91377 DEVELOPMENT COMMITTEE (Joint Ministerial Committee of the Boards of Governors of the Bank and the Fund on the Transfer of Real Resources to Developing Countries) NINETIETH MEETING WASHINGTON, D.C. – October 11, 2014 DC/S/2014-0035 October 11, 2014 Statement by Minister Gerd Müller Federal Minister for Economic Cooperation and Development Germany Statement by Minister Gerd Müller Federal Minister for Economic Cooperation and Development Germany 90th Meeting of the Development Committee October 11, 2014 Washington, D.C. In the sphere of international development policy, we are still facing major challenges – notwithstanding all achievements – if we want to reach, in a sustainable manner, our common goals of eradicating extreme poverty and achieving shared prosperity. It is vital to make headway on poverty reduction and simultaneously reduce the threats to our vital natural resource base, especially the threats arising from climate change. Worldwide, environmental degradation and climate change are affecting mainly the poorer groups of the population. It is therefore the shared responsibility of multilateral institutions and national policymakers to actively address these threats. By defining new goals and developing a strategy to reach them, the World Bank Group made some crucial decisions last year to get ready for the challenges of the future. We regard the World Bank Group's goal of achieving poverty reduction and inclusive growth, with due consideration for all aspects of sustainability, as a fundamental prerequisite for our joint success. I greatly welcome the fact that the Development Committee will focus primarily on the substance of the challenges and on the implementation of the new goals. I welcome the special focus on how to promote shared prosperity. Ensuring that all strata of the population share in a country's prosperity and that such prosperity is distributed more equitably is both a goal and a prerequisite of poverty eradication and sustainable development. In the past few years, it has become evident that our economic system is increasingly hitting its social limits. If the gap between rich and poor continues to grow, if the share of wages in national income continues to decline, if no good jobs are created for new generations, this means a threat for economic growth and for social stability in general. The international economic system needs to be guided by human needs and simultaneously respect the limits of our natural environment. Only in a socially and environmentally sound global economy will we be able to reduce poverty on a lasting basis. The World Bank, too, will be judged in terms of its contribution to the reduction of excessive inequality. And we must not look at the monetary side alone, because shared prosperity means much more than adequate incomes. We also need to work for more equality of opportunity, social integration and political participation. Factors of particular importance in that regard are improved access to education and health, job creation, and the enhancement of social protection systems. With a view to safeguarding prosperity in the medium to long term, we also need an economic model that ensures climate change mitigation and environmental sustainability, and we need clear rules to ensure that government action is transparent, in line with the rule of law, and efficient. Some factors are particularly important for poverty reduction and inclusive, sustainable growth. The international community in general and the World Bank Group in particular should make these aspects a major focus of their future work: 1. Political crises and violent conflicts, economic and financial instability, and emergencies caused by disasters or epidemics are the greatest threats to sustainable development, better opportunities and poverty and hunger eradication. They destroy livelihoods, lead to material hardship and trigger refugee flows. If a society does not have enough resilience, crises give rise to new crises. The tragedies in West Africa, the Central African Republic and South Sudan and the armed conflicts in Syria, Iraq and Ukraine show just how important it is for the international community to work for stability, a peaceful balance of interests, and economic progress, especially in fragile regions. So we need to jointly focus our efforts on stabilizing regions that are particularly at risk and on quickly lending impetus to development there – inclusive development that benefits the population at large and gives people new opportunities. This includes disaster preparedness and crisis prevention. The current Ebola epidemic in West Africa shows that the international community needs to do an even better job in this regard. The efforts of the World Bank Group and of President Jim Yong Kim himself to launch a quick response have been exemplary. And it has proven successful that, to fight the Ebola crisis, we have been able to draw on IDA's crisis response window on a large scale. This crisis is one more illustration of the need to ensure that international organizations, too, have sufficient core resources and are able to use them flexibly. Together, we need to ensure that adequate, suitable tools are in place for swift crisis response. 2. One key factor for the eradication of poverty and hunger is progress on rural development through socially and environmentally compatible structural change. We need to foster climate- smart food production, rural infrastructure development and responsible land use. Farmers need access to innovation and extension, to inputs and loans. Only then will we be able to ensure that all people, everywhere, have access to affordable, healthy, sufficient food. This particularly goes for women and children. In the world's poorest countries in particular, agriculture-based growth is making a particularly strong contribution to the creation of new jobs, which means that it is an important factor for poverty reduction and sustainable development. This is all the more important in view of the World Bank's latest analytical work, which shows that jobs and adequate wages are crucial to poverty eradication. I am pleased that the World Bank Group, too, has significantly increased its activities in the agricultural sector and wants to become a leader in supporting climate-smart agriculture. It should also reinforce its efforts for responsible land use and for strengthening people's land rights. Germany will be a strong and reliable partner for the Bank in these areas. 