiscal 2004 | share of At $11 billion, new lending commitments by IBRD in total lending of $11 billion fiscal 2004 were close to the previous year's level. The South Asia 4% East Asia & Pacific share of adjustment lending was slightly higher than 15% Middle East & fiscal 2003. North Africa 9% Latin America and the Caribbean received the high- est level of IBRD lending, with $5.0 billion or 45 per- cent of total IBRD commitments, followed by Europe and Central Asia with $3.0 billion and East Asia and Europe & Pacific with $1.7 billion. Lending was slightly more Latin America & Central Asia the Caribbean 45% 27% concentrated than it was in fiscal 2003. Whereas five countries received roughly 49 percent of total lending in fiscal 2003, four countries--Argentina, Turkey, Brazil, and China--received a combined commitment volume equaling 51 percent of total IBRD lending in fiscal 2004. Among sectors, public administration, including law and justice, received the highest volume of IBRD Figure 5.6 IBRD Lending by Theme, Fiscal 2004 | share of lending, with $2.7 billion, followed by transportation total lending of $11 billion with $2.5 billion and health and social services with $1.8 billion. Urban Development 8% Economic Management 3% The thematic composition of lending in fiscal 2004 Environmental & Trade & Integration 7% Natural Resource was led by financial and private sector development, Management Social Protection & followed by public sector governance and human de- 7% Risk Management velopment. Figures 5.5, 5.6, and 5.7 show IBRD lending 10% Financial & Private Sector by region, theme, and sector. Table 5.3 shows World Social Development Bank adjustment commitments in fiscal 2001­04. Development, 22% Gender & Human Inclusion 4% Development IBRD Resources Rural 14% As part of its regular financing operations, IBRD raised Development 6% Public Sector $13 billion at medium- to long-term maturities in in- Rule of Law 4% Governance 15% ternational capital markets in fiscal 2004. This funding volume was below the $19 billion raised in fiscal 2003. IBRD issued debt securities in 10 currencies with a wide range of maturities and structures in fiscal 2004. Product diversification helps IBRD expand its investor base and reduce lending rates on its loans. IBRD's Figure 5.7 IBRD Lending by Sector, Fiscal 2004 | share of financial strength is based on the support it receives total lending of $11 billion from its shareholders and on its array of financial policies and practices designed to maintain a high Water, Sanitation & Agriculture, Fishing & Flood Protection 6% Forestry 6% credit standing in international financial markets. Education 5% Energy & IBRD Financial Strength. IBRD's operating income Mining 3% in fiscal 2004 was $1,696 million, and allocable net Transportation Finance 11% 23% income (which can be allocated to reserves and devel- opment activities) was $1,675 million. IBRD retained $680 million out of allocable net income in its general Law & Justice Health & Other Social Services reserve in keeping with IBRD's strategy to preserve & Public Administration 24% 16% long-term financial strength and support other devel- Information & opment needs. IBRD also added $405 million of the Communication 1% Industry & Trade 6% Chapter 5 Summary of Fiscal 2004 Activities 105 Table 5.3 World Bank Adjustment Commitments, Fiscal 2001­04 2001 2002 2003 2004 Millions Millions Millions Millions of dollars Percent of dollars Percent of dollars Percent of dollars Percent Adjustment commitments by region Africa 908 16 1,437 15 789 13 925 15 East Asia and Pacific 250 4 17 0 100 2 104 2 Europe and Central Asia 1,132 20 4,743 48 710 12 1,620 26 Latin America and the Caribbean 2,788 48 2,517 26 3,639 60 3,022 49 Middle East and North Africa 185 3 263 3 165 3 0 0 South Asia 500 9 850 9 615 10 480 8 IBRD and IDA adjustment commitments IBRD 3,937 68 7,383 75 4,187 70 4,453 72 IDA 1,826 32 2,443 25 1,831 30 1,698 28 Total adjustment loans 5,763 100 9,826 100 6,018 100 6,151 100 Total World Bank lending commitments IBRD 10,487 11,452 11,231 11,045 IDA 6,764 8,068 7,283 9,035 Total IBRD + IDA 17,251 19,519 18,513 20,080 Share of adjustment loans 33 50 33 31 Note: Numbers may not add to totals because of rounding. fiscal 2004 income to the surplus account. IBRD trans- credit risk inherent in its portfolio of loans and guar- ferred $300 million to IDA, $240 million to the Heavily antees. Risks related to interest and exchange rates are Indebted Poor Countries (HIPC) Trust Fund, and minimized, and the Bank remains highly active in $50 million to the Debt Reduction Facility for IDA- global credit markets to deliver financial instruments Only Countries in fiscal 2004. IBRD maintained adequate liquidity in fiscal 2004 to ensure its ability Figure 5.8 Net Return on Average Earning Assets | to meet its obligations. As of June 30, 2004, the liquid percent asset portfolio was about $31 billion. 2.5 2.06 Maintaining Financial Strength. As a cooperative insti- tution IBRD seeks not to maximize profit but to earn a return on assets sufficient to ensure its financial 1.34 1.29 strength and sustain its development activities. IBRD achieves an annual net return on average earning assets 0.78 1.18 of about 1 percent a year. In fiscal 2004 the net return on average earning assets returned to the 1 percent level after having risen above 2 percent in fiscal 2003 0 due to a reduction in the provision for loan loss. FY00 FY01a FY02a FY03a FY04a Figure 5.8 shows the net return on average earning a. In fiscal 2001 IBRD adopted Statement of Financial Accounting Standard assets for fiscal 2000­04. No. 133 and International Accounting Standard No. 39, which require that derivative instruments be reported at fair value. The returns shown above for fiscal 2001­04 are presented excluding the effects of these standards to Managing Risk. Consistent with its development man- facilitate comparison with prior years. With the inclusion of the effects of these standards, the ratios would be 0.87, 1.87, 3.64, and 1.67 for fiscal date, the principal risk taken by IBRD is the country years 2001, 2002, 2003, and 2004, respectively. 106 The World Bank Annual Report 2004 Figure 5.9 Equity-to-Loans Ratio as of June 30, 2004 | (net of swaps), and its total disbursed and outstanding percent loans were approximately $110 billion. The size of bor- rowings was about three times the size of its equity. 