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Australia and the International Financial Institutions 2008-2009

Annual Report

Section 3: Australia's interactions with the World Bank

(This section of the report is required under the International Monetary Agreements Act 1947 and the International Bank for Reconstruction and Development (General Increase) Act 1989)

Part 1: Australia's shareholding and relations with the World Bank

Mandate

The WBG provides financial and technical assistance to developing countries in line with its poverty reduction mandate. The WBG's work also includes the advancement of the Millennium Development Goals (MDGs) through supporting investment, job creation and by empowering the poor to participate in development.

Institutions of the World Bank and Australia's shareholding

The WBG consists of five arms: the IBRD, IDA, IFC, Multilateral Investment Guarantee Agency (MIGA) and International Centre for Settlement of Investment Disputes (ICSID). Australia is a member of all five arms of the WBG. Australia's shareholding as at 30 June 2009 at the IBRD, IFC and MIGA are set out in Table 3.1.

Table 3.1: Australian share holdings at the World Bank Group

  IBRD IFC MIGA
Shares 24464 47329 3019
Share of subscribed capital (%) 1.55 2.00 1.73
Share of voting power (%) 1.53 1.97 1.50
Value of paid-in capital (US$ millions) 181.75 47.33 6.20
Value of callable capital (US$ millions) 2769.46 0.00 26.50

International Bank for Reconstruction and Development

The IBRD is focused on reducing poverty in middle-income and credit-worthy low-income countries through financing (loans, guarantees and related risk management products), analytical, and advisory services. The IBRD provides these services on a cost recovery basis and obtains most of its financing through international capital markets.

International Development Association

The IDA provides grants and highly concessional loans to the 82 poorest countries in the world. IDA is primarily financed by donor government contributions, which are replenished every three years. Additional sources of financing include transfers from IBRD and IFC, and borrowers' repayment of earlier credits.

Negotiations over the most recent replenishment of IDA (IDA15) were concluded in December 2007, with donor countries pledging a record US$25.2 billion, which will be paid in over nine years beginning in July 2008. IDA15 will total US$41.7 billion, an increase of US$9.5 billion over the 14th replenishment of IDA (IDA14) and the largest expansion in donor funding in IDA's history. Australia has contributed to every replenishment since 1961. In December 2007, Australia agreed to contribute A$583 million to IDA15, increasing our burden share to 1.8 per cent, up from 1.46 per cent for IDA14.

Australia contributed an additional A$107.9 million to IDA in May 2008 for debt relief initiatives including the Heavily Indebted Poor Countries Initiative, Multilateral Debt Relief Initiative and for arrears clearance.

International Finance Corporation

The IFC contributes to the WBG's overall poverty reduction mandate through its private sector operations. The IFC is the largest provider of multilateral financing for the private sector in the developing world.

Multilateral Investment Guarantee Agency

MIGA promotes foreign investment into emerging economies by offering political risk insurance (guarantees) to investors and lenders. MIGA also provides technical assistance and advice to help developing countries to attract and retain foreign investment.

International Centre for Settlement of Investment Disputes

Established in 1966, ICSID is an autonomous institution that supports foreign investment by providing international facilities for conciliation and arbitration of investment disputes between foreign investors and their host countries.

Australia's co-operation with the World Bank Group

In 2008-09, AusAID worked with the WBG on around 100 joint activities, funded through co-financing agreements with a total value of A$296 million. These activities ranged from small analytical projects such as assisting with the development of telecommunications legislation in the Solomon Islands through to involvement in multi-donor programs like the A$50 million contribution to the Food Price Crisis Response Core Multi-Donor Trust Fund.

WBG commitments for 2008-09 are set out in Table 3.2.

Table 3.2: World Bank Group's 2008-09 Financial Activities

Institution Established (year) Number of members Commitments 2007-08
(US$bn)
Commitments 2008-09
(US$bn)
Commitments to East Asia-Pacific 2007-08
(US$bn)
Commitments to East Asia-Pacific 2008-09
(US$bn)
IBRD 1944 186 13.5 32.9 2.7 6.9
IDA 1960 169 11.2 14.0 1.8 1.2
IFC 1956 182 14.6 10.5 1.6 1.2
MIGA (1) 1988 174 2.1 1.4 0.04 0.08

(1) refers to value of guarantees issued.

Australia's representation at the World Bank

Board of Governors

The highest decision-making body of the WBG is the Board of Governors, which consists of one Governor from each member country. During 2008-09, Australia was represented by the Treasurer, the Hon Wayne Swan MP. Australia's Alternate Governor was the then Parliamentary Secretary for International Development Assistance, the Hon Bob McMullan MP.

