This Annual Report, covering July 1, 1996 to June 30, 1997, chronicles a year of renewal at the World Bank. Strengthening partnerships and getting results in serving the poorest people in the world are two recurring themes running through these pages. Nowhere have these two objectives been better illustrated than in the strengthened working relationship that is being forged between management and staff of the World Bank and its shareholders represented by the Executive Board.

Over the last ten years the environment for the Bank's clients has changed dramatically. While official development assistance has declined, private capital flows have surged. But they have been concentrated in a comparatively small number of countries. At the same time, the role of civil society and that of the private sector have become more pronounced, governments have become more accountable for their actions, and all the players rely on the new capacity to share knowledge rapidly as a result of dramatic changes in technology.

As the Bank has recognized these developments, we have introduced new approaches to ensure that the lending and advice we provide is what our clients really need. One consequence of the reform process is of special note. Institutional change, encapsulated in the Strategic Compact, has been given momentum by a joint commitment by management and the board to enhance the latter's role in defining policy directions.

The Executive Board's unanimous approval of the Strategic Compact last March, whereby investment in changes over the next two years will lead to a much stronger and cost-effective institution in the future, was an important step in further strengthening the relationship between the Bank and its shareholders. The executive board will have an integral role in monitoring the Strategic Compact and ensuring its success as management reports regularly to the board on progress in implementing policy initiatives. We now have symmetry in the roles of management and the board in approving projects and changes in the Bank's policies: projects are discussed as part of broader country assistance strategies, while changes in specific policies will increasingly be considered within the overall policy framework established by the Strategic Compact.

The changes the Bank is undertaking have the specific objective of making the Bank the most effective institution in the world in the fight against poverty. We aim to reach this goal through a clearly defined business plan, which is embodied in the Strategic Compact. By the fiscal year 2001, we have committed to returning our real operating costs to this year's level while providing a higher level of service and greater volume of products to our clients.

To ensure that our shareholders see a return on the investment that we are making to renew the Bank, we are building up our capacity to evaluate our institutional performance against clearly defined objectives. Fifty years after the Bank made its first loan, we are poised to enter the new millennium with fresh vigor and more attuned to our clients needs than ever before.

Almost 5 billion people who live in our client countries deserve the benefits that an effective and competent World Bank, at the heart of a global network of development assistance, can provide.