APPENDIX V Press Communiqués of the Interim Committee and the Development Committee

International Monetary Fund
Published Date:
January 1993
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Interim Committee of the Board of Governors on the International Monetary System


Thirty-Ninth Meeting, Washington, September 20–21, 1992

1. The Interim Committee of the Board of Governors of the International Monetary Fund held its thirty-ninth meeting in Washington, D.C., on September 20–21, 1992 under the chairmanship of Mr. Carlos Solchaga, Minister of Economy and Finance of Spain. The Committee warmly welcomed the many countries that have recently become members of the Fund.

2. In industrial countries, recovery is under way, but it remains sluggish and uneven, unemployment is unacceptably high, and recent exchange market tensions have increased uncertainty. Inflation and interest rates have declined significantly in a number of countries. The Committee observed that the recent currency turmoil forcefully illustrates the importance of reinforced policy coordination, a firm implementation of the medium-term strategy, and continuing efforts toward economic convergence in Europe. The Committee welcomed the actions recently taken to reduce market tensions and noted the resolve of major industrial countries to cooperate closely and to take appropriate additional actions as needed to strengthen growth without rekindling inflation and to foster greater currency stability. Mindful of the international implications of their policy actions, key countries need to cooperate closely in implementing measures to bolster confidence and improve the balance between their fiscal and monetary policies, thereby facilitating a narrowing of interest rate differentials.

Against this background, the Committee reaffirmed the importance of policies aimed at ensuring that the recovery gathers pace in an environment conducive to stronger, sustainable, non-inflationary growth into the medium term. Monetary and fiscal policies should aim at a lasting decline in long-term interest rates through a reduction in public sector borrowing and a further lowering of inflation expectations. Vigorous action must be taken to eliminate structural rigidities that impede employment and productivity growth. An early, successful conclusion of the Uruguay Round would be an invaluable contribution to this effort. Freer markets and a stable trading environment are essential to regenerating world economic growth, and to the success of the reform efforts of developing countries and economies in transition. It is a matter of concern that barriers to trade in industrial countries have increased since the commencement of the Uruguay Round negotiations.

3. The Committee welcomed the steady and successful implementation in many developing countries of sound macroeconomic policies and structural reforms. This has resulted in stronger growth, lower inflation, and increased per capita incomes, despite the weak international environment over the past year. This performance has been accompanied in a number of countries by a reversal of capital flight and substantial inflows of foreign investment. These countries’ adjustment and reform efforts need to be sustained and emulated by others. The Committee called for prompt international assistance to alleviate the dire consequences of the severe drought in southern and eastern Africa.

4. The Committee praised the progress being made by the countries of Central and Eastern Europe in reforming their economies under Fund-supported programs. There has been progress against inflation and there is some evidence that the sharp contraction of output may be coming to an end. Improved performance is being led by an expanding private sector and growing exports. However, the prolonged weakness of activity in some countries underlines the need to carry through further reforms quickly. In fact, in all former centrally planned economies, firm actions are needed to reinforce budgetary and monetary discipline, hand in hand with an acceleration of structural reforms, institution building and privatization, and measures to foster increased domestic and foreign investment. Many of the states of the former Soviet Union have made major efforts to liberalize prices and prepare the framework for open market-oriented economies. The Committee welcomed the first Fund arrangements which have been negotiated with the Russian Federation and the Baltic countries. The task of building a wholly new economic system remains challenging, requiring both perseverance and external assistance, technical and financial. The availability of external financing will depend on the strength of the adjustment effort in each country. The Committee drew particular attention to the need for monetary reform and cooperation, whether in the context of the ruble area or of the establishment of new currencies. The setting up of efficient payments and settlements systems within and between the nations concerned should be a priority. More generally, the Committee called on these states to develop cooperation conducive to financial stability and free trade, consistent with the multilateral principles of their membership in the Bretton Woods institutions.

