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CGD in the News

January 24, 2005

Letters to The Editor: Donors Must Back Up Their Africa Aid Pledges (Financial Times)

Sir, Martin Wolf ("The right way to expand aid is with care and caution", January 19) is right to argue that governments (and people) in Africa's poorest economies need incentives if they are to take on the difficult politics of transforming their societies to achieve the Millennium Development Goals. But he misses a fundamental point of the Millennium Project report: a reasonable prospect of adequate support from the donor community - adequate not only in size but in predictability and duration - in itself constitutes such an incentive.

The Millennium Project taskforce on education, for example, calls on leaders of the world's poorest countries to take such politically difficult steps as transferring to parents and communities control over school budgets.

In countries such as Ethiopia, Ghana and Mali, that means depriving local politicians and bureaucrats of patronage spoils and threatening teachers' lifetime tenure - an approach unlikely to be politically sustained if the government cannot in return deliver to its citizens better schooling and an end to primary school fees.

The "global" report under Jeffrey Sachs' leadership, moreover, is clear that the scaled-up investments it urges will work only where governments are competent, honest, and defending not assaulting civil liberties and human rights: in short, themselves creating the right incentives for their own citizens and businesses.

In those "fast track" countries the needs are urgent, the opportunity to improve lives and trigger growth is considerable, and the costs for the rich world of the additional financing is "trivial" (to use Mr Wolf's word). The authors of the report do not assert that Africa will be transformed in a decade; only that it cannot be transformed without some outside help. This is as true for parts of Africa today as it was for Arkansas 50 years ago.

In the case of education, donors committed themselves more than two years ago to back financially a dozen "fast track" countries ready to undertake difficult institutional and other reforms of their education systems.

They have since been convening and discussing and negotiating - and, to some it seems, stalling. It is past time for the donors to stop talking and support governments in Africa ready to take up the challenge of achieving the education and other Millennium Development Goals.

For the rich world to give good leaders of poor countries the incentive and the wherewithal to take up their portion of this global task is a "trivial" risk with a potentially huge return - in better lives and a more secure global community. "Care and caution" should not be an excuse for more stalling.

Nancy Birdsall, President, Center for Global Development, Washington, DC 20036, US

January 10, 2005

Long-term economic and political implications of the tsunami disaster in Indonesia and Sri Lanka - NPR Morning Edition Interview with Steve Radelet

STEVE INSKEEP, host: As we've heard in recent days, the tsunami killed many professionals and community leaders. That's the kind of news that makes Steven Radelet warn of long-term social problems. Radelet is a former resident of Indonesia and now a senior fellow at the Center for Global Development here in Washington. Mr. STEVEN RADELET (Center for Global Development): The police forces are largely wiped out, and where the hospitals remain standing, doctors and nurses are dead or missing. Teachers are gone, local government officials are gone, community leaders, church leaders have been killed. And so many institutions that hold social fabric together have been significantly weakened or destroyed. And I think rebuilding those will have enormous implications. The last major natural disaster in this area were the tsunamis that followed the explosion of the Krakatau volcano in 1883. And they killed 40,000 people, wiped out many villages in West Java. But they also led to a quite violent Muslim insurrection, rebellion against the Dutch Colonial rule at the time that had major implications on the political governance in that region for many decades to follow.

INSKEEP: When you say that the Krakatau eruption led to, among other effects, insurrections and you look at the armed movements that you already have in Indonesia or in Sri Lanka, that doesn't sound very comforting.

Mr. RADELET: Well, I think that it creates an opportunity for both the rebel groups in Sumatra and in Sri Lanka and for the international community to come in after the crisis. Much will depend on how they respond. The international community has the opportunity to provide some hope for people going forward. If they miss that opportunity, I'm quite sure that the rebel groups, both in Sumatra and in Sri Lanka, will try to further their cause and to further resentment against the current leadership so that they can encourage greater rebellion.

INSKEEP: In Sri Lanka there have already been reports of rebels working with government forces to deliver assistance.

Mr. RADELET: The question is how long that will last. In Sri Lanka, I think there's a great opportunity for that because for the last two years, there has been peace negotiations that have gone quite far. And this could provide the opportunity for those to go even further. In Sumatra, however, things have not been going very well for the last couple of years. There's a new government now in Jakarta, but I think there's much greater risk that, two or three months down the road, that we will return to the rebellion, that this could lead to greater dissatisfaction by local people if the response is not what it should be which could make the situation in Aceh much worse.