30 26.6 29.4 Figure 5.10 shows the Bank's borrowings and invest- 22.9 ments as of June 30, 2004. Table 5.4 shows select IBRD 21.3 21.5 financial data for fiscal years 2003 and 2004. Generation and Distribution of IBRD's Net Income IBRD earns income from the interest margin on its loans (returns on loans less cost of borrowings), the interest margin on its investments, and contributions from its equity. Barring unexpected credit events, 0 FY00 FY01 FY02 FY03 FY04 IBRD generates net income after allowing for loan loss-provisioning expenses and administrative expens- es, including its contribution to staff retirement on the finest terms that are best suited to the needs of accounts. borrowers. One summary measure of the Bank's risk IBRD's allocable net income serves several purposes profile is the ratio of balance sheet equity to outstand- related to the Bank's mission. A portion of net income ing loans, which is closely managed in line with the is retained each year to ensure IBRD's financial integri- Bank's financial and risk outlook. Figure 5.9 shows ty. The general reserve allows IBRD to assume credit the equity-to-loans ratio as of June 30, 2004. risk in lending to countries at the lowest funding costs, which in turn benefits borrowers. Income retention has Achieving Efficient Intermediation. IBRD enjoys an enabled IBRD to maintain financial soundness through exceptional franchise in capital markets, in large part periods of deteriorating loan quality and surging loan reflecting the capital commitments of its sovereign demand. shareholders and the preferred creditor status accor- Support to IDA has consistently been a priority. ded by its borrowing members that support its high Over the last five years, $1,522 million (or about credit rating (AAA) and allow it to borrow for long maturities on favorable terms. This is reflected in the relatively low cost basis of its new borrowings, an aver- Table 5.4 Select IBRD Financial Data | millions of dollars age spread of about 38 basis points (1 basis point Fiscal Fiscal equals 0.01 percent) below the London InterBank 2004 2003 Offered Rate in fiscal 2004, and the high volumes it For the fiscal yeara can intermediate at low cost. Income from loans 4,403 5,742 At the end of fiscal 2004 the Bank's outstanding Income from investments 304 418 borrowings from capital markets exceeded $103 billion Borrowing expenses (2,789) (3,594) Administrative expenses (934) (882) Other 712 1,337 Figure 5.10 Borrowings and Investments as of June 30, 2004 | billions of dollars Operating incomeb 1,696 3,021 Allocable net income 1,675 3,050 114.0 111.5 111.2 103.0 103.3 Loan commitments 11,045 11,231 Loan disbursements 10,109 11,921 At fiscal year enda Cash and liquid investments 31,126 26,620 Loans outstanding 109,610 116,240 31.1 24.3 24.4 25.1 26.6 Borrowings outstandingc 103,295 103,017 Equity 35,463 37,918 FY00 FY01 FY02 FY03 FY04 a. Excerpted from the audited financial statements presented in volume 2 of this Annual Report. Cash and liquid investments b. Excludes effects of Financial Accounting Standard 133 adjustments. Borrowings outstanding after swaps c. Outstanding borrowings, net of swaps. Chapter 5 Summary of Fiscal 2004 Activities 107 Figure 5.11 Proposed Allocation of Fiscal 2004 Allocable island economies, that are above the income cutoff Net Income of $1,675 Million | millions of but are not creditworthy to borrow from IBRD.) dollars The amount of IDA resources that countries receive General Reserve 680 HIPC 240 depends on the quality of their policies to promote growth and reduce poverty, which are assessed annually. IDA recipient countries face complex challenges in IDA 300 striving to meet the Millennium Development Goals. Policy priorities include strengthening the fight against the spread of HIV/AIDS and other communicable Debt Reduction diseases, building a healthy investment climate as a Facility for IDA-Only prerequisite for private sector investment, promoting Surplus 405 Countries 50 gender equality, and improving the quality of basic Note: Proposal to the Board of Governors. education and poor people's access to it. Traditionally, IDA provided assistance in the form of highly concessional credits. In fiscal 2003 it 17 percent of IBRD's allocable net income) has been introduced the expanded use of grants, designed to transferred to IDA. address hardships faced by the poorest and most debt- Support for the Heavily Indebted Poor Countries vulnerable IDA countries. The grants are used to Initiative has also been important. Over the past five finance HIV/AIDS programs, natural disaster recon- years, transfers to the HIPC Trust Fund have amounted struction, and postconflict reconstruction. to a total of about $1,070 million, averaging about IDA is financed by its own resources and by donor 12 percent of annual IBRD allocable net income. governments, which come together every three years IBRD's allocable net income helps meet other to decide on the amount of new resources required development needs from time to time. It enables IBRD to fund IDA's future lending program and to discuss to respond to unforeseen humanitarian crises and to lending policies and priorities. Since 2001 senior-level provide grants or other support for worthy causes. representatives from borrowing countries have also IBRD also regularly shares income with its borrowing participated in these replenishment discussions. members through partial waivers of commitment fees Historically, donor contributions have been deter- and, for qualifying borrowers, waivers of contractual mined on the basis of countries' relative economic interest charges on loans. strength and on their commitment to poor countries. Financial strength and standing in the markets The major industrial nations have thus been the largest allow IBRD to leverage its equity by four times in the contributors to IDA. But donor nations also include international bond markets. This leverage increases developing countries and transition economies--some IBRD's ability to lend for development activities. of them IBRD borrowers and former IDA borrowers-- Figure 5.11 shows the proposed allocation of the including Argentina, Brazil, Hungary, the Republic of Bank's net operating income. Korea, the Russian Federation, and Turkey. IDA's finan- cial strength is based on the strong and continued sup- The Role of IDA port of its donors, as well as on repayments of past IDA is the largest single source of concessional finan- credits. (See IDA at www.worldbank.org.) cial assistance for the world's poorest countries. It invests in basic economic and human development IDA Commitments projects. IDA commitments in fiscal 2004 reached $9 billon for Eligibility for IDA resources is governed by a coun- 158 operations, consisting of $7.3 billion in credits and try's level of poverty (as measured by per capita $1.7 billion in grants. IDA also provided a guarantee income) and its lack of creditworthiness for IBRD for $70 million. The volume of IDA commitments in resources. In fiscal 2004 countries with annual per fiscal 2004 represents a record in the history of IDA. capita gross national income of up to $865 were eligi- The largest share of IDA resources was committed ble for IDA assistance. (In exceptional circumstances, to Africa, with $4.1 billion, constituting 45 percent of IDA extends eligibility to countries, such as small total IDA commitments. South Asia and East Asia and 108 The World Bank Annual Report 2004 Pacific followed with $3 billion and $0.9 billion, Figure 5.12 IDA Commitments by Region, Fiscal 2004 | respectively. Among countries, Bangladesh, the share of total lending of $9 billion Democratic Republic of Congo, India, Pakistan, South Asia 33% Africa 45% and Vietnam represent the largest single recipients. In fiscal 2004, about 19 percent of total IDA financ- ing was provided in the form of grants to the following clients and projects: the poorest countries, $264 mil- lion; debt-vulnerable countries, $529 million; postcon- flict countries, $536 million; HIV/AIDS projects and Middle East & North Africa 2% those with HIV/AIDS-related components, $381 mil- Latin America & lion; and natural disaster reconstruction projects, the Caribbean 4% $2 million. Europe & Central Public administration, including law and justice, Asia 6% East Asia & Pacific 10% was the leading sector receiving IDA support, with $2.3 billion, or 24 percent of the total. There was also significant support provided to the health and social services and transportation sectors, each representing $1.2 billion, or 14 percent of the total. The two most prominent themes were public