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SG's Statement, PFTAC Meeting
PACIFIC FINANCIAL TECHNICAL ASSISTANCE CENTRE (PFTAC)
TRIPARTITE REVIEW COMMITTEE (TPRC) MEETING
Westin Hotel, Nadi, 13 September 2007

Statement by Mr Greg Urwin, Secretary General,
Pacific Islands Forum Secretariat


Chairperson of the Tripartite Review Committee,
Honourable Ministers,
Representatives of Development Agencies,
Distinguished Participants,
Ladies and Gentlemen.

I would like to begin by thanking the Pacific Financial Technical Assistance Centre (PFTAC) for this opportunity to speak with you on the subject of regional approaches to the delivery of Technical Assistance. This matter was, as some of you will know, under the spotlight at this year’s Forum Economic Ministers Meeting in Palau, and we are now seeking to take forward some of the decisions taken there.

2. If I may, I’ll begin with a few words about regional approaches generally and the mandate given the Secretariat by Forum Leaders in this regard. I can appreciate that some of you may have heard the ideas behind these approaches before but I think it would be useful to briefly revisit these because they represent the political foundations for the Forum Secretariat’s work in this area.

Regional Approaches and the Pacific Plan

3. In 2005, after a couple of years of preparatory work, our Leaders called for a Pacific Plan to strengthen regional cooperation and integration, based on their Vision for the type of future they want for our people. They recognised that, as the changes brought about by globalisation intensify, so should our efforts to make our regional cooperation more relevant and effective to ensure, amongst other things, that we are able to make the most of the opportunities that present themselves as well as better manage the risks that inevitably arise.

4. Work undertaken in the development of the Pacific Plan has considered several different concepts of regionalism and concluded that, in broad terms, there are two key areas which are expected to provide the highest gains in the Pacific – that is:
(a) regional provision of goods and services to compensate for and overcome capacity limitations at a national level; and
(b) increasing development opportunities through integration and the creation of larger markets.

5. Pacific Plan priorities under the four inter-related general goals of economic growth, sustainable development, good governance and security are now being progressed – under the management of the Forum Secretariat and the political oversight and guidance of the Pacific Plan Action Committee headed by the Forum Chair.

6. Our Leaders, certainly in the decisions they have taken over the past couple of years, have clearly recognised that the Pacific has moved or is being moved, into a new period which calls for new approaches to the many challenges we face.

7. To move in that direction with any confidence, sustained efforts are required to improve economic governance – an area in which, as we know, many of our countries labour under critical disadvantages. Thus, an important basis of the Pacific Plan has been the assessment of the costs of a package of several strategic economic management initiatives.

8. As you know, the Forum Economic Ministers agreed at their meeting in Honiara last year to play a more proactive role in facilitating the implementation of a number of regional economic integration initiatives in the Pacific Plan, and directed the Secretariat to examine the viability of these approaches, including:
• Audit services to improve integrity and financial scrutiny;
• Development of best practice models and appropriate regional solutions to improve financial sector supervision;
• Regional customs services to improve border security, trade facilitation and revenue collection; and
• Establishment of an accountable and independent macro-economic and microeconomic technical assistance mechanism.

9. It is on the last initiative, in particular, that I have been asked to spend a little time.

Macroeconomic and Microeconomic Technical Assistance Mechanism

10. A considerable amount of short- and long-term economic and statistical technical assistance has been provided over the past few decades to Forum Island Countries by international financial agencies and bilateral donors in an effort to improve economic and financial management. Indeed, in some respects, it might be argued that one form of development assistance available in the Pacific in absolute abundance and one in which supply appears to be greater than demand is in the provision of TA. However, as the needs generated by economic globalisation multiply the need for technical capacity and its coordination multiply. If, these donors, both bilateral and multilateral are willing to provide relatively abundant resources why is this an issue? Well, it is partly because at one level, improvements in some countries’ economic performance as the result of this sometimes coordinated, but often uncoordinated, profusion of assistance are often difficult to discern. But not only are results patchy, it is argued sometimes that the TA itself is part of the cause of governance failure because the key ingredient in effective policy ie genuine ownership of the technical advice and of the policies it underpins, is missing.

