In this issue

Recent Developments in IMF-CSO Relations

Feature Article:
An interview on the MDGs and poverty reduction with James Boughton and Mark Plant

The 2004 Spring Meetings:
Report from the International Monetary and Financial Committee
Civil society dialogues at the Spring Meetings:
Reaching the MDGs—The Global Monitoring Report
Mixed reactions for new debt sustainability framework
The Role of the IMF in low-income countries
Other events

Poverty Reduction:
Poverty and Social Impact Analysis at the Fund

Fiscal Transparency:
Global Witness presents new report on revenue transparency to IMF Staff

Letters from the Field:
Deputy Managing Director Carstens in Tanzania and Mali
Western Hemisphere Department
Zuzana Brixiova, Lithuania

Bulletin Board:
Other recent meetings between IMF staff and CSOs
Upcoming events
Inside the IMF
Selected speeches
Selected publications

In the past few months, the IMF has been the focus of attention because of the unexpected resignation of Horst Köhler as Managing Director and the selection of Rodrigo Rato, the former Finance Minister of Spain, as his successor. Mr. Köhler’s decision to run for President of Germany reopened a debate over the selection process for the IMF’s most senior post. This issue is an important element of a broader debate about "voice and representation," the influence of different regions and countries in the IMF’s decision-making procedures. While this topic will have a more prominent place on the agenda for the October 2004 Annual Meetings, it featured in many discussions at the Spring Meetings, including those with civil society. At one point four CSOs co-sponsored a public discussion of the issue in a meeting hall inside the IMF Headquarters just as the meetings got underway. Many criticized the traditional practice of having a European head the institution and called for a selection process open to qualified candidates from all countries.

As the selection proceeded, two candidates were considered, with Executive Director Shakour Shaalan nominating Mohamed El-Erian, a former Fund staffer and currently head of portfolio management at Pimco, the asset management company. Each candidate was interviewed by the IMF Executive Board. Both candidates also met with individual Directors, and during the Spring Meetings Mr. Rato met with the finance ministers from African countries. The Board then met on May 4 and conducted first a "straw poll" and then elected Mr. Rato unanimously. He is expected to take up his post in early June.

The Spring Meetings brought renewed attention to the issues facing low-income countries (LICs). The release of the first annual World Bank-IMF Global Monitoring Report assessing the effort to achieve the Millennium Development Goals (MDGs) underlined the difficult challenges that the international community faces: most of the world’s poorest nations are likely to fall short of the MDGs unless there is a renewed commitment by all parties—developing and developed countries and international institutions—to the effort to raise living standards. An interview in this issue with two senior Fund staffers involved in the effort to achieve the MDGs offers some perspective of the recent work in this area at the IMF. A discussion of the report also was the centerpiece of a forum for civil society during the Spring Meetings.

The IMF has also recently announced an initiative to strengthen further its work in support of poverty reduction, establishing a group that will work exclusively on Poverty and Social Impact Analysis (PSIA). The aim is to understand better the effect of IMF programs on vulnerable groups—especially the poor—and to improve the quality of program design. An article in this edition outlines the aims of the new group and the approach it will take.
 

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An interview on the MDGs and poverty reduction with James Boughton and Mark Plant

The Millennium Development Goals (MDGs) represent the guiding objectives of worldwide anti-poverty efforts. How far along are countries and development agencies in meeting the 8 goals, which include the overarching target of halving world poverty by 2015 as well as addressing a range of health, education and environmental issues? "On current trends, most MDGs will not be met by most countries," said a Global Monitoring Report (GMR) by IMF and World Bank staff that was released in April. "Achievement of the MDGs requires… substantially accelerating progress."

To learn how the IMF plans to play its part in the intensified MDG effort, the Civil Society Newsletter spoke with two Fund staff members who play key roles in the Fund’s anti-poverty programs. Both are Assistant Directors of the Policy Development and Review Department: James Boughton, who leads the Fund team working on the GMR and is responsible for policy work on the MDGs; and Mark Plant, who coordinates policy efforts in low-income countries (LICs). The interview took place in late April at IMF headquarters in Washington. Excerpts:

Q: The Global Monitoring Report presents what seems to be a discouraging picture. The regions with the biggest needs are not far along in reaching the MDGs. Can the fund and other agencies help these countries reach the goals by the target year?

