Changes in the World Bank Group Over the Last Four Years

"This is a moment in history in which we can determine whether we will be able to face the next generation in the knowledge that we have maximized the potential of this institution. Some people say I am emotional on these things. But it is what I believe. And I say it because I believe it. It is why I am here. It is why I think the management is here. And it is why staff is here. Otherwise, we would work somewhere else. So I believe that it is important to restate at the beginning of this discussion that what we are talking about is something that will affect the peace and stability of our planet, and will affect the lives of our children, and which is really a remarkable cause."

JDW, Address to the Informal Meeting of the Board, March 13, 1997

James D. Wolfensohn's arrival at the World Bank Group four years ago marked the beginning of an intense process of renewal focused on becoming a more effective, stream-lined, and client-oriented institution, with the over-arching goal of fighting poverty at the forefront of our efforts. The following background brief outlines progress so far.

The Strategic Compact – Endorsed by the World Bank's Board of Executive Directors on March 31, 1997, the Strategic Compact set the standards of a comprehensive program of renewal for the Bank which would seek to position it as a more effective partner and catalyst for development into the next century. Through the Compact, the Bank's shareholders and management are investing in and implementing a series of changes over 30 months to better serve its member countries: by improving its products, speeding up its processes, lowering its costs, and increasing its development impact. The Compact is already paying off – with higher quality and greater efficiency in our work. Although challenges remain, all four semi-annual progress reports to the Board have indicated significant progress.

Comprehensive Development Framework – In keeping with the mandate of change and renewal, Jim Wolfensohn outlined a vision for a Comprehensive Development Framework (CDF) during the 1998 Bank/Fund Annual Meetings. Following an intense effort to lay the groundwork in the fall of 1998, the CDF is now being piloted in 12 countries. At its core, the framework focuses on a holistic approach to development, applied over a 10-20 year timeframe, with the country in the driver's seat and with strong partnerships among donors, the private sector and civil society. The proposal also seeks to put the social, structural and human aspects of development on a par with the more traditional macroeconomic analysis of countries – arguing that unless we take these two sides of the same coin together, we will only see one half of the development picture.

Highest Quality Rate for Project Design and for Outcomes – Latest figures from the Operations Evaluation Group suggest that 76 percent of Bank projects had satisfactory outcomes in 1998, up from 65-70 percent range in 1990-96. In FY99, the Bank also achieved an estimated 85 percent satisfactory rating for project quality-at-entry, compared to 68 percent in FY96. Management is now pushing project quality, not quantity. In FY96, Jim Wolfensohn created the Quality Assurance Group (QAG), as a "watch dog" to bring greater discipline to the project process while also providing positive input in operations. QAG gives real-time evaluations of the quality of Bank-financed loans, Economic and Sector Work (ESW), and other activities. QAG also has corporate responsibility for managing the Annual Review on Portfolio Performance (ARPP), which assesses the status of the entire Bank portfolio.

Focusing on Quality, Not Quantity, But Also Lending Unprecedented Amounts – Total IBRD and IDA commitments in FY98 reached a record level of $28.6 billion, in large part in response to the crises in East Asia, Russia, and Brazil. Commitments to Africa also increased from $1.7 billion in FY97 to $2.9 billion in FY98. In FY99, IDA lending is likely to total about $6 billion; with IBRD lending forecast at about $24 billion. Total lending is expected to be in the $30 billion range. Four years ago total IBRD and IDA lending stood at $22 billion.

Successfully Securing Critical Funding for the International Development Association (IDA) – IDA's new commitments in FY98 reached $7.6 billion. Thanks to a joint effort by IDA recipients and World Bank staff, IDA's portfolio quality continues to improve. The IDA 12 agreement has now been successfully concluded. There is a strong consensus among IDA donors that poverty reduction in the poorest countries must continue to be IDA's overriding objective.

Increasing Lending in the Social Sectors – Lending in the social sectors has grown rapidly since FY95 – from $4.2 billion in FY95 to a record high of $6.4 billion in FY98 ($7.8 billion if social sector lending components of multisector lending is included as well). Project lending in some traditional infrastructure sectors has lost ground, in some areas falling below FY95 levels.

Shifting Regional Lending – Regional lending shares have remained broadly unchanged since FY95, except in East Asia and Latin America, where adjustment lending has risen sharply since FY95, reflecting the Bank's lending response to crisis-related problems. East Asia's lending program in FY95 was $5.7 billion and Latin America's $6.1 billion, compared with $9.7 billion forecast this fiscal year for both regions.

