Chapter

APPENDIX V

Author(s):
International Monetary Fund
Published Date:
January 1990
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Press Communiqués of the Interim Committee and the Development Committee

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

PRESS COMMUNIQUES

Thirty-Third Meeting, Washington, September 24-25, 1989

1. The Interim Committee of the Board of Governors of the International Monetary Fund held its thirty-third meeting in Washington, D.C. on September 24-25, 1989 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. The Committee noted that after two years of rapid expansion, the growth of economic activity in the industrial countries is moderating to a more sustainable pace. Inflation remains contained thanks to the implementation of appropriate policies. Policies will need to remain vigilant, particularly in those countries where inflationary pressures persist. Growth has also been strong in a number of developing countries, particularly among the exporters of manufactures, reflecting the continued buoyancy of world trade.

While prospects for sustained economic expansion among many countries continue to be favorable, a number of developments require close attention. Inflation remains high in some industrial countries; some further progress is being made in reducing external imbalances, although adjustment has slowed; several countries, particularly in Europe, continue to face high unemployment. Growth remains weak in most of the heavily indebted middle-income developing countries and in many of the low-income countries of Africa.

The Committee agreed that, where inflationary pressures persist, and given the present high level of capacity utilization, monetary policies should remain cautious; a premature easing could well result in an intensification of cost-price pressures and eventually lead to a renewed rise in interest rates. At the same time the slowing of the pace of adjustment and the prospect of sizable and persistent current account imbalances among the largest industrial countries remain a matter of close attention. To give renewed impetus to the process of external adjustment, deficit countries should strengthen saving through fiscal policy, where appropriate, and by removing impediments to private saving, while surplus countries should continue to sustain adequate expansion of domestic demand without endangering price stability. In order to enhance their efficiency and to integrate further developing countries into the world economy, all industrial countries, as well as the newly industrializing economies, should step up structural reforms, including opening up sectors shielded from market competition and removing subsidies, to support noninflationary growth, facilitate external adjustment, and help to reduce unemployment over time.

The need to restore satisfactory growth in the developing countries with debt-servicing difficulties is urgent. These countries should intensify efforts to raise national saving and investment, promote efficiency through structural reforms, curb inflationary pressures, encourage the return of flight capital, and promote foreign direct investment while giving due attention to shielding the poorest from the adverse transitory effects of economic reforms. These efforts require maintenance of a favorable international environment, as well as an adequate flow of financial resources. In this connection, the Fund continues to stand ready to provide its resources, including enhanced structural adjustment facility (ESAF) resources, in support of strong growth-oriented adjustment programs in low-income countries.

The Committee emphasized the importance of economic reforms in certain Eastern European member countries and expressed the hope that these would soon be integrated within strong and sustainable economic programs that could be supported by the Bretton Woods institutions.

To increase their own efficiency and strengthen the health of the world economy, all countries must act forcefully to counter protectionist pressures, reverse the trend toward managed trade, and reduce existing trade barriers. The Committee emphasized that the successful completion of the current round of multilateral trade negotiations by the end of 1990 is essential.

3. The Committee welcomed the establishment by the Executive Board of operational guidelines for Fund support for significant debt and debt service reduction where these are part of financing packages in support of strong growth-oriented adjustment programs. It noted the progress already made in several cases in implementing, in close collaboration with the World Bank, the strengthened debt strategy.

The approach adopted had allowed the development of financing packages reflecting the diversity of circumstances facing individual debtor countries. While recognizing that time is needed to negotiate complex and difficult arrangements involving both new money and debt and debt service reduction options, Committee members reiterated that commercial banks needed to move expeditiously in arranging financing packages in support of strong adjustment programs. Each financing package must be evaluated carefully by the Fund for its adequacy to the circumstances of the member, the efficiency of debt reduction, and in light of the need to safeguard the Fund resources that would be made available so as to preserve the financial integrity of the Fund. The Committee reaffirmed its view that official creditors should not substitute for private lenders.

The Committee stressed that implementation of officially supported debt and debt service reduction must not divert financial support from those countries that, notwithstanding heavy debt burdens, have been able to preserve access to international financial markets through sound economic policies.

The Committee welcomed the initiatives that have been taken by donors and creditors, both individually and through the Paris Club, to forgive or alleviate external obligations of the poorest low-income countries that rely mainly on official financing. It hoped that these initiatives could be pursued as appropriate on a flexible, case-by-case basis.

The Committee also welcomed the review by creditor governments of tax, regulatory, and accounting practices to remove unnecessary constraints to debt and debt service reduction operations. It noted with satisfaction that concrete steps had already been taken in some countries and encouraged all other countries to do likewise.

4. The Committee discussed issues relating to the Ninth General Review of Quotas and the role envisaged for the Fund in the 1990s. The Committee noted the progress toward an agreement on an increase in the size of the Fund that was reported by the Executive Board as well as on the principles that could be followed in distributing an enlargement of the Fund between members.

There was widespread support in the Committee on the need for a substantial increase in quotas under the Ninth General Review, although a few members believe that the Fund has adequate resources at the present time to fulfill its responsibilities. The Committee underscored the central role of the Fund in fostering a stable international monetary system and in promoting a strong and sound global economy. It agreed that it is of fundamental importance further to reinforce the role of the Fund as the central monetary institution and that it must be adequately endowed to fulfill its systemic responsibilities in the first half of the 1990s, while reducing reliance on borrowing. It also agreed that the Fund must be able to respond in an effective manner to the balance of payments needs of individual members that implement strong programs of growth-oriented adjustment—and to assist them in mobilizing support from other sources—while maintaining a strong liquidity position and the revolving character of its resources. In this context, the Committee noted that prolonged use of Fund resources by some countries could impair the revolving character of the Fund and asked the Executive Board to examine actions that could be taken to address these problems.

