Opening Address by the President of the World Bank Group, Lewis T. Preston

International Monetary Fund. Secretary's Department
Published Date:
November 1993
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Mr. Chairman, Governors, Ladies and Gentlemen: Welcome to Washington—and a special welcome to our new members who have joined since last year. If you will allow me, I would like to begin on a personal note. As some of you may know, I have only recently returned from medical leave. I would like to take this opportunity to thank the many people who have conveyed to me their expressions of concern and friendship. I am looking forward to working with all of you in the challenging years ahead.

The Increasing Pace of Change

When I spoke to you for the first time, in Bangkok, I emphasized global change: political, economic, and technological. The pace of change has accelerated since then—probably faster than anything we’ve known since the creation of the Bretton Woods institutions. I would like to return to the theme of change this morning—because I believe it holds great potential for the developing countries and for sustainable development. But success will depend on our capacity to respond quickly to change—and to manage it.

Anticipating change, of course, is never easy. The historic accord between Israel and the Palestine Liberation Organization (PLO), for example, could not have been foreseen—even a few months ago. Over the past year, however, the World Bank has been supporting the peace process in the Middle East through our economic work on the occupied territories. This work—summarized in the report we have just issued— provides a platform for launching an international effort in the West Bank and Gaza. We are well prepared to invest in peace.

In South Africa too, over the last several years, the Bank has been working with all the parties involved to design a program that can address the country’s most urgent needs. This program, obviously, is contingent on political change making development possible for all her people. As Mr. Mandela recently indicated, this is now happening—and the Bank is ready to move ahead.

Global Change and the Bank

These are just two examples of how recent changes have brought unprecedented challenge to the Bank.

More than twenty new members have joined us in the last two years. Assisting them has involved one of the greatest efforts in the Bank’s history—including major redeployment and resource-mobilization exercises. Operational work is now well advanced. Most of the increase in last year’s lending program, for example, was in commitments to our newer members in the former Soviet Union and Eastern Europe.

Many other countries have also required increased support as they introduced a second generation of reforms aimed at creating more market-friendly systems. We were enjoined by you, our shareholders, to assist our new clients without reducing services to our existing membership. We have met that request.

We have also responded to a number of new issues. I mentioned our work in the occupied territories and South Africa. But we have also been seeking alternatives to nuclear power in Eastern Europe and Central Asia; coordinating the buy-back of commercial debt in Africa; and helping to restructure the Global Environment Facility. All this has been done even as our core programs, aimed at reducing poverty, have been strengthened. In responding to this changing demand, the Bank itself has changed—a subject to which I will return.

Major Elements of Change

The political effects of the end of the cold war are only one element of the changes underway in our world. Global economic and financial relationships are also being transformed. The developing countries have become a powerful force in the world economy. They are projected to contribute about one third of the growth in world GDP over the next five years. Over the last five years, they have accounted for more than one fourth of the increase in global imports. Trade among the developing countries is growing rapidly. Their markets also represent the fastest-growing trade areas for many developed nations—including the United States.

This highlights the fundamental importance of the North American Free Trade Agreement (NAFTA) and, on a global scale, the fundamental importance of free trade. There should be no doubt that NAFTA holds great potential to boost wages and living standards for all parties concerned. The General Agreement on Tariffs and Trade (GATT)—by establishing clear and enforceable rules—will also lead to increased trade and prosperity for rich and poor nations alike. A successful NAFTA and a successful Uruguay Round are absolutely essential if we are to take full advantage of these changing trade relationships.

Financial relationships too, are changing. Capital markets are integrating. Competition for resources is greater than ever before. A new degree of financial discipline and transparency is required at both the corporate and the national levels. Many developing countries which have implemented strong reforms have attracted substantial private flows. Foreign direct investment in the developing world increased by almost 60 percent over the last two years—bringing benefits of know-how, market access, and technology. As the pace of technological change accelerates, it will dramatically affect competitiveness across a wide range of sectors—and countries. The greatest rewards will go to those who show the greatest flexibility.

The Changing Development Universe

The forces of change have altered our view of the development universe. Thinking of developing countries as a single group was never an accurate concept. Today, it is completely irrelevant.

