World Bank VMUN 2017 Background Guide 1

VANCOUVER MODEL UNITED NATIONS

the sixteenth annual conference | January 20-22, 2017

Dear delegates,

Alvin Tsuei My name is Sasha Twardowski and it is my distinct pleasure to be serving as the Secretary-General Director of the World Bank at VMUN 2017. For 5 years, I have engaged in Model UN conferences all around North America as a delegate, chair, director and secretariat. My experience of over 15 conferences has truly brought to light

the rewarding nature of MUN not only with regards to learning international Chris Pang policy, but also public speaking confidence. Outside of MUN, I play tennis, Chief of Staff soccer, shoot photography, act in school plays, and volunteer for several political parties. Eva Zhang Director-General The topics that I selected for the World Bank at VMUN 2017 are Debt Reduction in Developing Countries and the Reconstruction of War Zones. The aim of these Arjun Mehta topics was to be as universal as possible, as these topics have at some point Director of Logistics affected every single country. In order to assure a high quality of debate at the conference, delegates are expected to conduct further research outside of this background guide and put in significant effort to develop a well-researched position paper.

Graeme Brawn The first topic of this committee is the Debt Reduction in Developing Countries. USG General Assemblies For decades, nations have been caught in a vicious cycle of slashing important

government programs in order to repay interest payments of debt that is ever- Ryan Karimi accumulating. The debt burden placed upon the most vulnerable of nations is USG Specialized Agencies truly alarming to not only the citizens within said nations, but also the world

economy as a whole. For this reason, it is imperative that the World Bank tackles Mary Dong the chronic issue of debt reduction and create a solution that truly betters the USG Conference global economy.

Ken Hong The second topic is the Reconstruction of War Zones. Ever since the mandate of USG Delegate Affairs the World Bank has drifted more towards sustainable development, rather than

reconstruction, conflict zones all over the world have been left unattended and Isabelle Cheng more susceptible to return to conflict. Warzones exist on virtually every USG Delegate Affairs continent and it is for the benefit of the global community as a whole to

reconstruct these war zones in an effective manner in order to best reduce Jason Qu chances of further conflict, as well as bolster economic growth within that USG Finance country.

Jan Lim I would like to wish you the best of luck with your research and writing of the USG Marketing position papers. If you have any questions, please do not hesitate to email me at the address listed below. On behalf of all the staff serving the World Bank, I would like to welcome you to the World Bank at VMUN 2017.

Sincerely, Sasha Twardowski VMUN 2017 – Director of the World Bank

World Bank VMUN 2017 Background Guide 1 World Bank Position Paper Policy

What is a Position Paper?

A position paper is a brief overview of a country’s stance on the topics being discussed by a particular committee. Though there is no specific format the position paper must follow, it should include a description of your positions your country holds on the issues on the agenda, relevant actions that your country has taken, and potential solutions that your country would support.

At Vancouver Model United Nations, delegates should write a position paper for each of the committee’s topics. Each position paper should not exceed one page, and should all be combined into a single document per delegate.

Formatting

Position papers should: — Include the name of the delegate, his/her country, and the committee — Be in a standard font (e.g. Times New Roman) with a 12-point font size and 1-inch document margins — Not include illustrations, diagrams, decorations, national symbols, watermarks, or page borders — Include citations and a bibliography, in any format, giving due credit to the sources used in research (not included in the 1-page limit)

Due Dates and Submission Procedure

Position papers for this committee must be submitted by midnight on January 8th, 2017.

Once your position paper is complete, please save the file as your last name, your first name and send it as an attachment in an email, to your committee’s email address, with the subject heading as your last name, your first name — Position Paper. Please do not add any other attachments to the email or write anything else in the body.

Both your position papers should be combined into a single PDF or Word document file; position papers submitted in another format will not be accepted.

Each position paper will be manually reviewed and considered for the Best Position Paper award.

The email address for this committee is [email protected].

World Bank VMUN 2017 Background Guide 2 Table of Contents

Debt Reduction in Developing Countries ...... 4 Overview ...... 4 Timeline ...... 4 Historical Analysis ...... 5 Current Situation ...... 6 UN and International Involvement ...... 8 Possible Solutions ...... 9 Bloc Positions ...... 9 Paris Club Bloc: ...... 9 Non-Paris Club Bloc: ...... 10 HIPC Bloc: ...... 10 Discussion Questions ...... 10 Additional Sources ...... 10 References ...... 10 Reconstruction of War Zones ...... 12 Overview ...... 12 Timeline ...... 12 Historical Analysis ...... 13 Current Situation ...... 14 Past UN/International Involvement ...... 15 Possible Solutions ...... 16 Bloc Positions ...... 17 Primarily Lending Nations: ...... 17 Non-War Zone Developing Nations: ...... 17 War Zone Nations: ...... 17 Discussion Questions ...... 18 Additional Sources ...... 18 References ...... 18

World Bank VMUN 2017 Background Guide 3 World Bank Topic A Debt Reduction in Developing Countries

Overview

Heavily Indebted Poor Countries (HIPCs) feel some of the most difficult challenges today. With governments attempting to invest in business development, social programs, and a whole slew of other important initiatives, governments in those HIPCs are restrained by debt that they may have accumulated many years ago. Often the debts are as a result of the remnants of colonialism, mismanagement of finances by past dictators, as well as careless lending by western nations to developing nations whom they knew could not repay the debts.1

The importance of this topic is paramount, as development in the 39 nations, mostly sub-Saharan countries, officially under the title of HIPC, is severely stifled by the sheer weight of the debt.2 The entire issue of being heavily indebted is quite simple to break down. Essentially, a nation takes of a loan from a lender with a promise to repay this loan. The loan has an interest rate attached to it, which means that the amount that the borrowing country has to repay increases over time. That being said, following basic economic theory, lending interest rates typically reflect the risk of the lending. For example, lending someone money with a 0.5% interest rate would imply that the loan is significantly less risky than lending someone money with a 10% interest rate. The entire issue with HIPCs is that they are considered very risky to lend to because of perceived mismanagement of finances and failure to repay prior debt. When these HIPCs are lent funds, free market principles would show that the interest rates on those loans would be far more than an HIPC could handle. In short, if both an HIPC and a developed country took out the same loan, the HIPC would end up paying significantly more in interest, and thus, the loan is more expensive for the nation with the more dire situation.