The Committee reiterated that the size and distribution of any quota increase should take into account changes in the world economy since the last review of quotas as well as members’ relative positions in the world economy and the need to maintain a balance between different groups of countries, and the Fund’s effectiveness in fulfilling its systemic responsibilities, including its role in the strengthened debt strategy. The main principles that could guide the distribution of the enlargement of the Fund among members are (i) all members should receive a meaningful increase in quotas; and (ii) the distribution should be based on uniform methods. The Committee agreed that, in the case of a general quota increase, an ad hoc increase in quotas should be considered where appropriate.

The Fund has not yet concluded its consideration of the issues regarding the appropriate size of the Fund in the 1990s. The Committee requested the Executive Board to pursue its work on the outstanding issues relating to the Ninth Review as a matter of highest priority, with a view to a decision by the Board of Governors on the completion of the Ninth Review before the end of this year.

5. The Committee discussed the Fund’s policy on enlarged access and, having taken note of the Fund’s liquidity position, agreed that the enlarged access policy and the present access limits under it should be maintained for 1990 and reviewed in the light of the outcome of the Ninth General Review of Quotas.

6. The Committee reiterated its strong support for the three aspects—preventive, collaborative, and remedial—of the cooperative approach to reducing and eventually eliminating overdue financial obligations to the Fund that it had endorsed at its meeting in Berlin. It welcomed the strong and continued implementation by the Fund of the strategy and noted with satisfaction the significant reduction in the number of members in arrears, the establishment of a Support Group for two others, and progress by several members in embarking on significant policy reforms as a step toward clearing their arrears to the Fund and other international financial institutions and normalizing their financial relations with the international community.

The Committee was also encouraged by the resumption of payments by certain other countries that were cooperating with the Fund in the search for solutions to their outstanding arrears. It was concerned, however, that the overall amount of arrears had nonetheless continued to rise, owing to the failure of a few countries with protracted arrears to meet their financial obligations. It noted with regret that a few members were still not cooperating adequately in addressing the problem of their arrears to the Fund and that remedial measures had had to be adopted. The Committee again called on all members in arrears to adopt policies promptly to correct their economic imbalances and regularize their relations with the Fund, bearing in mind the burden that overdue obligations impose on other Fund members. It urged all members to assist the Fund in the implementation of the cooperative strategy. The Committee requested the Executive Board to submit a progress report for consideration at its spring meeting.

7. The Committee welcomed further discussions in the Executive Board on key issues relating to the functioning of the international monetary system, international liquidity, and the systemic role of the SDR. The Committee encouraged the Executive Board to continue to analyze present developments in the system with a view to identifying improvements that could be implemented. Although the broad support necessary for an allocation of SDRs during the fifth basic period has not emerged, the Committee requested the Managing Director to continue to conduct consultations on this issue.

8. The Committee reaffirmed the central role of Fund surveillance in fostering more consistent and disciplined economic policies. It noted the contribution of the Fund to the process of policy coordination through its work on key economic indicators and the development of medium-term scenarios to clarify the implications of alternative policy stances. The Committee encouraged the Executive Board to continue improving the analytical and empirical framework underlying multilateral surveillance, including the measurement, determinants, and systemic consequences of international capital flows.

9. The Committee agreed to hold its spring meeting in Washington, D.C. on May 7, 1990.

Annex: Interim Committee Attendance September 24-25, 1989

Chairman

H. 0. Ruding, Minister of Finance, Netherlands

Managing Director

Michel Camdessus

Members or Alternates

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

Hikmat Omar Al-Hadithi, Minister of Finance, Iraq

Alhaji Abubakar Alhaji, Minister of State for Planning and Budget, Nigeria

Pedro Aspe, Secretary of Finance and Public Credit, Mexico

Pierre Bérégovoy, Ministry of State for Economy, Finance, and the Budget, France

Nicholas F. Brady, Secretary of the Treasury, United States

Guido Carli, Minister of the Treasury, Italy

S. B. Chavan, Minister of Finance, India

Ryutaro Hashimoto, Minister of Finance, Japan J. S. Dawkins, Minister for Employment, Education, and Training, Australia (Alternate for Paul J. Keating, Treasurer, Australia)

Nigel Lawson, Chancellor of the Exchequer, United Kingdom

QIU Qing, Deputy Governor, People’s Bank of China (Alternate for LI Guixian, State Councillor and Governor of the People’s Bank of China)

Philippe Maystadt, Minister of Finance, Belgium

Mailson Ferreira da Nobrega, Minister of Finance, Brazil

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

PAY PAY wa Syakassighe, Governor, Banque du Zaire

Erik Hoffmeyer, Chairman, Board of Governors, Danmarks Nationalbank (Alternate for Niels Helveg Petersen, Minister of Economic Affairs, Denmark)

Javier Gonzàlez Fraga, President, Banco Central de la Republica Argentina (Alternate for Nestor Rapanelli, Minister of Economy, Argentina)

W.F. Duisenberg, President, De Nederlandsche Bank, NV (Alternate for H. 0. Ruding, Minister of Finance, Netherlands)

Kamchorn Sathirakul, Governor, Bank of Thailand

Theo Waigel, Federal Minister of Finance, Federal Republic of Germany

Michael H. Wilson, Minister of Finance, Canada

Observers

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

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

Henning Christophersen, Vice President, CEC

Barber B. Conable, President, World Bank

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

Arthur Dunkel, Director General, GATT

Markus Lusser, Chairman of the Governing Board, Swiss National Bank

Goran Ohlin, Assistant Secretary-General, Department of International Economics and Social Affairs, UN

Jean-Claude Paye, Secretary-General, OECD

Thirty-Fourth Meeting, Washington, May 7-8, 1990

1. The Interim Committee of the Board of Governors of the International Monetary Fund held its thirty-fourth meeting in Washington, D.C. on May 7-8, 1990 under the chairmanship of Mr. Michael H. Wilson, Minister of Finance of Canada. 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 Committee expressed its appreciation to Mr. Onno Ruding, former Minister of Finance of the Netherlands, for his invaluable contribution to the work of the Committee during the five years of his stewardship as Committee Chairman.

