To: Executive Directors of AfDB, AsDB, EBRD, IaDB and WB

It was with great pleasure that we joined OECD-DAC and the UN to co-sponsor the High Level Forum on Harmonization, Alignment and Results, in Paris last month, an important follow-up to the Rome Harmonization Forum and the Marrakech Roundtable on Results. But, while the Paris conference further strengthened the move toward alignment around country led development, much more needs to be done if the international community is to fulfill its promise of achieving the millennium development goals. Global Action

This year - 2005 - is pivotal and important decisions need to be made to increase the chances for reaching the millennium development goals. We encourage the international community to take decisive steps on three important issues: financing for development; harmonization, alignment and development results; and trade.

First, by the time world leaders meet in New York for the Millennium Summit, decisions

should be made to fulfill the Monterrey commitments on sufficient financing for development to achieve the MDGs. Second, the development community should take firm steps to increase development effectiveness, including turning the alignment and harmonization commitments in the Paris Declaration into decisions on monitorable indicators of action on the ground. Third, by the December meeting of WTO in Hong Kong, the Doha round should conclude with a trade agreement that substantially addresses the needs of poorer countries for market access and lower subsidies in richer countries. We offer the full support and effort of the MDB system to make sure 2005 does not end without good progress on financing for development, alignment and harmonization, and trade. As we reconfirm the millennium development goals as the pre-eminent focus for development cooperation, we underline the importance of private sector development to create the growth that is absolutely necessary to achieve them. To help sustain equitable private sector development, we call on the international community to support initiatives for good governance, transparency and capacity building. A notable initiative is the Extractive Industries Transparency Initiative.

We also encourage bold action to address the challenges of reaching the non-income MDGs in health, education, gender equality and sustainable environment, many of which are increasingly

addressed through global programs, and we emphasize the need for full alignment of global approaches with country led development, as stated in the Paris Declaration. MDB Cooperation

Cooperation among MDBs has made major strides in recent years, with focus on coherence and collective action, and has reached a stage where major strategic initiatives of the MDB system, or individual banks, are either common or done on the basis of MDB wide consultations. Jointly, we have played an important role in global efforts to improve development effectiveness, particularly through our work on harmonization, alignment and managing for development results, where MDB working groups did much of the early work. Consequently, the MDB system now forms a critical foundation of development and transition cooperation, producing synergies at the country, regional and global level.

The attached report, "MDB Cooperation Update", which is the fifth joint report from the MDBs, gives a brief overview of joint activities and coordination that takes place on a regular basis. We believe it shows the central role of the MDBs in development architecture, and the need to give them strong support if we are serious about poverty reduction and other millennium development goals. While MDB cooperation covers all major areas of our operations, at this time we want to highlight three areas:

Growth and investment climate: Much of our lending and analytical work is aimed at stimulating growth and fostering an investment climate conducive to growth. To better align our work and leverage cooperation for effectiveness and lower transaction costs, we set up a working group on infrastructure, to do joint work in analysis and advice and look for opportunities for joint operations. Joint infrastructure studies, aimed at common financing needs assessments and future lending, are being done on a regional basis. We are seeing a renewed interest in MDB co-financing operations in infrastructure. Financial sector work is increasingly done jointly or through an agreed division of labor. And most recently, we decided to make the very useful and highly regarded Business Environment and Enterprise Performance Surveys (BEEPS)/Investment Climate Surveys a joint MDB activity to be conducted globally over the next three years.

Development effectiveness: More effective use of development resources and reduction of transaction costs in development operations have been at the heart of MDB cooperation. Early efforts focused on institutional harmonization of policies and procedures and produced significant results, including common bidding documents for much of our lending, harmonized environmental assessment guidelines and common good practice documents for important activities, such as pollution prevention and abatement, and common good practice papers on evaluations of public and private sector projects, to name a few examples. Going forward, we will give particular attention to alignment with country systems and processes, thereby helping strengthen country ownership and improve development effectiveness.

Recently, we have broadened the scope of alignment. For example, our working group on managing for development results continues to do excellent work on good practices and indicators, including a source book on managing for results, which was presented at the Paris conference. Similarly, the MDBs with concessional windows have deepened cooperation on the system for allocating resources and the country assessments that provide the input for the allocation. In the upcoming country assessment round, we will in essence use the same questionnaire and pilot joint

assessments in a few countries. And finally, we are now engaged in close consultations on how the MDBs can do a better job of serving our middle-income country group of clients.