Because of the nature of the lending industry, nations that are heavily indebted are unlikely to receive loans at a payable interest rate. When nations they cannot receive enough funding, the general populace remains impoverished as infrastructure is not improved. Industry will not develop quickly enough, and therefore, real wages remain stagnant. Because of this economic stagnation, the pool of taxes that the government receives does not increase, and consequently, the debt does not get repaid. This is all a vicious cycle that has impoverished many nations and kept them in poverty. If not addressed, the cycle will only worsen and the developmental goals of the World Bank and the rest of the United Nations will not be reached.

Timeline

1944 - The World Bank, along with the International Monetary Fund, were created as a result of the Bretton Woods Conference.

1960 - The International Development Association (IDA) was formed as a sub-section of The World Bank Group (WBG). The purpose of the IDA was to specifically cater to the poorest of nations by offering softer repayment terms for their loans.3

1973 - The oil crisis of 1973, where oil prices skyrocketed, led to a massive influx of commercial lending to developing nations without much attention to how loans were being utilized.

1979 - A second oil crisis led to increased production costs for developing nations. This triggered tough

1 http://www.globalissues.org/issue/28/third-world-debt-undermines-development 2 http://data.worldbank.org/income-level/heavily-indebted-poor-countries-hipc 3 http://ida.worldbank.org/about/history

World Bank VMUN 2017 Background Guide 4 economic times, and as a result, the developing nations could not repay the massive amounts of loans accumulated after the 1973 oil crisis.

1982 - Mexico was the first Latin American country to default on its debt. This sent a shockwave through the financial markets as creditors were more skeptical of lending to other nations.4

1989 - The IDA introduced the Debt Reduction Facility (DRF) which aided IDA nations in buying back commercial debt.5

1997 - Uganda is the first nation to receive a debt relief package under the HIPC initiative.6

2005 - The Multilateral Debt Relief Initiative (MDRI) was created to aid nations that could not successfully manage debt, even with HIPC debt relief. The purpose of the initiative was to essentially cancel debt repayments to the IMF, WBG, and African Development Bank (AfDB).

2014 - 35 of the 39 HIPCs have reached the “completion point” in their debt relief

Historical Analysis

The concept of countries borrowing from each other has existed for thousands of years. That being said, the simplicity of borrowing and repayal has only gotten more complex as time passed. The crisis of having many nations severely in debt has had many traceable steps, and as a committee, avoiding repetition of such mistakes should be a priority.

Near the end of the Second World War, a conference in Bretton Woods arrived to the decision to introduce The World Bank and the International Monetary Fund as international bodies.7 The purpose of The World Bank was to aid with the reconstruction of war zones through lending to nations that were severely damaged. Once remediation efforts after the Second World War were complete, The World Bank began to shift its focus to more of what it is about today: development. By 1960, there were two main wings of The World Bank Group (WBG). There was the International Bank for Reconstruction and Development (IBRD), which operated within the free market to provide loans for large scale infrastructure projects in any nation. The IBRD was not useful to nations in dire condition because the loans that the IBRD provided had interest. To fix this, the WBG introduced the second main wing of the WBG, the International Development Association (IDA), an organization dedicated to providing interest-free loans to nations in need.8

The debt crises among HIPCs began in the early 1970s. In 1973, there was a sudden, massive increase in oil prices when OPEC proclaimed an embargo. The money that the Organization of Petroleum Exporting Countries (OPEC) members generated went into commercial banks. The banks then had an excess amount of money that they wanted to invest into projects. Developing nations, in need of investment, looked towards the banks that now had a lot of money. The banks lent out many loans to the developing nations without regard for where the money was going. As a result, many irresponsible governments in these developing nations misused the funds and no real development happened. Several years later, in 1979, there was another shock in the oil market. This shock meant that factors in domestic production within these developing nations became much more expensive and their economies took a hit. Because the developing nations accumulated vast amounts of debt from the increased lending, as well as had little to no infrastructural gain, they found

4 http://www.worldhunger.org/articles/global/debt/caritas2.htm 5 http://www.worldbank.org/en/topic/debt/overview#2 6 http://apps.who.int/immunization_financing/analyses/debt_relief/country_data/Uganda_datasheet_final.pdf 7 http://www.worldbank.org/en/about/history 8 http://ida.worldbank.org/about/history

World Bank VMUN 2017 Background Guide 5 themselves in very poor financial situations. Inflation increased because of loose monetary policies, debts reached unsustainable levels, and soon, other government programs were compromised.9

By the early 1980s, many nations, mostly in Latin America, South America, and Sub-Saharan Africa, were deeply in debt and there was little hope for repayment. That being said, the flow of credit was still relatively smooth during that time. The flow of credit essentially means that there is a large amount of borrowing and lending money. However, in 1982, Mexico famously defaulted on the debt that it accumulated, which means that Mexico could no longer fulfill the legal requirement of paying back the debt. This default served as a wake up call to creditors who were considering lending to nations. The creditors previously believed that every nation would pay off its debt, even if it took a long time. With the default of Mexico, the creditors realized that there was a very good chance that nations would not pay back their debts. This severely stifled the flow of credit in the global markets, so now developing nations not only had enormous debt, they also had very little chance of receiving any additional loans.10

Up until the 1990s, the WBG primarily used Structural Assistance Programs (SAPs) to provide debt relief for nations. That being said, SAPs fell under wide criticism because their relief had a series of conditions. These conditions, including embracing free trade, globalization, raising taxes and privatization of government bodies sometimes led to more problems than solutions. For example, when Zambia took on a SAP throughout the mid 1990s, unemployment went up, prices of goods went up, and in 1993, the Zambian government spent 35 times more money on repaying the debt than on elementary school education.11 A primary reason for this is that the state played a huge role in the economy of Zambia. When mass privatization occurred, many were left without employment, and private businesses were not prepared to produce goods at an adequate level for the population, thus increasing the prices.

