Interview with the President of the United Nations International Fund for Agricultural Development (IFAD), Lennart Båge

Introduction: First, I would like to offer belated congratulations on the 25th anniversary of the founding of IFAD (International Fund for Agricultural Development) in Rome . The organization, which currently has 163 members, is a specialized agency of the United Nations, dedicated to eradicating poverty and hunger in developing countries. Through low-interest loans and grants, IFAD develops and finances programmes and projects that enable rural poor people to overcome their poverty. Since 1978, IFAD has invested about USD 8.1 billion in 653 projects and programmes in 115 countries and territories.

Let us look back to the beginning of your term of office in this organization.

Q: One of your first official duties as president of IFAD was a visit to Berlin in May 2001, when you and the German Federal Minister for Economic Cooperation and Development, Heidemarie Wieczorek-Zuel, presented the Rural Poverty Report 2001. What is your opinion of Germany ’s cooperation with IFAD and its commitment to your organization?

 A: Germany is a valued supporter and partner of IFAD, showing consistent support for our mandate to reduce poverty in rural areas. Over the years, Germany has been an active board member and a major contributor to IFAD replenishments, supplementary funds and cofinancing. Germany has pledged USD 40 million to IFAD’s Sixth Replenishment for the period 2004-2006. I look forward to continuing our successful partnership with Germany.

Q: As an international financial institution, IFAD provides financing and mobilizes additional resources for programmes and projects that enable rural poor people to overcome poverty. Who decides which projects are eligible to receive financing? Are rural poor people themselves consulted?

A: At IFAD, we go through a rigorous process of consultation with many partners, including governments, donors, non-governmental organizations and rural poor people themselves before projects are developed and approved for financing. IFAD prepares Country Strategic Opportunities Papers (COSOPs) for countries intending to borrow funds to finance poverty eradication projects and programmes.

A COSOP establishes strategies for IFAD operations in a country for a period of five to six years. Among other things, it considers the country’s Poverty Reduction Strategy Paper, IFAD corporate and regional strategies, country policy and institutional framework for rural poverty eradication, institutional transformations required to ensure the effectiveness of IFAD support, ways of building and strengthening partnerships, and allocation of regional lending shares to specific country programmes. Most importantly, local people’s needs are considered.

In the paper, we review the country’s rural poverty situation and summarize lessons IFAD has learned from previous operations there. Project proposals are then developed on the basis of the COSOPs, once again in consultation with the requesting government, making sure the project is technically and financially sound and in harmony with the country’s development strategy. What ultimately drives project design, however, is the idea that a project must have a catalytic effect, empowering rural poor people to improve their lives beyond the length of the project. One of IFAD’s priorities is to assist rural poor people to develop and strengthen their own organizations, so they can advance their own interests and dismantle the obstacles that prevent so many, especially women, from creating a better life for themselves. In this way, they are able to participate more fully in determining and directing their own development.

Once the project proposal has been finalized, there are negotiations between IFAD and the borrowing government. Finally, the project proposal is submitted for the approval of IFAD’s Executive Board. On approval, IFAD and the borrowing government sign a financing agreement.

Q: IFAD’s financial resources come primarily from replenishments by Member States every three years, based on consultation between their representatives and IFAD management. IFAD receives additional income by investing part of these contributions and from interest on its loans. Is the financial power of IFAD still sufficient in times of low public budgets and increasing demands?

A: Most of IFAD’s resources are provided to low-income countries on highly concessional terms, at 0 per cent interest and a service charge of 0.75 per cent and repayable over 40 years. We have about USD 450 million at our disposal annually. For example, in 2003 IFAD provided about USD 403 million to finance 25 new projects and programmes, plus about USD 20 million in grants.

But these figures represent only part of the total investment in IFAD projects and programmes. In the past 25 years, a further USD 14.8 billion in cofinancing was contributed by partners, including governments, bilateral and multilateral donors, and non-governmental organizations. This means that for every dollar we invested, we were able to mobilize almost two dollars in additional resources.

Your question regarding the adequacy of IFAD’s financial power is important and it raises a number of issues. More than 1.2 billion people live in extreme poverty. That’s one in every five people. And solving a problem as big and as difficult as poverty demands international alliances. Today, the Millennium Development Goals are a guiding light for international cooperation for development. Our particular focus at IFAD is to contribute to achieving the target to halve the proportion of hungry and extremely poor people by 2015. Given that poverty is predominantly rural – about three quarters of the world’s poor live in rural areas and depend on agriculture for their livelihoods – at IFAD we believe that this target can’t be met unless the world addresses rural poverty.

Yet the share of official development assistance for agriculture and the rural sector has fallen steadily since 1988. Today, only about 8 per cent of bilateral official development assistance goes to rural development. This situation must be reversed, and fortunately, there are clear indications that both developing countries and donor countries are recognizing the importance of rural and agricultural development in the fight to end hunger and poverty.