3. Natural disasters, pollution and the devastating consequences of increasing climate change are having a particularly strong effect on developing and emerging economies, and especially on the lower strata of their societies. If the World Bank is serious about its goals, it needs to address this challenge head-on. The melting of glaciers in the Himalayas is putting the drinking water reservoirs of millions of people at stake. In Africa alone, 90 per cent of the areas for maize and millet cultivation may be lost as a result of climate change. A recent IMF study shows that the price of fossil fuels is too low in most countries. Appropriate pricing could prevent an annual 3.7 million deaths from air pollution, especially in developing countries. Appropriate pricing would also contribute to international climate change mitigation. The list of examples is endless. So it is particularly important to make climate change mitigation and adaptation the cornerstones of our efforts. Using resources more efficiently is an indispensable task for us in the industrialized nations, but also for developing and emerging economies. We need to make sustainability the guiding principle of all our actions. Only then will we be able to safeguard the integrity of creation in the long term and achieve sustainable progress on development. The World Bank 2 therefore needs to systematically assess its strategies and projects in terms of whether they serve the purposes of climate action and of preventing environmental disasters. In order to translate this strategic focus into practice, the World Bank Group's Systematic Country Diagnostics, Country Partnership Frameworks and Corporate Scorecards need to fully reflect the sustainability dimension. All countries share the responsibility for climate action. This means that we need to make more determined efforts to seize the opportunities involved in climate-friendly, resource-saving development models. The World Bank Group in particular can demonstrate its transformative power in this area. It should commit itself, in a climate action plan, to ambitious targets on support for energy efficiency and renewable energy. 4. Economic globalization continues to advance. It creates many new opportunities and options. But globalization is not an end in itself and must not serve solely the interests of the markets. Above all, it must serve the people. We need to impose limits on markets in those instances where profit takes precedence over people and over the natural resources that are vital to our survival. I therefore launched an initiative for environmentally and socially sound textile production. Competition must not be all about low prices for consumers, fought out on the backs of the poor, of garment workers, in developing countries. They often have dreadful working conditions and are not able to live on their wages. Our goal is an environmentally and socially sound market economy where environmental and social standards are not only accepted in industry and finance but in fact become firmly established parameters of responsible action. The World Bank Group needs to put an even stronger focus on this, for instance when it comes to supporting investment in infrastructure and harnessing the potential of the private sector. That is also why it is so important to reform the social and environmental safeguards and the Bank's procurement system. It must be ensured that World Bank projects meet ambitious standards in terms of human rights and social and environmental concerns. 5. The political crises of the past few months have shown us once more just how uncertain global economic and financial stability really is. Development achievements can be undone overnight through developments of this kind. In many countries, income and, particularly, capital is increasingly becoming concentrated in the hands of a relatively small group. This concentration of capital and countries' increasing integration in the international capital market are creating new vulnerabilities for more and more developing countries. We therefore need to strengthen financial systems at the national and international levels with a view to crisis preparedness and crisis response, and introduce tighter regulations if need be. This is an area where the World Bank Group, working closely with the IMF, can and should increase its involvement and play an active part in moving developments forward. We should also keep cross-border capital flows in mind. We should not rule out their regulation as a matter of principle. Our goal must be to develop a comprehensive set of instruments and have it ready to respond to economic and financial crises in a swift and targeted manner. In addition, it is also important to reduce volatility in international financial markets. Introducing a financial transaction tax – as has been decided by Germany and ten other European countries – can be helpful in this regard and increase the contribution of the financial sector to meeting the cost of important tasks for our future, such as sustainable development and climate action. I support the demand that a significant proportion of the revenue from such a financial transaction tax be used for development cooperation. 3 6. The new goals provide clear guidance for the World Bank Group's future work. They focus on the right priorities. This particularly applies to shared prosperity. If we want to eradicate poverty for good, we need to reduce, above all, the growing inequality in the world. It is not acceptable that only the rich few benefit from development progress while the poor work under what are often inhuman conditions and have no share in economic development. This is not acceptable from a moral point of view, either. The World Bank Group needs to vigorously tackle the goal of a more equitable distribution of income, and put it into action swiftly. I expect the Group to systematically assess its support strategies and programs for distribution impacts and adjust them accordingly. This goes for country programs and individual projects, including in particular IFC's private-sector projects. Our goal must be to create good jobs so as to enhance the income of the bottom 40 per cent while at the same time establishing fundamental social standards and supporting social protection systems. In view of this context, I count on continued close cooperation between the World Bank Group and Germany in pursuit of our common goal of achieving sustained development progress worldwide and giving people from all strata of society new and better opportunities. This is aided by the course of World Bank Group modernization on which President Kim has embarked and by the structural reforms within the organization. Germany is supportive of the systematic continuation of that course in terms of the World Bank Group's focusing on poverty eradication and inclusive growth while taking account of all aspects of gender equality, climate action and sustainability. Using all its influence and focusing on the priorities set out above, Germany will continue to be involved in the international development architecture, and in that effort it wants to work closely with the World Bank Group. 4