INSKEEP: And we should mention that the Islamist movement in Indonesia is of great interest to the United States government because of its potential connections to what's described as the global war on terror.

Mr. RADELET: It should be. Indonesia is the largest Muslim country in the world. It has been the target for terrorist bombings both in Bali and outside the Australian Embassy in Jakarta last year. It has been mentioned by al-Qaeda leadership as a target of opportunity where they'd like to establish a foothold. And it is potentially a place where the broader international conflict could come home to roost.

INSKEEP: What is the significance of the fact that in this region where there is an Islamist movement, the United States military is there delivering aid?

Mr. RADELET: Yeah, and they are trying to work in cooperation with the Indonesian military. And this provides an opportunity for greater cooperation between the two, but they will need to cooperate with the Indonesian military.

INSKEEP: Do you think the appearance of American troops in that part of the world could change some people's minds about the United States

Mr. RADELET: I think it could if they are seen to come in and help people re-establish their lives, help give people new opportunity and new hope that doesn't exist right now. If instead we come in and are a bit strong-armed and tell people what to do and then leave before the job is completed, then people could have a negative impression of the.

INSKEEP: We've been talking to Steven Radelet. He's a senior fellow at the Center for Global Development, and he was deputy assistant secretary of the Treasury in the Clinton and Bush administrations.

Thanks very much.

Mr. RADELET: Thank you very much.

INSKEEP: This is MORNING EDITION from NPR News.

Copyright ©1990-2004 National Public Radio®.

November 16, 2004

Letters to The Editor: Washington Should Only Back Aid for Pakistan If Undemocratic Education System Is Tackled (Financial Times)

Sir, In their excellent contribution on US policy toward Pakistan ("America must broaden its policy on Pakistan" November 9), Teresita Schaffer and Karl Inderfurth propose an increase in US economic and social development aid to Pakistan, especially for education.

The idea appears eminently sensible. School enrolment in Pakistan is far below that in India and in much poorer Bangladesh, with only 43 per cent of rural boys and 33 per cent of rural girls enrolled in primary school. In the absence of decent public education for the poor, extremist Islamist factions are competing among themselves to expand and radicalise the madrassas, where full room and board alone are more than enough to attract an unlimited supply of boys from Pakistan's poorest households. Yet Pakistan has had bottomless credit from the World Bank and other donors for over a decade for education. Sadly, the country has little to show for it.

Given the enthusiasm about the economic reforms and higher growth the Musharraf years have brought, and the primacy of geopolitics, the donor community is now prepared to finance even more education and other social programmes.

The US should join in only if it is prepared to insist that new spending on education frontally attacks the deeply political nature of an education system riddled with patronage and corruption, which reinforces the power of feudal landlords and perpetuates insidious dealing between provincial politicians and bureaucrats over construction siting, contracts and jobs - not easy to manage, even for Pakistan's reformers within government.

Because Pakistan's education system reflects its undemocratic political institutions, US aid might better be directed towards any activities that would strengthen the hand of Pakistan's champions of political reform, especially given that the US may be the only outside power able to exercise the necessary leverage for progress on politically difficult moves toward more democratic arrangements.

Nancy Birdsall, President, Center for Global Development, Washington, DC 20036, US

November 15, 2004

Letters to The Editor: America Must Broaden Its Policy on Pakistan (Financial Times)

Sir:

In their excellent contribution on U.S. policy toward Pakistan ("America must broaden its policy on Pakistan," November 9 - subscription required), Teresita Schaffer and Karl Inderfurth propose an increase in U.S. economic and social development aid to Pakistan, especially for education.

The idea appears eminently sensible. School enrollment in Pakistan is far below that in India and in much poorer Bangladesh, with only 43 percent of rural boys and 33 percent of rural girls enrolled in primary school. In the absence of decent public education for the poor, extremist Islamist factions are competing among one another to expand and radicalize the madrassas, where full room and board alone are more than enough to attract an unlimited supply of boys from Pakistan's poorest households.

