Chapter

Appendix III

Author(s):
International Monetary Fund
Published Date:
September 1982
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Press Communiqués of the Interim Committee and the Development Committee

Interim Committee of the Board of Governors on the International Monetary System

Press Communiqués

Seventeenth Meeting, Washington, September 26-27, 1981

1. The Interim Committee of the Board of Governors of the International Monetary Fund held its seventeenth meeting in Washington, D.C., on September 26-27, 1981, under the chairmanship of the Honorable Allan J. MacEachen, Deputy Prime Minister and Minister of Finance of Canada. Mr. Jacques de Larosière, Managing Director of the International Monetary Fund, participated in the meeting. The meeting was also attended by: Mr. G.D. Arsenis, Director, Money, Finance and Development Division, UNCTAD; Mr. A.W. Clausen, President, IBRD; Mr. Hans E. Kastoft, Executive Secretary, Development Committee; Mr. William B. Kelly, Jr., Deputy Director-General, GATT; Mr. Emile van Lennep, Secretary-General, OECD; Mr. Fritz Leutwiler, President, Swiss National Bank; 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. Giinther Schleiminger, General Manager, BIS.

2. The Committee discussed the world economic outlook and the policies appropriate in the difficult current situation that is facing most countries. Attention was focused on the problems of high inflation, low or negative rates of economic growth with rising unemployment, large external imbalances, high interest rates, and sharp movements of exchange rates for the major currencies. The Committee agreed that the deep-rooted character of the main economic difficulties called for determined implementation, over an extended period, of policies aimed at the adjustment of both internal and external imbalances.

The Committee again assigned a clear priority to the firm pursuit of policies to reduce inflation for the purpose of lowering interest rates, encouraging productive investment, and achieving better rates of economic growth and employment. The Committee believed that signs of progress on the anti-inflation front were emerging, but that efforts must not be relaxed. Premature expansion of nominal aggregate demand could trigger further inflation without helping to solve the unemployment problem or to restore sustained real growth at a satisfactory pace.

The Committee urged that the needed containment of growth in nominal demand “be carried out through an appropriate blending of monetary and fiscal policies. It stressed the importance of steady and careful restraint on the growth of monetary aggregates. It particularly emphasized the need for such restraint to be accompanied and supported to a greater extent by consistent fiscal policies involving, for many countries, reductions in the size of budget deficits.

The Committee stressed that prudent demand management policies should be supported or supplemented by measures directed toward problems of supply. Measures cited in this connection included steps to remove existing rigidities and inefficiencies, to provide incentives—or eliminate disincentives—to saving and investment, and to achieve more effective use of energy resources, as well as development of new sources of energy. The Committee attached particular importance to measures to promote labor mobility and retraining.

The Committee remained especially concerned about the existing tendency toward protectionism rather than liberalization. It warned that such policies are short-sighted, since they tend to preserve rigidities in the allocation of resources and cannot provide lasting solutions for unemployment problems. The Committee pointed out that resort to protectionist measures is not only inimical to productivity gains and the fight against inflation but also destructive of opportunities for expansion of world trade and increased participation of developing countries in its benefits. Nondiscriminatory access to financial markets is also essential and should be maintained.

Regarding external payments imbalances, the Committee expressed particular concern about the problems of adjustment and financing in the non-oil developing countries. The Committee recognized that the upsurge in the current account deficit of this large group of countries, from $38 billion in 1978 to an estimated $83 billion in 1980, has stemmed mainly from external developments unfavorable to them, including the impact on their exports of recessionary conditions in the industrial world, the adverse movement of their terms of trade, including higher oil prices, and the steep rise of interest rates in major financial markets. The Committee noted that these external developments, together with the limited increase in official development assistance, have had a severe impact on the international purchasing power of many developing countries, causing a sharp slowdown in import growth and thus hindering the pace of development.

