Appendix III Press Communiqués and Announcement of the Interim Committee and the Development Committee
- International Monetary Fund
- Published Date:
- September 1981
Interim Committee of the Board of Governors on the International Monetary System
Fifteenth Meeting, Washington, September 28, 1980
1. The Interim Committee of the Board of Governors of the International Monetary Fund held its fifteenth meeting in Washington, D.C., on September 28, 1980. Mr. Hannes Androsch, Vice-Chancellor and Minister of Finance of Austria, presided over the meeting in the absence of the Chairman of the Committee, Mr. Filippo Maria Pandolfi, Minister of the Treasury of Italy. Mr. Jacques de Larosiere, Managing Director of the International Monetary Fund, participated in the meeting. The meeting was also attended by: Mr. G.D. Arsenis, Director of Money, Finance and Development Division, UNCTAD; Mr. Alexandre Lamfalussy, Economic Adviser and Head of the Monetary and Economic Department, BIS; Mr. Emile van Lennep, Secretary-General, OECD; Mr. F. Leutwiler, President, Swiss National Bank; Mr. M.G. Mathur, Deputy Director-General, GATT; Mr. Robert S. McNamara, President, IBRD; Mr. François-Xavier Ortoli, Vice-President, CEC; Mr. Jean Ripert, Under-Secretary-General for International Economic and Social Affairs, UN; Mr. Cyrus Sassanpour, Head, International Money and Finance Unit, OPEC; and Mr. Cesar E.A. Virata, Chairman, Development Committee. Mr. Wang Weicai, Vice-President, Bank of China, also attended.
2. The Committee discussed the world economic outlook and the policies appropriate in the current situation. Noting that the key features of the world economic situation had not changed much since its April meeting in Hamburg, the Committee was again concerned particularly with two problems: worldwide inflation and the external payments imbalances of non-oil developing countries.
The Committee remained convinced that the top priority being given in many countries to the fight against inflation must not be relaxed. Reduction of inflation and inflationary expectations was considered necessary for the restoration of conditions for better investment performance and sustained economic growth. Although recognizing that slow growth of output is a key feature of the current situation, the Committee cautioned against any premature shift to expansionary monetary and fiscal policies. It stressed that the broad objective must be to establish the basis for sustained growth and improved employment prospects, with relative price stability over the longer run.
The Committee noted the dramatic increases in the deficits of the non-oil developing countries and expressed concern about the problems of financing such deficits, especially in the case of the low-income countries. The Committee foresaw a great and urgent need for more official development assistance to the latter countries from the industrial and oil exporting countries. This need reflects the inadequacy of the current flow of imports to low-income countries, the erosion of their external financial positions in obtaining even this flow, their limited access to international financial markets, and their requirements for sustained rates of growth.
For developing countries, the Committee attached importance to adequate access to markets for their exports. Industrial countries were urged to avoid protectionist measures and to maintain or expand the great advantages—for themselves, as well as for many developing countries—provided by an open trading environment. Noting that many developing countries will continue to need large amounts of external credit on market terms, the Committee also urged industrial countries to avoid measures that might restrict the access of developing countries to their capital markets. It was observed that a number of developing countries themselves could contribute to maintenance or expansion of the necessary capital inflows by following policies designed to bolster confidence regarding their economic prospects.
3. The Committee discussed the developments in the Fund’s policies on the use of its resources and the prospects for the Fund’s liquidity.
(a) The Committee welcomed the work done by the Executive Board following the agreement reached by the Committee at its Hamburg meeting that the Fund should play a larger role in the adjustment and financing of payments imbalances in prospect for many members of the Fund. Under this policy, various aspects of which will still need to be elaborated by the Executive Board, members of the Fund making strong efforts to correct their balance of payments problems over a reasonable period through the pursuit of sound demand and supply policies would be able to obtain, on appropriate terms of conditionality, considerably larger amounts of assistance from the Fund than were available in the past. The Committee endorsed the Executive Board’s conclusion that amounts up to an annual limit of 200 per cent of quota (excluding uses under the compensatory and buffer stock financing facilities), i.e., for a total of 600 per cent of quota over a three-year period, would be a reasonable guideline in the present circumstances. The members of the Committee noted with satisfaction that, on the basis of this policy, the Fund has already agreed to provide large amounts of resources to several members in support of programs that envisage adjustment over longer periods than have been the normal practice hitherto.