2. The long economic expansion in the industrial countries has continued, albeit at a slower, more sustainable pace. Inflationary pressures have been countered by appropriately tightened monetary conditions and, though progress has been uneven, external imbalances have narrowed further. In developing countries, the performance of the exporters of manufactures, especially in Asia, generally has remained strong. However, with a few encouraging exceptions, growth has been weak elsewhere, owing in part to some less favorable features in the international environment and in some cases to slippages in the implementation of adjustment policies.

The progress toward completion of the single European market in 1992, the prospective unification of Germany, and successful economic reforms in Eastern Europe will strengthen the outlook for economic growth. These developments, together with the continued need to support productive investment in developing countries, have clear implications for the global demand for capital and for economic policies in industrial countries. Continuing efforts are required in both surplus and deficit countries to reduce external imbalances. In particular, substantial efforts must be made to raise national saving in order to lessen pressure on interest rates and thereby promote investment and alleviate debt burdens. To this end, further progress toward fiscal consolidation is imperative in a number of countries, together with the adoption of policies that reduce impediments to private saving. Structural measures are required to reduce distortions that hinder investment and limit market access, and to remove rigidities that interfere with the efficient allocation of resources and, in some industrial countries, keep unemployment high despite relatively rapid growth. Recent price developments point to the need for continued vigilance and restraint in monetary policy, particularly in countries where inflationary pressures continue strong. Fiscal and monetary policies should take account of the need to bolster saving and deal with the inflation problems. Policy should also help to foster exchange rates consistent with a better working of the global adjustment process.

Increased saving, structural reform in industrial countries, and freer trade would improve the international environment and help support a resumption of adequate growth in the developing countries. The conditions for economic recovery in these countries nevertheless depend primarily on strengthened domestic policies aimed at controlling inflation and raising saving, restoring confidence, and achieving greater efficiency in resource use.

3. Market-oriented economic reforms in all countries must be encouraged and supported. In particular, the reforms on which Eastern European countries have recently embarked deserve support, but not at the expense of the developing countries. Committee members agreed that the Fund, in the context of a broad international cooperative effort, must continue to provide assistance as these countries steer their economies toward a market system and integrate them into the world economy. In this context the Committee welcomed the applications for membership of Czechoslovakia and Bulgaria.

4. The Committee stressed the vital importance of renewed efforts to counter protectionism and foster a more open and transparent trading system. Although progress has been made in many areas of the Uruguay Round, important issues remain to be solved. Prospects for the world economy and, in particular, for those countries that are seeking to adjust their economies through the adoption of more market-oriented systems depend to a significant degree upon a successful conclusion of the Round by the end of 1990. To this end, all countries are urged to resolve the outstanding issues and achieve the greatest possible reductions in all forms of barriers to trade.

5. The Committee welcomed the progress under the strengthened debt strategy, noting that the arrangements agreed with commercial banks under the strategy can be expected to contribute to an improvement in members’ growth and balance of payments prospects. The Committee reaffirmed the guidelines on the Fund’s involvement, and similar guidelines in the Bank, which have facilitated a diversity of financial arrangements. These should continue to be implemented with the necessary flexibility. The Committee welcomed the efforts of official bilateral creditors, in particular the actions under the Toronto agreement, as well as the financial contribution made by the Export-Import Bank of Japan, to support debtors’ adjustment efforts. It noted the special needs of the lower middle-income countries. It also noted that programs supported by the Fund would continue to need adequate financing, including in some cases debt restructuring. The Committee emphasized the importance of measures to encourage domestic savings and inflows of capital, including the return of flight capital and new investment, as part of growth-oriented debtor reform programs under the strengthened debt strategy.

6. The Committee underscored the role of the Fund as the central institution for international monetary cooperation, whose resources derive principally from the reserve assets of members. The Committee also emphasized the special contribution of the World Bank in providing long-term financial assistance to developing countries based on its access to capital markets around the world. For these reasons, the Committee stressed the importance of all members lending their active and tangible support to ensure that countries using the resources of the Fund or the Bank fulfill their financial obligations to these institutions in full promptly as they fall due.

7. The Committee commended the Executive Board for its work on the Ninth General Review of Quotas and on the arrears strategy. It expressed satisfaction that the Executive Board had agreed on an interrelated set of measures to increase quotas and strengthen the cooperative strategy on arrears.

On quotas, it welcomed the agreement reached by the Board on the method to be used to distribute the overall increase in quotas, including a special increase in the quota of Japan, as well as on the modalities of the size of the participation requirement and the period of consent to and payment for the increase in quotas. The Committee agreed that:

  • a. The present total of Fund quotas should be increased by 50 percent.

  • b. Another review of quotas should be conducted by March 31, 1993, though the review could be conducted earlier if there is a clear need to do so.

  • c. The Executive Board should be requested to prepare and complete, for final decision by the Board of Governors before June 30, 1990, a proposed resolution that would include all the necessary provisions to effect increases in the quotas of members in accordance with the agreement already reached by the Executive Board and with the understandings reached during the course of the Committee meeting.

  • d. The Committee agreed that the enlarged access policy and the present access limits should remain unchanged until the increase in quotas becomes effective.

8. Noting recent progress in the containment of overdue obligations to the Fund, the Committee stated that the early reduction and elimination of arrears to the Fund is of the highest importance and welcomed the strengthening of the strategy developed by the Executive Board for this purpose. It endorsed the proposed approach that will permit a member in arrears to earn a claim, based on sustained economic performance, toward future financing that can help form a basis for settlement of arrears. In this context the Committee noted the agreed additional safeguard for the use of enhanced structural adjustment facility resources, which help finance the programs. The Committee concurred with the proposal that the Fund pledge use of up to 3 million ounces of gold, if needed, as additional security for use of the resources of the enhanced structural adjustment facility in connection with the financing of the claims referred to above. It urged that members approve the decisions necessary to establish such a pledge as soon as possible.