11. It should not be construed that I am for a moment arguing that the TA itself is somehow essentially flawed, although, as with everything else, quality can vary. The work of the many agencies and bilateral donors in general and PFTAC’s in particular has been important to the region. PFTAC does provide a coordinated range of technical assistance covering public financial management, financial sector supervision, tax administration, and economic and financial statistics and has been regularly praised by Forum members. The Centre has played a unique role in providing quick response assistance to countries – the PFTAC model has, in itself, it seems to me, gone a long way to proving itself. And this judgement has at least something to do with the fact that it is physically present in the region. This allows it to have a greater impact than distant institutions which can be seen as remote from their constituents and their concerns. PFTAC is quite rightly seen by our members as being effective and beneficial to the economic governance of the region. The issue is not, then, PFTAC itself but what it could be if the resources of PFTAC and its modus operandi along with the resources of other IFIs were brought to bear on finding sustainable solutions for economic governance issues in the region.

12. The Pacific Plan envisages the ultimate creation of an institution which can provide technical assistance on macroeconomic and microeconomic issues, as well as analysis and capacity building of Pacific island economists and policy makers. Whenever I propose this vision of an effective regional institution to provide TA it normally evokes two responses. First, there is an almost universal recognition that such an institution is a desirable outcome but the second response is ‘it is not my mandate and belongs to someone else’. It is here that the fundamental rationale for the Pacific Plan exists. The Pacific is simply too small to fail to pool scarce human and financial resources wherever it can. The failure is not PFTAC’s – assuredly not - but that of our appreciation of what might be done if resources were pooled effectively.

FEMM Mandates

13. Economic Ministers at their meeting in July this year considered a Study by Professor Ron Duncan that drew on various reports on regional arrangements, both within and outside the Pacific region, and also collated views from Forum Island Country governments, international agencies and bilateral assistance agencies, and donor governments active in the region.

14. The report came to some familiar sounding conclusions. It found that economic TA can often have significant transaction costs partly because advice provided may overlap or even contradict or be otherwise disaggregated and that this, as one might expect, plays into a range of capacity constraints. Some of the advice proffered was seen as insufficiently grounded in appreciation of the local contexts and therefore did not achieve sufficient ownership in the receiving administration, and was sometimes insufficiently embedded in an appropriate strategic framework. That these observations have, as I say, a familiar ring does not reduce their force, although it certainly needs to be recognised that there are two sides to this equation, two sets of responsibilities. Just as it is incumbent upon donors and technical agencies to deliver their advice in an accessible, constructive and – at the very least – non-harmful way, so it is the responsibility of those receiving it to do what all they can to give shape to the circumstances in which it will be proffered – to provide, in other words, that proper context from the national point of view, and hence to maximise the usefulness of the advice given. That, of course, often boils down to the maintenance of a concerted policy approach in the country concerned. In summary, and taking into account all the constraints that bear down on us, it takes two to dance this tango.

15. All of that recognised, however, we are, for the moment, considering the best means of delivery of advice, and the role, actual and potential, of the International Financial Institutions, in this.

16. The Duncan report proposed the creation of a new regional institution. The argument for this is based on the assumption that the economic issues that the Forum Island Countries face will become more complex rather than less, and that development assistance will be needed and will continue for many years. It is also based on the implicit assumption that existing institutions will not work together sufficiently well. Ministers did not accept this view and we hope it can be demonstrated to be incorrect. The Duncan study noted that such an arrangement should have the following objectives:
• Develop national and regional frameworks within which to undertake the economic TA;
• Aim for the highest quality of TA, based on a good understanding of local contexts to ensure its acceptance and “ownership” by Pacific countries;
• Have a mix of Forum Island Country (FIC) and expatriate analysts to ensure good understanding of country circumstances and ownership;
• Be located within the region to ensure quick response to requests for TA, which will also assist in staff developing a good understanding of the region and help in gaining country ownership of TA recommendations;
• Have a critical mass of staff to ensure contestability of ideas within the organisation; and
• Second Specialist World Bank, ADB, IMF, and possibly, bilateral agency staff to the regional body to help ensure the high quality of its work.

17. The Study also noted that the effectiveness of such a regional mechanism would depend critically on the commitment of the development assistance agencies to channel most of their economic TA through it. This would strengthen donor coordination, make their activities more manageable from the client point of view and this in turn may lead to more significant flows of TA resources for the benefit of Forum Island Countries. As I say, Professor Duncan suggested the creation of a new body to perform this role, and one can certainly see the case for this. Members however, like us, believe that existing institutions such as the IFIS can be brought together.