(b) The Committee agreed that, in order for the Fund to be able to meet requests for assistance under this new policy on the use of its resources, it will be necessary that the Fund supplement its resources by further borrowing and, in this connection, it welcomed the steps already taken by the Managing Director. In view of the magnitude of the expected need, the Committee agreed that the Executive Board and the Managing Director should make, as soon as possible, the necessary arrangements to enable the Fund to borrow from various potential sources of financing, not excluding a possible recourse to the private markets if this were indispensable.
(c) While agreeing that, during the next few years, it will be necessary for the Fund to resort to further borrowing, the Committee wished to stress its view that the Fund should continue to place primary reliance on subscriptions under members’ quotas as a source of financing of the Fund’s operations. In this connection, the Committee expressed regret at the long delay in the implementation of the quota increases provided for in the Resolution of the Board of Governors on the Seventh General Review. The Committee, noting that 84 members having 58 per cent of the total quotas have already consented to the increases in their quotas under that Resolution and that other members are expected to consent shortly, urged those members that have not yet consented to increases in their quotas to make every effort to do so as soon as possible. Moreover, it endorsed the intention of the Executive Board to begin preparatory work on the Eighth General Review of Quotas. The Committee noted that this review will be the occasion to reflect in the quotas the developments in members’ positions in the world economy, including a review of the criteria by which quotas are calculated.
(d) The Committee welcomed the agreement reached in the Executive Board on the establishment of a subsidy account designed to reduce the cost to low-income member countries of the use of the Fund’s resources under the supplementary financing facility and the intention of the Board to complete the arrangements for putting such an account into effect. In this connection, the Committee noted the view of the Executive Board that a part of the proceeds from repayments of loans by the Trust Fund should be used to provide resources to the subsidy account. At the same time, the Committee endorsed the efforts of the Managing Director to obtain voluntary contributions to the subsidy account, expressed its appreciation to those countries that had announced their intention to make such contributions, and urged all countries that were in a position to contribute but had not yet decided to do so to take such steps as would enable them to make an appropriate contribution to the funding of that account.
(e) The Committee noted that, in response to a suggestion by the Food and Agriculture Organization and the World Food Council, the Executive Board had begun consideration of the question whether the Fund could extend temporary financial assistance to low-income member countries when such countries are adversely affected by a crop failure or a sharp increase in the world price of food items, especially cereals. The Committee further noted that, in the view of the Managing Director, it would be possible to establish, consistently with the Fund’s authority and objectives, an arrangement for such assistance that would have only a limited effect on the liquidity of the Fund. Recognizing the seriousness of the problem faced by these member countries, the Committee urged the Executive Board to give prompt consideration to the matter.
4. The Committee had a discussion on the recommendations of the Program of Immediate Action of the Group of 24 relating to monetary issues on the basis of a report by the Executive Board, and, in this connection, noted the developments in the policies on the use of the Fund’s resources described in paragraph 3(a) above. It also noted that the Executive Board had initiated an in-depth examination of the issues involved in these recommendations, such as those relating to the SDR allocations, the link between SDR allocations and development finance, and the participation of developing countries in the decision making in the Fund.
The Committee endorsed the view that the important economic developments that have taken place should be taken into account in the consideration of further SDR allocations. In this connection, the Committee asked the Executive Board to give active consideration, in the months before the next meeting of the Committee, to the question of the appropriate level of SDR allocations. The Committee noted that due regard would need to be paid to the developments in international liquidity, payments imbalances, and the need for reserves as well as to the importance of strengthening the role of the SDR and its credibility as a reserve asset.
The Committee agreed that the Executive Board should carry out a more comprehensive study of a possible link between SDR allocations and development finance. This would need to be considered in the context of the proper role of the SDR in the system and the liquidity needs of the world.
On the subject of the participation of developing countries in the decision making in the Fund, the Committee felt that the matter needed further consideration and noted the intention of the Executive Board to return to this important topic at an early date in connection with the Eighth Quota Review.
The Committee urged the Executive Board to pursue its consideration of the remaining issues raised by the recommendations of the Group of 24 with a view to arriving at widely acceptable solutions. The Board should report on these matters at the next meeting of the Committee.
5. The Committee welcomed the recent decisions of the Executive Board to simplify the SDR. Under these decisions, beginning on January 1, 1981, the currency basket for the valuation of the SDR will become identical with the one already applied for interest rate purposes. The SDR will, therefore, consist of five currencies, i.e., the U.S. dollar, the deutsche mark, the French franc, the Japanese yen, and the pound sterling. In the view of the Committee, this important action, which gives practical effect to the Committee’s recommendation at its meeting in Hamburg, will further enhance the attractiveness of the SDR and promote its use by private as well as public holders. The Committee also welcomed the increase in the past few months in the number of official institutions that can hold and deal in SDRs. The Committee asked the Executive Board to give early attention to the question of adjusting the SDR interest rate to the full market rate and that of eliminating the remaining reconstitution requirement.