The Committee noted that this approach, combined with the techniques already available, and with sufficient cooperation by members, can help them eliminate their existing arrears. It called on all members in arrears to adopt promptly the policies needed to correct imbalances and maladjustments in their economies and regularize their positions with the Fund.

The Committee emphasized that, even as cooperative efforts are being intensified to eliminate arrears, it is necessary to strengthen the Fund’s financial position still further and to enhance the instruments available to the Fund to prevent and deter arrears. In this connection:

  • a. The Committee endorsed an extension of the Fund’s mechanisms for the sharing of burdens associated with overdue obligations among creditor and debtor members. This extension, which would be reviewed annually, would accumulate SDR 1 billion over approximately five years, financed by a further adjustment of 0.35 percent to the rate of charge and, subject to the limit in the Articles of Agreement, a further adjustment to the rate of remuneration to yield three times the amount generated by the further adjustment to the rate of charge.

  • b. The Committee warmly welcomed the proposal for voluntary contributions to this effort by members whose contributions under these mechanisms are not commensurate with those of member countries participating in burden sharing. The Committee considered that such voluntary contributions would complement efforts to support appropriate adjustment policies in countries with protracted arrears and would be fully in keeping with the cooperative nature of the institution. The Committee therefore called upon those members ready to make such contributions to do so expeditiously.

  • c. The Committee noted that the Executive Board is considering a proposal under which individual contributors under the existing mechanism for coverage of deferred charges would agree that accumulated balances be retained temporarily in the Fund following settlement of these deferred charges.

  • d. In order to deal with the rare cases where it is evident that a member with arrears to the Fund is persistently not cooperating with the Fund, the Committee invited the Executive Board to propose to the Board of Governors, by the end of May 1990, the text of an amendment of the Articles providing for suspension of voting and related rights of members that do not fulfill their obligations under the Articles. The provision for suspension would be activated by a 70 percent majority of the total voting power in the Executive Board. Such an amendment should be proposed to the Board of Governors in a draft resolution separate from the draft resolution on the quota increase. After having carefully listened to the comments of all members, and the reservations of some members, the Committee came to a consensus that, as part of the overall quota increase package, no increase in quota shall become effective before the effective date of such an amendment, and that every effort should be made by members to ensure that both the quota increase and the amendment shall be effective before end 1991. If it appeared that these resolutions might not be effective by this date, the Committee would consider what steps might need to be taken.

9. With the understandings on the increase in quotas and with the steps taken to strengthen the arrears and debt strategies, the Fund is now better equipped to discharge its operational responsibilities toward its member countries. Recent developments indicate that the Fund can be expected to face a heavy workload in dealing with requests for the use of Fund resources and catalyzing other assistance, helping countries in the implementation of their economic reforms, and improving more generally the effectiveness of surveillance. In this connection, the Committee reaffirmed the importance it attaches to surveillance by the Fund as the means for promoting economic policies in members that are conducive to sustainable economic growth and improved global welfare. It stressed that the pursuit of sound economic policies by member countries is a prerequisite for effective international economic cooperation.

10. The Committee also encouraged the Executive Board to continue its analysis of developments and of key issues in the functioning of the international monetary system. The Committee emphasized the positive contribution that policy coordination is making to the evolution of the system. It urged the Executive Board to study further improvements that could be implemented and to keep the role of the SDR under review.

11. The Committee agreed to hold its next meeting in Washington, D.C. on September 23, 1990.

Annex: Interim Committee Attendance May 7-8, 1990

Chairman

Michael H. Wilson, Minister of Finance, Canada

Managing Director

Michel Camdessus

Members or Alternates

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

Pierre Bérégovoy, Ministry of State for Economy, Finance, and the Budget, France

Nicholas F. Brady, Secretary of the Treasury, United States

Zelia Maria Cardoso de Mello, Minister of Economy, Finance and Planning, Brazil

Guido Carli, Minister of the Treasury, Italy

Madhu Dandavate, Minister of Finance, India

Antonio Erman Gonzàlez, Minister of Economy, Argentina

S. Olu Falae, Minister of Finance and Economic Development,Nigeria

Abderrahmane Hadj-Nacer, Governor, Banque Centrale d’Algérie

Yasushi Mieno, Governor, The Bank of Japan (Alternate for Ryutaro Hashimoto, Minister of Finance, Japan)

Bob McMullan, Parliamentary Secretary to the Treasurer, Australia (Alternate for Paul J. Keating, Deputy Prime Minister and Treasurer, Australia)

Wim Kok, Deputy Prime Minister and Minister of Finance, Netherlands

Rolf Kullberg, Governor, Bank of Finland

CHEN Yuan, Deputy Governor, People’s Bank of China (Alternate for LI Guixian, State Councillor and Governor of the People’s Bank of China)

John Major, Chancellor of the Exchequer, United Kingdom

Philippe Maystadt, Minister of Finance, Belgium

Adrianus Mooy, Governor, Bank of Indonesia

PAY PAY wa Syakassighe, Governor, Banque du Zaïre

Mohammed Mehdi Saleh, Acting Minister of Finance, Iraq

Pedro R. Tinoco, Jr., President, Banco Central de Venezuela

Theo Waigel, Federal Minister of Finance, Federal Republic of Germany

John W. Crow, Governor, Bank of Canada (Alternate for Michael H. Wilson, Minister of Finance, Canada)

Observers

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

Pascal Arnaud, Financial Adviser, Delegation in Washington, CEC

S. Balabanoff, Head of Economics Section, Economics and Finance Department, OPEC

Horst Bockelmann, Economic Adviser 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

Markus Lusser, Chairman of the Governing Board, Swiss National Bank

M.G. Mathur, Deputy Director General, GATT

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 COMMUNIQUES

Thirty-Sixth Meeting, Washington, September 25, 1989

1. The Development Committee met in Washington on September 25, 1989 under the chairmanship of the Hon. B.T.G. Chidzero, Senior Minister of Finance, Economic Planning and Development of Zimbabwe.1

2. The Committee focused its discussion on three subjects: (a) the external economic environment and resource requirements of structural adjustment programs; (b) development prospects in severely indebted countries and the evolving debt strategy; and (c) World Bank support for the environment. Reports on the status of the negotiations for the Ninth Replenishment of the International Development Association (IDA), trends in the transfer of resources to developing countries, and current developments in international trade were also considered.

