This issue of Development Outreach gathers a number of different perspectives on the importance of greater equity for development and poverty reduction around the world. The articles that follow, written by leading thinkers and development practitioners, illustrate the three central tenets of the World Development Report: that opportunities are very unequally distributed; that the interaction between different kinds of inequality can create ‘inequality traps’, which hinder development and poverty reduction; and that well-designed policies can tackle these traps, leading to both greater equity and greater efficiency. In this guest editorial we briefly review each of these points in turn, in light of the articles that follow.

On behalf of our colleagues in the WDR team, and of many in the development economics community, we dedicate this special report in Development Outreach to a dear departed friend, Prof. Jean O. Lanjouw, whose piece on Ensuring Access to Low-Cost Drugs is included in this issue, and who was a leading scholar of intellectual property issues in the context of developing economies. She taught at Yale and Berkeley universities, and we were privileged to count her among the members of the WDR team. Jean left us shortly after the WDR 2006 was published this Fall, but her ideas and influence will long remain with us.

Opportunities are very unequally distributed

The WDR 2006 describes how the opportunities to live a healthy life, learn, work, invest and innovate vary widely within and across countries on the basis of predetermined characteristics, such as gender, race and family background. These differences are a clear indication that the world today is far from realizing the ideal of equal opportunities for all.

Measuring opportunities, however, is not straightforward, since they are potentials, rather than actual observables. The main approach we take in the report is to compare outcomes that tell us something about opportunities (e.g. life expectancy), across different groups defined on the basis of predetermined circumstances. In the end, a compelling story emerges: there are major differences within and across countries in the opportunities to live a long and healthy life, to learn, to get a job and earn a living, to access public services, to have one's voice heard and to participate in political life. Within countries, these differences are often correlated with gender, family background, socio-economic status, geographical location, and ethnic-religious characteristics.

Take for example the opportunity for life itself. Figure 1 illustrates infant mortality rates for a number of developing countries. The line in the chart shows average infant mortality rates, which vary from 25 per 1000 live births in Colombia to almost 150 per 1000 in Mozambique—almost six times as much. The bars indicate, for each country, the infant mortality rates for children whose mothers have no education (at the top) and for children whose mothers have secondary or higher education (at the bottom). The differences are striking: in some countries, such as El Salvador, children of illiterate mothers are four times more likely to die before their first birthday than their more fortunate peers—through no fault of their own.

When economic, political and socio-cultural inequalities reinforce one another, individuals belonging to excluded groups may be caught in “inequality traps”. They experience barriers to access and participation that persist over generations, leading to sustained inefficiencies and performance below potential. In his article, Vijayendra Rao explores in depth the interrelated economic, political, social and cultural mechanisms whereby inequality traps persist over time.

Greater equality of opportunity is good for development

The report presents two main reasons why inequities, in addition to being unjust, are detrimental to development. First, in the presence of market imperfections, individuals with power and wealth are able to exploit markets to their advantage while others are unable to fully use their talents and potential. The poor may have limited access to credit, or access it only at very disadvantageous rates. Differences in the opportunity cost of capital across social groups leads to an inefficient allocation of productive resources, and to wasted development opportunities. Second, narrow, powerful elites tend to put in place and maintain economic institutions that benefit only themselves, at the expense of the wider public.

In their article, Markus Goldstein and Christopher Udry illustrate one of the many mechanisms through which power combines with market imperfections to produce inefficient results. They describe how a system of land tenure in Western Ghana that is shaped by local power structures leaves large profits unexploited for those who do not have power—most notably women. The authors also note, however, that the system plays an important safety net role.

Kenneth Sokoloff focuses on the second mechanism, namely the capture of institutions by elites. He discusses how dominant groups in Latin American countries have historically managed to maintain a disproportionate share of political power, when compared to their North American counterparts. This concentration of power has contributed to slowing the advance of institutions—such as universal suffrage, the effectiveness of local government, and the provision of universal access to education—that might threaten the status of dominant groups, but which also proved to be key ingredients in subsequent growth.

Policies can bring about greater equity

After discussing the reasons why unequal opportunities hinder development, the WDR 2006 discusses what can be done to bring about greater equity. The report advocates an approach to determining development priorities based on bringing more equal opportunity from the bottom up: public action should seek to expand the opportunity sets of those who, in the absence of policy interventions, have the least resources, voice and capabilities. Achieving this may, however, involve reducing the privileges of those who reap special benefits from existing institutions and policies. Such a focus would aim to level the playing field in the crucial areas of human capacities; justice and the rule of law; access to land and infrastructure; and in the broad functioning of markets and the macroeconomy. Consistently with what is argued in Rao's article, the report takes the view that there is no single recipe that can work everywhere. What will work in each country depends on context—institutions, culture, politics—and state of development.

Nevertheless, examples can be instructive, and something can always be learned from the experience of other countries. In their contribution, Karl Ove Moene and Michael Wallerstein argue that Scandinavian countries can be a useful model. They dispel the notion that Scandinavian pro-equity policies arose from homogeneous societies with a preference for equity; rather, equity arose as a result of a set of policies that compressed wages to increase employment.

Where there are trade-offs between equity and efficiency, looking at policies through an equity lens helps to emphasize the longer-term benefits of equity and to move beyond the false dichotomy between “policies for growth” and “policies for equity”. Economic growth is an aggregation of income changes along the distribution, and all policies have differentiated impacts along that distribution. Based on his award-winning book Growing Public (2004) and his Presidential Address to the Economic History Association, Peter Lindert expands on the issue of equity-efficiency trade-offs. He argues that countries need not adopt policies that promote growth at the expense of equity and presents a checklist to find policies that are anti-growth and anti-poor and that could be changed with benefits in terms of both efficiency and equity.