Current Situation

In 1996, The World Bank Group created the Heavily Indebted Poor Countries initiative to further debt relief to nations in need.12 The HIPC initiative works in a two-step process. The first step of the process is the decision point. For a country to reach the decision point, they must demonstrate a series of policy and governance changes, be eligible to borrow from the International Development Agency, must have a Poverty Reduction Strategy Paper (PRSP), and finally, must possess unsustainable levels of debt.13 Once the decision point is reached, the executives from the International Monetary Fund and World Bank decide whether or not the country can receive debt relief. If the nation is considered eligible, they may begin to receive partial aid for its debt.

The second stage of the HIPC is the completion point. The completion point is essentially a check to make sure that the country receiving relief is still adhering to everything set out before the decision point. If a nation demonstrates that it has established a good track record under the programs, implemented the policies from the decision point, and implemented the PRSP for a minimum of one year, they will reach the completion point. This means that the country will receive full and complete debt relief, rather than the partial debt relief from the decision point.

Of the 39 countries that are HIPCs, 36 are past the completion points of their debt relief processes - the remaining three nations, Somalia, Sudan and Eritrea, have yet to reach the decision point.14 It must be stressed,

9 http://www.worldhunger.org/articles/global/debt/caritas2.htm 10 http://www.worldhunger.org/articles/global/debt/caritas2.htm 11 http://newsrescue.com/how-the-imf-world-bank-and-structural-adjustment-programsap-destroyed-africa/#axzz4Fs6DB67D 12 http://www.worldbank.org/en/topic/debt/overview#2 13 https://www.imf.org/external/np/exr/facts/hipc.htm 14 https://www.imf.org/external/np/exr/facts/hipc.htm

World Bank VMUN 2017 Background Guide 6 however, that simply because these nations have passed the completion points, does not mean that everything is fine with these countries. Countries that have inefficient governments have a tendency to fall back into debt and this must be considered when delegates discuss this topic.

The challenges that surround the HIPC initiative are vast and important to address. First and foremost, there challenge of ensuring that nations are going to remain stable and will be able to implement the policy changes necessary for eligibility. Nations such as Somalia, who are desperately in need of relief to improve their economic situation, face governance issues and a whole slew of other problems related to the stability of the nation and its ability to implement a debt reduction strategy.

Another challenge from the end of the creditors is to ensure that all the creditors are providing the full amount that they promised. 73% of HIPC relief is provided by the IMF, World Bank, AfDB, Paris Club creditors, and Inter-American Development Bank. These creditors always provide 100% of the relief that they are required to give. That being said, the other 27% of the HIPC relief is to be given by commercial creditors, non-Paris Club creditors, and smaller multilateral institutions. Of the 27% that these other creditors are required to provide, only 47% has actually been provided. This presents an issue in that many of the creditors that promise relief for nations in need do not actually provide the relief. Given the fact that it is completely voluntary for a creditor to provide relief, this poses a large challenge for the committee to attempt to find a way to increase the amount that smaller creditors provide.

Even though smaller creditors have not given their full amount of aid, commercial crediting to HIPCs have increased throughout the last several years. However, many of these commercial creditors have started legal action against the HIPCs. This provides a burden on both creditors, as well as the nations receiving the aid, and reduces the flow of credit between creditors and borrowers.

The final challenge that is associated with the HIPC initiative is the lack of resources. As of 2014, the cost for providing debt relief for 39 HIPCs was in the range of 75 billion dollars, well above what was expected when the program was initiated. The fact remains that even with debt relief, these nations are heavily impoverished and are quite prone to economic shocks, which are unpredictable changes within the economy that affect either supply or demand. Their debts are not always at a sustainable level, and the amount of relief that needs to be given increases annually.

The World Bank and the IMF eventually realized the issues with HIPC initiative, so in 2005, they brought in the Multilateral Debt Relief Initiative (MDRI). The proposition from the Group of Eight (G8) was that the World Bank, IMF and AfDB cancel 100% of all the debt that HIPC nations owed them. That being said, nations were only eligible under the condition that they adopt macroeconomic policies, a poverty reduction policy, and manage public expenditure. While originally the MDRI was for HIPC nations, the IMF amended the program so that any nation with an annual per capita income of US$380 or less could receive aid from IMF resources. The HIPCs with annual per capita income above US$380 would receive aid from the IMF that was originally contributed by individual nations. This presents a somewhat major problem for the MDRI. The IMF has a pool of funds accumulated through the selling of gold in the 1990s, so at some point they will have no more funds to give. The only other method of fund accumulation is through individual nations donating or buying bonds, and currently that method does not generate enough to sustain debt relief for a growing pool of nations.15

All in all, with the HIPC and MDRI initiatives, nations receive some debt relief. That being said, an issue with debt relief is that many of the nations simply fall back into severe amounts of debt; political and economic instability are two large contributing factors with respect to this. While officially there are criteria, such as implementation of poverty reduction strategies, for a nation to receive aid, in reality, many nations cannot, or

15 https://www.fas.org/sgp/crs/row/RS22534.pdf

World Bank VMUN 2017 Background Guide 7 choose not to follow through with these policies.

