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Paul Wolfowitz: Breakfast Meeting With Japanese Parliamentarians
May 30, 2006Tokyo

Mr. Wakabayashi, Chief Secretary, Parliamentary Network of the World Bank, Japan chapter: Good morning, ladies and gentlemen. We would like to begin the general meeting for the 2006 Parliamentarian Network of the World Bank meeting. I thank everyone for coming early in the morning today.

The ABCDE Conference is being held today and tomorrow for the very first time in Asia. The World Bank President, Mr. Wolfowitz, is here in Japan in order to attend that meeting. We have chosen to hold this morning meeting with him today. This is a general assembly for our network, so for the 2006 Plan of Activities, there is something that we would like to solicit your consent on. Please allow me a few more minutes. I think you all have a handout in front of you. If you flip through it, you can see the actual record of activities conducted in fiscal year 2005.

Our Parliamentary Network was established two years ago with the purpose of deepening understanding vis-à-vis the World Bank. Also, we sort of act as the Japanese chapter to the worldwide Parliamentary Network on the World Bank and we want to work together with overseas parliamentarians on the Bank’s activities in order to be more efficient at providing support to the World Bank. We have been very active on this front. Every time the vice president came to Japan during the previous year, we held breakfast meetings.  In addition, on October 11, 2005, President Wolfowitz visited Japan at which time we had the privilege of meeting him.

If you flip through the pages, you can see the results of our financial activities-- how much money has been spent on the copying of the documents and so forth. In this document, you can see the officers of the network, which is of course being headed by Mr. Koumura. If you go to the next page, you can see the list of all the parliamentarians belonging to this network. In total, we have 56 members.  We are always open for new membership, of course. For fiscal year 2006, you can read about the network’s future plans. Every time the President or the Vice President of the Bank comes here, we make it a point to organize a breakfast meeting.   Kenya and Mozambique are the countries we are planning to visit, so if you like to join us, please do come. We would like to make arrangements for you.

In October, the annual meeting of the Global Parliamentary Network will be held in Prague and I hope that you will join us there, too. There are so many opportunities coming up where we can deepen our understanding vis-à-vis the activities of the World Bank so I solicit your cooperation.

Well, thank you. Very briefly, I have breezed through the activities of 2005 and the future activities for fiscal 2006. Can I get your consent on this? Thank you. Now without any further ado, I would like to ask President Wolfowitz to speak. But prior to that, let me ask Mr. Koumura to make a brief opening statement.

Mr. Masahiko Koumura, President, Japan Chapter, Parliamentary Network on the World Bank: Thank you so much for efficiently conducting the general assembly part. We would like to begin the commemorative lecture to be given by President Wolfowitz right away. He is going to talk to us about the development strategy of the World Bank and how to alleviate poverty throughout the world. We are looking forward to hearing from President Wolfowitz. Let me ask Vice President Yoshimura to introduce members from the Bank to us first and then go on to President Wolfowitz.  

Mr. Yukio Yoshimura, Vice President and Special Representative, Japan, World Bank: Good morning, ladies and gentlemen. Thank you so much for joining us on this occasion. My name is Yoshimura and I am the Japanese representative of the Bank here.. Very briefly, I would like to introduce to you the members who are here from the Bank. Chairman Koumura has just spoken and next to him is, of course, President Wolfowitz. Next to the President is Ms. Katherine Sierra, Vice President of Infrastructure. Next to her is Mr. Ian Goldin, Vice President of External Affairs at the Bank. We also have Mr. Kevin Kellems, who is in charge of PR and external strategy. To my left is Mr. Okubo, Executive Director representing the Japanese board of directors. The following people do not work at the Bank; However, I would like to take this opportunity to introduce them--We have Mr. Sugita, Deputy Director General from MOFA, and also from the Ministry of Finance, Mr. Hasegawa, Director of the International Institutions. Thank you.

Mr. Wakabayashi: Mr. President, please.

Mr. Paul Wolfowitz, President, World Bank: Thank you, Mr. Koumura, Mr. Wakabayashi. Thank you for inviting me to address this meeting of the Japan chapter of the Parliamentarian Network on the World Bank. I had the pleasure of meeting many of you I think at a similar breakfast back in October and I must say that I am delighted to see this kind of sustained interest from Japanese members of the Diet in the work of the World Bank.

I think it signifies actually a larger point about Japan, which is Japan’s sense of its responsibilities in the world and to the world and its role as a true global leader. That was actually epitomized once again in just the last few days. I read in the newspapers that Japan is the largest donor of emergency aid to Indonesia in the aftermath of the terrible earthquake in Yogyakarta. I would like to thank you for that. Indeed, I would like to thank you personally because I worked in Indonesia for three years and a little bit of my heart is there, especially in Yogyakarta. It is a beautiful place and it is tragic that this has happened.