Expanding Work with the Private Sector – The International Finance Corporate (IFC) has also been expanding its reach and its portfolio. In FY98, IFC committed to investments in 226 projects, up from 189 in 1995, with a total commitment of $5.1 billion ($2.7 billion for its own account and $2.4 billion for the account of participant banks). In FY98 IFC signed investments in 72 countries and regions, up from 54 in 1995.

Strengthening the Bank's Guarantee Arm Through MIGA – In FY98, the Multilateral Investment Guarantee Agency (MIGA) received approval for a two-part funding package, totaling $1 billion, by a special majority vote from the Council of Governors. The World Bank has already provided MIGA with the first part of the package, a grant of $150 million. The funding package will almost double MIGA's capital resources. MIGA has also announced landmark increases in the availability of its insurance coverage for foreign investments in developing countries, from $75 million to $200 million per project and from $350 million to $620 million per country. In its first ten years of guarantee operations, MIGA has issued 375 guarantee contracts for $4.6 billion in coverage. MIGA guarantees have facilitated approximately $27 billion in foreign direct investment in some 65 developing countries and transition economies.

Emphasizing the Link Between Strategy and Operational Priorities – In 1998, the Bank fundamentally changed its traditional budget process with a new approach geared to linking resources to results. As a key adjunct to this approach, it launched the Strategic Forum – an annual meeting of the management team to thrash out strategic priorities and allocate the budget accordingly. The Forum is supplemented by monthly Corporate Days where Senior Managers track strategy and operational priorities against results.

Giving Frontline Activities Budgetary Priority – In line with our Compact targets, the Bank has shifted resources from supporting activities from ‘backline' – administrative and central services – into ‘frontline' activities – operational programs in the regions and networks.

Moving Closer to the Client – Regions are aggressively pursuing their decentralization efforts to the field. 23 out of 51 Country Directors are now located in the field, compared with only 3 two years ago. Country Directors now have closer contact with the clients, further control over the country budget, and strategic leadership of the country teams. In FY98, total Bank staff in the field grew by 222 to nearly 1,800 and a further increase of 119 in the first half of FY99 suggests that this trend is holding constant. An increasing number of Consultative Group meetings are also held in-country. IFC has also greatly expanded its field presence, particularly in countries that have not received a great deal of private investment to date. In 1995, IFC had personnel in 25 overseas locations – today that number has risen to 70.

Lowering Costs and Increasing Efficiency – Over-programming of lending resources has been reduced from a high level of 34 percent above the norm to a current 13 percent. And we continue to reduce the elapsed time between appraisal and Board delivery of projects – what was 7 months in FY98, is 5 months today.

Changing the Country Assistance Strategy (CAS) – One Size Cannot Fit All – The CAS is changing too: focusing on results based management and putting poverty outcomes – not outputs – at the core. The approach to the CAS and to operations in general has also become much more participatory – recognizing not only central government as our client, but local government, regional government, and civil society as well. In FY99, of the 20 full CASs discussed by, or distributed to the Board up to mid-April 1999, all but one were prepared with the benefit of some form of consultation with non-government stakeholders.

Going Public – A Major Milestone – The CAS – once the most secret Bank document – is also now subject to extensive consultations in a growing number of countries and in several cases is widely disseminated, publicized in the media, and posted on websites. As of July this year, all IDA CASs will be disclosed. IBRD CASs can be disclosed at the request of the government concerned. In addition to publishing the CAS, this year the Bank will review its disclosure policy as a whole.

Spreading the Word – In 1996 Jim Wolfensohn outlined his vision of a Knowledge Bank – not just as a key tool for maximizing development impact, but also as a prerequisite for a much more decentralized Bank. The Bank's upgraded and continuously updated external website receives an average number of 250,000 hits per day. New initiatives include "Development News" the Bank's daily on-line news magazine which includes a daily press clippings service.