3. At the April Committee meeting it was agreed that the essential ingredients in the design and sustainability of successful structural adjustment programs were the strong political commitment by developing countries to sound policies, broad public support, the integration of poverty and environmental considerations, the strengthening of institutional capacity, adequate and timely financing, and supportive external economic conditions. In reviewing the implications of the external economic environment for structural adjustment, members were of the view that while growth-oriented structural adjustment can yield positive results even under unfavorable external conditions, the pace, scale, and sustainability of benefits would be adversely affected by an unsupportive external setting. Industrial countries should take seriously their responsibilities in respect of the impact which their policies have on developing countries. It was generally considered that the adoption by industrial countries of economic policies supportive of developing countries’ adjustment efforts would also help improve their own economic performance. Moreover, it would assist the integration of developing countries into the world economy. Bearing in mind the Committee’s conclusions and its ongoing interest in this question, the Bank and Fund were asked to keep under review the impact of industrial countries’ trade, agricultural, and industrial policies on developing countries as well as the results of adjustment programs that developing countries undertake.

4. In view of the uncertainty of external economic conditions, members agreed on the importance of contingency planning in the design of structural adjustment programs. In this connection, members emphasized the need for the Bank and Fund to continue to adapt their support to changing circumstances.

5. The Committee noted that experience had shown that inadequate resources and delays in their provision can impede the implementation of structural adjustment programs. Accordingly, the need for adequate and timely financing to support structural adjustment programs was emphasized. In this connection, members noted that there is an urgent need to increase savings rates in the world economy so as to enhance the availability of resources to developing countries.

6. The Committee underlined the need to strengthen the resources of the Bank and the Fund. It took note of the status of the negotiations for the Ninth Replenishment of IDA held by IDA Deputies in recent months. Members recognized the pressing needs of IDA recipient countries for concessional assistance as they address adjustment, development, and poverty-reduction objectives. Accordingly, the Committee stressed the urgency of completing negotiations by the November meeting of IDA Deputies in Kyoto, and of achieving agreement on a substantial replenishment of IDA-9 commensurate with the pressing needs of IDA-eligible countries.

7. Members noted the importance of ensuring that the Fund is provided with adequate resources, and, in this connection, also noted that the Interim Committee had requested the Fund’s Executive Board to pursue its work on the outstanding issues relating to the Ninth Review as a matter of highest priority, with a view to a decision by the Board of Governors on the completion of the Ninth Review before the end of this year.

8. The Committee stressed the importance of an open multilateral trading system in improving the external economic environment for structural adjustment programs. It noted the adverse effects of industrial and agricultural protectionism on the effective implementation of such programs. The Committee heard from the Director General of the General Agreement on Tariffs and Trade (GATT) that, after having successfully concluded its mid-term review, the Uruguay Round had now entered its final and critical phase. The Committee called on both developed and developing countries to take the fullest advantage of the unique opportunity provided by the Round—set for conclusion at the end of 1990—to strengthen and expand the multilateral trading system. Members emphasized the need to ensure that the emergence of regional trading arrangements did not adversely affect developing countries’ market access and the multilateral trading system. The Bank and Fund were requested to keep under study, in close consultation with the GATT, the possible implications of regional trading arrangements for developing countries’ economic prospects for consideration at a future meeting.

9. The Committee reviewed the debt strategy and its impact on development prospects for all severely indebted countries. It reaffirmed its support for the strengthened debt strategy endorsed at its April meeting, based on a cooperative framework between the debtor countries, the commercial banks, and official creditors. The Committee commended the prompt response of the Fund and the Bank in developing operational guidelines for support of voluntary commercial bank debt and debt service reduction. It stressed that the implementation of officially supported debt and debt service reduction should not divert Bank and Fund financial support from good performing countries. It expressed its appreciation of the substantial financial support of the Japanese Government of adjustment programs by debtor countries and encouraged other countries in a position to do so to take similar action. It re-emphasized the importance of special efforts by debtor countries to attract new investment, to promote the repatriation of flight capital, and to implement appropriate debt-equity swap programs. Furthermore, it underscored the need for a flexible case-by-case approach to realistic commercial bank financing packages including both debt and debt service reduction and new financing as appropriate. It welcomed the progress made in several cases in implementing the strengthened debt strategy and noted that a number of countries were currently undertaking negotiations with banks. They encouraged other debtor countries to develop strong economic reform programs in cooperation with the two institutions. Such programs could provide the basis for World Bank and IMF support for debt and debt service reduction within the established Bank and Fund guidelines.

10. In discussing the problems of the severely indebted low-income countries, the Committee welcomed the recent recommendation by the World Bank Board to its Governors to support commercial debt reduction in eligible IDA-only countries by setting aside $100 million from the IBRD’s net income for this purpose. The Committee welcomed the measures taken in the past by many donors and the announcements made more recently by others to forgive official development assistance debt owed by low-income countries in sub-Saharan Africa. Despite efforts made to assist the debt-distressed low-income countries in sub-Saharan Africa, their debt and external financing problems remain pressing. The Committee requested the institutions to evaluate at an appropriate time the impact of the various debt-relief measures taken so far in favor of the severely indebted low-income countries. As the benefits of concessional rescheduling within the framework agreed by the Paris Club in 1988 have so far been extended to thirteen countries, the Committee suggested continued implementation of such concessional terms to debt-distressed low-income countries undertaking adjustment programs.