sector Figure 5.13 IDA Commitments by Theme, Fiscal 2004 | governance and financial and private sector develop- share of total lending of $9 billion ment, each accounting for about 19 percent of IDA Urban Development 5% Economic Management 1% commitments. Major attention was also paid to human Trade & Integration 5% development with 17 percent, social development and Environmental & Natural Resource gender with 13 percent, and rural development with Social Protection & Management Risk Management 6% 10 percent. Figures 5.12, 5.13, and 5.14 show IDA 5% Financial & lending by region, theme, and sector. Social Private Sector Development, Development Gender & 18% IDA Resources Inclusion 13% Human The 13th Replenishment of IDA (IDA13), which gov- Rural Development erns IDA operations for fiscal 2003­05, will provide Development 10% 17% a total of 18 billion in special drawing rights (SDRs) Public Sector Rule of Law 1% Governance 19% (about $23 billion) in concessional resources to eligible countries. This amount includes SDR 10 billion (about $13 billion) in new donor contributions; SDR 7.3 bil- lion (about $9 billion) in IDA internal resources, in- cluding repayments of principal from past credits and investment income; SDR 0.7 billion (about $0.9 bil- lion) in IBRD net income transfers (if available); and Figure 5.14 IDA Commitments by Sector, Fiscal 2004 | a small carryover of donor resources from the previous share of total lending of $9 billion replenishment. Figure 5.15 shows the sources of IDA's Water, Sanitation & Agriculture, Fishing & funding over the last three replenishments. Flood Protection 10% Forestry 9% Under IDA13 a major initiative was launched to strengthen IDA's focus on results. This initiative Transportation Education 13% 14% included development of a system to measure and monitor the results of IDA assistance across countries Energy & Law & Justice and to track the contribution made by IDA program- Mining 7% & Public ming to country outcomes. Figure 5.16 shows IDA's Administration Finance 6% 24% stepped-up commitments in the social sectors. Health & Other Negotiations for the 14th Replenishment of IDA Social Services 14% Information & were launched in February 2004, when donor and Communication 1% Industry & Trade 2% Chapter 5 Summary of Fiscal 2004 Activities 109 Figure 5.15 Sources of IDA Funding | billions of dollars education, or on a large subsector, such as primary education. Many low-income countries, particularly 12.7 12.7 11.7 in Africa, began pursuing SWAps in the mid-1990s in an effort to move away from fragmented projects 9.2 8.4 7.9 to a country-led approach based on a comprehensive program. Over the past decade, more than 30 Bank opera- tions have supported SWAps, mostly in social sectors 1.2 0.9 0.9 in Africa and South Asia. The Bank has collaborated IDA11 FY97­99 IDA12 FY00­02 IDA13 FY03­05 with other development partners to organize external IDA own resourcesa financing based on a common policy framework and IBRD net income contribution a comprehensive sector program or investment plan. Donor contributions Harmonization of planning, monitoring and evalua- a. IDA own resources include principal repayments, charges tion, reporting, auditing, disbursement, and procure- less administrative expenses, and investment income. ment systems has usually been a major part of this effort. Pooling of governments' and partners' resources is increasingly used. In low-income countries the use Figure 5.16 IDA's Stepped-up Efforts in the Social Sectors | 290 projects ongoing (compared with 212 a of SWAps has helped improve the coordination of decade ago) external resources. In middle-income countries they are increasingly seen as a way to align the Bank's sup- Number of projects under port with a country's own strategy and systems and implementation 300 to reduce the transaction costs often associated with isolated projects. 59 55 Bank support for SWAps has grown over the past 200 few years, as greater emphasis has been placed on 49 122 149 country ownership, harmonization, results, and align- 81 ment with country systems and procedures. Ongoing 100 efforts to simplify and modernize the Bank's internal policies and procedures enhance its ability to support 82 93 81 the concept of sectorwide approaches more effectively, 0 FY94 FY99 FY04 given the flexibility required for coordination with Education Health, Nutrition, and Population multiple development partners. Changes in the Bank's Water, Sanitation, and Flood Protection audit policies, expenditures eligible for Bank financing, and procurement guidelines, along with the move Note: Number of projects under implementation includes projects in both IDA-only and blend countries. IDA commitment value of ongoing social toward streamlined report-based disbursement, are all sector projects: 1994, $11.7 billion; 1999, $14.4 billion; 2004, $15.4 billion. Numbers may not add to totals because of rounding. intended to enhance country results and also facilitate the sectorwide approach process. borrower representatives met in Paris. Main issues Debt Relief and Debt Sustainability discussed included debt sustainability, IDA's The Bank continued to provide debt relief to the performance-based allocation system, how to finance world's poorest and most heavily indebted countries IDA grants, and the findings of recent independent in fiscal 2004. It also worked to improve debt evaluations of IDA's experience with country-led sustainability--long-term debt management--in development. low-income countries in an effort to help these countries meet the Millennium Development Goals. Innovations in Lending As part of a comprehensive development strategy, As part of the effort to enhance development impact, the Heavily Indebted Poor Countries Initiative an increasing number of Bank loans support sector- (http://www.worldbank.org/hipc) is well on its way wide approaches, known as SWAps. These efforts typi- to achieving its primary goal of giving a fresh start to cally focus on an entire sector within a country, such as countries by cutting their external debt to manageable 110 The World Bank Annual Report 2004 levels. Twenty-seven countries--two-thirds of those eligible--are participating, receiving debt relief that will total more than $52 billion from creditors over time. Fourteen of these countries have reached the completion point--the point at which creditors pro- vide all of the remaining debt relief promised at the decision point. Ethiopia, Ghana, Guyana, Nicaragua, Niger, and Senegal reached the completion point in fiscal 2004. Eight other countries--Benin, Bolivia, Burkina Faso, Mali, Mauritania, Mozambique, Tanzania, and Uganda--reached the completion point before fiscal 2004. Thirteen countries have reached the decision point and are receiving interim relief. Key challenges remain for the HIPC Initiative. These include encouraging countries, many of which are affected by conflict, to reach the decision point-- the point at which the international community agrees on the amount of debt relief a country needs to reduce its debt to a sustainable level and interim relief begins--by the end of 2004, the deadline for potential- ly eligible countries; encouraging countries that have reached the decision point to proceed expeditiously toward meeting the requirements for reaching the completion point; improving participation by certain non­Paris Club official bilateral, commercial, and Child health care in India. small multilateral creditors; and continuing to support HIPC's