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Statement by President Lennart Båge at the World Agricultural Forum: Investing in Agriculture and Rural Development as Keys to the Global Economy (18-20 May, St. Louis, Missouri, USA)

Location: St. Louis, Missouri, USA

17 May 2003

Transforming Institutions to enable poor rural people to overcome their poverty

Ladies and Gentlemen,

At the Millennium Summit three years ago, world leaders committed to halving, by 2015, the proportion of people living in extreme poverty. The so-called Millennium Development Goals are now the internationally recognised and legitimate framework for action.

The Zedillo Report to the Monterrey Conference and the World Bank have provided just two of the more authoritative estimates of the resources necessary to achieve the Millennium Development Goals. These estimates put the total ODA requirement at over USD 100 billion. This means an additional USD 50 million a year is necessary – a doubling of the level of aid we are providing today.

The 2002 Monterrey consensus reaffirmed this need for more resources. It also signalled a reversal of declining ODA trends, within a broader development finance framework that mobilises domestic resources, foreign direct investment, debt relief and trade.

With the commitments made at Monterrey, ODA is expected to increase by USD 16 billion in real terms by 2006, to a level of about USD 68 billion. This will bring ODA to the level of 0.26% of OECD GDP, only. In 2002, ODA already showed an increase by 4.8% to USD 57 billion.

Better ODA

The Monterrey Consensus has a second and equally compelling dimension: the need to do better. The estimates of resource requirements stress that more ODA resources alone will not guarantee achieving the Millennium Development Goals. We also need to use resources more effectively.

The first way that we can more effectively use ODA is to ensure that current and future ODA investment is more targeted towards poverty reduction. Of the 1.2 billion poor, 75%, some 900 million, live in rural areas depending on agriculture and related activities for their livelihoods. So, if we are to reach the Millennium Development Goals, we must make an impact on rural poverty. And in most poor countries, agriculture is the main economic sector; the largest employer and job creator; and the biggest export earner. We also know from our own history of the 19th century – if we come from Europe or the US – or from the 20th century if we come from Japan or the miracle economies in South East Asia, or China in the last 20 years – that reforms in the agricultural sector have been the foundation for overall economic development and poverty reduction. It has been the often-dramatic progress in agriculture translated into productivity increases that has generated increased production, incomes, savings, investments and demand for goods and services to create the virtuous circle of development. This is particularly important for the poor, institutionally weak developing countries, where broad-based agricultural development brings welfare gains and equity to large sections of the population – in a way that single-source commodities such as oil or diamonds rarely achieve.

Every dollar of increase in agricultural production generates more than two dollars for the national economy according to the most recent studies, and every one percent rise in agricultural productivity cuts poverty by six-tenths of one percent. Despite the obvious relevance to overall development and poverty reduction of investments in rural and agricultural development, the share of overseas development assistance that goes to agriculture and the rural sector is steadily falling, not rising. In fact, it has declined by nearly half since 1988. Today only 8% of developing countries' total overseas development assistance goes to agriculture. This has to change if we are to reach the MDG of halving world poverty by 2015.

For us to meet these needs, we need to argue for greater attention by developing country governments for centrality of agriculture for national development. The OECD-countries have to reverse the declining trend in ODA funding for agriculture. We are now starting to see examples of this. Canada has just announced a plan to increase five-fold its spending on agricultural development in developing countries. USAID is also reversing the declining trend. European countries are revising their policies. The G-8 is taking an interest. It is a good beginning. More must follow.

The second way to use ODA more effectively is to rethink our approaches to rural development.

The World Bank rightly stresses the importance of sound macro-economic and pro-poor social policies and institutions. But, in IFAD's experience, that is not enough. While countries have focused on macro-economic and sectoral policy reforms that secure stability and growth, with the support of the Bretton Woods institutions, there is ample need and scope for improving micro-economic institutions for poverty reduction.

As you have been discussing in the past two days, key factors for rural development are:

  • Firstly, secure access to assets, in particular to land and water. Smallholders often just have customary rights to land and no irrigation and thus depend on erratic rainfall. Water is a rapidly growing problem.
  • Secondly, markets to buy and sell. We need to go beyond subsistence farming and make it possible for the poor to have greater access to markets.
  • Thirdly, access to finance, access to opportunities to save and borrow and not be at the mercy of village moneylenders. Micro-finance is one successful approach.
  • Fourthly, access to technology and research that responds to their problems.
  • Fifthly, access to accountable and non-corrupt institutions. The poor need effective political representation, more bargaining power and the organizations that represent their interests. Institutions and organizations, for, of, and by the poor.

Individually, the rural poor cannot get their voices heard to change these rules. And in the limited cases where organizations of the poor exist, their power needs to be strengthened.

Clearly, socio-economic, political, legislative and judiciary institutions matter, considerably, at the national and at the decentralized level.

Effective rural poverty reduction therefore depends on the transformation of asymmetric rules and ineffective organizations towards systems that enhance both fairness and the inclusion of small producers, not least women.

