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Appendix IV Press Communiqués of the Interim Committee and the Development Committee

Author(s):
International Monetary Fund
Published Date:
September 1986
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Interim Committee of the Board of Governors on the International Monetary System Press Communiqués

Twenty-Fifth Meeting, Seoul, Korea, October 6-7, 1985

1. The Interim Committee of the Board of Governors of the International Monetary Fund held its twenty-fifth meeting in Seoul, Korea, on October 6-7, 1985, under the chairmanship of Mr. H. Onno Ruding, Minister of Finance of the Netherlands. Mr. Jacques de Larosière, 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. In reviewing the world economic situation, the Committee noted that progress had been made on a number of fronts: inflation had been further reduced, interest rates had continued to fall, recent efforts had been made to ensure a better adjustment of the major exchange rates to economic fundamentals, economic growth had become more convergent across countries, and balance of payments deficits in the developing countries had been considerably reduced. However, the Committee recognized that the pace of economic recovery in industrial countries as a whole had slowed down in the first half of 1985 by more than had been expected and unemployment had remained high, both in developed and developing countries. There had been a significant decline in primary commodity prices and a weakening in developing countries’ export earnings and growth prospects. While economic activity was expected to strengthen in the second half of 1985 and in 1986, a number of uncertainties in the outlook were underlined. These included the persistence of high fiscal deficits in a number of countries; an unsustainable pattern of current account positions; weak commodity prices; the fragility in the external position of a number of indebted countries; structural inflexibilities that inhibit growth in many economies; and the resurgence of protectionist pressures.

3. The Committee stressed the importance of noninflationary policies consistent with sustained output growth in industrial countries, the renewal of growth in the developing world through adjustment efforts, and adequate flows of finance to support such efforts. It was generally agreed that fiscal and monetary policies in industrial countries should be framed in a medium-term context, having in mind the importance of reducing governments’ claims on real and financial resources, and consolidating progress toward price stability. Particular stress was placed on the need for substantial and sustained reductions of budget deficits by those countries where they are excessive. In addition, the need to broaden further the basis of expansion in the world economy was emphasized. In this connection, countries that had strong external positions and good inflation records were considered well placed to contribute to growth in the world economy. Concerning policies in developing countries, the Committee considered it particularly important to stress actions that would enhance prospects for durable growth. Such actions would include the achievement and maintenance of an appropriate structure of relative prices, the promotion of investment and domestic savings, and a vigorous attack on inflation. Effective adjustment programs of this type should be supported, in the view of the Committee, by actions on the part of industrial countries to encourage adequate flows of external finance.

4. In reviewing the debt situation, the Committee noted that a number of countries had carried out prudent policies that had allowed them to maintain access to capital markets, and that some others had made policy improvements which strengthened their external position. Nevertheless, several recent developments had adversely affected the external positions of developing countries. Among these developments were the recent weakening of export markets, lower commodity prices, problems in domestic economic management, and difficulties in re-establishing access to capital markets. For a return to a higher and sustainable rate of growth in the indebted countries, which was essential to make debt servicing more manageable, it continued to be necessary that certain conditions be met. These conditions included the maintenance of satisfactory growth in the industrial countries, a policy mix that permitted a further decline in interest rates, effective adjustment in developing countries themselves, appropriate flows of finance, both official and commercial, and firm resistance to protectionist pressures.

5. The Committee reaffirmed the key role of the Fund in promoting the process of adjustment, in providing balance of payments financing, and in helping to mobilize financial resources for the debtor countries.

6. All members of the Committee agreed that protectionism constituted a major threat. They stressed that, unless protectionist measures were resisted, the prospects for sustainable recovery in the world economy would be undermined and the management of the external position of heavily indebted countries would be severely complicated. Protectionist pressures also make more difficult the task of countries that are taking steps to reduce restrictions and open their markets. The members of the Committee expressed the firm determination of their governments to preserve an open trading system in which all countries would have effective access to world markets. The Committee noted with satisfaction the positive development of discussions within GATT with a view to opening a new trade round.

7. The Committee discussed the question of the Fund’s policy on enlarged access and the limits on access to the Fund’s resources in 1986. It was recalled that enlarged access is a facility of a temporary character, and that this policy and the limits under it, as well as the access limits under the Fund’s special facilities, were to be reviewed before the end of 1985.

The Committee recognized that, in view of the uncertainties that remained in the world economy and the serious payments difficulties that many member countries continued to face, there was a need to continue the enlarged access policy, with only modest adjustments for the coming year. It was agreed that the access limits for 1986 should be as follows:

(a) Access under the enlarged access policy in 1986 should be subject to annual limits of 90 or 110 percent of quota, three-year limits of 270 or 330 percent of quota, and cumulative limits of 400 or 440 percent of quota, depending on the seriousness of the balance of payments need of the member country and the strength of its adjustment effort. As at present, the Executive Board should retain the flexibility to approve stand-by or extended arrangements for amounts above these access limits in special circumstances.

(b) The present access limits under the special facilities should be retained.

As at present, access limits should not be regarded as targets. These limits, and the enlarged access policy itself, should be reviewed before the end of 1986, and yearly thereafter, in light of all relevant factors, including the magnitude of members’ payments problems and developments in the Fund’s liquidity position.