5. The Committee noted that the increasing number of strong programs of stabilization and reform in developing countries and in countries in transition to market economies renders the need for well-targeted international financial support particularly pressing. It invited member countries to support these efforts to the best of their ability.

6. The Committee welcomed the evidence of further gains under the debt strategy. A number of developing countries, however, have yet to secure decisive solutions to their debt problems. The Committee commended the Paris Club’s provision of greater debt relief for low-income countries in the framework of strong adjustment programs, and its readiness to consider a reduction of the stock of debt after a suitable period of adjustment. The Committee also encouraged the Paris Club to recognize the special situation of some highly indebted lower middle-income countries on a case-by-case basis. The Committee commended those countries that continued to service their debt, often under difficult circumstances.

7. The Committee welcomed the extension to November 1993 of the period for commitments under the Fund’s enhanced structural adjustment facility (ESAF) and the Executive Board’s intention to review the effectiveness of ESAF programs and examine the options and operational modalities of a possible successor facility. It urged that this work be completed in good time before November 1993.

8. The Committee expressed deep concern that the proposed Third Amendment of the Articles of Agreement and the quota increases under the Ninth General Review had not yet entered into effect, despite continued progress in the number of member countries’ acceptances and consents. It strongly urged the members that have not yet completed their procedures to do so promptly, thus giving the Fund sufficient liquidity to continue to provide balance of payments financing in support of strong adjustment programs.

9. The Committee took note of the Executive Board’s work on the role of the SDR in the provision of international liquidity and requested that the Board continue to keep the matter under review.

10. The Committee agreed to hold its next meeting in Washington, DC, on April 30, 1993.

Annex: Interim Committee Attendance September 20–21, 1992


Carlos Solchaga, Minister of Economy and Finance, Spain

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)

Ahmed Humaid Al-Tayer, Minister of State for Finance and Industry, United Arab Emirates

Pedro Aspe, Secretary of Finance and Public Credit, Mexico

Piero Barucci, Minister of the Treasury, Italy

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

Domingo Felipe Cavallo, Minister of Economy and Public Works, Argentina

John S. Dawkins, Treasurer, Australia

Tsutomu Hata, Minister of Finance, Japan

Abdelouahab Keramane, Governor, Banque d’Algérie W. Kok, Deputy Prime Minister and Minister of Finance, Netherlands

Norman Lamont, Chancellor of the Exchequer, United Kingdom

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

Jehoash Mayanja-Nkangi, Minister of Finance and Economic Planning, Uganda

Philippe Maystadt, Minister of Finance, Belgium

Donald Mazankowski, Deputy Prime Minister and Minister of Finance, Canada

Marcilio Marques Moreira, Minister of Economy, Finance and Planning, Brazil

NYEMBO Shabani, Governor, Banque du Zaïre

Michel Sapin, Minister of Economy and Finance, France

Jón Sigurdsson, Minister of Commerce and Industry, Iceland

Manmohan Singh, Minister of Finance, India

VIJIT Supinit, Governor, Bank of Thailand

Theo Waigel, Federal Minister of Finance, Germany


F. Abbate, Chief, Development Finance Programme, Resources for Development Programmes, UNCTAD

Henning Christophersen, Vice President, CEC

John Croome, Director, Regional and Preferential Trade and Trade and Finance Division, GATT

Alejandro Foxley, Chairman, Development Committee

Ji Chaozhu, Under-Secretary-General for Economic and Social Development, UN

Alexandre Lamfalussy, General Manager, BIS

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

Jean-Claude Paye, Secretary-General, OECD

Lewis T. Preston, President, World Bank

Russian Federation

Aleksandr N. Shokhin, Deputy Chairman of the Government of the Russian Federation

Fortieth Meeting, Washington, April 30, 1993

1. The Interim Committee of the Board of Governors of the International Monetary Fund held its fortieth meeting in Washington, DC, on April 30, 1993, under the chairmanship of Mr. Carlos Solchaga, Minister of Economy and Finance of Spain.

