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Appendix IV Press Communiqués of the interim committee and the Development Committee

Author(s):
International Monetary Fund
Published Date:
September 1987
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Interim Committee of the Board of Governors on the International Monetary System

PRESS COMMUNIQUÉS

Twenty-Seventh Meeting, Washington, September 28—29, 1986

1. The Interim Committee of the Board of Governors of the International Monetary Fund held its twenty-seventh meeting in Washington, D.C., on September 28-29, 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 meeting was also attended by observers from a number of international and regional organizations and from Switzerland.

2. The Committee noted that economic developments since its last meeting have been somewhat mixed. The pace of activity in the industrial countries was slower than expected in the early part of the year, contributing to sluggish growth in world trade and a further decline in already low commodity prices. Also unemployment remains still high in many countries. More recently, however, there have been indications that economic activity has begun to pick up and that economic performance in industrial countries would be stronger in the second half of 1986 and in 1987, as the lagged effect of lower interest rates and terms of trade gains lead to higher private expenditure in real terms.

The Committee welcomed the further improvement in price performance in industrial countries, as well as the lower level of interest rates and the adjustments in exchange rates that have taken place among the major currencies and have led to a more satisfactory pattern of exchange rates. It felt that these developments will help place the international economy on a firmer footing. Nevertheless, the Committee realized that uncertainties still exist and considered that the basis for durable growth must be strengthened: the reduction in the federal fiscal deficit sought by the U.S. authorities has to be translated into fact; domestic demand growth outside the United States has to be sustained at an adequate pace, especially in those countries whose relatively strong domestic and external positions provide them with room for maneuver; current account imbalances have to be reduced, not least because of their role in encouraging protectionist pressures; and structural impediments to the growth of output have to be tackled.

3. The Committee noted that the export earnings of developing countries have been severely affected by recent declines in oil and the continued deterioration of other commodity prices, and that it has been necessary for these countries to curb further the growth of imports and domestic demand. Thus, following the recovery of 1984, the rate of growth in developing countries fell in 1985, and is expected to fall further in 1986. Fuel exporting countries and other primary product exporting countries have been severely affected by recent developments and have suffered from stagnant or declining export earnings.

The Committee observed that the debt-export ratio of the indebted countries, which fell in 1984, rose in 1985 and seems likely to rise again in 1986 to a higher level than that prevailing at the outset of the debt crisis. On the other hand, declines in international interest rates have brought about some reduction in the cost of servicing outstanding debt, although they remain high in real terms.

4. Committee members stressed the importance of determined implementation of the strengthened debt strategy introduced at the Seoul meetings. They agreed that a satisfactory resolution of the debt difficulties facing the indebted countries was dependent on three basic requirements: effective policies in the indebted countries themselves, aimed at the mobilization of domestic savings, improved allocation of resources, and the maintenance of external competitiveness; satisfactory growth in, and access to, export markets; and adequate external financial support for growth-oriented programs of adjustment. The Committee members emphasized the central role of the Fund in promoting growth-oriented adjustment programs, including the provision of assistance to its members in the design and financing of such programs, taking into account the individual circumstances of indebted countries. They noted that close collaboration between the Fund and the World Bank has been an essential part of efforts to support efficient resource use and growth-oriented policy reforms in member countries. In this connection, they welcomed the stepped-up loan commitments of the World Bank. The contribution that both institutions are making as financial catalysts was also stressed. Committee members welcomed the proposed package for Mexico as an example of the strengthened debt strategy and hoped that the package can be finalized promptly.

The Committee recognized the significant debt relief provided by official rescheduling in the Paris Club. In this connection, it noted with satisfaction the greater flexibility of official export credit agencies of industrial countries in resuming, or increasing, cover for countries whose debts have been rescheduled and which are undertaking the necessary policy adjustments to restore credit-worthiness. It was noted that a significant number of the most heavily indebted countries have made good progress in strengthening domestic economic performance and improving their prospects for attracting increased flows of funds. Nevertheless, while the recent volume of lending commitments by multilateral development banks has been encouraging and officially supported export credits have grown notably, other sources of finance, particularly commercial bank lending, have declined and need to play a greater role.

The Committee also urged that concessional assistance to low-income countries should increase.

5. The Committee expressed concern that protectionist pressures have intensified and noted that many difficult trade policy issues are in need of urgent attention. Particular mention was made of the harmful consequences of subsidies. The importance of a liberal trading environment was also stressed as a key element for a satisfactory solution to current debt difficulties and for the needed structural changes in both industrial and developing countries. In addition it was emphasized that a strengthened and more open multilateral trading system is needed to reinforce international cooperation and improve world growth prospects. The major trading nations have a special role to play in keeping markets open and tackling trade policy problems flexibly, but developing countries should also resist pressures toward inward-oriented policies.

The Committee warmly welcomed the recent Ministerial Declaration on the Uruguay Round of multilateral trade negotiations, which is aimed at halting and reversing protectionism and developing a more open multilateral trading system, thereby reaffirming the role of trade policy in facilitating sustainable economic growth. Given the difficulty of the task, the Committee urged governments to make every effort to ensure an early and successful conclusion to the new round.