The Committee reiterated its intention to continue the study of the subject of the substitution account.
6. The Committee agreed to hold its next meeting in Libreville, Gabon, on May 21, 1981.
Sixteenth Meeting, Libreville, May 21, 1981
1. The Interim Committee of the Board of Governors of the International Monetary Fund held its sixteenth meeting in Libreville, Gabon, on May 21, 1981 under the chairmanship of the Honorable Allan J. MacEachen, Deputy Prime Minister and Minister of Finance of Canada. Mr. Jacques de Larosiére, Managing Director of the International Monetary Fund, participated in the meeting. The meeting was also attended by: Mr. G.D. Arsenis, Director of Money, Finance and Development Division, UNCTAD; Mr. David Ibarra Muñoz, Chairman, Development Committee; Mr. Pierre Languetin, Vice-Chairman of Governing Board, Swiss National Bank; Mr. Emile van Lennep, Secretary-General, OECD; Mr. M.G. Mathur, Deputy Director-General, GATT; Mr. Robert S. McNamara, President, IBRD; Mr. François-Xavier Ortoli, Vice-President, CEC; Mr. Jean Ripert, Under-Secretary-General for International Economic and Social Affairs, UN; Mr. Cyrus Sassanpour, Head, International Money and Finance Unit, OPEC; and Mr. Gunther Schleiminger, General Manager, BIS.
2. The Committee discussed the world economic outlook and the policies appropriate in the difficult current situation facing most countries. The Committee’s attention was focused on several broad problem areas: worldwide inflation, growing unemployment, slow growth of output and world trade, high level and volatility of interest rates and associated movements in exchange rates in the major industrial countries, and the financing of large external payments imbalances, particularly among non-oil developing countries.
The global picture does, however, contain certain encouraging aspects. Private markets have so far functioned well in the recycling process. Adjustment to the second increase in energy prices has been managed better than was the adjustment to the first increase, and a break in the previous close link between economic growth and oil consumption has begun to emerge. The major industrial countries have been bringing their monetary aggregates under better control. The increase in wages has been more restrained than after 1973-74. The Committee considered that, although these positive factors are significant from the standpoint of contributing to a balanced assessment, the current picture of the world economy does not afford cause for complacency in view of the problem areas mentioned above.
The Committee reaffirmed its conviction that the fight against inflation must continue to receive the highest priority. A reduction of inflation and inflationary expectations was considered a necessary condition for lower interest rates, more buoyant private investment, and sustained achievement of faster economic growth. At the same time, it expressed concern with current and prospective rates of increase in real output, and with the associated levels of unemployment and unutilized productive capacity. The Committee urged that monetary and fiscal policies aimed at restraint on expansion of nominal demand be supplemented by appropriate supply-side policies designed to improve the climate for investment and economic efficiency. It recognized that increased productivity, moderation in growth of incomes, and a better matching of supplies with the structure of demand could contribute in due course to an easing of inflation and to establishment of a basis for stronger growth with relative price stability.
The Committee was concerned about the magnitude and speed of changes in exchange rates for major currencies during the latter part of 1980 and so far in 1981, attributable to problems of high inflation, large payments imbalances, sharply fluctuating interest rates, and wide yield differentials among the principal financial markets. The Committee considered that quantitative targets for the growth of the money supply are an essential element of anti-inflation policies in major economies, and must not be abandoned. At the same time, the need for an appropriate mix of fiscal and monetary and other policies was emphasized. Restraint in government expenditures and containment of budgetary deficits would alleviate pressures in financial markets and lessen the burden placed on monetary policy.
The Committee was disturbed about the large external deficits on current account that remain in prospect for the next few years in many of the non-oil developing countries, and noted that appropriate adjustment policies must be pursued in order to bring these deficits to a level that can be financed on a sustainable basis. At the same time, the Committee emphasized the need for an enlarged flow of aid and concessional loans to developing countries, especially to low-income ones, financed by all countries in a position to do so, particularly in view of the increase in external debt and in the cost of servicing it.