The Committee stressed that strong and comprehensive adjustment policies had to be implemented in order to reduce the present unsustainable current account imbalances. The Committee observed that many developing countries had already made substantial adaptations to the harsh external environment in which they now find themselves, but recognized that further progress was needed. For some countries, especially in the low-income category, this adjustment has been forced by inability to finance additional imports. However, programs of external adjustment were being adopted by many countries, with a considerable number of such programs being supported by arrangements for the use of the resources of the Fund.

3. The Committee stressed the importance of the Fund’s role in the promotion of balance of payments adjustment and strongly endorsed the major emphasis that the Fund has been placing on the implementation of effective adjustment programs by members making use of the Fund’s resources in the upper credit tranches. In present circumstances, it was recognized that the structural aspects of certain imbalances can require recourse to the Fund’s resources under extended arrangements.

4. The Committee emphasized the need for effective implementation by the Fund, in a uniform and symmetrical manner for all members, of its surveillance role in connection with balance of payments and exchange rate policies.

5. The Committee reiterated the principle that the Fund should rely on quota subscriptions as the basic source of resources for its operations and agreed that the Eighth General Review of Quotas should be expedited. Noting, among other factors, that the present quotas of a significant number of members do not reflect their relative positions in the world economy, the Committee reaffirmed that the occasion of the Eighth General Review should be used to remedy the situation within the context of a general enlargement of the Fund.

6. The Committee welcomed the conclusion of further borrowing arrangements with the monetary authorities of a number of member countries. The Committee felt that the Fund should continue its efforts to arrange medium-term borrowing from members whose external positions are strong and also endorsed the intention of the Fund to conclude further short-term borrowing arrangements with monetary authorities on the lines of those recently concluded. As regards possible borrowing by the Fund in the private markets, the Committee reaffirmed its view that this possibility should remain open in the light of the evolution of the Fund’s commitments and available resources.

7. The Committee expressed its appreciation to the several countries that had already made or had pledged to make a contribution to the subsidy account for the supplementary financing facility that was established last December for the purpose of reducing the cost to low-income members of the use of the Fund’s resources under that facility. The Committee reiterated its appeal to those countries that were in a position to make a contribution to the account to do so at an early date.

8. The Committee urges the Executive Board to continue its deliberations on the question of whether there should be a further allocation of SDRs at the present time. It recommended that the scope of such deliberations should include the proposal to extend the third basic period and continue the rate of allocation established in 1978.

9. In response to an invitation from the Government of Finland, the Committee agreed to hold its next meeting in Helsinki, Finland, on May 12-13, 1982.

Eighteenth Meeting, Helsinki, May 12-13,1982

1. The Interim Committee of the Board of Governors of the International Monetary Fund held its eighteenth meeting in Helsinki, Finland, on May 12-13, 1982 under the chairmanship of the Honorable Allan J. MacEachen, Deputy Prime Minister and Minister of Finance of Canada. Mr. Jacques de Larosiere, Managing Director of the International Monetary Fund, participated in the meeting. The meeting was also attended by observers from a number of international and regional organizations and from Switzerland.

2. The Committee discussed the world economic outlook and the policies needed to deal with the difficult problems now confronting most countries. Attention was focused on the continuation of high inflation in many countries, the slow pace of economic activity, high and rising unemployment, increasing protectionism, high interest rates and widely fluctuating exchange rates in the major industrial countries, and the prevalence of large external payments imbalances in many countries.

The Committee noted that there are no quick and easy ways of solving these problems. Achievement of a substantial and lasting improvement in economic performance would require sustained pursuit of a balanced set of policies aimed at reducing inflation, improving productive efficiency, and putting external imbalances onto a sustainable basis. The Committee noted that significant progress in the fight against inflation was already evident in some countries. Enduring further progress could be expected over the next few years so long as prudent policies of restraint were maintained. These policies need to be supported by a moderation in the growth of incomes.

