Statement by the Governor of the Bank for Nepal—Ram Sharan Mahat

Fellow Governors, Mr. Chairman, Mr. Camdessus, Mr. Wolfensohn, ladies, and gentlemen, on behalf of Nepal and the countries of the region, I wish to express my gratitude at being selected to serve as Chairman of the Boards of Governors of the World Bank Group and the International Monetary Fund for the coming year. In fulfilling my role as Chairman of next year’s Annual Meetings, I shall take as my model the outstanding manner in which Mr. Ruttenstorfer, the Governor for Austria, has conducted these meetings.

Since our meetings in Hong Kong last year, the economies of a number of our member countries, which were then experiencing difficulties, have not rebounded as we had hoped. Further, more countries are being affected by the global financial crisis, and the chances for a quick recovery have dimmed. This has been a much-discussed subject at these meetings. The process of recovery is one that will require the assistance of our institutions, the cooperation of those members whose economies are still healthy, and especially strenuous efforts on the part of the countries experiencing difficulties.

The World Bank Group and the IMF have acted quickly and aggressively to address the immediate crises that a number of members are facing, while at the same time continuing to carry out their mandated tasks. I offer Mr. Wolfensohn, Mr. Camdessus, and the staffs of the two institutions my heartfelt appreciation for the work they have been doing and will continue to do over the coming months.

As we close these meetings, the World Bank Group and the IMF have full agendas before them. I sincerely hope that next year at this time I shall be able to report to you that significant progress has been made in reversing the economic decline and that growth has resumed in the affected economies.

I look forward to seeing you next year in Washington for the 1999 Annual Meetings.

Statement by the Chairman of the Executive Board and Managing Director of the International Monetary Fund—Michel Camdessus

Mr. Chairman, Governors, ladies, and gentlemen. I have listened intently to the Governors over these past days. I have heard a common sense of disquiet about the global economic situation and the near-term prospects. This has given rise to a sober and substantive assessment of the causes of the crisis and of its global effects. We have undoubtedly moved a long way forward in identifying the steps needed to establish a more durable global economic system and for addressing the crisis.

It is clear that we face a systemic crisis. But you were determined to maintain a sense of perspective, recognizing that the globalized economy has brought enormous benefits and that this crisis, if properly addressed, could be seen in a longer-term perspective as just a temporary setback. President Clinton reminded us that “A truly global market economy has lifted the lives of billions of people.” Of course, serious flaws have been revealed in the system, and prompt decisive action is called for. But there is no desire to turn the clock back. Instead you demonstrated that you are ready to join forces to seek ways of making the global system more secure.

Some of our discussion has sought lessons from experience. You have observed that programs work only if governments want them to work. I was greatly encouraged therefore by the courageous statements by the Governors for Indonesia, Korea, and Thailand. I salute the valor of these countries, which have borne the brunt of this crisis, and who are showing other countries that there is indeed a way out of crisis toward a future of more secure, higher-quality growth—growth that could also lead, as the eloquent presentation of President Menem demonstrated, to a more equitable distribution of income.

Other legitimate questions have been raised by Governors: about the size of the support; about the policy content of the programs; about their social and political effects; and about moral hazard. We shall continue to assess these issues very carefully in the work that lies ahead. Many problems, as some of you have observed, stemmed from the approach of “managed development”—too close a link between banks, corporations, and the state. This has been a new demonstration that in a globalized economy, destabilizing factors can be generated quite outside the macroeconomic sphere and develop for some time before their negative effects can be recognized and denounced.

Governors, I believe you were unanimous: a global crisis requires a global response. The architecture of the system needs to be strengthened, but not by direct intervention. The Chairman expressed it eloquently: “What is even more important than the architecture of a house is how the people inside behave toward each other and how they resolve conflicts. Here, we have good principles that have served us well over the past decades: cooperation, democratic principles, predictability, and accountability toward each other. We therefore need to build on this foundation to strengthen the architecture of the international financial system, adapting it to new challenges.”

This sets the tone: the same principles that have served us so well nationally must now be extended to the international arena. Thus the five key elements of the new architecture are defined and endorsed: transparency, sound financial systems, involvement of the private sector, orderly liberalization, and internationally accepted standards and codes of good practice. All are elements of good governance. Your discussion of the new architecture has pointed to an ambitious work program in the months ahead, as outlined in the Interim Committee communiqué.