JB: It’s a daunting challenge; no question about that. The number of people living on less than $1 a day is not coming down yet in sub-Saharan Africa. But countries are making progress in putting in place the policies that they need to achieve the goals, even though they are not yet reaching the segments of society that are most at risk. Macroeconomic policies across the board are better than they were 10 or 15 years ago. Most low-income countries now have pretty reasonable policies on how they manage their exchange rates, for example. You don’t see a lot of countries with exchange rates that are wildly out of line with market fundamentals. You don’t see a lot of countries that have extremely high inflation rates any more. Economic growth is up in Africa. So there is progress in policies, and there are the beginning signs of good progress on economic performance.

Q: In the Millennium Development Goals process, what is the IMF’s role in its relationships with poor countries?

MP: The IMF is a partner in mobilizing resources, in thinking about how to capitalize on the gains made from macroeconomic stability, about how to use aid well and accelerate efforts to fight poverty. That is a very different kind of role from the past. The objective is no longer just stabilization. The issue now is, "How do you translate stability into growth?"

JB: When needs assessments are completed, each country will have a set of spending objectives to achieve quantitative time-bound goals – the Millennium Development Goals. The assessments will be the basis for discussions on what a country needs to do to make its economy work more efficiently, to increase its absorptive capacity, to mobilize domestic resources. At the same time assessments will give the IMF a basis for discussing with donors what new resources the country can effectively put to good use.

Q: Despite the changes in the IMF’s relationship with low-income countries, needs in those countries still outweigh the possibilities for dealing with them all at once. Does the IMF still have the role of saying, "No, you can’t spend on this?"

JB: It’s not that we’re trying to say "No" to countries that have great needs for spending. It’s a matter of trying to ensure that the policy proposals on the table are realistic and are going to be beneficial. We have programs in which we are giving financial support to anywhere from 50 to 70 or more countries at a time. The Fund is an institution that says "Yes" whenever it can—conditional on countries using that money for good purposes. One of the ways we’re doing that is to put the country in the driver’s seat in preparing the country’s strategy for reducing poverty and strengthening growth, through the Poverty Reduction Strategy Papers.
 

Q: The IMF has been studying debt sustainability. How does that work on debt sustainability connect to the Millennium Development Goals program?

MP: Twenty-seven countries are in the midst of the Heavily Indebted Poor Countries process, which is an effort to try to make debt burdens more sustainable. When those countries complete the process, they’ve got their debt relief, but they’re not going to stop borrowing. How much can a country safely borrow so that it doesn’t find itself again in debt difficulties? That depends on the nature of the borrowing and the cost of the borrowing. It depends on the government policies, how well they’re geared toward making use of that money to invest it and get social returns. A recent paper that we put out says that the amount of debt a country can carry depends on the quality of its policies. Countries that are better governed can probably carry more debt. In another paper this summer, we will tackle the problems of putting these ideas into a framework that countries and their partners can use.
 

Q: In the global anti-poverty program, the IMF is seen as the policeman or the schoolteacher. Why do you think that is?

JB: Power and wealth are very unevenly distributed in the world. The agency that seems to be enforcer of the rules is a convenient target, if one is looking for a convenient target. True, the IMF in the past has not been as actively involved in the development process as perhaps it should have been. In the 1970s, we would say to a country, "It’s up to you to decide what spending to cut." We tried not to be intrusive. And the result of that, in many cases, was that governments would cut what was easier to cut. A country would want to maintain large employment of government workers because there is a big political constituency for that. Authoritarian governments would want to maintain military spending—often maintained for internal as much as external security. So cuts fell most heavily on the poor. And it was in everybody’s interest except ours to blame it on the IMF. Now the Fund is playing much more of an active role in development. But there is a lag in perceptions. It takes time to change, but it takes even longer for people to realize you’ve changed.
 

Q: There is an underlying assumption in the Global Monitoring Report that good governance will help achieve the goals. But in Latin America, for example, the United Nations Development Program reports widespread impatience with democratic governments. If authoritarian solutions become more popular, would the IMF get involved in that political debate?

