Chapter

Opening Address by the Chairman of the Boards of Governors and Governor of the Bank and the Fund for Benin1, Paul Dossou

Author(s):
International Monetary Fund. Secretary's Department
Published Date:
November 1995
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It is indeed an honor for me to welcome you to the Fiftieth Annual Meetings of the World Bank Group and the International Monetary Fund. I would like to take this opportunity to remember fondly and with great appreciation the life and work of Lewis Preston, whose dedication to the goal of reducing poverty in the developing world guided the World Bank Group for nearly four years. Mr. Preston’s vision of an open institution, flexible enough to respond to the different needs of member countries but also sufficiently accountable to its shareholders, is an ideal to which we all aspire.

It is with great pleasure that I now welcome Mr. James D. Wolfensohn, who has taken up the mantle of leadership of the Bank Group. I applaud the energy, enthusiasm, and vigor with which you have accepted the challenge of the responsibility you have assumed. This is a “chance of a lifetime�?—as you have so aptly put it—to make a difference in the lives of millions of people throughout the world. I wish you success in the tasks ahead and assure you on behalf of the Board of Governors of our fullest support and cooperation during your tenure. Let me open these deliberations by extending a warm welcome to the delegation from Brunei Darussalam, who will be joining our institutions during the course of these Annual Meetings.

We have come together once again at a time when the Bretton Woods “sisters,” the World Bank and the International Monetary Fund, have an increasingly important role to play in a world where economic relations have grown ever more complex, multibillion-dollar business transactions are carried out in record time, and Internet reigns supreme, and still, 1 billion people live in abject poverty, 140 million people are unemployed, and 1 billion are underemployed. In these circumstances, what does this globalization of the world economy mean for our institutions and for the developing countries and countries in transition? It surely brings new challenges and opportunities for all countries, regardless of their stage of development. It also underscores the need for a global partnership among the players so that we all might benefit.

We have some weighty matters to discuss in the next three days. The statements we make and the decisions we take will be scrutinized and analyzed by the media, by our critics, and by our supporters. What will be important is how we translate our words into concrete measures that have measurable and sustainable results. To set the stage for our discussions, please allow me, as Chairman of these Meetings, to take a few minutes to highlight some of the opportunities and challenges our countries are facing, the progress made to date, and the role the Bank Group and the Fund should play in meeting those challenges and sustaining the achievements.

World Economic Outlook

Following a brief pause this year, the economic expansion in the industrial countries now seems likely to continue. However, it is important to note the differences among countries. For example, while continental Europe, North America, the United Kingdom, and Australia are expected to enjoy moderate growth with continued low inflation in the months ahead, Japan continues to grapple with its most serious slowdown in half a century. Over the past year, exchange rates among the currencies of the major powers have shown marked changes. Given the keen interest of all our countries in exchange rate stability, we welcome the orderly correction of imbalances that has taken place recently, bringing the exchange rates of the dollar, the deutsche mark, and the yen closer to levels that are consistent with economic fundamentals. In order to make wise use of the present expansion and avoid repeating the mistakes of the 1980s, it is imperative for the industrial countries to reduce budgetary deficits and tackle structural weaknesses, particularly in their labor markets, health care systems, and public pension programs. Such actions on their part would clearly represent an important contribution to the world economy as a whole.

The current projections for continued buoyant growth in the developing countries are encouraging, but there is no room for complacency. Again, it is important to distinguish among the various groups of developing country members and the particular issues they face. Following the rapid expansion in Asia over recent years, some of these countries face the danger of overheating. Although the recent crisis in Mexico will undoubtedly weigh heavily on the short-term growth prospects of some Latin American countries, they stand to gain over the longer term if they heed the lessons learned—namely, by putting in place macroeconomic and structural policies geared toward promoting domestic savings and non-debt-creating capital flows, and by adopting appropriate prudential banking and financial regulations.

Indeed, we—as the international financial community—should carefully examine the events surrounding the Mexican crisis in order to glean important guidelines for the future. In welcoming the rescue package put forward by the international community—including the Fund, the Bank, and the United States—which seems to have successfully contained the contagion effects of the crisis and improved the prospects for an early recovery—we must heed the warning signals emanating from this earth-shaking event. It is, indeed, imperative for us, individually, to address domestic imbalances, correct financial sector weaknesses, and pursue prudent debt-management strategies; collectively, we must carefully study the parameters of our fully integrated world economy and quickly put in place the early warning devices and procedures needed to prevent such crises from occurring in the future.