Another concern of the Committee was the increasing domestic pressure for protectionism. Constant vigilance against protectionism was considered essential. Maintenance of an open trade and payments system among all countries, the Committee stressed, was important for the prosperity of developed and developing countries alike. Nondiscriminatory access to financial markets is also essential and should be maintained.
3. The Committee noted with satisfaction the important developments since its meeting last September that had placed the Fund in a better position to provide financial assistance to its members for the purpose of facilitating the adjustment process. Among these developments, the Committee noted, in particular, the coming into effect of the increases in the quotas of members under the Seventh General Review and the recent special increase in Saudi Arabia’s quota, the coming into operation of the policy on enlarged access by members to the Fund’s resources, the arrangements for the financing of that enlarged access, and the new policy on financial assistance to member countries adversely affected by higher costs of cereal imports.
4. The members of the Committee noted that, following these developments, it was now possible for member countries encountering balance of payments difficulties to obtain substantially larger amounts of assistance from the Fund than in previous years. More specifically, member countries making strong efforts to correct their balance of payments problems can draw from the Fund up to 450 per cent of their increased quotas over a three-year period, not counting any amounts that could be obtained under the Fund’s low-conditionality facilities, such as the compensatory and buffer stock financing facilities. In this connection, attention was drawn to the fact that the Fund has now an increased number of financial arrangements with member countries in effect, committing a substantial amount of its resources, and that a higher proportion of its commitments is being provided to support strong adjustment policies.
The Committee endorsed this major emphasis being placed on effective adjustment policies in connection with enlarged access to Fund resources.
5. The Committee noted the steps that the Fund had taken, or was in the process of taking, in order to be able to finance the enlarged access of member countries to its resources in current circumstances. The Committee took this opportunity to express its warm appreciation to the Saudi Arabian authorities for the major contribution that they had made toward that objective under the borrowing agreement of May 7, 1981 between the Saudi Arabian Monetary Agency and the Fund, which made the policy of enlarged access operational. The Committee also welcomed the recent arrangements with the monetary authorities of 13 industrial countries that will enable the Fund to obtain shorter-term financing either directly or through the Bank for International Settlements. The Committee endorsed the efforts currently under way to obtain for the Fund additional medium-term loans from several other member countries whose balance of payments is strong, as well as shorter-term financing from the monetary authorities of other members. The Committee commended the Managing Director and the Executive Board for what had already been achieved, and welcomed the steps that are being taken, in line with the Committee’s communiqué of last September, to ensure a proper balance between the Fund’s commitments and available resources.
6. While recognizing the need of the Fund to resort to borrowing in current circumstances, the Committee reiterated its view that the Fund should continue to place reliance on subscriptions under members’ quotas as the basic source of financing of its operations. The Committee, therefore, was pleased to note that the Executive Board had begun preparatory work on the Eighth General Review of Quotas, including consideration of the criteria by which quotas are calculated, and recalled the understanding that this review would be the occasion to reflect in quotas the developments in individual members’ positions in the world economy. The Committee urged the Executive Board to intensify its work—taking into account the world economic conditions and the Fund’s liquidity position—so that it would be in a position to make appropriate recommendations in due course.
7. The Committee welcomed the recent adoption by the Executive Board of a decision enabling the Fund to extend balance of payments assistance to member countries that are experiencing temporary increases in the costs of their cereal imports, either because of a crop failure or an increase in the world prices of such food items. The new decision integrates assistance in respect of increases in the costs of cereal imports with the assistance that is available in respect of export shortfalls under the Fund’s compensatory financing facility. Under this integrated policy, an eligible member would be able to draw up to 100 per cent of quota to compensate for increases in costs of cereal imports and up to the same quota limit to compensate for shortfalls in export receipts, subject to an overall limit of 125 per cent of quota for all such drawings. The members of the Committee noted that the assistance under the new decision would be of particular benefit to low-income countries, and expressed their appreciation for the efforts of the Managing Director and the Executive Directors for having devised this new policy.
8. The Committee welcomed the establishment of a subsidy account designed to reduce the cost to low-income member countries of the use of the Fund’s resources under the supplementary financing facility and the arrangements made by the Executive Board for the transfer to that account, in due time, of a part of the proceeds from repayments from Trust Fund loans. It was pleased to note that subsidy payments were expected to begin soon. It endorsed the efforts of the Managing Director to obtain for the account voluntary contributions from countries that are in a position to make such contributions. The Committee expressed its appreciation to those countries that had made or had pledged to make a contribution. The Committee also expressed its appreciation to the host country for the announcement during the Committee’s meeting of its contribution to the account. At the same time, it reiterated its appeal to other countries to contribute.