pro-poor growth strategies. The Bank's efforts to reduce poor countries' debt The debt relief program has significantly reduced have expanded beyond the HIPC Initiative to address debt stock in heavily indebted poor countries longer-term issues of debt sustainability. For many (figure 5.17) and has allowed social spending in those low-income countries, mobilizing sufficient financing countries to rise (figure 5.18). to meet their development objectives, embodied in Figure 5.17 HIPC Debt Relief: Reduced Debt Stock and Figure 5.18 Trends in Poverty-Reducing Expenditures Improving Debt Service Ratios before and after Assistance under the HIPC Initiative Billions Percent of dollars Millions 30 90 of dollars Percent Debt service as 10,000 10 $69 percent of exports $9,104 (left axis) 60 Debt service as 9 Poverty-reducing percent of revenue expenditures, 15 (left axis) $6,067 8% 8 millions of dollars $28 Debt stock, billions (left axis) 30 5,000 of dollars net Poverty-reducing present value at 7 expenditures, the decision point percent of GDP 14.5% 21.8% 9.8% 14.6% (right axis) 6.4% 6 (right axis) 0 0 Before HIPC After HIPC (1999) (2003) 0 5 Before HIPC After HIPC Note: Weighted averages for the 27 countries that had reached the decision (1999) (2003) point as of end-April 2004. Source: World Bank. September 2002. Heavily Indebted Poor Countries Note: Weighted averages for the 27 countries that had reached the decision (HIPC)--Status of Implementation. Washington, D.C. World Bank. April 2004. point as of end-April 2004. Heavily Indebted Poor Countries (HIPC) Initiative--Statistical Update. Source: World Bank. April 2004. Heavily Indebted Poor Countries Washington, D.C. (HIPC) Initiative--Statistical Update. Washington, D.C. Chapter 5 Summary of Fiscal 2004 Activities 111 reduction mission by supporting innovative approaches to projects and expanding the scope of development collaboration. Donors include many industrial coun- tries, a few of the larger developing countries, the private sector, and foundations. Increasingly such resources support multidonor programmatic instru- ments that underpin many of the Bank's external partnerships. Single-donor programmatic trust funds (for example, Japan's Policy and Human Resource Development Fund) also continue to be important instruments for supporting work with client countries. (See www.worldbank.org.) Contributions The Bank's trust fund portfolio was further expanded in fiscal 2004. Contributions received from donors totaled $4.9 billion, an increase of $0.46 billion, or 10 percent, over fiscal 2003. Funds held in trust rose from $6.89 billion to $8.6 billion, a 25 percent increase. These figures reflect contributions received on a cash basis for all trust funds except HIPC, the Global Envi- ronment Facility (GEF), and the Global Fund to Fight AIDS, Tuberculosis and Malaria (GFATM), for which contributions are recorded on an accrual basis. The top Woman spinning cotton thread in Bangladesh. 10 donors in fiscal 2004, shown in table 5.5, accounted for 86 percent of all contributions. the Millennium Development Goals, while avoiding a Disbursements potentially unmanageable debt burden represents a Disbursements during the year totaled $3.28 billion, an serious challenge. increase of $0.72 billion, or 28 percent, over fiscal 2003. Staff from the Bank and the International Monetary The five programs with the largest disbursements were Fund are developing a new approach to assessing debt HIPC ($941 million); GFATM ($429 million); GEF sustainability in low-income countries outside the ($398 million); the Afghanistan Reconstruction Trust HIPC Initiative. This approach is designed to take into Fund ($218 million); and the West Bank and Gaza account each country's circumstances and to guide Trust Fund ($170 million). Together these programs lending decisions that balance a country's need for disbursed $2.16 billion, or 66 percent of total disburse- funds with its ability to service debt. The approach re- ments. Disbursements for all trust funds are reported flects extensive consultations with government officials, on a cash basis. Contributions and disbursements are multilateral and bilateral donors, academics, and civil shown in figure 5.19. society organizations. Fund Balances and Investments The level of fund balances has increased steadily to TRUST FUNDS $8.6 billion in fiscal 2004, which is more than double Trust funds are financial and administrative arrange- the level in fiscal 2000. Most of this increase resulted ments between external donors and the Bank that pro- from the establishment of large programmatic multi- vide grant funding to address diverse development donor trust funds. needs, including project preparation, technical assis- tance, advisory services, debt relief, postconflict transi- Major New Trust Fund Programs tion, and the cofinancing of investment projects. Trust In response to emerging development challenges, the fund financing contributes to the Bank's poverty donor community agreed to establish several new 112 The World Bank Annual Report 2004 major trust funds and programs during fiscal 2004, Table 5.5 Top Ten Trust Fund Donors | millions of dollars with the Bank as administrator. These included a FY03 FY04 multidonor trust fund for Iraq, for which donors had pledged approximately $400 million for recon- European Community 241 880 struction; a multidonor supported Education for All United States 1,085 594 Fast-Track Initiative Catalytic Trust Fund, for which United Kingdom 252 585 Japan 500 508 $250 million is earmarked for contributions between World Bank Group 329 466 fiscal 2004 and 2007; and a multidonor commitment Netherlands 269 400 in the amount of up to $185 million for a West Bank Germany 194 226 and Gaza Public Financial Management Reform Trust Canada 151 198 Italy 132 187 Fund, which serves as a budget support facility, cofi- Norway 142 174 nancing the existing Bank-funded structural adjust- Other donors 1,148 686 ment operation for the Palestinian Authority. Total contributions 4,443 4,904 Update on Selected Trust Funds Fiscal 2004 activities of three of the many trust funds Note: Donor ranking shown above is based on fiscal 2004 contributions. administered by the Bank are described here. Figure 5.19 Trust Fund Contributions and Disbursements, Global Program to Eradicate Poliomyelitis. The Bank Fiscal 2000­04 | millions of dollars administers a trust fund program launched in fiscal 2003 in partnership with the Gates Foundation, Rotary 5,000 4,904 International, and the United Nations Foundation, to 4,443 4,500 help eradicate poliomyelitis worldwide by 2005. To 4,000 achieve this goal, the partnership uses an innovative 3,500 financing mechanism in which trust fund resources are used to create financial incentives linked to eradica- 3,000 2,719 2,613 tion results. Once the performance goals of eradication 2,500 efforts, funded by IDA credits, are achieved, trust fund 2,000 1,769 resources are used to write off the debt, thus turning the 1,500 IDA credit into a grant. As of the end of fiscal 2004, 1,000 donor contributions to the trust fund totaled $39 mil- 500 lion. The project was one of three selected to receive the Bank's Presidential Award for Excellence in 0 2000 2001 2002 2003 2004 December 2003. World Bank Group contributions External donors' contributions The Least Developed Countries (LDC) Fund for Climate Disbursements Change. The LDC Fund was established in September 2002 to address the needs of least developed countries whose specific