Global programs: Global issues and global programs have become important in development and transition cooperation. MDBs are frequently asked to participate in global programs, whether as partners helping to focus attention on an issue or as implementing agencies at the country level. We are concerned about the challenges of linking global approaches and programs to country level operations, which is where we, as lending institutions, have our strength. Three years ago, we began to address this issue within the MDB system, with a joint policy note on 'MDB role in the provision of global public goods’. Going forward, we will cooperate on important global governance and transparency issues, such as the extractive industries transparency initiative, efforts to fight communicable diseases, protect the environmental commons and provide safe water. We will push for full integration of global issues and programs in development architecture, and will take on emerging global issues, particularly migration and remittances, and the link between peace and security and development.

We are sharing the attached report with the G-20 and G-7 groups of shareholders that are

currently reviewing the role of multilateral institutions.

Much has been achieved through our cooperation in recent years, but much more is still to be done. We look forward to your support as the MDBs address the challenges of development and transition.

Omar Kabbaj Haruhiko Kuroda Jean Lemierre

President President President African Development Bank Asian Development Bank European Bank for Reconstruction

and Development

Enrique Iglesias James D. Wolfensohn

President President Inter-American Development Bank World Bank

Update on Cooperation Among Multilateral Development Banks

African Development Bank Asian Development Bank

European Bank for Reconstruction and Development Inter-American Development Bank

World Bank

April 2005

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Table of Contents

Page I. Introduction 1 11. Strategic Coherence 2 111. Thematic Cooperation – Working Groups 3 IV. Country and Regional Cooperation 8

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Update on Cooperation among Multilateral Development Banks Introduction 1. This note provides an update on cooperation among Multilateral Development Banks (MDBs) since the last review which was completed in March 2004. It is the fifth joint report on MDB cooperation, part of what is by now an annual exercise, reflecting the growing institutionalization of cooperation at all levels between the MDBs. 2. This note highlights areas where progress has been made or work is ongoing at a strategic, thematic, and regional/country level. As in the case of previous updates, remaining challenges will also be discussed. The main issues highlighted include: • The MDB system has been transformed, with focus on coherence and collective

action, and now plays an important role in global development and transition architecture—as seen in the role of the MDBs in work leading to the Paris 2nd High Level Forum on Harmonization, and before that the Rome Forum and Marrakech Roundtable. The MDB system - now working more closely with OECD-DAC - is increasingly able to play a coordinated role in articulating and addressing major international development challenges. The MDB system now should take further steps toward coordination with the broader multilateral community to scale up development and transition efforts, particularly on the millennium development goals.

• With global and regional initiatives playing a growing role in development architecture (Global funds/ issue specific initiatives) the MDBs have started to address those issues, and will increase their cooperation, including consultations with shareholders, on how to manage global initiatives in the aid architecture and link global programs better to MDB core operations, for increased development impact.

• Through years of work in several technical and thematic working groups, major achievements have been made in aligning and harmonizing operational policies, procedures and practices, to the point where a major part of them has been substantially aligned. Differences related to different shareholders and mandates still persist and the application of aligned policies is not always consistent. Within the parameters of different mandates, the MDBs are committed to further progress in institutional harmonization and country implementation, including the use of country systems and managing for development results. External limitations on further harmonization will be taken up at the level of shareholders.

• Country and regional cooperation, guided by MoUs, has increased greatly, including growing coordination of country support strategies (and joint strategies, in a few cases), joint analytical work and increased co-financing. Good practice examples are, however, not yet consistently applied across countries. Scaling-up good practice, promoting cross-country, cross-institutional learning and strengthening MDB interaction in support of country-led processes will be high on the agenda.