The Committee requested the Executive Board to complete, before the end of this year, the necessary action in order to implement the agreement reached in the Committee.

8. The Committee had a brief discussion on the question of an SDR allocation in the current basic period. It was confirmed that there was no change in the positions of Committee members on this subject since the Committee’s previous meeting and that, therefore, the degree of required support for such an allocation was lacking. The Committee reiterated that the SDR constitutes an integral part of the structure of the Fund and agreed to consider the matter again at its next meeting in the light of developments. The Committee also urged the Executive Board to pursue its planned review on the role of the SDR, in all its aspects, in the international monetary system as a matter of priority, and to submit to the Committee a progress report for consideration by the Committee at its next meeting.

9. The Committee considered the question of the use of the resources that will become available over the period 1985-91, following repayments pertaining to loans made by the Trust Fund. Its conclusions were as follows:

(a) The total amount of these resources (about SDR 2.7 billion), which might be supplemented with funds from other sources, should be used to provide additional balance of payments assistance on concessional terms to the low-income countries eligible for IDA resources that are in need of such assistance and face protracted balance of payments problems. In this connection, the Committee welcomed the statements made by the representatives of China and India that they would not avail themselves of the facility in the period 1985-91.

(b) This assistance should be made available to countries implementing economic programs designed to promote structural adjustment and growth in a medium-term framework. These economic programs should be reviewed periodically. Given the emphasis on structural adjustment, it was important that the Fund should work in close collaboration with the World Bank, while avoiding cross-conditionality.

(c) The terms for the use of the resources, such as the rate of interest and the period of repayment, should be similar to those applied to loans from the Trust Fund.

(d) Such arrangements would not adversely affect the availability of concessional development finance for low-income countries not utilizing Trust Fund reflows.

The Committee urged the Executive Board to complete its work on this matter before the Committee’s next meeting, in the light of the guidance provided by the Committee.

10. The Committee had a preliminary exchange of views on the reports on the international monetary system presented by the Group of Ten and the Group of Twenty-Four. It was agreed to request the Executive Board to study the issues raised in these reports with a view to facilitating a substantive consideration by the Committee at its next meeting. The Committee welcomed the commitment of its Chairman to communicate with the Chairman of the Development Committee with a view to seeing to what extent arrangements could be made for cooperation on matters pertaining to development.

11. The Committee expressed its appreciation to the Government and the people of the Republic of Korea, and to the City of Seoul for their warm hospitality and for the excellent arrangements provided for the meeting.

The Committee agreed to hold its next meeting in Washington, D.C., on April 9-10, 1986.

Annex: Interim Committee Attendance, October 6-7, 1985

Chairman

  • H.O. Ruding, Minister of Finance, Netherlands

Managing Director

  • J. de Larosière

Members or Alternates

  • Hamad Al-Sayari, Governor, Saudi Arabian Monetary Agency (Alternate for Mohammad

Abalkhail, Minister of Finance and National Economy, Saudi Arabia)

  • Abdul Malik Al Hamar, Governor, United Arab Emirates Central Bank (Alternate for Hikmat

M. Al-Azzawi, Governor, Central Bank of Iraq)

  • Joe Amara-Bangali, Minister of Finance, Sierra Leone

  • James A. Baker, III, Secretary of the Treasury, United States

  • Pierre Bérégovoy, Minister of Economy, Finance and Budget, France

  • Rachid Bouraoui, Governor, Banque Centrale d’Algérie

  • Daim Zainuddin, Minister of Finance, Malaysia

  • Dilson Domingos Funaro, Minister of Finance, Brazil

  • Giovanni Goria, Minister of the Treasury, Italy

  • Franz Vranitzky, Minister of Finance, Austria (Alternate for Frans Grootjans, Vice Prime

Minister, Minister of Finance, and Minister of Middle Classes, Belgium)

  • Christopher Hurford, Minister for Immigration and Ethnic Affairs and Minister Assisting the

Treasurer, Australia (Alternate for Paul J. Keating, Treasurer, Australia)

  • Ian Stewart, Economic Secretary, H.M. Treasury, United Kingdom (Alternate for Nigel

Lawson, Chancellor of the Exchequer, United Kingdom)

  • LIU Hongru, Vice-Chairman of the Council and Deputy Governor, People’s Bank of China

  • PAY PAY wa Syakassighe, Governor, Banque du Zaïre

  • Hermod Skanland, Governor, Norges Bank (Alternate for Rolf Presthus, Minister of Finance,

Norway)

  • W.F. Duisenberg, President, De Nederlandsche Bank, N.V. (Alternate for H.O. Ruding,

Minister of Finance, Netherlands)

  • Vishwanath Pratap Singh, Minister of Finance, India

  • Mariano Rubio Jimenez, Governor, Banco de España (Alternate for Carlos Solchaga,

Minister of Economy and Finance, Spain)

