The International Development Association, IDA

The International Development Association, IDA, is the World Bank’s concessional lending window. It provides long-term loans at zero interest to the poorest of the developing countries. IDA helps build the human capital, policies, institutions, and physical infrastructure that these countries urgently need to achieve faster, environmentally sustainable growth. IDA's goal is to reduce disparities across and within countries, especially in access to primary education, basic health, and water supply and sanitation and to bring more people into the mainstream by raising their productivity. A major independent evaluation of IDA’s performance in 1994-2000 has just been completed. History When the International Bank for Reconstruction and Development (IBRD), better known as the World Bank, was established in 1944, its first task was to help Europe recover from the devastation of World War II. Once Europe was rebuilt, the Bank turned its attention to the developing countries. As the 1950s progressed, it became clear that the poorest developing countries could not afford to borrow needed capital for development on the terms offered by the Bank. They required easier terms. With the United States taking the initiative, a group of Bank member countries decided to set up an institution that could lend to very poor developing nations on highly concessional terms. They called it the International Development Association (IDA). Its founders saw IDA as a way for the "haves" of the world to help the "havenots." But they also wanted IDA to be imbued with the discipline of a bank. For this reason, US President Dwight D. Eisenhower proposed, and other countries agreed, that IDA should be part of the World Bank. IDA's Articles of Agreement became effective in 1960. The first IDA loans (known as credits) were approved in 1961, to Honduras, India, Sudan and Chile. IBRD and IDA are run on the same lines. They share the same staff, the same headquarters, report to the same president and use the same rigorous standards when evaluating projects. IDA simply takes its money out of a different "drawer." A country must be a member of IBRD before it can join IDA; 162 countries are IDA members. IDA's Borrowers IDA lends to countries that have a per capita income in 2000 of less than $885 and lack the financial ability to borrow from IBRD. At present, 79 countries are eligible to borrow from IDA. Together these countries are home to 2.5 billion people, comprising half of the total population of the developing countries. An estimated 1.1 billion people in IDA countries survive on incomes of less than $1 a day. Some countries, such as India and Indonesia, are eligible for IDA due to their low per capita incomes, but are also creditworthy for some IBRD borrowing. These countries are known as "Blend" borrowers

IDA eligibility is a transitional arrangement, allowing the poorest countries access to substantial resources before they can obtain from the markets the financing they need in order to invest. As their economies grow, countries ‘graduate’ from eligibility. The repayments (or reflows) they make on their loans they had obtained then help finance new IDA loans to the remaining poor countries. Over the years, twenty-two countries have seen their economies develop and grow beyond the IDA-eligibility IDA Lending IDA credits have maturities of 35 or 40 years with a 10-year grace period on repayment of principal. There is no interest charge, but credits do carry a small service charge of 0.75 percent on disbursed balances. In fiscal year 2001 (which ended June 30, 2001), IDA commitments totaled $6.8 billion and disbursements were $5.5 billion. Since 1960, IDA has lent $107 billion to 106 countries. It lends, on average, about $6-7 billion a year for different types of development projects especially those that address peoples' basic needs, such as primary education, basic health services, and clean water and sanitation. IDA also funds projects that protect the environment, improve conditions for private business, build needed infrastructure, and support reforms aimed at liberalizing countries' economies. All these projects pave the way toward economic growth, job creation, higher incomes and a better quality of life. IDA funds are allocated to the borrowing countries in relation to their income level and track record of success in managing their economies and their ongoing IDA projects. In the past fiscal year (FY01), a total of $6.8 billion was committed to IDA borrowers. These new credits comprised 134 new operations in 53 countries. One half of new credits went to Sub Saharan Africa, 18 percent to South Asia, 15 percent to East Asia and the Pacific, 8 percent to Eastern Europe and Central Asia (ECA), and the remainder to poor countries in North Africa and in Latin America and the Caribbean. The countries receiving the largest new commitments in FY01 are listed in the table below:

FY01 Top Ten IDA Borrowers Commitments $millions Ethiopia Vietnam India Pakistan Uganda Kenya Bangladesh Madagascar Senegal 667 629 520 374 358 350 280 268 255