Both the Millennium Development Goals and this growing recognition of the centrality of rural and agricultural development provide the context for IFAD to intensify its commitment to poverty eradication. Our efforts in recent years to strengthen our strategic approach and streamline our work processes provide us with the opportunity to do just that. However, we also need the resources to intensify our efforts. Member states, including Germany , reaffirmed the value they place on IFAD’s work by significantly raising their contributions in the recently completed Sixth Replenishment. Germany raised its contribution by 25 per cent to USD 40 million. Negotiations for IFAD’s Seventh Replenishment will start in 2005 and I hope that we will be able not only to consolidate these gains, but also to achieve a further increase in total contributions.

Q: How does IFAD ensure that the funds it provides in the form of loans and grants are not misused?

All funds paid out by IFAD in the form of loans and grants are rigorously monitored and supervised. We have procurement guidelines, which require borrowers and recipients to spend funds only on agreed-upon goods, works and consultant services. Anything purchased with loan or grants funds must be used for the specific purposes outlined in the financing agreement. Recipients must account for all funds received, and make documentation available for audit, as well as for review by members of IFAD teams. Members of these teams may include IFAD staff, consultants or representatives of cooperating institutions used by IFAD for project supervision. If funds are not properly accounted for, then they must be refunded to IFAD.

IFAD’s operations are audited annually by external auditors, and we have recently strengthened our auditing procedures to ensure that funds are accounted for in a timely manner.

Q: Germany , a founding member, is one of the largest bilateral cofinanciers of the Fund. Germany’s total pledged contribution to IFAD’s regular resources is more than USD 282.5 million, or 6.3 per cent of the total replenishment funds. How does Germany use its power and commitment in your organization?

Germany is the third largest contributor to IFAD among OECD countries and the fourth largest overall. Germany holds 3.4 per cent of the total voting power among IFAD’s member states. It is also a major confinancier, having contributed more than USD 171 million for 23 IFAD-supported projects.

Germany also shares with IFAD many priority areas for action. For example, in 2002, Germany agreed to provide USD 4.4 million in supplementary funds over three years to mitigate the impact of HIV/AIDS on rural people in East and Southern Africa , and to support community-driven gender initiatives in Central and Eastern Europe .

In a significant sign of commitment, Germany was the first G7 member to earmark for IFAD almost USD 7 million of its contribution to the World Bank’s Debt Initiative for Heavily Indebted Poor Countries (HIPC DI) Trust Fund. The Initiative aims to reduce the external debt of the world's poorest, most heavily indebted countries. Germany ’s decision to earmark these additional resources will help to reduce the impact of IFAD’s participation in the Initiative on its resources for funding new loans and grants.

Q: IFAD places a strong emphasis on ensuring that rural poor people have access to financial services, called microfinance. What is microfinance, and how does IFAD help rural poor people get access to it?

A: Microfinance is one very important way of fighting poverty in rural areas. A modest loan of even a few hundred dollars can help a poor family buy livestock or start up a new business – and mean the difference between destitution and a productive life. But credit is only one aspect of the range of financial services poor people need to help them improve their lives. As microfinance has evolved, we have come to realize that poor people also need access to savings services, basic insurance options and affordable remittance systems. The need for savings services is especially striking. We have discovered that very poor people often place more value on access to safe and flexible saving services than on credit.

About 75 per cent of IFAD’s projects provide rural financial services. We work with a wide range of institutions – cooperative banks, financial service associations, rural banks, credit and savings associations, self-help groups, and commercial banks – to develop financial systems that will meet the needs of rural poor people.

Q: Lack of access to land and other resources is closely linked with rural poverty and environmental degradation. What is IFAD doing to address this?

A: IFAD supports farmers’ efforts to secure rights to farm their lands, and to formalize traditional rights to forests, rangeland and other natural resources. We host the International Land Coalition, a unique global alliance of intergovernmental, governmental and civil society organizations that works with the rural poor to increase their access to natural resources, especially land. In fact, land reform is such a critical component of our fight against poverty that IFAD is supporting the use of debt-for-development funds for countries that institute reforms.

Still, few developing countries have been able to establish effective land reform. In some cases, political and economic obstacles have been to blame. But most of the time, land reform efforts have failed because government and civil society have not been able to work together.

Rural people need secure access to land – but I must stress that, on its own, this is not enough to enable them to overcome poverty. They must also be able to share in other wealth-building assets, such as access to water and other natural resources, financial services, technology and markets. They must also be able to have a say in the decisions and policies that affect their lives.

Q: It is now widely recognized that agricultural export subsidies and trade barriers are working against farmers in developing countries. Is IFAD’s work also affected by such protectionist policies?