  • Juan Vital Sourrouille, Minister of Economy, Argentina

  • Gerhard Stoltenberg, Federal Minister of Finance, Federal Republic of Germany

  • Noboru Takeshita, Minister of Finance, Japan

  • Michael H. Wilson, Minister of Finance, Canada

Observers

  • Yves Berthelot, Deputy Secretary-General, UNCTAD

  • Horst Bockelmann, Economic Adviser, Head of the Monetary and Economic Department,

BIS

  • A.W. Clausen, President, World Bank

  • Arthur Dunkel, Director-General, GATT

  • Ghulam Ishaq Khan, Chairman, Development Committee

  • Pierre Languetin, Chairman of the Governing Board, Swiss National Bank

  • Pedro Malan, Director, General Analysis and Policies Division, Department of International

Economic and Social Affairs, UN

  • Jean-Claude Paye, Secretary-General, OECD

  • Massimo Russo, Director-General, Economic and Financial Affairs, CEC

  • Massood V. Samii, Head, Finance Section, Economics and Finance Department, OPEC

Twenty-Sixth Meeting, Washington, April 9–10, 1986

1. The Interim Committee of the Board of Governors of the International Monetary Fund held its twenty-sixth meeting in Washington, D.C., on April 9-10, 1986, under the chairmanship of Mr. H. Onno Ruding, Minister of Finance of the Netherlands. Mr. Jacques de Larosière, Managing Director of the International Monetary Fund, participated in the meeting. The Chairman of the Development Committee, Mr. Ghulam Ishaq Khan, took part in certain of the deliberations. The meeting was also attended by observers from a number of international and regional organizations and from Switzerland.

2. The Committee reviewed the world economic outlook. Attention was drawn to a number of the major developments in the economic setting since the Committee’s last meeting, including the strengthened commitment to reducing budgetary deficits in the United States, the further adjustment in the pattern of exchange rates among major currencies, the continued downward movement in international interest rates, continued progress in reducing inflation, and the sharp decline in oil prices. The decline in oil prices from 1985 to 1986 represents a transfer of income from oil exporting developing countries to the industrial world of the order of $60 billion. Committee members felt that these developments had generally improved the outlook for sustainable growth. However, it was noted that the financial position of oil exporting countries had been weakened, with consequences for many other developing countries. It was important that the opportunities offered by these price developments be fully seized in order to promote noninflationary growth.

The current and prospective reduction in the U.S. fiscal deficit was welcomed. In respect of those countries where the economy is operating below capacity, and the balance of payments is in strong surplus and inflation is largely eliminated, it was noted that there might be room for more growth-oriented policies in the short term, while preserving the credibility of the authorities’ medium-term policy stance. Committee members welcomed the decline in interest rates and hoped that further progress in reducing fiscal pressures and inflation would allow this process to continue, thereby helping capital formation and the growth of output and employment and alleviating the debt burden of developing countries. In the view of the Committee, structural policies aimed at improving the efficiency of resource allocation remained of central importance.

The Committee took particular note of the fact that developing countries continue to face a number of serious problems. The exceptionally difficult economic conditions in low-income countries, especially in Africa, continue to be a matter of special concern. In 1985, world trade had been sluggish, commodity prices fell considerably, imports declined in real terms in many countries, and the growth of output slackened. Nevertheless, some progress was made by developing countries in coping with their economic problems. On the whole, and although there remain notable exceptions, the rate of inflation has been contained and a number of countries have adopted particularly bold anti-inflationary policies; current account deficits remain well below their peak figures of the earlier 1980s. Much remains to be accomplished, however, and the Committee considered it particularly important that effective domestic policies for promoting noninflationary growth should be pursued.

3. The Committee welcomed the progress that is being achieved in strengthening the current debt strategy along the lines proposed by the United States at the last Annual Meetings. The strategy must continue to be tailored to individual cases and aim at promoting durable growth in debtor countries and restoring normal relations with creditors in the context of a growing world economy.

While the Committee recognized that substantial progress had been made by a number of debtor countries despite difficult external circumstances, it noted that the basic debt ratios remained at difficult levels. It stressed the need for all debtor countries to follow sound macroeconomic and structural policies which are so important in rebuilding financial confidence and for creating a climate more conducive to encouraging domestic savings and productive investment as well as the repatriation of flight capital and direct investment flows.

The Committee also emphasized the importance of sound policies in industrial countries for the successful implementation of the debt strategy. It was important for these countries to maintain open markets, liberalize trade, and pursue policies aimed at increasing growth, reducing exchange rate instability and, in particular, further lowering interest rates.

It was essential to continue coordinated financial support, involving both official and private creditors, for debtors implementing sound economic policies, including those most affected by the recent substantial decline in world oil prices. In some cases, further concerted lending by commercial banks in support of economic adjustment efforts wa.s needed in amounts and on terms appropriate to the circumstances and prospects of individual countries. This would, over time, improve the quality of banks’ existing assets. Flexibility in rescheduling official debt was considered essential in support of sound adjustment programs. In addition, the Committee welcomed the move by official export credit agencies in industrial countries toward resuming or increasing cover, on a case-by-case basis, for countries whose debts have been rescheduled and which are undertaking the policy adjustments necessary to restore their creditworthiness. The Committee stressed the importance of this trend being carried further, but it noted that the resumption of export credit cover must not become a substitute for new funds from commercial banks where these are appropriate.