I do think that it is in Japan’s own interest to play that kind of leadership role.  Japan will prosper and be successful in a world that is at peace, and Japan has the ability to help bring that about. In my view there is no question that a world in which 1.2 billion people are still living in extreme poverty is a world that is not yet healthy. I think there is a lot that we all need to do to help try to reduce that poverty and eventually eliminate it. The good news, of course, is that there has been a great deal of progress. In fact, the last 25 years have seen more progress in the fight against poverty, I think, than any time in human history, and much of that progress has been here in Asia. And indeed, you may not think of yourselves this way, but really Japan was the leader going back some time in history but you set an example for some of the smaller countries in East Asia, the ones that became known as the “little tigers” like Korea and Taiwan and Hong Kong and Singapore. And they, in turn, I think set the example for the “big tiger”—“big tiger” and growing bigger on the mainland, in China. And in turn, that has inspired progress in many other countries. Certainly it has in India.

But I was struck when I was in Pakistan in August. I was talking with some people from a small village that was the recipient of some World Bank assistance and had done some very successful small-scale infrastructure investments with that assistance. I asked this one woman if she thought that the success of her village could be reproduced elsewhere in Pakistan. And it was striking to me, considering that this woman did not speak or read English, so I have to assume she was not reading the Financial Times or the International Herald Tribune or Asahi Shimbun, but she knew the basic facts very well. She said, why not? She said Japan has done it; China has done it, why can Pakistan not do it?

But you are more than just an example. I think you have also demonstrated a great deal about how to do things right. This year, the reason for my being here in Tokyo at this particular time, the reason for my vice president for infrastructure, Kathy Sierra to be here, is that we are now holding the Annual Bank Conference on Development Economics, known by the letters A-B-C-D-E. It is easy to remember the letters; it is sometimes harder to remember the name. For the first time, we are holding it in Asia and appropriately, we are holding it in Japan and appropriately, the theme of the Conference here in Japan is “Infrastructure.” I say “appropriately” for two reasons. One, because infrastructure has played such a big role in the successful development of all the countries of East Asia, starting with your own country, but very definitely in the other success stories in this part of the world. But secondly, because I think you have demonstrated over the years an ability to develop infrastructure in a way that is environmentally-friendly and in a way that lasts for a long time, unlike some of the projects that we are trying not to do anymore where unfortunately the construction is poor for sometimes very bad reasons, and sometimes people suffer as a result.

I think Japan has set an example in many ways including in the very specific issues that this conference is addressing about how to do infrastructure correctly. So I very much appreciate the support that your country gives us—that it gives the World Bank; you are our second largest shareholder. You played a major role in the initiative this past year to relieve the debts of the poorest countries of the world and for that I want to thank you as well. So it is a real pleasure for me to be able to join you here this morning.

Let me say a few words more formally, if I might. The Japanese people and your government have been enormously generous with development aid for 50 years. About US$220 billion, primarily in Asia and more recently to other regions, which has played a big role in that development I referred to. That has lifted, by our count, some 500 million people out of poverty in the last 25 years. Just stop and think about it. That is more progress than all of previous human history. It still leaves many people in poverty but 500 million is a very good start. Japan is now the largest donor to India, one of the most important developing countries. And you have provided substantial assistance to Iraq and Afghanistan and increasingly to Africa. I am happy that the decline in development assistance that had been taking place in recent years seems now to have turned around. I have to say I am delighted also that your economy has turned around. Your economy has been, in the past, one of the real engines of growth for the whole world, including the developing world, and it is good to see that it is back in action.

At the Jack Gleneagles Summit of the G8 countries in July of last year, Prime Minister Koizumi announced the Government of Japan’s intention to increase bilateral aid by US$10 billion over the next five years. We very much welcome this and know it will be used well and appreciated immensely. As I mentioned, the ABCDE Conference is focused on the subject of infrastructure. We are trying, as we talk about infrastructure, to both talk about the needs that have to be met, which are very substantial, and also talk about how to learn some of the lessons from the past because there are, I think, things that we can learn from to do a better job in the future.

Ten or 15 years ago, there was an assumption made that the private sector could take over most of the responsibility for infrastructure investment. That turns out, I think, to have been a mistake. Private sector investment in infrastructure actually peaked in 1997 and subsequently declined by almost 50%. There is clearly a very important role for the public sector to play, although we are also very interested in exploring the possibility of public-private partnerships. We ourselves had largely gotten out of the business of investment in infrastructure. I must say one of the things that surprised me when I became the head of the World Bank was to learn that for many countries our role in infrastructure had disappeared, and I heard particularly from African leaders that they badly needed help in this area. I am very glad to say that the Bank had already begun responding even before I got there. Our infrastructure action plan is increasing our lending now by US$1 billion a year, which is substantial. But the needs are enormous, and the Bank Group alone and other donors cannot address those massive investment needs by ourselves. The governments in developing countries have a major role to play, and so does the private sector. In energy infrastructure alone, the estimates are that US$320 per year would be needed for the next 25 years—this comes from the International Energy Agency—in order to provide modern, efficient, clean, and affordable energy services. That includes getting basic electricity access to the 1.6 billion people who currently have none, but it also of course includes meeting the very substantially growing energy demand of the successfully growing developing countries.