East Asia’s remarkable performance over the last twenty-five years has positioned it to become the world’s fourth major growth pole by the end of this decade. And change is creating further opportunities for progress. Viet Nam, for example, has been making vigorous efforts to reform its economy—and the Bank has been working toward a resumption of lending there. In Latin America—after a long period of crisis— reform has led to a turnaround. It has also led to a renewed inflow of private investment—almost $60 billion last year. In sub-Saharan Africa and South Asia, there are signs of progress in those countries which have maintained the momentum of reform. But even greater efforts must be made to fight persistently high levels of poverty. In the former Soviet Union, the challenge is essentially one of reconstruction and redesign—not of development in the traditional sense. Constitutional uncertainties and civil strife have hampered both internal reform and the external assistance effort. There can be no lasting progress until those issues are resolved. But—provided they are—the region holds great potential. As I mentioned earlier, the picture in the Middle East is changing almost as we speak. Again, many uncertainties remain. But there is now the prospect of real peace and real development.

This differentiated development universe has required a differentiated response from the Bank. In the middle-income nations of East Asia and Latin America, for example, the emphasis is on strengthening financial markets and rebuilding infrastructure. By contrast, in low-income sub-Saharan Africa and South Asia, the focus—mainly through International Development Association (IDA) lending—is on policy reforms and basic human needs.

Responding Quickly to Change

We must all adjust continuously to change. We can see in the industrial countries the high costs of failing to adjust quickly enough: unsustainable budget deficits, exchange rate volatility, and high unemployment. On the other hand, many developing countries have adjusted their policies in recent years. These changes will continue to bear fruit through the 1990s. My message today is that they must persevere: the pace of reform must match the pace of change.

We have to focus on fundamentals. Macroeconomic reforms which promote stability and growth are the first steps. But they are only the first steps. They must be underpinned by institutional and legal reforms; by financial sector reforms; and by a climate that encourages competition and investment.

Second, the private sector must be allowed to play its role as the primary engine of growth. From the transition in the former Soviet Union, to the development crisis in Africa, it’s clear that only the private sector can deliver incomes and jobs on the scale required.

But—my third point—the private sector cannot do it alone. An efficient public sector is an essential partner: to invest in people; to provide safety nets for those in need; to support basic infrastructure and regulatory frameworks; and to enforce environmental protection. Without these, there can be no sustainable development.

My fourth point is people. The capacity for change depends, fundamentally, on human resources. Investment in people not only spurs growth, but also reduces poverty. In East Asia, consistent investment in education and health—combined with growth—has contributed to a reduction in poverty from 30 percent of the population in 1970 to just 10 percent today. If other regions could achieve a similar rate of progress, global poverty could be reduced by two thirds within a generation.

But as well as investment in people, there must be participation by people—and that’s my fifth point. Change has brought more information and openness to the world. It has also brought more participation to development—from nongovernmental organizations (NGOs), and even more important, from the people affected directly by development.

All of us—governments, donor agencies, international organizations— should welcome this change. Increased participation in development will increase the effectiveness of development.

A Changing World Bank

This brings me back to the question of change at the Bank. An increased emphasis on participation in the projects we finance is one of its features. Our new information policy will also help to expand participation. Furthermore, it will enhance the effectiveness of our work. So too will the new steps we have taken to improve project implementation. Results on the ground are what count.

We have changed our organizational structure to reinforce our focus on poverty reduction. Changes in our lending program underscore this: our support for human resource development has tripled over the last three years; environmental projects have become the fastest growing segment of our portfolio; and a new generation of loans is focused on private sector development, complemented by the work of International Finance Corporation (IFC) and Multilateral Investment Guarantee Agency (MIGA).

In short, the Bank has changed—and we will continue to change to meet the needs of our members. But the Bank’s efforts to improve its development impact can only be as effective as the efforts taken by our borrowers. The international institutions can only help those who help themselves.

In the post-cold war era, external assistance is being more closely scrutinized than ever before. Recipient countries must demonstrate the capacity to use aid effectively—through good policy and good governance—or, frankly, they risk losing it.

Conclusion: Perspective on Change and Development

The Bretton Woods institutions are approaching their fiftieth anniversary. The business we are in—development—is a difficult one. We’re all learning—and building on the lessons of experience. The challenges remain formidable. Over a billion people live in absolute poverty—and this provides the fundamental perspective for our efforts. At the same time, we should not lose sight of what has worked and what development has achieved. The past five decades have seen more progress in improving the human condition than any comparable period in history. Life expectancy has increased by 50 percent. Infant mortality has been halved. Per capita incomes have doubled. The Bank and the Fund have played a vital role in the transformation of the last fifty years. We can play an equally important role in the future. But to be successful, we need the support of all our partners in development—and of you, our shareholders.

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