The Committee reaffirmed the central role of the Fund in providing its members assistance and financing to develop growth-oriented adjustment programs and in serving as a financial catalyst, and noted the increased need for flexibility in the case-by-case application of the policy on enlarged access to Fund resources. The Committee also welcomed the increasingly valuable role being played by the World Bank in the strengthened debt strategy by fostering efficient resources use as well as by providing long-term financial assistance and underlined the importance of close collaboration between the Bank and the Fund in applying this strategy.

4. The Committee had a substantive exchange of views on a number of issues related to the international monetary system. These issues were examined in the reports put before the Committee by the Group of Ten and the Group of Twenty-Four at its last meeting in Seoul, as well as in a report by the Managing Director of the International Monetary Fund on the discussions of these issues in the Executive Board since that time. The Committee’s views on the exchange rate system, surveillance, and the role of the SDR are contained in paragraphs 5, 6, and 7.

5. Concerning the exchange rate system, the Committee agreed that the flexibility with which the system had operated had enabled the world economy to adapt to a number of major disturbances; however, the variability of exchange rates and the longer-term misalignments that had emerged remained a source of concern. It was agreed that, if better exchange rate performance were to be achieved on a durable basis, it would be of the essence that economic policies be conducted in a sound and mutually consistent way and that exchange rate considerations should play their part in those policies. The Committee asked the Executive Board to consider further whether there are any modifications in the exchange rate system which could contribute to enhancing exchange rate stability and the mutual consistency of economic policies without sacrificing the essential flexibility of the system.

6. The Committee reconfirmed the key role that Fund surveillance needs to play in the functioning of the international monetary system. The Committee noted that several proposals presented by the Group of Ten and the Group of Twenty-Four to strengthen surveillance are being implemented. To improve the multilateral setting for surveillance, the Committee asked the Executive Board to consider ways in which its regular reviews of the world economic situation could be further adapted to improve the scope for discussing external imbalances, exchange rate developments, and policy interactions among members. An approach worth exploring further was the formulation of a set of objective indicators related to policy actions and economic performance, having regard to a medium-term framework. Such indicators might help to identify a need for discussion of countries’ policies. The Committee noted that increased emphasis would be given in the world economic outlook to policy interactions among industrial countries in order to strengthen the basis for assessing the international repercussions of the policies and objectives of the major industrial countries, and also to help promote the further development of recent initiatives to enhance policy coordination among these countries. The Committee stressed the importance of taking into account the views of the whole Fund membership in this multilateral discussion. In addition, the Committee asked the Fund to consider further the ideas in the Group of Ten and Group of Twenty-Four reports regarding the strengthening of the consultation process.

7. The Committee noted the progress made by the Executive Board in studying the functioning of the international reserve system and the role of the SDR in a system in which borrowed reserves play so prominent a part, but are not now readily available to a number of countries with limited access to financial markets. It considered that the SDR, which is an owned reserve asset, can play a useful role as a component of international reserves and as a unit of account. It also recognized the potential use of the SDR as a “safety net” against unexpected contingencies. The Committee stressed the monetary character of the SDR, which should not be a means of transferring resources, and recommended that the Executive Board study possible improvements in the monetary characteristics of the SDR that would increase its attraction and usefulness as a component of monetary reserves.

The Committee again discussed the question of SDR allocations and determined that, although most members favored an allocation, the broad support needed for an allocation was lacking at this time.

The Committee urged the Executive Board to continue its discussions on the role of the SDR in the present international monetary system and on SDR allocation in the light of proposals, aiming at the different possibilities of obtaining a more balanced and stable proportion of SDRs in members’ reserves that have been put forward in that Board, and to report to the Committee at its next meeting on the progress in these discussions.

8. The Committee reiterated the key role of the Fund in assisting countries in designing adjustment policies and in providing balance of payments financing. In this context, the Committee welcomed the decisions taken by the Executive Board establishing the structural adjustment facility (SAF) for providing assistance on concessional terms to low-income countries with protracted balance of payments problems in support of medium-term programs of macroeconomic and structural adjustment in order to foster growth and balance of payments viability. The new facility calls for close collaboration between the Fund and the World Bank with a view to assisting members in developing their own comprehensive medium-term policy frameworks as a basis for using SAF resources as well as to ensure the flow of additional external resources to these countries from the World Bank, other lending agencies, and donor countries. In furthering their collaboration, the Fund and the Bank should maintain their respective areas of responsibility, avoid cross-conditionality, and ensure that the policy advice given by the two institutions is consistent.

9. The Committee intends to give further consideration at its next meeting to the issues raised in the reports of the Group of Ten and the Group of Twenty-Four. That consideration will be based on the work the Executive Board will carry out in the coming months on these issues, taking into account the guidance it has been given by the Committee.