We think that infrastructure investment should be based on providing and ensuring three types of growth. Human growth: that is to say infrastructure to provide energy and water to schools and hospitals; to build roads to connect communities; to put in place telecommunications systems that can connect people and banish ignorance. Too often, there is the thought that somehow infrastructure is the purely hard side of economic growth, and some people think that it is more important to attend to issues like education and health. I think that is a mistake because in fact I do not think you can attend to education and health if you do not have roads, if you do not have schools, if you do not electricity.

Second to mention is economic growth: infrastructure to provide access to markets; to provide energy for enterprises; to provide export opportunities and job creation. In other words, infrastructure to create jobs for poor people and to unleash opportunity.

Third is what we call “smart” growth: that is to say infrastructure that is sustainable, that leaves a smaller environmental footprint, and that genuinely respects human needs. In that respect, we hope to achieve a “double dividend,” we call it, where development and growth can take place, and at the same time preserve or even enhance the environment. “Smart” growth also means that we learn from experience and embrace the often necessary risk and complexity of large-scale projects in order to make a difference in peoples’ lives.

We need to consider responses along the full spectrum of public-private participation. What is important is what delivers results for the poor. While the private sector can provide many of the infrastructure services in the most efficient manner, it still needs the public sector to create the enabling environment, the investment climate, and to permit investments to flourish.

In 2005, there were major new commitments for increased aid and debt relief to low-income countries. I am concerned that some of those promises may not materialize, or that the debt relief might be simply a substitute for aid. Both of those would be a big mistake. We also need aid that is more predictable, that is better aligned with the actual needs of countries, and that is better coordinated among the many different donors. Another area that is not aid, where I am disappointed so far in the progress that has been made, is in multilateral trade negotiations. I think it is even more important that we provide opportunities for the poor people in poor countries to market their goods in the developed world, even more importantly, than providing them with assistance.

We have been emphasizing in the World Bank increasingly the need to emphasize measuring the results of what we do. I know that you as parliamentarians are very interested in that; you are accountable to your taxpayers for what happens with their money and we appreciate that, and we feel that we are accountable to you and to our other shareholders. It is sometimes difficult to measure the results of projects; they take a long time to complete, and the effects are influenced by a great many factors outside of the specific things that we do. But just because it is difficult to measure is not a reason not to measure. The more we measure and the more carefully we measure, the better outcomes we will produce.

Getting results, of course, is impossible without effective government or governance—whichever word you prefer. That means governments that are able to administer the aid that is given to them to implement programs effectively, and of course it means governments that are not riddled with corruption and governments that are accountable to their people. Increasingly, I think there has been a recognition in the development community that dealing with the challenge of corruption—and it is a big challenge, it is not something that can be dealt with overnight—but the dealing with that challenge has as much to do with successful economic development as pouring concrete or building power-generation plants.

We are all agreed, I think, on the need for efforts to improve governance in recipient countries in order to help countries build effective and strong national systems, and to work together on implementing global initiatives to improve governance, to increase transparency, and to build demand within the countries for good governance in a way that strengthens country ownership. I may have mentioned that I was the American Ambassador to Indonesia for three years 20 years ago. I was back there in April and was very pleased to see that the whole society is seized with this problem. The public is demanding good governance, demanding anti-corruption.   And now, unlike 20 years ago, the President and his cabinet are leading that fight. It is a welcome change. They still have a long way to go. They have a lot of work to do. I think that has to be recognized, but they are on the right track.

Good governance is everyone’s responsibility. I think the Bank Group and donors should support the emerging global framework for good governance. We should encourage country participation, and we should strengthen our own anti-corruption controls and provide assistance in ways that strengthen transparency in country systems.

One of our highest priorities is Sub-Saharan Africa. It is a priority largely because it is the one part of the world that has not participated in the successful growth of the last 25 years. Indeed, while much of the developing world has been making significant progress, the 600 million people in sub-Saharan Africa have been going backwards. The extreme poverty in the subcontinent now covers almost half the population: nearly 300 million people. That is really a very unhealthy situation, and I would indeed call it an unacceptable situation. You can say, well, it is unacceptable but what are we going to do about it? And I think the answer is, first of all, what are Africans doing about it? And they are doing something today.

There really is a change in the subcontinent. It is a change that is measured in serious actions by governments in Nigeria and South Africa, in Tanzania, and quite a few other countries—Malawi—to deal seriously with the problems of corruption; even in the case of Nigeria, for example, putting the inspector general of police in jail; even in the case of South Africa, dismissing the Deputy President because one of his advisors took a bribe. It is also reflected in the willingness of African leaders to accept the results of elections. I do not believe that was the general case 10 years ago. It is increasingly the case in Africa now. I must say some of those elections have produced some pretty impressive leaders. Most recently, Africans elected the first woman president of an African country. A very impressive woman named Ellen Johnson-Sirleaf, who I believed once worked at the World Bank for a while. She has courageously gone back to her country to help build a country that has been shattered by civil war. But there is real hope in Liberia, I think, when the voters show the kind of good sense that they showed in electing a leader like her.

