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MEMO/06/168

Brussels, 21 April 2006

Collaboration between the European Commission and the World Bank

Overview

Development is a global effort and donors can deliver aid much more effectively if they work together. The European Commission attributes significant importance to the good relations which currently exist between the Commission and the World Bank, and the collaboration between the two institutions has developed considerably in recent years. Since the arrival of the former World Bank President, Mr Wolfensohn, in 1995, the World Bank has undergone an important process of change, putting poverty and Africa at the centre of its activities. The new (since June 2005) World Bank president, Mr. Paul Wolfowitz is committed to maintaining a focus on poverty reduction in Africa.

Not only do the European Commission and the World Bank share the objective of growth and poverty eradication in Africa, but agree on how best to achieve this. The World Bank’s Africa Action Plan and the European Union’s Strategy for Africa share five themes: good governance and capacity building, shared economic growth, basic needs and services, aid effectiveness and effective partnerships, and results.

Collaboration between the Bank and Commission is based on:

  • Ensuring aid is delivered effectively (in particular focusing support on the development plans and priorities of developing countries themselves).
  • Capitalising on the strengths of each institution and ensuring their activities are complimentary.

The Bank and Commission also often work together under broader initiatives, such as multi-donor groups that provide budget support to a developing country government.

Sharing policy

The European Commission and World Bank work closely on policy issues in both headquarters and the field. This takes place in several ways, which include:

  • One of the key processes of collaboration between the Commission and Bank is known as the ‘Limelette process’. This aims to increase the impact the two institutions have in Africa by identifying areas where they can work closer and by ensuring that their work complements each other. Louis Michel has described the Limelette process as ‘a real engine for collaboration in Africa’. The process takes the form of an annual high level meeting attended by management and field staff, followed up with progress reviews throughout the year. The most recent meeting took place in Brussels in October 2005, where staff from headquarters and country teams agreed on a joint action plan and to pilot greater coordination in Zambia, Burkina Faso, and Ethiopia.
  • High level representatives from the Commission and the Bank hold regular bilateral meetings. The Commission President, José Manuel Barroso and all Commissioners working on external relations met with Mr Wolfowitz on 3rd March and 14th November 2005.
  • The European Executive Directors from the World Bank visit the Commission in Brussels once a year, most recently in March 2006. These visits allow the Commission to strengthen coordination amongst the European executive directors. The European executive directors and the Commission delegation also meet weekly in Washington. The Board of 24 executive directors is responsible for the day to day running of the bank (see here for more information on their role).
  • Annual meetings: The Commission attends the Joint World Bank and IMF Development Committee’s Annual and Spring Meetings as an observer. In both 2005 and 2006 the Commissioner for Development and Humanitarian Aid, Louis Michel, had a speaking slot. The Development Committee is one of the most important fora on development issues and the Commissioner for Development and Humanitarian Aid, Louis Michel, circulates a written statement at each Development Committee.
  • In addition to the Limelette process for Africa, there is much collaboration going on in other parts of the world. For example, the ‘Luxembourg process’ coordinates the work of the Commission and Bank in the Mediterranean region; the Bank and Commission have signed a MoU on cooperation with countries of the Western Balkans; the Bank signed the EC standard Framework Agreement for Asia in 2001
  • In South-East Europe, collaboration between the Bank and Commission has gone beyond common policies and programmes and the two institutions now share an office in Brussels (http://www.seerecon.org/). Together, they coordinate international assistance for the reconstruction and development of South East Europe (monitoring aid totalling €6-6.5 billion a year).

The relationship in practice

In individual countries, the Bank and Commission often work together to support a country’s poverty reduction strategy, to provide budget support directly to a country’s government, and to work together in specific sectors. This involves sharing analytical work, best practice and other documents, pooled funding and co-financing of programmes. Collaboration is particularly close in the following areas:

Poverty Reduction Strategies

The Commission and the Bank base their country programmes on a common document – a country’s national development plan, most commonly known as a Poverty Reduction Strategy Paper (PRSP). This document is developed by a national government in consultation with its population, and sets out the country’s priorities and plans for reducing poverty over the next three to five years. PRSPs were introduced to accompany the World Banks Heavily Indebted Poor Country Initiative (HIPC), and have since become the main planning tool for most bilateral donors, the Commission (since 2001), the IMF and the World Bank.

Each year the Commission and the Bank meet and agree how to align the assistance they provide to PRSPs in individual countries (this is part of the Limelette Process).