Yet Pakistan has had bottomless credit from the World Bank and other donors for over a decade for education. Sadly, the country has little to show for it. Given the enthusiasm about the economic reforms and higher growth the Musharraf years have brought and the primacy of geo-politics, the donor community is now prepared to finance even more education and other social programs.

The United States should join in only if it prepared to insist that new spending on education frontally attacks the deeply political nature of an education system riddled with patronage and corruption, which reinforces the power of feudal landlords and perpetuates insidious dealing between provincial politicians and bureaucrats over construction siting, contracts, and jobs -- not easy to manage, even for Pakistan's reformers within government. Because Pakistan's education system reflects Pakistan's undemocratic political institutions, U.S. aid might better be directed to any activities that would strengthen the hand of Pakistan's champions of political reform, especially given that the United States may be the only outside power able to exercise the necessary leverage for progress on politically difficult moves toward more democratic arrangements.

Nancy Birdsall President, Center for Global Development Washington D.C.

August 9, 2004

Letters to The Editor: Global Agricultural Free Trade Would Benefit, Not Harm, LDCs (Financial Times)

Sir, Although I usually agree with Arvind Panagariya, I believe he is wrong in his diagnosis that global free agricultural trade would be harmful to the least developed countries ("Tide of free trade will not float all boats", August 3, 2004). He is correct that elimination of industrial country subsidies would boost world food prices, and he is correct that in the aggregate the LDCs are net food importers. He misses a crucial point, however.

The majority of the nearly 500m people in LDCs living on $2 a day or less are in countries that have a comparative advantage in food production and trade. For these countries, exports relative to imports are higher for food than for manufactures and other non-food goods. Where they nonetheless have food trade deficits, they have even larger non-food deficits, financed by aid. Improved terms of trade for food are still in their interest.

More than one-third of the poor in LDCs live in countries that actually have food trade surpluses. Nearly another one-fifth are also in countries that have comparative advantage in food, but have small food trade deficits (amounting to an average of 4 per cent of total non-food imports).

The first group would gain unambiguously from global free trade in agriculture. The second group would gain from improved terms of trade on likely future net exports, and would gain even on current trade flows if a 10 per cent rise in food prices (a plausible estimate for global free trade) is more than offset by even a small reduction (0.5 per cent) in world prices of manufactures and other non-food goods. We should expect such a price reduction, or greater, from increased global efficiency under free trade.

The real LDC problem with respect to food trade is heavily concentrated in one country, Bangladesh, with one-fifth of LDC population, and with a comparative advantage in manufactures (mainly apparel). But Bangladesh would benefit from a global deal opening markets in manufactured goods, especially in middle-income countries, and agricultural liberalisation will clearly be instrumental in forging such a deal.

The proper policy implication for the food trade issue is that special assistance may be warranted for Bangladesh and a few other LDCs. The wrong conclusion would be that LDCs as a group should fear losses from global free trade and, by implication, should mobilise to block its negotiation in the World Trade Organisation.

Similarly, my model estimates suggest ("Trade Policy and Global Poverty") that the LDCs have more to gain from global free trade through new access to markets not granting deep preferences than they stand to lose from erosion of preferential entry to the EU and US markets. Even so, to make the Doha round truly a development round while also facilitating an agreement, I have suggested immediate comprehensive free entry for imports from these and other at-risk economies (heavily indebted poor countries and sub-Saharan Africa), along with a tax holiday on direct investment, as part of an overall package.

The trade base of these economies is too small to pose a competitive threat to middle-income or industrial countries. A head start on free access within a broader WTO liberalisation timetable would provide development benefits for these countries while locking in the principle of eventual winding down of preferences through the move to global free trade. Especially with such an enhancement but arguably even without it, the LDCs as a group should be counselled that deep global trade liberalisation in the Doha round will be to their benefit, not their detriment.

William R. Cline, Senior Fellow, Center for Global Development and Institute for International Economics, Washington DC 20036, US

July 20, 2004

Saving Iraq from Its Oil [Foreign Affairs]

From Foreign Affairs, Volume 83 No. 4

By Nancy Birdsall and Arvind Subramanian

Thanks to improvements in exploration technology, 34 less-developed countries now boast significant oil and natural gas resources that constitute at least 30 percent of their total export revenue. Despite their riches, however, 12 of these countries’ annual per capita income remains below $1,500, and up to half of their population lives on less than $1 a day. Moreover, two-thirds of the 34 countries are not democratic, and of those that are, only three score in the top half of the Freedom House’s world ranking of political freedom. In fact, the 34 oil-rich countries share one striking similarity: they have weak, or in some cases, nonexistent political and economic institutions.