The importance of equity for long-term prosperity is apparent in many countries today, including China. In their contribution, Lu Mai and Calla Wiemer describe the growing divides between rural and urban areas and between inland and coastal regions. Building on the China Human Development Report, they suggest dismantling barriers to the mobility of rural households to cities, so migrants can take advantage of economic opportunities, while at the same time providing health and education programs specifically aimed at them, to ensure that they and their families can enjoy greater well-being. The authors also stress the importance of fostering greater public participation, of enhancing transparency, and of anti-corruption efforts.

Where inequality traps involve social and ethnic discrimination, specific policies (such as some kind of affirmative action) may be called for. Dena Ringold describes recent efforts to overcome discrimination of Roma minorities in Central and Southern Europe. The keystone of these efforts is a fund to help integrate Roma children in schools.

The WDR 2006 also examines the functioning of global markets for labor, capital, goods, and ideas, and finds that certain aspects of their governance tend to favor rich countries, to the detriment of those where most poor people live. Actions that would bring about greater global equity include progress on removing barriers to trade and agricultural subsidies, greater avenues for legal migration, and intellectual property rights protection that does not place drugs out of the reach of poor people. In her contribution, the late Jenny Lanjouw describes a proposal to enhance access to drugs in poor countries, at effectively no cost to the incentives for innovation by large pharmaceutical companies.

How does change occur?

Changing domestic policies and institutions in a pro-equity way is difficult. Vijayendra Rao reminds us of the need to "design public action in ways that foster greater 'equality of agency' with respect to social hierarchies.” Policies should try to compensate for the lack of voice of the excluded. One example is to expand democratic participation at the local level, as in the participatory budgeting process developed in Porto Alegre, Brazil. But success requires some preconditions: transparency, effective inclusion, methods to resolve conflicts as they arise from participatory processes and maintain dialogue.

Changing global policies and institutions is also difficult. The current global context is not encouraging, and rising demands for greater equity are not being met. Against some modest increases in aid over the last two years and some steps made by the G8 towards full debt cancellation for the poorest countries, we continue to witness widespread tolerance of human rights abuses; near-complete failure to move ahead on trade talks; and slow (if any) progress on global governance. Pro-equity actions will have a greater chance of being implemented if the governance mechanisms of international institutions enable poor countries to participate more effectively.

While no one knows how to engineer change, we do know that some factors play a role. Equity-enhancing changes in policies and institutions can come about through government action, informed leadership, and grassroots mobilization. Rigorous and unbiased analysis and research can help inform alternatives, contribute to a more constructive debate and, hopefully, to the adoption of better policies. We see the articles contained in this issue of Development Outreach as part of that process, and hope that you will enjoy reading them.

Giovanna Prennushi is Lead Economist with the Poverty Reduction Group, The World Bank.
Francisco Ferreira is Lead Economist with the Development Research Group, The World Bank.
Michael Walton is Lecturer in International Development at the Kennedy School of Government, Harvard University.

"The World Bank is piloting an amnesty program for corporations involved in corrupt activities who provide details of their crimes to the multilateral lender's investigation department, a senior Bank official said," reports Dow Jones.

"The program allows companies with World Bank contracts to confess acts of graft and bribery of government officials in return for immunity from the Bank's blacklist of corrupt companies, Daniel Kaufmann, . Director at the World Bank Institute, told Dow Jones in an interview. . In return, the World Bank would impose a 'nonnegotiable set (financial) penalty' instead of adding the company's name to a global blacklist of firms banned from lucrative World Bank contracts. . 'In a sense it's like plea-bargaining in the US,' Kaufmann said.

"Kaufmann was speaking on the second day of a four-day official visit to Indonesia that included a meeting with representatives of the official Corruption Eradication Commission. The program aims to reduce the $1 trillion the World Bank estimates is lost annually to worldwide corruption, he said. The voluntary disclosure program reflects the World Bank's increasingly robust efforts to shake off decades of inaction toward corruption and directly tackle graft and bribery that contributes to poverty in developing countries. ."

The Jakarta Post (Indonesia) writes that ". Kaufmann said Monday that Indonesia had moved from 16th position from the bottom of the institute's global corruption index in 2002 to about 40th from the bottom in 2004, among the more than 200 countries the Bank rated. According to the index, the country has also made progress in several governance indicators -- the rule of law, government effectiveness, political stability and 'voice and accountability' -- from 1998 to 2004. .

"Kaufmann said countries like Indonesia needed to honestly question efforts that had failed to improve governance. Focusing only on bureaucratic corruption, attempting to end graft by overregulation, creating excessive anticorruption agencies and blaming graft on history, culture or legal issues -- all were ideas that should be reevaluated, he said. Increased transparency was essential to controlling corruption, he said, and there were 10 criteria that needed to be met by the country to improve its graft 'scorecard.' .

"Kaufmann said it was important to explode myths surrounding good governance; that it was a luxury only rich countries could afford and that it took generations for governance to improve. 'A number of emerging economies, including the Baltics, Botswana and Chile have shown that it is possible to reach high standards of governance without yet having joined the ranks of wealthy nations,' Kaufmann said. 'There are also improvements exhibited by some African countries in a short period of time.'"

"In a widely expected vote, the UN General Assembly approved a recommendation from its main budget committee to block reform proposals that would have given Secretary-General Kofi Annan more budget power," reports The Dow Jones.

"A powerful bloc of developing nations - known as the Group of 77 - and China had said Monday the reforms would rob them of powers over the UN budget. Because of their overwhelming numbers, they were able to get their way over rich nations that pay more than 85 percent of UN finances and had supported Annan's proposals.

"The vote in the General Assembly - 121 to 50 with 2 abstentions - could set up a showdown over the UN budget in June. The UN is now operating under a six-month budget cap that can only be lifted if member states conclude enough progress has been made on reform. . The Group of 77 and China includes more than 130 countries. The group had orchestrated a vote in the chief UN budget committee late last month, sinking the two ideas. .

"UN General Assembly President Jan Eliasson suggested that it was only natural that some of Annan's proposals, part of a sweeping reform package unveiled in March, would divide the member states. 'I think it goes back to the fact that we had a higher degree of ambition than we normally have in the UN,' Eliasson said. 'If the Secretary-General had proposed a less ambitious program you would have perhaps achieved that consensus.'"