UN and International Involvement

Ever since the creation of the International Development Association, under the umbrella of The World Bank Group in 1960, debt relief has been a top priority. In the beginning, the most common debt relief projects were SAPs, aimed at instilling free market economics in developing nations. The main issues with SAPs were that the more protectionist way of running countries back then were difficult to transition out of.16 For example, in Zambia, much of the workforce was employed by state corporations. Since the SAPs called for more privatization, many of the workers in these companies were left out of a job, and the economy took a hit.

Following SAPs, in 1996, the World Bank introduced the HIPC initiative to further debt relief from bilateral and multilateral sources. If a nation met the requirement to be called a HIPC, they would enter a two step process consisting of the decision point and the completion point. That being said, even when the HIPC initiative provided significant relief for nations, nations still fell back into severe debt for reasons such as poor governance and too large debt repayments.

This led the IMF, WBG and AfDB to create the MDRI initiative. If a nation qualified, it would be relieved of all debt repayment from the three aforementioned organizations. The purpose of this initiative was to free up as much money as possible for governments to spend on social programs and other development. However, this program is quite expensive, and given that it is mostly paid for through IMF selling its gold, it will have to seek new ways of funding in order to continue.

Case Study: Zambia

Following the oil crisis of 1973, as well as the drop in the price of copper soon after, Zambia found its industries significantly underperforming. This led to a mass borrowing of loans to help redevelop the economy, and thus, the country entered heavy debt. Zambia then entered a structural adjustment program. This SAP started a drastic transition towards a free market economy and a democracy. While the inflation rate stabilized, the economic growth rate was high, and trade barriers were knocked down, there were enormous downsides too; the unemployment rate in Zambia skyrocketed, and basic goods and services became out of reach for a more people.

In 2001, Zambia, a nation barely able to make debt repayments on its $7.3 billion debt, was accepted into the first stage of the HIPC program. Zambia’s debt fell from $7.3 billion to $5.8 billion - this helped Zambia massively in lowering debt repayments. In spite of this, the HIPC program in Zambia showed many downfalls of the program.

Firstly, immediate free trade may not necessarily benefit a nation. In the case of Zambia, trade has been heavily regulated, corporations were mostly state owned and industries were protected. With the forced implementation of free trade in a nation that may not be prepared for it, many consequences, such as heightened unemployment, will be incurred.

Next, Zambia was essentially a single industry nation. With a non-diverse economy, Zambia’s debt repayment hinged more on the performance of that industry, rather than debt relief. Copper, Zambia’s main industry, had a declining price from 1995-2003, so even though Zambia was receiving relief, they couldn’t sustain the debt repayments.

Finally, the debt relief was not enough to pay for the Poverty Reduction Strategy Paper, which was endorsed by

16 http://www.globalissues.org/article/3/structural-adjustment-a-major-cause-of-poverty

World Bank VMUN 2017 Background Guide 8 the World Bank and the IMF. The cost for the PRSP was approximately $1.2 billion, but Zambia was receiving nowhere near that in aid. This meant that in order for Zambia to fully implement the PRSP, they would either have to transfer funds from other sectors, borrow even more money from creditors, or wait for grants and donations.

In essence, while there has certainly been some debt relief in Zambia under the HIPC program, this has been nowhere near enough to bring the nation into sustainable economic growth. A non-diverse and prematurely deregulated economy, coupled with an underfunded PRSP, led the HIPC program in Zambia to underperform17.

Possible Solutions

There are many different ways that delegates can tackle the enormous issue of reducing debt in developing nations. Delegates may choose to amend the current systems by which nations receive debt relief, or they may choose to introduce a completely new system.

The first option is to lessen the requirements for nations to have access to aid. The one major benefit of this option is that nations that are considered unstable will still have debt relief that they desperately need. Furthermore, this allows for a larger group of nations to have aid, since as it currently stands, countries outside the HIPC threshold do not receive any HIPC aid. The major downsides are twofold. Firstly, this is a costly option. By creating easier standards to receive aid, the program will be needing more money to fund the extra nations involved. If this solution is taken, delegates will need to provide a clear method on how to increase funds. Secondly, this could help perpetuate irresponsible governments in nations that would otherwise not be eligible for aid. If a government that is completely undemocratic and tyrannical to the people receives debt relief aid, not only will that aid unlikely reach the debt, but this only encourages this government to stay in power, and could be much worse in the long run.

The second option is to tighten the requirements to receive debt reduction. This option is more similar to a structural adjustment program. If implemented correctly, this option could possibly have a much more significant impact on the nations that receive the aid because there are more measures towards debt sustainability, and thus a higher chance of not having to receive further aid. However, the significant downside is that many nations would not qualify for aid at all, as the standards may be too high to reach.

Obviously, these are the two most basic solutions and it would be highly discouraged to simply pick one of those. There are plenty of other options to explore, such as instead of having a 2-step process, make it spread out over 4 or 5 steps to give more gradual aid. Delegates may also choose to look elsewhere from multilateral aid and try to focus more on bilateral aid and commercial crediting. The most important thing however, is keeping in mind the overall mandate of the World Bank, which is to help the world reach the Millennium Development Goals.17

Bloc Positions

Paris Club Bloc:

The Paris Club is a group of creditor nations that contribute significantly to global efforts of debt reduction.18 These nations typically hold a large stake within the World Bank, and therefore have higher voting power.19 These nations are generally opening to crediting, but sufficient assurance of repayment is necessary to prolong

17 http://www.unmillenniumproject.org/goals/ 18 http://www.clubdeparis.org/en/communications/page/permanent-members 19 http://siteresources.worldbank.org/BODINT/Resources/278027-1215524804501/IDACountryVotingTable.pdf

World Bank VMUN 2017 Background Guide 9 this crediting. If delegates wish to explore the increase of bilateral crediting, the Paris Club members would certainly need to be on board.