6. The Committee noted the progress made thus far in operations under the structural adjustment facility and the strengthened Fund-Bank collaboration evident in these operations. The Committee members stressed the potential that the structural adjustment facility holds for promoting adjustment and growth in low-income countries and agreed that it would be desirable to enhance the catalytic role of the structural adjustment facility in mobilizing additional multilateral and bilateral concessional resources for those countries that can absorb them most efficiently, without adversely affecting the availability of concessional development finance for low-income countries not availing themselves of the structural adjustment facility. They noted that the Executive Board is due to review the operation of the facility in the light of the experience gained.

7. The Committee continued its exchange of views on issues related to the international monetary system that were examined in the reports put before it by the Group of Ten and the Group of Twenty-Four in October 1985. The Committee urged the Executive Board to examine expeditiously the role of the Fund as referred to in the reports of the Group of Ten and the Group of Twenty-Four. The Committee’s discussion focused on the use of indicators in surveillance and the potential role of the SDR. Committee members welcomed the agreement at the Tokyo summit to use indicators in conducting surveillance as part of efforts to strengthen international economic cooperation. They also supported the greater use, in the latest world economic outlook analysis, of indicators of economic policies and performance. They considered that this analysis was helpful in focusing attention on potential incompatibilities in national economic policies and projections, particularly among the larger countries whose policies have substantial international impact. A key focus of indicators should be on points of interaction among national economies, in particular developments affecting the sustainability of balance of payments positions, and on the policies underlying them. It was generally agreed that a better use of indicators would be a helpful tool in strengthening the Fund’s surveillance activities. The Committee asked the Executive Board to develop further the application of indicators in the context both of the periodic consultations with individual member countries and of the world economic outlook so as to facilitate the multilateral appraisal and coordination of economic policies.

8. With regard to the role of the SDR in the international reserve system, the Committee noted that the Executive Board had reviewed various aspects of the SDR system, including proposals relating to post-allocation adjustments of the distribution of SDRs among members and to techniques for improving the pattern of members’ SDR holdings in relation to other reserve assets. The Committee welcomed the substantial increase in voluntary transfers of SDRs among members, which served to improve the liquidity and usability of the asset. 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 requested the Executive Board to continue its discussions of proposals to enhance the contribution of the SDR to the creation and allocation of international liquidity.

9. The Committee noted the report by the Managing Director on a recent Executive Board discussion of the question of SDR allocation in the next allocation period, 1987-91. Although most of the Executive Directors had supported an SDR allocation in that discussion, the broad support needed under the Articles of Agreement had been lacking. The Committee urged the Board to keep the matter under review. In this regard, the Committee welcomed the intention of the Executive Board to study further the long-term global need for reserve supplementation in the context of the conditions under which the international monetary and exchange systems are now operating. It invited the Board to report on the results of this examination and on the progress made about an allocation at the Committee’s next meeting.

10. The Committee discussed the question of the Fund’s policy on enlarged access and the limits on access to the Fund’s resources in 1987. It was recalled that enlarged access is of a temporary character and that this policy and the limits applicable under it, as well as the access limits under the Fund’s special facilities, were to be reviewed before the end of 1986.

The Committee noted that, in view of the uncertainties that continued to surround the world economy and of the worsening payments difficulties of a number of member countries, there was a need to continue the enlarged access policy. In the circumstances, it was judged that the present access limits, both under the enlarged access policy and under the special facilities, should be retained in 1987. The Committee also noted that the Executive Board had concluded, in its recent review of the Fund’s liquidity and financing needs, that the Fund’s liquidity position continues to be broadly satisfactory.

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.

11. The Committee welcomed the offer made by Japan to provide the Fund with SDR 3 billion to enhance its ability to support members’ adjustment efforts.

12. The members of the Committee paid special tribute to Mr. de Larosière’s swise, imaginative, and courageous leadership of the International Monetary Fund. They were unanimous in expressing warm and deep appreciation for his many outstanding accomplishments as Managing Director and for his invaluable contributions to the work of the Interim Committee. His dedication to achieving the purposes of the International Monetary Fund and his inspiring service have been of key importance in the guidance of the international monetary system at a critical period for the world economy.

13. The Committee agreed to hold its next meeting in Washington, D.C., on April 9, 1987.

Annex: Interim Committee Attendance, September 28—29, 1986

Chairman

H.O. Ruding, Minister of Finance, Netherlands

Managing Director

J. de Larosieère

Members or Alternates

Hamad Al-Sayari, Governor, Saudi Arabian Monetary Agency (Alternate for Mohammad Abalkhail, Minister of Finance and National Economy, Saudi Arabia)

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

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

Edouard Balladur, Minister of Economy, Finance and Privatization, France

Mark Eyskens, Minister of Finance, Belgium

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

Kiichi Miyazawa, Minister of Finance, Japan

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

PAY PAY wa Syakassighe, Governor, Banque du Zaïre

Gustavo Petricioli, Secretary of Finance and Public Credit, Mexico

W.F. Duisenberg, President, De Nederlandsche Bank, N.V. (Alternate for H.O. Ruding, Minister of Finance, Netherlands)

Kamchorn Sathirakul, Governor, Bank of Thailand

R.N. Malhotra, Governor, Reserve Bank of India (Alternate for Vishwanath Pratap Singh, Minister of Finance, India)