9. The Committee noted that a number of important actions had been taken by the Fund since last September’s meeting that enhanced the attractiveness of the SDR as an international reserve asset and promoted its use as a unit of account in private financial transactions. Included among these actions were the simplification of the SDR, the abrogation of the reconstitution requirement, and the increase in the interest rate to 100 per cent of the relevant interest rates.
10. The members of the Committee considered the question of allocations of SDRs in the next, i.e., the fourth, basic period, which is scheduled to begin on January 1, 1982. The members of the Committee discussed this matter on the basis of the provisions of the Fund’s Articles of Agreement and in the light of the various relevant factors, including the importance of strengthening the role of the SDR as a reserve asset and the need to avoid an undue increase in international liquidity. Many members supported the continuation of allocations in the fourth basic period and expressed the view that every effort should be made to achieve a consensus on this matter. Some other members considered that no case had been established in accordance with the principles laid down in the Articles of Agreement for an allocation in the near future. The Committee urged the Executive Board to continue its deliberations on the subject to enable the Managing Director to submit to the Board of Governors at the earliest possible date a proposal that would command the necessary support among members.
11. The Committee noted that the Executive Board had pursued, as requested by the Committee, its study of a possible link between SDR allocations and development financing. The Committee, recognizing that there was still a wide divergence of views regarding the advisability as well as the form of such a link, agreed to request the Executive Board to continue its studies on the matter in the context of the proper role of the SDR in the system.
12. The Committee expressed its warm appreciation to the Government and to the people of Gabon for their hospitality and for the excellent arrangements provided for the meeting.
The Committee agreed to hold its next meeting in Washington, D.C., on September 26-27, 1981 and was pleased to accept the invitation of the Government of Finland to hold its spring 1982 meeting in Helsinki.
Joint Ministerial Committee of the Boards of Governors of the Bank and the Fund on the Transfer of Real Resources to Developing Countries (Development Committee)
Fourteenth Meeting, Washington, September 29, 1980
1. The Development Committee held its fourteenth meeting in Washington, D.C., on September 29, 1980 under the Chairmanship of Mr. Cesar E.A. Virata, Minister of Finance of the Philippines, and with the participation of Mr. Robert S. McNamara, President of the World Bank, and Mr. J. de Larosiere, Managing Director of the International Monetary Fund. Mr. M.M. Ahmad, Interim Executive Secretary, took part in the meeting, which was also attended by representatives from a number of international and regional organizations and Switzerland as observers.
2. The Committee discussed development policy issues and financing requirements in the light of the current and projected international economic situation. It considered medium-term prospects for the world economy and particularly their impact on the oil importing developing countries. The Committee also reviewed relevant issues with respect to the Group of 24 Program of Immediate Action and the recommendations of the Brandt Commission.
3. The Committee noted with concern that the medium-term prospects for the world economy are now judged to be more unfavorable than they were a year ago. Because of sustained higher real costs of energy and other factors, the expected slow growth in industrial countries threatening the expansion of world trade, combined with persistent high rates of inflation, and possible constraints on capital flows, particularly on concessionary assistance, oil importing developing countries as a group are expected to face serious and prolonged payments imbalances. According to the Fund’s latest projections, the current account deficits of these countries are expected to rise from $56 billion in 1979 to $72 billion in 1980 and around $80 billion in 1981.
4. The Committee recognized that successful adjustment by the oil importing developing countries to the new international environment should contribute to achieving significantly better growth rates in these countries; on this basis, a growth rate in excess of 3 per cent could well be attainable in the second half of the decade. The Committee stressed, however, that such an adjustment effort would require strong resource support from industrial countries and from oil exporters. The Committee encouraged efforts by industrial nations to ensure that, in formulating their own adjustment policies, they take effective measures to conserve energy and do not adopt measures restricting trade or capital flows which might worsen the position of developing countries. The Committee recognized that developing countries would have to take measures to stimulate exports, expand production of new energy sources and economize the use of energy in relation to their industrial growth, and improve the efficient use of capital, human resources, and imports, in order to achieve maximum rates of growth in the context of the changed international economic situation. The Committee stressed that it was of the utmost importance to ensure that increased external capital flows be made available to the oil importing developing and especially to the least developed and other low-income countries, in support of these efforts.