The Bank's internal web links regions and networks, headquarters and field offices; with the Bank's daily internal newspaper providing news from the outside world relevant to the Bank's work. The World Bank Institute (WBI) has developed pilot on-line Internet courses with the African Economic Research Consortium and 13 partner universities, and has developed similar programs in Russia. The World Links for Development program is expanding its on-line educational links between teachers and students across the globe. By the year 2000, at least 1,200 secondary schools in 40 developing countries will have connected with schools in North America, Europe, Japan, and Australia. And site receivers for the African Virtual University are now installed in Kenya, Uganda, Ethiopia, and Zimbabwe, with plans to expand to Tanzania, Ghana, Cote d'Ivoire, Togo, Benin, Burkina Faso, Mauritania, and Niger.

In client countries, the Bank Group is expanding its financing aimed at reducing the information infrastructure gap and through InfoDev – the Information for Development Program – we are providing technical assistance for countries in the process of liberalizing their telecommunications regimes, as well as grants for pilot initiative in Internet training centers, and electronic commerce. This year alone, InfoDev is providing $8-10 million in grants for pilot projects and $30 million for work on the Y2K problem.

Introducing Sector Strategy Papers (SSPs) – Introduced in 1998, SSPs help identify countries where sector performance is significantly below average, and where treatment in the CAS is a must. A rich pipeline of SSPs is planned for FY99-02 in areas such as culture and sustainable development, education, population, and rural development.

Reforming Operational Policy – To help staff and our clients better understand our operational policies, a new Operational Manual has been launched on the Bank's external web site. The restructured Manual is part of an ongoing work program of operational policy reform

Strengthening Safeguards – A Safeguard Policy Unit has been set up in the network for Environment and Socially Sustainable Development to facilitate and monitor compliance with environmental and other similar policies. Central monitoring of compliance is also being strengthened with procurement and other fiduciary policies.

Listening to Client Feedback – The Bank has stepped up the frequency and openness of its efforts to get feedback from clients, as well as measure our performance under the Compact. In 1998, client surveys were piloted in 12 countries. Since then we have rolled out a program of client surveys to a further 13 countries, and we plan to mainstream this initiative. In 1998, we undertook a major survey of opinion makers in developed countries.

Communicating Globally – In partnership with the UN and Intelsat, the Bank has established a global communications platform linking 65 Bank Group local offices with plans to link all offices by the end of the year. And we are offering global videoconferencing and an array of new distance learning tools. The most comprehensive overhaul of systems in the Bank's history is also well underway. The Information Systems Renewal is an institutional Strategic Compact initiative to replace the Bank's 160 systems and databases with an institutionally-managed, integrated global system.

Reacting to a Dramatically Changing World – While management and staff have continued to work hard to reinvent the Bank, the external environment is shifting dramatically – testing our responsiveness while we are working to build it from the ground up. We are being pulled into demanding new directions and our response reflects the growing flexibility of the Bank – requiring new products and services and a more effective response to issues of social and environmental sustainability, and the changing roles of the public and private sectors.

Responding to the Crisis – At the 1998 Bank/Fund Annual Meetings, Jim Wolfensohn confirmed the Bank's commitment to a leadership role in addressing the social and economic devastation that can follow financial market collapse. He urged the international community not to overlook the dramatic impact that the financial crisis is having, particularly on the poor. Our response has been strong, with commitments in education, population, health and nutrition, and social protection increasing from $1.0 billion in the first half of FY98 to $1.8 billion in FY99. The Bank Group is also focusing on financial and corporate restructuring, safety nets to protect the vulnerable, and adjustment lending. Since the crisis began, the Bank has approved $12.8 billion for the East Asian crisis countries.

Incorporating the Social Side of Economic Development – We are also mainstreaming the social dimensions of development in operational work, with CASs now reviewed to ensure stakeholder participation. Pioneering work is also being undertaken on issues such as improving understanding of social capital and how it can increase the effectiveness of development projects. There is also increased attention to social safeguard policies, especially on resettlement and indigenous peoples, and we have launched a new initiative on the protection and enhancement of cultural heritage.

Strengthening Our Work On Financial Sector Reform, Judicial Reform, Corporate Restructuring, and Corporate Governance – The Bank's Financial Sector Board has launched new Bank-wide efforts, in cooperation with the IMF, to monitor and analyze the status of client country financial systems and to fund technical assistance to high-priority client countries for both financial sector capacity-building and for crisis intervention. New tools and strategies have been developed for banking crisis resolution and their effectiveness in mitigating the effects and consequences of crises will be assessed.

