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 PAGE 02 ROME 01442 01 OF 02 211425Z 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 UNCLASSIFIED PAGE 03 ROME 01442 01 OF 02 211425Z 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 UNCLASSIFIED 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 UNCLASSIFIED PAGE 03 ROME 01442 02 OF 02 211425Z 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: UNCLASSIFIED 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 > 2002ROME01442 - Classification: UNCLASSIFIED