IDA Funding Whereas IBRD raises most of its funds on the world's financial markets, IDA is funded largely by contributions from the governments of the richer member countries. Their cumulative contributions since IDA's beginning total US$109 billion. Additional funds come from IBRD's income and from IDA graduates' and borrowers' repayments of earlier IDA credits. Donors get together every three years to replenish IDA funds. The 12th replenishment finances projects over the three years starting July 1, 1999. Funding for the 12th replenishment allows IDA to lend about $20 billion, of which donors' contributions will provide a little over half. The remaining funds come largely from refolds of previous IDA credits, as well as other non-donor resources. The largest pledges to IDA12 were made by the United States, Japan, Germany, France, United Kingdom, Italy and Canada. For example, the US is the largest donor, having pledged to contribute $803.4 million for each of the three years of the replenishment. Some less wealthy nations also contribute to IDA. Korea and Turkey, for example, once borrowers from IDA, are now donors. Countries currently eligible to borrow from IBRD -- Argentina, Brazil, Czech Republic, Hungary, Mexico, Poland, Russia, the Slovak Republic, and South Africa -- are also IDA12 donors. Other contributors to the 12th Replenishment include Australia, Austria, Barbados, Belgium, Denmark, Finland, Greece, Iceland, Ireland, Israel, Luxembourg, Netherlands, New Zealand, Norway, Portugal, Saudi Arabia, Spain, Sweden, and Switzerland.

The Thirteenth Replenishment of IDA (IDA13) Discussions on the 13th replenishment of IDA are underway in 2001, to provide the World Bank with resources to assist the world’s poorest countries in fiscal years 2003-05 — the three-year period beginning on July 1, 2002. The first meeting was in Paris, France, on February 28-March 1. Participants discussed key policy issues, including IDA eligibility and differentiation of terms and determining of IDA allocations. IDA donors also decided to invite six IDA borrower representatives to take part in discussions of IDA13 policies: two from Africa and one each from the East Asia, South Asia, Eastern Europe and Central Asia, and Latin America and the Caribbean regions. The second meeting was in Addis Ababa, Ethiopia, on June 6-7. Participants, who included not only IDA donors but also IDA borrower representatives for the first time, considered how IDA should respond to poverty reduction strategy papers — PRSP in IDA13, how IDA could improve post-conflict allocations, and the main conclusions of a major independent evaluation of IDA. This meeting was preceded by an all-day African Dialogue with IDA Deputies, organized and chaired by the UN Economic Commission for Africa and involving representatives of African governments, NGOs, and business, as well as African academics. This was one of the initiatives that are underway to increasingly bring borrower views into discussions of IDA policies. This document summarizes the outcomes of the second meeting. The third and fourth IDA13 replenishment meetings of both IDA donor and borrower representatives are planned for October and December 2001. IDA's Impact on Poverty IDA addresses poverty through its broad range of projects, including investment projects targeted at human resource development such as education, health, safety nets, and water supply and sanitation (43percent in FY01), the provision of infrastructure (19percent), and agriculture and rural development (16percent). While the bulk of IDA financing — over 72 percent in FY01 — is for investment projects, IDA also provides adjustment credits. These credits help governments finance their overall development expenditures — including teacher salaries, operations and maintenance of health centers, road rehabilitation, and agricultural extension — in the context of macroeconomic and sectoral reform programs. The development expenditures that made possible by IDA financing are necessary for growth and poverty reduction. To help governments put in place reform programs, IDA advises on the best policies for attaining broad-based economic growth and reducing the vulnerability of the poor to economic shocks.

IDA is now the single largest source of donor funds for basic social services in the poorest countries. Children–one billion of whom live in IDA recipient countries– are the main beneficiaries of the resulting investments in basic health, primary and literacy education and clean water. Thanks to IDA:

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Some 45,000 primary school classrooms were constructed or rehabilitated in African countries, which enabled approximately 1.8 million children to benefit from access to primary education. In Asia, over 6,700 health care facilities were constructed or upgraded, then equipped and staffed to provide basic health care to rural populations. The social investment fund projects in Latin America reached some 9.5 million beneficiaries. Activities supported by these projects generated almost a million person-months of employment. In Africa, more than 5 million textbooks (mostly locally developed and produced) were supplied to primary schools. In India, the National AIDS Control project supported training of 52,500 physicians and 60 percent of nursing staff in HIV/AIDS management topics. In Yemen, the Taiz Flood Disaster Prevention and Municipal Development project prevented serious damage from the 1996 floods, benefiting 21,000 households directly and over half a million people indirectly. Improvements in Haiti's devastated power sector have given users access to about 20-hours-per-day electricity service, contrasting with the previous situation of nearly 18 hours of blackouts daily.