As the architecture is being designed, inevitably the Fund is concentrating on the core issues of financial and macroeconomic policy. But we in the Fund are acutely aware that this crisis has profound developmental implications and social costs, as many Governors have reminded us. I agree entirely with Jim Wolfensohn’s eloquent portrayal of the plight of the people in these countries, and I welcome warmly the Bank’s experimental framework for sustainable development. This is a natural and necessary complement to the work of the Fund which we will support in any way we can.

For our part, we can contribute to forming a firm basis for development in the low-income countries, as the Governor for Ethiopia reminded us, by bolstering our work in the ESAF, the HIPC Initiative, and post-conflict assistance. And needless to say, I am encouraged by the indications of support from contributors to the ESAF.

Turning to the way out of the crisis, Governors were very clear that this was a shared responsibility. Many around the world looked to the economies of the industrial countries to provide continuing impetus to sustainable growth both at home and abroad. In particular, Governors encouraged Japan to take measures to promote economic recovery while repairing its financial system.

The countries in crisis, countries fighting contagion, and other developing economies around the world are showing an impressive and wide-spread determination to maintain and, where needed, strengthen their macroeconomic policies and adjustment programs. Governors supported our strategies to help them withstand better the worsening external environment. At the same time, they look to others in the international financial community—banks, other private creditors and investors, official creditors and donors—to play their part by maintaining their credit lines. Many Governors, recognizing the magnitude of problems for Russia in particular, and its policy shortcomings in the recent past, continue to be ready to support its efforts if Russia could embark again on a solid program for stabilization and reform.

Looking ahead to the historic birth of the euro, many around the world will look forward to its role, as the Governor for Germany put it, as “a major contribution by Europe to stability in the global economy and hence to ongoing economic recovery.”

Many Governors and I particularly welcome such a longer-term view, considering that the threats of the present crisis should not detract our attention from countries fighting to implement a more traditional and no less demanding agenda for adjustment and reform, in order to bring their people out of deep poverty to a world of better opportunities, if not always for them, at least for their children. This is the essence of our commitment to Africa.

As for the role of the Fund, we have been heartened by the clear statements of support that you have given us. On the immediate issue of resources I am now confident that we can expect quite soon to put behind us the issues of the quota increase, the New Arrangements to Borrow, and the equity SDR allocation.

You have strongly endorsed the Fund’s resolve to apply the golden rule of transparency to itself. The external evaluation of the ESAF has set the stage for other such evaluations of our operations, and we are pressing ahead with an external evaluation of our central activity, surveillance. We shall work with our members more actively toward the more widespread dissemination of documents related to the Fund’s surveillance and programs of financial support.

As requested by the Interim Committee, the Executive Board will thoroughly review the roles of the various institutional components of the international monetary system, including the need to strengthen and/or transform the Interim Committee, to make it, as the Governor for Italy has said “capable of effectively orienting the strategic choices of the IMF.”

Many Governors have placed strong emphasis on Bank-Fund collaboration. We will certainly be looking at ways in which we can strengthen the already close collaboration between Bank and Fund, especially in the financial sector. Also in the months ahead we will be reviewing surveillance, carrying forward the amendment of our Articles of Agreement for the purpose of capital liberalization. At the same time, we expect to continue assisting as many countries as needed against contagion and the consequences of this crisis.

In brief, I leave these meetings with three thoughts: first, that in resolving the crisis, we must move to a higher level of international cooperation in striving urgently for effective solutions. Very good progress has been made in these meetings; second, that an extensive agenda for action awaits us in moving toward a more durable international monetary system—this week the tasks ahead have come into much clearer focus, including the need for adapting and strengthening the IMF itself—third, you have given us a strong sense of support for the role of the Fund and the Bretton Woods institutions in general, at the center of the international financial system.

This endorsement is highly encouraging and renews for us the determination to fulfill the trust and responsibility you place in us. In this spirit, we can be quietly confident that we shall indeed emerge from this crisis better equipped to live with, and benefit from, the globalized economy.

Thank you, Mr. Chairman for the excellent way in which you have conducted these meetings. I wish you, Governors, and your delegations a safe journey home, and look forward to our meetings in a year’s time under the chairmanship of the Governor for Nepal.

Statement by the President of the World Bank Group—James D. Wolfensohn

Thank you very much, Mr. Chairman, and let me commence by thanking you for your great contribution to the success of these meetings and the way in which you have worked with us to ensure a smooth carrying-out of our functions and the functions of this Board of Governors.