11. Members also recalled the concern expressed last April that the development needs of lower middle-income countries whose debts are mainly to official creditors should be given special attention.

12. Members agreed that it was also important to recognize the needs of a number of countries which have so far avoided debt and debt service difficulties. The Committee urged that efforts be made to maintain an orderly and adequate flow of finance to these countries to support adjustment, development and poverty reduction. In this connection, it welcomed the decision by the World Bank Board to enlarge the Bank’s cofinancing operations to help these countries maintain and expand access to financial markets.

13. The Committee welcomed the World Bank’s report on its efforts to support the environment. Members commended the Bank on the progress made in integrating environmental issues into Bank activities, including the preparation and release to the Executive Directors of environmental impact assessment guidelines, thus providing an opportunity for interested parties to comment. They also noted with satisfaction the steps taken to increase public awareness of Bank activities in the environmental field. Members emphasized the need for continuing and even intensifying these efforts. The Bank was encouraged to increase public access to environmental information on projects and programs.

14. While it was recognized that the bulk of environmental pollution so far stemmed from the industrial countries, it was agreed that a cooperative effort was required by both the developed and the developing countries in addressing this critical problem. All countries were urged to take measures to penalize polluters and to check the flow of exports and imports of environmentally damaging materials. Members took special note of the importance of global climate change issues. They welcomed the Bank’s increasing emphasis on energy conservation and efficiency programs and on conversion to less environmentally damaging fuels. The Bank was encouraged to assist in the introduction of alternatives to chloro-fluorocarbons. They commended the Bank’s efforts in increasing its work in conservation and sustainable development of forestry resources and, more generally, for the promotion of environmental action plans. They also encouraged the Bank to assist countries in the development of such arrangements as debt-for-nature swaps. Members called on the Bank to continue to expand the scope of its activities in these areas.

15. The Committee noted that the integration of environmental considerations into development projects could result in increased costs as well as benefits and could require technological transfers to the developing countries. They recognized that additional external financial and technical support on appropriate terms could help meet these costs and requirements. Donor governments and multilateral development institutions were requested to consider ways by which they could provide assistance and, in this connection, the Committee requested the Bank to prepare a study of the mechanisms and financial requirements that may be needed to address the environmental challenges of the developing world

16. The Committee stressed the importance of the links between poverty, population growth, and environmental degradation and expressed concern at the impact of world population pressures on physical and human infrastructure, as well as urban and rural environments. It recognized that excessive population growth reinforces the problems of poverty and environment and called on governments to increase their efforts in the field of population and on the multilateral development institutions and bilateral agencies to intensify their support.

17. The Committee reaffirmed the importance attached to the reduction of poverty in developing countries and encouraged greater efforts by the Bank for poverty reduction. It reiterated the agreement reached at a September 1988 meeting that the Committee should periodically review progress made by the international community in addressing poverty issues. The Bank was requested to prepare a report to serve as a basis for such a discussion at a future meeting.

18. In reviewing the trends in the transfer of resources to the developing countries, the Committee noted that, while net flows in real terms remained well below the levels of the early 1980s, the sharp annual decline was arrested in 1988. The Committee welcomed the efforts of the international community in increasing flows of official development assistance in 1988. It recognized, however, that more needed to be done by all countries to support the objectives of growth and poverty reduction. It called on donor countries, particularly those with assistance levels below the 0.7 percent ODA/GDP target, to make further efforts for securing financial flows to the developing countries. On the basis of the reform programs under way and the current economic performance in particular in sub-Saharan Africa, the Committee also considered that these high-priority programs should continue to be supported. The Committee called for sustained efforts on the part of developing and developed countries to stimulate the flow of private direct investment and the repatriation of capital. The Committee encouraged the creation of an economic climate conducive to foreign and domestic investment. Countries that have not done so were encouraged to consider joining the Multilateral Investment Guarantee Agency (MIGA).

19. The Committee reviewed the priorities for its forthcoming meetings. It confirmed its undertaking last April to have a discussion in the spring of 1990 on enhancing the contribution of the private sector to development including the promotion of foreign private investment, and the support that the Bank and Fund can provide for this purpose. It was also agreed to continue next spring the review of the debt strategy and its impact on the development prospects for all severely indebted countries. The long-term perspective for sub-Saharan Africa would also be discussed at that time. The Committee called on the Bank and the Fund to prepare documentation on these subjects, as appropriate. They also requested the Bank to prepare a progress report for the next meeting on environmental issues. In connection with the Committee’s undertaking to consider the economic role of women in development at a future meeting, it was agreed to give full consideration to this subject in the fall of 1990.

20. The Committee agreed to meet again in Washington, D.C. on May 8, 1990.

Thirty-Seventh Meeting, Washington, May 8, 1990

1. The Development Committee met in Washington, D.C. on May 8, 1990 under the chairmanship of the Hon. B.T.G. Chidzero, Senior Minister of Finance, Economic Planning and Development of Zimbabwe.1

2. In the context of its broad mandate for the transfer of resources to developing countries, the Committee focused its discussion on three topics: (a) the contribution of the private sector to development and the roles of the World Bank Group and the International Monetary Fund; (b) the debt strategy and its impact on the development prospects for all severely indebted countries; and (c) the long-term perspective for development of sub-Saharan Africa. The concept of a global environmental facility, trends in the transfers of resources, and current international trade developments were also considered.

3. The Committee welcomed the growing emphasis given by developing countries to the role of the private sector, including the promotion of domestic and foreign investment, in their development strategies. It underscored the importance of creating an enabling environment favorable to private sector activities through macro-economic stability, structural adjustment, and appropriate price and investment policies. The need to adopt legislation and administrative practices compatible with sound private sector development was also stressed. The complementarity of the roles of efficient and well-managed private and public sectors in development was emphasized. The Committee noted that infrastructure and social services, including investments in human resources, are needed to support private sector development and for economic growth in general. The Committee also noted that the confidence of private investors could be enhanced through the adoption by all countries of open markets and sectoral adjustment policies and a supportive financial environment. Recalling its earlier invitation to the Bank and the Fund to keep under review the impact of industrial countries’ trade, agricultural, and industrial policies on developing countries, members requested a report on this topic for its spring 1991 meeting.

