REPORT OF IFAD FIRST CONSULTATION ON THE SIXTH

UNCLAS SECTION 01 OF 02 ROME 001442

SIPDIS

TREASURY FOR WSCHUERCH, MJASKOWIAK
USDA FOR FAS/LYNN REICH AND DAVID WINKELMAN
STATE FOR IO/EDA ROSE BERSTEIN
USAID FOR AA/PPC;DAA/G/EGAD;AFS

FROM FODAG

E.O. 12958: N/A
TAGS: AORC EAID IFAD EAID AORC IFAD
SUBJECT: REPORT OF IFAD FIRST CONSULTATION ON THE SIXTH
REPLENISHMENT


UNCLASSIFIED

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REF: 01 ROME 06528


1. SUMMARY: THE FIRST CONSULTATION ON THE SIXTH
REPLENISHMENT MET FEBRUARY 21. WHILE PARTICIPANTS DEVOTED
MOST OF THEIR COMMENTS AND QUESTIONS TO THE TERMS OF
REFERENCE OF THE RECENTLY PROPOSED REVIEW OF IFAD'S
IMPACT, A SIZEABLE NUMBER OF MEMBERS CONTINUED TO EXPRESS
CONCERN AT IFAD'S INVESTMENT POLICY AND THE LOSSES THAT
HAD BEEN INCURRED AND AT THE COSTS TO IFAD OF DEBT
FORGIVENESS (HIPC) AND HIPC'S RELATION TO THE UPCOMING
REPLENISHMENT. MEMBERS AGREED TO MEET IN THREE MORE
SESSIONS OF CONSULTATIONS WITH A VIEW TO CONCLUDING THE
SIXTH REPLENISHMENT NEGOTIATIONS BY THE END OF THE YEAR.
END SUMMARY

FIRST CONSULTATION ON IFAD'S SIXTH REPLENISHMENT
-------------- --


2. THE FIRST CONSULTATION ON IFAD'S SIXTH REPLENISHMENT
MET FEBRUARY 21, 2002. PRESIDENT BAGE KICKED OFF THE
SESSION BY STATING THAT IFAD HAS THE "PROVEN CAPACITY" TO
DO ABOUT USD 450 MILLION IN LENDING ANNUALLY, BUT THAT
THE LENDING LEVEL COULD BE RAISED. HE ENCOURAGED DONORS
TO USE "PROVEN INTRUMENTS" SUCH AS IFAD IN WORKING TO
REACH THE MILLENIUM SUMMIT GOALS. THE GROUP AGREED TO THE
PROPOSED DATES (APRIL 18-19, JULY 2-3 AND OCTOBER 9-10)
FOR THE SECOND, THIRD AND FOURTH CONSULTATIONS AND THE
PROPOSED WORKPLAN. PARTICIPANTS DISCUSSED THE EXTERNAL
REVIEW OF THE RESULTS AND IMPACT OF IFAD OPERATIONS
(REQUESTED BY LIST A (OECD COUNTRIES) AT THE BEHEST OF
THE U.K.); THE SECRETARIAT-DRAFTED INDICATIVE OUTLINE OF
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THE CONSULTATION'S FINAL REPORT AND RESOURCE SCENARIOS
FOR THE SIXTH REPLENISHMENT FRAMEWORK. DISCUSSION
FOCUSSED ON THE FOLLOWING TOPICS:

THE EXTERNAL REVIEW
--------------

3. DISCUSSION OF THE PROPOSED EXTERNAL REVIEW CONSUMED
MOST OF THE DISCUSSION -- BOTH IN THE LIST A MEETING
PRIOR TO THE CONSULTATION, AND DURING THE CONSULTATION
ITSELF. WHILE THERE WAS LITTLE DISAGREEMENT BETWEEN
DONORS AND RECIPIENTS ON THE PRINCIPLE OF NEEDING REGULAR
EVALUATIONS OF IFAD'S IMPACT AND THE UTILITY OF SUCH A
REPORT, QUESTIONS AROSE PRIMARILY IN THE CONTEXT OF THE
SHORT TIME FRAME OF THE REVIEW, ITS CONNECTION TO THE
CONSULTATIONS, AND THE EXACT ROLE OF FIELD VISITS (THE
REVIEW IS PRIMARILY A REVIEW OF EVALUATIONS CONDUCTED TO
DATE, WITH SOME FIELD VISITS TACKED ON.)


4. IN A LIST A MEETING PRIOR TO THE OPENING OF THE
SESSION, FINLAND AND THE U.K. STRESSED THAT ANY REVIEW
SHOULD IDENTIFY -- NOT WHETHER IFAD PROJECTS WERE
SUCCESSFUL SINCE THE MOVE TO "SECTOR AND BUDGET SUPPORT
MADE PROJECT EVALUATION DIFFICULT" -- BUT WHETHER IFAD
HAD MANAGED TO ADVOCATE THE NEEDS OF THE RURAL POOR
WITHIN THE WORLD BANK PRSP PROCESS. USDEL RESPONDED THAT,
ON THE CONTRARY, UNDERSTANDING PROJECT IMPACT AND
OUTCOMES WERE ESSENTIAL.