The World Bank finances PRSPs primarily through their Poverty Reduction Support Credits, which the Commission co-finances in Mongolia and Vietnam.

Trust Funds

In each of the past three years, the Commission has delivered €500 million of aid through trust funds managed by the World Bank. These have been in areas where the Bank offers a significant comparative advantage. Trust funds help to rationalise the plethora of projects and donors in a country, and means the Commission’s funds benefit from the Bank’s technical expertise and knowledge of local environments (especially for countries ‘under stress’ or in post disaster reconstruction situations). Examples include:

  • The Commission has contributed a total of €207 million to a multi-donor trust fund led by the World Bank to support reconstruction in Indonesia’s Aceh province following the tsunami. The Commission is the largest donor to the fund and a co-chair, and together the Commission and Bank have been a real force for coordinating the donor effort in Aceh.
  • The Commission supports the World Bank’s Trust Fund for Public Administration reform in the West-Bank and Gaza (€40 million in 2005, €17.5 million released in February 2006).
  • The Commission has provided €120 million for capacity building, education and community based rural and urban infrastructures to the World Bank managed multi-donor trust fund for reconstruction in Iraq, and €3 million to the trust fund of the Rapid Reaction Mechanism.
  • The Commission is the third largest contributor to the Afghanistan Reconstruction Trust Fund (managed by the Bank) with a total pledge of £177 million.
  • The Commission is a key partner in the Global Fund for HIV/AIDS, Tuberculosis and Malaria, which is managed by the World Bank. The Commission was instrumental in establishing the Fund, and has committed €522 million to date. Lieve Fransen, the head of Human and Social Development in the Commission’s DG Development, has recently been elected to vice chair of the Fund’s board.
  • The World Bank is establishing a new Asia Multilateral Trust Fund to coordinate the international effort to fight the Avian flu ‘pandemics’. In January 2006 the EU pledged a contribution of €216 million euros to this fund.
  • The Commission contributed $11 million to a trust fund led by the World Bank for demobilization and reintegration in the Great Lakes region of Central Africa.

Debt Relief

One of the Bank’s best known initiatives is the Heavily Indebted Poor Country Initiative (HIPC), under which many countries announced they would cancel all the debts of very poor countries.

This initiative, proposed by the World Bank and IMF in 1996 and enhanced in 1999 had given debt relief to 28 poor countries by December 2005. The Commission has supported HIPC in the following ways:

  • In deciding whether a country is eligible for debt relief, the Bank and IMF look at whether they have an interim or full PRSP. Once considered eligible, in order to receive full debt relief, a country must have implemented their PRSP for at least one year. The Commission supports the implementation of PRSPs, collaborates with the Bank on how debt relief is linked to PRSPs and provides comments on interim PRSPs. There are 38 eligible countries (6 more to be discussed at the Spring meeting this year). On average, these counties spend more servicing their debts than on health and education combined.
  • When a country reaches decision point (i.e. when the Bank and IMF decide if a country has made sufficient progress to receive interim debt relief), the Commission confirms the amount of full debt relief it will provide. The Commission then provides interim relief (this means that when debts mature, countries do not have to pay them back). Debt stocks of the 28 countries that have reached Decision Point are projected to decline by two thirds. Countries currently at decision point are: Burundi, Cameroon, Chad, Democratic Republic of Congo, Gambia, Guinea, Guinea-Bissau, Malawi, São Tomé & Príncipe and Sierra Leone.
  • A country reaches completion point when the Bank and IMF decide to award it full debt relief (that was agreed at decision point). The Commission provides debt relief through two channels. As a creditor, the Commission has provided €680 million through the European Investment Bank (this is proportion to its share of the debt). The Commission has also provided €934 million to the HIPC trust fund which helps multilateral banks provide debt relief. Most of the Commission’s contributions are earmarked for African countries. 18 countries have reached completion point (Benin, Bolivia, Burkina Faso, Ethiopia, Ghana, Guyana, Honduras, Madagascar, Mali, Mauritania, Mozambique, Nicaragua, Niger, Rwanda, Senegal, Tanzania, Uganda, Zambia). These have reduced around 50% of their multilateral debt, and their average spending on health and education is now almost four times what they spend servicing debts.

Please see the World Bank website (http://www.worldbank.org/hipc/about/hipcbr/hipcbr.htm) and IMF website (http://www.imf.org/external/np/exr/facts/hipc.htm) for more information.


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