Reuters writes that ".South Africa's ambassador, Dumisani Kumalo, told reporters not much had changed in UN reform aims because of the vote. Kumalo, head of a 132-member bloc of developing nations, noted that several other reports, including one on procurement and another on a new information system, were due shortly and could move the reform process along.

"US Ambassador John Bolton told reporters there was 'virtually no progress' on management reform. The General Assembly's budget committee had taken a similar vote last month. . Monday's vote, which was expected, could well spur Washington to insist a budget cap stay in place and withhold the $950 million needed to pay UN salaries after June 30. The showdown marked a power struggle for control of the United Nations between developing nations, who form a majority of UN members and are home to much of the world's population, and wealthy countries who pay the bills."

"Export-driven economic growth in Latin America in recent years has failed to generate sufficient jobs, improve wages, or reduce poverty in the region, the United Nations' International Labor Organization (ILO) said in a report on Tuesday," reports Reuters.

"Latin American economies grew on average by 5.9 percent in 2004 and 4.3 percent last year, fueled in part by strong global demand for commodities such as oil, soybeans and iron ore. This year the region is expected to grow by as much as 4.5 percent. However, there was still a shortage of 126 million formal jobs, or 53 percent of the 239 million economically active population, the ILO said in a report published in Brasilia on the eve of a regional meeting. That included 103 million people working informally, or without social security benefits or the protection of labor laws, and 23 million unemployed. The ILO did not offer historic figures for comparison.

High informal employment, such as street vending, contributed to overall dissatisfaction with democracy, the United Nations division said, citing preferences of 54.7 percent of the region's population for an 'authoritarian regime.' Unless the region's economies grew by at least 5.5 percent, the employment deficit would increase and could reach 158 million jobs in 2015, the ILO said.

Economic growth was not improving the living conditions of a large proportion of the population, the report said. 'We cannot simply depend on growth to generate employment for those most in need of it and to reduce extreme poverty in the region.' While some countries saw considerable employment growth between 2003 and 2005, new jobs were short-term and poorly paid, the ILO said. 'The new workers are better educated than average, they work longer hours but still earn the same.'

ILO Director-General Juan Somavia called on governments in the region to adopt the report's recommended action plan to help create jobs. One recommendation was to diversify economic growth to include more labor-intensive sectors. It also called for policies, including tax incentives for technological innovation, to increase labor productivity and make the region more competitive. Somavia said the creation of decent work helped to reduce poverty and to strengthen democracy as well as the security of the continent."

"Economic growth in Asia this year should hit seven percent -- the same as in 2005 -- but the region could be threatened by high oil prices, tighter financial markets and bird flu, the International Monetary Fund

(IMF) said in a forecast Tuesday," reports The Associated Press. "The Asian economy will be boosted by the continuing recovery in Japan, where domestic demand is strengthening, corporate investment remains robust and the labor market is still firm, the IMF said in its 84-page report. Economies are benefiting from surging demand for the region's products, especially electronics, and this should continue, the IMF said. 'While domestic demand had long been tepid -- China and India excepted -- it has been gaining traction since early 2005,' the forecast said ."

"'Although banking soundness in Asia has improved, banks in some countries have experienced rapid growth of credit to households and close supervision is called for,' the forecast said. The report also warned that the region's booming stock markets could decline if 'foreign investors were to pull back amid a rise in global risk aversion.' The IMF said that bird flu had the potential to be the most devastating risk. But it added the impact of an outbreak would depend on how well the region has prepared for it. So far, the contingency plans are largely untested, it said . "

Reuters writes the report said ". policy makers in the region had to strike a balance by tightening policy enough to keep oil-induced inflation at bay without choking domestic demand. Authorities also needed to reduce public debt while providing for an ageing population and to boost domestic demand ... "The IMF also noted that "high oil prices had so far had only a modest effect on Asian growth, but the impact could be more serious in future and inflation could be stoked as governments raised regulated fuel prices."

Agence France Presse adds that ". China is expected to grow at 9.5 percent this year and India 7.3 percent, while Hong Kong, South Korea, Singapore and Taiwan are put on 5.2 percent. Indonesia, Malaysia, the Philippines and Thailand are forecast to grow 5.1 percent. Australian was expected to expand 3.0 percent as firms alleviate bottlenecks in the wake of a commodity price boom. However New Zeland would slip to around 1.0 percent as the domestic housing market slows. Low income countries

-- Vietnam, Cambodia and Laos -- were also expected to grow strongly but corporate governance issues needed to be addressed to improve the investment climate, the IMF said."

The BBC finally notes that ". the IMF report comes ahead of a meeting in India of finance ministers from the Association of Southeast Asian Nations (ASEAN), with India, China and Japan on Thursday. Members are expected to discuss how to stop currency turmoil and strengthen their financial systems. As developed nations consider raising their interest rates there are concerns from some that this could be to the detriment of Asia's economies. The meeting will coincide with the Asian Development Bank's annual meeting."

"Index-based insurance pays claims based on the intensity of a catastrophe in a specific place over a specified period of time. They are less expensive and pay out faster than usual insurance because there is no need to estimate losses. Insured countries would pay a premium based on exposure to recurring catastrophes. Measures of rainfall, for example, would determine payout in drought-prone areas such the Horn of Africa. Hurricane categories or earthquake magnitudes would determine payouts in other regions," explains the news agency.

"This is a new market,' Hector Ibarra of the World Bank's Commodity Risk Management Group said in an interview a week after a bank report urged more disaster-prevention measures. 'We're beginning to see member-country interest. We've had a scale-up in demand,' Ibarra added. The World Bank's private sector arm, the International Finance Corp., is currently working on setting up a specialist reinsurance company with the private sector. Countries in Central America, sub-Saharan Africa, South Asia to Eastern Europe are eager to sign on, he said."