Can Iraq avoid the pitfalls that other oil-rich countries have fallen into? Birdsall and Subramanian argue that the answer is yes. But only if Iraq implements a novel arrangement for managing its oil wealth with the help of the international community.

Access the full commentary (PDF)

July 13, 2004

Iraq Contracts And 'Tied Aid': America's Critics Also Favor Their Own Firms (International Herald Tribune)

Iraq contracts and 'tied aid' : America's critics also favor their own firms By Nancy Birdsall and Todd Moss

This op-ed originally appeared in the International Herald Tribune on January 13, 2004.

WASHINGTON: Like Claude Raines in the movie "Casablanca," the Germans, Russians, Canadians and especially the French are "shocked, just shocked" that the United States is barring them from bidding on $18.6 billion in reconstruction contracts for Iraq.

The Europeans have threatened to take the matter to the World Trade Organization to see if the United States is violating international competition law; this may explain why Deputy Defense Secretary Paul Wolfowitz invoked "essential security interests" as justification. The Russians have declared that the ban undermines Iraqi sovereignty. German industrialists are complaining about the possible effect on their own economy. And commentators are aghast at the timing — isn't this the same country that is asking them to contribute more to Iraqi reconstruction and to forgive Iraqi debt?

All the fuss must seem rather strange to the more than four billion people in the developing world. After all, restricting overseas development contracts to domestic bidders — so called "tied aid" — has been standard practice in the aid world for the past 40 years. Advocates of improving aid effectiveness have long argued to eliminate the practice of tied aid — which, according to one economic study, reduces its value by 15 percent to 30 percent. Untying aid would allow poor countries to purchase the most efficient and cost-effective goods and services necessary for their development projects. That makes sense because the real point of aid is to help people escape from poverty. But old habits die hard.

The complaints over contracts for Iraq ring particularly hollow since the Canadians and French are among the worst offenders in tying their development aid. In fact, the current uproar highlights a problem endemic to most countries' foreign aid programs. According to the Organization for Economic Cooperation and Development, 69 percent of Canada's foreign aid is tied, and 50 percent of French aid is at least partially tied. The Germans restrict 16 percent of their aid contracts to German companies.

In Iraq, excluding some of the world's most experienced international companies denies the reconstruction effort least-cost solutions. And it invites mistakes like the one that Defense Department auditors found recently: that Halliburton overbilled the Pentagon (and U.S. taxpayers) by $61 million under its contract, awarded without competition, to supply fuel to Iraq. No wonder U.S. citizens believe that most development aid, less scrutinized than the billions destined for Iraq, is probably wasted.

One of the ironies of the U.S. war in Iraq is that it has revived America's enthusiasm for foreign aid. It would be equally unexpected if, in sticking it to the "Coalition of the Unwilling," we also exposed one of the worst habits that undermines the ability of foreign aid to deliver development results. And if that led to a change in aid practices, well, that would be shocking, just shocking!

Nancy Birdsall is president and Todd Moss is a research fellow at the Center for Global Development in Washington.

June 29, 2004

The Iraq Stock Exchange

Marketplace Commentary, broadcast on NPR, June 29, 2004

INTRO: The US stock market was once a rich boys club. But now many Americans are invested and have a direct stake in the economy. Commentator and policy analyst Todd Moss says there’s an opportunity to make the Iraqi economy more democratic too.

SCRIPT: Want a way to give Iraqis a direct stake in their own economy? Revive the old Baghdad stock exchange once controlled by Saddam’s cronies.

An Iraq Stock Exchange may sound crazy. But it makes perfect economic and political sense. U.S. authorities had wanted to set up a new Baghdad exchange in an old Italian restaurant, reminiscent of the coffeehouses where European stock markets began. But they didn’t have the right people to get it off the ground.

With Iraqis now in charge, they shouldn’t look so much to Wall Street or London for lessons. To reap the real benefits of a stock market, Iraqis should turn instead to Johannesburg, Nairobi, and Casablanca.

