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Australia and the International Financial Institutions 2012-13

Annual Report

Section 3: Australia's interactions with the World Bank

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

Mandate

The World Bank Group provides financial and technical assistance to developing countries in line with its poverty reduction mandate. The World Bank Group’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 World Bank Group consists of five arms: the International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), the International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency (MIGA) and the International Centre for the Settlement of Investment Disputes (ICSID). Australia is a member of all five arms of the World Bank Group. Australia’s memberships of the IBRD, IFC and MIGA require the Australian Government to hold shares in these institutions. Australia’s shareholdings in the IBRD, IFC and MIGA as at 30 June 2013 are set out in Table 3.1.

Table 3.1: Australian share holdings at the World Bank Group as at 30 June 2013
  IBRD IFC MIGA
Shares 27,595 47,329 3,019
Share of subscribed capital (per cent) 1.49 2.00 1.71
Share of voting power (per cent) 1.44 1.97 1.50
Value of paid-in capital ($US millions) 204.4 47.33 6.20
Value of callable capital ($US millions) 3,124.5 0.00 26.46

International Bank for Reconstruction and Development

Established in 1944, the IBRD is the original arm of the World Bank Group. It aims to reduce poverty in middle-income and creditworthy low-income countries by promoting sustainable development through financing (loans, guarantees and related risk management products), and through providing 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

IDA provides grants and highly-concessional loans to the 82 poorest countries in the world. In 2012-13, these were countries with Gross National Income (GNI) per capita below US$1,195. IDA is primarily financed by donor government contributions, which are replenished every three years. Additional sources of financing include transfers from the IBRD and IFC and borrowers’ repayments of earlier loans.

International Finance Corporation

The IFC is the largest global development institution focused exclusively on the private sector in developing countries. The IFC contributes to the World Bank Group’s overall poverty reduction mandate through the provision of investment and advisory services to companies and financial institutions in emerging markets to create jobs, generate tax revenues, improve corporate governance and environmental performance, and contribute to their local communities.

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 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

The World Bank Group, with 188 member countries, has extensive development expertise, knowledge, products and analytical capabilities, and commands substantial resources to foster development outcomes globally. It has the convening power to bring together donors, governments, other multilateral organisations, civil society and the private sector to work collectively on pervasive poverty and development challenges.

In 2012-13, Australia provided an estimated $522.6 million to the World Bank Group, including $315.7 million in joint activities through Australia’s country, regional and global programs. Projects co-financed by Australia were largely targeted at infrastructure, health, education and private sector development, with a particular focus on the East Asia and Pacific regions.

Australia works with the World Bank on bank policy reform to improve operational and organisational effectiveness. For example, in 2012 Australia co-chaired the IDA16 Working Group on Results and Effectiveness. This led to a report recommending improved results management in operations, which was endorsed by association member countries. In 2012, Australia also provided disability sectoral policy support to the World Bank and is currently working with it on its safeguards and procurement review.

Australia’s representation at the World Bank Group

Board of Governors

The highest decision-making body of the World Bank Group is the Board of Governors. This body consists of one Governor appointed by each of the 188 member countries. During 2012-13, Australia was represented by the then Deputy Prime Minister and Treasurer, the Hon. Wayne Swan MP until 27 June 2013, when Australia was represented by the Hon. Chris Bowen MP, Treasurer of the Commonwealth of Australia. Australia’s Alternate Governor was the Parliamentary Secretary to the Treasurer, the Hon. Bernie Ripoll, MP.

A list of resolutions on which Governors voted during 2012-13 is set out in Table 3.2, together with the Australian Governor’s vote.

Table 3.2: Australian Governor’s votes on World Bank Group resolutions 2012-13
Resolution title Adoption date Australian Governor’s vote
IBRD    
2012 Regular Election of Executive Directors 3 August 2012 Supported
Forthcoming 2015 Annual Meetings 14 September 2012 Supported
Financial Statements, Accountant’s Report and Administrative Budget 12 October 2012 Supported
Allocation of FY12 Net Income 12 October 2012 Supported
Resolution of Appreciation 12 October 2012 Supported
Transfer from Surplus to Replenish the Trust Fund for Gaza and the West Bank 28 June 2013 Supported
IDA
Financial Statements, Accountant’s Report and Administrative Budget 12 October 2012 Supported
Resolution of Appreciation 12 October 2012 Supported
Membership of Romania 14 February 2013 Supported
IFC    
Financial Statements, Accountant’s Report and Administrative Budget 12 October 2012 Supported
Resolution of Appreciation 12 October 2012 Supported
MIGA    
2012 Regular Election of Directors 3 August 2012 Supported
Financial Statements and the Report of the Independent Accountants 12 October 2012 Supported
Resolution of Appreciation 12 October 2012 Supported

Executive Director and constituency office

The World Bank Group’s Executive Boards (IBRD, IDA, IFC and MIGA), under the authority of the Board of Governors, consider and decide on loan and credit proposals made by the President, and they decide policy issues that guide the general operations of the World Bank Group.

Each Board currently consists of 25 Executive Directors. IBRD Executive Directors are automatically elected to the IDA and IFC Board. MIGA Executive Directors are elected separately, but in practice it is customary for the Directors of MIGA to be the same individuals as the Executive Directors of the IBRD, IDA and the IFC.

In accordance with the Articles of Agreement, an Executive Director is appointed to the IBRD Board 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 (China, Saudi Arabia, and the Russian Federation) or a constituency of countries.