I am actually proud to say that her Finance Minister was in a very important and well-paid job in the World Bank, and decided to leave us, resign her job, and go to Liberia to become the first Finance Minister in the new Liberia. That is the kind of spirit that you find among Africans. I saw it in Rwanda, I saw in Burkina Faso, I saw it in Nigeria, and I know it is in quite a few others. It is a spirit that is reflected in the fact that 15 African countries have now had substantial real growth, meaning growth rates of 5% a year for the last 10 years. That is a relatively little-known fact. We tend to think of the whole subcontinent as a place of despair and hopelessness, and I am glad to say that is not uniformly true. And I think increasingly the ones that are doing well can set an example for the others just as you set an example for others in East Asia, and later Korea, Taiwan, and Singapore set an example.

It may be for that reason that when a poll was taken last year of 50,000 people around the world to ask people whether they thought 2006 would be better or worse than 2005, the most optimistic people in the world were Africans. 57% thought this year would be better than last year. East Asians were right up there at 54%; still a very optimistic part of the world. And for some reason, which we can discuss later, the Europeans were at the bottom of the pile— very prosperous, but very pessimistic. It is interesting, I think, that when people who are poor see a chance to make their lives better by working hard, especially when they see a change in their children’s lives by working hard, it is amazing what they do. I think we have an obligation, where the governments are doing the right thing, to give those people a chance. We have an obligation to give the government the resources that they need.

I know Africa is a long way from Japan, and it is not a big commercial interest for your country—at least not yet, maybe it will be one day—but I think to me it is almost as simple as: it is just not a healthy world if 600 million Africans are slipping behind. Japan does have a responsibility to help make this world healthy, and Japan benefits from a world that is healthy and at peace. In Africa, Japan, I think, does have a special role to play, because you are not a former colonial power. You do not sell arms: you are not involved in any of the conflicts that have torn that continent apart. By the way, another piece of good news is that I believe that the number of active wars in Africa was at a peak about five years ago, at some 16. It is now down to five, including the war in Liberia which has ended. So that is another place where there is progress.

I think Japan has a lot to contribute, not only in money, but in expertise and understanding.

I would just conclude with an anecdote which made a big impression on me. I was visiting Bangladesh in August, and it is an interesting, complicated country; one of the poorest in the world, but one with some of the most successful NGOs. Things like Grameen Bank, which you have probably heard of, that has been pioneering the field of microcredit. I was visiting a kind of vocational school, a trade school for street children, for very poor children, where one of these NGOs was teaching poor children how to repair computers and electronics, how to do print, a number of skills. It is a school with a very high success rate of employing their graduates in the jobs for which they are trained for after they graduate. I got to the electronics repair class, and it was being taught by a young Japanese man, I think he was about 23 or 24. He was there as a JICA. I do not know the term for the program, but it was like the American Peace Corps. He did not speak a word of English, but I was able to communicate with him because he spoke fluent Bangla, or Bengali, the local language. I had a translator with me who was doing the Bengali translation for me. I spoke with this young Japanese fellow; he was speaking Bangla and I was speaking English. I was so impressed that a Japanese in his twenties would take two years out of his life to go to a poor country like Bangladesh to help these street kids have a better chance in life. And he is certainly making a difference. I think it is the kind of work that is not only very commendable, it is very rewarding. I do not know of anyone who has gone and done that kind of work who has not felt, in many ways, that the favor was being done to them, that it was so rewarding to be able to help people in that way. I think that is a spirit that really can move people, and I think that we would like to improve the understanding in Japan of the kinds of things that are being done with your expertise, with your assistance.  And that includes bilaterally, as well as through the World Bank. I would be happy to continue this discussion and take questions; however you prefer, Mr. Chairman.

Mr. Wakabayashi: Thank you so much, President Wolfowitz, for your excellent presentation. Now I would like to open the floor for discussion. The ABCDE conference is being held with the theme “rethinking infrastructure for development.” We just heard from the President. Prime Minister Koizumi said that in terms of the ODA volume, there is going to be a substantial increase. Also, with regard to African aid, it is going to be doubled within the coming three years. Those declarations have been made on the first page of Nikkei this morning. It was mentioned that the international conference on the assistance to Iraq is something that the President is thinking of proposing, so you are free to speak on anything. So please raise your hand if you would like to take the floor.

Yes, please.