Juan Vital Sourrouille, Minister of Economy, Argentina

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

Robert C. Tubman, Minister of Finance, Liberia

Michael H. Wilson, Minister of Finance, Canada

Observers

Yves Berthelot, Deputy Secretary-General, UNCTAD

Barber B. Conable, President, World Bank

Arthur Dunkel, Director-General, GATT

Ghulam Ishaq Khan, Chairman, Development Committee

Alexandre Lamfalussy, General Manager, BIS

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

Abel Matutes, Commissioner for Credit, Investments, and Financial Instruments, CEC

Jean-Claude Paye, Secretary-General, OECD

Massood V. Samii, Head, Finance Section, Economic and Finance Department, OPEC

Twenty-Eighth Meeting, Washington, April 9–10, 1987

1. The Interim Committee of the Board of Governors of the International Monetary Fund held its twenty-eighth meeting in Washington, D.C., on April 9-10, 1987, under the chairmanship of Mr. H. Onno Ruding, Minister of Finance of the Netherlands. Mr. Michel Camdessus, Managing Director of the International Monetary Fund, participated in the meeting, which was also attended by observers from a number of international and regional organizations and from Switzerland. The members of the Committee took the occasion to welcome Mr. Camdessus warmly to his initial meeting as Managing Director and wished him well in fulfilling his important duties in the coming years.

2. Committee members noted that the recent performance of the world economy has been mixed. Economic activity in the industrial countries expanded moderately for the fourth consecutive year and inflation continued to recede, but many developing countries, particularly exporters of oil and other primary products, experienced again a sharp weakening of their terms of trade. Moreover, exchange markets have been subject to considerable uncertainty, payments imbalances have remained large, and only limited progress has been made in reducing unemployment in the industrial countries. It was generally agreed that output is likely to continue to expand in 1987 at approximately the same pace as in 1986. Domestic demand would probably grow faster in Europe and Japan than in the United States, thus contributing to an improvement in the pattern of payments balances. However, the current account deficit of the United States, and the surpluses of Japan and, to a lesser extent, the Federal Republic of Germany and some other countries are at the present time unsustainably large.

In view of recent developments, members stressed the need for policies conducive to noninflationary growth in the world economy, stable exchange markets, and a gradual reduction in payments imbalances among the largest industrial countries. In this context, they welcomed the recent Louvre accord among major industrial countries and the confirmation this week by the Group of Seven of their commitment to cooperate in fostering the stability of exchange rates. They underlined the need for firm action to deal with the U.S. fiscal deficit, and for other industrial countries with large surpluses, to ensure an adequate rate of growth of domestic demand. In this context, they noted that certain other industrial countries and some newly industrialized countries might have room for maneuver in their economic policies with a view to encouraging a more rapid growth of imports. The Committee also stressed the need for all members to pursue structural measures aimed at removing market rigidities and, in this way, improving economic efficiency and encouraging resistance to protectionism.

The Committee examined the situation resulting from the sharp decline in the terms of trade of the developing countries entailing a transfer of resources of about

100 billion to developed countries and noted that many of them had responded by adjusting their policies, especially to strengthen the volume of exports. As a result, output growth in the developing countries as a group had accelerated moderately, to some 3½ percent; while fuel exporting countries generally experienced stagnant or falling GNP, output growth in other developing countries strengthened to about 5½ percent. Committee members noted that the situation of many heavily indebted developing countries remained extremely difficult. Flows of finance from private sources declined further in the past year, and the ratios of debt service to exports generally deteriorated, despite a lowering of interest rates, because of lower export earnings. In 1987, the growth of output in developing countries as a group is expected to decline somewhat.

3. The Committee strongly welcomed recent improvements in the international coordination of economic policies, especially among major countries. They discussed ways in which the process of policy coordination and multilateral surveillance could be strengthened through further development of the use of economic indicators. The application of indicators in the Fund’s review of the world economic outlook was viewed as extremely useful in clarifying the interactions between national economies and in identifying potential sources of tension. Committee members considered that actual policies should be looked at against an evolution of economic variables that could be considered desirable and sustainable. They encouraged the Executive Board to examine the ways in which the existing principles and procedures for Fund surveillance could be updated to incorporate the use of indicators; to explore a strengthened use of indicators; and to submit a progress report to the Committee at its next meeting. In pursuing this work, the Executive Board was encouraged to focus on a limited set of key indicators and to appraise the international interactions of domestic policies and performance in the light of alternative medium-term scenarios. Indicators would also be designed for use in the assessment of world economic developments, including the impact of industrial countries’ policies on developing economies, and in the Fund’s continuing analysis and policy advice in the context of regular Article IV consultations.

4. The Committee expressed its concern about the increase in protectionist actions and stressed the need to resist these and to maintain an open trading system as an essential condition for safeguarding world economic growth and for the management of the debt situation. The Committee believed that there was need for early and specific action to reduce restrictions and thereby support the adjustment process. It stressed the need for industrial countries to provide better access for exports from developing countries. In addition, the Committee considered that in the current economic climate, all countries must at a minimum refrain from actions that would increase trade tensions and make it difficult to achieve progress toward trade liberalization. In this context, the Committee welcomed the recent establishment in the GATT of the negotiating structure for the Uruguay Round of trade negotiations, which should help to open the way for substantive intergovernmental discussions to strengthen and liberalize the trading system.