Reuters further notes that the World Bank's independent evaluation group last week "urged the Bank to make disaster prevention an integral part of its lending to catastrophe-prone regions. The Bank lends about $20 billion a year, 15 percent largely for disaster recovery. Weather-indexed insurance is expected to cut disaster recovery costs for governments and the World Bank."

The news agency notes that "Hurricane Ivan, the strongest of the 2004 Atlantic season, reaching category 5 intensity, contributed to the drive for such insurance. More than a dozen Caribbean countries -- members of the Caribbean Community and Common Market -- asked the World Bank to draft a plan to mitigate losses from future storms. Officials at the Bank reckon a Caribbean catastrophe pool, which bunches together the region's countries for economies of scale as well as insurance payouts, could prove a model for small states in the Pacific and Indian oceans."

"'There's a certain amount of demand out there.,' said Richard Gyles, insurance expert at the [IFC]. 'We're looking at setting up a specialist reinsurance company to promote and underwrite index-based weather and catastrophe business,' he said. 'This has similarities to weather derivatives, but within an insurance context.'

Crisis Prevention In The New Global Economy

Gordon Brown, the UK chancellor of the exchequer and chairs the IMF's international monetary and financial committee writes in The Financial Times that "sixty years ago, for their times and for their generation, visionaries created the International Monetary Fund and World Bank as they rebuilt the world economy from the ruins of war."

"But today a new global economy has come into being - one of international, not national, capital flows; global, not local, competition; open and integrated, not sheltered and isolated, economies, usually with floating, not fixed, exchange rates . The lesson of recent decades - from the 1970s' oil crises to the 1990s' Asian crisis - is that it is no longer sufficient for our international institutions to focus on temporary support for temporary balance of payments problems, but on all threats to stability . "

"Starting with the agreement reached at Saturday's international monetary and financial committee (IMFC) meeting, we should push ahead with further steps in IMF reform. First, the fund should be set an annual remit for its surveillance work. The IMFC should identify the key risks to the global economy and ask the fund to report on them and the individual or collective policy actions necessary to address them. The first such remit should be set at the annual IMF meetings in Singapore this autumn."

"Second, to strengthen multilateral surveillance, the IMF should not only assess risks to individual countries through the annual article IV process, but also consider more explicitly the spillovers of individual countries' policies on the global economy. Financial sector issues should gain a greater prominence. Third, members should reaffirm the commitments on which IMF surveillance is based. This should include surveillance of monetary, fiscal and exchange rate policy. Fourth, we should agree practical measures to strengthen the independence and transparency of surveillance and the role of the Independent Evaluation Office."

"To ensure the IMF works to the benefit of the full range of its members, fundamental issues in the fund's governance need to be addressed. We must respond to changes in the structure of global growth and allow increasing involvement in the decision-making process for those countries - emerging markets and developing countries - most under-represented today. We are now agreed that in Singapore in September we will make concrete decisions on how to tackle this."

"In Washington last weekend, there was unanimous agreement that all IMF members shared collective responsibility for global issues and mutual responsibilities to each other, and for the first time also commitment to addressing the fund's governance issues. In Singapore we must turn these resolutions into reality. On this depends the effective management of globalization in the future - securing jobs, prosperity and stability for all countries"

“The world must prepare for a long-term fight against bird flu and not give in to fatigue that seems to have set in, a senior World Health Organization (WHO) official warned,” reports Reuters.

“Keiji Fukuda, Acting Director of WHO's global influenza program, said it was the H5N1 virus's tenacity rather than geographical spread that has raised the risk it could evolve into a form that moves more easily among humans … ‘Organizations and countries are pretty exhausted by this. Yet it is clear we are in the middle of a long-term fight,’ Fukuda told the news agency in an interview in his Geneva office. Efforts to boost detection and control of the disease in birds and humans must continue across all regions, the American scientist said.”

“‘All of those things that we had to do when there was so much energy being put in a year or two ago, that has to be sustained. I think those are hard things to do when there is a collective weariness in dealing with this agent,’ Fukuda said … Awareness that bird flu is not just a regional but a global problem had grown in recent months, he said … ‘When the virus moved into Africa it became very clear to us that the potential for the virus to move quickly, ahead of our efforts to establish surveillance, is very real,’ he said. The WHO was now focusing on quick and inexpensive efforts such as public education messages on measures to prevent infection, he said … ”

In related news, The Associated Press writes that “bird flu has hit 45 countries, killed more than 100 people and seems to be spreading quickly, the UN official in charge of tracking the virus, David Nabarro said Wednesday. Nabarro said the virus has led to the deaths of some 200 million birds and has impoverished millions of small poultry farmers …”

“‘This is very similar to the virus that caused the influenza pandemic of 1918,’ Nabarro said. ‘It's not identical but it's similar ... So therefore, the 1918 virus, which caused this huge pandemic associated with 40 million deaths, seems to have a successor waiting in the wings.’ Nabarro … spoke at a meeting organized by the UN Foundation on how to inform people around the world of the bird flu threat.”

Dow Jones adds Nabarro said the H5N1 virus is known to have stricken more than 200 people, but it probably has affected ‘many, many more.’ ‘And this virus has led to the deaths of 200 million birds - around $20 billion worth of consequences for the countries affected - and this led to the impoverishment of millions of smallholders whose livelihoods depend on poultry,’ he said.”

“Nabarro said he is working with the UN Food and Agriculture Organization and the World Organization for Animal Health to greatly improve veterinary services ‘which have been neglected for years.’ ‘The result of that is we are susceptible to diseases within animals that can jump into humans,’ he said, noting that ‘70 percent of the emerging diseases of a communicable kind in our world today come from animals.’”

