Chapter

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

Author(s):
International Monetary Fund
Published Date:
January 1988
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Interim Committee of the Board of Governors on the International Monetary System

PRESS COMMUNIQUÉS

Twenty-Ninth Meeting, Washington, September 27–28, 1987

1. The Interim Committee of the Board of Governors of the International Monetary Fund held its twenty-ninth meeting in Washington, D.C., on September 27–28, 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.

2. In their discussion of the world economic outlook, Committee members noted certain positive features in the current situation. The present economic upswing is about to complete its fifth year, there are few signs of cyclical strain, inflation has remained moderate, progress has been made in reducing fiscal and payments imbalances in real terms among the large industrial countries, and economic growth in non-fuel exporting developing countries has picked up. Economic performance nevertheless is falling short of expectations in a number of other respects, with unemployment still high in many industrial countries. The persistence of large current account imbalances in some of these countries is a matter of concern. Also, commodity prices, though having recovered somewhat of late, remain historically low in real terms; the debt situation of the heavily indebted middle-income developing countries remains difficult; and the plight of the low-income countries, especially those with declining per capita incomes, continues to give cause for deep concern.

In dealing with these problems, the importance of a continued coordinated, cooperative approach was stressed. The improved economic and monetary cooperation between the major industrial countries was welcomed. The resolution of debt difficulties remains crucially dependent on the combination of sustained growth-oriented adjustment in debtor countries, access by these countries to external financing, and policies in industrial countries that will secure stable world financial conditions and open and growing markets. The Fund has a major responsibility through its surveillance function to foster this combination of mutually reinforcing policies.

Committee members welcomed the recent reduction in the U.S. fiscal deficit. This progress should be carried further in 1988 and beyond to facilitate external adjustment without harming capital formation. In this context, they were pleased with the decision by the President of the United States to sign legislation that carries this process further in 1988. It is important, at the same time, that the growth of domestic demand exceed that of GNP in countries with strong external surplus positions, price stability, and government deficits that are not too large. They also stressed that some newly industrialized economies should play a greater role in the global adjustment process. In addition, while Committee members acknowledged efforts made by a number of developing countries, they urged those developing countries that need to initiate or continue adjustment to intensify efforts to achieve and maintain domestic economic stability; to mobilize additional domestic savings for investment; to improve the efficiency of resource use; and to pursue outward-oriented growth strategies. Committee members stressed the importance of ensuring that appropriate flows of financing from private creditors, industrial countries, and multilateral financial institutions are available. The Committee took note of the adverse impact which increases in real interest rates have on the economies of heavily indebted countries.

3. In reviewing the external environment, Committee members expressed concern over recent trends toward the intensification of trade restrictions and export subsidies. They remarked that such measures create uncertainties, interfere with efficient resource allocation, reduce living standards, hamper efficient adjustment, hinder the resolution of the debt situation, and ultimately worsen employment prospects internationally. They also invite retaliation. The Committee noted that macroeconomic imbalances have both aggravated demands for protection and complicated the removal of the structural rigidities that often are at the root of protectionist pressures. The Committee emphasized that macroeconomic imbalances should not and cannot effectively be tackled through trade restrictions; instead, it stressed that the correction of the factors responsible for these imbalances would promote a climate conducive to the strengthening of an open multilateral trade system and to an improvement in the general level of welfare. The Fund should, in its own operations, continue to do its utmost to support the GATT. The Committee reiterated the importance of early results in the ongoing Uruguay Round in order to make decisive progress in trade liberalization, including services and agricultural products.

4. The Committee welcomed the more extended use of indicators in the context of surveillance and the recent world economic outlook exercise. Committee members generally found the medium-term focus of the analysis and the use of alternative medium-term scenarios, involving key indicators, to be helpful in highlighting the international interaction of economic policies and developments. They encouraged the Executive Board to pursue its work in this area, in the context of both the world economic outlook exercise and Article IV consultations, and to continue exploring the development of criteria that would be helpful in judging the sustainability and desirability of the evolution of a limited set of key economic variables. The Committee noted the importance of stable exchange market conditions and welcomed the progress made since the Louvre Accord.

5. Committee members, taking stock of the uneven adjustment experience of many indebted countries and the uncertainties in the current international economic environment, agreed that a satisfactory resolution of the debt problem is likely to take longer than was expected earlier despite the significant progress that has been made in a number of areas.

Members emphasized the importance of continuing the case-by-case approach to debt problems, and noted that this is the only way in which adjustment programs and financing flows can be tailored to individual country circumstances. While noting the support that would be provided by an improved international economic and trade environment, they stressed the overriding need for heavily indebted countries to pursue policies aimed at restoring macroeconomic balance and domestic confidence and enhancing growth prospects so as to strengthen creditworthiness, induce a reflow of private capital, and ease a return to normal debtor-creditor relations. They also remarked that unilateral initiatives carry heavy risks for all parties.