It was the Committee’s view that fiscal policies consistent with firm monetary policies would offer the best prospects for an enduring reduction in interest rates and in the wide fluctuations in exchange rates that have accompanied high and volatile interest rates over the past two years. A better convergence in economic policies and anti-inflationary performances among industrial countries would also foster more stable exchange rates. The Committee stressed the urgent need, in present circumstances, for decisive commitments—especially on the part of the governments of the major industrial countries—to budgetary discipline and smaller fiscal deficits. Only through such commitments can national authorities establish the credibility of anti-inflation policies and avoid the likely diversion of available flows of saving away from productive investment.

The Committee agreed that monetary restraint must remain an essential element of the overall strategy of economic policy in the industrial countries. An undue shift toward monetary expansion would risk an upward ratcheting of the rate of inflation, all the more so because of the current sensitivity of private market participants to the inflationary effects of growth in money holdings.

The Committee also visualized an important role for supply-side policies designed to encourage production and productivity and a reduction of rigidities in the markets for labor and goods.

The Committee voiced particular concern regarding the high levels of unemployment now prevailing in most countries. The comprehensive type of policy approach that it advocated did not rest on a view that the fight against inflation is more important than the fight against unemployment. Rather, the Committee’s view was that combating inflation is a necessary step for resumption of sustainable growth at a satisfactory pace. The Committee considered that reduction in inflation and inflationary expectations, in nominal and real interest rates, and in existing rigidities is essential for steady expansion of output and reduction of unemployment.

Discussion of the rapidly changing pattern of international payments pointed to a further need for adjustment of external positions. The Committee noted in particular that current account deficits remained high in a number of the industrial countries and that large payments imbalances prevailed in many of the non-oil developing countries.

The Committee expressed deep concern about the current plight of non-oil developing countries. The problems of these countries, and particularly the size of their external deficit on current account, stemmed in part from factors beyond their control. The most important of these external factors were the impact of the international recession upon export markets, the sharp deterioration of the terms of trade for countries exporting mainly primary commodities, and the increase in the burden of interest charges on external debt.

The Committee noted, however, that the problems of many developing countries were exacerbated by the disruptive effects of severe inflation, to which unduly expansionary fiscal and monetary policies have contributed. Pursuit of more realistic financial policies in such countries, coupled with policies to reduce structural imbalances, would greatly facilitate the orderly adjustment of domestic and external positions. The Committee recognized an urgent need for adequate flows of official development assistance and other external resources to developing countries, especially those with low per capita incomes.

More broadly, the Committee stressed that prevailing conditions in the world economy heightened the need for international economic cooperation on many fronts. An area of special concern was that relating to international trade policies. The Committee emphasized its conviction that current pressures for protectionist approaches to problems generated by international competition must be firmly resisted by all countries and stressed the need to eliminate these practices where they already exist.

3. The Committee emphasized the importance of the role of the Fund in the promotion of balance of payments adjustment and stressed the need for effective implementation by the Fund of its surveillance function in connection with the balance of payments and exchange rate policies of members. In the Committee’s view, it was of paramount importance that Fund surveillance be exercised in an evenhanded manner for all members, whether they are large or small, industrial or developing, and whether they are using the Fund’s resources or not. The importance of focusing particular attention on the international repercussions of the policies of the major industrial countries was underlined.

4. The Committee had a discussion on the subject of quota increases under the Eighth General Review. In the course of this discussion, it considered, in particular, the question of the appropriate size of an overall enlargement in quotas under that Review in the light of the role envisaged for the Fund in the 1980s, and also had a preliminary exchange of views on the distribution of any such enlargement between members. In this connection, the Committee noted the report of the Executive Board on the status of its work and the timetable envisaged for the completion of the Review.

The Committee agreed that the Fund has an important role to play in the adjustment and the financing of balance of payments deficits, and that it must be strong enough, and have adequate resources, to be able to cope effectively with the problems it may face in the 1980s. At the same time, the Committee reiterated its view that quota subscriptions should be the primary source of financial resources for the Fund’s operations. The Committee concluded, therefore, that any such increase in quotas should be adequate to enable the Fund to perform in an effective manner its functions in the 1980s in accordance with these principles, and that the Review should be completed within the agreed timetable. Noting that the present quotas of a significant number of members do not reflect their relative positions in the world economy, the Committee reaffirmed its view that the occasion of an enlargement of the Fund under the Eighth General Review should be used to bring the quotas of these members more in line with their relative positions, taking account of the case for maintaining a proper balance between the different groups of countries.

