Chapter

Discussion of Policy at First Joint Session1

Author(s):
International Monetary Fund. Secretary's Department
Published Date:
November 1993
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Report to the Board of Governors of the International Monetary Fund by the Chairman of the Interim Committee of the Board of Governors on the International Monetary System, Philippe Maystadt

It is a great pleasure to have this opportunity to report to Governors, in my capacity as Chairman of the Interim Committee, on the work of the Committee at its spring meeting, on April 30, which was chaired by my predecessor, Mr. Solchaga, and at its most recent meeting on September 26. This year, with the addition of representatives of our new membership, the Committee now fully reflects the universal membership of the Fund. At the same time, developments in the world economy have highlighted the global dimension of the issues confronting us and led the Committee in April to take the unprecedented step of adopting a Declaration on Cooperation for Sustained Global Expansion. In that context, our efforts to promote international monetary cooperation among an increasingly diverse membership have intensified, and the Committee has devoted considerable attention to a number of important issues, which have been well covered by the two communiqués and the Committee’s Declaration. This morning I shall limit myself to commenting briefly on the main issues.

In its discussions of the world economic outlook, the Committee expressed concern that growth performance in industrial countries continued to be weak, and that unemployment rates were high—and rising—and were accompanied by persistent protectionist pressures. Recent events have clearly confirmed the continued need for the cooperative growth strategy to bolster confidence and improve the prospects for a durable and noninflationary world expansion. In recent months, there have been a number of positive developments consistent with the strategy adopted last April—the continued decline in inflation in a number of industrial countries, reductions of interest rates in Europe, the commitment to fiscal consolidation in the United States and in several European countries, and the measures taken in Japan to strengthen the recovery of domestic demand. Financial markets have responded favorably to these developments. But there is no room for complacency: growth performance throughout the industrial world remains below par for the third consecutive year, and only a gradual strengthening is expected in the course of 1994. By contrast, the developing countries as a group are continuing to record robust growth. The Committee welcomed this strong performance, as well as the significant contribution of developing countries through their growing openness to international trade. But, the plight of many of the poorest developing countries, especially in Africa, remains a cause for deep concern. While welcoming the progress made by a number of formerly centrally planned economies toward building market-based systems, the Committee noted that a number of these countries continue to face high inflation and declining output. In Central and Eastern Europe, however, output growth is expected to resume in 1994.

From this global perspective, the Committee stressed the essential role of trade in the growth processes of all countries—indeed, all agreed with the thrust of the remarks of Mr. Sutherland, the Director-General of the General Agreement on Tariffs and Trade (GATT), on this point. Committee members underlined that the successful completion of the Uruguay Round by the end of 1993 will be crucial to the success of the cooperative strategy and to restoring confidence in global economic prospects: simply put, free trade creates jobs, it does not destroy them. The Committee therefore looks to strong leadership and vision on all sides to resolve the remaining issues and bring the negotiations to a successful close. Failure to do so could reinforce protectionist pressures, erode business confidence, and weaken growth in all countries.

The Committee’s Declaration of April 1993 affirmed the central responsibility of the industrial countries for strengthening global growth prospects. The Committee therefore emphasized that the industrial countries should persevere in efforts to strengthen their economic recovery and achieve robust, sustainable growth. Continued progress toward price stability and fiscal deficit reduction would provide scope for further interest rate reductions. As the recovery gains momentum, additional fiscal consolidation in the industrial countries will be needed to increase savings and private investment. Higher priority will also need to be given to structural measures to improve the allocation of resources, in particular, to increase labor market flexibility and reform social security and health care systems, as well as to open and deregulate markets.

For many developing countries, the maintenance of sound policies and the easing of structural rigidities have strengthened the foundation for sustainable growth. Their success with adjustment and reform should encourage other countries where progress toward macroeconomic stability and structural reform has lagged. The adjustment efforts of many low-income countries, particularly in Africa, should be supported by the international community with increased financial and technical assistance, including new concessional lending and appropriate debt relief. All members recognized the special role the enhanced structural adjustment facility (ESAF) has played in fostering effective reform in these countries. In this context, the Committee welcomed the indication from a number of members, including in the developing world, of their readiness to contribute to the facility. It urged the broadest possible spectrum of contributors among the membership to step forward with early indications of participation and called on the Executive Board to implement rapidly the agreed framework so as to ensure continuity of ESAF operations after November 30, 1993.