Agence France Presse notes that “health ministers from seven South Asian nations have decided to develop a common strategy to combat bird-flu in the region, a statement said Thursday. The health ministers said after their meeting in the Bangladeshi capital Dhaka Wednesday that ‘an impending pandemic influenza’ posed a threat to the region's 1.4 billion people. The ministers have decided to ‘develop influenza preparedness strategy covering both animal and human health,’ the statement said. The South Asian Association for Regional Cooperation (SAARC) groups Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan and Sri Lanka …”

Hilary Benn, the UK Secretary of State for International Development, argues in The Financial Times that "corruption, like temptation, exists everywhere, but in poor countries it can kill. Money meant for drugs for a sick child, or to build a hospital, can be siphoned off into private bank accounts or to build a luxury house."

At the World Bank Spring Meeting on Sunday, Benn writes, "I will be calling for a new international framework for tough, effective and consistent action to tackle this corruption, not least because as development and finance ministers we have a shared responsibility to ensure that the extra resources from debt cancellation and from increased aid, genuinely go to help the poor. If all poor people lived in well-governed countries this would be much easier. But they don't. Poor people live in countries affected by conflict, in countries with few resources and poorly paid public sector workers, and where governments and institutions are often weakest. It is here that the risk of corruption greatest.

The UK Secretary of State adds that that "is why the fight against corruption should not be seen in isolation from strengthening governments and institutions. This can be done through supporting better public financial management, a stronger and more independent judiciary, lively civil society, and transparency and accountability in government. There has been progress in recent years, with developing countries increasingly taking on their responsibility to do better. In Sierra Leone, a country recovering from serious conflict and where corruption is a major problem, expenditure tracking surveys show that while in 2002 only 5 percent of drugs reached district health units, a year later this had increased to 70 percent.

Benn notes that, however, that one needs to recognize that it will be "very difficult to eliminate corruption entirely. There are many countries where there is good political governance and yet corruption persists. Good systems cannot perfect human nature. So we need to take steps to address it; such as proper safeguards and a rigorous system of audit and inspection so that we can have a high degree of confidence that our money - taxpayers' money - is being used properly for its intended purpose.

So how should we respond in those cases where, despite these safeguards, we have a problem? We must take tough and uncompromising action, to prevent any repetition and send a clear message that corruption will not be tolerated. Those guilty of criminal offences should be prosecuted and punished.

Some however would go further, and argue that we should not work in countries where the risk of corruption is high, or should cut or suspend our aid altogether in the event of a scandal. I think that view is mistaken. Why should a child be denied education, or a mother healthcare, just because some in their government are corrupt? Walking away from our responsibilities to poor people is not the right thing to do. It is only by continuing involvement and presence that we can help bring about the necessary improvements in governance and institutions.

But tackling corruption while continuing to do development work is difficult. It poses dilemmas for us. How can we punish those who are guilty without punishing innocent poor people? What should be the scale of our response? What conditions should we set? When and how quickly should we act? I think it will help us to be more effective, if we have an internationally agreed framework to guide us in these difficult judgments.

The Spring Meetings in Washington provide an opportunity to make further progress on this. The World Bank has provided leadership since Jim Wolfensohn spoke out against the 'cancer of corruption' in 1996. Paul Wolfowitz, is strongly committed to fighting it. The World Bank should now consult widely in preparing a new framework for tackling corruption, to be presented to the Annual Meetings in Singapore in September. It is a vital part of our campaign to make poverty history."

"Latin American countries would do well to follow China's example on port modernization if they want their export goods to be more competitive on world markets, a World Bank expert said on Tuesday," reports Reuters.

"Booming energy, mineral and agricultural commodities prices are buoying Latin American growth prospects this year but estimates put regional capacity use at close to full bore, meaning inflation and curbed growth could be on the horizon. 'There is overwhelming evidence of capacity constraints on the productive side with ports and access to ports becoming a bottleneck to growth in places like Buenos Aires, Callao (Lima's port) and Santos (Sao Paulo's port),' Senior Regional Advisor on Competition Luis Guasch said in an interview."

"The cost of moving goods from the factory to dockside or in an aircraft container accounts for a whopping 34 percent of the product value coming out of Peru, 28 percent in Argentina and 26 percent in Brazil, Guasch said. That compares to the average cost of 9 percent in Organization for Economic Cooperation and Development (OECD) countries which have much more developed just-in-time delivery systems."

"Guasch said the so-called logistic cost at China's key ports in 1998 was about 30 percent but has since fallen to around the OECD average. 'They improved management, brought in modern technology and had export markets well defined plus the know-how to speed up the port structure for just-in-time delivery,' he said. Among other lessons Latin America could learn from the Chinese is better coordinated dispatching so delivery trucks do not leave port empty, maximizing the use of containers and adopting International Standards Organization practices as well as investing in more cranes to speed up loading and unloading, he added."

RIA Novosti writes that “The World Bank's chief economist in Russia said Monday the bank was forecasting an inflation rate for this year of 10%. High inflation is one of Russia's biggest worries, and John Litwack [Chief Economist of the World Bank's Moscow Office] said some changes had already been made to monetary policy, including allowing the ruble to strengthen by 3.5% against the dollar in the first quarter of 2006.

The government is developing a package of further anti-inflation measures (…)Litwack said. He added that tariffs imposed by monopolies were being discussed, but that there were no economic reasons to link inflation and monopoly prices.

Litwack said anti-inflation policy should target only basic inflation, which should therefore be overseen by the Central Bank and not the Economic Development and Trade Ministry.

The government's official development program for 2006-2008 fixed the inflation target at a maximum 8.5% in 2006. Inflation in the first quarter of 2006 stood at 5%. Official inflation for 2005 was 10.9%.”

Dow Jones (04/17) writes that “Russia should protect its budget against the risk of a fall in oil prices by investing a good part of its rainy-day fund in non-oil-related equities, the World Bank said in a report [Russian Economic Reports] released Monday. At present, the law concerning the Stabilization Fund only allows its assets to be invested by the central bank in high-credit quality government bonds but, in recent months, a new consensus has emerged between senior government figures that up to a third of the fund could be invested in equities, and managed by private investment companies on behalf of the authorities.”