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Strategic Coherence 3. Acting as a group, the MDBs play a very important role in development cooperation. Through their work on country level alignment, harmonization of operational policies procedures and practices, and their leadership in developing and implementing an agenda on managing for development results, they are often at the center of international efforts to strengthen coherence in development cooperation. Using their joint convening power to build support for the common approach and broaden its practical application, MDBs are increasingly reaching out to other development partners. 4. Cooperation among MDBs has been transformed in recent years, from ad-hoc consultation to the creation of a coherent system built on cooperation across a broad field of issues. Leading the strategy setting and coherence building, the MDB Heads have articulated and published joint positions on most major global development challenges, including through joint support for and hosting of global conferences and by issuing joint statements outlining common positions on agreed themes. The MDB system has become a leading force for improvements in the delivery of support to low and middle income countries, best exemplified by the leadership on alignment and harmonization. The structure of an MDB system for cooperation is firmly in place and strategic decisions are increasingly being turned into action on the ground. 5. Following the Rome harmonization forum, the MDB Heads placed emphasis on the “managing for results” agenda and co-sponsored the Marrakech roundtable on managing for development results in 2004. This has resulted in a very considerable joint MDB work on the broad results agenda (see working group report). Similarly, the MDBs played a central role as co-sponsors of the 2nd High Level Forum on Harmonization, Alignment and Results, held in Paris in March 2005, and as organizers of regional workshops held in preparation for the Forum. Also, the close cooperation in preparation for the May 2004 Shanghai conference continues with work towards the September 2005 UN Summit. 6. In Marrakech, the Heads decided on new initiatives in infrastructure analysis and financing; the approach to engagement with middle income countries – including funding, local currency lending and lending to sub-sovereign entities; and capacity building and governance. Substantive work has since been done in all these areas. 7. This year, in Paris, the Heads decided to transform the EBRD-WB cooperation on investment climate and business environment, known as the BEEPs initiative, and related investment climate surveys in other regions, into a global MDB sponsored work. They also decided to go forward with joint work on the middle income country engagement. In the low income countries AfDB, AsDB, IDB and WB inter-agency cooperation around performance based allocations and country performance assessments is being intensified and a formal working group around this issue has been established. Finally, with global initiatives and funds growing in number, size and influence, the MDB group has begun to engage jointly but will now broaden cooperation between MDBs and with shareholders on global programs and global public goods, seeking a coherent framework and approach in engaging global initiatives and funds.

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Thematic Cooperation – MDB Working Groups 8. Thematic cooperation, often pursued through technical working groups, endorsed by the MDB Heads, has been a core part of the coherence building efforts of the MDB system in recent years. Importantly, while post-Rome country implementation has become the main focus in harmonization work, MDBs also continued work on unfinished institutional harmonization and looked to add further important issues to this agenda: 9. Operational Policy Roundtable. The roundtable is a coordinating forum that gives guidance and promotes the harmonization efforts. It has been the main vehicle for MDB cooperation in the work leading up to the Rome, Marrakech and Paris forums on harmonization and managing for results. Its latest meeting, in Manila in June 2004, focused on setting the agenda for implementing the Rome commitments as well as setting the course for preparatory work for Paris. Preparations for regional workshops, hosted by the RDBs, were discussed in the roundtable meeting. The next meeting, in spring 2005, hosted by EBRD, will focus on follow-up to the Paris conference and new initiatives in MDB cooperation. 10. Procurement. The ongoing harmonization effort of the Heads of Procurement (HOP) of MDBs and other international financial institutions (IFIs) has resulted in significant progress towards harmonization of MDB/IFI-financed procurement policies and documents. Policies and bidding documents, based on harmonization agreements, e.g., on goods and works, and consulting services, have now been adopted in the MDB system. In the area of electronic government (e-GP), the MDBs have achieved a high degree of harmonization through the working group, including a joint website (www.mdbegp.org), and an IDB, AsDB, World Bank organized conference on e-GP in Manila, at which 25 countries were represented. Continued harmonization of procurement policies and practices—policy convergence—has resulted in the conclusion that MDBs and other IFIs have advanced significantly in being “substantially harmonized”. That effort also highlighted that the remaining differences require decisions from other stakeholders such as the MDBs’ owners on, for example, eligibility of suppliers, consultants and other contractors to participate in procurement that cannot be reconciled by HOP efforts. 11. The most recent meeting of the group took place in Helsinki, hosted by the Nordic Development Fund in October 2004, where the draft master bidding document for civil works was approved and is expected to be issued and used as a base for each MDB to issue its own standard bidding documents. The group has continued to work on master documents for procurement of plant and equipment, which is expected to be completed in 2005. It has also produced joint country procurement assessment reports in several countries The HOP has initiated two new areas of activity: (a) a joint effort with OECD/DAC and other bilateral donors and several borrowing countries on a capacity building effort to encourage reforms in countries procurement systems; and (b) starting discussions on a technical basis for future assessment and possible use of country procurement systems in operations funded by IFIs. 12. Financial Management. The MDB Financial Management Working Group (FMWG) comprises the five MDBs and the Islamic Development Bank (IsDB). The Working Group’s main objective is to seek to achieve harmonization in financial management policies and procedures in support of broader donor harmonization and

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alignment objectives. Meetings have been held twice a year with the two most recent meetings held in March 2004, hosted by IADB in Washington D.C. and another one in October 2004, hosted by AfDB in Tunis. Recent activities of the WG include: • Joint diagnostics. The framework paper on diagnostics (February 2003) has

facilitated joint diagnostics with these now being routinely undertaken. For example the Africa sub-group (AfDB, IsDB, and WB) reports that 11 have been undertaken jointly to date, with 8 more planned for FY05, while the Asia sub-group (AsDB, IsDB, and WB) has facilitated joint diagnostics in Indonesia and Pakistan. IDB and WB have carried out 12, with 3 more currently in preparation.