While the outlook for transition economies is encouraging on the whole, it is striking to note the extent to which performance has varied across countries according to the progress they have made in macroeconomic stabilization and reform. Those who have lingered behind in the effort to address domestic imbalances and structural weaknesses can take clear encouragement from the early reformers. At the same time, however, we must recognize that considerable challenges remain for all the economies in transition. I call on the international community to help those countries attain the foreign investment and market access needed to propel the transition process forward and further strengthen their prospects for sustained growth.

Africa in a Global Economy

Let me turn for a moment to my own region. Unquestionably, the scale and intensity of human tragedy that has engulfed sub-Saharan Africa is tremendous. However, Africans do not accept this situation as irreversible. While the challenges facing African nations remain Herculean, progress has been made and continues to be made. Countries of sub-Saharan Africa are beginning to reap the fruits of their long-term efforts to put in place appropriate adjustment policies, often in the context of programs supported by the Fund and the World Bank. Macroeconomic reforms such as exchange rate realignments and price controls have proven effective. Thus, the historic devaluation of the CFA franc on January 11, 1994 has provided a platform for resumed growth in the CFA franc zone. Per capita income is rising, especially in those countries implementing economic reform programs. But, this is not the time for self-congratulatory pats on the back. The road before us is long and hard. We must not lose sight of the fact that African countries continue to struggle under the burden of a heavy debt overhang. External debt has actually increased over the past decade, despite the debt relief efforts of the Paris Club and other creditors. The debt burden of sub-Saharan Africa totals $145 billion and annual debt service, $10 billion. This represents 255 percent of the value of Africa’s exports and 83 percent of its gross national product.

We know that we cannot sit back and wait for the rest of the world to rescue us. We also know that we must resist the temptation to rely excessively on external sources of financing. Finally, we also know that a number of changes must occur if Africa is not to be totally marginalized in the global economy. Let me highlight three critical areas where greater effort on the part of Africans and their governments is absolutely necessary.

First, while maintaining economic stability, African governments must improve the efficiency with which public funds are allocated and utilized for human capital development. Our most valuable resource is our people. Internal capacity-building is a critical ingredient for development. Access to quality education and health facilities must be available to all of our citizens so that they are intellectually and physically prepared to participate fully in the local as well as the global economy. Second, public sector and civil service reform and institutional development efforts are key to the successful implementation of development programs and must be accelerated. The management of basic public services must henceforth draw upon African capacity. Last, development strategies developed by African countries must be environmentally sustainable. Every effort must be made to protect our fragile ecosystems, our forests, and our waterways.

These three key areas will require significant attention and greater effort in coming decades. I also could mention the need to promote private sector development more vigorously, the importance of ensuring that agricultural production is more efficient, and the need to pursue greater regional integration, among others. The African continent is rich in human and natural resources. With concerted effort, we can one day become economically viable. However, for the time being, African nations remain dependent on external finance—aid as well as loans and investment. A dynamic partnership among the African people, African governments, donors, and international business is needed to realize the potential of Africa in the coming years.

Benin

I should now like to say a few words regarding the experience of my own country, Benin. Benin forms part of the West African Economic and Monetary Union, together with Burkina Faso, Côte d’Ivoire, Mali, Senegal, and Togo. With a total surface area of some 2.6 billion square kilometers, the Union has a population of 60 million inhabitants and per capita income of approximately $360.

In 1962, these same countries joined together in a monetary union, known as the West African Monetary Union (UMOA), so as to be able to exercise their monetary sovereignty within a broader framework. To this end, they adopted a common currency, the African Financial Community or CFA franc, the issue of which was made the responsibility of a single institution, the Central Bank of West African States. Other functions of the UMOA are to centralize exchange reserves, ensure the unrestricted circulation of currency and transfers, and harmonize monetary, banking, and financial regulations. Since 1989, this body of regulations has been liberalized, and monetary policy is now based on market mechanisms:

  • Interest rate policy, in conjunction with a system of reserve requirements, and central bank auctions on the money market are now the instruments of monetary policy.