Prime-Tass News Agency (Russia) (04/17) meanwhile reports that “Under the World Bank's forecast, Russia's GDP growth is expected to slow down to 3% by 2030 from 5.5%, while the ruble is expected to further appreciate against the dollar in real terms, Litwack said. In 2006 the ruble is expected to grow 10.6% against the dollar, Litwack said, adding that after 2006 the ruble is expected to grow against the dollar at a slower pace, as Russia’s trade surplus will be approaching zero. The forecast was also based on dollar inflation of 3%, Litwack said.”

“The Stabilization Fund, which was established on January 1, 2004, accumulates the federal budget's extra revenues from progressive oil export taxes on Urals blend oil prices exceeding $27 per barrel. The cut-off price was increased to $27 per barrel starting January 1 from the original $20.”

"African countries lambasted rich nations on Friday for failing to show flexibility in global trade negotiations and expressed doubts that a World Trade Organization (WTO) deadline at the end of April would be met," reports Reuters.

"Trade ministers from the 53-member African Union (AU) are meeting in the Kenyan capital Nairobi to fix a common approach in world trade talks and to bolster regional integration. Experts say Africa may stand to be the leading beneficiary of a successful Doha round of WTO negotiations. But many Africans say so far the negotiations have been slow and failed to take into account the interest of the poor continent.

'Not much progress has been made on the negotiations on the major issues of interest and concern for Africa,' said Elizabeth Tankeu, the AU Commissioner for Trade and Industry. 'In spite of the clear commitment made in the Doha Declaration to place the needs and interest of developing countries at heart of the negotiations, the developed countries have not mustered the political will to offer the necessary negotiation flexibility,' she said in a speech. (.)

In a declaration circulated at the Nairobi conference, the African ministers said they were 'deeply concerned' over a lack of progress on the two issues and again blamed rich nations for the delays. They said they would not accept the 'establishment of partial modalities that ignores Africa's interests.' 'There has been lack of progress on the mandated work on modalities, with the developed countries being more concerned about protecting their interests and dominant positions in global trade,' Tankeu said.

Africa, the world's poorest continent, has long complained that it is being marginalized. It has demanded that rich nations remove farm subsidies and asked for greater market access. The continent also wants to be assured long-standing preferential deals that provide their products an advantage in export markets would not be eroded and are seeking greater markets from more developed countries. (.)

“Indonesia's efforts to rebuild tsunami-ravaged Aceh province and reintegrate former separatist rebels are moving in the right direction but the programs should go hand-in-hand to be successful, World Bank President Paul Wolfowitz said Thursday,” reports Agence France Presse.

“‘These two challenges come together, the challenge of reconstruction and the challenge of reintegration ... and I think Indonesia is moving on a good track on both those and success in one will support success in the other,’ Wolfowitz said. (…) Speaking at a press briefing at the end of a week-long visit to Indonesia, Wolfowitz reminded Indonesia that ‘it's very important to keep up’ progress in Aceh. The World Bank is currently helping Aceh rebuild vital infrastructure in some 3,000 villages through a $64.7 million program until June 2007. (…).”

Dow Jones adds that Wolfowitz said Thursday “the World Bank is willing to help Indonesia to recover funds stashed overseas by corrupt government officials during ex-President Suharto's regime. ‘I'll be happy to look at it,’ Wolfowitz replied when asked by reporters if the Bank would assist Indonesia like it did when Nigeria sought its aid to retrieve $500 million of the $1 billion in funds from Switzerland looted by former dictator Abacha. ‘But just because we are the World Bank, it doesn't mean that we are the world banker; it's a very big, complicated system these days,’ he said at the news conference… .

Wolfowitz… called on the international banking community to help in the efforts to make it difficult for corrupt officials to hide their stolen assets. He said that reducing corruption will help improve the investment climate in Indonesia and raise the annual economic growth rate to over 7 percent from below 5 percent now. (…)

Asia Pulse (Australia) notes that on Wednesday, Wolfowitz said “hundreds of Indonesian companies have been blacklisted by the World Bank for alleged corruption involving projects it financed. Wolfowitz said the allegation was based on information exchanged between the World Bank, the Asian Development Bank, the American Development Bank and the African Development Bank.

‘In the website of the World Bank you will find hundreds of Indonesian companies with data about alleged corruption and the projects involved,’ he said after a meeting with the Indonesian Corruption Eradication Commission. He said those companies have been blacklisted and will not be involved in projects financed by a number of banks including those of the World Bank. He said the public should be aware of the data and therefore, the name of the companies should be made public.

The Jakarta Post (Indonesia) writes that “the World Bank said Wednesday it remained committed to offering lending facilities to Indonesian banks, particularly those engaged in providing loans to small and medium enterprises (SMEs). Wolfowitz made the pledge in response to a question from the media after a meeting with Vice President Jusuf Kalla.

‘We're giving loans to private banks, particularly those that lend to SMEs. We work through local banks. We won't set up a bank of our own bank,’ he said, adding that there would be more loan deals for the local banking sector from the Bank's investment arm, the International Finance Corporation. (…)

"The European Commission said on Friday it had halted aid payments to the Hamas-led Palestinian government because the new cabinet had not recognized Israel's right to exist or renounced violence," Reuters (04/07) reports.

"Palestinian Foreign Minister Mahmoud al-Zahar, whose government took office last week, warned the EU in response that cutting aid would harm its credibility and may lead to boycotts of European interests in the Islamic world. Commission spokeswoman Emma Udwin said, 'For the time being, there are no payments to or through the Palestinian Authority.'

She told a news briefing the EU executive was adopting 'a policy of maximum prudence,' which did not prejudge decisions by foreign ministers of the 25-nation bloc when they meet in Luxembourg Monday. (.)"

The Associated Press (04/07) notes that "Hamas said the decision amounts to collective punishment of Palestinian people. The 25-nation EU is the largest international donor to Palestinian Authority. (.) The decision affects aid coming from the EU general budget, not individual European countries. EU foreign ministers are expected to discuss Monday how European countries should deal with aid in the long-term. (.)"