• Information Sharing. Where policy changes with a financial management impact are underway at any MDB the WG is briefed and the implications for the other MDBs considered. Participants take back key messages to their own institutions on what needs to be done to “catch up”. For example, in IDB-WB cooperation on Reports on Standards and Codes and Quality Control Review of Independent Auditors in several countries in Latin America.

• Joint Learning. As a matter of routine, MDBs participate in each other’s training activities. Almost all the MDBs participated in the WB’s Fiduciary Forum held in Washington in March 2004; WB participated in an AsDB week long training session held in Delhi in July 2004 and AfDB participated in WB’s Africa Region Fiduciary week in Addis in February 2005.

• Country Level Activities. Facilitated by the framework paper on financial reporting and auditing, WG members have supported operational staff either at the country level—such as in Ethiopia where AfDB and WB are joining the government in an effort to agree to common reporting and auditing arrangements that would apply to all donor financed activities and that are based on the county’s own systems, or at an operation specific level—such as in the Bangladesh Education SWAP, which has AsDB in the lead with WB being one of a number of other participating donors.

• Disbursements. A sub-group on disbursements meets concurrently with the Financial Management group. This group was recently established to seek opportunities for harmonization in disbursement policies and procedures. An inventory of comparative disbursement policies and procedures has been completed. At its meeting in Tunis in October 2004, the sub-group identified five priority areas and divided work on each of them among the banks, with a deadline for reporting back before the middle of 2005.

13. Managing for Results. The MDB Working Group on Managing for Development Results has become a key inter-agency mechanism for fostering a global partnership on managing for development results. The Working Group has constituted itself as a standing forum to share information and experiences in developing strategies, processes, systems, procedures, practices and tools to better manage for results—to use information to improve decision making and steer country-led development processes toward clearly defined goals. The WG also pursues specific initiatives jointly with bilateral development agencies within the framework of the MDB-OECD/DAC Joint Venture on Managing for Development Results. Highlights from the WG include:

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• Regional workshops. The MDBs coordinated their efforts in the preparation of four regional workshops aiming at engaging developing countries in the global partnership on managing for development results.

• Draft Sourcebook on emerging good practice in managing for development results. (http://www.mfdr.org/sourcebook.html) All MDBs contributed examples of good practices in managing for development results for the preparation of the draft, led by the World Bank under the direction of a Review Panel composed of representatives of IDB and bilateral donors.

• Harmonization around results. The World Bank and AfDB have undertaken four pilots on harmonization and alignment around results and results reporting. AfDB, jointly with DFID, co-leads the work on agency performance assessment.

• Agency performance assessment. AfDB, jointly with DfID, co-leads the work of the joint venture on agency performance assessments.

At the Paris Forum, MDBs – and bilateral donors – committed to support regional

communities of practice, including a focused learning process in selected partner countries. Among the MDBs, a priority action is the adoption of a common framework for self-evaluation of MDB performance and results measurement. 14. Evaluation Cooperation Group. The ECG, consisting of the AfDB, AsDB, EBRD, EIB, IDB, IMF and WB, contributes in furthering the harmonization and results agendas in the area of evaluation. Recent work has built on efforts initiated a few years ago, including: • Harmonization of Good Practice Standards. A 2002 benchmarking exercise on

private sector standards was updated in 2004.1 The major findings were that although significant progress has been made in most institutions, no member is yet fully compliant with the good practice standards. In view of the endorsement by the Presidents of the call in 1996 by the Development Committee Task Force that the MDBs should harmonize their evaluation methodologies, performance indicators and criteria, it is important to note that the MDB evaluators feel they are reaching a stage in which it is more difficult for their evaluation units to harmonize until there is greater policy harmonization among the MDBs at the operational level. In respect of comparability of the results among the institutions it should be clear that only those performance categories can be compared which most of the MDBs have in common. The focus of the group will remain on harmonization, but in the future the group will emphasize more on cooperation and exchange of ideas and lessons learned. Members will benchmark their performance against public sector standards beginning in 2005.