5. The Committee noted with particular concern that the growth prospects of the low-income countries, especially sub-Saharan Africa, are bleak. It also viewed with deep concern the particularly difficult situation of the least developed and other low-income countries which face large financing needs to meet investments required in agriculture and infrastructure, including longer-term adjustments in investment programs to higher energy costs and changes in comparative advantage. These countries have limited capacity to generate domestic savings, and large borrowing on nonconcessional terms, even if possible, could further jeopardize their future development because of too rapid buildup of debt service payments. Increased concessional assistance is therefore required both from capital surplus and industrial countries to avoid declines in already unsatisfactory growth rates in these poor countries.
6. The Committee felt that it would be consistent with the objectives of the various donors to increase the amount and proportion of bilateral assistance going to the least developed and other low-income countries. The Committee suggested also that donor countries might examine the budgetary implications of setting aside the equivalent of a modest proportion of future GNP increases to facilitate more rapid progress toward the 0.7 per cent GNP target for ODA by countries that have not yet attained this level in their official development assistance. The Committee also recognized the importance of mobilizing public opinion in favor of official development assistance. In considering these and other suggestions in the Bank paper on the volume and quality of concessionary assistance, the Committee requested that a continuing study be undertaken.
7. The Committee welcomed the active consideration that is being given by both the Bank and the Fund to specific recommendations of both the Group of 24 Program of Immediate Action and the Brandt Commission with respect to measures to enhance the flow of resources to developing countries. It stressed that the Brandt Commission proposals on reduction of poverty receive special attention. The Committee also endorsed the action of the Interim Committee as reflected in their communiqué.
8. The Committee, noting the urgent need to expand investment in energy development in oil importing developing countries, welcomed the Bank’s initiative to examine the possibility of establishing an energy affiliate or facility to promote expansion of its lending operations in the energy sector. It urged the continuing process of consultations be brought speedily to a successful conclusion.
9. The Committee welcomed the progress which has been made by the Fund in adapting the compensatory financing facility to meet more adequately the needs of countries with export shortfalls and decided to pursue the matter of the export earnings stabilization programs based on the comprehensive study being prepared by UNCTAD.
10. The Committee emphasized the importance of early action by governments to make the agreed Sixth Replenishment of IDA effective. In addition, contributors to IDA were urged to participate in the bridging arrangements to provide IDA interim commitment authority pending the effectiveness of ID A-VI.
11. The Committee noted the change in the representation of China, and the concomitant increase in demand for the Bank’s financial assistance to support China’s development efforts. In addition, the Bank faces new requirements for structural adjustment and energy lending. The Committee also observed that previous planning assumptions had been based on lower rates of world inflation than those now prevailing and anticipated for the near future. In view of these factors, the Committee urged the Board of the Bank to explore promptly appropriate ways of expanding the lending capacity of the institution and also to consider ways in which lending in the next fiscal years could be expanded above presently planned levels.
12. The Committee welcomed the extensive work that had been undertaken by the Task Forces on Nonconcessional Flows and on Private Foreign Investment; the reports of the Task Forces provided a useful basis for further consideration of specific proposals to strengthen the functioning of international capital markets and the flow of resources to developing countries. It welcomed the Fund’s active response to the current recycling problems and viewed the Fund’s role as complementary to the role of international capital markets.
13. The Committee reaffirmed the importance of proper supervision in maintaining confidence in the international banking system, thereby enabling it to continue as an important channel of funds over the longer term. The Committee endorsed the conclusion of the Task Force on Nonconcessional Flows that such supervisory activity should avoid abrupt and severe changes which could unduly restrict bank lending to developing countries, and that debt servicing capacity of the borrower should be adequately taken into account in assessing bank portfolio concentration. The Committee also supported the request of the Task Force on Nonconcessional Flows to the World Bank for a full study of the various proposals under its consideration.
14. The Committee noted that further analysis of private foreign investment might lead to a better understanding of important factors in both investor and host countries that determine volume and nature of such investments. It suggested that the Board of the Bank consider the recommendation of the Task Force on Private Foreign Investment for a study of incentives and performance requirements.
15. The Committee took note of the efforts at the United Nations Special Session to organize global negotiations on the North-South issues and expressed its desire to play a very active role in regard to matters pertaining to the IMF and the World Bank within the framework of the UN global negotiations once these negotiations have started.
16. The members placed on record their special appreciation for the Chairman’s long and distinguished service to the Committee.