2. The Committee focused on the outlook for the world economy and on the serious challenges posed at this juncture by the weakness in aggregate economic performance. Recent events have highlighted the global dimension of the issues confronting an increasingly integrated world economy. In its deliberations, the Committee, which now embraces the International Monetary Fund’s universal membership, emphasized its determination to address the current challenges and opportunities in a global, cooperative framework. In this spirit, it has adopted the attached declaration on cooperation for sustained global expansion.

3. The Committee agreed to hold its next meeting in Washington, D.C., on September 26, 1993.


Interim Committee Declaration on Cooperation for Sustained Global Expansion

1. With economic stagnation or decline in most of Europe, only tentative indications of an upturn in Japan, and quite gradual recovery in the United States, 1993 will be the third straight year of generally poor growth for the industrial countries. While the overall performance of the developing countries has been encouraging, a number of them still suffer from declining per capita incomes, and the process of transition to market economies is proving complex and requiring considerable perseverance and support. Nevertheless, there are now a number of positive developments which, if sustained in a coordinated and cooperative manner, have the potential of strengthening global economic performance in both the near and medium term. We are consequently of the view that it is timely to join forces in a global cooperative effort to bolster confidence and strengthen prospects for a durable, noninflationary world expansion. Member countries and the multilateral institutions are invited to strengthen their efforts in carrying out and supporting mutually reinforcing policies along the following lines.

2. From our common global perspective there is an immediate and urgent need for successfully concluding the Uruguay Round. This is crucial for increasing world prosperity. Persistent failure to complete the Round would not be a standstill, but could reverse the trend of trade liberalization which has been an important contributor to growth. Every effort will thus be made by all countries concerned to speed up negotiations to reach an agreement very soon. In the meantime, all member countries commit themselves to resist inward-looking policies.

3. The recent strong performance of many developing countries and their growing openness to international trade have positively contributed to alleviating the effects of global slack. It is essential that developing countries continue to carry forward with intensified adjustment and reform programs, thereby allowing them to reap the benefits of sound policies in terms of stronger growth, to devote more resources to human investment and poverty alleviation, and to contribute further to the global recovery. These efforts must be supported by the international community with financial and technical assistance, including debt relief as appropriate.

4. Continuing, decisive progress in the transformation of the formerly centrally planned economies is a key element of our cooperative growth effort. To this end, enhanced assistance, both financial and technical, is crucial for all countries in transition to strengthen their policymaking process, create the appropriate mechanisms for mutual economic cooperation, and implement the macroeconomic and reform programs needed for the establishment of market-based systems. Improved access to foreign markets will also be essential.

5. The central responsibility for strengthening growth prospects rests with the industrial countries. Cooperative actions being undertaken are strengthening confidence and will ensure against downside risks. We welcome the programs of fiscal consolidation announced in North America and in other industrial countries, which will improve national savings and investment and facilitate a reduction in interest rates; the additional economic package announced by the Japanese government which will strengthen domestic demand and contribute to reducing the large external imbalance; as well as the European growth initiative and the reduction of interest rates in Europe, which will constitute an important element of economic recovery. Conditions which should allow for a progressive further reduction of interest rates, without raising concerns of renewed inflation, are expected to continue to improve in the period ahead.

6. A broad-based sustainable recovery will provide room to pursue the fiscal consolidation required to increase domestic savings in those industrial countries facing large structural deficits. To that effect, these countries intend to firmly adhere to a medium-term strategy of deficit reduction which will have a major favorable impact on interest rates, private investment and job creation, as well as on the supply of savings needed for growth in the developing countries. Structural measures to improve the allocation of resources and the functioning of markets are equally important for achieving faster output growth. We recognize in particular that, in order to achieve a substantial and lasting reduction in the unacceptably high levels of unemployment, especially in Europe, bold measures will need to be taken to make labor markets more flexible.