4. Members recognized that foreign direct investment is a valuable non-debt-creating external resource for developing countries and emphasized the need, particularly for severely indebted countries, to mobilize direct investment and repatriate flight capital. They also noted the role of such investment in transferring technology, improving managerial skills, and facilitating market development. Members underscored the need for policies that would increase savings and could facilitate a greater flow of direct investment to developing countries. Such investment could best be attracted to developing countries through the adoption of sound macroeconomic and market-oriented policies.

5. The Committee urged the World Bank Group and the Fund to strengthen further their efforts to support private sector development. Members encouraged the Bank to give a very high priority to private sector development in its operations, to continue to expand the scope of its activities in this area, including new approaches and instruments as may be needed, as well as to assist developing countries’ efforts to implement long-term institutional, regulatory, and legal reforms, consistent with their socioeconomic situation. Members therefore emphasized the importance of close coordination within the Bank Group so as to ensure that private sector considerations are better integrated in its operations while avoiding duplication. To help achieve this, the Committee requested the Bank to move expeditiously to implement its action plan for private sector development. Considering the importance of the contribution of the private sector to development, the Committee requested that this issue be reviewed at its fall 1990 meeting.

6. The Committee noted the increasingly important role that the International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA) can play in assisting private sector development in developing countries, including through their policy advisory roles. It emphasized the benefits that countries can derive from membership in the Agency. Given the rapidly growing needs for private sector assistance, members noted the need for IFC to have adequate means to fulfill its role in the years ahead. In this respect, the Committee encouraged the IFC’s Executive Board to continue its discussion on the adequacy of the capital of the Corporation, including modalities of subscription. Members requested that they be informed of progress on this issue at the fall 1990 meeting.

7. The Committee reaffirmed its support for the strengthened debt strategy as endorsed at its last meeting and welcomed the progress achieved so far. Members reiterated the need to maintain the case-by-case approach to commercial bank financing packages and underlined again the central importance of appropriate adjustment programs, including measures to encourage investment and the return of flight capital, as a basis for implementing the strategy. Members noted that the combination of growth-oriented adjustment programs and commercial bank financing arrangements, which include debt and debt service reduction, can help improve confidence in debtor country economies. They commended the Bank, the Fund, and Japan for their early and substantial support for debt and debt service reduction packages negotiated by debtors and their creditor banks. The Committee called on the Bank and the Fund to continue to provide support for debt and debt service reduction programs, with the necessary flexibility, under their established guidelines, which they reaffirmed, and to keep the strengthened debt strategy under review. It also called on the Bank and the Fund to emphasize measures to promote investment and capital repatriation in country reform programs.

8. The Committee also recalled the concerns it had expressed at its last two meetings that the development needs of severely indebted lower middle-income countries whose debts are mainly to official creditors should be given special attention. Members noted that a return to external viability and sustained growth remained uncertain for a number of these countries. Members therefore asked the Bank and the Fund to continue to analyze the debt problems of these countries as well as those of severely indebted middle-income countries with significant official debt.

9. Members welcomed the various measures taken to alleviate the debt burden of the severely indebted low-income countries, in particular the concessional official debt reschedulings by the Paris Club, the cancellation of official development assistance (ODA) debt of many low-income countries by an increasing number of creditor countries, the utilization of International Development Association (IDA) reflows for the benefit of IDA-only countries with outstanding IBRD debt, and the activation by the Bank of its $100 million facility to assist eligible IDA-only countries to reduce their debt to commercial banks. Members noted that even with these arrangements a number of these countries have uncertain prospects for an early return to external viability. The Committee requested the Bank and the Fund to undertake an evaluation of the benefits of the debt relief and other measures taken so far in favor of the severely indebted low-income countries. In view of the low debt service capacity of these countries, members also considered that their new commitments of assistance to the severely indebted low-income countries should be provided on highly concessional terms.

10. Members agreed that it was also important to recognize the needs of a number of indebted countries which have not restructured their external debt obligations and which have been implementing sound macroeconomic policies. The Committee urged that efforts be made to maintain adequate financial flows to these countries, including multilateral flows, to support adjustment, development, and poverty reduction.

11. The Committee welcomed the World Bank’s report “Sub-Saharan Africa: From Crisis to Sustained Growth.” It emphasized the complementary roles of the Bank and the Fund in the long-term development process in sub-Saharan Africa. The Committee endorsed the approach of the report’s strategic agenda. It stressed that sustained growth and development required firm commitment and good governance on the part of the concerned African governments given their primary responsibility in the design and implementation of their development strategies. Members also agreed that there is a need for adequate, effective, and well-coordinated funding from donors and multilateral institutions, noting that large official development assistance flows to sub-Saharan Africa would continue to be required in the 1990s. They expressed their support for the recommendation in the report that resources be channeled more selectively to countries implementing adjustment programs, thereby maximizing the effectiveness of external assistance. The Committee requested to be kept informed of the progress in respect of the long-term strategic agenda. In this respect it welcomed the Dutch Government’s initiative to hold a conference on sub-Saharan Africa next July in Maastricht.

12. Members recalled their earlier recommendation that the Special Program of Assistance to Africa (SPA) framework be extended beyond 1990. They welcomed the agreement in principle of donors for an extension of the Program and urged them to indicate their levels of adjustment assistance for 1991-93 at the SPA session scheduled for the fall of 1990. They also suggested that donors take that occasion to continue to consider steps to untie their commitments under the SPA and to further harmonize procurement and disbursement procedures.