Mr. Keishiro Fukushima, Member of the House of Councellors, Liberal Democratic Party: Well, President Wolfowitz, I spoke the last time too. In terms of Africa, of course, road construction is the most important type of infrastructure, In Japan we are working on the transcontinental kind of road construction and so forth. But what we can do for Japan is very limited. So we do need to work together with the World Bank and other donor countries as well as with the private sector. So I hope that under the initiative of the World Bank, some project can be created, like a transcontinental road. We could organize a consortium, for example. So I hope you can make a scheme conducive to that type of large project. That is my first point.

Going on to my second point, which also concerns Africa, food production is very important for the rural villages. If enough food can be produced then the rural population would stay in the rural villages without moving to urban cities. I can give India as an example: if deforestation takes place, then a flood will occur. But if the planting of trees takes place then that can be a good source of revenue because the trees can be sold in exchange for cash. You have mentioned the example of Bangladesh; that maybe dairy cattle or goats can be raised so that people can stay within those villages without having to go to other urban areas. So maybe some kind of a model project can be designed. Any views on these?

Mr. Wakabayashi: Maybe we can listen to a few more people before we ask for the President to respond.

Mr. Takashi Kosugi, Advisor to the Parliamentarian Network on the World Bank, Japan chapter: When we talk about infrastructure development we have to learn from the past. What are some of the perceptions you have in terms of the past? What lessons do you think you can draw from your past experience? Thank you.

Mr. Wakabayashi: We will take another question or comment.

Mr. Naokazu Takemoto, Vice Minister of Finance: Thank you. The World Bank is active in various countries, and I believe you have information about various development projects around the world. As far as the Japanese Government is concerned, it has made a commitment to double its assistance to Africa. Among all the countries in Africa, what do you believe would be the most effective assistance?

The Japanese Government does not have a sufficient definition for African countries. When we consider the role of the World Bank, perhaps they could provide such information to the Japanese Government. For example, you can provide information about what specific requirements there are in terms of the individual African governments. I think this will help the Japanese government. In other words, what are the specific requirements of respective countries? What assistance would lead to the happiness of the people concerned? What is required at a given stage? I think the World Bank as an institution can provide sufficient and solid information to the Japanese government. More than ever before, we would appreciate such information.

The other day at the general meeting at the assembly of the IBD, I took part in the session. I served as the chairman of the two-day session at IDB. Japan, together with countries such as the United States and other multilateral institutions, has been making efforts to render assistance for development in South America. However, we do not have sufficient information about the requirements of Latin American countries. The same can be applicable for the requirements of African countries. So given the ability of the World Bank to collect such information, we hope that you can share such information to the Japanese government as well. Specifically in terms of identifying specific projects. I think that would be very effective. Thank you.

Mr. Koumura: I would also like to ask this question, sir. President, I believe that you were with the budget section of the government bank in the 1960s, and you were at the budget bureau. You compiled a report about the farm subsidy bank in the 1960s. Can you give us the gist of the report you submitted about farm subsidy bank in the 1960s? And what ideas do you have about the current farm subsidy? Thank you.

Mr. Wolfowitz: Let me answer some of those questions. I think on the questions that I will explain, I will ask Vice President Katherine Sierra to answer part of it.

Let me take the Africa questions together first of all. The comment that infrastructure needs in Africa are very much regional I think is at the heart of quite a few of the infrastructure problems in Africa. It is an inheritance of colonialism that you have some 45 countries in Sub-Saharan Africa, and the average size of those countries geographically is I think quite substantially smaller than the average; probably smaller than most states in India and most provinces in China. A lot of those small countries are landlocked, and there is no way they can get access to the sea or to markets without going through their neighbors. So regional infrastructure is recognized increasingly as a fundamental need, and it is at the heart of some of the work that is being done by the African countries and what they call the New Economic Plan for African Development, or NEPAD, which is a very promising initiative that they have taken, not only to look at infrastructure investment but also things like they have a peer review mechanism, where countries agree to be evaluated by their fellows in terms of how well they are doing. So far, Ghana and Rwanda have submitted themselves to this peer review, and others will do so I think.

I think there is a great deal we can do in   cooperation between Japan and the World Bank, and the comment here that we may have some knowledge about Africa that we can share I think is probably true. We have offices in most African countries and long experience in Africa. We are happy to share and we are also happy to learn from you, because your agencies have a lot of valuable knowledge. When I was here in October, I was really delighted to learn how much had been done over the last 15 or 20 years in terms of developing joint programs in East Asia between the World Bank, the Asian Development Bank and JICA and JBIC, the two big Japanese agencies. I have to tell you, when I was ambassador in Indonesia 20 years ago it was sort of unheard of to find that kind of cooperation, and now it seems to be very substantial in East Asia.