• Higher level evaluation and capacity development. The ECG continued discussions on Country Program/Assistance Evaluation methodology to share approaches and to develop a Good Practice Paper. Discussions of issues of comparative governance among MDBs led to the creation of a governance template to assess organizational and behavioral independence of the evaluation function, its protection from outside interference and its mechanisms to avoid conflicts of interest. A revision of the template was completed recently. Given

1 The ECG began by completing two studies, Good Practice Standards for Evaluation of Private Sector Investment Operations (2001) and Good Practice Standards for the Evaluation of MDB Supported Public Sector Operations (2002). This was followed by the formulation of an ECG Public-Private Sector Good Practice Standards Comparison Document, which would help facilitate further harmonization of standards.

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the importance of Policy-Based Lending in most member institutions, the ECG did a stocktaking exercise of evaluation practices being used to evaluate policy based lending operations. The final report was completed by the AsDB in September 2004. Based on the findings from this report, an addendum “Good Practices for the Evaluation of Policy-Based Lending” was published in December 2004. Independence of the evaluation departments has increased as many ECG members now report directly to their Boards of Directors and have more independent budget processes.

• Joint evaluation. Members have conducted joint evaluations on country programs for Peru, Lesotho and Rwanda, while joint sector evaluation was conducted through a sector study of the transport sector in Ghana. The emphasis has been on joint processes more than on joint products, and on reducing evaluation costs to client countries.

15. Performance Based Allocations and Country Performance Assessments. Further steps to harmonize the performance based allocation (PBA) approaches of the MDBs are now firmly on the common agenda. A January 2005 workshop, organized by the AsDB in Manila and attended by some 20 participants from multilateral and bilateral agencies identified a number of specific PBA implementation issues of common interest: • Ratings Disclosure. The upcoming “full disclosure” of MDB country ratings

brings the challenge to make sure they are aligned. AfDF, AsDF and IDA will in essence, use the same questionnaire (criteria plus level definitions). IDB also discloses PBA scores and allocations.

• Joint Client Workshops. The AsDB has invited the World Bank to participate in two regional client PBA workshops to enhance client understanding and ownership of the PBA system. The workshops will be held in April: one for the Pacific Islands in Fiji, and another for other AsDB countries in Bangkok. Similar cooperation is being considered in Africa.

• Next Steps. A joint paper is being prepared for the Boards of AfDB, AsDB, and WB on PBA harmonization. This paper will, among other things, highlight the potential merits and possible conduct of joint assessments (World Bank and the relevant regional MDB) in the regions. The paper will also include an Annex with comparative matrices summarizing the respective agencies' PBA system features and their differences. Also, a meeting is planned for January 2006 in time for joint planning of the full CPIA disclosure.

16. Environment. The MFI-Working Group on Environment (MFI-WGE) has continued to work in a sustained manner on the harmonization agenda and has taken a number of actions to support dissemination and implementation of the Rome Declaration issued at the HLF-I and is undertaking actions linked with the HLF-II held in Paris. Key current activities of the MFI-WGE include: • Preparation of “A Common Framework for Environmental Assessment: A Good

Practice Note (January 2005– English and French)” distributed at HLF-II; • Joint preparation of an Updated Version of the Pollution Prevention and

Abatement Sourcebook; • Joint preparation of Indigenous Peoples Policy Handbook Guidebook; • Development of a new joint training work program for environmental and social

review of Intermediate Credit Operations;

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• Preparation of Environmental Guidelines for Small and Medium Scale Infrastructure for MFIs and Bilateral Donors; and

• Development of a joint work program for Use of Country Systems. • Periodic meetings to share experiences on environmental mainstreaming and the

application of country environmental analysis. At the last meeting, participating agencies presented specific cases and discussed methodologies and ways to harmonize procedures, including joint efforts.

17. Gender. The MDB/IMF Working Group on Gender (WGG) consists of two sub-groups, one that addresses gender issues in operations (gender and development), and one that addresses institutional gender issues within the member organizations. The sub-groups meet separately to work on issues of shared concern, and together to develop common approaches. Activities and concerns include: • The operations sub-group has promoted increased collaboration at the regional

and country levels in the process of mainstreaming gender in policies and operations. It also advocates for the need to maintain technical staff to support gender mainstreaming in the respective institutions.

• Several country gender assessments (CGAs) have been undertaken jointly, e.g., Cambodia (multi-donor CGA) and Mongolia CGA (ADB/WB). More are being planned.