10. The Committee agreed to hold its next meeting in Washington, D.C., on September 28, 1986.

Annex: Interim Committee Attendance, April 9-10, 1986

Chairman

  • H.O. Ruding, Minister of Finance, Netherlands

Managing Director

  • J. de Larosière

Members or Alternates

  • Mohammad Abalkhail, Minister of Finance and National Economy, Saudi Arabia

  • Abdul Malik Al Hamar, Governor, United Arab Emirates Central Bank (Alternate for Hikmat

M. Al-Azzawi, Governor, Central Bank of Iraq)

  • Joe Amara-Bangali, Minister of Finance, Sierra Leone

  • James A. Baker, III, Secretary of the Treasury, United States

  • Edouard Balladur, Minister of State for Economy, Finance and Privatization, France

  • Mark Eyskens, Minister of Finance, Belgium

  • Erik Åsbrink, Undersecretary of State, Ministry of Finance, Sweden (Alternate for Kjell-

Olof Feldt, Minister of Finance, Sweden)

  • Dilson Domingos Funaro, Minister of Finance, Brazil

  • Giovanni Goria, Minister of the Treasury, Italy

  • Paul J. Keating, Treasurer, Australia

  • Nigel Lawson, Chancellor of the Exchequer, United Kingdom

  • LIU Hongru, Vice-Chairman of the Council and First Deputy Governor, People’s Bank of

China

  • Bader-Eddine Nouioua, Governor, Banque Centrale d’Algérie

  • PAY PAY wa Syakassighe, Governor, Banque du Zaïre

  • W.F. Duisenberg, President, De Nederlandsche Bank N.V. (Alternate for H.O. Ruding,

Minister of Finance, Netherlands)

  • Kamchorn Sathirakul, Governor, Bank of Thailand

  • Jesus Silva Herzog, Secretary of Finance and Public Credit, Mexico

  • Vishwanath Pratap Singh, Minister of Finance, India

  • Juan Vital Sourrouille, Minister of Economy, Argentina

  • Gerhard Stoltenberg, Federal Minister of Finance, Federal Republic of Germany

  • Satoshi Sumita, Governor, The Bank of Japan (Alternate for Noboru Takeshita, Minister of

Finance, Japan)

  • Michael H. Wilson, Minister of Finance, Canada

Observers

  • Horst Bockelmann, Economic Adviser, Head of the Monetary and Economic Department,

BIS

  • A.W. Clausen, President, World Bank

  • Kenneth K.S. Dadzie, Secretary-General, UNCTAD

  • Arthur Dunkel, Director-General, GATT

  • Ali K. Hussain, International Monetary and Finance Analyst, OPEC

  • Ghulam Ishaq Khan, Chairman, Development Committee

  • Pierre Languetin, Chairman of the Governing Board, Swiss National Bank

  • Göran Ohlin, Assistant Secretary-General for Development Research and Policy Analysis,

Department of International Economic and Social Affairs, UN

  • Jean-Claude Paye, Secretary-General, OECD

  • Massimo Russo, Director-General, Economic and Financial Affairs, CEC

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

Twenty-Seventh Meeting, Seoul, Korea, October 7, 1985

1. The Development Committee held its twenty-seventh meeting in Seoul, Korea, on October 7, 1985, under the chairmanship of His Excellency Ghulam Ishaq Khan. Mr. A.W. Clausen, President of the World Bank, Mr. J. de Larosière, Managing Director of the International Monetary Fund, and Mr. Fritz Fischer, Executive Secretary of the Development Committee, participated in the meeting. Observers from a number of international organizations and Switzerland also attended.

2. The Committee heard a report from the IMF Managing Director on the Interim Committee discussions on the world economic outlook.

3. The Committee continued a discussion begun in April concerning the IBRD’s lending prospects and implications for its financial requirements. The Committee expressed support for an expanded role for the Bank in helping developing countries implement policies designed to promote efficiency and mobilize domestic savings as they continue to adjust to the adverse external economic environment. The Committee concluded that all countries need to move as quickly as possible toward sustained economic growth. The Committee further agreed that many heavily indebted countries have made considerable progress in their adjustment efforts, but noted that serious difficulties remain. In this context, the Committee stressed that sustained growth in the industrial countries, open markets, together with greater stability in the exchange markets and lower interest rates, are necessary to further advance prospects for growth in such developing countries. Moreover, the Committee agreed that there were other elements which are essential to strengthen growth prospects: comprehensive structural and development policies, provision of substantial net new resources by commercial banks, and enhanced participation of the multilateral development banks and the IMF. These elements must be closely integrated, within a consistent framework, if the goal of growth in these countries is to be achieved. The Committee concluded that in this situation the World Bank has an increasingly important role to play in restoring growth and requested that Bank management prepare, for consideration at the April meeting of the Committee, a report focused on how sustained growth can best be achieved in these countries.

4. The Committee reviewed the response of Bank management to its request for five-year projections of Bank lending, i.e., a three-year lending program (fiscal 1986-88) of $40-45 billion, rising to an annual level in fiscal 1990 of between $16.5 billion and $20 billion. The Committee expressed its strong support for a substantial expansion of the Bank’s lending program in order for it to respond more effectively to the needs of its borrowing members and to stimulate the flow of capital from other sources.