I suggested we should pursue the same kind of activity in Africa, and we sent our Vice President for Africa for a follow-up visit here in January. He and his team have discussed a number of possible joint co-financing with Japan. One of them is an experiment in something that is called “one-stop border post” projects, and we see the use of grant funding, which Japan has more flexible instruments for. This is a comparative advantage that Japanese resources could be used to combine with World Bank resources. In East Africa, there are two border posts that were identified for possible collaboration with JICA, and we agreed to share all the relevant information pertaining to them. In West Africa, we have agreed to collaborate with JICA in a project involving five countries, from Abidjan to Lagos. And JICA is going to participate with us in the identification mission. We both agreed to explore possibilities of collaboration with JICA in Mozambique in the context of an ongoing transport sector project that the Bank had started. And we are exploring with JICA the possibility of their participating in the Kenya portion of the Kenya-Sudan road project that is at the early stages of development.

JBIC has shown interest in the East African road network and in the Nacala railway spur line. But they were eager to get started with investments and both of those projects are a bit further down the road, so we have instead proposed an earlier project in Mozambique called the Mombassa bypass, and JBIC is currently considering that project.

So we are, I think, in the early stages, but actively exploring some joint collaboration. I noticed in comments by your officials a particular interest in the complex of East African countries: Tanzania, Mozambique, Kenya, and Uganda. It may make sense, since some of these problems are regional, to concentrate in that way. But I think we can benefit a lot from sharing knowledge with each other; and also, since our principle instrument is lending, sometimes it is very helpful if we can combine it with grant money from the Japanese agencies. And of course I think both of us can benefit if we can get something started that can then be handed off in some form to the private sector.

The comment about agriculture I believe is fundamental, and it is an area where for whatever reason, most of the development community has significantly diminished their interest in agriculture. Over the last 10 years our agriculture personnel have declined by 50%. USAID’s have declined by two thirds. I am not sure what the story is in Japan. But the result is that we do not have the kind of agricultural research for Africa that we had 40 years ago for East Asia that produced the Asian agricultural miracle, which I think had a lot to do with Asia’s progress. I am hopeful that we can turn that around that we can make some significant progress.

I tell you, Bill Gates, who, as you probably know, has shown a big interest in health issues in the developing world, has now also gotten interested in agriculture; I am very pleased by that. I learned a term I have not heard before, which is “orphan crops”; which is to say crops like cassava, which is not grown in most developed countries. It is not a substantial commercial crop and there is not that much research done on it. So even though some experts tell me it would probably be possible to develop variants of cassava that actually have some significant nutritional content, the basic cassava crop that is grown all over Africa is pretty much just fiber, with very little nutritional value. So I think that is an area where we can do more, where we are increasing our efforts and where it would definitely be something to work jointly with Japan on, since I think you have so much expertise in that field.

The paper I wrote at the Bureau of the Budget was 40 years ago. I might have thought it had nothing to do with what we are doing today. Unfortunately, it actually does. I say unfortunately because the basic argument I tried to make was that at the time the United States was giving away large amounts of wheat and other agricultural groups. Pakistan was the country I was looking at. It was having a very adverse effect on farm production in Pakistan because it was depressing prices; and I said it would be better to be giving away fertilizer than to be giving away wheat. One of the arguments was, well, farmers in Pakistan are not very rational; they do not use as much fertilizer as they should. And I spent a lot of time demonstrating, no, if you look at how fertilizer really works in Pakistan, instead of how it works in a laboratory, it turns out their use is quite rational, and it would respond to lower prices. What I did not realize—I wrote this in a mathematically elegant paper but it was politically naïve, and I am afraid the politics still dominates and we still—I am not talking about the United States when I say that I think we, the world, find it easier to mobilize food to feed people when they are starving rather than to mobilize fertilizer or to open markets, even more importantly, so that they will have a thriving agriculture so that the famines will not start in the first place. And it really seems to be just clearly the wrong way to be doing business and I hope we can change that.

On the question about what lessons we have learned from infrastructure, when I came and realized that we had gotten out of the business, partly because of a sense that it was a risky business, I was also pleased to see that we were getting back in even though it was a risky business. I said to Katherine Sierra: let us do a study of what mistakes we should not repeat, what the lessons are that we should learn from the past. And she did it, so Katherine let me ask you to summarize it.

Ms. Katherine Sierra, Vice President for Infrastructure, The World Bank: Thank you very much Mr. Wolfowitz. First let me say thank you for this venue. I had the opportunity to speak to you a little bit over a year ago when I had first taken over as the Vice President for Infrastructure. And actually many of the questions that you raised to me then about the environment and social issues filtered their way through the study that I will summarize for you at Mr. Wolfowitz’s request.

He asked us to take a look at the last 20 years of experience in infrastructure, and what had we learned, and were we sure that we were actually taking those lessons into account. There are five basic lessons that we learned. We actually have a beautiful little book and a very thick academic book, which we would be happy to share with you on this.

The first is that we need to avoid a pendulum swing between looking at just infrastructure for growth, the big infrastructure, energy, trunk roads and the like, which are important, versus infrastructure for access to poor people. In the history of the Bank, we have had a swing of either emphasizing one aspect or the other aspect. What we learned was that both need to go hand in hand. A balanced program at the country level needs to be supporting the growth agenda, which is critical, and here I will tick Africa, what we hear from the African ministers. But we also need to know that that is not going to necessarily trickle down to the 1.6 billion people that do not have access to energy for example today. So our programs need to emphasize both aspects of that agenda.