economic and geophysical characteristics Iraq Trust Fund (ITF). At the Madrid Donor Confer- make them especially vulnerable to the impact of global ence in October 2003, the international donor commu- warming and climate change. In its initial phase the nity ratified the International Reconstruction Fund LDC Fund supports the preparation of national adapta- Facility for Iraq, comprising the World Bank Iraq Trust tion programs of action. The Global Environment Facil- Fund and the United Nations Development Group Iraq ity administers the fund and the Bank acts as its trustee. Trust Fund, united through a common governance As of the end of fiscal 2004, $33 million had been structure that ensures close coordination. The Board pledged by 12 donor countries, and $17 million had approved the Bank's role as Administrator of the ITF been received; more than $9 million had already been in January 2004. Donors had pledged approximately allocated for 43 national projects and 2 global support $400 million to the World Bank Trust Fund by the end projects, and most of these projects had begun their of fiscal 2004. The ITF is focused on building institu- implementation. tional capacity and addressing urgent reconstruction Chapter 5 Summary of Fiscal 2004 Activities 113 and economic transition needs. A $3.6 million capacity- tilateral partners, export credit agencies, and private building project has supported 14 different sectoral and sources. These funds enable the Bank to leverage addi- project management courses. A $40 million emergency tional financing, mostly at concessional terms, to bene- project is financing primary and secondary school text- fit recipient countries. The Bank's major cofinancing books for the 2004­05 school year. Other projects ad- partners in fiscal 2004 included the Inter-American dress school rehabilitation, private sector development, Development Bank ($3.7 billion), the European Com- infrastructure, and public health. mission ($640 million), and the British Department for International Development ($612 million). Regions Cofinancing benefiting from cofinanced projects included Latin Cofinanced funds are committed to complement spe- America and the Caribbean ($4 billion), Africa cific Bank-funded projects by official bilateral and mul- ($3 billion), and South Asia ($1.3 billion). 114 The World Bank Annual Report 2004 Family planning clinic field workers visit patients in Dacca, as part of the Bangladesh Population Project (circa 1991). A doctor checks a baby's weight and nutrition at a health center in Kbong, Uganda, circa 1991. Mr. Lewis T. Preston, World Bank President, 1991­1995. Landscape in rural Bhutan, circa 1992. A field worker maintains irrigated furrows, part of the Seyhan Irrigation Project, in Turkey, circa 1991. Barber B. Conable (1986­1991) Lewis T. Preston (1991­1995) 1 Global China 2 Russian Federation 3 Independent 4 First Public Environment replaces India and 12 republics Inspection Information Facility is created. as largest IDA of the former Soviet Panel estab- Center is 1990 199 199 199 borrower. Union join IBRD lished to 199 opened, in IBRD approves China "grad- and IDA. investigate Washington, $1.3 billion loan, uates" from external D.C. its largest to President Preston IDA in complaints date, to tells the Earth World Bank 1999/2000. from groups Mexico for Summit in Rio de celebrates negatively debt reduction. Janiero that promot- 50th affected by ing development anniversary. Bank-funded and protecting the projects. environment are 1990s complementary. World Development Report focuses on the environment. In Sri Lanka, solar power provides light for studying. President Wolfensohn with World Youth representatives in Paris, 2003. Mr. James D. Wolfensohn, World Bank President, 1995 to present. Development Marketplace, December 2003 The Bank holds the first Development Marketplace in Washington, D.C., in 1998. ­ James D. Wolfensohn (1995­present) nt 6 Quality Assurance Bank approves 8 Bank approves Bank begins The Millennium Group (QAG) is estab- loans to the Kosovo Special to actively Development Goals lished to provide Republic of Fund. recruit and are adopted by leaders 199information on the 1997Korea and 199 1999retain of world's nations World Faith and 0002 quality of Bank work. other economies world-class and international Development affected by the staff with organizations. Trust Fund for Bosnia Conference held financial crisis, disabilities. and Herzegovina in London. Voices of the Poor to restore is created. is published. World investor confi- Bank holds first Development Report IMF, World Bank, dence and mini- Development focuses on attacking and donors launch mize social costs Marketplace to poverty. 1990s eserP the Heavily Indebted of the crisis. encourage Poor Countries (HIPC) innovation in Bank and partners Initiative to alleviate development. create Global debt. Development Gateway, Bank formulates an Internet portal on Jessica Einhorn the Comprehensive development. appointed first Development female Managing Framework. Director. In 2000 the World Bank committed an additional $500 million to fight HIV/AIDS. Girl writing on slate board at a nonformal primary educa- tion school in Bangladesh, 1995. World Bank President James D. Wolfensohn at the World Bank Annual Meetings in Dubai in September 2003. In Cambodia, a community worker teaches sex workers about HIV/AIDS. HIPC delivers on its year International Conference 3 World Bank President The Bank joins partnership to 2000 promise: 22 countries 02 on Financing for 0 James D. Wolfensohn make generic drugs available receive more than $34 Development, held in delivers Annual Meetings to people infected with AIDS in billion in debt service relief. 20Monterrey, Mexico, in 20speech in Dubai, where 0042more than 100 poor countries. March, achieves a new he calls for a new global Bank is named as one of The Bank launches Youthink, global partnership for balance and partnership world's five best practice a Web site where youth development. among nations. partners in implementing can share their ideas on knowledge management. World Summit on Investment Partnership development. Sustainable for Polio, an innovative Completed projects with Global Conference on Poverty Development, a 10-year financing program satisfactory outcome ratings Reduction held in Shanghai, follow-up to the Rio supporting the eradication reach 75 percent for first China, brings development Earth Summit, is held in of poliomyelitis by 2005, time in nearly 20 years (up community together to discuss Johannesburg, South is formed by the Bank and from 60 percent in 1996). actions to accelerate progress Africa, in August. partners. on the development agenda. Mamphela Ramphele is The Youth, Development, appointed first African and Peace Conference Managing Director. brings young people into the Bank's dialogue on development. List of Boxes, Figures, and Tables BOXES Figure 2.7 Europe and Central Asia: IBRD and IDA Lending by Theme, Fiscal 2004 45 Box 1.1 Sharing Development Experiences 17 Figure 2.8 Europe and Central Asia: IBRD and IDA Box 2.1 Fighting the HIV/AIDS Pandemic in Lending by Sector, Fiscal 2004 45 Africa 28 Figure 2.9 Latin America and the Caribbean: Box 2.2 Country Innovation Days 34 IBRD and IDA Lending by Theme, Box 2.3 Important Benefits Are Beginning to Fiscal 2004 50 Emerge from the PRSP Process 39 Figure 2.10 Latin America and the Caribbean: Box 2.4 The Bank's Programmatic Approach to IBRD and IDA Lending by Sector, Nonlending Activity 41 Fiscal 