IDA's mission — poverty reduction. The mission of IDA is to support efficient and effective programs to reduce poverty and improve the quality of life in its poorest member countries. IDA helps build the human capital, policies, institutions, and physical infrastructure needed to bring about equitable and sustainable growth. IDA's goal is to reduce the disparities across and within countries, to bring more people into the economic mainstream, and to promote equitable access to the benefits of development. Sustainable poverty reduction depends on forming effective partnerships, and on systematic inclusion of the poor, affected groups, and women in the development process. To achieve this, the focus must be on: results — to get the biggest development return from scarce aid resources; sustainability — to achieve enduring development impact within an environmentally sustainable framework; and equity — to remove barriers and open up opportunities for the disadvantaged. IDA's assistance is provided under a broad policy framework that reflects priorities agreed by its donors, represented by their IDA Deputies, and endorsed by the Executive Directors. These priorities are set out in this report of the IDA12 Deputies. The current policy framework for the Twelfth Replenishment of IDA (IDA12) — which will span the transition to the next century — is also guided by the poverty reduction and social development goals for the 21st century (International Development Targets) endorsed by the international community. These goals include reducing the proportion of the population living in extreme poverty by half and achieving universal primary education in all countries by 2015.

PURPOSES The purposes of the Association are to promote economic development, increase productivity and thus raise standards of living in the less-developed areas of the world included within the Association's membership, in particular by providing finance to meet their important developmental requirements on terms which are more flexible and bear less heavily on the balance of payments than those of conventional loans, thereby furthering the developmental objectives of the International Bank for Reconstruction and Development (hereinafter called "the Bank") and supplementing its activities. The Structure of the Association The Association shall have a Board of Governors, Executive Directors, a President and such other officers and staff to perform such duties as the Association may determine. Association shall be guided in all its decisions by the provisions of this Article. How IDA Resources are Allocated IDA's 79 eligible borrowers together have very significant needs for concessional funds. But since most of IDA's resources are donated by member governments, the amount of funds available for lending is virtually fixed once donations are pledged. IDA therefore must allocate resources among eligible borrowing countries. This note describes how IDA resources are allocated on the basis of borrowers' policy performance and institutional capacity in order to concentrate resources where they are likely to have the most impact. 1. Eligibility Three criteria are used to determine which countries are eligible to borrow IDA resources:
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Relative poverty, defined as GNP per capita below an established threshold, currently US$885. Lack of creditworthiness to borrow on market terms and therefore a need for concessional resources to finance the country's development program. Good policy performance, defined as the implementation of economic and social policies that promote growth and poverty reduction.

2. Allocation Criteria The main factor that determines the allocation of IDA resources among eligible countries is each country's performance in implementing policies that promote economic growth and poverty reduction. Per capita income is also a determinant, with the poorest of the eligible countries receiving higher allocations for a given performance level.

3. Performance Ratings Every year World Bank staff assesses the quality of each borrower's policy performance. The criteria and methodology of these assessments have evolved over time to incorporate lessons from experience as well as research findings. Beginning in 1998, the country performance assessment was broadened to include an evaluation not only of the government's policies but also of the institutions in place to implement them. In addition, a discount is applied to the ratings of countries with severe governance problems, as weak governance has been shown to be a major obstacle to development. Finally, the performance assessment also takes into account the performance of the country's active project portfolio. The 20 performance criteria are grouped into four clusters     Economic Management Structural Policies Policies for Social Inclusion/Equity Public Sector management and Institutions

4. Allocation Process The allocation of IDA's resources is determined primarily by each borrower's rating in the annual country performance and institutional assessment. In addition, the IDA12 Agreement recommends that because the acceleration of economic and social development in Sub-Saharan Africa remains foremost among IDA's priorities, these countries should receive priority in the allocation process, provided that policy performance warrants it. Finally, for borrowers that are eligible for both IDA and IBRD funds ("Blend countries"), allocations must take into account those countries' creditworthiness for and access to other sources of funds as well as their ability to use IDA resources effectively to tackle poverty. Lending allocations are determined on a three-year rolling basis and are used for planning purposes by the World Bank's operational departments. Individual country allocations serve as an anchor for the formulation of Country Assistance Strategy (CAS) lending programs, which, if appropriate, can deviate from the performancebased allocations to reflect changes in performance in between annual assessments and/or exceptional country circumstances. 5. Lending and Performance IDA management monitors actual lending to each country in relation to the planning allocations. The allocations are administered flexibly, to ensure that they respond promptly to important changes in performance. As a result, actual lending on per capita terms is robustly correlated with performance levels. The strong link between lending and performance has resulted in an increasing concentration of lending to countries where policy performance is most conducive to effective resource use.

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