• The organizational sub-group has provided a relevant pool of comparators for benchmarking statistics and practices. Comparative data on women in key professional positions and management/senior technical positions were presented for the first time in the 2003 report; the sub-group is working on a 10-year trend analysis.

• The group drafted a joint statement which the MDB Heads released on International Women’s Day (March 8), reaffirming their agencies’ commitment to implementing the Beijing Platform for Action, coinciding with the special session of the UN Commission of the Status of Women to mark the 10-year follow-up to the UN Fourth World Conference on Women (“Beijing +10”).

• An issue of concern to both sub-groups is how to maintain the momentum of gains over the past decade, which seems to be slowing due to some evidence of fatigue with gender mainstreaming issues.

18. HIPC and Debt Sustainability. The MDBs have continued their cooperation, with other IFIs, on the debt relief and sustainability issues, which have taken on new dimensions with some MDBs preparing to allocate grants and credits based on debt sustainability considerations, and with the announcements by G7 and others of interest in further debt relief. The HIPC group meets regularly to take stock of debt relief progress and has broadened its remit to also address other key issues. The most recent meeting was in Tunis in December and the theme was debt sustainability and shocks. RDB collaboration on low-income country debt sustainability analysis, using the new WB-IMF debt sustainability framework, will be explored to ensure, to the extent possible, a common basis for judgment on the allocation of grants to low-income countries. New shareholder pronouncements on further multilateral debt relief only highlight the importance of continued MDB engagement on this issue. 19. Capacity Building, Governance, and Anticorruption. The working group was reconstituted in Marrakech to push for harmonization in the field of capacity development, which was increasingly seen as important to improve aid effectiveness.

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While some MDBs opted not to participate fully in the capacity development related activities of the Harmonization Working Group, the group met twice (once in Manila in June 2004 and once in Tunis in December 2004) and made substantive progress on developing their individual organization's capacity development agendas in a coordinated way and agreeing on a joint MDB agenda. The emerging agreements and suggestions for future MDB collaboration on capacity development are reflected in the Group's synthesis paper which was prepared for the High Level Forum Meeting in Paris. The recommendations of the synthesis paper will be reviewed in light of the Paris Declaration. In particular, a coordinated approach to preparing, implementing and monitoring capacity development strategies at country level will be developed.

20. Beyond capacity development, there is a need for better donor harmonization in the field of anticorruption, an area which should play an increasingly important role in the medium-term work plan of the Group. The recent and ongoing OECD/DAC GovNet work on Anti-Corruption will be used as a starting point in this regard. 21. Trust Funds and Co-financing. Alignment work on Trust Fund policies and operations and on co-financing has recently become part of the cooperation agenda and can be expected to grow in importance. The heads of trust fund and co-financing departments now meet regularly, twice in the last year, most recently in Tunis, to discuss alignment of polices and mobilization efforts. The next meeting in late April, will, among other issues, discuss harmonized mobilization for joint MDB efforts that produce global or regional public goods. 22. Other Themes. Several senior MDB managers maintain a regular form of consultation and information sharing, including regular meetings such as the Controllers Forum and the Chief Financial Officers Forum. Members of the revived Infrastructure Group have had consultations and exchanged views, with a meeting scheduled for spring 2005. The Banks are currently engaged in collaboration, including participating in joint workshops with bilateral agencies, in engagement and modalities for cooperation with middle-income countries. Finally, it has been agreed that cooperation on business environment and enterprise performance studies (BEEPS program) piloted by EBRD and WB, and similar investment climate studies in other regions, will now become a global MDB activity and an MDB working group has been formed around this issue. Stronger Cooperation at the Country and Regional Level 23. Cooperation among MDBs in country and regional operations, joint analytical work and various activities to support harmonized and aligned approaches, has deepened considerably in the last few years. Typically, two MDBs (occasionally three) are engaged in each of these activities, but increasingly pulling in other MFIs, sub-regional and bilateral institutions. 24. Memoranda of Understanding underpin much of this cooperation. All RDBs have such agreements with the World Bank. AsDB also has agreements with EBRD and with IDB. While the MoUs themselves are general, they are normally accompanied by action oriented annexes that spell out a joint work program for the MDBs involved.