The Committee urged the Executive Board to pursue its work on the Eighth Quota Review as a matter of high priority and to report to the Committee before the Committee’s next meeting, by which time it hopes that it will be possible to reach agreement on some of the main aspects of the Review.

5. The Committee discussed the question of allocations of SDRs in the fourth basic period, which began on January 1, 1982. It noted the statement of the Managing Director that he had not been able to make a proposal for such allocations because there was not sufficient support at this time. The discussion in the Committee showed that, while a large number of members were in favor of a further allocation, the required support for an allocation was still lacking. The Committee asked the Executive Board to keep the matter under consideration and to continue its efforts to bring about a convergence of views that would permit the Managing Director to submit, as soon as possible, a proposal concerning SDR allocations in the current basic period, in accordance with the provisions of the Fund’s Articles.

6. The Committee expressed its very warm appreciation to the Government and to the people of Finland for their hospitality and for the excellent arrangements provided for the meeting.

The Committee agreed to hold its next meeting in Toronto, Canada, on September 3-4, 1982.

Annex: Interim Committee Attendance, May 12-13, 1982

Chairman

Allan J. MacEachen, Deputy Prime Minister and Minister of Finance of Canada

Managing Director

J. de Larosiere

Members or Alternates

  • Mohammad Abal-Khail, Minister of Finance and National Economy of Saudi Arabia

  • Roberto T. Alemann, Minister of Economy of Argentina

  • Hassan Al-Najafi, Governor of the Central Bank of Iraq

  • Beniamino Andreatta, Minister of the Treasury of Italy

  • Mohsen Nourbakhsh, Governor of the Bank Markazi Iran (Alternate for Mahfoud Aoufi, Governor of the Banque Centrale d’Algérie)

  • Willy De Clercq, Vice Prime Minister, Minister of Finance, and Minister of Foreign Trade of Belgium

  • Jacques Delors, Minister of Economy and Finance of France

  • Carlos Geraldo Langoni, President of the Banco Central do Brasil (Alternate for Ernane Galvêas, Minister of Finance of Brazil)

  • José Ramón Alvarez Rendueles, Governor of the Banco de España (Alternate for Juan Antonio García Diez, Minister of Economy and Commerce of Spain)

  • Cesar E.A. Virata, Prime Minister and Minister of Finance of the Philippines (Alternate for John Howard, Treasurer, Australia)

  • Sir Geoffrey Howe, Chancellor of the Exchequer of the United Kingdom

  • Ahti Karjalainen, Governor of the Bank of Finland

  • Karl Otto Poehl, Governor of the Deutsche Bundesbank (Alternate for Manfred Lahnstein, Federal Minister of Finance of Germany)

  • SHANG Ming, Vice President of the People’s Bank of China (Alternate for LI Baohua, President of the People’s Bank of China)

  • Ray MacSharry, Deputy Prime Minister and Minister for Finance of Ireland Arthur K. Magugu, Minister for Finance of Kenya

  • I.G. Patel, Governor of the Reserve Bank of India (Alternate for Pranab Kumar Mukherjee, Minister of Finance of India)

  • Tengku RAZALEIGH Hamzah, Minister of Finance of Malaysia

  • Donald T. Regan, Secretary of the Treasury of the United States

  • SAMBWA Pida Nbagui, Governor of the Banque du Zaïre

  • A.P.J.M.M. van der Stee, Minister of Finance of the Netherlands

  • Haruo Mayekawa, Governor of the Bank of Japan (Alternate for Michio Watanabe, Minister of Finance of Japan)