In 1998, a Special Financial Operations Unit (SFOU) was created to help the World Bank respond much more quickly to the crisis-related challenges facing its clients. As a result of an expedited recruitment program, the Bank has also increased its financial sector staff by over 40 percent since it met in Hong Kong in 1997. The Bank is also expanding its work on judicial reform (including training judges, reforming courts, advising on judicial systems, and designing bankruptcy laws); on corporate restructuring; and on corporate governance.

Promoting Good Governance – In 1996, Jim Wolfensohn took corruption out of its political box and redefined it as a cancer eating away at economic development. A year later, the Bank issued its report "Helping Countries Combat Corruption", outlining a four-part strategy for dealing with corruption. In FY98, 26 countries approached the World Bank for assistance in combating corruption. The Bank is also redoubling its efforts to take governance into account – even in those countries that do not request assistance – as it designs and implements its country assistance strategies.

Helping the Poorest of the Poor: HIPC – In April 1996, Jim Wolfensohn and Michel Camdessus launched the Heavily-Indebted Poor Country (HIPC) Initiative – an agreement among official creditors designed to help the poorest, most heavily-indebted countries, escape from unsustainable debt. The HIPC process is well underway. Since the fall of 1996, the eligibility of 12 HIPCs has been reviewed, of which 10 countries have qualified for debt relief packages estimated to amount to $4.3 billion in net present value terms (NPV), or up to $8.5 billion in nominal debt service relief over time. Uganda and Bolivia have already received relief, and agreement has been reached for Burkina Faso, Cote d'Ivoire, Guyana, Mali, and Mozambique. Work on Ethiopia, Guinea-Bissau, and Mauritania is underway.

Fifteen countries should have HIPC debt relief packages in place by the year 2000, and the Boards of the Bank and IMF have agreed to extend the eligibility period for the HIPC initiative for two more years, thus enabling more countries, especially those emerging from conflict, to benefit from HIPC debt relief. The achievements of this joint initiative would not be possible without the determined support of bilateral donors, the Paris Club, non-Paris Club bilateral creditors, and a number of multilateral banks. The Bank also recognizes the significant contribution made by NGOs, religious groups, academics, and civil society in bringing the issue of poor country debt relief to popular attention.

Adding Post Conflict Work to the Bank's Agenda – Post-conflict work has made its way into the Bank's portfolio, with the establishment of a Post-Conflict Unit and the formation of a Post-Conflict Fund.

Recognizing the Importance of Rural Strategy – Comprehensive rural strategies are in place in 21 countries and are under preparation in 24 more – there were few before 1996. Eighty percent of projects completed in the rural sector in FY98 have been rated satisfactory – meeting targets set in the Bank's Rural Action Plan.

Making Sustainability Increasingly Central to the Bank Group's Work – Lending policies and strategic guidelines have been revised to make them more responsive to and supportive of the goal of sustainable development, and environmental issues are increasingly addressed in all Bank work.

As a result, based on preliminary analysis, we are approaching 100 percent satisfactory quality-at-entry on environmental aspects of projects. Significant progress has also been made over the past two years in promoting new partnerships with non-governmental groups – through such initiatives as the World Bank-Worldwide Fund for Nature (WWF) Alliance for Forest Conservation and Sustainable Use, and in the conception of new products like the Prototype Carbon Fund. We are reviewing the Bank's forestry policy, and drawing up good practice guidelines to help the Bank's borrowers deal with pollution.

Creating a Compliance Advisor Ombudsman for IFC and MIGA – IFC has now – for the first time – established clearly defined environmental, social, and disclosure policies and procedures, which establish leading edge standards for engaging in business practices in developing countries. These policies require that project sponsors consult extensively with local communities during project planning and implementation. Jim Wolfensohn has also created and appointed the first Compliance Advisor Ombudsman for IFC and MIGA to help foster more constructive solutions with respect to environmentally and socially complex private sector projects.

Recognizing the Critical Importance of Education – The Bank's commitment to international education goals are reflected in the increased size, scope and diversity of the education portfolio. The most dramatic shift has been from "hardware" – civil works and equipment fell from almost 100 percent in the 1960s to 45 percent in the late 1990s – to "software" – training, technical assistance, books and system reforms. There has also been a shift from a narrow project approach to a broad sectoral one, a change in regional distribution, and more lending for primary and especially girls education.

Strengthening Social Protection – Lending for social protection has more than doubled over the last 4 years. Bank work is focusing particularly on pensions, social assistance, safety nets and labor markets, and extending into newer areas of child welfare and disabilities.