  • Credit controls have been abolished, and the terms applicable to bank deposits and lending have been liberalized. Banking and prudential regulations have been modernized in accordance with the principles and recommendations of the Basle Committee, a standardized chart of accounts reflecting international practices will come into effect on January 1, 1996, and establishment of a regional financial market is under consideration. In 1990, a regional supervisory organization, the UMOA Banking Commission, was set up to oversee banking activity. Finally, where financial relations with other countries are concerned, our exchange regulations impose no restriction on current payments or on capital inflows that are in compliance with national regulations relating to investment. In particular, repatriation of employment and capital income is totally unrestricted.

In the 1980s, Benin faced the most difficult economic and financial crisis of its history. The economy slumped, per capita income plummeted, and economic and social infrastructure deteriorated rapidly. Internal and external imbalances worsened. These difficulties, caused by ill-suited policies over a prolonged period of time, were exacerbated by a steep fall in the terms of trade after 1985 and erosion of Benin’s external competitiveness.

Despite the seriousness of the crisis in this political context marked by a militaristic, Marxist, interventionist single-party system, the first structural adjustment program was concluded in 1989, at a juncture in which the outlook for the Beninese economy was dismal indeed. The main objective of the program—to create the conditions for a sustainable recovery of economic activity—could not be achieved owing to the severity of the crisis and impediments to the implementation of the necessary measures. The Government, headed at that time by Prime Minister Nicéphore Dieudonné Soglo, undertook the dual challenge of political democratization and economic reform. In July 1991, the second structural adjustment program was launched with the firm support of the International Monetary Fund and the World Bank. Benin successfully implemented its economic reforms, and growth has not flagged since then. In point of fact, from a rate of −2.9 percent in 1990, we confidently expect growth between 6 percent and 7 percent by the end of 1995.

The Government of Benin continues to face the same problems common to all of Africa: the need to increase investment, control inflation, resolve unemployment—particularly among the young and especially the recent graduates of our universities and vocational schools—and the persistent problem of indebtedness. It is to be hoped that the negotiations with the Paris Club will lead to an agreement that will make it possible to accord preferential treatment to the outstanding debt of a country such as Benin, which has courageously and willingly embarked on a path of economic reform. But we are aware that much remains to be done, and we hope to accomplish this with the support of the international financial community and our development partners.

Role of the Bank

The case for development remains compelling, as demonstrated by the success stories in all regions and by the overwhelming poverty that still persists in many parts of the world. The multilateral development banks and other development agencies must coordinate their operations to maximize the benefits to the world’s poor. Despite the increase in private flows to some parts of the world, multilateral development institutions have a major role to play in countries that do not attract such flows. The World Bank continues to spearhead development aid efforts. The role of the Bank Group has changed and must continue to adjust to the increased scale and complexity of the development agenda. Indeed, a message that has emerged loud and clear over the past year is that the need for a flexible and efficient Bank Group is greater today than ever before.

In this regard, I welcome the initiatives that have been undertaken by the Bank to cooperate with other agencies and organizations to address some of the new challenges created by changing global circumstances. For instance, the Bank will contribute up to $30 million of program financing for the establishment of a Consultative Group to Assist the Poorest (CGAP)—a microfinance program that will provide grants to qualified institutions that provide microcredit and savings services to the world’s poorest people. The participation of the poor in credit and savings systems has proved to be an effective means of job creation and income generation. In addition, the Bank has established a fund, the Initiative for Information and Development (InfoDEV), which will supply independent advice to governments and others trying to join the information revolution. Given the growing importance of information infrastructure to economic development, InfoDEV will help enable the developing countries to gain access to relevant and timely advice about telecommunications reform and the potential of new information technologies. In another critical area, I welcome Mr. Wolfensohn’s commitment to strengthening the Bank Group’s partnership with the UN agencies, local communities, women’s groups, and nongovernmental organizations (NGOs) that focus their efforts on the education of young women. He has said recently that contingent on an adequate IDA replenishment, the Bank Group will commit about $900 million per year for the education of young women.

I welcome the attention being given to the issue of the multilateral debt of the poorest countries. I strongly urge that the discussions about a solution to this critical problem, which were begun recently, be continued.