Decisive progress in the transformation of the formerly centrally planned economies is a key element of the cooperative growth strategy. The Committee welcomed the initial progress made by several of these countries toward economic stabilization and building competitive market economies. It recognized the Fund’s important role in promoting this historic transformation. Timely use of the Fund’s new systemic transformation facility could help a number of these countries establish the foundations for further support through the Fund’s customary facilities. The prospects for continued support by the international financial community, including the Fund, will depend on the introduction and sustained pursuit of strong adjustment and reform programs. In particular, privatization and structural reforms will need to be complemented by actions to curb inflation and induce market behavior. These will include reductions in their budget deficits, implementation of firm monetary policies, financial sector reforms, and the imposition of financial discipline on enterprises.

The challenges of an increasingly integrated global economy underline the importance of the Fund’s surveillance over members’ exchange rates and macroeconomic policies. The Committee supported the efforts of the Fund, to strengthen surveillance. It recognizes that collaboration with the Fund as the central international monetary institution, in addressing the current challenges and opportunities facing our diverse membership must be a central element in our common efforts to achieve a durable global expansion.

Finally, the Committee discussed a report by the Executive Board on an SDR allocation and related issues. It requested the Board to continue its work on these issues, particularly bearing in mind the situation of the many new members that have not participated in previous SDR allocations, and to report to the Committee at its next meeting. It was agreed that the spring meeting of the Committee will take place in Washington, D.C., on April 25, 1994.

Report to the Boards of Governors of the Bank and the Fund by the Chairman of the Joint Ministerial Committee of the Boards of Governors on the Transfer of Real Resources to Developing Countries (Development Committee), Rudolf Hommes

This is my first appearance here as Chairman of the Development Committee, in succession to my two immediate predecessors Alejandro Foxley of Chile and Ricardo Hausmann of Venezuela. This report deals with two meetings which they chaired. I want to pay tribute to their distinguished work.

The common theme of the two meetings was the Committee’s original mandate: the transfer of resources to developing countries. The subject is as topical today as when the Committee was founded almost twenty years ago. At the meeting in September 1992, the Committee discussed a very wide-ranging review prepared jointly by the Bank and the Fund. It covered in a single document all the forms of transfers, public and private, concessional and nonconcessional. This overview was intended to serve as an introduction to more detailed work, in future meetings, on private, and later on official, flows. One important theme emerged from this first meeting: the need to place all these external flows into a wider context. As Mr. Foxley pointed out, something over 90 percent of all investment in developing countries, taken in aggregate, is financed by domestic saving. Although our Committee is, by its mandate, supposed to concentrate on external flows, finance ministers, and all concerned with the development process, cannot afford to ignore the question of domestic savings. This meeting also endorsed a set of legal guidelines, drawn up by the World Bank, designed to set out current best practice for countries that wish to attract foreign investment.

The second meeting this May, developed the theme of resource flows further, concentrating on private sector flows of all kinds—foreign direct investment, bond issues, bank finance, and portfolio investment. The Committee did not attempt to lay down detailed guidelines for this purpose. In general, the meeting felt that if the macroeconomic policies are right, and if the business environment is market friendly, then domestic and foreign investment will flow naturally without the need for many positive incentives. They also recognized that in many places, both in source and in host countries, there are market imperfections which serve to deter the free flow of funds. Some of them result from institutional failures, some from lack of sufficient information. Many could be reduced or removed by appropriate action by member governments or by the international institutions. The Committee set in hand a series of detailed investigations of some of these impediments. In due course I hope that these individually small-scale reviews will add up to a useful package of measures to improve the flow of private capital to developing countries.

At the same meeting the Committee also discussed a progress report on the World Bank’s Private Sector Development strategy. This was a useful complement to the papers on the encouragement of private investment flows.

Taken together, these two meetings covered an important segment of the total development finance field. In later meetings, including the one which took place on Monday, we are switching the emphasis to official flows, including the whole question of development effectiveness to which we shall turn in September. This is particularly timely following the recent decisions of the Bank’s Executive Board about the Wapenhans Report. It will also enable us to look at ways of improving the uses of bilateral development assistance, following up the valuable work of the Development Assistance Committee of the Organization for Economic Cooperation and Development (OECD).

In all this work we have been greatly helped by the staff work done by the World Bank and the IMF, who prepare the main papers for our meetings. But I want to refer, in closing, to a useful innovation pioneered by my two predecessors, who first decided to commission supplementary papers from some of the other international organizations and from distinguished outside contributors. These have proved useful in amplifying and extending the material available to the Committee. I hope they will, in due course, lead to further innovative ideas for carrying forward our task.