The Malan Report

18. Coincidently, a recently released report by an independent review committee on the collaboration between the World Bank and the International Monetary Fund tends to corroborate a number of these findings. The “Malan Report” found, among a range of other things – and again, I guess, to no-one’s particular surprise - that the Bank and the Fund are the only international financial institutions with near universal coverage. Therefore, it was asserted, they have an important role to play in helping countries extract the benefits of globalisation as well as manage the pressures it creates, a matter of special concern in a region made up of states which, because of their very particular circumstances feel themselves, with a great deal of justice in my view, to be at the end of the globalisation line. 

19. Further to this, the Malan Report noted – again, fairly self-evidently, I would have thought - that while the Bank and the Fund have separate mandates, they are inherently linked. For example, macroeconomic stability (a major Fund concern) will not be sustained unless linked to supply side measures and improved quality of public spending (a major Bank concern). Similarly, global monetary stability (a Fund concern) will have a direct bearing on overall development prospects (a Bank concern). The Report also notes that the costs to members of insufficient collaboration between the Fund and the Bank can be significant and can result in poor and conflicting advice, wasted resources, and unmet needs, and that there is also a cost to all donors from inadequate Bank–Fund collaboration. Therefore, the Report recommends that close collaboration is vital. The Forum Secretariat would wholeheartedly endorse this conclusion. 

20. These findings of the Malan and Duncan reports would appear to support the agreement reached by Economic Ministers at their meeting in July this year, to develop a pilot arrangement to expand PFTAC capacity by drawing in staff from other International Financial Institutions/ Forum Island Countries/ development partners, therefore allowing for expansion of economic advice to include additional priority areas of microeconomic technical assistance as well as deepening macroeconomic TA.

21. In this context, the Ministers directed the Forum Secretariat to consult with members to determine their priority areas for expanding PFTAC advice, for consideration at your meeting here today. Based on those consultations, areas where further technical assistance would appear to be required include economic regulation, infrastructure related issues and management of public enterprises, matters in any event identified at the Economic Ministers meeting in July. Technical assistance to help with labour market reforms was an additional area identified by some members.

22. These priorities generally, have also been seen as measures to underpin the expansion of regional integration into the future, through the measures outlined in the Pacific Plan and beyond that, in the consideration being given to moving progressively towards a comprehensive framework agreement among all members, one that includes free trade in goods and services, and broader-based economic cooperation, the so-called PACER plus. These eventualities will require accompanying technical assistance for developing appropriate policies in a number of areas, including those covering competition, fair trading, and pricing and access.

23. The simple fact is that – as with most things in life - we need to be prepared. The rest of the world is not waiting for us and the steps we have taken to better control how far we liberalise and the pace in which this is done, through PICTA and PACER for example, will only take us where we want to be and bring about the anticipated benefits if we are so prepared. And that is what makes the delivery of quality technical assistance so important.

24. The Forum Secretariat has also been consulting with a number of TA providers and donor agencies. Some have indicated strong support for the expansion of technical assistance in the areas that have been prioritised by Forum Island Countries. We are particularly encouraged by the feedback from some of PFTAC’s current donors regarding their willingness to consider bringing additional resources to bear on this matter. We also welcome the possibility of strengthening partnerships with other technical assistance providers such as the World Bank and Asian Development Bank in areas of their core expertise, as a means of expanding the existing TA mechanism.

25. We do not see broadening of the areas of economic advice covered by an expanded PFTAC as having to involve any expansion in the actual remit of any one International Financial Institution. Instead, such an arrangement could only contribute to mutually reinforcing the provision of TA through pooling of the core competencies of the International Financial Institutions providing TA, with each of them providing professional backstopping in particular areas, and to staff working in an expanded agency. The proposed sharing of professional backstopping links would help, as an immediate step, to encourage a sense of joint ownership and would surely improve coordination.

Conclusion

26. In conclusion, let me refer again to the mandate from our Economic Ministers, and the needs which are identified by them. It seems to me, in summary, that the Forum Island Countries have prioritised at least three key areas requiring the provision of TA, and it also seems to me that donor and development partners have shown enough goodwill for us to fulfil the Ministerial mandate. We do not seem to have been provided with sufficient time during the meeting itself, but I hope you will find the time to discuss a way forward for this most important issue later this afternoon. And I hope we can demonstrate Professor Duncan’s conclusion that a new institution is necessary to be unnecessary because we can demonstrate that the IFIs will work together closely in a region which most certainly needs them to do so.

27. I thank you again for your invitation to make these comments and I hope that you’ve found them a useful or at least not indigestible contribution. Thank you. 

(Ends)
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