5. DURING THE CONSULTATION SESSION ITSELF, MOST LIST C
(DEVELOPING COUNTRIES) PARTICIPANTS WERE CONCERNED WITH
THE CRITERIA FOR SELECTING THE COUNTRIES FOR THE FIELD
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PAGE 04 ROME 01442 01 OF 02 211425Z
VISIT AND THE LEVEL OF PARTICIPATION OF THE COUNTRY
CONCERNED. ONLY INDIA PROBED THE TACTICAL REASONS FOR
THE PROPOSED REVIEW AND EMPHASIZED THAT THERE SHOULD BE
NO LINKAGE BETWEEN THE CONCLUSIONS AND THE REPLENISHMENT
AT HAND (THE NETHERLANDS RESPONDED THAT MEMBERS WOULD
DRAW THEIR OWN CONCLUSIONS FROM THE REVIEW.) USDEL STATED
THAT THE REVIEW WAS A COMPROMISE BETWEEN TIME AND SCOPE
AND THAT IT WAS LITTLE MORE THAN A REVIEW OF OTHERS'
WORK.

PRELIMINARY VIEWS ON THE DESIRED LEVEL FOR THE NEXT
REPLENISHMENT
-------------- --------------

6. SAUDI ARABIA STATED THAT HIS COUNTRY WOULD
CONTRIBUTE TO THE SIXTH REPLENISHMENT, AND WAS WILLING TO
LOOK AT ALL POSSIBLE LEVELS FOR FUNDING THE REPLENISHMENT
TO REACH A LEVEL "WHICH IS CONSIDERED ADEQUATE." THE
NETHERLANDS, SPEAKING FOR LIST A, EXPRESSED HIS GROUP'S
WISH TO START AND CONCLUDE THE CONSULTATIONS AS SCHEDULED
AND TO MAKE THEM "AS SUCCESSFUL AS POSSIBLE." PAKISTAN
STATED THAT IFAD MUST HAVE CONSISTENT, STABLE AND
CREDIBLE LENDING LEVEL: THIS WAS AT LEAST USD 450

UNCLASSIFIED

UNCLASSIFIED PTQ2619

PAGE 01 ROME 01442 02 OF 02 211425Z
ACTION IO-00

INFO LOG-00 NP-00 AID-00 AMAD-00 CIAE-00 COME-00 CTME-00
DODE-00 ITCE-00 SRPP-00 EB-00 EXME-00 EUR-00 UTED-00
TEDE-00 INR-00 ITC-01 NSAE-00 OES-01 OIC-02 OMB-01
OPIC-01 SS-00 STR-00 TEST-00 SAS-00 /006W
-------------- 788A83 211724Z /38
R 211341Z MAR 02
FM AMEMBASSY ROME
TO SECSTATE WASHDC 2864
USMISSION USUN NEW YORK
USMISSION GENEVA
INFO USDA FAS WASHDC 2063
DEPT OF TREASURY WASHDC

UNCLAS SECTION 02 OF 02 ROME 001442

SIPDIS

TREASURY FOR WSCHUERCH, MJASKOWIAK
USDA FOR FAS/LYNN REICH AND DAVID WINKELMAN
STATE FOR IO/EDA ROSE BERSTEIN
USAID FOR AA/PPC;DAA/G/EGAD;AFS

FROM FODAG

E.O. 12958: N/A
TAGS: AORC EAID IFAD EAID AORC IFAD
SUBJECT: REPORT OF IFAD FIRST CONSULTATION ON THE SIXTH
REPLENISHMENT

UNCLASSIFIED

PAGE 02 ROME 01442 02 OF 02 211425Z
MILLION AT 1996 PRICES; HE ALSO ARGUED THAT HIPC COSTS
SHOULD NOT CUT INTO IFAD'S LENDING LEVEL, AND THAT
"DONORS NEEDED TO FIND THE SOLUTION." PAKISTAN ALSO
STATED THAT HIS COUNTRY WAS WILLING TO SHOULDER A "FAIR
SHARE" OF WHATEVER WAS DECIDED. INDONESIA STATED THAT
THE BURDEN SHARING FOR THE NEXT REPLENISHMENT NEEDED TO
REFLECT COUNTRIES' ABILITY TO PAY BASED ON WHAT HE CALLED
"REAL ECONOMIC CONDITIONS." HE NOTED IN THIS REGARD THAT
THE 1997 ASIAN FINANCIAL CRISIS HAD AFFECTED INDONESIA'S
ABILITY TO MAINTAIN ITS FUNDING LEVEL, AND THAT "FOUR-
FIVE" MORE YEARS WOULD BE NEEDED FOR INDONESIA'S
RECOVERY.