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25. These MoUs are updated periodically. For example, the AfDB-WB MoU was reviewed in 2002-2003. The review resulted in a considerable sharpening of the focus of collaboration and a decision to consolidate the cooperation. After the consolidation the MoU focuses on cooperation in 10 priority countries and the following thematic areas: capacity building, governance, harmonization, HIV/Aids, infrastructure, NEPAD, regional integration, water and staff development. Similarly, the IDB-WB MoU was updated in 2003- 2004 and, similarly, the outcome was an emphasis on focus and consolidation of joint activities, with a particular focus on procurement and financial management. The AsDB-WB memorandum, which focuses on country specific cooperation, institutional strengthening and capacity building, is under review. The AsDB-IDB Partnership Agreement is being renewed through 2009, focusing on knowledge exchanges between the two regions, funded by the Japan Program, administered by IDB. EBRD and WB are, together with EC and other European MFIs, signatories of two MoUs. The first, on cooperation in the EU candidate countries, will be expanded this summer to also include cooperation in the Western Balkans. The second is on cooperation in the CIS countries. 26. High-level consultations, involving senior operational management teams from the World Bank and each RDB, respectively, play an important role in bringing the intentions of the MoUs to action at the regional and country level. Consultations at the level of VP normally take place once a year, with more frequent consultations at Director level. For example, the next AfDB –WB and AsDB-WB high level consultations are planned for the spring of 2005. 27. Coordinated country strategies have been on the cooperation agenda for several years. Progress has been slow but is picking up. Recent examples include Honduras, Ecuador, Cambodia, Timor-Leste, Uganda. 28. Co-financing is an important part of MDB cooperation, with benefits including lower transaction costs and opportunities for coordination, and inter-MDB co-financing makes up the majority of development co-financing. While, in recent years, co-financing has become better coordinated and strategic, it is probably still an under managed part of MDB cooperation. Among examples of MDB co-financing: • In Algeria, AfDB followed a WB technical assistance project on telecom and

postal reforms with a loan to strengthen as part of the project. In Morocco all adjustment programs have been co-financed since 1998, and were prepared, appraised and supervised jointly. In Ethiopia they work together in a multi-donor effort to coordinate budget support to the government.

• In Bangladesh, AsDB and WB work together –and with others -in the primary education development program (AsDB in the lead), in a new and innovative effort to align all partners behind a single government program.

• In Peru and Ecuador, IDB and WB co-financed four projects, as part of a regional co-financing volume of a dozen projects to an amount of close to $ 7 billion. In Honduras and Nicaragua they are working together in SWAPs, for example in education in Honduras.

29. Alignment and harmonization, has moved from technical working groups (originally MDB groups) to supporting implementation at the country level. MDBs have played an important role in efforts this far:

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• In Vietnam, AsDB and WB are supporting the government’s harmonization action plan, with a focus on operational processes in fiduciary work, project preparation, environmental safeguards and portfolio management. In Bangladesh they work with others in a SWAP with harmonized implementation and procurement rules.

• AfDB and WB are working together in the NEPAD and SPA to support harmonization pilots in several African countries, including Ethiopia and Tanzania. In Tunisia, education teams work closely to harmonize their operations with the government’s overall reform program.

• IDB and WB are cooperating on harmonization of procurement and financial management in several Latin American countries, selected as part of the Rome Forum process (Bolivia, Jamaica, Nicaragua and Honduras). Furthermore, World Bank/IDB joint CPARs were prepared in Honduras, El Salvador and the Dominican Republic. Additionally, CPARs are under joint preparation in Guatemala, Costa Rica, Peru, Jamaica, Ecuador, Colombia and Uruguay. Joint analytical work is also being carried out in Mexico. Audit requirements, policies for loan disbursements and legal documents are being harmonized and simplified. Cooperation on Reports on Standards and Codes and on International Accounting Standards continues in several countries, including Chile, Uruguay, Jamaica, Mexico, Dominican Republic and Peru. Similarly information sharing has been put in place for IDBs quality control review on independent auditors. In financial management, joint work includes country financial accountability assessments in Bolivia, Peru, El Salvador, Guatemala and Costa Rica. Audit requirements, policies for loan disbursements and legal documents are being harmonized and simplified.

• The RDBs hosted regional workshops, and the World Bank participated, to prepare for the Paris High Level Forum on Harmonization – in Tanzania, Thailand, Kyrgyz Republic and Nicaragua.

30. Regional and global issues are increasingly part of MDB cooperation, where the RDB typically has a leading role in providing a regional perspective, and the World Bank complements that with a cross-regional one: • AsDB, JBIC and WB are conducting a regional infrastructure study that will

underpin future operations of all institutions involved. Both are partners in the regional Mekong river partnership.