Statement by the Governor of the Bank for Belgium—Philippe Maystadt

As Belgium currently holds the presidency of the Council of the European Communities, I have the privilege of addressing you on behalf of the Community’s twelve member states. I welcome the countries that have joined the Bretton Woods institutions since our last meeting: Croatia, the Czech Republic, the former Yugoslav Republic of Macedonia, the Federated States of Micronesia, the Slovak Republic, Slovenia, and Tajikistan. The present situation of the major industrial countries, taken as a group, is characterized by low growth and rising unemployment. However, the world economic outlook for the medium term is less gloomy.

Several initiatives have been undertaken by the major industrial economies in order to improve economic growth prospects. The European Community (EC) has launched the Edinburgh growth initiative, reinforced at the Copenhagen summit, aimed at stimulating the European economy. Once the multiyear fiscal package in the United States is fully implemented, we are confident that the modest economic recovery that is taking place will hold more firmly. The fiscal stimulus package of the Japanese authorities, when implemented, will go some way toward supporting the resumption of domestic demand, conducive to the reduction of the external imbalances of that country. Fiscal consolidation is now under way in a number of countries that needed it most, and persistence with firm budgetary measures in European countries and in North America should lead to a further fall in long-term interest rates, stimulate capital formation, and productivity growth, and restore confidence in the economic future. Looked at as a whole, the European Community slid into a recession during the second half of last year. The Community finds itself with an unbalanced policy mix and severe structural problems. Weak activity has led to deteriorating budget balances, and the average general government budget deficit for the Community is expected to exceed 6 percent of GDP this year. Short- and long-term interest rates, although they have eased significantly over the past year, are still high in real terms considering the present cyclical position of many member states. As a result, unemployment, already high, is increasing rapidly. Improved labor market efficiency and a return to non-inflationary growth will be needed to address this problem effectively.

The adjustment in the exchange rate mechanism (ERM) during 1992 and the first half of 1993 was partly due to deterioration of the competitive positions of some member states and to differences in their cyclical positions. Although the difficulties in the ERM were mainly due to failures to attune policies and policy mixes sufficiently to the goal of price stability, even the countries with sound fundamentals had to defend their parities.

In July, after a period of relative stability, speculation again emerged against several ERM currencies. To speculative capital movements that were exceptional in size and kind, the ministers and central bank governors of the member states at first responded by reasserting their belief that the current parity grid was justified by the fundamental economic situation in their countries, and finally, on August 2, decided on a temporary widening of the fluctuation margins of the participating currencies to 15 percent on either side of their bilateral central parities. Members also reaffirmed their commitment to implementation of the Treaty on European Union and to the procedures and criteria for economic convergence in preparation for realizing economic and monetary union (EMU).

The Community’s present unfavorable economic situation should improve in the coming months. While it is not yet clear when the recovery will occur or how strong it will be, the latest forecasts suggest that the beginnings of the recovery for the Community as a whole should be visible by the end of this year. Several developments, both economic and institutional, will help improve the economic situation and restore the confidence of economic agents. First, the inflation outlook has improved, owing partly to the short-term economic weakening and partly to monetary and fiscal actions and wage-moderation policies. This has improved the prospects for a further lowering of interest rates, which will, in turn, help the recovery. Second, member states are still determined to meet the convergence criteria stipulated in the treaty by implementing their own convergence programs, which will be systematically monitored and updated. The treaty calls for an assessment of the convergence of the member states’ economies before the end of the year. Third, the Community is committed to addressing the structural rigidities that are major obstacles to growth and employment creation. The Edinburgh growth initiative, supplemented by the conclusion of the Copenhagen summit, aims at stimulating the European economy to help it overcome the present unfavorable cyclical position, and at tackling structural rigidities.

This initiative consists of a comprehensive package of measures that aim at increasing investment programs in the member states and at strengthening the EC’s action in the fields of infrastructure, transport, energy, telecommunications, environment, and support to the small-and medium-sized enterprises (SMEs). The European Council has also underlined the importance of a rapid implementation of the Community’s 161 billion ECU structural program for the period of 1993-99. This program is essential for achieving cohesion, as well as for growth and employment creation, not only in the less favorable areas of the Community but throughout the EC. The European Investment Fund is designed to facilitate investments in trans-European networks, as well as projects by SMEs, and should become operational by the end of the year with the offering of loan guarantees.

Furthermore, the European Council has invited the Commission to submit a White Paper on the medium-term strategy for growth, competitiveness, and employment for its December meeting. The member states have already submitted their own views on this matter. Particular attention will be directed to the labor market, training, research and development, and the environment. The section on the labor market will analyze such aspects as the lack of market flexibility, labor taxation, and the cost of social protection schemes. The principles of these schemes, which have been built up over long periods, are not called into question in these troubled times, but their efficiency will be closely scrutinized as will their impact on European enterprises, which face increasing competition from countries with lower labor costs.