All of the foregoing points to the same conclusion: our efforts to reduce poverty and improve the living standards of the world’s poorest must be strengthened. I, therefore, urge the donors to conclude swiftly the negotiations for the IDA replenishment and to agree on a satisfactory, that is, sufficient, level in relation to ever-increasing needs. Private capital flows are welcome, but they are not a replacement for IDA funding in many regions of the world. The growth of IFC activities is a sign that more and more member countries are taking steps to promote and strengthen their private sectors. The Multilateral Investment Guarantee Agency continues to promote the flow of foreign direct investment to developing member countries to finance and support their economic growth.

Role of the Fund

It is clear that surveillance over the international monetary system and members’ policies will remain the core of the Fund’s work for the immediate future. In addition, the Fund’s financial base must be carefully monitored to ensure that it is well equipped to fulfill its functions in an increasingly uncertain world economic environment.

In encouraging the Fund management and staff to strengthen this surveillance, we must bear in mind that the effectiveness of Fund surveillance ultimately depends on the willingness of members to cooperate fully with the Fund, both in making timely economic data available and in formulating domestic policies that are well designed in terms of their substance and consistency.

As the production and timely publication of accurate economic data is essential not only for effective surveillance by the Fund, but also for efficient policymaking in individual countries, I encourage all members to make every effort to improve their infrastructure for data management. The Fund will also have to stand ready to provide technical assistance to help members produce the key data required for economic and financial analyses so that appropriate decisions can be made.

I encourage the Fund management and staff to improve continuity in the surveillance process. Regular analyses of policy interactions and the systemic implications of domestic policies in the major industrial countries are critical to effective Fund surveillance, given the impact of their policies on the global economic environment.

I applaud the recent efforts of the IMF—under the guidance of its Managing Director, Michel Camdessus—to adapt its policies and facilities to meet the growing demands of our globalized world economy. In the wake of the Mexican crisis and recent events in other countries, the Executive Board of the Fund has begun to pave the way for the creation of an emergency financing mechanism, which—combined with strengthened surveillance—could enhance the Fund’s ability to forestall crisis situations and to respond rapidly with appropriate support for members facing external shocks. It has also begun to study appropriate operational guidelines under which the Fund could provide temporary support for currency stabilization funds, when needed to underpin members’ stabilization efforts, by helping to inspire necessary market confidence.

Over many years now, the enhanced structural adjustment facility (ESAF) has proved to be invaluable in providing vital assistance to many of the poorest developing countries. Given the plight faced by these countries and the regrettable continuing decline in official development assistance, the continuation of the ESAF—and, indeed, the establishment of a self-contained ESAF—will be essential as the centerpiece of any strategy to address the problems of those poor members who are heavily indebted, particularly to multilateral institutions. I would also like to encourage the Fund to pursue its efforts to improve the mechanisms for coordination among international agencies, bilateral donors, and creditors involved in assisting countries in post-conflict situations; I endorse the recent proposals to expand the guidelines on emergency assistance to include such situations.

Over the months ahead, we must bear in mind that the need to strengthen the role of the Fund in the world economy is closely linked to the need to strengthen its financial base. Recent developments in global financial and exchange markets and the uncertainties concerning the Fund’s current liquidity projections underscore the need to strengthen the Fund’s resources. In this context, the work on the Eleventh General Review of Quotas should be accelerated to the extent feasible, while paying due regard to the balanced distribution of quotas among different country groupings and regions. The Fund should also proceed with further consideration of a new allocation of SDRs, which could preserve the SDR as the main reserve asset while addressing equity issues for those members who have not participated in previous allocations. Finally, I encourage the Fund to pursue an enlargement and extension of the General Arrangements to Borrow as another means of safeguarding its liquidity position as it faces the challenges ahead.

Conclusion

We have a heavy agenda before us. Our deliberations over the next three days could and should have important consequences for the future of the global economy. I hope each of us will rededicate ourselves to the pursuit of a global partnership in which we all can benefit from the opportunities that are presented by the new world order. On this hopeful note, I hereby open the Fiftieth Annual Meetings of the World Bank Group and the International Monetary Fund.

Delivered at the Opening Joint Session, October 10, 1995.

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