Supporting Microcredit – The Consultative Group to Assist the Poorest (CGAP) a multidonor initiative launched in 1995, has successfully completed four years of its pilot phase. The Bank has played an active role in supporting these efforts, both through CGAP, and with involvement with the Microcredit Summit Campaign. Over the last four years, the microfinance portfolio has more than trebled, and currently stands at over $300 million. Over the last three years IFC has also expanded its support for microfinance institutions. It has done this both directly through its support for such institutions as K-Rep in Kenya, as well as a number of others, and through its support for innovative approaches such as an investment fund, which seeks to mobilize private capital, which is then invested in microfinance institutions in Latin America.

Striving for Capacity Building in Africa – Launched in 1996, the Partnership for Capacity Building Group is a permanent group funded by the Bank's Africa Region, which will manage a core work program aimed at facilitating and catalyzing investment in the region.

Extending the Reach – The "Extending IFC's Reach" initiative was launched in September 1996 to help attract new private capital to countries and regions whose difficult conditions have kept them from drawing much attention from investors. IFC has set up a full-time presence in all 16 of the program's target markets and generated more than $1 billion of new investment, most of it directed to small and medium enterprises sponsored by local entrepreneurs.

Speaking in Languages Clients Understand: Local Currencies – The International Finance Corporation (IFC) was one of the first, if not the first, borrower in eight emerging market currencies, including, the Philippine peso, the South African rand, the Slovak koruna, and the Polish zloty in 1996; and the Russian rouble, the Israeli shekel, the Estonian kroon, and the Singapore dollar in 1998.

Simplifying Lending: Single-Currency Loans – Over the last few years, the Bank has moved from being a single-product institution – offering only the Currency Pool Loan – to borrowers, to one offering a menu of lending products to better meet their needs and expressed preferences. The introduction of single-currency loan options culminated in a massive loan conversion exercise and the introduction of flexible lending terms and a wide range of new financial products, including hedging and instruments. These have been well received. Of loans approved by the Board in FY99, 100 percent have been single-currency loans.

Offering More Flexible Lending – Designed to increase the Bank's flexibility and client responsiveness, Adaptable Lending, which consists of two new major lending instruments – Learning and Innovation Loans (LILs) and Adaptable Program Lending (APLs) – was approved by the Bank's Board in the Fall of 1997. A LIL is a fast-track (under 60 days) loan of under $5 million focusing on experimentation, learning, and piloting prior to larger-scale operations. APLs provide, through a series of loans, phased and sustained support for the implementation of a long-term development program that reflects economic priorities and contributes to poverty reduction. In FY98, 11 APLs and 15 LILs were approved.

Introducing PSALs/PSACs and SSALs – PSALs/PSACs and SSALs were approved by the Board on October 22, 1998. These instruments – adaptations of adjustment lending – strengthen the Bank's ability to help countries at risk prevent crises and help countries in crisis manage their response. PSALs/PSACs, firmly grounded in the CAS, are designed to help countries address systemic social, structural, and institutional reform issues over time to ensure that the solid foundations for sustainable development are in place. Use of SSALs is reserved for IBRD borrowers in exceptional circumstances where structural origins of a potential or actual crisis imply major social and poverty consequences. The borrower must express an interest in such a package. To date, the Bank has prepared two SSAL packages – for Argentina and Brazil.

Expanding IDA Guarantees – To encourage the flow of private capital into poor countries, the Bank has begun extending limited guarantees to IDA countries. Two new guarantee instruments were introduced – the IBRD Enclave and the IDA-Only countries guarantees were approved by the Board in May and August 1997. The first IDA-Only guarantee – for the Azito Power Project in Cote d'Ivoire – was approved by the Board in December 1998.

Introducing New Partial Credit Guarantees – Bank Management has also submitted to the Board a proposal to extend the existing IBRD partial credit guarantee instrument from "project-based" to "policy-based" guarantees. Such policy-based guarantees would guarantee a portion of the debt service of sovereign borrowings from private creditors associated with the implementation of structural and social policies and reform programs.

This new instrument could play a catalytic role in helping IBRD borrowers with strong economic and social programs improve their access to private foreign financing. Initially, the Bank will proceed with a $2 billion pilot program of policy-based guarantees to test the instrument and gain experience. The Board approved the proposal in April 1999.