7. Notwithstanding the improved performance of developing countries as a group, many low-income countries, particularly in Africa, still face difficult economic situations and a lengthy process of adjustment. The Fund is encouraged to continue with its efforts in helping to implement growth-oriented adjustment strategies and catalyze external financing through its concessional facility for low-income members. We thus invite the Executive Board to complete its work on a successor to the enhanced structural adjustment facility by the end of November 1993. We encourage the Board urgently to consider all the options for financing the successor facility.

8. We welcome the Fund’s prompt response to the extraordinary circumstances being faced by a number of its members as a result of the widespread transition to market-based economic systems. The new systemic transformation facility will enable the Fund to play its essential role in promoting this historic transformation. We are confident that a number of members will qualify early for support, thereby paving the way for further support through the Fund’s customary facilities.

9. We had an exchange of views on the question of an allocation of SDRs in present circumstances, and request the Executive Board to assess the long-term global need for a supplement to existing reserve assets, the potential economic and monetary effects of an allocation, and the future of the SDR as a reserve asset. We request that a report on this work be submitted to the Committee at its next meeting.

10. We all stand ready to play our individual part in the global cooperative effort for economic growth outlined in this declaration and will monitor the situation carefully to ensure a consolidation of the recovery. In this context, we will also strengthen our collaboration with the Fund as the central international monetary institution. To help us face the challenges of an ever more integrated global economy, the Fund’s effective surveillance over members’ exchange rate and macroeconomic policies becomes even more important. We support the steps agreed by the Executive Board to strengthen this surveillance, including regional developments, with a view to identifying and addressing in a timely manner problems that may give rise to tensions in the world economy and undesirable volatility in exchange rates.

Annex: Interim Committee Attendance April 30, 1993


Carlos Solchaga, Minister of Economy and Finance, Spain

Managing Director

Michel Camdessus

Members or Alternates

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

Edmond Alphandery, Minister of Economy, France

Sultan N. Al-Suwaidi, Governor, United Arab Emirates Central Bank (Alternate for Ahmed Humaid Al-Tayer, Minister of State for Finance and Industry, United Arab Emirates)

Piero Barucci, Minister of the Treasury, Italy

Lloyd M. Bentsen, Secretary of the Treasury, United States

Domingo Felipe Cavallo, Minister of Economy and Public Works, Argentina

John Dawkins, Treasurer, Australia

SOEGITO Sastromidjojo, Secretary General, Ministry of Finance, Indonesia (Alternate for J. Soedradjad Djiwandono, Governor, Bank of Indonesia)

Yoshiro Hayashi, Minister of Finance, Japan

Abdelouahab Keramane, Governor, Banque d’Algérie W. Kok, Deputy Prime Minister and Minister of Finance, Netherlands

Ruth de Krivoy, President, Banco Central de Venezuela

Norman Lamont, Chancellor of the Exchequer, United Kingdom

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

Jehoash Mayanja-Nkangi, Minister of Finance and Economic Planning, Uganda

Philippe Maystadt, Minister of Finance, Belgium

Donald Mazankowski, Deputy Prime Minister and Minister of Finance, Canada

Eliseu Resende, Minister of Finance, Brazil

Aleksandr N. Shokhin, Deputy Chairman of the Government of the Russian Federation

Jón Sigurdsson, Minister of Commerce and Industry, Iceland

Manmohan Singh, Minister of Finance, India

Otto Stich, Federal Councillor, Federal Department of Finance, Switzerland

Paul Toungui, Minister of Finance, Budget and Participations, Gabon

Theo Waigel, Federal Minister of Finance, Germany


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

Henning Christophersen, Vice President, CEC

John Croome, Special Adviser, GATT Kenneth K.S. Dadzie, Secretary-General, UNCTAD