The ratification of the Maastricht Treaty is now in progress. Stage 2 of the EMU process is scheduled to begin on January 1, 1994. The necessary preparations are in hand for setting up, on that date, a European Monetary Institute, which will be the embryo of the European Central Bank to be established in Stage 3. Work is in progress on the secondary legislation needed before the start of the second stage. Under this legislation, the financing of fiscal deficits by central banks or through privileged access to financial institutions will be prohibited, and the new procedure to avoid excessive fiscal deficits will take effect on January 1,1994. Moreover, by the end of the year, the Community will undertake an in-depth assessment of the progress it has made with regard to economic and monetary convergence, and for the first time establish guidelines for the economic policies of the member states and of the Community as a whole. In several of our member states, the central bank autonomy required for passing to Stage 3 has already been achieved, while, in others, legislation to that effect is being processed.

All these actions by the European Community to improve its economic performance should also contribute to global economic recovery. Furthermore, negotiations are taking place with Austria, Finland, Sweden, and Norway with a view to realizing the first enlargement of the European Union by January 1, 1995.

The Community has also concluded agreements with several associated countries in Central and Eastern Europe. It also plans to develop existing trade and cooperation agreements concluded with the Baltic states into free trade agreements. Partnership agreements are being negotiated with Russia and several other countries of the former Soviet Union. The Community will continue to devote a significant part of its budgetary resources to actions in those countries, notably through the Poland and Hungary Assistance for Economic Restructuring (PHARE) and Technical Assistance to the Commonwealth of Independent States and Georgia (TACIS) programs.

On the eve of renegotiating part of the Lomé agreement with the African, Caribbean, and Pacific States, the Community reaffirms its commitment to maintain close ties with these countries within the existing cooperation framework and will continue to provide assistance to them under appropriate conditions. In addition, the Community is determined to contribute to the development of world trade by lowering tariffs and trade barriers. It will continue to play an active and constructive role in the Uruguay Round negotiations with a view to achieving a durable and balanced global agreement by the end of the year. Early agreement on a global package is indeed urgent. It will lead to an expansion of international trade and will thus be one of the keys to promoting economic growth and job creation in Europe and the world.

As its membership has increased, the IMF has also seen its role and functions strengthened or enlarged in all areas: surveillance; financial balance of payments support for macroeconomic stabilization, structural adjustment, or systemic transformation; and technical assistance. At this juncture, in view of the integration of the world’s economy and its financial markets, it seems particularly important for the Fund to pay greater attention to the policy interactions of its member countries.

The member states of the Community welcome the major involvement of the Bretton Woods institutions in Central and Eastern Europe as well as in the former Soviet Union. We note with satisfaction the conclusion of several agreements with the Fund under the new systemic transformation facility and hope that, where it is not yet the case, they will pave the way toward more traditional agreements with the Fund through the full implementation of macroeconomic stabilization programs and structural reforms by the countries concerned. We stress the importance of maintaining regional trade and building up trade with Western Europe and the rest of the world. The region is also one of the major beneficiaries of both World Bank transfers of resources and of World Bank nonfinancial assistance. This underlines the necessity for close cooperation between the Fund, the Bank, and all the donors involved. We also attach great importance to the renewal or replacement of the enhanced structural adjustment facility (ESAF). We urge the IMF to complete its work on the ESAF issue by the end of November 1993. The Ninth General Review of Quotas has given the Fund the financial resources to carry out its many duties. On the issue of the long-term global need for international reserves, the Fund’s Executive Board recently re-examined the question of an SDR allocation. We have reviewed the work done so far on this subject. Noting that the majority required for a positive decision has not yet been reached, we invite the Board to continue working on this issue.

We also note with concern the dramatic decline that has occurred in the share of World Bank financing to sub-Saharan Africa. Although this is partly due to circumstances beyond the Bank’s control, we hope the situation will be redressed in fiscal year 1994, especially as far as International Development Association (IDA) commitments are concerned. In this respect we welcome the effectiveness of the IDA-10 advance contributions on the first of July, as well as the continued high priority for Africa under IDA-10. We emphasize the crucial importance of a successful completion of the replenishment negotiations on the Global Environment Facility. This would greatly facilitate developing countries’ efforts to achieve economic growth in a manner that is sustainable from a global point of view. Finally, we urge the countries that are in arrears to the Fund to make their best efforts to regularize their positions as soon as possible.