Observers

  • A.W. Clausen, President, IBRD

  • P.N. Dhar, Officer-in-charge, Department of Economic and Social Affairs, UN

  • Hans E. Kastoft, Executive Secretary, Development Committee

  • Roger Lawrence, Director, Money, Finance and Development Division, UNCTAD

  • Emile van Lennep, Secretary-General, OECD

  • Fritz Leutwiler, President, Swiss National Bank

  • M.G. Mathur, Deputy Director-General, GATT

  • Tommaso Padoa-Schioppa, Director General, Economic and Financial Affairs, CEC

  • Günther Schleiminger, General Manager, BIS

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)

Press Communiqués

Seventeenth Meeting, Washington, September 27-28,1981

1. The Development Committee held its seventeenth meeting in Washington, D.C., on September 27-28, 1981, under the chairmanship a.i. of H.E. Manuel Ulloa Elias, Prime Minister and Minister of Economy, Finance and Commerce of Peru, and with the participation of Mr. J. de Larosiere, Managing Director of the International Monetary Fund, Mr. A.W. Clausen, President of the World Bank, and Mr. Hans E. Kastoft, Executive Secretary. Representatives from a number of international and regional organizations and Switzerland also attended the meeting.

2. The Committee reviewed the world development situation and prospects on the basis of the World Development Report, 1981.

3. The Committee expressed its deep concern that most developing countries, especially the low-income countries, continue to face grave economic problems with poor medium-term prospects.

4. The Committee noted the disappointingly low levels of economic growth in many industrial countries which, together with high energy costs, inflation, and high interest rates, have had a profound effect on the performance of the developing countries. They have had to contend with a difficult external economic environment. The experience of several developing countries reviewed in the World Development Report shows that even when external conditions are favorable, development is still difficult. The Committee therefore found that efforts by industrial nations to curb inflation and reduce unemployment, and restore their growth rates while at the same time intensifying the pursuit of liberal trade regimes, should be encouraged. The Committee reiterated that in a world of interdependence there are important interconnections between the policies of individual countries and therefore a need to take into account the effects on other countries.

5. The Committee stressed the importance of efforts by all countries to pursue appropriate adjustment policies and encouraged developed countries, capital surplus oil-exporting countries, as well as advanced developing countries, to support adjustment and development through technical and financial efforts. The Committee reiterated the need for measures to increase the flow of official development assistance to the oil-importing developing countries, especially the low-income countries, and noted the Ottawa communiqué which acknowledged the decisive importance of the developing countries’ own efforts and recorded the commitment of participating industrial countries to maintain substantial and, in many cases, growing levels of official development assistance and to seek to increase public understanding of its importance.

6. The Committee noted the importance of maintaining adequate flows of commercial and other financing to developing countries.

7. The Development Committee, recalling its support at the Gabon meeting for : providing additional resources to the World Bank and for the restoration of the commitment authority of IDA, welcomed the recent agreement on interim procedures for the valuation of IBRD capital. This has cleared the way for payment of subscriptions to the $40 billion General Capital Increase. The Committee urged all countries to make subscriptions in accordance with the resolution on the General Capital Increase as early as possible. It furthermore reiterated the need for the IBRD/IDA to consider the maximum lending program which can be sustained for financial year 1982 taking into account the needs of the situation.

8. The Committee also noted the coming into force of IDA-VI with the United States’ formal notification of its intention to participate with its full share of $3.24 billion. As IDA is an essential source of concessional assistance to the poorer developing countries, the Committee urged all contributors to resolve outstanding issues so that planned commitment levels can be maintained. The Committee further requested the World Bank to initiate preparatory discussions for the next IDA replenishment as soon as possible.

9. The Development Committee also reviewed the needs of the regional development banks in the changed circumstances of the 1980s and their plans for replenishment of the ordinary and concessional funds in this regard. It urged member governments to speedily seek means of financing the future capital requirements at an appropriate level besides completing commitments previously entered into. The Committee also suggested that the regional development banks dedicate more efforts to support regional integration.