Members reaffirmed the central role that the Fund had to continue to play in helping indebted countries develop appropriate growth-oriented adjustment strategies and in mobilizing finance. The need for continued close cooperation between the Fund and the Bank, especially in their structural adjustment lending, was also stressed. The increase in lending from multilateral development banks was seen as an encouraging development, as was the more open stance of export credit agencies for countries implementing sound economic policies.

Members welcomed the greater diversification in recently negotiated financing arrangements between creditors and debtors. The form and terms of such financing in turn need to reflect the economic situation and prospects of individual countries, with a view to supporting both normalization of their payments position and a return to more satisfactory rates of economic growth. The Committee considered that a further broadening of the range of mutually agreed market-oriented options can be of benefit in securing timely agreement on financing packages and rebuilding debtor-creditor relations. Of particular note was the introduction of various forms of new financial instruments and securities and of formulas that do not add further to the stock of debt. The Committee, however, expressed renewed concern about the apparent slowness in the recognition of strengthened creditworthiness following upon implementation of sound adjustment policies in certain heavily indebted countries—particularly some of the smaller middle-income countries. It stressed that delays in the provision of adequate commercial bank financing could jeopardize the timely implementation of these policies.

In view of the critical situation facing many low-income countries, the Committee noted the growing international recognition that exceptional assistance was needed and, in this context, it noted with satisfaction the longer grace and repayment periods extended in recent Paris Club reschedulings to some of these countries that are undertaking adjustment efforts. It also noted that the possibility of applying lower interest rates to existing official debts for the poorest countries was under consideration. It welcomed the conversion of official debt into grants, and measures with similar effects, by certain creditor countries for the poorest countries, and encouraged other official creditors to follow that example. It also encouraged private creditors to continue their efforts to find realistic responses to the debt-servicing difficulties and efforts at adjustment of these countries. The Committee also noted with satisfaction the increased emphasis on support for policy reforms by bilateral and multilateral donors.

6. The Committee noted that the Fund’s structural adjustment facility (SAF), and the policy framework papers developed jointly with the World Bank in conjunction with the SAF, have assisted the process of designing and monitoring implementation of growth-oriented programs in low-income countries. Members reiterated their view that sustainable growth in these countries can be attained only through comprehensive programs of macroeconomic and structural reform, and that such programs can be implemented successfully only if accompanied by adequate financing and improving world economic conditions.

The Committee recalled that it had expressed the hope at its last meeting that arrangements under the SAF would attract additional financial support. In this context, the Committee strongly endorsed the initiative of the Managing Director for a substantial increase in the resources available for lending in association with programs supported by the SAF, noting the complementarity between this initiative and those already taken or under consideration elsewhere in the international community, particularly in the World Bank group. The Committee welcomed the progress achieved thus far in exploring arrangements suitable to mobilize resources on the scale envisaged, consistent with the monetary character of the Fund. The Committee asked the Managing Director and the Executive Board to proceed as quickly as possible with further consultations with potential contributors, in order to conclude these discussions within this year.

7. The Committee noted that the Committee of the Whole on the Ninth General Review of Quotas has begun its work by considering preliminary quota calculations and reviewing issues bearing on the size of the Fund. The Committee urged Executive Directors to pursue their work on the Ninth General Review of Quotas so as to be in a position to make appropriate recommendations in due course.

8. The Committee discussed the Fund’s policy on enlarged access and the limits on access to the Fund’s resources in 1988. It reaffirmed the temporary character of the enlarged access policy and noted that this policy and the limits on access under it are to be reviewed before the end of 1987.

Noting the difficult external conditions facing many member countries in 1987 and the prospect of continuing sizable payments imbalances in 1988, the Committee agreed to continue the enlarged access policy and to retain the present access limits under that policy in 1988. It also noted that the Executive Board has concluded, in a recent review, that the Fund’s liquidity position remains satisfactory and is not an obstacle to the maintenance of these limits.

In connection with its review of access limits under the Fund’s special facilities, the Committee noted that the Executive Board is continuing its review of the compensatory financing facility; it encouraged the Executive Board to complete this review before the next meeting of the Committee and agreed that, for the time being, the limits on access under special facilities should be maintained.

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.

9. The Committee heard a report from the Managing Director on the question of a resumption of SDR allocations. 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, i.e., 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.