Non-Paris Club Bloc:

This is the largest group of countries - the ones that are in between being classified complete creditors or debtors. While the nations do not individually hold much voting power, collectively they have significant influence. If delegates were to increase participation in bilateral and multilateral aid, these nations would be necessary to have on board. Also, there are several nations in this bloc that are quite severely in debt, but are not eligible for debt relief under HIPC and MDRI. These nations may have an interest in relaxing requirements for aid so that they qualify as well.

HIPC Bloc:

This is the bloc that will be receiving aid under these initiatives. Agreement from these nations is paramount in order to achieve any sort of solution. Any nation in this bloc should research past debt reduction programs within their own country in order to have a sense of what has worked and what has failed.

Discussion Questions

1. How have past debt reduction programs demonstrated limitations to the programs?

2. Should non-progressive nations still be eligible for debt reduction? Specifically, dictatorships, military states and protectionist economies.

3. How could crediting nations be further encouraged to lend money to nations with poor financial track records?

4. How could the use of commercial creditors help the cause of debt reduction?

Additional Sources http://www.imf.org/external/np/exr/facts/hipc.htm http://www.globalissues.org/article/31/the-heavily-in-debt-poor-countries-initiative-is-not-working https://www.imf.org/external/np/exr/facts/mdri.htm http://www.projects.worldbank.org/

References

Bloemen, Shantha. "Debt Relief and HIPC: Zambi." A : Case Studies : Journalism Backgrounders : Publications : Initiative for Policy Dialogue. N.p., n.d. Web. 13 Aug. 2016.

"How Did the Debt Crisis Come About? What Was Its Impact on Poor Countries? by Caritas International and CIDSE." How Did the Debt Crisis Come About? What Was Its Impact on Poor Countries? by Caritas International and CIDSE. N.p., 2016. Web. 13 Aug. 2016.

IDA. "History." International Development Association. N.p., 2016. Web. 13 Aug. 2016.

World Bank VMUN 2017 Background Guide 10

IMF. "Multilateral Debt Relief Initiative - Questions and Answers -- Answers." Multilateral Debt Relief Initiative - Questions and Answers -- Answers. N.p., 5 Aug. 2013. Web. 13 Aug. 2016.

IMF. "Factsheet -- Debt Relief Under the Heavily Indebted Poor Countries (HIPC) Initiative." Factsheet -- Debt Relief Under the Heavily Indebted Poor Countries (HIPC) Initiative. N.p., 8 Apr. 2016. Web. 13 Aug. 2016.

IMF. "Factsheet -- The Multilateral Debt Relief Initiative." Factsheet -- The Multilateral Debt Relief Initiative. N.p., 2016. Web. 13 Aug. 2016.

NewsRescue. "How The IMF-World Bank and Structural Adjustment Program(SAP) Destroyed Africa - NewsRescue.com." NewsRescuecom. N.p., 26 May 2009. Web. 13 Aug. 2016.

Office of the Historian. "Oil Embargo, 1973–1974." Milestones: 1969–1976. N.p., 2016. Web. 13 Aug. 2016.

Shah, Anup. "Third World Debt Undermines Development." - Global Issues. N.p., 3 June 2007. Web. 13 Aug. 2016.

Shah, Anup. "Structural Adjustment-a Major Cause of Poverty." - Global Issues. N.p., 24 Mar. 2013. Web. 13 Aug. 2016.

Weiss, Martin A. The Multilateral Debt Relief Initiative. N.p.: n.p., 11 June 2012. PDF.

WHO. Uganda Debt Relief Data Sheet. N.p.: n.p., Sept. 2007. PDF.

World Bank. "INTERNATIONAL DEVELOPMENT ASSOCIATION VOTING POWER OF MEMBER COUNTRIES." N.p., 13 July 2016. Web. 13 Aug. 2016.

World Bank. "Debt Overview." Debt Overview. N.p., 2016. Web. 13 Aug. 2016.

World Bank VMUN 2017 Background Guide 11 World Bank Topic B Reconstruction of War Zones

Overview

Conflict has plagued the world ever since the dawn of humanity and these conflicts have ravaged cities and nations all across the world. While the cost for military support during armed conflict is sure to be a large expense, sometimes the biggest cost is the remediation of the damage after the conflict. This cost is not necessarily purely about rebuilding the bricks of a fallen building, but the cost also includes the loss of historic landmarks, culturally significant areas, human capital and a sense of pride for a nation.

The world bank was conceived in 1944 at the Bretton Woods Monetary Conference, with the International Bank Reconstruction and Development (IBRD) being the first branch of the World Bank created.20 The original purpose of the IBRD was to provide support for the reconstruction of post-Second World War Europe. The first ever loan that the IBRD gave was a $250 million loan to France in 1947.21 After the reconstruction of Europe in the aftermath of the Second World War, the World Bank turned its attention away from the reconstruction of conflict zones, and rather towards infrastructure development in Central and South America. The World Bank’s shift in priorities has been alarming for the many nations who have suffered at the hands of conflict. In places such as Syria, Iraq and Afghanistan, the lack of integral infrastructure due to years of armed conflict has severely stifled any opportunity for growth. As many notable economists have said in the past, infrastructure is a necessity to economic growth and prosperity. That is why it is of the utmost importance for the World Bank to tackle the issue of reconstructing war zones; without an adequate solution to this chronic issue, the goal of economic prosperity for the poorest nations on earth will be out of reach.

Given the importance of rebuilding, the obvious question is why the World Bank shifted away from it, and what are the consequences. Following the aid given to post-Second World War Europe, there was a much higher global demand for poverty reduction, than war zone reconstruction. At the time, there wasn’t a very significant global financial institution that was financing development, so nations often had to rely purely on bilateral aid. The consequences for this are quite noticeable. While the World Bank has done great work for poverty reduction, in today’s world we see many more countries in vicious cycles of war. When nations finish a war, but there is no effective reconstruction following, the chances of falling back into war are significantly higher, and that is part of the reason why we keep hearing the same countries in conflict over and over again.