I come away from these meetings with a sense of hope and a sense that quite a lot has been achieved. It is a positive assessment. It is an assessment based on the fact that we have focused, through the remarks of the Governors and the dialogues that we have had, on a practical and pragmatic assessment of this crisis. We are aware of its dangers. We are aware of the problems associated with those countries that are already in the headlines, but we have not forgotten those countries that are not in the headlines, in terms of seeking to alleviate their problems and ensure that they are protected as much as possible.

We have talked of Latin America and the need for a stance to support countries in that region, but we have also not forgotten Africa, in terms of ensuring that support for that continent, which has so suffered, can continue robustly.

It is a difficult situation, but it is a situation where the community of Governors, and of this group, has come together. We are talking about the architecture of the system, and in the long term, even in the medium term, that is important, particularly insofar as it supports the role of the Fund in terms of surveillance and transparency, those matters which my colleague Mr. Camdessus has referred to.

But on a day-to-day basis, we are considering not only the architecture, but also what to do now. And here I have to say that the excessive commentary about the difficulties of cooperation between the Bank and the Fund have been vastly overdone. From my point of view, we have an ongoing and time-tested partnership with which I am entirely happy and which is constructive for both those facing this crisis and any others that may come down the line.

I am impressed by the commentaries of President Clinton, many Governors, and the Managing Director himself in his opening and closing remarks indicating that this is not just a financial crisis. This is a crisis that has an impact on people, and the sensitive commentaries on this subject in terms of those that have been most affected is something that has come home to me in a very real way. It makes me feel that the role of the Bank as a partner to the Fund is well recognized, and that it is seen by all that the mounting of the financial and rescue packages and the extraordinarily important—if not preeminent—task of macroeconomic policy is supplemented by some years of work that we have to do on structure in the system and on the social aspects of these problems.

I was heartened by the recognition given by Governors to the role of the Bank in this context and by their evident support of the need for us to have resources that can address these issues. I was very comfortable in the observations made about IDA-12, about the apparent support for the HIPC Initiative, as I was for the plea of the Managing Director for the continued support of ESAF and our joint approach to post-conflict situations.

I share with the Managing Director his observations in relation to the achievements of Indonesia, Korea, and Thailand, which have borne the frontal edge of this attack, and share with him the view that, as we join to look at the question of Russia, we too are prepared to be supportive on the assumption that we have a clear and transparent program established by that country to deal with both its economic and its human crises.

I think that what we have most come forward to recognize that is of importance to us is this essential balance between the financial and macroeconomic and the social and structural. But it is not two different issues; it is all one issue. You cannot have one without the other. And what I think is so incredibly powerful about the structure of the Bretton Woods institutions is that we have expertise in each area, and these meetings have allowed us to focus on the fact that there is a need for both and that they are, in fact, totally interconnected. And I am encouraged by the response that I have received to the suggestion that we experiment in terms of our approach to development programs to look beyond projects to systemic approaches.

Indeed, you will be interested to know that I have already had volunteers from many countries suggesting that we work together on a comprehensive, broad-based approach, which will not only encompass those particular areas of development policy that I spoke of, but also be inclusive and participatory in the establishment of objectives. I am much encouraged by the response, and as I said, we will be working on these issues during the next couple of years and will report regularly to you on the results.

There are challenges ahead, but I think that the Governors have displayed in their statements—and I believe the general response of the delegations and the officials in the Bank and Fund—that we are united on this issue and we recognize that it is an issue that affects us all. President Clinton was clear on that. President Menem was clear on that. These are not issues that, if we are in a rich country, you can say are issues of somebody else. I always get a sense in these meetings of the unity of the international community, and at a time of crisis, it was brought out very well at these meetings.

Going forward, I can commit to you the efforts of the Bank to work with each of you in relation to your individual issues, and I can commit to you that we will seek to preserve the resources and, if necessary, increase the resources in the Bank, IFC, and MIGA that will help re-stimulate economies that are lagging and that will help protect the existing achievements of countries in the social sphere.

Mr. Chairman, I once again want to thank you for your chairmanship and express my congratulations to the Minister from Nepal who will chair our meetings next year and say how much I am looking forward to working with him and, most important, how much I and my colleagues are looking forward to working with our sister organization in the Fund and with all of you to achieve the objectives that we have set for ourselves at these meetings.