10. The Committee welcomed the decision by the Executive Board to carry out a comprehensive examination of adjustment programs and of supporting Fund arrangements in the context of growth-oriented strategies. Such an examination will also provide an opportunity to consider whether the Fund’s policies regarding conditionality need to be re-examined in light of changes in the conditions facing member countries since the last comprehensive review in 1978–79, and in light of the increased emphasis being placed on growth-oriented adjustment. An essential aspect of this examination will be to assess the role of the Fund in meeting member countries’ balance of payments needs, both from its own resources and through the mobilization of other sources of finance. It was stressed in this connection that the cooperative nature of the Fund and the need to preserve the revolving character of its resources require that members continue to give the highest priority to fulfilling their financial and other obligations to the institution.

The Committee welcomed the recent report of the Group of Twenty-Four on the role of the Fund in adjustment with growth, which complements earlier reports by both the Group of Ten and the Group of Twenty-Four. It noted that the Executive Board has begun its examination of the analyses and recommendations contained in the reports and requested it to report on the status of its work for the consideration of the Committee at its next meeting.

11. The Committee agreed to hold its next meeting in Washington, D.C., on April 14, 1988.

Annex: Interim Committee Attendance, September 27–28, 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

  • Abdul Malik Al Hamar, Governor, United Arab Emirates Central Bank

  • Giuliano Amato, Deputy Prime Minister and Minister of the Treasury, Italy

  • Hernári 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

  • Luiz Carlos Bresser Pereira, Minister of Finance, Brazil

  • QIU Qing, Deputy Governor, People’s Bank of China (Alternate for CHEN Muhua, State Councillor and Governor of the People’s Bank of China)

  • Mark Eyskens, Minister of Finance, Belgium

  • Kjell-Olof Feldt, Minister of Finance, Sweden

  • B.W. Fraser, Secretary to the Treasury, Department of the Treasury, Australia (Alternate for Paul J. Keating, Treasurer, Australia)

  • Nigel Lawson, Chancellor of the Exchequer, United Kingdom

  • 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

  • Narayan Datt Tiwari, Minister of Finance, India

  • Michael H. Wilson, Minister of Finance, Canada

Observers

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

  • Barber B. Conable, President, World Bank

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

  • Arthur Dunkel, Director-General, GATT

  • Alexandre Lamfalussy, General Manager, BIS

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

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

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

  • Analysis, Department of International Economic and Social Affairs, UN Jean-Claude Paye, Secretary-General, OECD

Thirtieth Meeting, Washington, April 14—15, 1988

1. The Interim Committee of the Board of Governors of the International Monetary Fund held its thirtieth meeting in Washington, D.C., on April 14—15, 1988, 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.

2. In discussing international economic developments and prospects, the Committee noted that economic activity appeared to have been relatively well sustained in industrial countries in spite of the decline in stock markets in October. The prospects were for a continuation of steady, moderate economic growth. Also, inflation remained low, and progress was being made in reducing payments imbalances. It was noted that in 1987, compared with 1986, the ratio of debt to exports had declined in a number of developing countries, and export earnings had recovered in response to the strengthening of commodity prices and improved competitiveness.

These developments notwithstanding, the Committee observed that important challenges still lay ahead. In the industrial countries, payments imbalances continued to be large, and unemployment, especially in Europe, remained high. In the developing world, progress in restoring the momentum of investment and output growth had been inadequate, and the burden of external indebtedness remained a major source of concern. Committee members emphasized the need for resolute and cooperative policies if these challenges were to be met satisfactorily and if the downside risks in the economic outlook were to be minimized.

In dealing with external payments imbalances among industrial countries, Committee members emphasized the importance of policies that would facilitate the needed changes in underlying rates of demand growth. The United States should continue to strengthen the fiscal position and improve conditions for private sector savings. In Europe and Japan, the need for structural policies—including a marked reduction of subsidies and the lessening of rigidities in internal markets—was emphasized as a complement to sound macroeconomic policies. More generally, well-designed structural policies could play an important role in facilitating the working of the adjustment process. It was also noted that certain newly industrializing economies in Asia had experienced remarkable economic growth and were now running large surpluses. They should make an important contribution to the reduction of global imbalances through an appropriate combination of changes in demand and exchange rate policies and trade liberalization.

In addressing the issue of how to strengthen growth and creditworthiness in indebted countries, Committee members stressed the importance of persevering with growth-oriented adjustment efforts. Indebted countries should ensure that appropriate policies were in place to strengthen the quality and quantity of domestic investment, discourage capital flight, and maintain external competitiveness. In this endeavor, macroeconomic and structural policies would need to go hand in hand. In many countries, greater efforts were still required to reduce public sector deficits and move toward more realistic interest rates. In addition, reforms in areas such as relative prices, public sector investment, and education and training would often be needed to enhance the efficiency of resource use. Strong and sustained domestic policies were necessary to attract external financial support, and both should work in a mutually supporting manner.