In modern economies, like the U.S. and Europe, stock markets allocate capital and encourage savings. In Africa, Asia, and the Middle East, stock markets also help democratize the economy by letting even small shareholders own the country’s biggest companies. In South Africa, black women have formed investment clubs and joined the growing economy.

By involving ordinary citizens, stock markets build popular support for market reforms. Shareholders gain a stake in the long-term success of the enterprise. In Kenya the IPO of the national airline attracted more than 100,000 small local investors.

Stock markets also attract funds from the diaspora. Morocco and Ghana have used them to lure money back from citizens living overseas.

What better way to build national pride or a symbol of capitalism working in a new Iraq than creating a stock exchange?

No one would claim stock is as important as political freedom. But the ring of an opening bell in Baghdad would be a sign that economic recovery was well underway. Including as many Iraqis as possible in the reconstruction helps build democracy as well. In Washington DC, this is Todd Moss for Marketplace.

CLOSING: Todd Moss is a Research Fellow at the Center for Global Development

June 1, 2004

Setting Up Africa for Failure (Mail & Guardian)

Setting Up Africa for Failure

By Michael Clemens and Todd MossThis op-ed originally appeared in the Mail & Guardian Johannesburg edition on June 1, 2004

The international community is always reminding Africa that it is far behind the rest of the world. Everyone knows that Africa is poor. And, yes, Africa faces the most daunting development challenges. But even as it makes impressive progress in many ways, the continent seems perpetually labeled a failure.

This is about to happen again, ironically, with the Millennium Development Goals — a set of eight goals unanimously approved in 2000 by President Thabo Mbeki, British Prime Minister Tony Blair and 145 other world leaders at the United Nations. They committed all countries to help reach targets in poverty reduction, education, health and other development indicators by the year 2015.

The UN and other international organisations have told us that Africa can reach the goals, if only we have the right combination of political will in African capitals and vast amounts of new aid from rich countries. But are these goals even remotely realistic? And — fast-forward 11 years — when Africa misses most of these targets, should we blame African leaders? Or should we point fingers at the donors for not coming up with enough cash? More importantly, will Africa really have done so badly?

The answer to all these questions is no.

Let’s look at the first goal: halving poverty by 2015. This will most likely be met globally, but only because of strong economic growth in India and China. Few African countries will halve their poverty rates in time. For Africa to meet the goal, the regional growth average will have to accelerate to at least 7% a year over the next 11 years. Of the continent’s 48 countries, only Equatorial Guinea has managed this over the past 11-year period. And it is hardly a model for the rest.

Better policies might help raise growth, but even the most active reformers are unable to generate such fast rates through policy alone. Similarly, donors’ aid can probably help accelerate growth under some circumstances, but not to the extent required for more than a decade.

Even if the poverty goal seems out of reach and beyond the control of either governments or donors, surely aid and policy changes can combine to meet the other goals, such as universal primary school completion?

Actually, probably not. Looking back, countries both rich and poor took generations to make the transition from low to high primary enrolment. The average country after 1960 needed more than 50 years to move from about 70% primary school enrolment (the current African average) to 95%. Most of today’s rich countries took much longer to accomplish the same feat in the 19th century.

The Millennium Development Goals are now asking African countries to make this transition by 2015, faster than any country has done sustainably. Money and policy can speed this transition somewhat, but nowhere near as fast as the goals demand.

Unfortunately, the same holds for many of the other goals, such as achieving gender parity or a two-thirds reduction in child mortality. Policy changes and additional resources have historically only had a small effect. Instead, these kinds of development indicators seem most affected over time by wider changes in the economy (such as rising incomes) and global changes (such as technology). Increasing the supply of aid has only a limited impact, probably in part because development has a demand side, too.

If this just sounds like more Afro-pessimism, there’s good news. Even if most African countries miss the targets, many are making up for lost time at a furious pace. Burkina Faso, for example, will surely miss the education goal and will probably not surpass 65% primary enrolment among children by 2015. But the country has been putting kids in school much faster than most other countries — and more than twice as fast as the European countries did in the 1800s.

The goals may have been useful in getting the international community to pay attention to Africa’s problems. They are also helping to hold African governments accountable for their performance and have probably contributed to the recent jump in aid from Europe and North America.