A list of resolutions on which Governors voted during 2008-09 is set out in Table 3.3, together with the Australian Governor's vote.

Table 3.3: Australian Governor's votes on World Bank Group resolutions -- 2008-09

Resolution title Adoption date Australian Governor's vote
IBRD    
Direct Remuneration of Executive Directors and their Alternate 23 July 2008 Supported
2008 Regular Election of Executive Directors at the IBRD and election of Directors at the MIGA 20 July 2008 Supported
IBRD nominations for the 2008 regular election of World Bank Executive Directors 29 August 2008 Supported
Allocation of $115 million of FY08 Net Income 29 August 2009 Supported
Enhancing Voice and Participation of Developing and Transition Countries 14 January 2009 Supported
Election of term of the Executive Secretary 6 February 2009 Supported
Membership of the Republic of Kosovo 5 June 2009 Supported
IDA    
Membership of the Republic of Kosovo 5 June 2009 Supported
IFC    
Membership of the Republic of Kosovo 5 June 2009 Supported
MIGA    
MIGA Nomination for the 2008 regular election of World Bank Executive Directors 29 August 2008 Supported
Membership of the Republic of Kosovo 5 June 2009 Supported

Executive Director and constituency office

The WBG's Executive Boards (IBRD, IDA, IFC and MIGA), under the authority of the Board of Governors, take decisions on day-to-day business and policy matters of the WBG.

Each Board currently consists of 24 Executive Directors, with IBRD Executive Directors automatically elected to the IDA and IFC Board. MIGA Executive Directors are elected separately, however in practice, MIGA has the same Executive Board as other arms of the WBG (currently MIGA's Board is identical to the IBRD's Board).

An Executive Director to the IRBD is appointed by each of the five member countries that have the largest number of shares in the capital stock, currently the United States, Japan, Germany, the United Kingdom and France. The remaining Executive Directors are elected to represent individual countries (for example, China and Saudi Arabia) or a constituency of countries.

Australia belongs to a constituency that includes Cambodia, Kiribati, the Republic of Korea, Marshall Islands, Federated States of Micronesia, Mongolia, New Zealand, Palau, Papua New Guinea, Samoa, the Solomon Islands and Vanuatu. As at 30 June 2009, Australia's constituency at the IBRD held 3.45 per cent of total voting power. As a result of the voice and participation package agreed in October 2008, Australia's constituency's voting power is expected to increase to 3.55 per cent.

By agreement between constituency members, the staffing of Australia's constituency office rotates. Dr Jim Hagan from Australia currently serves as the Executive Director (IBRD, IDA, IFC and MIGA) for Australia's constituency. Dr Hagan is serving a four year term as Executive Director, from 1 August 2007 to 31 July 2011. Prior to this, Mr Joong-Kyung Choi from the Republic of Korea held the Executive Director position for two years, ending 31 July 2007. Australia also holds an advisor position in the constituency office.

The briefing provided to the Executive Director on matters coming before the Executive Board is prepared by relevant Australian Government departments and agencies, principally Treasury and AusAID. Periodic consultations are also held with non-government organisations.

Development Committee meetings

The Spring and Annual Meetings of the Development Committee (a joint ministerial committee of the World Bank and IMF), are normally held in April and October of each year, respectively. Australia was represented at the October 2008 and April 2009 meetings by the Treasurer, the Hon Wayne Swan MP, and Mr Michael Callaghan (Executive Director, Macroeconomic Group, Treasury) respectively.

Visits

In February 2009, Treasury hosted a visit by World Bank Director East Asia Region Vikram Nehru. In 2008-09, Treasury also arranged meetings between Mr Zoellick and the Treasurer, the Hon Wayne Swan MP, in the United States (October 2008, November 2008 and April 2008) and London (March 2009). The then Prime Minister, the Hon Kevin Rudd MP, and President Zoellick met in Japan (July 2008), United States (November 2008 and March 2009) and London (April 2009).

Part 2: Key activities of the World Bank

Long-term strategic direction

In October 2007, WBG President Zoellick announced the Bank's new long-term strategic direction, of pursuing inclusive and sustainable globalisation. The strategy is based on six pillars and aims to reposition the WBG to deal with changes in the WBG's client base as a result of changing global dynamics. The pillars are: overcoming poverty in the poorest countries; better engagement with middle-income countries; addressing the special challenges of fragile and conflict affected states; actively addressing regional and global public goods (for example, climate change, HIV/AIDS); supporting development in the Arab World; and fostering a 'knowledge and learning' agenda across the WBG. Australia supports the new WBG strategy, particularly its focus on fragile states.