3. Committee members stressed the importance of policy coordination in strengthening economic performance. In this context, they welcomed the progress that had been made, within the framework of the Fund’s responsibilities for surveillance over members’ economic policies, in developing the use of economic indicators in a medium-term context. The Committee encouraged the Executive Board to continue developing its use of indicators, and to keep the working of the international monetary system under continuous review. They stressed the importance of improvements in the functioning of the system to facilitate the smooth working of the adjustment process and reinforce prospects for stability in the financial and exchange markets, which are being fostered through more active multilateral policy coordination.

4. Committee members welcomed the progress made to date in the Uruguay Round of multilateral trade negotiations and stressed the need to maintain momentum, leading to the midterm review next December, in working toward a more open multilateral trading system. They emphasized the importance of honoring standstill and rollback commitments. They stressed again that protectionist measures would be self-defeating and unlikely to reduce external imbalances significantly while involving a major risk of a generalized slowdown in growth. The Fund, in cooperation with the GATT, should continue to promote the abatement of trade tensions.

5. Committee members remarked that there had been some positive developments in the debt situation but they emphasized that strong cooperative efforts remained essential. Members emphasized the importance of continuing the case-by-case approach to debt problems, and noted that this was the only way in which adjustment programs and financing flows could be tailored to individual country circumstances. It was important to maintain open and growing markets for debtor countries’ exports and adequate and timely financial support from creditors to facilitate the pursuit of growth-oriented adjustment policies in debtor countries.

In its discussion of the debt strategy for the heavily indebted middle-income countries, the Committee recognized that, in order to marshal continued support for their adjustment efforts, debtor countries must be able to demonstrate that their policies yield positive results. The Committee also noted the deleterious effect that delays in obtaining adequate financing have on those efforts and on the creditworthiness of debtor countries, particularly the smaller middle-income countries. The Committee considered that the Fund should continue to support market-based approaches voluntarily agreed between debtors and creditors that would help restore normal access to external financing within a reasonable time frame. Medium-term Fund-supported programs, where appropriate, could facilitate greater steadiness in policy implementation, reducing the need for recurrent debt renegotiations and increasing the ability to service debt.

The Committee welcomed the recent developments of the “menu approach,” as a demonstration of the flexibility of the present strategy. In this context, the emergence of financing techniques that helped meet the concerns both of banks to limit their exposure to the heavily indebted countries and of debtors over excessive increases in their stock of debt was indeed appropriate. These techniques encompassed approaches such as debt-equity conversion and other forms of debt exchange—as had been recently implemented by Mexico and Bolivia—that could work to reduce the existing stock of debt and enhance prospects of repayments. It remained true that such techniques could, in general, only produce their effects over a period of time and, during this period, steady adjustment efforts needed to be supported by the appropriate provision of additional finance. Committee members nonetheless were in agreement that these were steps in the right direction, deserving appropriate support by authorities.

The Committee considered that, where countries undertook strong adjustments efforts in the context of a medium-term program, official creditors for their part might consider adapting their policies to it.

The Committee stressed the need for further efforts to overcome deep-seated obstacles to sustained growth in many low-income countries. It welcomed the decision taken by the Executive Board to establish the enhanced structural adjustment facility (ESAF), noting that the recent conclusion of agreements with a number of contributor countries would soon permit the ESAF to become operational. The Committee urged other countries that could do so to commit themselves to contribute to the ESAF as soon as possible. The Committee welcomed the success of a number of other recent initiatives to increase the resources available to low-income countries, including the World Bank’s Special Program of Assistance for debt-distressed sub-Saharan African countries, the replenishment of the African Development Fund, and the longer time frame for rescheduling by official creditors. The Committee emphasized that it was essential that low-income countries formulate effective programs of structural reform and macroeconomic adjustment that could be supported with these enlarged resources. As the burden of the outstanding debt would continue to weigh heavily on some of these countries, the Committee noted the continuing need to ensure that strong programs were backed by adequate and timely concessional assistance. A number of countries also observed that the possibilities of applying lower interest rates to existing official debt for the poorest countries should be kept under close consideration.

The Committee reiterated that the Fund must continue to play a central role in the debt strategy through its assistance to members in the design of efficient adjustment programs; through the financial support it provides under its various facilities and by catalyzing financial flows from other sources; and through fostering an improved international economic environment. In this connection, the ongoing adaptation of the Fund’s facilities and instruments, notably the changes being proposed to the extended Fund facility, the review of the compensatory financing facility, and the development of external contingency mechanisms, was seen by the Committee as timely. The Fund, however, together with the World Bank, could not be expected to take on the financing role that should fall to private and other official creditors. The participation of the other partners to the strategy remained essential to the resolution of the debt situation.