5. The Committee noted that the debt strategy has been largely effective in meeting its objectives, thanks to international cooperation between debtors, creditors, and the multilateral institutions. However, Committee members noted that many deep problems remain. Weak commodity prices and slower world economic growth have exacerbated the financial difficulties of many debtor countries. The time needed for countries that have experienced debt-servicing difficulties to regain normal market access has proved to be longer than earlier expected, and private lenders have often been reluctant to provide funds, even where appropriate policies are in place. In this context, Committee members reiterated that the Fund has a central role in assisting countries to design adequate growth-oriented adjustment programs, in the provision of financial support on a case-by-case basis, and in helping to mobilize external financing. They also noted the continuing need for the Fund’s involvement to be supported fully by other partners in the debt strategy.

The Committee stressed three elements needed to lay the basis for the resolution of debt-servicing difficulties and for a gradual return to normal debtor-creditor relations. These were: a favorable world economic environment, with stable financial conditions and access for debtor countries to expanding export markets; the tenacious pursuit of needed economic reforms in debtor countries to mobilize and retain domestic savings; and the timely provision of adequate financing on appropriate terms to support these reforms. In this connection, the Committee expressed concern over delays in the assembling and implementation by commercial banks of concerted financial packages. The Committee welcomed the exploration of a wider range of procedures and financing techniques by commercial bank creditors as appropriate, such as debt-equity swaps, exit bonds, and greater securitization with a view to expediting the mobilization of financial support for indebted countries.

Committee members expressed special concern about the plight of low-income countries. The Committee emphasized that it is crucial for these countries to implement major reforms which, to be fully effective, will need to be accompanied by additional financing on concessional terms. In this connection, the progress with operations under the Fund’s structural adjustment facility was welcomed. Committee members noted the forthcoming review by the Executive Board of the structural adjustment facility and they expressed their hope that arrangements under the facility would serve to elicit from bilateral and multilateral donors the necessary additional financial support. In this general context, the Committee also urged creditor governments, as a matter of priority, to consider means for granting exceptional financial relief with respect to official credits in cases where such relief is necessary to support and encourage far-reaching economic reforms in highly indebted low-income countries, including, particularly, sub-Saharan Africa.

Close cooperation between the Fund and the World Bank was welcomed. Committee members noted that increased lending from multilateral development banks had contributed importantly to debtor country financing. They noted with appreciation the continuing efforts and new initiatives of the Paris Club to tailor rescheduling agreements to the circumstances of individual countries and stressed the importance of necessary flexibility on the part of export credit agencies in resuming or increasing cover for countries that are implementing comprehensive adjustment programs.

6. The Committee considered the question of an allocation of SDRs in the current, that is, the fifth, basic period. Most Committee members reiterated the view that there is a long-term global need to supplement existing reserve assets and that many countries have a need for reserve supplementation. They stressed the costs to members and the risks to the efficient functioning of the international monetary system of building reserve holdings through borrowing on international credit markets or through current account surpluses. Some other members of the Committee, however, continued to believe that the condition for an SDR allocation, that is, the existence of a long-term global need, had not been demonstrated. The Committee asked the Executive Board to continue its examination of the question of allocation of SDRs and welcomed the Board’s intention to continue its examination of the functioning of the SDR with a view to enhancing its attractiveness as a reserve asset.

7. The Committee noted that its last communiqué urged the Executive Board to examine expeditiously the role of the Fund as referred to in the reports of the Group of Ten and the Group of Twenty-Four. It welcomed the recent extensive discussions by the Executive Board of a number of these issues, including the continuing review of the compensatory financing facility. The Committee requested that deliberations in the coming months cover any additional suggestions on the role of the Fund included in the forthcoming report of the Group of Twenty-Four, as well as any outstanding issues from those raised in earlier reports of both the Group of Ten and the Group of Twenty-Four.

The Committee welcomed the increased emphasis being placed in adjustment programs on establishing conditions for sustainable growth and stressed that it is critical for adjustment to be implemented in such a manner as to promote savings, investment, and efficiency in resource use. The Committee added that a strong political commitment to comprehensive growth-oriented adjustment programs is essential to their success and noted that increased financing on appropriate terms by private as well as official creditors, donors, and multilateral institutions would facilitate such adjustment. The Committee stressed that all these factors were essential to ensure that members’ access to Fund resources is consistent with their revolving character and with the ability of the institution to continue assisting members through advice and financing. The Committee encouraged the Executive Board, in its forthcoming discussions, to conduct a thorough review of adjustment programs and their supporting Fund arrangements in order to ensure that they are appropriate to conditions now facing member countries.

8. The Committee noted the establishment by the Executive Board of a Committee of the Whole to conduct the work on the Ninth General Review of Quotas.

