Statement by Andrei Bugrov at the meeting of June 8, 1999

International Bank for Reconstruction and Development International Development Association International Finance Corporation 87349 Multilateral Investment Guarantee Agency FOR OFFICIAL USE ONLY CONFIDENTIAL EDS99-187 June 7, 1999 05:27:46PM Statement by Andrei Bugrov Date of Meeting: June 8, 1999 Mexico - Country Assistance Strategy At the very outset let me say that I was extremely impressed by the quality of the proposed CAS for Mexico. This is a well-thought through and well-argued strategy, which in the main I can certainly support. In many ways it is also an indication of the new approaches which the Bank is taking, and that is something that we as the Board should note. Let me comment on the key features of this document as I see them, and on the broader issues that they raise. Although Mexico is not one of the CDF pilots, the comprehensive framework approach is clearly discernible. The recommendations for Bank Group assistance are based on the intimate knowledge of the country's political and economic realities-- which I am sure would not have been possible without the recent decentralization of Bank's operation and the extensive use of local expertise. I particularly welcome the attention and consideration given to the country's political constraints. There is a clear understanding that any conditionality should not only be economically sound but also politically feasible, and in my view this is the only constructive way in which the Bank may promote sustainable policy reform. Indeed, I hope that this will become a staple feature of all country strategies, for as we know from aid effectiveness studies as well as from practical experience, posing unattainable conditions leads to frustration, policy reversals and loss of country ownership. I am happy to note that in the case of Mexico, the Government is firmly in the driver's seat and the Bank is poised to support the country's own development agenda. ; Tills document has a restricted distribution and may be used by recipients only in the ·.~~rforrnance of their official duties. Its contents mav not otherv.-ise be disclosed without \\.orld Bank authorizJ.tion. -  The proposed comprehensive approach -- the Strategy spans a wide spectrum of development goals, from social programs to rural development to promoting effective governance -- is a direct reflection of the underlying complexity of Mexico's economic challenges. However because (as the document acknowledges) the Bank's resources are both limited and have a high opportunity cost, the question of selectivity is inescapable. The authors of the document tackle the issue very directly, at the outset putting forward a strict set of criteria for Bank support. I believe these criteria -- marginal impact on poverty reduction, the client's expressed needs and the Bank's comparative advantage-- to be eminently sensible and applicable to country strategies more broadly. In general the CAS document follows these criteria when setting out the assistance framework, but the issue of the Bank's comparative advantage in my view requires more elaboration. It is true that as an institution we can develop a comparative advantage in almost any area. In the past we have proved this by rapidly accumulating impressive expertise in areas such as environmental protection. There remains however a danger that we might spread ourselves too thin, thus undermining the quality of service we provide, inflating the cost, or both. It may well be the case that all of the areas covered in Mexico's CAS should indeed be the Bank's areas of concentration. Nevertheless I think we would do well to consider what kind of an institution we should be in the future, what role should we play in the emerging new financial architecture, but of course this is a topic for a separate discussion. Perhaps the most important challenge still facing Mexico is the issue of poverty. Fittingly, it stands at the center of both the Government's program of development and the Bank's assistance strategy. I welcome the multi-faceted approach to tackling this formidable challenge which includes direct support for the most vulnerable groups via cash transfers. empowering the poor by improving their access to better quality of health and education services, and promoting the earning opportunities in depressed regions via private sector development strategy. At the same time I would like to learn more about the recent progress in combating poverty, particularly as regards to the pockets of extreme rural poverty. Apart from the simple humanitarian concern, this issue is at the heart of the social sustainability of continued economic growth in Mexico. In the last CAS Progress Report the lack of progress in financial sector restructuring was named among the main impediments to successful long term development of the country. This CAS points out some encouraging improvements, but leaves the reader with the feeling that the situation remains precarious. Since the Bank's involvement in Mexican financial sector reform is among this institution's largest operations I wonder whether a detailed study of experience -both the reform and the Bank's role in its formulation and implementation- is taking place. In particular, I wonder whether these lessons were incorporated into the Financial Sector Strategy Paper currently under discussion. More generally, I would like to point out the excellent link made in the Mexico CAS document between the country strategy and the World Bank Group overall sector strategies. This example clearly demonstrates how these two types of strategies can be brought together and guide the operations of this institution in a meaningful multi-dimensional way.  . Another thing that I found attractive in the proposed CAS is the flexibility of the program and the relative ease with which it may be adapted to various changes in circumstances, both internal and external. I welcome and support this approach. As a practical matter I would only like to know the limits of this flexibility, in other words, what changes in the envisaged program would prompt the Board's involvement? Related to that-- as well as to the prior point about the Bank's place in the new financial architecture-- is the question of emergency lending. The document cites an OED report (Box 3) which found the previous emergency operation unsatisfactory, yet further emergency operations are considered possible (see e.g. para. 82). Obviously by its very nature emergency assistance cannot be planned ahead, but some guiding principles and criteria for such assistance can and should be articulated in advance. Again, this is clearly a subject for a separate debate. Finally, I was struck by the absence of MIGA operations in WBG portfolio in Mexico. I am sure there is a simple explanation but I would be grateful to hear what it is. In conclusion, let me note that many of the challenges which Mexico is now facing, as well as the ways of responding to these challenges hold invaluable lessons for countries in Latin America region and beyond. I wish the Mexican authorities every success in implementing this ambitious and far-reaching program, and I am sure we shall all be able learn from their progress.