Public Disclosure Authorized Report of the Task Force on the World Bank Group and the Middle-Income Countries Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized The World Bank REPORT OF THE TASK FORCE ON THE WORLD BANK GROUP AND THE MIDDLE-INCOME COUNTRIES ACRONYMS AfDB African Development Bank AsDB Asian Development Bank CAS Country Assistance Strategy CDF Comprehensive Development Framework DEC Development Economics DPR Development Policy Review EBRD European Bank for Reconstruction and Development EIB European Investment Bank ESW Economic and Sector Work FY Fiscal Year GDP Gross Domestic Product GNP Gross National Product HIPC Heavily Indebted Poor Countries (Initiative) IBRD International Bank for Reconstruction and Development IDA International Development Association IDB Inter-American Development Bank IFC International Finance Corporation IMF International Monetary Fund LIBOR London InterBank Offer Rate MDB Multilateral Development Bank MIGA Multilateral Investment Guarantee Agency OECD Organization for Economic Co-operation and Development OED Operations Evaluation Department PRSP Poverty Reduction Strategy Paper QAG Quality Assurance Group SAL Structural Adjustment Loan SECAL Sectoral Adjustment Loan SMEs Small and Medium Enterprises SSAL Special Structural Adjustment Loan REPORT OF THE TASK FORCE ON THE WORLD BANK GROUP AND THE MIDDLE-INCOME COUNTRIES Contents Page Foreword..........................................................................................................................iv Avant-Propos...................................................................................................................vi Introducción ..................................................................................................................viii Acknowledgments .......................................................................................................... x Executive Summary and Recommendations ...............................................................xi Résumé Analytique et Recommandations .................................................................xxi Resumen ejecutivo y recomendaciones................................................................. xxxiii I. Introduction ............................................................................................................ 1 II. Middle-Income Countries’ Development Challenges and Bank Group Role.... 3 A. Development Challenges ................................................................................... 3 B. Bank Group Role................................................................................................ 5 C. Bank Group Catalytic Impact.............................................................................. 6 III. Country Programs and Products.......................................................................... 7 A. Country Assistance Strategies and Programs.................................................... 7 B. Analytic and Advisory Work................................................................................ 9 C. Lending and Guarantees.................................................................................. 13 IV. Synergies, Selectivity, and Sustainability.......................................................... 19 A. Bank Group Synergies ..................................................................................... 19 B. Division of Labor with International Financial Institutions................................. 20 C. Country Selectivity............................................................................................ 22 D. Financial Sustainability..................................................................................... 24 E. Budget and Staffing.......................................................................................... 25 V. Conclusions.......................................................................................................... 27 Box and Figure Box 1. Proposed Deferred Drawdown Option ................................................... 17 Figure 1. Expected Trends in IBRD Lending Commitments.................................. 18 Annexes Annex A. Task Force Terms of Reference ............................................................ 29 Annex B. IBRD-Eligible Borrowers ........................................................................ 31 Annex C. Proposed Fiduciary Assessment............................................................ 33 Annex D. Proposed Development Policy Review .................................................. 35 Annex E. Proposed Deferred Drawdown Option ................................................... 37 Annex F. Review of IBRD Loan Pricing................................................................. 43 Annex G. Possible Applications of Bank Group Instruments ................................. 45 FOREWORD his is the report of a Task Force of World Bank Group managers and staff who were T asked, in September 2000, to take a fresh look at all aspects of the World Bank Group’s relationship with its middle-income country members. For this review, we were asked to include all 78 countries eligible to borrow from the Bank’s nonconcessional window, the International Bank for Reconstruction and Development. The Task Force drew on support from many staff members of the World Bank Group, who synthesized and extended existing knowledge on challenges facing the middle- income countries, and on the work of the Bank and other partners. We also benefited from the intensive involvement of Executive Directors and other senior representatives of the Bank’s shareholders. More than 50 shareholding countries accepted our invitation to provide input, and more than 25 borrowing countries took part in consultation meetings. The Task Force’s work highlights the crucial importance of middle-income countries to efforts to address world poverty. These countries are home to nearly 80 percent of all the people who live on less than $2 a day. A representative child in Latin America completes only five years of school, while infant mortality in middle-income countries averages five times the level in OECD countries. As the East Asian and other crises have shown, many people in middle-income countries live only one shock away from destitution. The Task Force found consensus among shareholders on the moral imperative for the international community to care about poverty in these countries. There was also consensus on the practical reasons for the international community to care: middle- income countries’ key role in addressing communicable diseases, financial contagion, and the global environment, and as markets for the low-income countries. In turn, the shareholders and clients also agreed in seeing the World Bank Group as having a unique role to play in helping these countries address their own challenges. This report recognizes that, to be effective in this role, the World Bank Group has to collaborate with other partners—governments, the private sector, civil society, and bilateral and multilateral organizations—and that the support provided to each member country must be grounded in the country’s own vision of development. As a Task Force, we asked pragmatic questions: “What can the Bank Group do better in terms of its processes and products, and in its collaboration with its clients, other partners, and across Bank Group agencies?” The answers we propose are also pragmatic, including more systematic analytic work, increased selectivity, and lending instruments that offer countries greater flexibility to manage their own development. These changes, we believe, can foster better results on the ground, and ultimately improve the lives of the people the Bank exists to serve. FOREWORD v As Chairman of the Task Force, I would like to express my deep personal appreciation to all my colleagues who served on and supported the Task Force, to the shareholder representatives who shared their experience and insights with us, and to the Bank Group’s Senior Management for their support, advice, and encouragement. A very special expression of appreciation is due for the enormous contribution made by Joanne Salop and her team in the Task Force’s secretariat, who directed the staff work undertaken to underpin the Task Force’s analysis and recommendations, and played a key role in helping to steer this report through its successive incarnations. David de Ferranti Chairman, Task Force on the World Bank Group and Middle-Income Countries, and Vice President, Latin America and Caribbean Region, World Bank April 2001 AVANT-PROPOS e présent rapport a été établi par un groupe de travail réunissant des membres de la L direction et du personnel du Groupe de la Banque mondiale, qui a été chargé en septembre 2000 de jeter un regard neuf sur tous les aspects de la relation que le Groupe de la Banque mondiale entretient avec ses pays membres à revenu intermédiaire. Il nous a été demandé d’inclure dans cet examen l’ensemble des 78 pays admis à emprunter à la Banque internationale pour la reconstruction et le développement, qui est le guichet non concessionnel de l’institution. Le groupe de travail a bénéficié du concours de nombreux agents du Groupe de la Banque mondiale qui ont su développer et faire la synthèse de ce que l’on sait des difficultés rencontrées par les pays à revenu intermédiaire et des travaux de la Banque et d’autres partenaires. Nous avons également bénéficié de la participation active