Securing a Selective Capital Increase – Approved last year, the selective capital increase results in five countries gaining about 25,000 additional shares and IDA gaining an additional $250 million in special contributions and higher levels of contributions in the future from these five countries – Korea, Brazil, Spain, Denmark, and Turkey.

Leveraging the Bank's Assistance Through Trust Funds for Immediate Assistance – External donors have leveraged the Bank's assistance to crisis countries through commitments for new trust fund programs such as the Central America Emergency Trust Fund ($21.4 million) to help Central American countries recover from the devastation of Hurricane Mitch, and increased funding from the Policy and Human Resources Development Fund (PHRD) to fund technical assistance activities in Indonesia, Korea, Malaysia, the Philippines, and Thailand. The new Asian-European Meeting (ASEM) Financial Crisis Response Trust Fund totals $47 million, with over $20 million in funding proposals already approved.

Adjusting the Basics: Loan Pricing – In response to the run-off of old, high-coupon, fixed-rate loans, the diminishing positive effect on net income of the lag in the variable lending rate of the currency pool loans, and a projected low interest rate environment which reduced the contribution of equity to earnings, as well as the unexpected loan growth of FY98 due in part to lending in response to the East Asian crisis, the Board approved an increase in the loan spread by 25 basis points – to 75 basis points above the Bank's funding cost, and a one percent front-end fee payable upon effectiveness.

Making Sure All Bases are Covered – To help improve the quality of our products and services, five Networks have been established – Human Development; Environmentally and Socially Sustainable Development; Finance, Private Sector, and Infrastructure; Poverty Reduction and Economic Management; and Core Services – to help share development expertise across the Bank and with our clients. Ninety web-based thematic groups have been formed to share knowledge, ideas, and best practice.

Leveraging Cutting-Edge Research – A pilot survey of policymakers shows that 75 percent have used Bank research products, with over 65 percent citing the specific reports that they have used. Journals produced by the Development Economics Vice Presidency now reach about 10,000 readers, and one out of six development articles and publications on university reading lists are from the Bank.

Expanding and Improving Management Positions – In an effort to improve transparency and excellence, competition for positions at all levels is now open to external and internal candidates. In 1997, one hundred and fifty managers were asked to reapply for their positions and appointments were cleared by a seven-person committee. As a result of this process, over 50 new managers were brought in from the outside or promoted internally.

Diversifying the Staff Profile of the World Bank – Increasingly recognized as a business imperative, diversity is being mainstreamed into basic Bank Group business processes, with a concerted effort to bring in more staff from developing countries and more women. In 1998, the Bank developed a new structure to more comprehensively address diversity issues, creating a Diversity Program comprising the Offices of the Senior Adviser of Gender Equality and the Senior Adviser on Racial Equality, and drawing up Diversity agreements and targets with each unit head.

Putting More Women in Higher Positions – The number of women in senior management positions is now 19 percent – a figure that has doubled since 1992, and will double again by 2003. We now have 7 women vice-presidents – up from one, four years ago. New "stretch" targets have now been set by management and approved by the Board as part of the reform of human resources – 30 percent women at levels 25+, and 45 percent women at levels 22-24 by FY03. There is also more integration of field offices and headquarters with the expansion of the Anti-Harassment Adviser network to resident missions.

Introducing the Loan Administration Change Initiative (LACI) – Launched in 1996, LACI aims to improve project financial management and quarterly financial monitoring and reporting of a project's physical and financial progress as a means of ensuring financial accountability on the part of both Bank operational staff and borrowers.

Keeping the Bank's Budget in Line – The administrative budget for the last two years has been formulated to provide continuing support for key initiatives endorsed under the Strategic Compact, which target cost-effectiveness and aim at creating the foundation for a truly global organization. The Cost-Effectiveness Review (CER) was the most extensive review of its kind in the Bank's history. It confirmed that the level of savings projected by the Strategic Compact can be achieved and that the administrative budget for FY01 can indeed return to the FY97 level in real terms. It indicated that the share of resources allocated directly to the frontline can be increased in line with Compact targets (60 percent by FY99); and it found that underlying productivity gains can drive improvement in both the quality and quantity of our services.

Stepping Up The Fight Against Corruption – In an effort to help countries help themselves and improve their governance, the Bank has become actively engaged in external anti-corruption and become an international leader in this effort, while at the same time improving its own internal control structure. In May 1998, an Oversight Committee on Fraud and Corruption was established. The Committee is responsible for reviewing all allegations of fraud and corruption received by any member of the Bank Group, and then determining when and how an investigation should be conducted. The Committee reports directly to the President.