6. The Committee welcomed the continued efforts by the Executive Board to strengthen program design and implementation under Fund facilities. The Committee attached importance in this respect to the discussion in the Board on how to increase the effectiveness of the extended Fund facility, for use on a case-by-case basis, in supporting comprehensive medium-term programs of macroeconomic adjustment and structural reforms and in catalyzing other sources of finance. The Committee agreed that, with strong adjustment programs, more Fund resources should, where appropriate, be made available by increasing actual access within current limits and that, in exceptional circumstances, access might extend beyond those limits. The Committee observed that, in present circumstances, forceful initial policy actions would often be needed. It also saw merit in allowing initial three-year extended arrangements to be lengthened to four years where this would facilitate sustained policy implementation in a medium-term framework, and it supported changes in the modalities of the extended Fund facility that would tend to reduce the average rate of charge and lengthen the maturity of purchases.

While noting that stand-by arrangements remained the normal instrument of Fund financial assistance, the Committee requested the Executive Board to complete promptly its reconsideration of the extended Fund facility and to take the necessary decisions on the agreed modifications.

7. The Committee welcomed the report from the Managing Director on the review of the compensatory financing facility and on the recent examination by the Executive Board of how best to incorporate into Fund programs external contingency mechanisms that could help maintain the momentum of adjustment in the face of adverse external shocks. The Committee agreed that the essential features of the compensatory financing facility should be preserved and that Fund assistance for export shortfalls and external contingencies should be combined into a single facility, with an overall access limit of 105 percent of quota. Within that overall access, a limit of 40 percent of quota would apply both to the compensatory element and to the contingency element, and an optional tranche of 25 percent of quota would be available to supplement either element at the choice of the member. Use of the contingency element would be attached to a Fund-supported adjustment program. The Committee asked for an expeditious completion by the Executive Board of the review of the compensatory financing facility and the development of the operational modalities of the new combined compensatory and contingency financing facility, and to keep the functioning of this new facility under review.

8. The Committee noted that, in response to its request at the September 1987 meeting, the Executive Board had recently been carrying out a comprehensive examination of conditionality. This examination had included in-depth discussion of issues in the design of growth-oriented programs and in the monitoring of structural adjustment, as well as of technical issues in program monitoring. The Committee reaffirmed its view that use of Fund resources must be linked closely to progress in the implementation of policies geared to the restoration of balance of payments viability and sustainable economic growth. The Committee also noted that the structural aspects of Fund-supported adjustment programs called for continued close collaboration between the Fund and the World Bank, each taking the lead in the areas of its respective competence.

In its discussion of conditionality, the Committee reaffirmed the cooperative nature of the Fund and stressed the importance of preserving the revolving character of its resources. Members should continue to give the highest priority to fulfilling their financial and other obligations to the institution. Failure to honor these obligations had adverse effects on overdue members’ financial standing and imposed an undue burden on other members. The Committee requested the Executive Board to review the question of the overdue financial obligations and to submit a report at the next meeting of the Committee on measures to reduce and eventually eliminate arrears.

9. The Committee heard a report from the Managing Director on the status of work on issues raised in the Group of Ten and Group of Twenty-Four reports. It noted the progress that had been made in addressing a number of issues raised in these reports, including the debt strategy, program design, conditionality, the enhancement of the structural adjustment facility, and other policies on the use of Fund resources. The Committee asked the Board to continue giving its active consideration to the issues raised in these reports.

10. The Committee noted that the Executive Board’s Committee of the Whole on the Ninth General Review of Quotas had discussed the principal policy issues related to the adjustment of quotas. The Committee noted that it had not been possible for the Executive Board to complete its work in time for it to make recommendations to the Board of Governors by March 31, 1988, the end of the five-year period since the completion of the previous quota review. The Committee noted that the Governors were in the process of voting on a resolution to continue the Ninth Review and requesting the Executive Board to submit appropriate proposals not later than April 30, 1989. In this regard, the Committee asked the Executive Board to report to it at its next meeting.

11. The Committee noted that the Executive Board had continued its examination of the question of a resumption of SDR allocations. At this stage, the broad support needed under the Articles of Agreement to enable the Managing Director to propose a resumption of SDR allocations during the remainder of the fifth basic period from 1988—91 has not emerged. The Committee requested the Executive Board to continue to monitor developments in international liquidity and to consider the question of SDR allocations and of increasing the usefulness of the SDR to all members.