IFAD's mission is to enable rural poor people to overcome poverty, themselves, by strengthening the capacity of the rural poor and their organizations to influence institutions that determine their livelihoods.

Empowerment will enable poor rural people to overcome poverty. This constitutes a change in the approach to development assistance, a paradigm shift in which the poor become citizens and the principal participants, or, put differently, the subjects in the process and not just the objects of others' charity.

The effectiveness with which resources, including ODA, will be translated into poverty reduction will depend on the success in developing these kinds of institutional frameworks at the country and local level.

Development cooperation must ensure that investment in institutional capacity building creates room for the voice of the poor and, more radically, empowers them to influence institutions that affect their livelihoods or, put differently, a genuine democratisation.

But that is also calling for a transformation of ODA institutions in terms of both rules and organization.

The rules that govern ODA are being adapted to fit the new paradigm. The basic elements of the new rules consist of setting measurable goals, developing strategies to meet them and being oriented toward results.

The goals of ODA today are largely captured by the Millennium Development Goals. For the first time in ODA history there is a broad consensus on the goals that drive development strategies and policies. We must build on this.

This unity of goals creates the opportunity for unity in strategy. The Poverty Reduction Strategy Papers are evolving as a leading framework for ODA action. This puts developing countries, their governments and their people at the centre of strategy development, resource prioritisation and strategy implementation.

Democratisation, decentralisation and participation are evolving as standards for development planning processes. Donor harmonisation to achieve reduced ODA transaction costs is an important contribution.

ODA resources in support of such strategies increasingly focus on results, not only in terms of the number of people that overcome poverty, but also in terms of institutional or policy change at the country level.

The International Financial Institutions are in the process of adopting systems of performance-based allocations.

Projects, if properly designed, as well as programme aid and sector support can offer a platform for policy dialogue, institutional transformation and improvements in the "performance".

The changing rules of the game need to be matched by organizational change.

ODA organizations, multilaterals and bilaterals need to play their roles in ways that complement and leverage FDI, remittances which at USD 100 billion a year are twice as big as ODA, and trade for poverty reduction.

Strategic complementarity means that we change the internal features of our ODA organizations. ODA partnership means defining joint ODA strategies, bringing together various forms of cofinancing, sharing experience and learning lessons together to allow the scaling up of successful innovations.

We simply must do our business differently. This means changing our operating and reporting systems, as well as our organizational and budget structures.

ODA organizations also need to improve the quality of their presence where the action for change is happening – in the countries themselves. The need to develop in-country presence and to work more closely with the poor, their organizations and their governments at the local level, is a prerequisite for successful enforcement of the emerging ODA rules.

In an increasingly globalized, interdependent and open world economic environment, the livelihoods of poor rural people are increasingly affected by rules and actors that are outside local and national spheres of influence. To create environments in which rural poverty can be overcome, rural poor people and their governments must have a say in defining such institutions and their governance.

From this perspective, it is a cause of concern that WTO members were unable to meet the March 2003 deadline for agreeing on modalities for reductions in support and protection in agriculture, which is so vital for the world's poorest people. This compromises the momentum required to secure the success of the September Cancun meeting.

More and more donor countries acknowledge that while ODA is important, it is the full effect of all policies and resource flows on poverty that counts. My own country, Sweden, has just put a bill to parliament on Sweden's Policy for Global Development that tries to establish a broad framework of policies in trade, environment, agriculture, migration and development cooperation in which ODA is only one component.

It is interesting to note that the Centre for Global Development recently launched a Commitment to Development Index that ranks OECD countries on the basis of their commitment to a combination of aid, trade, environment, investment, migration and peace-keeping, and the coherence of that commitment. This first attempt to measure coherence in OECD-policies, has many flaws, but it is an important step that will help us focus on the total resources for development in an integrated, and hopefully more coherent and pro-poor, manner.

But, the poor do need effective institutions that provide broader equity and rule of law in the global world. The global nature of the economy is not matched by global institutions. The UN family is providing an institutional framework for global security and equity for the small and poor countries. It is, however, unfortunate that, at the time we most need them, such existing global institutions are under stress. Development actors need to join hands to establish pro-poor rules at the global level. And the global organizational architecture needs to accommodate the voices of the rural poor and their representative governments.

Conclusion

In conclusion, if we are to reach the Millennium Development Goals by 2015, we need to increase development finance efficiency. We need to do more, with more resources of all types, including ODA. ODA is being augmented by debt relief, and is increasingly complemented by FDI and remittances. The potential benefits of freer trade are significant.

We need to do better, to create institutions with more influence driven by the poor themselves as citizens, participants and producers.

Giving voice to the poor and power to their organizations will help ensure that resources lead to growth that sustains poverty reduction.

But there are also institutions beyond the country level that affect their lives, and over which their influence is limited. Empowerment of the poor and their governments to influence the rules of access and the organizations that govern ODA, FDI, remittances and trade to encourage a greater focus on poverty must be a priority.

The transformation of ODA institutions is quietly pursuing its course. We need to accelerate it and work in the context of the broadest possible partnership.