17. The next meeting of the Committee will be held in Libreville (Gabon) on May 22.
Fifteenth Meeting, Washington, October 2, 1980
At its fifteenth meeting in Washington, D.C., on October 2, 1980, the Development Committee selected the Honorable David Ibarra Muñoz, Secretary of Finance and Public Credit of Mexico, as Chairman and appointed Ambassador Hans Erik Kastoft, Permanent Representative of Denmark to the United Nations Office in Geneva, as Executive Secretary.
Sixteenth Meeting, Libreville, May 22, 1981
1. The Development Committee held its sixteenth meeting in Libreville, Gabon, on May 22, 1981 under the chairmanship of H.E. David Ibarra Muñoz, Secretary of Finance and Public Credit of Mexico, and with the participation of Mr. R.S. McNamara, President of the World Bank, Mr. J. de Larosiere, Managing Director of the International Monetary Fund, and Mr. Hans E. Kastoft, Executive Secretary. Observers from a number of international and regional organizations and Switzerland also attended the meeting.
2. The Committee noted with concern that the developing countries continue to face serious problems and that their medium-term prospects remain poor. A number of factors are of importance in this respect. These include:
—persistent international inflation;
—slowdown in the expansion of world trade, growing protectionist tendencies, and a depressing outlook for exports of developing countries;
—sharp increases in the current account deficits of non-oil developing countries from $58 billion in 1979 to an estimated $80 billion in 1980 and a projected $97 billion in 1981;
—continuing slow growth of most industrial countries; the growth of real GDP in these countries had averaged 4 per cent in the 1976-79 period; it slowed down to only 1.5 per cent in 1980 and is expected to fall to less than 1 per cent in 1981.
3. The financing of these large deficits has required a substantial rise in external borrowing at higher cost, and, consequently, the debt service burden for developing countries has increased perceptibly in recent years. There is little or no expectation that the large imbalances will be corrected quickly, and, therefore, problems relating to external financing and debt are likely to persist. The plight of the low-income countries is particularly acute because these countries have limited recourse to international capital markets and depend heavily on official development assistance; the volume of this type of concessional assistance may not at present be expected to increase at a rate similar to the expansion in requirements. Concerted efforts are necessary to deal with this difficult situation.
4. In view of these circumstances, the Committee concentrated its attention on a few selected topics, addressing the expanded capital needs of developing countries and the role of the international financial institutions in meeting them.
5. The Committee recognized that in view of the magnitude of the financing needs of the developing countries, including those of China, it was of particular importance and urgency to provide the multilateral development institutions such as the World Bank and the regional banks with additional resources to assist developing countries in their development efforts, to help them restore acceptable levels of growth, and to support their structural adjustment. The Committee therefore urged the Executive Board of the World Bank to continue its efforts to reach a consensus on the scale of World Bank activity appropriate to the circumstances of the early 1980s and to seek means of future financing of that activity, including study of a possible change in the gearing ratio.
6. Of special concern to the Committee was the delay by some countries in bringing into effect the Sixth Replenishment of the International Development Association (IDA), with the result that IDA ran out of new commitment authority in April this year. Any extended disruption in IDA operations will have serious repercussions on the poorest developing countries. In view of the gravity of the circumstances, the Committee stressed the need for member governments to restore IDA’s commitment authority as a matter of great urgency. The Committee noted with appreciation those donors which agreed to make available advance payments to IDA-VI.
7. The Committee noted with satisfaction the reaffirmation of support for a general capital increase by all major donors. It also urged the Executive Directors to consider sympathetically the maximum lending program which can be sustained for fiscal year 1982, taking into account the needs of the situation.
8. The Committee acknowledged that the world energy situation poses a serious problem of adjustment for producers and consumers. In particular, the oil importing developing countries face an acute and growing external financing problem and need to reduce their dependence on imported oil. This will involve expanding exploration for and development of domestic oil and gas resources, increased development of coal, major expansion of renewable resources, maximum utilization of hydropower capacity, and conservation.
9. The Committee expressed its support for the Bank’s initiative to expand its lending operations in the energy sector. They urged that in the light of the pressing need to reduce the strains on the balance of payments of the oil importing developing countries, the ongoing consultation process be completed expeditiously. They urged that members examine ways to mobilize additional funds for energy development, both through existing mechanisms and through a possible new affiliate or facility. The Committee stressed the importance that these measures should reflect the global nature of the problem and the international community’s interest in a general approach to energy which encompasses conservation and the development of conventional and nonconventional sources of energy.