• IDB and WB are consolidating country-specific analytical work into a jointly financed and conducted regional diagnosis for the infrastructure sectors in Latin America and the Caribbean.

• IDB, AsDB and JBIC hosted a Forum (also attended by WB) on regional public goods.

• AfDB and WB are working on a joint regional water sector study, and also cooperating in the Nile River Basin management efforts.

• EBRD and WB are jointly conducting business environment and enterprise performance studies in their common countries – an effort that is now being suggested for a broader MDB cooperation.

• AsDB and WB have, similarly, conducted investment climate studies in Philippines, Indonesia and Sri Lanka, with one under way in Lao PDR.

31. Special challenges typically call for close cooperation between MDBs. The LICUS / difficult partnership countries have become more prominent on the MDB

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agenda. Responding to regional economic crisis tends to bring MDBs closely together in cooperation, be it in Argentina, Haiti, Russia, East Asia or Cote d’Ivoire. Humanitarian disasters and conflicts also call for well aligned MDB responses, particularly in helping to arrange the transition from immediate response to a longer term reconstruction. Two current examples: • In responding to the recent Tsunami disaster, UN, AsDB and WB have worked

closely with governments of affected countries and with other partners (including EIB and IsDB) since the first days after the disaster. Needs assessments have been done jointly and have also included representatives of bilateral donors.

• In Sudan, AfDB and WB are cooperating in helping to create conditions for reconstruction following the peace agreement between the government and the southern rebels, while also supporting efforts to end the tragedy of Darfur.

Going Forward 32 MDBs, individually and as a multilateral system, are the central pillars of global development and transition architecture. Importantly, therefore, the current status of MDB cooperation indicates that the MDB system is at the forefront of coherence and partnership building in development and transition cooperation. But, while much of the structure is now in place and serves our clients well, more needs to be done to broaden coordination with other important players and turn agreements into practice. In particular, we need to engage with MDB shareholders to maintain support for a multilateral approach to development cooperation, making the case that the MDBs are among the best vehicles available for operations and analysis. Going forward we will particularly strengthen MDB cooperation in the following areas: • Building on the MDB coordination at the strategic level, and the increasingly

strong partnership with OECD-DAC, MDBs will make further efforts to include the broader multilateral community in such core tasks as alignment behind country owned strategies (PRS, etc.), harmonization and simplification of policies and procedures, the use of country systems whenever reasonably possible, focusing on development results and other implementation issues emanating from the Paris declaration.

• In low-income countries, the cooperation that has started around the policy frameworks for IDA, IDB’ FSO, AsDF and AfDF will be further built on in terms of issues and partners, including performance based allocations and country performance assessments. In middle-income countries the recently started consultations on approaches and frameworks for engagement will be deepened and new areas for cooperation explored.

• We are doing a better job of aligning and coordinating our strategies and operational work. We have promising examples and we will move ahead with a more consistent implementation of the commitment to coordinate these strategies. Similarly, there are many excellent examples of joint analytical work, and we will further increase consistency in applying the principle of joint work. Obviously, more needs to be done to consistently implement our commitments. Doing that will be prominent on our agenda as we go forward, including through the implementation of the specific MoUs, all of which include the above issues.

• We have different shareholders and they assign different mandates to each MDB. These different institutional mandates and shareholder preferences are

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increasingly setting the boundaries for further institutional harmonization. While we acknowledge these differences, we are committed to aligning MDB policies and processes as much as possible and may ask our shareholders for increased flexibility to take that agenda forward. In that spirit, all MDB working groups are encouraged to make as much progress as possible on institutional issues and to take the country implementation agenda forward at all possible speed. Work on aligned approaches to capacity building and governance, while admittedly very challenging, is particularly encouraged. We look forward to seeing progress with new initiatives, such as turning the Business Environment and Enterprise Performance Surveys into a global MDB activity.

• Global initiatives and global programs are an increasing feature in development and transition cooperation. With the global and regional mandates of the MDB system, we are frequently being called on to help implement global initiatives. We will strengthen our interaction with shareholders to bring coherence to the establishment and operations of global initiatives and funds, to achieve potential complementarities between global and country focused approaches. We will, particularly, advocate maximizing the use of existing delivery channels, such as MDB concessional windows, and that global initiatives which deliver goods at the country level be fully integrated into country based planning processes, such as PRSs. Building on the initial work of formulating joint MDB posture on global public goods two years ago, MDBs will now give greater priority to developing coherent common positions on interaction with global initiatives.