10. The Committee’s discussion of energy reflected the global nature of the problem and the international community’s interest in a general approach to the subject encompassing conservation and the development of both conventional and non-conventional sources of energy. It reiterated the importance of energy investments in the developing countries and urged the World Bank and the regional development banks to continue to explore the best means to mobilize necessary public and private resources in order to expand their lending operations in this important sector. In this connection, the Committee welcomed the conclusions of the Nairobi Conference on Energy that there is a substantial and increasing demand for financing support and preinvestment activities for the development of new and renewable energy resources in the developing countries and welcomed the recommendation urging all interested parties to accelerate consideration of possible avenues that would increase energy financing, including those mechanisms being examined in the World Bank, such as an energy affiliate, increased cofinancing, guarantees, and other means.

11. The Africa study prepared by the World Bank at the request of the African Governors was the subject of great interest in the Development Committee. It noted with deep concern that in the preceding two decades output per person rose more slowly in sub-Saharan Africa than in any other part of the world and growth prospects for the eighties were dismal, since, except under optimistic assumptions, per capita incomes are projected to decline for this part of the continent which already accounts for two thirds of the least developed countries. The potential for growth, however, exists and can be realized through increased flows of resources to the region, a substantial improvement in their world trading opportunities, and through appropriate adjustments in domestic economic policies and in the efficiency with which resources are used. This will require increased attention and resources from the international community in forms suited to African development needs.

12. The Committee expressed its appreciation for the report and noted that it forms a good basis for a dialogue between the African governments, the international donor community, and the multilateral financial institutions. It urged the World Bank to take the lead in carrying forward this dialogue with a view to promoting joint action by African governments, donors, and international agencies with a view to accelerate growth and development through effective financial and technical assistance support, appropriate policy changes, and expanded investment programs. Further, it requested that the World Bank expand its operations, technical advisory services, and other support for member countries in sub-Saharan Africa, bearing in mind the needs of other low-income countries.

13. The Committee, in its review of the follow-up action on outstanding development issues, reiterated its support for active consideration by both the Bank and the Fund of specific recommendations of both the G-24 Program of Immediate Action and the Brandt Commission with respect to measures to enhance the flow of resources to developing countries. It noted that both the Fund and the Bank had considered, and in some cases implemented, the recommendations of the G-24 Program of Immediate Action and the Brandt Commission. The Committee encouraged the Fund and the Bank to continue to pay due regard to these recommendations including the suggestions made during the Gabon meeting, such as the SDR link and other issues, in the future development of their policies.

14. The Committee took note of the work of the Task Force on Nonconcessional Flows which, with the support of the World Bank and the IMF, has continued analyzing proposals including more cofinancing and other forms of cooperation with private financial institutions to increase the lending capacity of the multilateral development institutions, particularly the World Bank, the guidelines for a multilateral partial guarantee mechanism, and recent developments and near-term prospects in international capital markets. The Committee is looking forward to the Task Force’s final report, which it expects to consider at its Helsinki meeting in the spring of 1982.

15. The Committee urged that in pursuance of its decision at its Gabon meeting, consultations with respect to the composition and terms of reference of a task force on the important subject of concessional assistance be completed so as to enable the task force to start its work as soon as possible, and before the Helsinki meeting in the spring of 1982.

16. The Committee noted with satisfaction that the Ottawa summit communiqué indicates the readiness of the countries concerned to participate in preparations for a mutually acceptable process of global negotiations in circumstances offering the prospect of meaningful progress. It reiterated its desire that the Committee should play a very active role in regard to matters pertaining to its competence within that process.

17. The Committee noted the forthcoming Cancun summit meeting and expressed its hope that it may lead to constructive and positive results.

18. The Committee, after taking into account the views and recommendations of the Executive Boards of the Fund and the Bank, approved the report on the review of the performance of the Development Committee and its annual report. It authorized the Chairman to forward both these documents to the Boards of Governors.