2004 50 Box 2.5 Helping Small Rural Communities in Figure 2.11 Middle East and North Africa: IBRD and Honduras through a Road Project 48 IDA Lending by Theme, Fiscal 2004 55 Box 2.6 Partnering with CSOs to Create Jobs in the Figure 2.12 Middle East and North Africa: IBRD and West Bank and Gaza 53 IDA Lending by Sector, Fiscal 2004 55 Box 3.1 Trade: Working Toward Results at the Figure 3.1 Cumbersome Regulation Is Associated Country Level 60 with Lower Productivity 73 Box 3.2 Disability as a Fundamental Issue 64 Figure 3.2 Net Long-Term Resource Flows to Box 3.3 Carbon Finance as a Powerful Development Developing Countries, 1993­2003 74 Tool 67 Figure 4.1 Monitoring: Dimensions of Developing- Box 3.4 Innovative Approaches to Infrastructure Country Policies 89 Service Delivery 71 Figure 4.2 Monitoring: Dimensions of Developed- Box 3.5 Doing Business in 2004 73 Country Policies 89 Box 3.6 Meeting the Challenge of Electronic Figure 4.3 Monitoring: Dimensions of Development Finance 77 Agency Support 90 Box 3.7 Improving the Legal Environment in Figure 4.4 Active Project Portfolio by Region as of Iraq 80 June 30, 2004 91 Box 4.1 Results-Based Country Assistance Figure 4.5 Active Project Portfolio by Theme as of Strategies 85 June 30, 2004 91 Box 5.1 Responding to Country Needs 102 Figure 4.6 Active Project Portfolio by Sector as of June 30, 2004 91 Figure 4.7 Project Performance Trends, FIGURES 1974­2004 92 Figure 5.1 Gross Domestic Product per Capita Index, Figure 1.1 Population Living below $1 and $2 a 1993­2003 99 Day 16 Figure 5.2 Total IBRD-IDA Lending by Region, Fiscal Figure 1.2 Aid Is Rising but Is Well Short of What Is 2004 103 Needed 17 Figure 5.3 Total IBRD-IDA Lending by Theme, Fiscal Figure 1.3 Countries Are Improving Their Private 2004 103 Business Environment 17 Figure 5.4 Total IBRD-IDA Lending by Sector, Fiscal Figure 1.4 Participatory Processes Are Improving in 2004 103 Developing Countries 18 Figure 5.5 IBRD Lending by Region, Fiscal Figure 2.1 Africa: IBRD and IDA Lending by Theme, 2004 105 Fiscal 2004 31 Figure 5.6 IBRD Lending by Theme, Fiscal 2004 105 Figure 2.2 Africa: IBRD and IDA Lending by Sector, Figure 5.7 IBRD Lending by Sector, Fiscal 2004 105 Fiscal 2004 31 Figure 5.8 Net Return on Average Earning Figure 2.3 East Asia and Pacific: IBRD and IDA Assets 106 Lending by Theme, Fiscal 2004 36 Figure 5.9 Equity-to-Loans Ratio as of June 30, Figure 2.4 East Asia and Pacific: IBRD and IDA 2004 107 Lending by Sector, Fiscal 2004 36 Figure 5.10 Borrowings and Investments as of June Figure 2.5 South Asia: IBRD and IDA Lending by 30, 2004 107 Theme, Fiscal 2004 40 Figure 5.11 Proposed Allocation of Fiscal 2004 Figure 2.6 South Asia: IBRD and IDA Lending by Allocable Net Income of Sector, Fiscal 2004 40 $1,675 Million 108 118 The World Bank Annual Report 2004 Abbreviations Figure 5.12 IDA Commitments by Region, Fiscal AML/CFT anti­money laundering and combating 2004 109 the financing of terrorism Figure 5.13 IDA Commitments by Theme, Fiscal CAS Country Assistance Strategy 2004 109 CIS Commonwealth of Independent States Figure 5.14 IDA Commitments by Sector, Fiscal CODE Committee on Development 2004 109 Effectiveness Figure 5.15 Sources of IDA Funding 110 COGAM Committee on Governance and Figure 5.16 IDA's Stepped-up Efforts in the Social Executive Directors' Administrative Sectors 110 Matters Figure 5.17 HIPC Debt Relief: Reduced Debt Stock CSO civil society organization and Improving Debt Service Rations 111 ESW economic and sector work Figure 5.18 Trends in Poverty-Reducing Expenditures FIAS Foreign Investment Advisory Service before and after Assistance under the GDP gross domestic product HIPC Initiative 111 GEF Global Environment Facility Figure 5.19 Trust Fund Contributions and GFATM Global Fund to Fight AIDS, Tuberculosis Disbursements, Fiscal 2000­04 113 and Malaria GNI gross national income HIPC heavily indebted poor countries TABLES HIV/AIDS human immunodeficiency virus/acquired immune deficiency syndrome Table 2.1 World Bank Lending to Borrowers in IBRD International Bank for Reconstruction Africa, by Theme and Sector, Fiscal and Development 1995­2004 31 ICSID International Centre for Settlement of Table 2.2 World Bank Lending to Borrowers in East Investment Disputes Asia and Pacific, by Theme and Sector, IDA International Development Association Fiscal 1995­2004 36 IDA14 14th Replenishment of IDA Table 2.3 World Bank Lending to Borrowers in IFC International Finance Corporation South Asia, by Theme and Sector, IMF International Monetary Fund Fiscal 1995­2004 40 I-PRSP interim Poverty Reduction Strategy Table 2.4 World Bank Lending to Borrowers in Paper Europe and Central Asia, by Theme and ITF Iraq Trust Fund Sector, Fiscal 1995­2004 45 LDC least developed country Table 2.5 World Bank Lending to Borrowers in LICUS low-income countries under stress Latin America and the Caribbean, by MAP Multicountry HIV/AIDS Program Theme and Sector, Fiscal 1995­2004 50 MDGs Millennium Development Goals Table 2.6 World Bank Lending to Borrowers in MIGA Multilateral Investment Guarantee Middle East and North Africa, by Theme Agency and Sector, Fiscal 1995­2004 55 NEPAD New Partnership for Africa's Table 4.1 Bank Lending to MDGs, Fiscal 2004 90 Development Table 5.1 Economic and Sector Work (ESW) Product OECD Organisation for Economic Co-operation Deliveries by Type, Fiscal 2003­04 101 and Development Table 5.2 World Bank Lending by Theme and OED Operations Evaluation Department Sector, Fiscal 1995­2004 104 PRSP Poverty Reduction Strategy Paper Table 5.3 World Bank Adjustment Commitments, PSIA Poverty Social Impact Analysis Fiscal 2001­04 106 SARS sudden acute respiratory syndrome Table 5.4 Select IBRD Financial Data 107 SDRs special drawing rights Table 5.5 Top Ten Trust Fund Donors 113 SWAps sectorwide approaches TSS Transitional Support Strategy UNAIDS Joint United Nations Programme on HIV/AIDS Tables previously included in chapter 6 and as appendixes to WBI World Bank Institute volume 2 can be found on the CD-ROM. WTO World Trade Organization The World Bank Annual Report 2004 119 Index A Colombia, 23, 46, 47, 48, 66, 76, 94, 97 advisory services, 74­75, 78, 98­102 committees, 5 Afghanistan, 37­39, 102, 112 Commonwealth of Independent States (CIS), 41, 42 Africa, 16, 27, 28­31, 62, 63, 65, 73, 74, 87, 95, 98, 101, Compliance Advisor Ombudsman, 95 110, 114 concessional lending, 20 agriculture, 65­67 conflict reduction, see politics, governance and war, aid flows, levels of, 3, 16, 17, 73 and headings at post-conflict AIDS, see HIV/AIDS Congo, Democratic Republic of, 19, 109 Albania, 42, 43 Congo, Republic of, 19 Angola, 21, 73 corporate evaluations, 92 Annual Bank Conference on Development Economics corruption issues, 81 (ABCDE), 12 Costa Rica, 19, 46, 80 annual meetings, 2, 13 Côte d'Ivoire, 13 annual report, preparation of, ii, 5 countries eligible for World Bank funding, listed by anti-money laundering and combating financing of region, 28, 32, 37, 41, 46, 51 terrorism (AML/CFT), 78 Country Assistance Strategies (CASs), 4, 7, 18­19, 22; Argentina, 19, 46, 47, 48, 64, 100 evaluation of, 93; gender issues, 59; managing Armenia, 19, 42, 93 for development results, 85; regional reports, 32, 37, Articles of Agreement, 5 42, 46 Asian Development Bank, 33, 39 Country Policy and Institutional Assessment, 21 Association of South East Asian Nations (ASEAN), 35 Croatia, 41, 44, 93 Audit Committee, 5­6, 7 Cyprus, 12, 41 Australia, 73 Czech Republic, 12, 41 Azerbaijan, 42 D B debt relief, 4, 6­7, see also Heavily