12. The Committee agreed to hold its next meeting in Berlin (West) on September 25, 1988.

Annex: Interim Committee Attendance, April 14–15, 1988

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 Omar Al-Hadithi, Minister of Finance, Iraq

  • Giuliano Amato, Deputy Prime Minister and Minister of the Treasury, Italy

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

  • Jean-Claude Trichet, Undersecretary and Director of the Treasury, Ministry of Economy, Finance, and Privatization, France (Alternate for Edouard Balladur, Minister of Economy, Finance, and Privatization, France)

  • QIU Qing, Deputy Governor, People’s Bank of China (Alternate tor CHEN Muhua, State Councillor and Governor of the People’s Bank of China)

  • DAIM Zainuddin, Minister of Finance, Malaysia

  • Knud Enggaard, Minister of Economic Affairs, Denmark

  • Jean Godeaux, Governor, Banque Nationale de Belgique (April 14 p.m. and April 15) and Ferdinand Lacina, Federal Minister of Finance, Austria (April 14 a.m.) (Alternates for Mark Eyskens, Minister of Finance, Belgium)

  • David Farhat, Minister of Finance, Liberia

  • Peter Morris, Minister Assisting the Treasurer, Australia (Alternate for Paul J. Keating, Treasurer, Australia)

  • Nigel Lawson, Chancellor of the Exchequer, United Kingdom

  • Kiichi Miyazawa, Vice Prime Minister and Minister of Finance, Japan

  • Mailson Ferreira da Nobrega, Minister of Finance, Brazil

  • 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)

  • Carlos Solchaga, Minister of Economy and Finance, Spain

  • Juan Vital Sourrouille, Minister of Economy, Argentina

  • Gerhard Stoltenberg, Federal Minister of Finance, Germany

  • Narayan Datt Tiwari, Minister of Finance, India

  • Michael H. Wilson, Minister of Finance, Canada

Observers

  • 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

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

  • Akinbolaji Iwayemi, Petroleum Industry Financial Analyst, Economics and Finance Department, OPEC

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

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

  • Alain Morisset, First Secretary, Economic and Financial Affairs, Delegation in Washington, CEC

  • Göran Ohlin, Assistant Secretary-General, Office for Development Research and Policy Analysis, Department of International Economic and Social Affairs, UN

  • Jean-Claude Paye, Secretary-General, OECD

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

Thirty-Second Meeting, Washington, September 28, 1987

1. The Development Committee met in Washington, D.C., on September 28, 1987, under the chairmanship of the Hon. B.T.G. Chidzero, Minister of Finance, Economic Planning and Development of Zimbabwe.1

2. The main focus of the Committee’s attention was on the following three issues:

  • Proposals for action for low-income countries facing exceptional difficulties, especially the seriously indebted countries in sub-Saharan Africa;

  • Growth-oriented programs in the heavily indebted middle-income countries;

  • The World Bank’s role and its resource requirements.

3. The Committee’s discussions centered on ways and means to revitalize growth in the developing countries. While the Committee recognized that progress had been achieved, it emphasized the need for strengthened adjustment efforts in many developing countries. The Committee recognized that, in general, the growth prospects for the developing countries continue to be adversely affected by persistent weakness in commodity prices, modest growth of the industrial countries, increasing protectionist pressures, high debt-service burdens, as well as inadequate external financial flows. It also noted the adverse impact of increases in real interest rates on the economies of the developing countries, particularly the heavily indebted countries. The Committee stressed the importance of raising the level of global economic activity by an improvement in the policies of industrial countries. It urged countries to liberalize their trading systems, especially to improve market access for developing countries. In this regard, developed countries were encouraged to pay particular attention to the impact of their industrial and agricultural policies on the developing countries.

4. Members expressed great concern about the exceptional difficulties confronting many low-income countries, especially the seriously indebted in sub-Saharan Africa, and agreed that there was an urgent need for action. The Committee, therefore, supported the recent proposals by the Bank and the Fund that are geared to the resumption of growth in these countries through more adequate financing and continued adjustment. Members appreciated that these proposals provided donors and creditors with a variety of measures which they could adopt to assist the low-income countries. The Fund and the Bank were urged to strengthen their joint efforts in assisting the low-income countries. It was also noted that further improvements in aid coordination arrangements would help strengthen the development efforts of these countries.

5. The Committee strongly supported the proposal by the World Bank for an increase in IDA disbursements to these countries and hoped that the negotiated IDA-8 replenishment will be made effective soon, so that the resources urgently needed by IDA for this purpose could also be made available expeditiously. It encouraged donors to increase the flow of concessional resources in cofinancing operations with the Bank.

6. Members also strongly endorsed the initiative of the Managing Director of the Fund for a substantial increase in the resources of the structural adjustment facility (SAF) to support growth-oriented programs. Some countries have already pledged specific contributions to the enhancement. The Committee emphasized that enhancement of SAF resources should be based on genuine additionality in availability of concessional resources to low-income countries. It called on the international community—developed and developing countries—to proceed as quickly as possible with discussions to bring an enhanced SAF into operation. These discussions should be concluded within this year.