Voice and participation reform

Australia has been a strong supporter of reform of the World Bank to enhance its legitimacy and effectiveness as the leading global development institution, and has played a constructive role in progressing discussions on reform options in many forums, including at the Executive Board, international meetings and bilateral discussions.

The Development Committee agreed to a package of reforms to enhance the voice and participation of developing countries at its October 2008 meeting. This first phase of reform included an additional chair at the Executive Board for Sub Saharan Africa; an IBRD voting share realignment, including through an increase in basic votes; measures to increase developing countries' voting power at the IDA; and support for broader governance reforms.

Once implemented, Australia's voting power at the IBRD is expected to marginally decline, to 1.49 per cent from 1.52 per cent. The decline in Australia's voting share is not expected to alter the dynamic within our constituency or our influence within the Bank. Australia has consistently argued that all members benefit from a more representative, legitimate and therefore more effective Bank.

The reform package will come into effect when accepted by three-fifths of members having 85 per cent of total voting power (expected to occur in 2009-10). Australia formally accepted the reform package on 18 September 2009.

Following earlier undertakings by the G20, the Development Committee agreed to accelerate the second phase of voice and participation reforms, including realigning IBRD shareholdings to further increase the voice of developing countries, with agreement to be reached by April 2010 (a year earlier than scheduled). Reaching agreement on a package of reforms within this deadline will be an important undertaking for the Bank in 2009-10.

Climate change strategy

In 2008-09, the Development Committee approved the Bank's Strategic Framework on climate change and developed its Climate Investment Funds. Donor countries have committed more than US$6.1 billion to the later funds, the largest of which is the Clean Technology Fund, which promotes financing for the demonstration, deployment and transfer of low carbon technology. A second fund, the Strategic Climate Fund, targets activities aimed at specific climate change challenges. These Funds allocate money through the World Bank and regional development banks, including the Asian Development Bank.

Global food security

In April 2009, the WBG increased the Global Food Crisis Response Program (GFRP)'s financing ceiling to US$2 billion. The GFRP provides countries financial support and technical advice to address the impact of high food prices on the poor. Since the program was created, projects totalling nearly US$1.2 billion have been approved with US$780.2 million being disbursed across 31 countries.

In 2008-09, the WBG also created the Multi-Donor Trust Fund (to which Australia contributed A$50 million in 2008-09) to facilitate the involvement of a broad range of development partners to support the GFRP.

Managing for development results

The WBG seeks to promote sustainable poverty reduction through the adoption of a 'results agenda'. The WBG's primary measurement tool is their Country Assistance Strategy, which focuses on the expected linkages between the Bank's interventions and long-term development goals.

The WBG also uses its IDA Results Measurement System, which focuses on aggregated results across IDA countries. Linked to the MDGs framework, it reflects the priorities and processes of national poverty-reduction strategies and assesses IDA's contribution to development results. An interactive website now facilitates the tracking of key indicators.

Operations evaluation

Evaluation of the WBG's project quality is an integral part of the Bank's performance review processes. Major independent reviews of the WBG's performance are prepared by the Independent Evaluation Group (IEG) and the Quality Assurance Group (QAG).

The IEG is an independent unit within the WBG that reports directly to the Board of Executive Directors. The IEG's main publication is the Annual Review of Development Effectiveness. In 2008-09, the IEG found that the WBG's record on performance shows a moderately strong upward trend over the medium term. It also found that there has been a mixed record on implementing the agenda to strengthen the Bank's orientation, capacity and monitoring of development results.

The internal QAG monitors the quality of the WBG's operational work, including loans and advisory services during implementation The QAG's main publication is the Annual Report on Portfolio Performance (ARPP). This publication provides a strategic overview of the size, composition and quality of the Bank's lending portfolio and the Analytic and Advisory Activities program. Its latest report (for 2007-08) notes a significant decline in overall performance for fiscal year 2007-08, which is a departure from the results of the previous three years.

The 2007-08 ARPP recommended that the WBG focus on the Africa Region, particularly in Fragile States. It also recommends focusing on health, nutrition and population sectors and public sector governance. Addressing weakness in project design and ensuring adequate and timely restructuring of problem projects in these segments were also highlighted as being important for improving portfolio performance.

Next: Acronyms and abbreviations
Previous: Section 2: Australia's interactions with the International Monetary Fund
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