To help ensure that allegations of fraud and corruption are reported, the Bank has also set up a telephone hotline with multilingual capabilities, which operates 24 hours a day, seven days a week. It is available for use by Bank group staff and the public. The telephone number in the United States and Canada is 1-800-831-0463.

The Bank is also tightening up our oversight of the Borrower's procurement processes. As part of this move, we are now periodically commissioning procurement audits undertaken by independent firms of international repute. In the course of the past two fiscal years, 54 projects have been audited. As a result of the audits, the Bank has declared misprocurement on about 40 contracts with a total contract value of $40 million – out of a total of 45,000 contracts the Bank finances annually totaling roughly US$45-50 billion.

To complement these activities, the Bank has also put in place new procedures for debarring contractors from future Bank-financed contracts if indeed it is found that the contractors have committed fraud or corruption in the procurement or execution of Bank-financed contracts. In November, Jim Wolfensohn appointed a Sanctions Committee to review the findings of investigations. So far, seven cases have been submitted to the Sanctions Committee, some of which involve a number of accused firms/people. Three of the cases have resulted in debarment.

Making Relations with Other International Agencies More Strategic – Our new partnership strategy moved from consultations to implementation. Over the last four years we have expanded our work with other multilaterals, notably the various parts of the United Nations and the European Union over a variety of issues. We are also increasingly focusing on emerging issues such as the debate on international financial architecture and efforts to combat fraud and corruption, with pilot activities initiated in about 15 countries. Close collaboration with European partners has led to the creation of the ASEM Trust Fund for the Asian financial crisis, which is providing $40 million in additional expertise and training to affected countries.

Working Together with Civil Society – Bank dialogue with NGOs, foundations, trade unions, and religious organizations has expanded significantly. The Bank now has 63 civil society specialists working in field offices. Recognition of the contribution of NGOs is illustrated in their growing rates of involvement in Bank projects. One-half of the 286 Bank projects approved in FY98 provided for some degree of input by NGOs or community-based organizations. The Bank is also working with NGOs on a number of new initiatives such as the World Bank/WWF Forestry Alliance. We have also forged new relationships with major foundations, for example, supporting dissemination of innovative technologies with the Rockefeller Brothers Fund, the Turner and MacArthur Foundations; protecting cultural heritage with the Getty Trust; and an initiative with the Ford Foundation to focus on the contributions which community development foundations can make to poverty alleviation. In February 1998, President Wolfensohn and Anglican Archbishop of Canterbury, Dr. George Carey, co-hosted a meeting on development at Lambeth Palace of 12 religious groups. A joint Secretariat for this group has now been established.

IFC consulted extensively with NGOs and civil society in developing its revised environmental and social policies – the first time the Corporation has engaged in such systematic consultation with NGOs.

Expanding Private Sector Partnerships – The new Private Sector Development (PSD) Group works to coordinate the Bank Group's private sector activities and enhance its external partnerships. In 1996, the Bank launched the Business Partnership Center (BPC) as the main point of contact for the business community and a vehicle for developing strategic partnerships.

Creating the Annual Meetings' Program of Seminars – Four years ago, we broke new ground at our Annual Meetings by launching a series of seminars designed to bring together corporate executives, senior government officials, and other leading international figures for discussion and debate on key issues affecting the global economy. The Program has grown in both scope and prominence since it's initial launch. Last year, more than 2500 individuals participated compared to just over a thousand in 1995. We've increased the number of sessions, added keynote addresses (a highlight of the Program), offered networking events and receptions, and most recently introduced the Bank/Fund Expo. Over the years, feedback on the seminars has been overwhelmingly positive.

Launching the Business Partners for Development Initiative – Four years ago, with private sector flows dwarfing official assistance, the Bank began to look at the implications of corporate social responsibility for development. Today, in collaboration with our private sector and civil society partners, we have initiated the Business Partners for Development (BPD) program, which is supporting and promoting strategic examples of tri-sector partnerships for the development of communities around the world.