19. The Committee noted that, in pursuance of its earlier decision on the report of the Task Force on Private Foreign Investment, the World Bank has now completed its plan to study the quantitative and qualitative impact of both foreign investment incentives and performance requirements on direct investment and trade patterns. In view of the potential and the role which private foreign direct investment can play in promoting development in developing countries, the Committee encouraged the World Bank to complete the study for its consideration in due course.

20. The Committee agreed to hold its next meeting in Helsinki on May 13-14, 1982, in response to an invitation extended by the Government of Finland.

Eighteenth Meeting, Helsinki, May 13-14, 1982

1. The Development Committee held its eighteenth meeting in Helsinki on w May 13-14, 1982, under the chairmanship of H.E. Manuel Ulloa Elías, Prime Minister and Minister of Economy, Finance and Commerce of Peru, who, at the “start of the meeting, was unanimously selected as the new Chairman in place of H.E. David Ibarra Munoz, who had earlier resigned from this position. Mr. J. de Larosiere, Managing Director of the International Monetary Fund, Mr. A.W. Clausen, President of the World Bank, and Mr. Hans E. Kastoft, Executive Secretary, participated in the meeting. Representatives from a number of international and regional organizations and Switzerland also attended the meeting.

2. The Committee deliberated at length on a few selected topics in its search for solutions to the many problems which currently plague the economies of both the developed and developing countries. The Committee noted with concern that the medium-term prospects for the world economy and particularly their impact on the developing countries continue to be unfavorable. The situation and prospects for the poorest developing countries are particularly bleak as they face stagnation, in some cases retrogression, in the period ahead. This situation calls for greater adjustment efforts to the new international environment on the part of both groups of countries in order to facilitate the resumption of sustainable growth. The Committee stressed the need for increased external capital flows on appropriate terms to the developing countries, especially to the least developed. There is also need for a reappraisal and strengthening of the role of the multilateral development institutions in order to enable them to maximize their contribution to the solution of the problems of the present crisis.

3. It was in this context that the Committee first addressed itself to a thorough review of the current status of lending operations of the multilateral development institutions and the difficulties which they face in replenishment of their concessional and ordinary resources.

4. The Committee noted the crucial importance of concessional resources, and particularly of IDA, in the development strategy and programs of the low-income developing countries. The Committee urged that the proportion of aid flows to the poorest developing countries be increased. The Committee was concerned that the likely reduction, in the absence of further action, in IDA commitment authority during the Sixth Replenishment period would have a serious impact on the economies of IDA recipients. It would disrupt the momentum behind development efforts and programs so assiduously built up through sustained efforts over several years.

5. The Committee felt that it was important and necessary to resolve the crisis now faced by IDA and to take steps to address the problems in financial years 1982 and 1983 and beyond. In this connection, the Committee welcomed the action taken by some donors to release the full amount of the second tranche of their contribution to IDA-VI. It noted the importance attached by a number of donors to finding ways of reducing current and prospective shortfalls of IDA’s commitment authority in the financial years 1982-84. Several ways including waiving or relaxing the pro rata provisions of the IDA resolution as well as the creation of a Special Fund, which would provide additional resources, have been proposed. Progress made in considering these alternatives in informal meetings held by donor representatives over the last week was welcomed in order to develop specific action programs which could be quickly translated into operational mechanisms so that original planned commitment levels could be maintained to the maximum extent possible. The Committee also agreed that discussions should proceed apace so that the Seventh Replenishment of IDA could begin if possible as scheduled in financial year 1984. The Committee urged that additional concessional cofinancing be made available for IDA projects.

6. The Committee, bearing in mind budgetary constraint considerations, urged governments to accelerate their subscriptions to the General Capital Increase and to release the local currency portion of these subscriptions as rapidly as possible. The Committee also took note of the on-going discussions concerning the Bank’s borrowing practices and its lending rate policy and urged the Executive Directors of the Bank to reach prompt decisions on these matters in order to enhance the Bank’s funding flexibility both as a means of keeping the cost of Bank borrowing as low as possible and of assuring that planned growth in lending can be financed on reasonable terms. It requested the Executive Directors to continue their study of the scope for an expansion, in real terms, of World Bank lending.