MP: A country’s political makeup is up to that country to decide. And perhaps authoritarian governments can take big decisions quickly. But will they last? What we’ve seen in many cases is that transparent decision-making, the involvement in making decisions by people who are affected by the policies, and the ability of those people to see the impact of the policies on their everyday lives, are critical to creating the political consensus for fundamental economic changes.
 

Q: How big a change is the new relationship from the one that existed in the past?

JB:The debate used to be all about the shortage of money. The poor countries were saying, "We can’t grow without more external assistance." The rich countries were saying, "We can’t justify giving more development aid without any indication that this money is going to be put to good use." It was a vicious circle. How do you break out of that? You focus the discussion on what needs to be done in partnership. That’s what the Monterrey Consensus, which was the basis for the Global Monitoring Report, tries to do. The developing countries have a certain responsibility to strengthen their policies, and the developed countries have a responsibility to open their markets to low-income countries’ exports, to increase development assistance, to keep the world economy growing, and to deal with their economic imbalances. And the IMF and World Bank have their own responsibilities in promoting development. The result is the creation of a joint momentum for the rich countries and poor countries to work together toward achieving those goals. I don’t want to sound naïve—that somehow we’ve solved all the problems. But I think that having this global monitoring exercise is going to be a big part of moving from a vicious circle to a virtuous circle.

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Report from the International Monetary and Financial Committee

The International Monetary and Financial Committee (IMFC) held its Spring 2004 Meeting on April 24 at a time of growing optimism about the global economy. The gathering of the IMFC, which twice a year brings together policy makers from 24 countries representing all 184 IMF members, gave considerable attention to the Fund’s work with low-income countries (LICs) and well as the broader work of crisis prevention.

The IMFC communiqué, issued at the close of the session, lauded the recent strengthening of the global economy—a recovery that has benefited rich and poor countries alike. But the Committee emphasized the importance of all countries using this period to implement the reforms that would make the recovery robust, balanced and sustainable—especially by addressing global imbalances. The communiqué cited the brisk growth of the U.S. economy and Japan’s recent rebound, but said that the euro area has seen more subdued recovery. It specifically called on the U.S. to pursue medium-term fiscal consolidation, while saying that the euro area needed to accelerate structural reforms, and Japan to continue banking and corporate reforms. The Committee said it was encouraged by the strong economic performance and recovery of many emerging market and developing countries, and it called on those countries to take advantage of the favorable climate to undertake the reforms that will reduce vulnerabilities.

While the economic outlook for many LICs continues to improve, the Committee said that the Millennium Development Goals (MDGs) remain at risk, particularly in sub-Saharan Africa, and much remains to be done by all partners—developed countries, developing countries and the multilateral institutions. The communiqué said that stronger domestic institutions, sound economic policies, trade integration, and less burdensome regulation will be needed to underpin faster growth and poverty reduction. It also called on the international community to provide additional and coordinated support: technical assistance, policy advice, increased and more effective aid—including grants—debt relief, and greater access to industrial country markets.

The IMFC agreed that the Fund—in partnership with other multilateral institutions—has an important role to play in assisting LICs, and welcomed progress in better tailoring IMF assistance to those countries. It underscored the importance of improving the design of Poverty Reduction and Growth Facility (PRGF) programs, including the social impact. It encouraged a further sharpening of the Poverty Reduction Strategy Papers (PRSPs) and PRGF-supported programs to enhance their relevance to the MDGs. However, the first Global Monitoring Report on meeting the MDGs, undertaken jointly by the Fund and the World Bank, highlighted the significant remaining challenges, and the Committee expressed concern that on current trends, most MDGs will not be met without an increase in the level and effectiveness of financial resources in support of strong policies. The Committee also welcomed progress in providing debt relief under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative, with five more countries reaching their completion point in the past six months. The communiqué looked to further progress toward full implementation of the HIPC Initiative, and took note of the work being undertaken on options for addressing the HIPC sunset clause. The IMFC urged all creditors that have not yet done so to deliver debt relief in full.

