It has been five months since we met last year in Ottawa. Since then we have been confronted with tremendous challenges. But I believe we have made much progress in meeting them. The horrifying events of September 11 demonstrated to everybody that we live in one world. The imaginary wall that seemed to separate the rich world from the poor has disappeared. The conference in Monterrey on Financing for Development marked an important turning point in agreeing a reinvigorated international partnership on development driven by a spirit of mutual responsibilities.

There is also more concrete progress. The efforts to strengthen the international financial architecture are progressing. In particular, the joint Bank/Fund program of action to strengthen crisis prevention is bearing fruit. The PRSP process has become a powerful tool in fighting poverty based on participation and country ownership. A growing number of the poorest countries are taking advantage of the enhanced HIPC initiative. The Bank and the Fund in close coordination with other institutions and member countries have stepped up efforts to combat money laundering and the financing of terrorism. And last but not least, there are encouraging signs that the global economy will recover faster than we dared to hope last year.

This progress is all the more important because of the scale of the challenge we face. 3 billion people still have to live on $ 2 a day. Education and health remain illusive for far too many. While the world economy is recovering faster than we hoped, vulnerabilities remain. In too many parts of the world, economic reform and prosperity are held back by war and conflict. So we must use the momentum from Monterrey to cooperate to fight poverty. We have to continue our work in strengthening the financial architecture and to bring the global economy back to a sustainable path of growth in which all countries can participate. These items are at the center of our discussions here in the IMFC, and on Sunday, in the Development Committee.

The global economy

As we expected last year, the events of September 11 deepened the economic slowdown that was already underway and delayed the economic recovery by about six months. The steep drop in global demand hit developing countries hard with prospective growth falling to 2.8% this year, less than half its level in 2001. The poorest and most vulnerable countries were seriously affected both by the slower growth of international trade and by a further drop in commodity prices. There has been a substantial fall in capital flows to developing countries, particularly to those countries already subject to financial pressures.

Fortunately, although risks and uncertainties remain, recovery may well be underway sooner than we hoped last year, with the emerging recovery in the US, and indications of renewed growth elsewhere. Financial markets seem to have absorbed the shocks of September 11, and the crisis in Argentina seems not to have created contagion elsewhere - a result, I believe, of the stronger and more transparent economic policy frameworks many emerging market countries have put in place.

But there are still significant risks and vulnerabilities, such as persisting imbalances in current accounts and exchange rates, structural inefficiencies in many parts of the world which are holding back growth, and the risk of sharp movements in the oil price. For sustained growth over the medium term, both industrial and developing countries need to address structural inefficiencies and vulnerabilities, and they need to open their markets, while maintaining monetary and fiscal prudence.

Sustained economic recovery will be crucial for the outlook of developing countries, allowing many of them to draw the full benefit from reforms carried out over the last years. Economies have become more open, macroeconomic policies have improved, budget deficits have come down and inflation rates have been halved over the last 10 years. But prospects vary considerably across the developing world. Some regions are still very much affected by negative economic effects of September 11. The situation in Africa remains alarming. The deep decline of commodity prices, reduced tourism revenues and workers' remittances have opened new financing gaps. We will not meet our objectives for reducing global poverty without economic growth that is both sustained and more evenly distributed.

The IMF's policy agenda

I will confine my comments under this heading to those items - and there are many - where the Bank is involved, and contributes or joins efforts with the Fund in our increasingly close partnership.

Standard and Codes

Cooperation between the Bank and the Fund Financial Sector Assessment Programs (FSAP) and Reports on Observance of Standards and Codes (ROSCs) has developed over the last few years to the point where it is well established, close, and fruitful. The two programs are aimed at helping countries identify and assess vulnerabilities and take action to strengthen their financial systems and the related foundations of corporate governance, sound accounting and auditing systems, and insolvency regimes. The programs are well established: some 55 countries will have been covered by the FSAP exercise by the end of June, and more than 220 ROSC modules have been prepared spanning 73 countries. The most pressing challenge now is to help countries implement the follow-up agenda from this diagnostic effort, by mobilizing the technical and financial resources needed to strengthen capacity and to address weaknesses that have been identified. I am very pleased to report that in collaboration with several bilateral agencies and the IMF, we will be launching on April 21, an important initiative: the Financial Sector Reform and Strengthening (FIRST) Initiative. FIRST will provide grants for technical assistance to low- and middle-income developing countries for capacity building and policy development.