The BBC (UK, 04/08) notes that the suspension of EU money covers all direct aid to the government and payment of public employees' salaries with EU funds through the World Bank. But it does not affect humanitarian aid sent to non-governmental organizations or to United Nations relief agencies. (.)"

Reuters (04/10) writes that "EU foreign ministers are expected to endorse [the] decision to cut direct aid to the Hamas-led Palestinian government at [the] meeting [in Luxembourg] on Monday, while seeking to limit the effect on ordinary Palestinians. (.) On Monday, EU ministers will discuss what, if any, contacts the European Union should have with Hamas. Decisions still have to be made about aid in the pipeline. (.)"

Earlier, in a special address to participants, President Luis Inacio Lula da Silva also stressed the importance of investing in knowledge and learning. "Education at all levels is the number one priority," he said. He also remarked on Latin America’s realism and newfound self-confidence. "We should not blame American imperialism for our misery or Europe for our poverty," he advised. "Our problems do not lie with other people but with ourselves." He added: "When our region raises its head and negotiates on equal terms with rich countries without arrogance but with humility and perseverance, we will achieve more than when we were just crying out and weeping. We are ready to do that now."

Lula called on Latin American countries to cooperate more, particularly in building the infrastructure it needs to be competitive and to attract investment. "We will be much stronger if we develop together," he concluded.

In the closing session, Moreno argued that Latin America is moving forward. "It’s important to focus on the trend lines, not the headlines. This hemisphere is doing much better. But it is important to continue to talk about how we can close the social gaps." Gerdau agreed. "We cannot afford to come up with economic equations without looking at the social side. Unless we invest in the social side, we will not be politically positioned to tackle economic problems."

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Infrastructure investment to recoup the backlog built up through under-investment in the 80s and 90s; and
Continued attention to the quality of institutions, where Latin American countries today have an advantage relative to some other regions.

Perry noted, on the negative side, a possible return to government based on excessive intervention and insufficient respect for the rule of law. However, on the plus side, he saw good macroeconomic management, respect for a pro-market environment and a determined effort to direct social policies towards the most needy. Increasing equality of opportunity in education and the reduction of poverty can be strong drivers for growth, he said.

Ricardo B. Salinas Pliego, Chairman, Grupo Salinas, Mexico, compared the great opportunities in Latin America and the prospects for a better return on capital with the current less attractive potential of Europe. "When I look at the outlying districts of São Paulo, I see the huge opportunities that exist," he said.

Salinas noted a risk of the high regional inequality leading to populist solutions, but said he saw the inequality as an opportunity. "We don't want to take from the rich to give to the poor to make everybody poor, we want everybody to be prosperous," he said.The importance of governments can be seen by contrasting Mexico and Chile. "It is easier to do business in Chile," he said.

Another area where government can make a difference is in simplifying the fiscal system. "In Latin America these are too complex and costly." The goal, he said, should be for small companies to be able to make a single page tax return. "There are great opportunities in Latin America, but the lack of competitiveness has a lot to do with the quality of governments."

In the same line, Insulza noted that many central banks are today much more independent. "But there is still a trend towards changing rules and regulations. We must learn to respect institutional stability." He noted that there are only two paths to achieving institutional stability. One, via autocratic government, is "fortunately" today ruled out in the region. That means the path must lie through strengthening democracy.

He said he sees a tendency for people in Latin America to harp on about the region's problems, whereas in Asia people tend to talk about their success and ignore the "hundreds of millions of poor".

Perry said Latin American countries in general had been slow to wake up to globalization, the importance of education and the need for macroeconomic stability. However, he said, the region's relatively strong institutions now provide a basis on which to build. "But we need to keep on improving to maintain this advantage."

Salinas noted that the cultural heritage of Latin America was to seek solutions designed abroad - "principally in Washington" - but all countries are different and must decide for themselves what will work or not.

Summing up, session chair Jorge Gerdau Johannpeter, President and Chief Executive Officer, Gerdau, Brazil, said the need for good government was absolutely clear, but so were the "immeasurable business opportunities" in the region. "I am more optimistic now than at the start of this discussion." he said.

"A group of European non-governmental organizations accused the European Union on Monday of inflating figures on how much the 25-nation bloc gives in development aid," reports Agence France Presse.

"(.) The accusation comes after the EU, already a leading donor, agreed to a big jump in official development assistance (ODA) to meet an ambitious UN target by 2015. The study found that, '.EUR 12.5 billion ($15.1 billion), or nearly one third, of reported European ODA in 2005 did not provide any new aid resources for developing countries.' It added that, 'This vast amount of apparent aid spending was in fact money for debt cancellation and for refugees and students costs in donor countries.' However, European Commission spokesman Amadeu Altafaj Tardio hit back arguing that debt cancellation was a form of aid much appreciated by the countries concerned."

Reuters adds that "(.) of the EUR 41 billion ($49.7 billion) the European Commission last month estimated EU countries to have spent on aid in 2005.EUR 10 billion went towards cancelling debt in Iraq and Nigeria, which the NGOs said 'will do little to fight world poverty.' Calling for debt cancellation to be excluded from aid figures they wrote, 'It is largely export credit debt, (which) was issued primarily as a means of subsidizing European companies operating in developing countries and never had any development purpose.'

The Associated Press writes that "(.) [t]he anti-poverty groups, which include Oxfam, ActionAid and CONCORD -- a European non-governmental alliance of 18 networks and 21 national associations -- (.) called for the EU to change their aid reporting rules to show only the spending 'which delivers new resources for poverty reduction in developing countries.' They also called on EU government to ensure they fulfill promises made last year to double their aid to the world's poorest nations by 2015. (.)

EU spokesman Altafaj Tardio said the EU bases its definitions of aid on rules drawn up by the Paris-based Organization for Economic Cooperation and Development (OECD) which strives to help governments achieve sustainable economic growth and publishes detailed economic statistics. Altafaj Tardio added that the EU will soon draft rules to better coordinate national aid programs, which would include addressing the definition of what constituted official aid. (.) Altafaj Tardio defended EU aid practices, saying debt relief was one way shown to be popular by many poor countries to fight poverty. (.)"