5. The Committee discussed the implications of the expanded lending program proposed by management for the resources of the Bank. Ministers agreed that the Bank should be provided with the capacity to increase its quality lending and that the Bank should not be constrained by lack of capital or borrowing authority in meeting future demand. The Committee called upon management to begin discussions with the Executive Board on proposals that would enable the Bank to meet its resource requirements over the next five years, including the possibility of a General Capital Increase, and to report on progress at the next meeting of the Development Committee.

6. The Report of the Task Force on Concessional Flows, comprising representatives from 18 developing and industrialized countries, was presented to the Committee by its Chairman, Professor John P. Lewis. The Committee expressed its appreciation for this important report and underlined the consensus reached in it on aid effectiveness, public support for aid, and aid volume. The Committee recalled its agreement reached last April that for the low-income countries increasing official development assistance flows deserves the highest priority and expressed its support for the Task Force Report. It urged that the report and its suggestions should be taken into account by all governments concerned. It called on the World Bank to take the lead in following up on the Task Force’s conclusions and to report to future Development Committee meetings on progress achieved.

7. Against this background, which emphasized the need for increased aid flows to poor countries, the Committee heard a report on the mid-term review of IDA-7 from the Chairman of the IDA Deputies, following their meeting on October 5, 1985. The Committee urged that a successful and adequate Eighth Replenishment of IDA be achieved by September 1986 following the timetable established by the Deputies.

8. The Committee noted the report from the IMF Managing Director concerning the constructive discussions that had taken place in the Interim Committee on the use of IMF Trust Fund reflows. The Committee welcomed the initiatives proposed that would concentrate the use of those resources in low-income countries with protracted balance of payments problems in support of programs to promote structural adjustment and growth in a medium-term framework. In this regard, the Committee stressed the importance of closer collaboration between the Fund and the Bank while avoiding cross-conditionality.

9. The Committee continued to review the especially difficult economic situation of sub-Saharan African countries. It expressed its pleasure that the Bank’s Special Facility for sub-Saharan Africa had become effective July 1, 1985, with over $1.2 billion in anticipated contributions, and noted with satisfaction that several credits had already been made by the Facility in its first three months.

10. The Committee noted with great concern the increasing number of countries in sub-Saharan Africa which face severe debt, and more generally, resource problems. It welcomed the emerging consensus that the use of the IMF Trust Fund reflows would contribute toward the solution of these problems. The Committee also agreed that continued broad-based adjustment efforts, including structural reforms, as well as additional concessional flows, are needed for these countries to recover and resume per capita income growth. In this context, the Committee urged the World Bank and the IMF to improve their cooperation in developing sound and consistent advice on policies designed to reduce poverty and promote growth in these countries. The Committee also requested that World Bank management prepare a study focused on the resource problems of sub-Saharan Africa for discussion at the next Committee meeting.

11. The Committee was informed by the GATT Director-General of the latest developments on international trade issues. The Committee reiterated its call for all governments to resist protectionism and welcomed the unanimous agreement recorded in recent discussions in the GATT concerning preparations for the proposed round of multilateral trade negotiations. It invited the GATT Director-General to continue to keep it informed about further developments.

12. The Ministers noted that, pursuant to the consensus reached at the April Development Committee meeting, the Executive Directors of the World Bank had prepared the draft Convention establishing the Multilateral Investment Guarantee Agency (MIGA), with a view to enhancing the flow of capital and technology for productive purposes to developing countries. Most members of the Committee noted with satisfaction that the Convention had been transmitted to the Bank’s Board of Governors recommending that it now be opened for signature by interested governments. Most members of the Committee expressed the hope that the Convention would be signed and ratified by interested members in the near future in order to enable the Agency to start operations as early as possible.

13. The Development Committee noted that a preliminary exchange of views had taken place in the Interim Committee on the reports on the international monetary system prepared by the Group of Ten and the Group of Twenty-Four. It welcomed the commitment of the Interim Committee Chairman to communicate with the Chairman of the Development Committee, with a view to seeing to what extent arrangements could be made for cooperation on matters pertaining to development.

14. Ministers extended their deepest sympathy to the Mexican people and Government following the tragic earthquake that has caused such great human loss and suffering. They called upon the international community to give its strong support to alleviating the effects of the disaster.

15. The Committee expressed its appreciation to the Government and the people of the Republic of Korea for their warm hospitality and for the excellent arrangements provided for its meeting.

16. The Committee agreed to meet again on April 10-11, 1986, in Washington, D.C., for an extended session.

Twenty-Eighth Meeting, Washington, April 10-11, 1986

1. The Development Committee held its twenty-eighth meeting in Washington, D.C., on April 10-11, 1986, under the chairmanship of His Excellency Ghulam Ishaq Khan. Mr. A.W. Clausen, President of the World Bank, Mr. J. de Larosière, Managing Director of the International Monetary Fund, and Mr. Fritz Fischer, Executive Secretary of the Development Committee, participated in the meeting. Observers from a number of international and regional organizations and Switzerland also attended.

2. The Committee heard a report from the IMF Managing Director on the Interim Committee discussions on the world economic outlook and on the debt situation and strategy and endorsed the Interim Committee’s conclusions.