Indebted Poor Bahrain, 51 Countries (HIPC) initiative; Africa, 30; summary Bangladesh, 37, 38, 39, 65, 66, 109 of FY2004 activities, 110­12 Basel Accord, 76, 77 debt sustainability, 110­12 Benin, 19, 111 developed and developing countries, responsibilities of, 4 Bhutan, 38, 39 development agenda, 14­23; Country Assistance Boao Forum for Asia, 35 Strategies (CASs), 18­19; global partnerships and pro- Bolivia, 19, 23, 46, 49, 111 grams, 22­23; information sharing and dissemination, Bosnia and Herzegovina, 6, 93 23; low-income countries, agenda for, 19­21; Brazil, 13, 14, 19, 46­49, 59, 66, 73, 74, 75, 76, 83, Low-Income Countries under Stress (LICUS) 94, 100 initiative, 19, 20­21; middle-income countries, budget, ii, 7 agenda for, 21­22; Millennium Development Goals Budget Committee, 5, 6 (MDGs) embraced by, 14­16; monitoring progress Bulgaria, 41 of, 15­17; poverty reduction, 17­18; PRSPs, 19­20 Burkina Faso, 28, 62, 111 Development Committee, 6 Burundi, 60 development effectiveness, 84­95; CODE (Development business, see economic and business climate Effectiveness Committee), 5, 6; managing for devel- opment results, 84­86; Millennium Development C Goals (MDGs), 84, 87­90; simplification and harmo- Cambodia, 34, 35, 60, 64, 66, 71, 73, 80 nization of policies and procedures, 86­97 Cameroon, 19, 93 Development Grant Facility, ii, 7 Canada, 73 Development Marketplace, 13 capacity for development, 84­85, 101­2 disability, 64 Cape Verde, 60 Djibouti, 54, 59, 60, 101 carbon finance business, 67 Doha Agenda, 13, 15, 59 Caribbean, see Latin America and Caribbean Doing Business in 2004, 72­75 Central African Republic, 21 Dominican Republic, 19, 60 Central America Free Trade Agreement, 60 Dubai, annual meetings in, 2, 13 Chad, 19, 59 children and youth, 2, 3, 13, 47, 54, 64 E Chile, 11, 46, 47, 48, 81 East Asia and Pacific, 16, 27, 32­36, 73, 87, 88, 95, China, 32­35, 56, 64, 75, 93, 96, 97, 98, 100, 102 98, 101, 109 civil society organizations (CSOs), 6, 14, 22; ABCDE Europe economic and business climate, 17­18, 22, 60; infra- Conference, 12; CASs (country assistance strategies), structure and, 69­70; microeconomic factors, 38, 47, 18; regional reports, 28, 34, 35, 53, 54 72; national financial system development, 76­78; Clinton Foundation, 4, 12, 62 private sector development, 17­18, 22, 72­75; CODE (Development Effectiveness Committee), 5, 6 public financial management reform, 58­59; cofinancing, 114 regional reports, 29, 32­35, 37, 38, 41­43, 46­47, COGAM (Governance and Executive Directors' 51­53 Administrative Matters Committee), 5, 6 economic and sector work (ESW), 51, 72, 91, 98, 100­101 120 The World Bank Annual Report 2004 Ecuador, 47, 60, 100 Heavily Indebted Poor Countries (HIPC) initiative, 4, 6, 20, education issues, 61­63; Education for All Fast-Track 110­12; HIV/AIDS, 62; IBRD support, 108; regional initiative, 43, 61, 113; HIV/AIDS, 61; MDGs, 87, 90; reports, 30, 47 regional reports, 29, 34­35, 37­39, 43, 48, 51­54; Hills Program on Governance, 33 WBI activities, 102 historical background: FY2004 highlights, 12­13; time- Egypt, Arab Republic of, 23, 52, 83 lines, 1940's-1980's, 10­11, 24­25, 56­57, 82­83, 96­97 El Salvador, 47 HIV/AIDS, 4, 12, 14, 62, 63; education issues, 61; gender elderly as vulnerable population, 64 issues, 59; IDA, role of, 108, 109; regional reports, electronic finance, 77 28­30, 35, 39, 43, 49, 54; youth development energy, see environmental issues; infrastructure issues, 64 environmental issues: Environment Network, 101; GEF Honduras, 47, 48, 56, 59, 80 (Global Environment Facility), 112; Least Developed Hong Kong, 33 Countries (LDC) Fund for Climate Change, 113; Hungary, 12, 41 regional reports, 35, 44, 48, 49; sustainable development, 65, 66­67; water and sanitation, I 38­39, 43, 44, 47, 53­54, 66, 88 India, 23, 25, 37, 38, 39, 56, 59, 63, 64, 65, 76, 78, Eritrea, 59 94, 101, 109 Estonia, 12, 41 indigenous peoples, 48, 68 Ethiopia, 23, 24, 60, 64, 65, 66, 111 Indonesia, 32­35, 60, 73, 100 Europe and Central Asia, 16, 27, 41­45, 63, 71, 98, 101 information sharing and dissemination, 23 European Bank for Reconstruction and Development, 73 infrastructure, 69­71, see also water and sanitation; European Commission, 114 Infrastructure Action Plan, 13, 69, 70; regional European Union (EU), 12, 41, 42, 93 reports, 29, 33, 37, 38, 48, 52­54; rural development, European Youth Forum, 13 65­66, 70; vulnerable people, protections for, 64 Executive Directors, Board of, ii, 5­7 Innovation Days, 34 Extractive Industries Review, 95 Inspection Panel, 94 Integrated Framework (IF) initiative, 60 F Inter-American Development Bank, 47, 114 fiduciary responsibilities of Executive Directors, 7 International Bank for Reconstruction and Development finance, see economic and business climate (IBRD), ii, 8, 103­8; Board of Executive Directors, Financial Sector Learning Program, 76­77 responsibilities of, 5; Development Committee, 6; Financing for Development Consensus, 59 global partnerships and programs, 7; regional Finland, 24, 83 commitments, 31, 32, 36, 40, 41, 45, 50, 55 Foreign Investment Advisory Service (FIAS), 73, 75 International Centre for Settlement of Investment France, 11, 57 Disputes (ICSID), ii, 9 International Development Association (IDA), ii, 8, 103, 108­10; 14th replenishment, 13, 20, 85; aid flows, G need for increase in, 3; Board of Executive Directors, G-20 group of developing countries, 78 responsibilities of, 5; concessional lending, 20; Poverty gender issues, 39, 51, 59, 80­81, 87 Reduction Strategy Papers, 4; private development Georgia, 43, 100 programs, 74; PRSP-based assistance, 19­20; regional Germany, 57, 80 commitments, 28­29, 31, 32, 36, 45, 47, 48, 50, Ghana, 19, 28, 62, 63, 75, 81, 93, 111 55, 109 Global Corporate Governance Forum, 75 International Finance Corporation (IFC), ii, 9, 19, 22, Global Development Learning Network Centers, 74­75, 95 34­35, 102 International Labour Organization (ILO), 81 Global Environment Facility (GEF), 112 International Monetary Fund (IMF): annual meeting, 2; Global Fund to Fight AIDS, Tuberculosis and Malaria common approaches, coordinating, 93; Financial (GFATM), 4, 12, 62, 112 Sector Assessment Program in Europe and Central Global Monitoring Report, 3, 6, 12, 15, 87­90 Asia, 42; Global Monitoring Report, 3, 6, 12, 15; global remittances, 77 long-term debt sustainability in low-income Global Trade Facilitation Partnership for Transportation countries, 7; modernization of legal and judicial and Trade, 60 systems, 79, 80; national financial system develop- governance, see politics, governance, and war ment, 78; partnerships with, 22; public financial Governors, Board of, 5 management, 58­59 Grenada, 48 Iran, Islamic Republic of, 52, 54, 58, 66 gross domestic product (GDP), 28, 30, 37, 46, 70, 98, 99 Iraq, 12­13, 19, 51­52, 80, 113­14 Guatemala, 47, 48, 80 Islamic Development Bank, 93 Guinea, 56, 60 Italy, 44, 67 Guyana, 47, 111 J H Jamaica, 47, 82 Haiti, 13, 21 Japan, 24, 33, 34­35, 56, 57, 82, 112 health issues, 63­64, see also HIV/AIDS; MDGs, 87­88; Japan Bank for International Cooperation, 33 regional reports, 35, 38, 48­49, 53, 54; World Health Johannesburg Conference, 12, 15 Organization (WHO), 12 Joint Iraq Needs Assessment, 12, 51­52 The World Bank Annual Report 2004 121 joint projects, 7, 22­23, 86, 114 Monterrey Consensus, 4, 15, 16, 23, 88, 89 judicial systems, modernization of, 79­81, 87 Morocco, 54, 79, 85 Mozambique, 13, 19, 28, 62, 94, 111 K Multi-Country AIDS/HIV Programs (MAPs), 28, 62 Kazakhstan, 42 Multilateral Investment