9. The Committee agreed to hold its next meeting in Washington, D.C., on September 27, 1987.

Annex: Interim Committee Attendance, April 9-10, 1987

Chairman

H.O. Ruding, Minister of Finance, Netherlands

Managing Director

Michel Camdessus

Members or Alternates

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

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

Hernán Anzola, President, Banco Central de Venezuela

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

Edouard Balladur, Minister of Economy, Finance and Privatization, France

John G. Bestman, Minister of Finance, Liberia

Ms. QIU Qing, Member of the Council and Deputy Governor, People’s Bank of China (Alternate for Ms. CHEN Muhua, Chairman of the Council and Governor, People’s Bank of China)

Mark Eyskens, Minister of Finance, Belgium

Kjell-Olof Feldt, Minister of Finance, Sweden

Dilson Domingos Funaro, Minister of Finance, Brazil

Carl Azeglio Ciampi, Governor, Banca d’ltalia (Alternate Member for Giovanni Goria, Minister of the Treasury, Italy)

In Yong Chung, Minister of Finance, Korea (Alternate for Paul J. Keating, Treasurer, Australia)

Nigel Lawson, Chancellor of the Exchequer, United Kingdom

R.N. Malhotra, Governor, Reserve Bank of India

Kiichi Miyazawa, Minister of Finance, Japan

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

PAY PAY wa Syakassighe, Governor, Banque du Zaïre

Arifin M. Siregar, Governor, Bank Indonesia (Alternate for Radius Prawiro, Minister of Finance, Indonesia)

W.F. Duisenberg, President, De Nederlandsche Bank, N.V. (Alternate for H.O. Ruding, Minister of Finance, Netherlands)

Juan Vital Sourrouille, Minister of Economy, Argentina

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

Michael H. Wilson, Minister of Finance, Canada

Observers

Rafeeuddin Ahmed, Under-Secretary-General for International Economic and Social Affairs, UN

Horst Bockelmann, Economic Advisor and Head of the Monetary and Economic Department, BIS

B.T.G. Chidzero, Chairman, Development Committee

Barber B. Conable, President, World Bank

Arthur Dunkel, Director-General, GATT

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

R. Lawrence, Director, Division for Money, Finance, and Development, UNCTAD Alain Morisset, Economic Affairs Advisor, Delegation in Washington, CEC

Jean-Claude Paye, Secretary-General, OECD

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

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-Ninth Meeting, Washington, September 29, 1986

1. The Development Committee held its twenty-ninth meeting in Washington, D.C., on September 29, 1986, under the chairmanship of H.E. Ghulam Ishaq Khan. Mr. Barber B. Conable, President of the World Bank, Mr. Jacques 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 discussions in the Interim Committee on the world economic outlook and on the evolving debt situation. The Committee also heard the Managing Director on the progress made by many developing countries in promoting adjustment and growth with support from the Fund.

3. In considering the importance of reviving growth in the heavily indebted middle-income countries, the Committee reiterated its support for the general approach to achieving sustainable growth as endorsed at its previous two meetings. It recognized, however, that substantial additional efforts continue to be required by all the major participants—indebted countries, industrial countries, commercial banks, and international financial and development institutions—given the current economic environment. The Committee requested that the Bank and Fund continue to review the implementation of growth-oriented programs, including the availability of adequate financing, and report on progress achieved to future meetings of the Committee.

4. The Committee was encouraged that many developing countries are undertaking domestic policy reforms which are the basis upon which concerted international action has been built. The heavily indebted countries need to continue to implement growth-oriented adjustment programs, with support from the Fund and the Bank. Such programs should allow these countries to put less reliance on debt-creating external financing, encourage reflows of flight capital, and promote increased equity investment, domestic and foreign.

5. The success of such programs undertaken by the developing countries is dependent, however, on actions taken by the industrial countries which include, inter alia, greater coordination of macroeconomic policies, domestic policy changes, trade liberalization, and further long-term structural adjustment designed to assure a higher level of sustained growth.

6. Overall net lending to heavily indebted countries by commercial banks has thus far fallen short of expectations. Bearing in mind the critical place of commercial banks in implementation of the debt strategy, the Committee stressed the importance of the banks providing substantial net additional flows, in adequate amounts and on appropriate terms, in support of comprehensive growth-oriented programs.

7. The Committee welcomed the initiatives taken by the World Bank and the IMF in many highly indebted countries. The catalytic and advisory roles of these two institutions have been, and will continue to be, of help in developing and implementing effective programs. The Committee welcomed the significant expansion in the past year of World Bank lending for structural and sectoral reforms in these countries, which provides further evidence of the Bank’s ability to move rapidly and substantially in support of borrowers’ structural adjustment and development programs. A report from the Bank on the poverty impact of such programs was requested by members to be submitted for consideration at a future meeting of the Committee. The Committee agreed it would be extremely important to assure that the momentum of reform now under way in these countries be maintained and that the scale and range of Bank activities would need to continue to grow in support of these developments.

8. Ministers also reaffirmed the importance they attached to the central role of the World Bank as a global development institution; its fundamental objectives continue to be the acceleration of economic growth and the alleviation of poverty, and the support of investment activities should remain the predominant part of the Bank’s total lending program.

9. Given these expanding requirements for Bank involvement in both the heavily indebted countries and other Bank borrowers, the Committee noted with satisfaction that IBRD lending in the current fiscal year was expected to increase to about

15 billion, from
11.4 billion in FY 1985 and
13.2 billion in FY 1986, with further increases in future years expected to follow the growth path approved in April 1986 by the Committee. The Committee reiterated its assurance that lack of capital should not be a constraint on increases in the Bank’s quality lending and noted that the existing capital stock of the Bank can currently support a maximum continued lending level of about
14.5-15 billion per year.