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In the week leading up to the 2004 Spring Meetings, CSOs coming to Washington participated in a series of IMF and World Bank meetings as well as events related to the Bank and Fund organized by CSOs. Most of the meetings discussed recent papers regarding work with low-income countries (LICs): the first Global Monitoring Report on policies and actions for achieving the MDGs; a paper on the new IMF debt sustainability framework; and a paper on IMF policy toward the LICs. IMF staff participated in two outside debates. The Fund also offered its auditorium for a panel discussion on governance of international financial institutions organized by four CSOs.

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Reaching the MDGs—The Global Monitoring Report

CSOs discussed with Bank and Fund staff the findings of the first Global Monitoring Report (GMR) on policies and actions for achieving the Millennium Development Goals (MDGs). The debut edition of the GMR says that, on current trends, most MDGs will not be met by most countries. There is an urgent need for all parties in the process—developed countries, developing countries, and international financial institutions—to increase their efforts to accelerate progress toward the goals.

PDR Assistant Director James Boughton said that the role of the IMF in helping countries achieve the MDGs was part of a broad effort to reposition the Fund’s work with low-income countries (LICs). Before the MDGs, the fundamental constraint that the Fund faced was that every country had to have a budget that could be financed. Because a LIC’s spending needs would typically be greater than its available financing, the spending needs would always be squeezed. The MDGs represent a consensus to achieve specific development goals by 2015, including a halving of poverty and reductions in several other key indicators. That means there will be an irreducible level of spending that had to be met to achieve these goals. Boughton said the drive to meet the MDGs represent a new way of looking at LICs’ problems, adding that it gave the Fund a way to help the countries try to mobilize international resources and to work with stakeholders in the developing countries to identify ways to mobilize additional resources domestically. He said he expects subsequent GMRs to carry "increasingly specific" reports on Fund action with other agencies to make progress.

Panelist Cheyanne Church, of the U.S. NGO Search for Common Ground, said the GMR represented a commendable, monumental initiative and a sign of shift and change at the Bank and Fund. But she said it was mostly quantitatively driven. This would not always provide a holistic picture, particularly at the community level, she said, adding that quantitative progress could hide qualitative problems. Church also cited what she said was the GMR’s excess of different levels of units of analysis, stretching all the way from local to global scale. She questioned how macro-level measurements could be transferred to apply to communities on the ground. She said there were no formal definitions of terms such as governance, capacity, and effectiveness, and asked how such attributes could be measured if they were not defined, especially considering the cultural assumptions involved.

The World Bank's Results Secretariat Manager, Ellen Goldstein, explained the Bank’s special agenda on managing for development results, which involves using information to make better decisions and steer development efforts toward clearly defined goals. Under this agenda, there is more of a shared responsibility between developed and developing countries to achieve objectives, she said.

Mixed reactions for new debt sustainability framework

In a meeting on the new debt sustainability framework of the IMF and World Bank, CSO representatives criticized what they said was an overreliance on subjective judgments. The new framework, laid out in the recent paper "Debt Sustainability in Low-Income Countries—Proposal for an Operational Framework and Policy Implications", aims to guide borrowing decisions of low-income countries (LICs) in a way that matches their need for funds with their current and future ability to service debts.

At the meeting, Henry Northover, political advisor to the U.K. NGO CAFOD, said CSOs welcomed the framework’s country-specific approach, its broader and more flexible set of indicators, and the prominence it gave to reaching the Millennium Development Goals (MDGs). But he criticized the framework’s methodology, saying it was too reliant on the Bank’s Country Policy and Institutional Assessment (CPIA). The CPIA consists of 20 equally weighted criteria of a poverty reduction and growth strategy. Northover said the framework carried no major mention of poor countries’ need to choose between financing poverty reduction programs and servicing external debt. He also questioned what he described as the framework’s distinction between looking backward at HIPC-type debt and looking forward at debt sustainability. He asserted the need to consider the role of debt relief in mobilizing further debt reduction resources. Northover commended the Fund for its "refreshing honesty" in acknowledging overoptimism in some of its country projections, but said such overoptimism accentuated the international financial institutions’ conflict of interest in being both creditors and advisors to poor countries.