Timeline

1919 - The signing of the Treaty of Versailles led to Germany being forced to pay $33 billion in damage repayments.22

1939-1945 - World War Two was the most costly and the most destructive war in world history and required over a decade to repair the damage.23

1944 - The World Bank, along with the International Monetary Fund, were created as a result of the Bretton Woods Conference.24

20 http://www.worldbank.org/en/about/archives/history 21 http://www.worldbank.org/wb/about/timeline.htm?iframe=true&width=1020&height=620 22 23 http://www.usatoday.com/story/news/nation/2015/05/24/24-7-wall-st-expensive-wars/27795049/ 24 Ibid

World Bank VMUN 2017 Background Guide 12

1945 - The USA launched a three-phase rebuilding initiative in Japan following the end of the Second World War.25

1947 - The World Bank provided its first loan to France for the value of $250 million.26

1947 - The European Recovery Program, better known as the Marshall Plan, came into effect and provided close to $13 billion dollars to a variety of European nations.27

1950 - The United Nations Korean Reconstruction Agency (UNKRA) was a program created to aid in the rebuilding of South Korea following the partition in 1948.28

1951 - Funding for the Marshall Plan officially ended.29

1958 - UNKRA was terminated.30

1996-2002 - The International Development Agency (part of World Bank) created 45 projects and provided over $1 billion towards the reconstruction of Bosnia and Herzegovina.31

2015 - World Bank launches a $350 million assistance package to rebuild conflict affected cities in Iraq.32

Historical Analysis

An inevitable part of every armed conflict is the reconstruction that follows the fighting. For hundreds of years, nations had to either rebuild through their own efforts, or rely on bilateral aid for support in reconstruction. However, in 1944 the International Bank for Reconstruction and Development (IBRD), the first branch of the World Bank, was created for the precise purpose of reconstructing war torn Europe. In 1947, the IBRD handed out its first loan to France for reconstruction purposes.33 Following this, the IBRD continued to be involved in rebuilding post-Second World War Europe by providing loans to Netherlands for the value of $535 million.34 Once most of western Europe was rebuilt after the Second World War, the World Bank shifted its focus to poverty reduction and international sustainable development.

In addition to the funding provided by World Bank, the United States of America initiated the European Recovery Program (ERP), otherwise known as the Marshall Plan, to aid in the reconstruction of Europe. The purpose of the ERP was to bolster production in western Europe, facilitate trade, as well as try to mitigate communist influence from eastern Europe and the Soviet Union.35 In the end, the USA provided nearly $13 billion and rapidly increased the redevelopment of western Europe.36

25 https://history.state.gov/milestones/1945-1952/japan-reconstruction 26 Ibid 27 http://marshallfoundation.org/marshall/the-marshall-plan/ 28 https://www.britannica.com/topic/United-Nations-Korean-Reconstruction-Agency 29 Ibid 30 Ibid 31 http://siteresources.worldbank.org/IDA/Resources/73153- 1285271432420/IDA_AT_WORK_Bosnia_and_Herzegovina_2010.pdf 32 http://www.worldbank.org/en/news/press-release/2015/07/07/iraq-reconstruction-and-rehabilitation-in-conflict-affected-cities 33 Ibid 34 http://www.worldbank.org/projects/P037452/post-war-reconstruction-project?lang=en 35 http://www.encyclopedia.com/topic/Marshall_Plan.aspx 36 Ibid

World Bank VMUN 2017 Background Guide 13 In the decade following the Second World War, the USA led two initiatives for reconstruction projects in Asia - one in Japan and one in Korea. These two reconstruction projects were polar opposites in nature, but both eventually led to the stabilization, development and modernization of both countries. In the aftermath of the Second World War, the USA essentially occupied Japan between 1945-1952. The redevelopment of Japan happened in three phases: initial reform, economic bolstering and formal alliance. During the initial reform, the USA completely restructured the Japanese government; the military was depleted, high-ranking officials were tried, free market capitalism was instilled, and large monopolizing businesses were broken up. During the second phase, the still weak Japanese economy was brought back to life by tax reform and inflation control. The Korean War saved the Japanese economy in a sense because Japan was used as a supply depot for the war and benefitted greatly from it. The final phase was a formal peace agreement between Japan and the USA. Worried by the communism that was spreading throughout Asia, the USA wanted to ensure that Japan would not be influenced by it. To do this, the USA set up several military bases in Japan and entered into a bilateral security treaty.37

The United States of America’s approach to rebuilding South Korea was completely different; rather than occupying the country, the USA operated through the UN. The state of South Korea after the partition in 1948 with North Korea was quite poor. There were many people who were displaced after the conclusion of the Second World War and the Korean War only made the situation worse. In 1950, the United Nations introduced the United Nations Korean Reconstruction Agency for the purpose of rebuilding the devastated South Korea. This program was mainly funded by the USA, but many other countries ended up funding as well. he final cost amounted to approximately $150 million USD.38 Unlike the Japanese reconstruction, the main goals of this project were not to tear apart the system and install a new government. Rather, this UN program dealt more heavily with helping the internally displaced and homeless people in South Korea by providing shelters and services. These examples of Japan and South Korea represent two different styles of reconstruction. In Japan, the entire system was torn apart and everything began again from scratch. South Korea on the other hand, was a country that was governmentally democratic (having its first election in 1948), but was simply in a poor state. This meant that South Korea’s aid was purely financial aid.

Current Situation

As aforementioned, the World Bank has generally shifted its mandate from reconstruction to poverty reduction and sustainable development. However, often times the World Bank does continue to aid with the reconstruction of war-torn countries. The most notable, and quite successful, case in recent times is the rebuilding of Bosnia and Herzegovina.