The second lesson that we took from our experience was that in the past, when we thought about environmental and social issues, we sometimes did the project planning first and then later said, how do we mitigate environmental and social impacts? Instead, what we would like to do now is from the outset think about how we can actually benefit the people and the environment while we are doing infrastructure. When you think about that in a more holistic manner, you probably will have a better outcome. Think about how to get benefits directly to the affected people, as opposed to just making sure their lives are not worse, can often save costs, because you will do things in a more sensitive manner. We are trying to use those lessons, and the most notable project where we believe we have made a difference is the Nam Theun Two hydroelectric dam in Lao PDR, where we are right now on the outset of seeing the implementation of that program and monitoring very closely to make sure that we have indeed been able to attend to social and environmental concerns.

The third lesson was the one that Mr. Wolfowitz alluded to in his remarks: that we needed to get away from just saying that the private sector could do everything, or the public sector could do everything, but instead to work along the full spectrum of public and private partnerships. Both the public sector and the private sector have a role to play in infrastructure. In some sectors like telecommunications, the private sector will be the dominant player. In other sectors like water, it is probably going to be the public sector, with hopefully some injection of the private sector to ensure better sustainability and efficiency of the operations. So we are working with governments both purely in the private side with our International Finance Corporation (IFC), but also on public-private partnerships as well through the public sector directly.

The fourth lesson had to do with corruption. What we found when we did our review was that we had spent quite a bit of time and attention to the procurement aspects of infrastructure. We know that infrastructure by its nature is very prone to corruption: large contracts, monopolies and the like. We had spent a lot of time looking at procurement financial management systems.Those are very important. We also, as part of the Bank program, had worked at the very macro level: the rule of law, regulatory systems on governance. But we had not got through the way that corruption manifests itself; in the water sector, for example; rural roads versus toll roads. So right now we decided that we need to learn a lot more about that, and we are embarking on a series of studies with our client countries to see if we can figure out ways to make projects more resilient against the corroding effects of corruption.

The fourth lesson was: do not forget the basics. I think this probably will resonate here in Japan, because many of the kind of skills that you bring when we partnered with you are in this area. While we are thinking about gender, environment and social development, we also need to make sure the engineering studies are well done, the economic studies are well done, the financial analyses are well done. We need to think of all of these things to have a good outcome as we go forward. So we are hoping very much that our programs and projects that we are working on in the future will have these lessons incorporated in them, and we are going to try to hold ourselves accountable to that. Thank you very much.

Mr. Wolfowitz: Mr. Chairman, could I answer a question that has not been asked, but I think some people may have it in their mind, and that is: why is the World Bank still involved in China? It is a question I get asked in the United States, and I would not be surprised if we had more time that I will get asked it here. So let me get to it, because I think it is important.

Obviously China is a country now with enormous resources of its own. Indeed, the amount of money we lend to China is a tiny fraction of China’s total investment resources. I know that the Japanese plan is after 2008, after the Beijing Olympics, to end your development assistance to China. We have already ended our concessional lending to China. I think that is a very important point.

The lending that we do to China now is basically on a commercial basis. The reason for doing it is because of the expertise, the knowledge, the learning that the Chinese are interested in getting from us. When you stop and think about it, to me it is actually a very welcome fact that there are many Chinese officials, I would not say all of them, but many who feel that they still have a lot to learn from the rest of the world through the mechanism of the World Bank.

Given China’s history of 4,000 years of thinking that they are the center of the world, it would not be surprising if they said they do not need the rest of us. Given 25 years of very successful development progress, it would not be so surprising if they said they do not need the rest of us. I am really struck that the reformers in China—and let us remember that they do not all think the same way unfortunately, or maybe unfortunately—let me put it this way, there is a lot of change going on in China, there are a lot of differences of opinion, but I think that the people in China who want the World Bank engaged in China are by and large the ones who want to see China moving into the modern world in a way that I believe is good for Japan and good for the United States and good for the world. These are the people that want the help of the World Bank to address the problems of extreme poverty in some of the rural provinces of China. These are people who want our knowledge about how to manage the environment. One of the projects I visited in Western China, in Gansu, was a large scale hillside rehabilitation project to bring back some hillsides that had been devastated by inappropriate agricultural techniques. The project was so successful that it is now being reproduced in other provinces in China, and we talked about the possibility of applying some of these techniques to similarly devastated areas in Africa. We are working through the private sector arm with some firms that are working on more efficient production of electricity using natural gas, which in turn will reduce carbon emissions. It is the kind of thing that I think the whole world has an interest in: seeing China meet its energy demands, which are enormous of course, in a more efficient manner.