Combating Money-Laundering and the Financing of Terrorism

In the aftermath of September 11, 2001, it has become increasingly clear that financial systems without adequate safeguards against money laundering and the financing of terrorism are vulnerable to abuse, and that those vulnerabilities hamper development. In response to guidance from the Development Committee and the International Monetary and Finance Committee, the Bank has joined with the Fund in stepping up efforts to combat money laundering and the financing of terrorism, as part of our mandate to improve governance. In January 2002 the Bank Board agreed on an Action Plan to strengthen the diagnostic tools in the joint Financial Sector Assessment Program. The objective will be to identify vulnerabilities and to deepen the Bank's involvement in providing technical assistance and training to build the framework and institutional capacity to address them and to bring their regimes up to internationally identified best practices. Already the Bank has been engaged in providing such assistance to 20 countries. Anti-money-laundering and combating of financing terrorism assessments are now an integral part of all FSAP assessments, and an integral part of the Bank's country assistance strategies with particular focus on those countries with weaknesses in the anti-money laundering and financing of terrorism regime. Together with the Fund and in collaboration with the United Nations, we are developing a mechanism for better coordination of an international technical assistance in this area, working with the FATF and regional FATF-type bodies, the Egmont Group of financial intelligence units and other partners, such as the regional development banks and key bilateral technical assistance providers.

Bank-Fund collaboration in program work and conditionality

Turning to our wider Bank-Fund cooperation in supporting country development there is also progress in collaboration in program design and conditionality. I totally agree with the objective that Horst sets out: that Bank-Fund collaboration should ensure that there is an overall streamlining and focusing of conditionality, and coherent support for countries' reform agendas. We are beginning to implement the agreement we reached with the IMF last summer on collaboration on conditionality. A key element in this process is the concept of "lead agency" for assessing the quality of country policies and program design. For each area of policy in each country one institution will be identified as the agency to lead the policy dialogue with the government. And that institution's assessment will be reported transparently in the other's reports as part of the overall assessment. This is going to involve closer and more systematic communication between the two institutions at all stages of the process, from policy assessment and monitoring to the design of loan conditions. We will be reporting to our two Boards before the Annual Meetings on progress in implementing these arrangements.

The PRSP process and enhanced HIPC initiative

The PRSP approach has become a key focus for Bank and Fund support for low-income countries putting poverty reduction at the center of countries' overall development strategies. The participatory nature of the PRSP process has strengthened ownership. PRSPs are beginning to be, and should be, at the center also of donor support. The PRSP approach is a key vehicle for putting the Monterrey partnership into practice at the country level. It requires and helps create comprehensive country led reform programs and it provides a focal point for making donor support more effective - allowing better cooperation between donors, providing stronger linkage between donor support and the policies that produce results. We have to strengthen this process as the approach is implemented in an increasing number of countries.

As of end March 2002, 26 countries are benefiting from HIPC relief of which 5 have already reached the completion point. We now have to help other countries, many of which are conflict-affected and/or have exceptionally large arrears, to reach their decision points soon. Countries that have reached their decision points need to remain on track with their economic reform and poverty reduction programs. And we need to ensure continued debt sustainability of those who are exiting from the program. In short, for the HIPC Initiative to succeed, the countries themselves will need sustained commitment to policy improvements while the broader international community will need to continue to provide adequate and appropriate concessional financing.

The implementation of the Monterrey Consensus

Monterrey has helped to put development at the center of the global agenda. The challenge now is to use the momentum of Monterrey, and to implement the agreed global development partnership, scaling-up efforts on the part of developing countries and the international community.

I see seven key areas for action.

• First, use the PRSP process to scale up and make more effective external support to countries on governance and structural reforms.

• Second, ensure that existing and new aid commitments are used more effectively, with better coordination and cooperation between donors and better focus on supporting policies that produce results.

• Third, vigorously implement the enhanced HIPC initiative to get an early and enduring resolution of the long-standing debt problem of the poorest countries

• Fourth, take the necessary steps to make sure that the Doha Round truly becomes a "Development Round" so that all developing countries, and especially the poorest, can tap the benefits of trade.

• Fifth, put in place global partnership on capacity building in the priority areas of reform and institution building.

• Sixth, scale up the delivery mechanisms and financing for global public goods, especially in the fight on pandemic diseases and the sustainability of the global commons.

• Seventh, strengthen global mechanisms and governance to underpin this new global partnership.

We will be able to have a more comprehensive discussion of these issues and the follow up to Monterrey - implementation to the Global Development Compact - at the Development Committee when we discuss development effectiveness, partnership, and challenges for the future.

Conclusion

In all these areas and others I believe we are making significant progress in putting into practice the vision for close partnership between the Bank and Fund that Horst and I set out eighteen months ago in Prague.