3. The Committee reviewed the progress that had been made in addressing the problems of the most heavily indebted middle-income countries in the period since its Seoul meeting and the announcement of U.S. Treasury Secretary Baker’s initiative. In this context, the Committee reviewed the background paper on this subject prepared at its request by the World Bank, and endorsed the general approach set out for achieving sustained growth in the heavily indebted countries. The Committee heard with great interest reports of progress made in recent months by a number of countries in designing such programs and urged all major parties—indebted countries, industrial countries, commercial banks, and international financial and development institutions—to redouble their efforts so that medium-term growth-oriented adjustment programs can be designed and implemented as soon as possible.

4. The Committee recognized that the problems of these countries were deep-seated and would not be resolved quickly as the outstanding debt burden on government finance and balance of payments hampers growth prospects and a return to creditworthiness. The Committee emphasized the need for a rollback in protectionism. It agreed that a lasting solution for the debt problem requires not only sustained adjustment and growth in developing countries, but also industrial country policies which will promote a further decline in real interest rates, expansion in international trade, improvements in commodity prices, greater stability in exchange markets, and increased external capital flows. In this context the Committee urged industrial countries to redouble their efforts in removing these obstacles to a lasting solution to the debt problem.

5. The Committee stressed that even with substantial policy reforms in developing countries and satisfactory rates of noninflationary growth in industrial countries, restoration of growth in developing countries requires large amounts of net flows of capital, including repatriation of flight capital. Success will depend essentially upon the creation of an environment which would help promote timely action by the commercial banks and by all sources of finance providing adequate amounts of resources.

6. In this context, the Committee emphasized the importance of export credit agencies (ECAs) as a major source of financing and endorsed the Interim Committee’s conclusions on this topic. Members welcomed the World Bank’s intention to work more closely with all parties concerned to encourage timely and adequate support by ECAs in countries undertaking adjustment for growth programs to help ensure their success.

7. The Committee also urged creditor governments to ensure that regulations and guidelines imposed by their bank supervisors do not impede financing arrangements that can provide increased commercial bank flows, consistent with prudential considerations, to countries implementing significant medium-term programs of adjustment and growth. The Committee agreed that new flows of international bank credit in such circumstances can help to improve the quality of outstanding credits.

8. The Committee also recognized the role of the private sector in development and the need for greater flows of foreign investment to developing countries. In this context, members noted that the Convention establishing the Multilateral Investment Guarantee Agency (MIGA) has now been signed by 19 governments, including 4 industrialized countries. The Committee encouraged other interested governments to sign and ratify the Convention so that it may enter into force as soon as possible.

9. The Committee re-emphasized the consensus reached in Seoul on the need for the enhanced participation of the World Bank and the IMF in the design, financing, and monitoring of growth-oriented adjustment programs. The Committee agreed that this would help inspire greater confidence that the heavily indebted countries are taking appropriate steps to restore growth and creditworthiness. The Committee stressed that in furthering their collaboration, the Bank and the Fund should maintain their respective areas of competence and avoid cross-conditionality.

10. Consistent with the Bank’s global commitment to development, growth, and poverty alleviation, the Committee reaffirmed its strong support for a substantial expansion of the Bank’s lending program. It noted that since the Committee’s meeting in Seoul, Bank management had increased projections of lending in fiscal 1986-88 to a range of $40-50 billion, and was now contemplating a lending level of up to $21.5 billion in fiscal 1990. The Committee expressed its strong support for the steps taken by the Bank to assist the heavily indebted countries to develop credible growth-oriented programs. The increase in Bank net disbursements to these countries was welcomed, as was the prospect that in 1986 adjustment-related lending to them will increase substantially. The Committee urged the Bank to take further steps to strengthen its ability to play a leading role in support of programs aimed at adjustment and growth as well as of investment projects throughout the world.

11. Ministers reiterated the understanding reached in Seoul that the Bank should be provided with the capacity to increase its quality lending and that the Bank should not be constrained by lack of capital or borrowing authority in meeting future demand. The Committee welcomed the additional efforts of the Bank in promoting growth-oriented adjustment and the associated increase in financial commitments it has undertaken in support of such programs. The Committee emphasized the essential role of the World Bank, together with the IMF and commercial banks, in supporting comprehensive adjustment programs. It noted that, provided other participants continue to fulfill their obligations in the adjustment programs, Bank lending for fiscal 1987 may possibly exceed the level of lending that could be sustained with the capital at present available to it. The Committee welcomed the forthcoming discussion in the Bank Board of several matters bearing on the calculation of future capital requirements, including the valuation of IBRD capital. Ministers agreed that the Bank’s Executive Board should seek an early resolution of these issues so that an agreement on a General Capital Increase can be arrived at promptly. In this context, and in light of these encouraging developments, the Committee stressed the importance of continuing to monitor closely progress in meeting the Bank’s capital requirements and the need to ensure adequate capital. The Ministers requested that the World Bank prepare a progress report for discussion at the next meeting on the Bank’s lending program and on the continued adequacy of its capital.

12. Members reviewed the World Bank’s most recent report, prepared at the Committee’s request, on the continuing severe difficulties of sub-Saharan Africa and agreed that concerted action is urgently needed to address the region’s problems. The Committee reiterated its strong support for the Joint Program of Action endorsed at its September 1984 meeting. The Committee also requested that a study on the market prospects of raw materials be prepared for a future meeting of the Committee.