10. To maintain the momentum of the reform effort and to permit the growth in IBRD lending envisaged for the period through FY 1990, the Committee agreed that a substantial general capital increase (GCI) will be required if quality lending materializes as expected. The Committee urged the Bank’s Executive Directors to continue their discussions of GCI modalities to permit agreement on a proposal for a general capital increase as needed to ensure that the Bank’s lending program is not constrained by the availability of capital. In this context, members of the Committee recognized that, should quality lending materialize as projected, it is possible the program for FY 1988 might exceed the sustainable lending limit on a temporary basis.

11. The Committee also concentrated its attention on issues of particular concern to low-income countries. In these discussions it benefited from the participation of the Chairman of the OECD Development Assistance Committee (DAC). The Committee discussed the resource needs of all low-income countries and recognized the importance of official development assistance (ODA) flows to their improved economic performance and sustained growth. The Committee expressed its concern that total ODA flows are likely to grow slowly and remain inadequate for the pressing needs of low-income countries. The Committee encouraged donor country members to make maximum efforts, as a matter of urgency, to increase their ODA budgets, especially to help meet the needs of the poor countries. The value of a strong multilateral concessional assistance system was also emphasized, particularly given its focus on the poorest countries.

12. The Committee noted the progress made thus far in the operation of the Fund’s structural adjustment facility, including closer Fund-Bank collaboration. Ministers reiterated that cross-conditionality must be avoided and that the two institutions should seek to complement the structural adjustment facility with additional bilateral and multilateral resources.

13. The Committee welcomed the statement of the Chairman of the IDA Deputies, reporting great progress achieved in the negotiations held on September 23-25. It encouraged all parties contributing to IDA to finalize the replenishment agreement for an IDA 8 of

12 billion or more. In this context, Ministers urged additional voluntary contributions from all donors in a position to make them. The Committee hoped the entire replenishment negotiation would be completed as soon as possible, but not later than November 1986, to enable IDA 8 to take effect on July 1, 1987. Some members of the Committee expressed concern about effects on borrowing countries of shortening of maturities and differentiation in terms during IDA 8 and expressed hope that the universal character of the Association could be maintained.

14. The Committee reviewed recent developments concerning sub-Saharan Africa, including the constructive outcome of the UN Special Session which, inter alia, adopted the UN Program of Action for African Economic Recovery and Development, 1986–1990. Ministers urged multilateral and bilateral agencies to assist in implementing the program. Members noted that 1986 offered some welcome, albeit modest, relief from difficult economic conditions for many of the poorest African countries, but it recognized that these improvements did not indicate a break in the long-term declining trend in economic and social indicators. African governments continue to make progress in policy reform, but resource availability remains a major constraint. The Committee recalled its conclusion in April 1986 that industrial countries should exert their best efforts to close the estimated

2.5 billion annual gap in concessional flows needed over the next five years by low-income countries in sub-Saharan Africa undertaking significant reform efforts; members agreed that further efforts were required if this goal were to be met and asked the Bank to report in a year’s time on progress achieved.

15. In accord with the Committee’s mandate, members agreed on the need to maintain a regular overview of developments in the transfer of resources, including concessional flows, to developing countries. In this context, the World Bank was asked to prepare for a future meeting a study of the external resource requirements of poor countries outside Africa as well as to continue its regular review of Africa’s economic situation and resource requirements.

16. The Committee also stressed the importance of strengthening the coordination of aid flows in low-income countries to increase their effectiveness and to reduce administrative burdens on recipient governments. It appreciated the actions already taken by the international community (as summarized in a World Bank report on aid coordination in sub-Saharan Africa prepared at the Committee’s request) and urged the Bank to continue to exert leadership when taking or participating in further initiatives along the lines set forth in the report, including strengthening aid recipients’ capacity to play the central role in aid coordination and encouraging joint monitoring in interested recipient countries through adequate mechanisms. Ministers also encouraged the Bank to follow up its suggestion that the costs of aid coordination be shared with other donors. The Committee requested a report in a year’s time on further progress achieved in aid coordination.

17. The Committee agreed to discuss at its next meeting the issue of environment, growth, and development, including policy dimensions and project experience, on the basis of a report to be prepared by the World Bank.

18. The Committee noted that the Convention establishing the Multilateral Investment Guarantee Agency (MIGA) has been signed by 45 countries, including 34 developing countries, and that preliminary agreement has just been reached among signatory countries on MIGA’s detailed plans and operational policies. Interested governments were urged to sign the MIGA Convention, and, if they have already done so, to ratify it as soon as possible so that the new agency can quickly begin to serve its objectives, including the stimulation of increased flows of private investment to developing countries.

19. Members expressed concern about growing problems in world trade which were having an adverse impact on developing country growth prospects, including particularly increased protectionism and the spread of subsidies or other incentives to production and export of agricultural commodities and other goods. The Committee noted that in response to its request at the April 1986 meeting, the Bank and Fund are preparing a report on market prospects of raw materials for discussion at its next meeting. The Committee asked that this report also include analysis of the impact of industrial countries’ agricultural policies on developing countries’ economic prospects.