Ricardo Hausmann, Chairman, Development Committee

Jean-Claude Milleron, Under-Secretary-General for Economic and Social Information and Policy Analysis, UN

Jean-Claude Paye, Secretary-General, OECD

Lewis T. Preston, President, World Bank

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)


Forty-Fourth Meeting, Washington, September 21, 1992

1. The Development Committee held its forty-fourth meeting in Washington, DC, on September 21, 1992, under the chairmanship of Mr. Alejandro Foxley, Minister of Finance of Chile.1 After reviewing the world economic scene, this meeting concentrated on ways of increasing resources for development. The Committee welcomed the new members who have joined the Bank and the Fund since their last meeting.

Development Objectives

2. Ministers recalled their agreement at their meeting in Bangkok on the development objectives of the 1990s: the reduction of poverty and the achievement of sustainable growth, actions to protect the environment being essential to both objectives. They reviewed the resources necessary to reach these objectives, and the actions which would be necessary to increase their volume and effectiveness.

Domestic Resources

3. They noted that most developing countries2 fund the major part of their investment from domestic savings, both public and private. They concluded therefore that the top priority is for developing countries wherever possible to increase the volume of these savings and the effectiveness of their use. This will require the adoption and maintenance of appropriate macroeconomic policies; reduction in wasteful and unproductive programs; and efficient financial and banking systems.


4. Ministers agreed that a much more open world trading system would be beneficial to all countries but is of the utmost importance to the developing countries. In the context of resource flows, developing countries need to increase earnings from trade, in order to finance imports, service debt, and promote sustainable domestic economic growth. Increased export opportunities will also make developing countries more attractive to investors. They therefore emphasized once again the need for rapid agreement on the outstanding issues in the Uruguay Round, noting that this would lead to a broader, more liberal and more stable trading system, and extend market access for many developing countries. They agreed that regional trade arrangements should emphasize trade creation rather than trade diversion, consistent with multilateral principles, and should ensure trade opportunities for developing countries.

Foreign Investment

5. For most developing countries, earnings from trade must be supplemented by external resources. For a growing number of them, a large part of these resources is now provided by private foreign investors in the form of direct foreign investment. Ministers noted the recent increase in portfolio investment, while recognizing that its higher liquidity made its impact different from foreign direct investment. Ministers considered the measures necessary to attract more private flows and concluded that the measures that promote domestic investment are likely also to attract foreign investors and the return of flight capital. They concluded that the maintenance of macroeconomic stability and the creation of a climate favorable to enterprise are essential, both to attract more investment and to increase the number of countries receiving foreign flows.

Investment Guidelines

6. Additional measures may be needed to attract foreign investment. The creation and maintenance of a suitable legal framework can be an important part of this process. Ministers therefore reviewed with interest the Investment Guidelines which will shortly be published, together with an explanatory commentary, and calls them to the attention of member countries. These Guidelines have been prepared at the request of the Development Committee to promote fair and equitable international standards for the general treatment of all foreign direct investment in the absence of applicable treaties, and should be of particular value to developing countries. Ministers expect the Guidelines to serve as an important step in the progressive development of international practice in this area and hope that they will facilitate further developments through bilateral treaties and similar instruments. They also noted the related work being undertaken in other fora to develop principles for the conduct of foreign investors.

Commercial Bank and Market Lending

7. Ministers welcomed the increasing access of certain developing countries to the international financial markets, especially by those which are implementing sustainable economic reforms, and have entered into debt and debt-service agreements with the commercial banks. They considered that some increase in the volume of trade finance and project lending provided by the banks may occur, but noted that commercial bank lending to developing countries was unlikely to return to previous levels. They noted the active role taken by the Inter-American Development Bank and other regional banks in promoting effective investment reforms which are essential for nurturing a stable financial environment. They believed that the international financial institutions should continue to encourage the efficient mobilization of financial resources by promoting effective investment reforms, privatization, and financial sector reforms. Ministers noted the improved economic performance achieved by the developing countries following the implementation of debt and debt-service reduction and therefore encouraged the timely conclusion of negotiations between other countries and their commercial banks.