Concluding Remarks by the Chairman of the Boards of Governors and the Governor of the Fund and the Bank for Austria—Wolfgang Ruttenstorfer

As Chairman of the Boards of Governors, it is now my duty to bring these discussions to a close. It has been my privilege to have served as the Chairman of the Boards of Governors of the Fund and the Bank. I wish to thank you all for your support during my tenure. On behalf of all of you, I would also like to thank the President of the United States for his insightful address and the people of Washington, D.C., for their hospitality. I also wish to thank the President of Argentina for his words of encouragement.

In closing the 1998 Annual Meetings, I would like to review briefly the major themes that have emerged from our deliberations and to point out the implications for the Fund and the Bank. It is clear that the past year has been an extremely challenging time for us all. The Fund and the Bank have been called upon to address perhaps the most serious international economic crisis since their foundation, and they have risen to this challenge commendably. However, as many of you have noted, the time has come to prepare them for the next century. In the short-term, the Fund and the Bank will need to focus on alleviating the immediate negative impact of the crisis and on restoring confidence. We must continue to work to maintain and reestablish macroeconomic stability in crisis-stricken countries. It is crucial that the spread of the crisis be arrested, in particular to avoid a global slowdown in growth. In addition, greater emphasis needs to be placed on the social dimensions of the crisis. Over the longer term, we will need to work diligently to reform the international monetary and financial system, while maintaining our commitment to assist our poorer members. Many of you have expressed support for the broad strategy presented by the Managing Director of the Fund and the President of the World Bank.

The important role of transparency has been highlighted. Better release of information will lead to better decisions by market participants, leading to less market volatility. In addition, the Fund’s surveillance can be strengthened to provide a better early warning system of potential crises. Similarly, market participants will need to provide more and better information, as well as adhere to strengthened common standards across a number of areas. Your call to involve the private sector in forestalling and resolving financial crises must also be urgently addressed. Orderly and prudent liberalization of capital movements must progress within the context of appropriately strong and well-supervised financial systems. You have reaffirmed the importance of including this topic within the purview of the Fund. Now more than ever, we must work to realize all these goals.

The social dimensions of economic development have been high-lighted in our deliberations over the past few days. There has been broad support for the important efforts of the World Bank Group to improve the quality of life of our citizens, particularly in our poorest members. Efforts to eradicate poverty, extend basic education and health care to the more vulnerable segments of the population, and provide assistance for essential structural reforms are at the heart of any successful development strategy.

In this context, the progress in the implementation of the HIPC Initiative has been welcomed. However, we must encourage more members to strive to be included in the initiative, and we must redouble our efforts to secure the necessary financing for the HIPC Initiative and the ESAF.

It is vital that both the Fund and the Bank have sufficient resources to perform their tasks. To that end, I echo your call for an early implementation of the quota increase for the Fund, the New Arrangements to Borrow, as well as of the SDR amendment. Also, the twelfth replenishment of the International Development Association needs our early and resolute attention. In addition to ensuring that they have sufficient resources, strengthening Bank-Fund collaboration will be crucial in attaining all our challenging goals. Also, the operation of the Bank and the Fund must continue to be improved. We welcome the progress achieved so far in the Bank’s Strategic Compact and look forward to further progress. The Fund is moving forward to improve its own operations—especially in making its work more transparent and improving the quality of its analysis and advice.

Allow me to express our gratitude to the heads of the Fund and the Bank—Mr. Camdessus and Mr. Wolfensohn. Their leadership during these challenging times has been critical. They have displayed a level of dedication and dynamism that deserves our praise. In addition, the staffs of the Fund and the Bank have done a tremendous job over the past year. We are confident that, based on their professionalism and the guidance and inspiration of their heads, the international community can effectively meet the present challenges.

During my opening remarks, I noted the important role of markers along a path in providing clear direction. During these meetings, we have established markers for the urgent work ahead of us. Let us now follow these markers toward a more prosperous and equitable future.

Before adjourning, I would like to express my appreciation to the staff of the Joint Secretariat for their hard work, which has helped make our meetings such a success. I would also like to extend my best wishes to the Governor for Nepal, who succeeds me as Chairman of the Boards of Governors. I would conclude by once again thanking everyone and wishing all a safe journey home. The 1998 Annual Meetings of the International Monetary Fund and the World Bank Group are hereby adjourned.