However, setting universal global goals for 2015 devoid of any context to either historical development trends or African circumstances has a downside. Come 2015 Africa will again be labeled a development failure for having missed these targets. But millions of Africans will be much better off. Aid and policy reform will certainly have been an important part of this story. But the fact that Africa progressed more quickly than should reasonably be expected will be lost.

So who will be to blame in 2015 when Africa misses the targets? African governments could have done more. Donors could have given more. But the real culprit will be the unrealistic goals themselves.

Michael Clemens and Todd Moss are research fellows at the independent Centre for Global Development in Washington.

April 30, 2004

How Wall Street Can Aid The Poor of The World (Financial Times)

How Wall Street Can Aid The Poor of The World By Nancy Birdsall and Todd Moss

This op-ed originally appeared in the Wall Street Journal Asia and European edition on April 4, 2004.

The distance between a Wall Street bond trader and a two-year-old in a village in Mozambique is shrinking. What is bringing the two together is a recognition that it may be possible to reduce one kind of risk - the risk of disease that the Mozambican child faces - by buying and selling another kind of risk that is more familiar to those who trade, hedge and option for a living.

Private capital markets use sophisticated instruments to cope with all kinds of uncertainty, especially the pricing and sharing of future risk. The financing of global development aid, which currently does not work very well, could benefit from these instruments.

Some countries are not good at employing development aid because of corruption or just plain incompetence. For them, no amount of financing in any form can make a real difference.

But many poor and well-run countries cope with a different problem. Foreign aid flows are subject to the ups and downs of legislators in rich countries grappling with fiscal deficits and the ever-changing demands of geo-strategic politics. So Afghanistan, for example, is not receiving nearly all the aid donors pledged just two years ago.

The best-performing countries, such as Mali, Ghana, Mongolia and Bolivia, find that the problem of unreliable aid is compounded by the vulnerability of their exports to the constant risk of natural disasters and other shocks. The shocks that country officials cannot control often lead to bouts of inflation and political instability and scare off aid donors just when aid is most needed. Perversely, the way that aid is currently delivered concentrates risk in the poor countries themselves, the places least able to manage it.

Now comes an idea from Gordon Brown, the chancellor, that invites private markets to help close the distance between global financial power centres and the world's poor. The proposal calls for an international finance facility to employ capital markets to tap private money now, borrowing against the promise of future legislators' appropriations of tax revenue to service the resulting debt.

The UK sells Mr Brown's proposal as a way to ramp up the amount of foreign aid quickly without asking legislators and taxpayers for more funds.

But in fact the real benefits of tapping capital markets lie elsewhere. Such markets can create a virtual pot of accessible aid flows which ensures more predictability for well-performing recipient countries. Callable money also frees donor bureaucracies from the pressure to push money out of the door simply to buttress the case for the next legislative round.

Mr Brown's proposal is meanwhile sparking other innovations to use private markets to improve the lives and prospects of the poor. The British government and the Global Alliance on Vaccines and Immunization (Gavi) are joining forces to address the problem of providing the poorest countries with steady vaccine supplies. Vaccine producers in the rich world who doubt that the governments in the developing world have the capacity and willingness to buy their products are not willing to bet on future unpredictable and unreliable flows of aid. Their sensible hesitation to invest in expansion capacity has created shortages and high prices.

The UK-Gavi plan would use capital markets to securitise future aid for vaccines, ensuring demand and creating incentives for producers to invest in expanding capacity today. Since vaccines are bought in bulk on the global market, predictable funding can also translate into lower prices. It is a rare win-win situation in which poor children could benefit from better and cheaper vaccines and donors could save more lives for less money.

Other creative applications are possible: insuring Nicaragua and Uganda against coffee price volatility; shock-proofing the debt-service obligations of Bolivia and Ghana; securing a steady flow of funds to encourage the ambitious long-term planning needed to fight HIV/Aids in South Africa; guaranteeing secondary school stipends for first-grade girls who complete primary school in Cambodia and Pakistan. Proposals for these kinds of application are already in the works.

In all these cases, risks are shifted from poor countries to the private market. The risk transfer, of course, comes at a cost, as the private market will insist on a profitable return. But with 2bn people still living in poverty, the cost of carrying on with business as usual is certainly higher.

Nancy Birdsall is the president and Todd Moss a research fellow at the Center for Global Development in Washington, DC

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