20. The Committee was informed by the GATT Director General of the Punta del Este decision to launch a new round of multilateral trade negotiations—the Uruguay Round—and welcomed it as a significant step in strengthening and expanding the international trading system. The Committee emphasized that effective implementation of the standstill and rollback commitment made at Punta del Este was essential for reducing protectionism and for the success of the new round. Members invited the GATT Director General to continue to keep the Committee informed about progress in the negotiations.

21. The Committee took note of a report by the Chairman on the modalities of cooperative arrangements for improvements in the financial and monetary system’s impact on growth and development. This report had been requested by the Committee at its April 1986 meeting.

22. Members placed on record their special appreciation for the Chairman’s long and distinguished service to the Committee. His imaginative, active, thoughtful, and balanced direction of the Committee’s work contributed significantly to its effectiveness as a forum for consideration of important international economic issues facing developed and developing countries. Members expressed their deep appreciation and gratitude for his lasting contributions to the promotion of development and wished him well in the future.

23. The Committee recorded its deep appreciation to Mr. de Larosière for the singular achievements and the exceptional leadership that had distinguished his years as the Managing Director of the International Monetary Fund. He had helped the international community to meet the demands of difficult times with boldness, resourcefulness, and perseverance, and the Committee wished him well in his future tasks.

24. The Committee agreed to meet again in Washington, D.C., in the second week of April 1987.

Thirtieth Meeting, Washington, October 2, 1986

At its thirtieth meeting in Washington, D.C., on October 2, 1986, the Development Committee selected His Excellency B.T.G. Chidzero, Minister of Finance, Economic Planning and Development of Zimbabwe as Chairman.

Thirty-First Meeting, Washington, April 10, 1987

1. The Development Committee held its thirty-first meeting in Washington, D.C., on April 10, 1987, under the chairmanship of The Hon. B.T.G. Chidzero, Minister of Finance, Economic Planning and Development of Zimbabwe. Mr. Barber B. Conable, President of the World Bank, Mr. Michel Camdessus, Managing Director of the International Monetary Fund, and Mr. Fritz Fischer, Executive Secretary of the Development Committee, participated in the meeting. Mr. Svetozar Rikanovic, Chairman of the Group of Twenty-Four, also took part in the meeting. Observers from a number of international and regional organizations and Switzerland also attended. The members of the Committee were pleased to welcome Mr. Camdessus who was present for the first time as Managing Director and wished him all success in the important and demanding tasks he had assumed.

2. The Committee focused attention on how growth in developing countries could be sustained and enhanced at a time of depressed commodity prices, sluggish growth in the industrial countries, and the uncertain prospects for increased external financial flows. Members re-emphasized that only through concerted efforts by developed and developing countries could prospects for stimulating and sustaining growth for developing countries be significantly improved. A more promising outlook for growth is important to secure and maintain public support for adjustment efforts.

3. Members noted that many heavily indebted middle-income countries have pursued strong adjustment programs in efforts to achieve growth, improve living standards, and strengthen their external payments position. For a number of countries, this proved to be a very difficult task, in view of the adverse shift in the terms of trade and the reluctance of commercial banks to provide the required flows. While the process of adjustment with growth has been fostered since the launching of Secretary Baker’s initiative in 1985, the Committee noted that difficult problems still remain. To resolve these problems, the Committee stressed that all parties—the commercial banks, creditor governments, and debtor countries—should play their part. The Committee reasserted the central role of the Bank and the Fund in the promotion of growth-oriented adjustment programs and the mobilization of resources from official and private sources. It requested the Bank and the Fund to continue to examine additional measures to refine and strengthen the implementation of growth-oriented programs and submit a report with possible recommendations for consideration at a future meeting of the Committee.

4. Ministers reiterated their commitment to support the low-income countries in their development and adjustment efforts. They recognized that many of these countries, especially in sub-Saharan Africa, face severe problems of indebtedness. Ministers stressed the need for larger concessional flows and agreed that for many of these countries additional measures were needed to improve their capacity to service their debts and at the same time undertake growth-oriented programs. In this connection, the Committee welcomed the intentions of the official creditors in the Paris Club to work toward realistic rescheduling terms for the poorest nations undertaking strong growth-oriented adjustment programs. The Bank and Fund were asked to make proposals of action, at its next meeting, to address the problems of countries facing exceptional difficulties, which should also take into account the assessment of the implementation of the United Nations Program of Action for African Economic Recovery and Development.

5. The industrial countries need to broaden the range of resource flows to developing countries, notably through export earnings of the latter countries, which can make a significant contribution toward meeting debt service and stimulating growth. An appropriate policy environment for trade in agricultural products is of particular importance to developing countries. Ministers identified protectionist agricultural policies as a major cause of distortions, including depressed commodity prices on the world markets, of surplus production, and of budgetary drain. Recognizing that these conditions have made development efforts of many developing countries more difficult, the Committee emphasized that open and unencumbered international agricultural trade and the reduction of domestic support would foster development efforts and promote the adjustment process.