Another project that I was very happy to participate in the launching of was a project that again our private sector arm, the IFC, has worked on to start the first local currency bond ever issued in China. I was actually surprised it has taken them this long to have a local currency bond. But the fact is the Chinese financial system is far too dependent on banks alone as the only financial intermediaries. I think that makes it somewhat vulnerable—you can argue how vulnerable, but somewhat vulnerable to the kind of financial collapse that hit Thailand and Indonesia. I do not think China is nearly as vulnerable. On the other hand, if China were to have that kind of financial collapse, it would affect the whole region, the whole world. So I think it is very much in the interests of all of us to help China develop more sophisticated mechanisms of financial intermediation.

Those are the kinds of things that we are doing, we are not giving money away, we are lending money on essentially commercial terms and providing expertise, particularly in the area of poverty reduction and the environment and financial markets. I really do believe that that is in everyone’s interest. I was struck by a couple of conversations with Chinese officials which are probably worth repeating. One of them took place because I was pushing them to explain to me why they thought the World Bank should stay involved in China. They usually would say, “Well, you are the President of the World Bank, you tell us.” I said, “No, no, I know my reasons, but I want to hear your reasons.” So then they would—I do not mean literally, but it is very hard initially at least to get Chinese officials to tell you anything that is not already approved, so they would look in their briefing book to see what they are allowed to say and then they would give me a sort of standard answer. Then I would say, “Well could you give me an illustration?” Then they would start to think, and they would get personal. And the one that made the biggest impression on me was a Vice Minister who said, “You know, back in the early 1980s, you taught us the importance of having sound accounting practices, and then we realized having sound accounting practices would not do any good if we had no accountants, so I was sent to Chicago and Cleveland to learn accounting.” I do not know if you know what Chicago and Cleveland are like, I once spent five years in Chicago. You do not go to Chicago if you are not determined to do something serious. It is a very cold, difficult environment, and so is Cleveland.

I was very impressed. That is what we call in our business “capacity building.” Clearly, China has gone a long way, and still has a long way to go in developing procurement systems and accounting systems. It seemed to me from the officials I talked to, that was the kind of the thing they look to the World Bank for, and certainly that is the kind of thing I think we would all like to see China developing.

So I know it is a tricky relationship right now. I could ask both sides to behave a little better, if you will forgive me for saying it that way. I certainly could ask the Chinese to show a little more appreciation for the enormous assistance that has come from Japan; that would be a healthy thing. But I think rather than looking at the negative parts of it, I think there is a lot that we can accomplish through cooperation. The World Bank, being a multinational entity, allows a lot of knowledge to be transmitted in a way that is more acceptable. I thought I would give you that explanation in case any of your constituents ask you: “Why is the World Bank lending money to China?” We are not giving it away; that is the first part of the answer.

Mr. Wakabayashi: The time is coming to close the session, but maybe one more point can be raised from the floor. We do have a few more minutes…

Mr. Tetsundo Iwakuni, Parliamentarian, Democratic Party of Japan: My name is Iwakuni. I am a parliamentarian for the Democratic Party of Japan. I used to be an investment banker with Morgan Stanley, and right next door was the World Bank office in Tokyo. Mr. Ishikawa, a former classmate of mine from Ministry of Finance was there. So I believe that I am a banker close to the World Bank in many respects.

Now for President Wolfowitz, I have this question for you, sir. Earlier you talked about your experience in Pakistan. You shared with us the conversation you had with women from, I believe, West Pakistan. You also talked about speaking with the young Japanese man in Bangladesh, I think, to emphasize the importance of communication. I was most impressed by those examples, but from the standpoint of communication with the market, I believe the interest rate is quite important. Now, the Bank of Japan, which is one of the largest central banks in the world, has maintained a zero interest rate for many years. From the standpoint of the World Bank, from your standpoint of lending policy and investment policy, what impact has the central bank’s policy had? Do you welcome the zero interest rate policy of the central Bank of Japan? What is your view at the World Bank? Thank you.

Mr. Wolfowitz: I do not feel I have the expertise to have a view, to be honest. I also think if I had a strong view I would probably say this is still not the business of the World Bank, it is the business of Japan.

I do believe very strongly that Japan’s growth is important for the whole world, and I do think that fixing your banking system is a big part of it. I think some of that started to happen. I think that is a welcome development. I also know that we do a lot of borrowing here in the Japanese market. Japan is very important to us as a lender. But I think I had better abstain on commenting on the Bank of Japan’s interest rate policy; probably the safest. But certainly getting Japan back growing again is something that is very important for all of us.

Mr. Wakabayashi: Well, thank you so much. I am afraid our time is up so we need to close the session. Japan is one of the few countries in the world that can provide assistance for infrastructure. So we hope that we can strengthen our cooperative relationship with the World Bank so that we can work more towards poverty reduction throughout the world. We would like to support the World Bank in going forward. So we would like to show our appreciation of course to President Wolfowitz. Thank you.