Barbara Kalima, a coordinator for AFRODAD, told the meeting the framework did not try to judge whether national parliaments were strong enough to scrutinize governments’ use of foreign loans or to curb irresponsible foreign borrowing. She also said the framework’s mention of the MDGs did not address the "huge resource gap" in the drive to reach the goals. She said she suspected that the international pledges to help countries meet the MDGs might have the same conviction as developed countries’ goal of allocating 0.7 percent of GDP to aid, which most have not yet met.

World Bank Vice President Gobind Nankani acknowledged that the CPIA incorporated a mix of evidence-based and subjective components, but stressed that an external review panel is evaluating it. He also noted that the PRSP/PRGF approach was being evaluated by the IMF’s Independent Evaluation Office.

IMF Policy Development and Review Department Assistant Director Timothy Lane told the meeting the framework was a work in progress, with refinements envisioned, including how to incorporate the analysis into the Fund’s work on surveillance and conditionality and into the Bank’s lending operations. Broader issues included completion of the HIPC Initiative, identifying where to source the grants needed to help meet the MDGs, and how to help countries deal with shocks.

Other issues raised from the floor of the meeting included concern about the power that the framework gave the IMF in assessing debt sustainability, and perceptions that the HIPC Initiative goal of producing robust graduating countries had evolved into a more modest debt-sustainability goal of producing countries that "just kept their heads above the water."

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The role of the IMF in low-income countries

CSOs engaged in a lively discussion with IMF staff on the role of the Fund in low-income countries. Presenting the recent paper "The Fund's Support for Low-Income Member Countries: Considerations on Instruments and Financing", Mark Plant, Assistant Director, and Patricia Alonso-Gamo, Division Chief in the Policy Development and Review Department, gave an overview of the work done so far and of the challenges ahead.

The paper follows up on earlier discussions on the issues (see the article in the November 2003 edition of the Civil Society Newsletter) and sets out various options for the use of the Fund's financial instruments to support low-income members and for the continued financing of facilities to meet their needs.

Plant explained how the paper, and the Board discussion, reaffirmed the need for the Fund to remain engaged in assisting low-income countries over the long term and underscored that the Fund should continue to assist these countries in establishing macroeconomic frameworks that can support high sustained growth and poverty reduction; identifying and managing macroeconomic risks and vulnerabilities; and strengthening institutions and policies that underpin sound macroeconomic management. The paper looks in particular at the how the Fund's facilities might be better tailored to the diverse needs of its low-income country members. (To see the Executive Board’s assessment of the paper, see a summary of the discussion.) Plant also indicated that the work is still very much in progress, with another paper on financing and instruments, and one on PRGF program design coming up before the annual meetings.

NGO representatives asked very specific and pointed questions, and, while acknowledging the importance of macroeconomic stability in poor countries, urged the Fund to increase its flexibility and its openness to alternative policy options. In this regard, they welcomed the increased attention paid to poverty and social impact analysis; Sanjeev Gupta, Assistant Director, Fiscal Affairs Department, was on hand to address questions about the work in this area (see article on the Fund’s PSIA work).

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Other Events:

Debate on IFI governance
On April 23, the IMF offered its auditorium for a panel discussion organized by the New Rules for Global Finance Coalition, the World Council of Churches, Evangelischer Entwicklungsdienst, and InterAction. The event addressed IFI governance under the title "Voice and Vote of Developing and Emerging Countries on the Boards of the IMF and World Bank" and coincided with the discussion on the succession process of IMF Managing Director Horst Köhler, who had stepped down weeks earlier. The panelists were Heidemarie Wieczorek-Zeul, Germany’s Development Minister; Paul Acquah, Governor of the Central Bank of Ghana; Ariel Buira, Director of the G24 Secretariat; and Argentine Bishop Aldo Etchegoyen, of the Evangelical Methodist Church, representing the World Council of Churches.

In her opening remarks, Wieczorek-Zeul said that her government believes that enhancing the voice of the developing and transition countries is something that must be tackled with a very comprehensive approach and cannot be limited to a few so-called easy measures. Buira demonstrated how the present power structure is essentially the same as sixty years ago, even though the world has changed considerably. Acquah stressed that the ability to influence the decisions that affect developing countries is important. Bishop Etchegoyen criticized the Fund and the Bank: saying that they have failed in their purpose of benefiting the development of nations.