7. Members held that the financing needs of low-income countries should largely be met through assistance on appropriately concessional terms. It was noted that a number of donor countries had converted their official development assistance loans to these countries into grants. Developed donor countries who have not already done so were urged to do so, or if not possible, to take equivalent action tending to this direction. The Committee welcomed the recent decision of the Paris Club to provide longer grace periods and maturities for heavily indebted, very low-income countries. The Committee aso considered proposals for debt relief by reducing interest rates for these countries, provided they were pursuing appropriate adjustment policies. It was noted that for some of these countries continued reliance on rescheduling at commercial interest rates did not provide a realistic solution to the difficulties facing them. They urged donors to find ways to increase the concessional element of their support in order to strengthen the efforts of this group of countries.

8. After a review of growth-oriented programs in the heavily indebted middle-income countries the Committee noted that progress had been achieved by some countries but concluded that there was a need to keep the debt strategy under review so as to enhance prospects for growth and development. Members emphasized the crucial importance of effective adjustment efforts of these countries and recognized that these efforts could be significantly assisted by the correction of imbalances by major industrial countries in order to attain an improved external environment. The Committee underlined the need for increased capital flows on terms adapted to the payments situation and the specific economic circumstances of individual countries.

9. The Committee emphasized that the Bank and the Fund had a strong leadership role to play in expanding flows of finance, as well as in mobilizing additional resources and providing policy advice. Noting the reduced lending by the commercial banks, the Committee encouraged the Bank and the Fund to assist in promoting a “menu” approach, including help in diversifying financial instruments attractive for creditors and bank financing. The Committee wished to see increased private direct investment to the indebted countries so as to improve the availability of non-debt-creating resources for development. The International Finance Corporation (IFC) should play an increasing role in this connection, including an intermediary role of debt-equity swaps. This could be further reinforced with the early establishment of the Multilateral Investment Guarantee Agency (MIGA).

10. The Committee noted discussions in the Bank’s Board of Executive Directors on the modalities for a general capital increase (GCI). Based on the Bank’s expanding financial role in helping to meet the needs of the developing countries, the Committee gave full support for a substantial increase in the Bank’s capital base, sufficient to support a growing lending program for an appropriately long period of time. The Committee agreed that a general capital increase is urgently needed, and it called on the Executive Directors of the Bank to complete their deliberations on such an increase expeditiously so that the provision of increased capital subscriptions to the Bank could start as soon as possible. In supporting a general capital increase, the Committee emphasized that this should not be regarded as a substitute for expanded flows of resources from private sources. The Committee requested a report by the Bank on this matter for its spring 1988 meeting.

11. The Committee again benefited from a presentation by the GATT Director-General on current international trade issues, in particular on the status of negotiations in the Uruguay Round. While welcoming the progress thus far in these negotiations, members stressed the importance of ensuring effective observance of the standstill and rollback commitments. The Committee also stressed the importance of trade liberalization in a global strategy on debt and development. The Committee emphasized the role of the Uruguay Round in furthering trade liberalization and removing distortions to trade in both agricultural and industrial products.

12. The Committee, recalling its earlier request for a report on the adequacy of resource transfers to all developing countries, agreed to consider this critical subject at its next meeting. It had a report from the World Bank’s President on the Bank’s environmental program and agreed to continue further discussion on the subject in April 1988. The Bank was asked to prepare a paper for this discussion taking into account elements in the Brundtland Commission’s Report of relevance to the Committee. In the meantime, it called upon the Bank to take forward the initiatives agreed upon at the April 1987 meeting. The Committee reiterated its request for an in-depth study by the Bank and the Fund on the impact of industrial policies of the developed countries on the developing countries for consideration by this Committee as soon as possible. Other important matters discussed included options for dealing with the commodity problems and the poverty impact of adjustment and development programs. The Committee requested the Chairman to develop a work program to deal with these other subjects in future meetings of the Committee taking into account the views of members.

13. The Committee appointed Mr. Yves Fortin (Canada) to succeed the present Executive Secretary, Mr. Fritz Fischer (Federal Republic of Germany) with effect from November 16, 1987. Members placed on record their deep appreciation for the invaluable service which Mr. Fischer had rendered to the Committee and wished him well in the future.