7. The Committee reaffirmed the importance of energy investment in the developing countries, particularly the poorest among them, and noted with satisfaction that the Bank’s lending program for energy has expanded rapidly and now accounts for 25 per cent of total Bank lending as against only 15 per cent in 1977. However, it has reached a point where any further increase would cut into other priority sectors which the Committee felt was not desirable. In the circumstances, the Committee asked the Executive Directors of the World Bank to explore ways that would permit the Bank to prepare and secure financing for an increased program of energy investments including an Energy Affiliate or a Special Fund or agreed cofinancing arrangements. A progress report should be submitted to the Committee at its September 1982 meeting.

8. The Committee, on the basis of the material provided by the regional banks, took note of their resource needs and urged member governments to speedily seek means of financing the future capital requirements of the regional banks’ ordinary and concessional funds at an appropriate level besides completing commitments previously entered into. The Committee also expressed its full support of the regional banks in their efforts to serve as catalysts and seek expansion in their cofinancing programs.

9. The Committee expressed its appreciation to the Task Force on Nonconcessional Flows on its useful report, and it noted its general conclusions and recommendations. It asked the Executive Directors of the Bank and the regional banks to consider the recommendations of the Task Force, taking into account their legal and procedural implications, and report their deliberations to the Committee in due course. The Committee also considered it desirable that appropriate arrangements be made to periodically review further developments in the field of nonconcessional flows. The Committee decided to make the report of the Task Force on Nonconcessional Flows public.

10. In the area of cofinancing, the Committee noted with satisfaction the sizable expansion achieved by the World Bank. It endorsed the efforts of IBRD and IDA, where appropriate, to secure an increase in cofinancing from all sources on terms suitable for and acceptable to the borrowers, and asked the Executive Directors of the Bank to consider the various proposals on cofinancing which they will be discussing and to report on them if possible to the September 1982 meeting of the Committee.

11. As a follow-up of its earlier discussion at Gabon in May 1981 and in Washington in September 1981 on the sub-Saharan African Action Program, the Committee reviewed the Bank’s further discussions with the EEC, OPEC aid agencies, bilateral donors, the African Development Bank, and the African Governors’ Group. The main focus of these discussions was on the policy and financial issues facing the sub-Saharan countries/The Committee urged the World Bank to move expeditiously to assist the sub-Saharan countries to formulate specific programs of action and, taking account of the Dakar Memorandum of March 3, 1982 presented at its meeting, to continue its dialogue with donor countries in order to enhance the flow of aid in real terms necessary to support such programs of action.

12. The Committee recalled its consideration on previous occasions of the G-24 Program of Immediate Action and the Brandt Commission recommendations. Both the Fund and the Bank had considered, and in some cases implemented, some of the recommendations applicable to them. The Committee asked the two institutions to present to the September 1982 meeting of the Committee reviews of the status of implementation on the recommendations which are of particular relevance to the Committee’s work.

13. In Gabon the Committee 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 the effective use of concessional flows in the shorter and longer terms. In pursuance of the Committee’s earlier decision and directive, the Executive Secretary of the Committee, on the request of its Chairman, had undertaken extensive discussions for the establishment of a Task Force on Concessional Flows. The Committee welcomed the successful outcome of the consultations on the terms of reference of the Task Force, its composition, and its chairmanship. The Committee’s approval of it will now enable the 18-member Task Force representing industrial donor countries, OPEC, and developing countries to undertake in the period ahead its task under the chairmanship of John P. Lewis, Professor at Princeton University.

14. The members placed on record their special appreciation for Mr. David Ibarra Muñoz’s distinguished service to the Committee.

15. The Committee expressed its great appreciation to the Government of Finland for its warm hospitality and for the excellent arrangements provided for the meeting.

16. The Committee agreed to hold its next meeting in Toronto, Canada, on September 5, at the time of the Annual Meetings of the Fund and the Bank.

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