6. Members emphasized the responsibility of industrial as well as developing nations to implement growth-oriented policies so that both could resist protectionism and benefit from an open trading system. In this context, Ministers welcomed the inclusion of agricultural trade in the Uruguay Round of multilateral trade negotiations and looked to these negotiations to achieve greater liberalization of trade in agriculture and increased discipline on the use of all direct and indirect subsidies to production and exports. The Committee also felt that the liberalization of industrial protection warranted urgent attention and requested the Bank and the Fund to prepare a report on the impact of the industrial policies of the developed countries. The Committee was informed by the GATT Director General of current developments in international trade negotiations and noted governments’ commitments to halt and reverse the escalation of protectionism. Ministers hoped that rapid progress would be made in actions requiring priority attention in the GATT and in other international forums, including the OECD Ministerial Council Meeting, the Venice Economic Summit, and UNCTAD VII.

7. The Committee reviewed the depressed state of international commodity markets as well as the unfavorable prospects for any substantial improvement for most commodities. It recognized that an acceleration of global growth would improve the prospects for commodities and that actions are required on many fronts, including the assistance of the multilateral institutions to broaden the export base of countries dependent on commodities, and to offset temporary fluctuations in their export earnings. The World Bank in cooperation with the Fund should prepare options for the next meeting of the Committee.

8. The Committee noted declining trends in capital flows to developing countries and stressed the importance and urgency of reversing this trend. The decline has been particularly significant in the case of flows from commercial banks. Private investment flows remain disappointing. Improved conditions to stimulate expanded flows of private investment and other capital movements need to be created in both developing and developed countries. The IFC should play a helpful complementary role in this area.

9. Multilateral financial institutions should continue to strengthen their efforts to support the growth and adjustment process. The Committee welcomed the recent agreement on a

12.4 billion IDA 8 replenishment and commended the group of IDA donor countries which had made the agreement possible, as such concessional flows were critical to support adjustment, growth, and poverty alleviation in low-income countries. The Committee urged early approval by the IDA Board of Governors of the IDA 8 Resolution. The Committee noted the efforts of the Bank and the Fund to assist low-income countries in implementing programs to foster growth and strengthen the balance of payments by providing concessional loans supported by IDA resources and the newly established structural adjustment facility. Ministers stressed that larger resources would be needed to complement both structural adjustment facility and IDA programs to support policies and programs for higher growth in low-income countries. Ministers were asked to review at a future meeting ongoing efforts of the Bank, the Fund, and bilateral agencies designed to assist the poorest countries to implement growth programs.

10. In response to the needs of Bank borrowers, the Bank was encouraged to increase its lending programs to support growth and reform efforts. The Committee reiterated the call on the Bank last September to maintain the momentum of the reform effort and to permit the growth in the IBRD lending envisaged for the period through FY 1990. The Committee agreed that a substantial general capital increase (GCI) will be required if quality lending materializes as expected. The Committee urged the Bank’s Executive Directors to continue their discussions of GCI modalities to permit agreement on a proposal for a general capital increase as needed to ensure that the Bank’s lending program is not constrained by the availability of capital. In this context, members of the Committee recognized that, should quality lending materialize as projected, it is possible that the program for FY 1988 might exceed the sustainable lending limit on a temporary basis.

11. The Committee agreed to discuss, in September, the adequacy of resource transfers to all developing countries to enhance the momentum of their development. The Committee requested a report on this issue to facilitate its deliberations.

12. The Committee expressed concern at increasing poverty trends and deteriorating social conditions in many developing countries. Ministers urged that in the design and implementation of policy reforms, governments and international institutions should give special attention to protecting the most vulnerable groups. Members agreed that increased flows and more targeted use of resources, both external and domestic, would help to alleviate the plight of the poor in the process of adjustment. Members highlighted the importance of increased investments in the poverty alleviation programs and welcomed recent Bank initiatives to impart a greater poverty focus in its operations and to strengthen support for nongovernmental organizations’ humanitarian aid programs. The Committee agreed to have a broader discussion of this subject at a future meeting on the basis of further work by the Bank and the Fund.

13. The Committee stressed the importance of environmental protection in pursuing growth and development objectives. Members emphasized that the pursuit of these objectives is often mutually reinforcing, for poverty is a major cause of environmental damage, and it is typically the poorest members of society that suffer most from environmental degradation. The Committee welcomed the Bank’s current initiatives at increasing emphasis on environmental protection, in its lending and helping borrowers to integrate natural resource management into the planning and implementation of their development activities. The Committee felt that further work needed to be undertaken in the light of its discussions. In this context, the Committee looked forward to a further report by the President of the Bank at its next meeting and hoped to benefit from the findings of the World Commission on Environment and Development whose report would be published soon.

14. The Committee agreed to meet again in Washington, D.C., on September 28, 1987.

This classification is the same as that adopted in the World Economic Outlook, April 1987.

It should be noted that the term “country” used in this Report does not in all cases refer to a territorial entity that is a state as understood by international law and practice. The term also covers some territorial entities that are not states but for which data are maintained and provided internationally on a separate and independent basis.

Two countries that did not meet any of the above criteria were assigned to the trade category that accounted for the largest share of their exports.

The countries included here were those whose oil exports (net of any imports of crude oil) both accounted for at least two thirds of total exports and were at least 100 million barrels a year (roughly equivalent to 1 percent of annual world exports). These criteria were applied to 1978-80 averages.

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