10. The Committee considered the status reports on the future lending of both concessional and ordinary capital resources of the African Development Bank, the Asian Development Bank, and the Inter-American Development Bank currently under review within these institutions. Given the pressing need to strengthen the lending operations of the regional development banks, the- Committee urged member governments to seek means of financing their activities arising from the changed circumstances of the 1980s.
11. In the context of the review of the flow of nonconcessional resources, the Committee considered the Report on Selected Issues by the Task Force on Nonconcessional Flows both timely and useful. In its report the Task Force limited its comments to the following issues: (1) cooperation between multilateral development institutions and commercial lenders; (2) external indebtedness of developing countries; and (3) increases in lending capacity of the multilateral development institutions.
12. Based on the Task Force report, the Committee considered that a degree of additionality in nonconcessional flows could be achieved by actions on the part of multilateral development institutions to help broaden the range of financial instruments and improve the attractiveness of lending to developing countries. In this regard, the Committee endorsed the Task Force recommendation to invite the multilateral development institutions to discuss, as speedily as possible, these proposals with banks and other financial institutions in major financial centers. These discussions would include: (1) the improvement of cofinancing arrangements between multilateral development institutions and commercial lenders; (2) the sale of portfolio and loan participations by multilateral development institutions; (3) the use of guarantees by multilateral development institutions; and (4) the issue and placement of pass-through loan certificates by multilateral development institutions.
13. The Committee also noted and endorsed the Task Force report on the external indebtedness of developing countries which emphasizes that developments regarding external debt must be viewed in the broader context of the world economic situation. It notes that debt problems are due to many factors and believes that both short- and long-term aspects of the debt question must be kept under constant review. The Committee stressed the importance of sound debt management in order to avoid debt servicing problems and thus help sustain large inflows of capital necessary for the economic development of developing countries. The Committee noted that debt indicators, taken on their own, are not a substitute for comprehensive reviews of the economic situation and prospects of the countries involved.
14. The Committee expressed concern over the impact of inflation and high interest rates on external debt and encouraged further study of this subject. The Committee recognized the importance of the existing international framework for the rescheduling of official debt which must be viewed as part of a comprehensive effort to assist the requesting debtor country to implement necessary adjustment policies and to restore flows. The IMF, the World Bank, and the regional development banks might be able to provide good offices in facilitating private debt rescheduling when requested.
15. Regarding ways of increasing the flow of funds to developing countries from the multilateral development institutions, the Committee urged the Task Force to examine various proposals under consideration and supported the request of the Task Force asking the World Bank for the elaboration of a paper examining these proposals.
16. The Committee expressed its appreciation to those members of the private international financial community who have actively participated and supported the work of the Task Force on Nonconcessional Flows.
17. The Committee discussed the critically important issue of concessional assistance and decided, in principle, to establish a Task Force to carry forward and widen the continuing study of the problems affecting the volume and quality and effective use of concessional flows, both in the shorter and longer term. The Committee urged that consultations with respect to composition and terms of reference be initiated so as to enable the Task Force to undertake its work at the earliest opportunity.
18. The deteriorating prospects for growth in sub-Saharan Africa have been a matter of serious concern to the international community. The Committee was pleased to learn from the President of the World Bank that the formulation of an action program was well under way and looked forward to discussing the program of action at its September 1981 meeting.
19. The members reiterated their interest in a relationship between the Committee and United Nations global negotiations on the North-South issues. The Committee reaffirmed its desire to play a very active role in regard to matters pertaining to its competence.
20. The Committee decided that its future work program should evolve around matters now before it, and on work which is in progress in the Bank, the Fund, and Task Forces. In particular, the work includes a regular review of the flow of resources to the developing countries, and the financial needs of these countries, keeping under review the specific recommendations of the G-24 Program of Immediate Action and the Brandt Commission with respect to measures to enhance the flow of resources to developing countries. The Committee endorsed the recommendation included in the Interim Committee press communiqué regarding the SDR link.
21. The Committee paid a special tribute to Mr. Robert S. McNamara in recognition of his long and distinguished tenure as President of the World Bank. It expressed its deep appreciation for his devoted and outstanding services to the cause of economic development, especially for his deep and abiding concern for the poorest of the world community, and wished him the very best in his future endeavors.
22. The Committee expressed its special appreciation to the Government of Gabon for its warm hospitality and for the excellent arrangements provided for the meeting.
23. The Committee agreed to hold its next meeting in Washington, D.C., on September 27 in the afternoon and September 28, 1981, and was pleased to accept the invitation of the Government of Finland to hold its spring 1982 meeting in Helsinki.