Australia belongs to a constituency that included, in 2012-13, Cambodia, Kiribati, the Republic of Korea, Marshall Islands, Federated States of Micronesia, Mongolia, New Zealand, Palau, Papua New Guinea, Samoa, Solomon Islands, Tuvalu, and Vanuatu. As at 30 June 2013, Australia’s constituency at the IBRD held 3.84 per cent of total voting power.

By agreement between constituency members, the staffing of Australia’s constituency office rotates among members. Mr John Whitehead from New Zealand assumed the Executive Director position for our constituency for a period of two years from 1 August 2011. Mr Michael Willcock from Australia assumed the senior advisor position for our constituency for the same period as Mr Whitehead’s term. Australia also held an advisor position in the constituency office during this fiscal year.

Relevant Australian Government departments and agencies, principally Treasury and AusAID, provided briefing and input to the Australian representatives in the constituency office on matters coming before the Board. 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 around April and October of each year respectively.

At the Annual Meetings in October 2012, the Development Committee welcomed the new President of the World Bank Group, Dr Jim Kim, and his modernisation agenda which includes encouraging the World Bank Group to become more results-oriented, knowledge-based, open, transparent, and accountable. The Development Committee also discussed the fragile global economy, the importance of jobs and gender equality to drive poverty reduction, improving natural disaster resilience and food security, and specific challenges faced by fragile and conflict affected states.

In April 2013, the Development Committee noted that the first Millennium Development Goal had been achieved — sustained economic growth over the last decade had halved the number of people living in extreme poverty before the 2015 target. In the context of significant global economic challenges, including high unemployment and volatile food prices, the outlook for developing countries is promising and downside risks in the short run have diminished.

Visits

The World Bank’s Vice President for East Asia and the Pacific, Dr Axel van Trotenburg, visited Australia in February 2013 for annual high level partnership meetings with the Minister for Foreign Affairs and Australian Government officials. Among the topics discussed were the President of the World Bank Group’s modernisation agenda, the upcoming IDA17 replenishment negotiations, and Australia’s priorities for the World Bank Group including delivering strong development outcomes in the Pacific and obtaining value for money.

The World Bank’s Vice President for Sustainable Development, Ms Rachel Kyte, visited Australia in March 2013 and met with various ministers, Members of Parliament and Australian Government officials. Among the topics discussed were climate change financing, mining for development, and the interaction between the World Bank Group and the G20 in the lead up to Australia’s taking over the chair of the G20 in 2014.

Part 2: Key activities of the World Bank

World Bank Group Strategic Goals

In April 2013, the Development Committee agreed to the World Bank’s new Strategic Goals of ending extreme poverty and promoting shared prosperity. These goals are defined as reducing the number of people on less than $1.25 per day to 3 per cent by 2030, and boosting the share of income growth in the bottom 40 per cent of every developing country, respectively. These goals are to be pursued in an environmentally, socially, and economically sustainable manner to ensure that development gains do not harm the welfare of current and future generations. The World Bank Group describes these goals as both ambitious but achievable, and will require continued collaboration with both the private and public sectors to stimulate the strong, private sector-led job creation needed to reduce poverty and build shared prosperity.

World Bank Group lending commitments

In 2012-13, the World Bank Group committed US$52.6 billion in loans, grants, equity investments, and guarantees to meet the development challenges ahead. World Bank Group commitments for 2012-13, including those made in the East Asia and Pacific region, are set out in Table 3.3.

Table 3.3: World Bank Group’s 2012-13 Financial Activities
Institution Number of members Commitments
2011‑12
(US$billion)
Commitments
2012‑13
(US$billion)
Commitments to
East Asia‑Pacific
2011‑12
(US$billion)
Commitments to
East Asia‑Pacific
2012‑13
(US$billion)
IBRD 188 20.6 15.2 5.4 3.7
IDA 172 14.8 16.3 1.2 2.6
IFC 184 15.5 18.3 2.5 2.5
MIGA* 177 2.7 2.8 0.9 1.0

* Refers to value of new guarantees issued.

IDA17 replenishment

Along with other donors, Australia was negotiating the 17th replenishment of IDA during 2013. Australia has advocated for a greater focus on value for money, enhanced results reporting and improved effectiveness in small, fragile and conflict-affected states. Negotiations will be completed in December 2013 together with agreement on the strategic direction of IDA for the following three years.

Operational evaluation

The World Bank Corporate Scorecard provides information on the Bank’s overall performance and results achieved by its clients against the backdrop of global development progress, with a particular focus on the Millennium Development Goals. The four-tier Scorecard covers the full spectrum of IBRD and IDA activities.

The World Bank Corporate Scorecard reported that countries continued to make progress on development priorities, noting that not all of these gains can be attributed to the World Bank Group alone. Average annual GDP per capita in developing countries continued to grow, reaching $2,723 (constant 2005 US$) in 2012, primarily through private sector investments, with domestic credit to the private sector increasing to 81 per cent of GDP in 2012.

Four MDG targets have been met ahead of schedule. These are halving extreme poverty, halving the proportion of population without access to safe water, improving lives of slum dwellers, and reaching gender parity in primary education. However, progress has been uneven, and large disparities remain across and within countries. A number of MDGs are unlikely to be attained in the envisioned timeframe.

The Corporate Scorecard reported that there were steady improvements in the World Bank’s organisational effectiveness, citing lending commitments well above pre-global financial crisis levels and accelerated preparation of investment lending projects in a context of a flat administrative budget in real terms.

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