Increasing Nonconcessional Flows

8. Ministers agreed to review at their next meeting the prospects for increasing the flows of private resources, and improving the access of developing countries to global markets for loan and equity capital. Members agreed on the need to gather accurate and timely information on the stocks and flows of private capital to developing countries and to assess the implications of these developments. They asked the Bank and the Fund to prepare a joint paper for this purpose which would also include the role of the international financial institutions in promoting and catalyzing such flows and the extent of any remaining obstacles placed by developing and industrial countries to resource flows.


9. Ministers recognized that the efforts of many developing countries need to be supported by rescheduling and, in some cases, by debt and debt-service reduction measures, both public and private. Ministers welcomed the progress in the international debt strategy, including arrangements this year with Argentina, Bolivia, and Brazil among others. Such arrangements have now been reached with 12 countries and account for more than 90 percent of the commercial bank debt of the major debtor nations. They urged the Paris Club to recognize the special situation of some highly indebted lower-middle income countries on a case-by-case basis. Ministers also welcomed the enhanced debt relief extended to the poorest countries by the Paris Club, noting that the Paris Club has agreed to consider the stock of debt, under certain conditions, after a period of three to four years. They invited the Paris Club to maintain its continuing review of the debt strategy. They acknowledged the continued need of support for heavily indebted countries which by adopting strong adjustment policies have avoided rescheduling.

Bilateral Aid

10. Poorer developing countries will continue to require substantial concessional assistance for many years. A number of additional countries have recently become potential recipients of aid, while new requirements, especially in the environmental field, have added to the needs. The Committee noted that the World Bank and the IMF believe that an increased volume of external resources, to complement the efforts of the developing countries, will be crucial to meeting those needs. Ministers therefore invited bilateral donors to increase their assistance, particularly for countries that are sustaining sound policies, as circumstances permit, especially those whose aid programs are still below 0.7 percent of GNP, and welcomed the contribution of those whose aid is substantially above that level. They stressed the need for donors and recipients to emphasize the quality and effectiveness of aid, and for an increased proportion to be directed toward improving the living conditions of the poor, and to the poorest countries and those with a strong commitment to poverty reduction.

Multilateral Flows

11. Ministers recognized the need for multilateral action to complement that of bilateral donors. They noted the ongoing negotiations over the Tenth Replenishment of the International Development Association (IDA). They urged the IDA Deputies to make significant progress at their meeting in November 1992 so as to secure agreement by the end of the year on a substantial IDA-10 replenishment. Ministers also agreed that continuing consideration should be given to an Earth Increment for environmental purposes. They welcomed the extension to November 1993 of the period for commitments under the Fund’s enhanced structural adjustment facility (ESAF) and the Executive Board’s intention to review the effectiveness of ESAF programs and examine the options and operational modalities of a possible successor facility. They urged that this work be completed in good time before November 1993, They welcomed the Bank’s assurance that the current capital base of the International Bank for Reconstruction and Development (IBRD) is sufficient to sustain and enhance the volume of lending to existing borrowing members, while providing substantial support for the economic reform and adjustment efforts of the countries of the former Soviet Union. Ministers agreed to review the effectiveness of the Bank’s lending at a future meeting.


12. Ministers welcomed the wide-ranging consensus reached at the United Nations Conference on Environment and Development (UNCED). They recognized the ongoing financing needs associated with Agenda 21. They also noted that UNCED called for additional funding to be channeled through existing institutions, including the Global Environment Facility, which will be restructured on lines to be agreed by the participants. Ministers urged the World Bank to play a full part in carrying forward the results of UNCED in collaboration with other agencies in the UN system and to the regional banks, and to report progress to the Committee at its meeting in September 1993.