Questions from the audience addressed the influence of voice and representation on the basic agenda and policies of the institutions, the suggestion of double voting, the possibility of the Bretton Woods Institutions’ submission to the authority of the United Nations and the selection process of the IMF’s Managing Director.

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"Un-happy birthday" cards
Some 10,000 "un-happy birthday" cards commemorating the 60th anniversary of the Bretton Woods Institutions were delivered by the Jubilee USA Network and other groups during a small rally in front of the World Bank on Wednesday, April 21. The cards, signed by citizens from 23 countries and 40 U.S. states, were handed over to Kanitta Meesook, Assistant Director of the IMF’s External Relations Department and Katherine Marshall, Director of the Bank’s Development Dialogue on Values and Ethics. Ms. Meesook welcomed the constructive dialogue offered by the rally and noted the importance of support of CSOs in the deliberation of measures to assist developing countries. The cards were part of an international campaign calling on the Fund and Bank to enact full debt cancellation for impoverished nations.

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Debate with the global justice movement
Elliott Harris, Advisor in PDR’s front office, and Shantayanan Devarajan, Chief Economist of the World Bank’s South Asia Region, participated in a debate with the global justice movement organized by 50 Years is Enough, one of the organizers of the regular Spring and Annual Meetings protests. The panel also included Njoki Njoroge Njehu, Director of 50 Years, and Ricardo Navarro, Chairman of Friends of the Earth International. The debate, held at a church in downtown Washington, was moderated by Patrice Barrat of the Bridge Initiative, an effort initiated in 2000 to help stakeholders with conflicting perspectives on globalization issues find agreement on policy changes that make the process more equitable. The debate, under the headline, "Bretton Woods Institutions 60 Years later: Are They Living Up to Their Commitments to Poverty Reduction?" was attended by 50 people, mostly from the global justice movement. The movement speakers and the audience criticized the Fund and Bank on such topics as odious debt, poverty reduction and accountability. Expecting that they would be unlikely to change the audience’s mind about the Bretton Woods Institutions, Harris and Devarajan listened to the sometimes-harsh criticism and explained their points of view.

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Public debate on trade
IMF and World Bank staff discussed with NGOs the topic "Trade Policies and Development: What Role for the Bretton Woods Institutions?" at the National Press Club. The event was organized by the Center of Concern and the Heinrich Böll Foundation, and moderated by John Sewell from the Woodrow Wilson International Center for Scholars.

Goh Chien Yen from Third World Network criticized the rapid trade liberalization that has taken place in developing countries even as developed countries remain heavily protected. He blamed, in part, IMF & World Bank trade conditionality.

Richard Newfarmer, Adviser in the World Bank’s International Trade & Prospects Group, acknowledged that some countries have indeed not benefited from trade liberalization, owing to civil strife, unsupportive macro policies, and lack of infrastructure, and many have also been harmed by inequities in the global trading system. He noted that the Bank has moved away from trade conditionality—while in the 1980s at any given time some 40-50 loans may have carried trade conditions, now only one or two do.

Sarah Anderson of the Institute for Policy Studies questioned whether trade liberalization is good for growth, citing a number of empirical studies, as well as several case studies that suggested industrial policies may in fact have played a greater role in development.

The IMF’s Hans Peter Lankes noted while trade is potentially a "good thing," the key question is how to ensure that is the case in practice. He said it may be asking too much of trade to be the driving force behind growth; but surely it should be an important component of a development strategy. He briefly discussed the IMF’s role in trade policy through IMF surveillance, technical assistance, policy dialogue, and advocacy and noted the significant decline in trade-related conditionality in IMF-supported programs. He also introduced the new Trade Integration Mechanism (TIM), which will allow the IMF to provide resources to assist member countries in meeting balance of payments shortfalls that might result from multilateral trade liberalization. The TIM is not a new lending facility, but rather a policy aimed at making Fund resources more predictably available to qualifying member countries under existing IMF facilities.

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