The Independent (UK) writes that "(.) [t]he NGOs accused European countries of breaking commitments made at a UN summit in Monterrey, Mexico, in 2002 in which they agreed that 'resources provided for debt relief do not detract from ODA resources intended to be available for developing countries.' (.) EU countries are committed to setting aside 0.39 percent of their gross national income for development by the end of this year with individual nations providing at least 0.33 percent. (.)"

GLOBAL EARLY WARNING CONFERENCE
'Disaster proof' schools to save lives, says U.N.
The UN launches a campaign to reduce the numbers of children crushed to death in earthquakes or washed away in floods.

BIRD FLU
Poor Egyptians refuse to sign up to bird flu cull
Villagers north of Cairo say they know the risks of bird flu and how it can be avoided, but poverty means they refuse to slaughter their fowl.

AFRICAN FOOD CRISIS
Hunger could kill 300,000 children in W.Africa  UN
The U.N. asks for $92 million to help feed over 5 million people at risk of malnutrition in four countries.

CONGO ELECTIONS
Former rebels to end boycott of Congo peace process
Congo's biggest former rebel group says it will end its boycott of the peace process and contest elections in June.

SUDAN CONFLICTS
Arabs pledge to fund African Darfur troops
Arab leaders promise to fund African soldiers in Darfur from October, despite pressure for the U.N. to take over.

GUINEA-BISSAU-SENEGAL BORDER
Bissau army hits mines, halts Senegal rebel attack
Guinea Bissau's army halts an offensive against southern Senegal separatist rebels after landmines kill several troops.

SOMALIA TROUBLES
EU backs Somalia leadership, pledges more aid
The European Commission signs a pact giving political recognition to Somalia's interim government and pledges more aid to the war-weary nation.

SOUTH ASIA QUAKE RECOVERY
FEATURE-Iraqi, Kashmiri Shia Muslims linked by relief work
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PHILIPPINES-MINDANAO CONFLICT
Filipino communist guerrillas vow more offensives
Philippine communist guerrillas vow to step up attacks on government targets.

SRI LANKA CONFLICT
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A suspected Tamil Tiger front threatens to resume attacks on Sri Lanka's military weeks before talks aimed at averting renewed civil war.

WORLD BANK DEBT RELIEF PACKAGE
World Bank approves $37 billion debt write-off
World Bank member nations approve a $37 billion debt relief package for 17 impoverished countries.

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WHO says few pregnant women getting HIV drugs
Nearly 2,000 babies are born with HIV each day because their mothers do not get treatment to stop transmission.

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CHARLES TAYLOR ARREST
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For most of its history, World Bank officials ignored complaints about corruption. That silence ended a decade ago, when the Bank launched a campaign against corruption, writes US News and World Report (03/24).

It was an inspired idea by the Bank's swashbuckling president at the time, James Wolfensohn, who denounced the "cancer of corruption'' and went on to create an internal rackets squad and a sanctions committee to investigate and punish wrongdoers. Wolfensohn left the Bank last year and was replaced by Paul Wolfowitz who quickly picked up the anticorruption torch. In his 10 months at the helm, he has made it clear that those who cheat and steal from the Bank will be caught and punished, both on Bank-funded projects overseas and among its workforce of 26,000 staffers and consultants.

Sub-Saharan Africa, Wolfowitz says, is his primary target. Corruption "is an incredibly crippling factor on countries' efforts to develop,'' Wolfowitz says, diverting valuable resources from those the Bank is trying to help -- the world's desperately poor. In two lengthy interviews, Wolfowitz disclosed that he had ordered a sweeping review of a major African program known as AGETIP (Agency for the Execution of Works in the Public Interest to Combat Unemployment) after US News uncovered evidence showing that the Bank had failed to investigate serious allegations of theft in the program during the late 1990s because Wolfowitz wants to know what went wrong.

Policing the Bank's many complex projects and transactions is proving a Herculean task. Some of the places the Bank invests in are, to put it charitably, unreceptive to outside investigations of waste, fraud, and abuse. In some cases, investigators say, countries are reluctant to allow them to probe allegations of misconduct. In others, countries are not equipped to prosecute criminal referrals from Bank investigators. Judicial corruption is another problem. Unlike a grand jury, the Bank's investigators have no subpoena power, so they can't compel those under investigation to turn over information.

The World Bank does have one big weapon, however -- the power of the purse. Wolfowitz is using it like a club. Because of corruption concerns, he has held up loans to India, Bangladesh, Kenya, and Chad, while making it clear to the Republic of the Congo, in western Africa, that it won't get $2.9 billion in badly needed debt relief unless it first establishes strong anticorruption measures. Wolfowitz is implementing a series of other anticorruption reforms and has appointed a new director of the investigative unit, an ethics lawyer named Suzanne Rich Folsom.

Like Wolfensohn before him, however, Wolfowitz faces an uphill fight. Some big borrowers are not strong supporters of his anti-graft schemes, and could go else where. Whatever the flaws of its anticorruption program, the World Bank was the first multilateral development institution to establish such an operation.

Since Wolfowitz moved into the president's office at the World Bank, he has taken on some tough customers, in the interviews with US News, Wolfowitz said he would not cave to pressure. He must, he says, "resist the pressure to go ahead with things before the problems have been worked out."

Looking back on his first year at the Bank, Wolfowitz says he sees sure signs of progress in the fight against corruption, especially in Africa. "More and more Africans at all levels,'' he says, "are stepping up to the reality that corruption is a disease that's holding them back.'' More broadly, to critics who complain that he is obsessed with an anti-corruption agenda, Wolfowitz says there is a bottom line to what he is doing, "This is about making sure that the Bank's resources go to the poor and don't end up in the wrong pockets. It is about fighting poverty.''

To download free copies of the working papers that have just been posted, click here: http://www.cigionline.org/publica