CONCERNS ABOUT IFAD'S FINANCIAL HEALTH
--------------

7. THE DELEGATE OF FRANCE WAS CONCERNED ABOUT THE SPEED
WITH WHICH IFAD WAS MOVING TO REDUCE ITS EQUITIES
PORTFOLIO; HE ALSO STATED THAT INVESTMENT LOSSES COULD
NOT JUSTIFY ACCESSING THE WORLD BANK HIPC TRUST FUND FOR
IFAD'S HIPC COSTS.


8. USDEL STATED THAT IFAD NEEDED A STRONGER -- BUT
ESPECIALLY A MORE STABLE -- FINANCIAL BASE. HE CALLED
THE "CREATIVE USE OF THE ADVANCE COMMITMENT AUTHORITY
(ACA) TROUBLING" AS IT WAS USED WHERE THE PERCEIVED NEED
AND AVAILABILITY OF RESOURCES DID NOT MATCH. HE NOTED
FURTHER THAT THE USE OF THE ACA IMPAIRED FLEXIBILITY AND
"MORTGAGED THE FUTURE." USDEL STATED THAT THE U.S. WOULD
REQUEST ADDITIONAL SCENARIOS, INCLUDING A BASE CASE OF
MAINTENANCE OF NOMINAL CONTRIBUTION LEVELS; CONSERVATIVE
INVESTMENT INCOME; A GOOD ESTIMATE OF REFLOWS, AND NO USE
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OF THE ACA. USDEL ALSO REQUESTED A PRESENTATION FROM THE
WORLD BANK (WB) HIPC TRUST FUND AT THE NEXT CONSULTATION,
NOTING THAT THE DELEGATES IN ROME WERE NOT WELL-INFORMED
ON THE TRUST FUND. IN THIS REGARD, HE POINTED OUT THAT
THE TRUST FUND ALREADY HAD A FINANCING GAP OF USD 700
MILLION -- USING MONEY FOR IFAD WOULD ONLY WIDEN THE GAP.
HE STATED THAT IDA HIPC WAS FUNDED ON A "PAY AS YOU GO"
BASIS -- WITH THE HIPC NEEDS BEING CONSIDERED WITH EACH
REPLENISHMENT. AS FAR AS IFAD USING THE WB TRUST FUND,
IFAD HAD BEEN "PERCEIVED" TO BE IN A DIFFERENT FINANCIAL
SITUATION WHEN THE TRUST FUND WAS CREATED. HOWEVER, THIS
COULD ALWAYS BE RECONSIDERED. HE NOTED, IN THIS
CONNECTION, THAT IT WAS HARD TO ENVISION NOT HAVING A
SECOND ROUND OF HIPC REPLENISHMENT.


9. THE DELEGATES OF ARGENTINA AND ALGERIA EXPRESSED
CONCERN ABOUT IFAD'S INVESTMENT POLICY AND ASKED FOR
UPDATES ON PROGRESS IN REDUCING IFAD'S EQUITY EXPOSURE IN
LINE WITH THE AGREEMENT OF THE LAST EXECUTIVE BOARD
SESSION (REFTEL). THEY ALSO EXPRESSED DOUBTS ABOUT
IFAD'S ABILITY TO FIND FUNDING FOR HIPC COSTS. THE
DELEGATE OF ARGENTINA ASKED FOR COMPLETE CLARITY AS TO
HOW HIPC RELATED TO THE REPLENISHMENT.

ALLOCATION OF RESOURCES
--------------


10. USDEL STATED THAT IFAD NEEDED TO USE RESOURCES
STRATEGICALLY AND EFFECTIVELY FOR GREATEST INFLUENCE: NOT
JUST PROVIDE LOANS TO COUNTRIES BECAUSE THEY WERE
MEMBERS. HE SAID THAT CRITERIA SHOULD INCLUDE:
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PAGE 04 ROME 01442 02 OF 02 211425Z
COUNTRIES IN THE MOST DIFFICULT SITUATION AND WHERE IFAD
CAN BEST MAKE A DIFFERENCE. THE NETHERLANDS ALSO NOTED
THE IMPORTANCE OF LINKING THE FOLLOW-UP TO THE IFAD V
PLAN OF ACTION WITH THE REPORT OF IFAD VI AND WITH THE
FUNDING LEVEL. OTHER LIST A COUNTRIES (NETHERLANDS,
SWITZERLAND) STRESSED THE IMPORTANCE OF LINKING IFAD'S
STRATEGIC PLAN TO THE RESOURCES NEEDED FOR THE NEXT
REPLENISHMENT.


11. DAS SCHEURCH DID NOT CLEAR THIS CABLE PRIOR TO
DEPARTING ROME. HEILEMAN

UNCLASSIFIED

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2002ROME01442 - Classification: UNCLASSIFIED