Case Study: Rebuilding Bosnia and Herzegovina

Between 1992 and 1995, Bosnia and Herzegovina endured a horrific conflict with multiple ethnic groups fighting one another. In the aftermath, the country was left in shambles and recovery appeared to be an arduous journey. In 1996, the IDA, a branch of the World Bank, created a reconstruction project for post- conflict Bosnia and Herzegovina. The IDA approached the crisis in Bosnia and Herzegovina by concentrating its efforts on infrastructure development. In the first 6 years after the war, the IDA initiated 45 separate projects and contributed just over $1 billion towards the redevelopment of the nation. This first 6 year phase was the most critical phase of the operation; currently, Bosnia still receives hundreds of millions in loans and grants, but active infrastructure projects have decreased significantly.39

37 https://history.state.gov/milestones/1945-1952/japan-reconstruction 38 https://www.britannica.com/topic/United-Nations-Korean-Reconstruction-Agency 39 http://siteresources.worldbank.org/IDA/Resources/73153- 1285271432420/IDA_AT_WORK_Bosnia_and_Herzegovina_2010.pdf

World Bank VMUN 2017 Background Guide 14 The effects of these projects on the redevelopment of Bosnia and Herzegovina have been extremely successful. The banking sector in Bosnia and Herzegovina has more than doubled its assets and are now stable institutions. The amount tourism in Bosnia and Herzegovina has seen a massive growth from 300,000 tourists in 2004 to over 750,000 tourists just two years later. Cultural landmarks, such as the Stari Most, have been restored and hundreds of hectares of new trees have been planted. In terms of healthcare, all of the clinics and hospitals that were destroyed in the war have been restored and an additional 24 medical facilities were opened along with the training of more medical professionals. The healthcare system, while still developing, now provides primary care for approximately three quarters of the population. Under the IDA’s projects, the Bosnian power grid has been restored, and hundreds of thousands of jobs have been created. Additionally, 2,100 km of road, 41 bridges and a nation-wide rail network have been rebuilt.40

While the statistics of the immense progress in Bosnia and Herzegovina are quite impressive, the IDA and IBRD are still operating several projects in the country. The main focus of these projects is the development of social programs within the country, support for rural communities, as well as integration into the European Union. The IDA’s cooperation with outside parties, such as sovereign nations investing in Bosnia and Herzegovina, as well as the European Union, was essential to the success of these programs. Moving forward, the IDA will eventually play a lesser role in Bosnia and Herzegovina’s development as the European Union will play a larger role. Delegates are highly recommended to research the reconstruction of Bosnia and Herzegovina as it exemplifies a recent recovery from conflict.

On July 7th, 2015, the World Bank approved the commencement of a new $350 million project for the reconstruction of war-torn Iraq. his project primarily targeted urban areas for the purposeof recovering the nation from its many years of conflict. This assistance package will be a step-by-step process, beginning with the reconstruction of critical infrastructure such as power generation, water and sanitation services, roads, bridges, and medical services. Once the critical infrastructure has been rebuilt, the plan for the project is to develop housing for the population, create more local jobs, and increase the level of trust between the UN, the government, and the citizens.41 More specifically, 40% of this project will focus on roads and highways, 22% on distribution and transmission of electricity, 17% on water, sanitation and food protection, 12% on health, and 7% on public administration.42 In terms of the distribution of funds to different sectors, delegates should examine this project in order to decide how to allocate resources.

There are several issues that impede the reconstruction of warzones in today’s world. First of all, there’s the question of when the World Bank should step in. Many nations have been engaged in wars for decades, which have very blurry start and end times. This makes it very challenging, unlike the Second World War, to determine when it is safe for an outside organization to begin reconstruction. The second main issue is the issue of dependency. Generally, people say the more funding the better. However, when funding is excessive, it leads to a nation being dependent on the World Bank, which is very tough to break. Delegates need to find a good balance between reigniting economic growth without the nation being completely dependent on foreign aid.

Past UN/International Involvement

In order to talk about international involvement in war-ravaged countries, it is important to distinguish the similarities and differences between two major financial bodies of the United Nations: The World Bank and The International Monetary Fund (IMF). On the surface, many will not be able to tell the differences between both institutions that were both created at the Bretton Woods Conference and that are situated across the street from one another in Washington D.C. However, there are profound differences between the two

40 Ibid 41 http://www.worldbank.org/en/news/press-release/2015/07/07/iraq-reconstruction-and-rehabilitation-in-conflict-affected-cities 42 http://www.worldbank.org/projects/P155732/?lang=en&tab=details

World Bank VMUN 2017 Background Guide 15 institutions that must be clarified in order to properly discuss international involvement. Firstly, the IMF is not primarily a lending institution. While it does give out loans, these loans are given with the purpose of increasing financial stability within the nation, such as stabilizing their currencies.43 While poverty reduction is technically within the mandate, it is not a primary goal. Furthermore, the creation of the IMF was inspired by the extremely volatile currency exchange rates of the 1930s. As a result, the IMF wishes to encourage nations to open their currencies to international exchange, as well as provide a platform to ease international exchanges and payments. While the IMF is completely voluntary, it does provide many nations with advice concerning financial matters and especially monetary policy.44

On the other hand, the World Bank’s primary concern is not the stabilization of international exchanges, but rather the reduction of poverty in developing nations. The World Bank is a primarily lending institution that provides many low-interest loans to predominantly developing nations. When evaluating which institution would be more useful for the reconstruction of war zones, the answer is certainly the World Bank. The IMF has often been criticized for having overbearing interest rates, and these interest rates are simply unaffordable for developing nations that lack financial reserves.45

Therefore, when looking at the international involvement in the reconstruction of war zones, there are really only two main streams of lending: The World Bank and individual nations. As previously outlined, the World Bank began as a lending institution for the reconstruction of post Second World War Europe. Since then, it has diverted its attention to economic and social progress, but has still initiated several rebuilding initiatives such as the projects in Bosnia and Herzegovina and the recent project in Iraq.