13. The Committee reiterated the importance it attaches to environmental issues and noted the progress being made by the Bank on a number of issues such as the new Operational Directive on environmental assessment, the integration of environmental concerns into economic analysis, and the growth in lending for freestanding environmental projects. It encouraged the Bank to continue its efforts to integrate better environmental considerations in its operations. The Committee noted that there would be a comprehensive review of Bank-related environmental issues in the Bank’s 1990 Annual Report on Environment in accordance with the request made by the Committee at the September 1988 Berlin meeting. It stressed that this report should be comprehensive in its coverage of the progress made by the Bank, particularly in respect of Bank-related environmental issues discussed by the Committee at its recent meetings, including environmental assessments, Bank environmental action plans, energy efficiency and conservation, forestry protection, and debt-for-nature swaps.

14. Members considered a report prepared by the World Bank on funding global environmental protection and generally agreed that the Bank should play an important role in this area. Members agreed that further work was necessary to develop methods for the Bank to assist developing countries to take actions which contribute to the reduction of global environmental problems. Members agreed that efforts should continue to develop proposals for a pilot mechanism for this purpose, taking into account the Bank’s existing programs. They also urged the Bank to take steps to reinforce and expand its existing environmental programs and thus assist developing countries to contribute to the achievement of the same objective according to their priorities. The Bank was urged to proceed with this work expeditiously in consultation with interested parties and close collaboration with the United Nations Environmental Program (UNEP) and the United Nations Development Program (UNDP). Members underlined the need for sufficient flexibility to attract as wide support as possible.

15. The Committee expressed its appreciation for the successful conclusion of the negotiations for the Ninth Replenishment of IDA and called on all member governments to act swiftly to ensure that IDA-9 begins on July 1, 1990. Members also welcomed the signing of the Lome IV Convention. In spite of these positive developments and a modest increase in official development finance, members noted with concern the impact of the recent rise in interest rates on the cost of debt servicing and the significant decline in aggregate net flows to the severely indebted middle-income countries in 1989, reflecting a sharp drop in private flows. They noted the implications of this trend on domestic investment in these countries at a time when many of them were struggling with severe poverty problems. The Committee called on donor countries, particularly those with assistance levels below the 0.7 percent ODA/GDP target, to make further efforts to increase the transfer of resources to developing countries. The Committee welcomed the recent Policy Statement on Development Cooperation in the 1990s by countries of the Organization for Economic Coordination and Development (OECD), including their commitment to work for a greater degree of coherence in their policies with regard to their impact on developing countries.

16. The Committee welcomed the understandings reached by the Interim Committee on the Ninth General Review of Quotas that will allow the Fund to continue playing its role at the center of the international monetary system.

17. The Committee welcomed the decision to create the European Bank for Reconstruction and Development (EBRD) aimed at assisting economic and political reforms and the transition to market economies in Central and Eastern Europe. It called on the Bank Group and the Fund to work with the EBRD in fulfilling these objectives. Members emphasized that financial support for reforms in Eastern Europe calls for adequate resources so that the requirements of this region can be met while also allowing increased financial flows on appropriate terms to developing countries.

18. The Committee also noted that among countries facing payment difficulties, there are some with overdues to the World Bank and regional development banks. Since it is in the interest of all borrowers and shareholders to have overdues handled in a way which continues to allow these institutions to keep the costs of borrowed funds to the lowest level possible, the Committee asked the World Bank, in consultation with the regional development banks, to review the current policies and procedures for handling overdues and to present a report to the Development Committee at its next meeting. The Committee recognized that there are other broader issues of coordination which needed to be considered.

19. The Committee heard from the Deputy Director General of the General Agreement on Tariffs and Trade (GATT) that the multilateral trade negotiations under the Uruguay Round were in their final crucial phase and that, while much progress had been achieved, a number of key agricultural, industrial and other issues remained unresolved. Members called on both developed and developing countries to reach an early agreement on these issues and to agree on a strengthened multilateral trading system based on predictable and uniform rules to promote trade liberalization by all countries. They stressed that a successful conclusion of the negotiations was essential to prevent the drift toward protectionism. Members also emphasized that an improvement in market access and greater participation by developing countries in GATT benefits were essential and in many cases more important than official development assistance flows or debt relief in facilitating the adjustment and growth efforts of developing countries. The Committee reiterated its call on the Bank and the Fund to keep under study, in close consultation with the GATT, the implications of regional trading arrangements for developing countries, economic prospects for consideration at a future meeting.

20. In view of its previous commitment to review periodically progress in addressing poverty issues, the Committee agreed to discuss at its next meeting strategies for the effective reduction of poverty in the 1990s in the light of an issues paper based on the Bank’s forthcoming World Development Report on poverty and on a contribution from the Fund. Given continuing major indebtedness problems, members agreed to continue at their September meeting their review of the debt strategy and its impact on the development prospects of all severely indebted countries with the assistance of documentation prepared by the Bank and the Fund. The Committee also reaffirmed its undertaking to give full consideration in September to the economic role of women in development and requested the Bank to prepare a paper on this subject. Emphasizing the importance it attaches to environmental issues, the Committee will consider these further at its next meeting.

21. The Committee agreed to meet again in Washington, D.C. on September 24, 1990.

Mr. Barber B. Conable, President of the World Bank, Mr. Michel Camdessus, Managing Director of the International Monetary Fund, Mr. Yves L. Fortin, Executive Secretary of the Development Committee, and Mr. Lemboumba-Lepandou, Chairman of the Group of Twenty-Four, participated in the meeting. Observers from Switzerland and a number of international and regional organizations also attended.

Mr. Barber B. Conable, President of the World Bank, Mr. Michel Camdessus, Managing Director of the International Monetary Fund, Mr. Yves L. Fortin, Executive Secretary of the Development Committee, and Mr. S.M.A. Adeli, Chairman of the Group of Twenty-Four, participated in the meeting. Observers from Switzerland and a number of international and regional organizations also attended.

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