Guarantee Agency (MIGA), ii, 9, Kenya, 19, 29, 59, 60, 65, 66, 81, 82 22, 70, 95 knowledge services, 22, 42, 51, 52, 76­78, 98­102 Korea, Republic of, 33 N Kosovo, 6, 19, 42, 43 natural disaster relief and assistance, 33, 52, 77 Kuwait, 52 Nepal, 37­39, 60 Kyrgyz Republic, 42, 43 Netherlands, 24, 59, 67, 73 New Partnership for Africa's Development (NEPAD), 28 L Nicaragua, 47, 99, 111 Lao People's Democratic Republic, 6, 34, 35, 59 Niger, 111 Latin America and Caribbean, 16, 26, 46­50, 60, 62, 63, Nigeria, 25, 60, 64, 74, 75, 81, 102 73, 76, 80­81, 95, 98, 114 North Africa, see Middle East and North Africa Latvia, 12, 23, 43 Norway, 59 Least Developed Countries (LDC) Fund for Climate nutrition, 63 Change, 113 Lebanon, 53 O legal systems, modernization of, 79­81, 87 Operations Evaluation Department (OED), 5, 19, 91­93 Lesotho, 60 Organization for Asia-Pacific Economic Cooperation, 35 Liberia, 13, 19, 21 Organization for Economic Co-operation and Lithuania, 12, 41, 42 Development (OECD), 21, 22, 29, 41; infrastructure, loans, see also debt relief: concessional lending, 20; 70; politics and governance, 59; private sector environmental, 66; innovations in FY 2004, 110; development, 75; simplification and MDG-related, 90; national financial system harmonization efforts, 87 development, 78; private sector development, Organization of American States (OAS), 81 74­75; regional reports, 31, 32, 36, 37­42, 45­48, 50, 51, 52, 55; simplification and modernization of P lending policies, 12; summary of FY2004 activities, Pacific, see East Asia and Pacific 103; theme and sector, 1995­2004, 31, 36, 40, 45, 50, Pakistan, 19, 25, 37­39, 56, 60, 64, 83, 100, 109 55, 104 Palestinians, 19, 52, 53, 113 low-income countries, 19­21, 88 Pan American Health Organization, 81 Low-Income Countries under Stress (LICUS) Initiative, 4, Papua New Guinea, 57 13, 19, 20­21 Paraguay, 19, 46, 48 participation in development, 18, 29, 33­34, 38­39, M 43, 48, 53­54, 61 Macedonia, former Yugoslav Republic of, 19, 42 partnerships, 7, 22­23, 86, 114 Madagascar, 19, 60, 102 Personnel Committee, 5, 6 malaria, 4, 12, 59, 62 Peru, 25, 46, 47, 48, 70, 74, 80 Malawi, 60 Philippines, 33, 34, 60, 65, 94, 100 Malaysia, 32, 60, 76 Poland, 12, 41, 42, 43, 87, 101 Mali, 19, 60, 63, 66, 111 poliomyelitis, program to eradicate, 113 Malta, 12, 41 politics, governance, and war, 58­59; corruption issues, Mauritania, 60, 79, 80, 111 81; modernization of legal and judicial systems, measles, 63 79­81, 87; regional reports, 29­30, 37, 41, 42, 51­53; Mexico, 19, 46, 47, 48, 76, 80, 87, 94, 100 regulatory burdens, 73; social development, 67 microeconomic factors, 38, 47, 72 population issues, 3, 63 Middle East and North Africa, 16, 27, 51­55, 87, Post-Conflict Fund, 12­13, 30, 67 98, 101, 102 Post-Conflict Progress Indicators, 21 middle-income countries, 12, 88 postconflict settings, Transitional Support Strategies Millennium Development Goals (MDGs), 3, 4, 12­16, 61; for, 19 cost of achieving, 89­90; debt relief, 112; Global poverty and poverty reduction, 2­4, 6­7, 14, 16­18 Monitoring Report, 6, 87­90; health issues central Poverty and Social Impact Analyses (PSIAs), 58 to, 63; IDA, role of, 108; infrastructure, 69; list of, Poverty Reduction Strategy Papers (PRSPs), 4, 6, 7, 19­20, 15; managing for development results, 84; 58; gender issues, 59; HIV/AIDS, 62; MDGs and, 63; middle-income countries, support for, 22; regional reports, 28, 39, 42, 54 Partnerships in Development, 23; PRSPs and, Poverty Reduction Support Credits, 20, 37, 39, 42, 43, 47 20, 63; regional reports, 28, 37, 41, 43, 44, 48; prescription drugs, global access to, 4, 12 social development, 67 private sector development, 17­18, 22, 72­75 Millennium Summit, New York, 2000, 2­3 Public Information Centers, 23, 34 Millennium Summit Review, 2005, 17 Puerto Rico, 73 Moldova, 42, 43, 44 money laundering, 78 Q Mongolia, 19, 32, 34 Quality Assurance Group, 90­91 122 The World Bank Annual Report 2004 R Tokyo International Conferences on African regulatory burdens, 73 Development, 28 research activities, 72­74, 98­100 Tokyo Project, 34­35 results, measuring and monitoring: external evaluations, Trade Facilitation Initiative, 60 95; Inspection Panel, 94; internal quality assurance trade talks, 3, 13, 59­60 processes, 90­94; managing for development results, transitional results framework, 21 84­85; MDGs, progress towards, 87­90; OED transportation, see infrastructure (Operations Evaluation Department), 5, 19, 91­93 trust funds, 112­14 riverblindness (onchocerciasis), i tuberculosis, 4, 12, 35, 59, 62 Roma people, 42, 43 Tunisia, 19, 53, 56, 60, 76, 82, 93 Romania, 41, 42, 44 Turkey, 19, 41, 42, 43, 44, 66, 75, 77, 96, 97 rural development, 65­67, 70 Russian Federation, 41, 42, 43, 60, 93 U Rwanda, 66, 93 Uganda, 14, 23, 60, 66, 75, 101, 111 Ukraine, 19, 42, 43, 60, 94 S unemployment issues in Middle East and St. Lucia, 49 North Africa, 51, 53 St. Vincent and the Grenadines, 49 United Arab Emirates, 52 Samoa, 6, 33 United Kingdom, 35, 41, 57, 114 sanitation and water, 38­39, 43, 44, 47, 53­54, 66, 88 United Nations: Children's Fund, 4, 12, 62; gender issues, SARS (sudden acute respiratory syndrome), 35 59, 80­81; HIV/AIDS program (UNAIDS), 43, 62; Saudi Arabia, 51, 52 indigenous peoples, 68; Joint Iraq Needs Assessment, Scout Movement, World Organization of, 13 12, 51­52; partnerships with, 22; poliomyelitis, pro- Seila Program, 34 gram to eradicate, 113; Security Council, appearance Senegal, 60, 75, 111 of James D. Wolfensohn before, 12; transitional Serbia and Montenegro, 6, 19, 42, 44 results framework and donor partnerships, 21 Seychelles, 60 United States, 57, 73 Shanghai conference on poverty reduction, 4, 12, 17, 101 Uruguay, 46 Sierra Leone, 23, 59 Uzbekistan, 42 Singapore, 33, 57, 73 Slovak Republic, 12, 19, 41, 42 V Slovenia, 2, 12, 41 Venezuela, República Bolivariana de, 46, 80 social development, 67­68 Vietnam, 6, 19, 23, 32, 34, 35, 109 Somalia, 13, 21 vulnerable people, protections for, 64 South Africa, 24, 71, 76 W South America, see Latin America and Carribean war, see politics, governance, and war South Asia, 16, 27, 37­40, 65, 73, 87, 95, 98, 109, 110, 114 water and sanitation, 38­39, 43, 44, 47, 53­54, 66, 88 Sri Lanka, 19, 37­39, 60, 87 West Africa Economic and Monetary Union, 78 Statistical Capacity Building Program, 12, 85 West Bank and Gaza, 19, 52, 53, 112, 113 Strategic Framework, 6 Wolfensohn, James D., ii, 2­4, 12, 13 Strategic Partnership for Africa, 28 women, 51, 59, 80­81, 87 Sudan, 19, 21 World Bank Group, organization and institutions of, 8­9 Summit of the Americas, 73 World Bank Institute (WBI), 101­2 support sector-wide approaches (SWAps), 110 World Development Report, 98­100 sustainable development, 65­68 World Health Organization (WHO), 12 Sweden, 24 World Trade Organization (WTO), 22, 35, 60 world trade talks, 3, 13, 59­60 T Taiwan, 33 Y Tajikistan, 42, 43, 59, 60 Yemen, Republic of, 53, 54, 60, 83 Tanzania, 63, 75, 111 youth development issues, 3, 13, 47, 54, 64 technical assistance programs, 47, 51, 74­75, 78, 101 Yugoslavia, 24 terrorism, 78 Thailand, 14, 25, 66 Z Timor-Leste, 21 Zambia, 19, 64, 82, 94 The World Bank Annual Report 2004 123 The World Bank InfoShop is a one-stop shop for eco- Photo Credits nomic development literature, and it is a source of Cover, Giacomo Pirozzi, Panos page 1, Patricia Hord, Patricia Hord Graphik Design information on all current World Bank project activi- page 2, World Bank/Damian Sean Milverton ties. 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