13. The Committee noted with satisfaction the growing commitment of African governments to policy reform, as illustrated by examples in the Bank’s report of adjustment measures now being implemented. Some promising results are already evident. The Committee stressed that success of medium-term growth-oriented adjustment programs requires increased external capital flows, particularly in view of continued weakness in commodity prices and heavy debt-service obligations. Members noted the Bank’s estimate of $2.5 billion in additional concessional flows that are needed annually, over the next five years, to help meet low-income sub-Saharan Africa’s financial needs. Members called upon industrial countries to exert their best efforts to close this gap by providing additional official development assistance, through both bilateral and multilateral channels, to countries in the region undertaking significant reform programs. Furthermore, most Ministers agreed that donor countries should not be net recipients of official capital flows from African countries undertaking adjustment programs.

14. Ministers also agreed on the need to enhance further the effectiveness of aid flows to sub-Saharan Africa and noted the World Bank’s suggestions for strengthening donor aid coordination. The Committee reaffirmed that the central responsibility for aid coordination lies with each recipient government. In this context, the Committee urged the Bank to take the leadership role in improving aid coordination, working closely with interested governments as well as with the UNDP, the OECD/ DAC, the European Community, and other concerned parties. The Committee asked the Bank to report back at the next meeting on progress achieved in all aspects of coordination, including progress in the establishment of improved monitoring mechanisms.

15. The Committee heard a progress report on current negotiations for the replenishment of IDA. Ministers emphasized the special importance of IDA to the success of development programs in poor countries throughout the world. Virtually all Ministers expressed the strong hope that an IDA-8 replenishment of $12 billion will be achieved. This would maintain in real terms the concessionary resources now available through IDA-7 and the Special Facility for sub-Saharan Africa, and enable IDA to continue its role in poverty alleviation and economic development and also to provide necessary support, in conjunction with the IMF, to IDA-eligible countries undertaking growth-oriented adjustment programs. Ministers urged donors to exert maximum efforts in the coming months to reach a consensus on outstanding issues related to the next replenishment, including fair burden sharing and an equitable allocation of resources, and expressed the wish that negotiations be concluded before the next meeting of the Committee in September.

16. The Committee welcomed the recent decision taken by the IMF Executive Board that established the structural adjustment facility (SAF) in the Fund, which will provide assistance on concessional terms to low-income countries with protracted balance of payments problems in support of medium-term macroeconomic and structural adjustment programs. The Committee noted that the new facility will require close coordination between the Fund and the World Bank to assist eligible members in the formulation of a comprehensive medium-term policy framework. The Committee expressed the hope that the SAF resources would be complemented by additional bilateral and multilateral concessional assistance in support of agreed programs. Ministers reaffirmed that such arrangements would not adversely affect the availability of concessional development finance for low-income countries not utilizing Trust Fund reflows.

17. The Committee recognized that concessional flows are of critical importance to the success of adjustment and growth programs in the poorest developing countries. In this context, the Committee welcomed further Bank reports following up on the conclusions of the Task Force on Concessional Flows. As part of the effort to encourage implementation of the Task Force Report’s conclusions, including an increased flow of official development assistance, the Committee requested the World Bank to prepare a report for its next meeting on the volume of official development assistance flows forecast for the period 1986-90.

18. The Ministers took note of the discussion in the Interim Committee on the issues raised in the recent Group of Ten and Group of Twenty-Four reports. The Ministers also recalled the commitment made by the Chairman of the Interim and the Development Committees at the Seoul meetings to communicate with each other with a view to seeing to what extent arrangements could be made for cooperation on matters pertaining to development. Taking note of the Chairman’s intervention in the meeting of the Interim Committee, the Ministers requested him, after holding further consultations with the Chairman of the Interim Committee, to report to the next meeting of the Development Committee his views on the modalities of cooperative arrangements for improvements in the financial and monetary system’s impact on growth and development.

19. The Committee was informed by the GATT Director-General of the latest developments on international trade issues and the progress made by GATT’s Preparatory Committee in defining the agenda for the proposed new round of trade negotiations. The Committee reiterated its call for all governments to resist protectionism and encouraged governments to launch the new round under GATT auspices at an early date, with a view to further opening markets and strengthening the trading system. Ministers expressed the hope that Contracting Parties would take into account trade liberalization measures adopted in developing country adjustment and growth policies in the context of trade negotiations within the GATT framework. It invited the GATT Director-General to continue to keep it informed about further developments.

20. The Committee expressed its profound appreciation to the retiring President of the World Bank, Mr. A.W. Clausen, for his energetic support and encouragement of the work of the Committee, and for the highly significant contributions he has made during his five years in office to the cause of economic and social progress in the developing world. His imaginative and dedicated leadership of the Bank during a period of considerable stress in the global economy has, the Committee noted, positioned the institution well to build on the expanded role which has rightly been assigned to it. The Committee wished him well for the future.

21. The Committee agreed to meet again in Washington, D.C., on September 29, 1986.

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