14. The Committee agreed to meet again in Washington, D.C., on April 15, 1988.

Thirty-Third Meeting, Washington, April 15, 1988

1. The Development Committee met in Washington, D.C., on April 15, 1988, under the chairmanship of the Hon. B.T.G. Chidzero, Senior Minister of Finance, Economic Planning and Development of Zimbabwe.1

2. Members discussed two broad issues:

  • The adequacy of resource transfers to all developing countries, including the problems of the indebted countries;

  • Environment and development, in particular the role of the World Bank.

3. Members welcomed positive developments since the Committee’s last meeting, notably:

  • The full effectiveness of IDA-8;

  • The establishment of the IMF’s enhanced structural adjustment facility (ESAF);

  • The successful launching of the Special Program of Assistance by the World Bank for highly indebted low-income African countries;

  • The agreement by the Bank’s Executive Board for a $74.8 billion increase in the capital of the World Bank and its early approval by many Governors;

  • The coming into force of the convention establishing the Multilateral Investment Guarantee Agency (MIGA);

  • The progress achieved by many developing countries in their adjustment efforts.

4. In spite of these encouraging developments, members agreed that an enlarged volume of financial flows to the developing countries was required to meet the needs for economic growth, poverty alleviation, environmental conservation, structural adjustment, and the resolution of debt difficulties. There was also need for a more supportive world economic environment. They also agreed that the flow of resources, which for some countries has been negative, could be enhanced by policies and actions by both developed and developing countries. Improved aid coordination, further strengthening of the international financial institutions, improved prospects for commodity export earnings, and reduction of protectionist measures would contribute toward increased resource flows. Members urged early progress toward trade liberalization in the Uruguay Round and stressed the importance of the midterm ministerial meeting. The Committee agreed that appropriate economic policies in the developing countries, including increased efforts to mobilize domestic resources, were essential. The IFC was encouraged to continue to expand its role in providing support and promoting private investment in the developing countries.

5. The Committee called on those Governors who had not already done so to approve the resolution for a general capital increase for the World Bank as quickly as possible, and for all governments to proceed expeditiously to subscribe the necessary capital. The importance of the ongoing review by the Board of the Bank of the valuation of the Bank’s capital and the issue of the voting power of small member countries was underlined.

6. The Committee also invited countries which had not so far made a contribution to the Fund’s ESAF to do so. Members urged eligible countries to continue to pursue or to adopt strong economic adjustment programs that could be supported by ESAF.

7. The Committee recognized that additional efforts were required to ease the burdens and support the adjustment efforts of many debt-distressed low-income countries and urged creditors and debtors to consider measures to this end, including, where possible, interest rate reduction in official reschedulings or alternative measures having a similar impact. It took note of the recommendations in the recent report by the UN Secretary-General’s advisory group on financial flows to Africa. In addressing the special problems of low-income Africa, donors were urged to take as soon as possible the actions needed to translate their pledges of adjustment cofinancing under the Bank’s Special Program of Assistance into firm commitments and disbursements to ensure as far as possible additionality in the flow of resources to countries which are, or will become, eligible. The Committee welcomed the recent increase in the resources of the African Development Bank and Fund.

8. The Committee discussed the problem of debt in the heavily indebted middle-income countries in the context of the transfer of resources and the need for achieving sustained growth through adjustment programs. The Committee reaffirmed its support for a case-by-case market-oriented strategy. While strong economic programs were essential, resource constraints remained a major problem. The Committee noted some encouraging developments since the last meeting in the evolution of the menu approach, including the emergence of new financing options and voluntary market-based techniques which reduce the stock of debt. The Bank and the Fund, working closely together, were encouraged to continue their efforts in facilitating developments in the menu approach on a case-by-case basis and thereby catalyzing financial support for a growth-oriented debt strategy. The Committee agreed to keep the debt strategy under review so as to enhance the prospects for growth and development.

9. The Committee recognized that greater flows and an improved quality of concessional resources were needed by low-income countries, including those not seriously indebted, to tackle the problems of poverty alleviation, sustained growth, and development and to assist adjustment efforts where needed. It was also recognized that a number of lower middle-income countries not referred to above have serious economic difficulties, including heavy indebtedness, which deserve attention by the international community.

10. Members exchanged views on the important issues raised in the Brundt-land Report and welcomed the progress made by the World Bank in its environmental program. Growth, development, and environmental conservation must be seen as interrelated concepts and operational objectives. It was generally agreed that many environmental problems transcended national boundaries and therefore required action by developed and developing countries alike. The Committee particularly noted the close link between environmental degradation and poverty and recognized that substantial resources were needed to assist countries in dealing with these interrelated problems. The Bank was encouraged to provide further suggestions at a future meeting on how best to address poverty and environmental issues, especially in low-income countries. A progress report on the implementation of the Bank’s environmental program was requested for the next meeting.

11. The Committee agreed to meet again in Berlin (West) on September 26, 1988.

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