BPD is a global network of business, government, and civil society, with the World Bank Group as an equal partner. Examples of these partnerships include, the Natural Resource Cluster, co-convened by British Petroleum, CARE International, and the World Bank Group; the Global Partnership for Youth Development, co-convened by Kellogg's, the International Youth Foundation, and the World Bank Group; and the Knowledge Resource Group, co-convened by Civicus, the Prince of Wales Business Leaders Forum, and the World Bank Group.

Working More Closely with Ministers – In 1995, the Development Committee was revitalized and has since become a more effective forum for the exchange of views between ministers on issues of current importance to the Bank. The Development Committee has played a key role in policy formation on such issues as corruption and HIPC.

Bringing Together High-Level Women in Finance and Economics – Last year, the World Bank co-hosted, along with the Council of Women World Leaders, at Harvard's John F. Kennedy School of Government, an inaugural meeting of women in key financial positions in government worldwide. This gathering brought together over thirty women with financial and economic portfolios from 28 developed and developing countries. The Bank and Council plan to make this an annual event.

Clarifying the World Bank Group's Mission Statement, and Putting the Fight against Poverty at the Center of Everything We Do – In 1998, the Bank posted a draft mission statement on its internal web and asked staff for comments, suggestions, and rewrites. The result of this extensive debate was a new mission statement launched in January 1999:

Improving Upward & Downward Communication – With more town hall meetings between Senior Management and staff, 360 feedback evaluations, and web pages, World Bank staff is more involved and "in the loop" than ever before. Tremendous emphasis is placed on breaking down the "barrier" between staff and managers, with a significant investment in improved listening and communication.

Keeping Families in Mind – A more family-friendly work environment has been established in the form of the Alternative Work Schedule (AWS), which allows for the options of working part-time, compressed schedules, and working at home.

Compensating Bank Staff – In December 1998, the Board unanimously approved a new compensation system for the Bank Group that better aligns the Bank's salary structure to the market, and strengthens the links between pay and performance. The Board package also included significant changes in the Bank's benefits programs, and a more cost-effective package of field assignment benefits that is more in line with other international organizations.

Keeping Staff at the Top of Its Game – At the same time, strong emphasis has been placed on staff development – including the creation of an integrated leadership development program, the strengthening of professional/technical training, and the upgrading of training for administrative staff and national staff in field offices. For example, more than 130 training programs were conducted during the period July-December 1998, covering the full range of professional/technical learning needs.

In 1996, Jim Wolfensohn launched the Executive Development Program – a 7-week training course for managers organized by Harvard, Stanford and INSEAD. So far 500 managers have attended the course. The program includes a week spent in the field living in a village or slum.

Providing Easy Access to Grievance – In 1998, the Bank brought in Judge Shirley Hufstedler, a former U.S. Court of Appeals judge and set up a Committee to review the grievance system as a whole. The Committee submitted its final draft report to an external review panel consisting of three highly regarded experts in the field.

The Committee's recommendations are now being implemented. These include: the establishment of a Conflict Resolution Network, a new professionally-managed Mediation Service, strengthening of the Office of Professional Ethics with separate officers for investigation and outreach, and strengthening of the Ombudsman Office.

Recognizing Those That Strive to be Their Best – Awards for Excellence have been established to recognize innovation and excellence in the workplace, with 235 staff awarded thus far.

Creating a Culture of Innovators – In 1998, the Bank launched its first Innovation Marketplace, calling on staff throughout the Bank Group to put forward new and creative ideas on how to help clients better address their development challenges. Over 150 new ideas were submitted, of which eleven, that directly addressed corporate priorities, were selected for development and funding. These eleven are now nearing completion, and are expected to significantly strengthen the Bank's offering of products and services.

In the fall of 1998, the Bank Group launched its first Private Sector Development Exchange to showcase ideas for Bank Group collaboration from staff across the Group. More than 70 proposals were submitted involving more than 500 staff, and grants were awarded to fourteen teams. Like the Innovation Marketplace, the PSD Exchange will become an annual event.

Facing Up to the Challenges Ahead

Although considerable progress has been made over the last 4 years, a number of pressing issues remain. Increased lending levels, and the need to press ahead with systems renewal pose further challenges. Managing the matrix system is a priority. We also need to reach the savings promised in the Cost Effectiveness Review, shift more resources to the front-line, manage a more decentralized Bank, and maintain our improvements in project quality – something that becomes more difficult as lending volumes rise. And we have to consolidate our renewal so that staff morale can improve. None of this will be easily done. We believe, however, that we have made a very important beginning.

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