Drought, Famine, and War

13. The Committee noted with great concern the problems of drought in Southern and Eastern Africa, the severe famine in Somalia, widespread flooding in the Indian subcontinent and the problems of several war-affected countries. They welcomed the coordinated international action now under way to alleviate suffering in many of these areas and called for the active cooperation of all governments and agencies concerned, both to overcome the immediate problems and to lay the foundations for future recovery and development.

Departure of Chairman

14. The Committee placed on record its special appreciation of the distinguished record of Mr. Alejandro Foxley during his two years as its Chairman.

Spring Meeting

15. The Committee agreed to meet again in Washington D.C., on May 1, 1993.

Forty-Fifth Meeting, Washington, September 24, 1992

At its forty-fifth meeting on September 24, 1992, in Washington, D.C., the Development Committee selected His Excellency Ricardo Hausmann, Minister of State and Head of Cordiplan of Venezuela, as Chairman.

Forty-Sixth Meeting, Washington, May 1, 1993

1. The Development Committee held its forty-sixth meeting in Washington, DC, on May 1, 1993, under the chairmanship of Dr. Ricardo Hausmann of Venezuela.1 The Committee recorded its deep regret at the violent death of President Ranasinghe Premadasa and sent its condolences to the Government and people of Sri Lanka.

2. The Committee devoted most of this meeting to an examination of ways of encouraging private capital flows, as part of its ongoing review of the transfer of resources to developing countries.2 The Committee reaffirms its belief that a high level of investment in the private sector is important to sustainable economic growth in developing countries. It recognizes that the majority of this investment comes from these countries’ domestic savings. Private foreign flows and official development assistance have a complementary but crucial role to play. Private foreign flows have been largely concentrated in a small number of countries. The challenge before the international community now is to enlarge this number as quickly as possible.

3. The Committee notes that host countries have the primary responsibility for creating an environment attractive to foreign investors. This will require a stable political climate and sound macroeconomic policies; a healthy, vigorous and competitive domestic private sector; a legal and institutional framework which encourages investment without discrimination; a liberal exchange regime; a flexible labor market; improved management capacity in the public sector; and provision of the necessary physical and human infrastructure. Prompt servicing of debt will reassure investors. Reduction of the debt overhang, where appropriate, for reforming countries, will also help. Because much investment in developing countries is in export industries, open world markets are essential. Once these measures are in place, which may take time in some countries, funds will tend to flow naturally to profitable ventures.

4. Where unnecessary institutional and regulatory barriers to the supply of such funds remain, the Committee calls on the industrial countries and the international financial institutions to do all they can to remove them, and to catalyze greater volumes of investment. The International Finance Corporation (IFC) in particular can help by doing more to support investments in poorer countries with less access to private capital.

Foreign Direct Investment

5. The Committee believes that foreign direct investment is the most valuable form of private external finance, since it brings with it access to the technical know-how, managerial expertise, and wider markets of the industrial countries. Because it moves in response to perceived market needs, it is much more efficient than state-directed capital flows. It poses less risk to the host country’s fiscal or balance of payments position. The Committee welcomes the action taken by most host countries to attract foreign direct investment, by reducing discrimination against foreign investors. It also calls on the industrial countries and the international institutions to play their part by providing technical assistance, investment sector lending, fuller information, guarantees, and, where appropriate, financial support.

Portfolio Investment

6. The Committee welcomes the sharp increase in portfolio investment in equities and bonds in several developing countries in recent years. Foreign portfolio investment will add flexibility and depth to domestic capital markets. These markets should be expanded further. The Bank Group and the Fund should provide continuing support for market development, through policy advice, finance, and technical assistance. The Committee calls on both industrial and developing countries to speed up the removal of the remaining regulatory and other impediments to portfolio flows, particularly by facilitating the greater participation of institutional investors.