A: Yes, IFAD is well aware that the livelihoods of rural poor people in developing countries are affected by the international trade agreements and trade policies of developed countries. The effects of protectionist practices and export subsidies for agricultural products in industrial countries are particularly damaging. In most poor countries, agriculture is the largest employer and job creator, and agricultural exports are usually the largest proportion of their total exports.

For example, cotton farmers in Western and Central Africa lost USD 301 million in 2001 because they could not compete in world markets against cotton producers in the United States , who received USD 3.4 billion in subsidies. Small farmers are hardest hit when these subsidies encourage overproduction and drive down world prices, even though they can produce cotton at one fourth of the cost to their United States counterparts.

A 25 per cent increase in cotton prices, which corresponds roughly to the effect of eliminating United States cotton subsidies, would lift 250 000 people out of poverty in Benin alone.

Industrialized countries’ export subsidies also lead to distortions in the domestic markets of developing countries and create difficulties for local producers. In the Dominican Republic , for example, European Union export subsidies for skimmed milk powder have forced more than 20 000 poor farmers out of the dairy industry. EU milk powder costs 25 per cent less than local fresh milk.

Higher productivity was once a tool for poverty reduction, but today it can be a liability for farmers who do not have access to efficient markets. This is certainly posing a challenge for IFAD in its work. We must work to ensure that farmers have access to markets, and also that there is a level playing field for trade: this is a crucial step the international community can take to fight poverty.

That’s why the latest round of the World Trade Organization’s negotiations on trade, known as the Doha Development Round, is so important. Indeed, the discussions broke down in Cancun , Mexico , last year precisely over agricultural trade issues. However, there is a broad recognition of the linkages between trade regimes and poverty reduction and development, and that is reflected in the fact that the Doha trade negotiations are seen as a development round.

Q: You mention the Doha Development Round of trade negotiations. The German government is pleading to continue with the WTO Ministerial Conference as soon as possible. What is your view on the negotiations?

A: The collapse of the ministerial meeting in Cancun was a setback, but now the Doha Round must be brought back on track. The Doha Development Agenda focuses specifically on the relationship between international markets and rural poverty and provides a groundbreaking framework for a multilateral trading system.

The international community needs to recognize that free and fair trade can play a pivotal role in improving the lives of millions of people in developing countries. In 2001, developed countries spent more than USD 300 billion on agricultural subsidies – six times more than they allocated to development aid. Doha set some high expectations, and as we discovered in Cancun , meeting those expectations will not be easy. But, as I have already said, the international community must ensure there is a level playing field for trade if we are going to fight poverty.

f course, trade liberalization is not a panacea. Opening markets is only part of the solution. A paper on trade and rural development prepared by IFAD for discussion during its recent Twenty Seventh Governing Council, highlighted, for example, the critical importance of the private sector to poor farmers. Rural poor people need to be able to become more competitive by adding value to their products. Another important issue raised in the paper is the need for developing countries to look beyond the markets of industrialized countries and develop national and regional markets.

In addition, poor farmers cannot take advantage of trade opportunities and improve their incomes without access to capital, land, water, infrastructure, relevant technologies and other assets. They also need training and market information. But most of all, rural poor people need to be able to organize themselves in a way that can influence trade policies and conditions. The challenge ahead of us is not just changing global trade regulations; it’s finding ways to empower the rural poor so that they can take advantage of the benefits of globalization.

Q: How have strategies to address poverty in rural areas changed over the years – especially given the impact of globalization?

A: Twenty-five years ago, when IFAD was first created, our work was driven by the looming global food deficit and we were financing projects specifically designed to improve food production in the developing world. Today, there is globally an abundance of food – in fact, some OECD countries pay their farmers not to produce more food. Still, more than 800 million people are starving and 1.2 billion people live in extreme poverty – the vast majority in rural areas of developing countries.

Clearly, rural poverty is presenting a new set of challenges for development organizations like IFAD. We must fight poverty with new opportunities for a better life – on the basis of human dignity and equity. At IFAD, we have reoriented our strategies to ensure that rural poor people have the necessary assets to overcome poverty themselves. As I mentioned earlier, they need secure access to resources, especially land, water and technology. Rural poor people also need efficient and equitable access to markets in order to move beyond subsistence farming. Financial services are increasingly important for poverty reduction; they not only give rural poor people the opportunity to save and borrow money but also contribute to their empowerment. And rural poor people must have strong organizations and real political representation to ensure that their needs and interests are being met.

These strategies are particularly important given today’s globalized, interdependent economy. As we have seen with the impact of international trade agreements and trade policies on developing countries, the lives and incomes of rural poor people are increasingly affected by policies and actors outside their local and national spheres of influence. This is why we need to have global consensus about the tasks ahead of us. The Millennium Development Goals are an important first step. But we need to increase funding for rural development and agriculture and improve the efficiency of such financing if we are going to reduce extreme hunger and poverty by half by 2015.

Q/response: Thank you very much, Mr. President