The other stream of international lending is through individual nations. As seen through three examples of lending from the USA, there are different methods of pursuing rebuilding. In the Marshall Plan, the USA provided over $12 billion to Western European nations, which not only re-industrialized those nations, but also provided a market for American goods.46 With post-Second World War Japan, the USA occupied the nation for several years to initiate a radical restructuring of the government, and then economic reform through tax policy and the installation of capitalism. Lastly, although the UN executed the Korean initiative, the main driving and funding force was the USA. In this case, the UN simply provided funds for war-torn Korea so that internally displaced people could find shelter. Delegates should turn to the post-World War Two initiatives in Asia and Western Europe, in addition to the efforts in Bosnia and Herzegovina, when determining ways to encourage reconstruction in the 21st Century.

Possible Solutions

Similar to topic A, one of the main concerns with this topic is the risk of lending to developing nations. By nature, developing nations pose a greater risk because of a lack of financial and economic stability within the nation. As loans accumulate greater risk, the interest rate tends to rise because creditors want to have an assurance of repayment. Of all the nations in the world, developing nations can least tolerate high interest rates, and thus low-interest credit is imperative to development, even though it is harder to obtain. Some of the possible solutions to this issue include the tactics employed with heavily indebted countries: creating initiatives such as HIPC and MDRI to provide cheap credit for developing nations. One of the most obvious issues with initiatives such as one of these is that there is often a lack of stability in the government directly after conflict, which may mean that there will be a lack of government structure and efficiency to properly implement the rebuilding programs. In essence, the problem of government stability may impede the efforts of the World Bank.

43 http://www.imf.org/external/np/exr/facts/howlend.htm 44 https://www.imf.org/external/pubs/ft/exrp/differ/differ.htm 45 http://www.investopedia.com/ask/answers/043015/what-difference-between-international-monetary-fund-and-world-bank.asp 46 https://history.state.gov/milestones/1945-1952/marshall-plan

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A second solution would be the encouragement of bilateral aid. Often times, approval processes for United Nations programs can endure for months or years at at a time, and bilateral aid could be significantly faster to reach the affected nation. The World Bank could create a solution in which bilateral aid is highly encouraged. However, one of the main issues with bilateral aid is the concept of tied aid, in which a donor nation would require the recipient nation to buy a certain amount of exports from the donor nation.

A final possible solution is a revision of the mandate of the World Bank and a reallocation of resources towards rebuilding of conflict zones. The reality is that war zone reconstruction is no longer a top priority for the World Bank, as now it focuses significantly on attaining the Millennium Development Goals. If delegates see this as important, they could reallocate the funding within the Bank to have more support for reconstruction.

There are some further issues that must be dealt with. First of all, after a conflict, industry takes a long time to redevelop. Economies should in theory be growing at stable rates, and growth that is too quick may lead to hyperinflation. The inherent conflict with this is that the World Bank does not have an endless stream of resources and it is challenging to sustain projects over the entire period that industry is redeveloping. Furthermore, the more funding that a nation gets from the World Bank, the more reliant it becomes on these funds. If an economy is artificially bolstered by lending from the World Bank, what happens when the project ends? Lastly, using the numbers that were provided relating to the Iraq project, are sectors prioritized correctly? Should there be a higher emphasis on health? Moreover, should the World Bank be in charge of allocating the resources even if the citizens feel as though funding should be put towards one sector over another? All these questions about balance must be addressed in the solutions that the delegates come up with.

Once again, these are simply suggestions for solutions. They are simply meant to begin your thinking and innovative and unique solutions are highly encouraged.

Bloc Positions

Primarily Lending Nations:

Through personal research, delegates should be able to find out whether their nation is primarily a lender or a borrower. The key issue for primarily lending countries is the assurance that they will be repaid. Considering the economic nature of developing countries, there is an inherent conflict between lending countries wanting safety and developing countries wanting more loans. This will inevitably emerge as an issue in the debate. Moreover, lending nations are more likely to house banks and other financial bodies that can provide additional lending and aid to developing nations, which is important to know if delegates wish to explore commercial lending.

Non-War Zone Developing Nations:

These nations are generally peaceful, and do not have any serious conflicts going on within them. These nations currently receive aid from the World Bank, other multinational organizations and governments. If, as proposed in the third solution, the mandate or the allocation of funding changed, these countries would consequently receive less aid. Generally, these nations, if they act in self-interest, should be in favor of maintaining the status quo.

War Zone Nations:

These nations are the ones who are currently ravaged by conflict. Not only would they want more expansive aid, but they would want it much quicker and much cheaper. Most of these nations are willing to explore

World Bank VMUN 2017 Background Guide 17 bilateral and commercial lending, but they are less likely to receive any if their financial systems and governments are unstable. Lastly, if the allocation of World Bank funds changed to increased funding to conflict zones, these nations would be in favour of that change since they are directly affected.

Discussion Questions

1. What have been the successes and failures of projects such as Bosnia and Herzegovina, and how can the World Bank build upon that to create more effective projects?

2. What are the biggest barriers to rebuilding in war-torn countries and how can the World Bank overcome them?

3. How can bilateral and commercial creditors be encouraged to lend?

4. Should the World Bank refocus more aid towards reconstruction?

5. Should the World Bank take a more hands-on approach? Or should it simply be used for funding?

Additional Sources http://www.worldbank.org/projects/search?lang=en&searchTerm=&themecode_exact=58 https://www.youtube.com/watch?v=WG72yk60tbA http://carleton.ca/ces/eulearning/history/europe-after-wwii/the-reconstruction-of-europe/ http://whc.unesco.org/en/events/1286/ https://www.brookings.edu/blog/markaz/2016/03/04/the-case-for-a-regional-reconstruction-strategy-for-the- middle-east/

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