Bond Markets

7. The Committee also welcomes the reform efforts made by several developing countries. These have restored confidence and allowed them to enter or regain access to the international market for bonds and other financial instruments. It encourages the governments of “source” countries to review and address the remaining obstacles which prevent access to their securities markets by creditworthy developing country borrowers.

Commercial Bank Lending

8. The Committee recognizes that commercial bank lending is not always a suitable form of long-term development finance, or available or appropriate for countries facing severe balance of payments deficits. However, the successful resolution of the debt problems of many middle-income developing countries has permitted a small increase in commercial bank lending. The Committee encourages industrial countries which have not already done so to review their regulatory mechanisms and requirements regularly, and in doing so to examine the scope for easing constraints on trade and project finance to developing countries, without weakening proper prudential supervision. It notes the role of the World Bank’s Enhanced Cofinancing program in supporting lending.

Private Sector Development

9. The Committee also reviewed a related report by the World Bank Group on its private sector development strategy which also helps to attract more foreign investment. It welcomes the emergence of a new generation of loans through which the World Bank supports policy, regulatory, and legal reforms directed at improving the day-to-day environment in which firms operate. It commends the work already done or in hand, while calling on the Bank Group as a whole to make even greater progress by promoting small and medium-scale industry and the entrepreneurial role of women, in encouraging the private sector in developing countries, especially the poorest, and in supporting the necessary underpinning public sector reforms.

Official Flows

10. The Committee recognizes that, for poorer countries and those presently unable to attract sufficient private capital, official development assistance remains essential. It therefore welcomes the completion of the IDA-10 negotiations, and calls on the donor countries to complete the ratification process, so that there is no disruption to commitments. It also calls on the Bank to increase further the focus on poverty reduction and environmentally sustainable development. It welcomes the rapid progress in considering the operational modalities for a successor to the ESAF, the Fund’s concessional facility for its poorer members; it urges that this work be completed by November 1993, and calls on the Fund to explore all options for funding. It also notes that a review of the pilot phase, discussions on restructuring, and negotiations for the replenishment of the Global Environment Facility are about to commence; it agrees on the importance of a productive outcome by December 1993. It notes that other negotiations are in hand to replenish the concessional funds of other multilateral agencies, and hopes they can be concluded as soon as possible. It calls on industrial countries to consider further ways of increasing flows of officially supported export finance. Finally, it points to the continued stagnation in flows of official development assistance, despite the increased needs, and invites donor countries to do their best to increase their aid as circumstances permit, particularly where it still falls short of 0.7 percent of GNP. Ministers also underscored the critical importance of official development assistance achieving its intended developmental impact. They called on all donors and recipients to strengthen efforts to improve the quality and effectiveness of assistance. Ministers commended the World Bank’s effort to undertake a frank and critical self-evaluation of its project performance, and stressed the importance of a vigorous action program. They also urged all development agencies which have not already done so to undertake similar efforts to improve the development impact of their assistance, and to concentrate aid operations on the poorest countries and those where aid can be most effective.


11. The Committee records its increasing concern about the continued delays and risk of breakdown in the Uruguay Round negotiations. Failure could easily lead, not to continuation of the status quo, but to a downward spiral of increasing protectionism. This would be extremely serious for the growth of the world economy and particularly for the developing countries, leading to a progressive reduction in the markets for their exports and a consequent fall in the living standards of their citizens. It would weaken the developing countries’ resolve to liberalize trade further, and to undertake structural reforms. On the other hand, an early agreement will benefit all countries. The Committee asked that all countries firmly resist protectionist pressures. It calls on all the parties for a prompt and successful conclusion to the Round by the end of 1993, and its early implementation.

Next Meeting

12. The Committee agreed to meet again in Washington, DC, on September 27, 1993, when it will concentrate its discussion on two topics: long-term social policy reforms and short-term safety nets; and adjustment experience in low-income countries and their financing needs. It will also review action taken, or in hand, to follow up the suggestions made at today’s meeting.

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