The World Bank should broaden its efforts to fight poverty in middle-income countries by developing services that complement private investment flows, World Bank President James Wolfensohn said during the International Monetary and Financial Committee meeting in Prague. About 30 percent of the world’s poor living on less than $1 per day and about 40 percent of those living on less than $2 per day live in middle-income countries, broadly defined by the Bank as having per capita incomes above $885 a year. Although middle-income countries can obtain access to private capital, such access is often restricted and unstable. The role of the Bank is to deliver services that the private sector cannot or will not deliver. Like the IMF, the Bank needs to tailor its financial support to complement and catalyze—not replace—private investment flows. The Bank should develop assistance based on countries’ own visions of development and be more selective in supporting social and structural agendas.

Government budgets of the countries seeking EU membership could come under further pressure and exchange rates could see big fluctuations in the run-up to EU membership, according to IMF officials. Early adoption of the euro is a "dangerous option" for countries that have not completed their structural reform process. David Robinson, assistant director of the IMF’s research department, cited the problems in the former German Democratic Republic—where industry faced severe adjustment problems after the country was unified with the Federal Republic of Germany under a common currency—as examples of the dangers of premature euro adoption.

To avoid high unemployment in the future, the IMF would like the countries seeking accession to retain their flexible labor markets rather than adopt the rigidities characteristic of many EU countries (low wage differentials between skilled and unskilled workers, generous unemployment benefits). It dismisses fears that large numbers of workers would migrate to Western Europe following EU enlargement, citing a study suggesting that only 335,000 more people each year will seek work in the EU after immigration controls are lifted.

New lending commitments from the World Bank were down by almost half in FY00 (which ended June 30), falling from $29 billion in FY99 to $15.3 billion. Disbursements in FY00 stood at $18.5 billion, down from $24 billion in FY99, according to the Bank’s 2000 Annual Report, released September 23. The share of projects that are at risk of not achieving their development objectives fell to an estimated 15 percent of the total in FY00, roughly half the rate in FY96. More than 80 percent of the funds lent now achieve a satisfactory or better outcome.

New lending commitments from the World Bank to countries in the Europe and Central Asia region (which includes the transition economies plus Turkey) totaled $3 billion for 47 projects in FY00, down from $5.29 billion in FY99 and $5.22 billion in FY98. Since 1990 the Bank has committed about $40 billion to borrowers in the region. The decline in new lending—the result of deteriorating policy performance in a number of the former Soviet republics—was especially steep in the Russian Federation and Ukraine. Commitments to Russia, traditionally the largest recipient of Bank funds among the transition economies, fell to $90 million, down from nearly $2 billion in FY99. Lending commitments in Ukraine declined to $18 million, down from $600 million in FY99. No lending commitments were made to Belarus, the Czech Republic, FYR Macedonia, Moldova, Slovakia, or Turkmenistan. The sharp decline in lending was partly offset by a steep rise in new lending to Turkey, which received nearly $1.8 billion in loans. Turkey is now the Bank’s second largest borrower, after India. Despite the decline in lending in the region, net disbursements increased, rising from $1.6 billion in FY99 to $2.3 billion in FY00, due largely to the rise in disbursements in Central Europe.

The Czech Republic has benefited from the World Bank’s technical assistance, Finance Minister Pavel Mertlik said during the World Bank-IMF Annual Meetings in Prague. World Bank studies, such as the Country Economic Memorandum and an analysis of the Czech capital market, have been useful in helping draft new Czech laws. The Bank is supporting the government’s efforts to streamline the finance system and introduce pension reform. The IFC has invested $283 million in the Czech private sector. The Czech Republic will continue to cooperate with the Bank after it graduates to lender status next spring.

IMF Overhauls Loan Plan

In an attempt to discourage better-off developing countries from relying on the IMF for low-cost financing, the Fund has overhauled its lending program, increasing borrowing rates and shortening maturities. The new approach effectively divides IMF borrowers into three categories.

Environmental dangers are growing in Eastern Europe and Central Asia. While the demise of many communist-era industries has reduced air pollution, air quality has suffered in many urban areas as a result of rapidly growing vehicle use. Increased natural resource exploitation as a source of export revenues and government income has also contributed to environmental degradation. Environmentalists have blamed unsustainable logging in Romania and Ukraine for increased flooding in the Carpathian Basin. The collapse of a dam at a gold mine in Romania last February released thousands of liters of cyanide waste into the Tisza and Danube Rivers, killing fish and other wildlife, mostly in Hungary.

The World Bank will cooperate with other international organizations to form a "blacklist" of corporations that have been involved in bribery and corruption in developing countries. Blacklisted firms will be banned from bidding on aid projects sponsored by the international organizations. Countries that have been deemed negligent in eradicating corruption may also be subject to stricter terms, such as higher interest rates on aid loans.