To conclude, Mr. Chairman, with the assistance of the devoted staff of the Bretton Woods institutions, the member states of the EC hope to enhance the international policy coordination process in all the areas I have mentioned. This process will allow the timely correction of imbalances and inadequate policy mixes and pave the way for a more stable international monetary system, thereby strengthening confidence and bolstering economic activity and employment.

Statement by the Governor of the Bank for Indonesia—Mar’ie Muhammad

I am pleased to have this opportunity to briefly address you on a number of important issues that affect not only the development prospects of Indonesia and Asia, but of all countries throughout the world. We have witnessed momentous political changes over the past few years that will have a strong impact on economic issues. Undoubtedly, the end of the cold war and of East-West confrontation will benefit all of us over the long term. The immediate impact, however, has been the emergence of economic and political conflicts involving trade, access to capital, and ethnic conflict. These issues are not new, but they have now come to the fore.

The situation is compounded by the apparent inability of the major economic powers—the United States, Japan, and Europe—to reach a consensus on a number of vitally important economic issues. Of great importance for all of us is the continued inability of the world’s leading economic nations to regain the path of dynamic and sustained economic growth. And, despite statements of intent and support, it appears that much remains to be done before the current round of negotiations of the General Agreement on Tariffs and Trade (GATT) can be successfully concluded, taking into account the different needs of the developed and developing countries. The industrial countries, whose contribution to the global economy still forms half of the world’s economic output (according to the IMF’s May 1993 World Economic Outlook), remain either mired in a stubborn recession or are experiencing a weak recovery. By contrast, the 1992 increase in dollar output of Asia, South America, and the rest of the developing countries was larger than that of North America, the European Community, and Japan together. Again this year the forecast is for more rapid growth in the developing economies than in the developed economies.

In effect, the developing world, especially countries in Asia and Latin America, has become the locomotive for the global economy. Consider, for example, the record of the countries of the Association of South East Asian Nations (ASEAN), which have performed remarkably well over the past decade. Growth in these countries has averaged about 5 percent a year compared with 3 percent annual growth for the member countries of the Organization for Economic Cooperation and Development (OECD). Underpinning this growth is macroeconomic stability, as shown by inflation rates that averaged only 3 percent a year, combined with high levels of savings and investment. Gross domestic investment as a share of GDP averaged 33 percent for the ASEAN countries compared with just 22 percent for the OECD countries. Much of this investment has gone into education, new infrastructure, and other productivity enhancements, laying the foundation for future growth. But we must ask ourselves—how long can the dynamic developing countries be the engines of growth for the global economy? Can rapid growth in the developing countries be maintained without a resurgence of growth in the industrial countries?

Although sound domestic policies are the prime determinant of the economic future of any country, I firmly believe that, without a sustained economic recovery in the industrial countries, the process of attaining rapid growth in the developing countries will be extremely difficult. The continued weak economic performance of the industrial countries reduces not only the capital available to support development efforts in Asia, Africa, Latin America, and newly emerging countries but also the market for our exports of primary and manufactured commodities. Without access to capital and without the opportunity to export to a growing market, the prospects for continued development are dim.

Much of the success of Indonesia, and of the rapidly growing developing economies, has been due to sound macroeconomic policies supported by appropriate structural reform measures together with an increasing reliance on international trade. Despite the growing awareness of many developing countries that a more open economy is needed for growth, it is discouraging to note that progress on removing global trade barriers has slowed over the past four years. It is indeed ironic that while Indonesia and many developing countries have taken to heart the lessons of trade deregulation, so that today these countries are more open to trade and investment than in any time in recent history, the industrial countries have increased their trade restrictions (Lawrence H. Summers and Vinod Thomas, “Recent Lessons of Development,” The World Bank Research Observer, Vol. 8 (July 1993), p. 246). Moreover, the existing GATT structure did not address certain key aspects of international trade, such as trade in services, which are only now being considered. In this regard it is important to recognize the special needs of developing countries, whose service sector is still small and fragile although growing rapidly. Negotiations to conclude the Uruguay Round continue, and it is important for Indonesia, and indeed for all countries, to muster the political will to successfully conclude the Uruguay Round.

Although multilateral trade is perhaps the most important tool for achieving rapid economic growth, regional trading arrangements can be a significant adjunct. While some see the emergence of regional trading arrangements as a move away from multilateral trade and a response to the frustration of achieving more open markets under the GATT, there is no reason to fear the growth of regional trading arrangements if they are structured so as to ensure that trade creation outweighs trade diversion.

The ASEAN countries, marked by strong growth and increasing intraregional trade, are in the process of creating the ASEAN Free Trade Area (AFTA). Our intention is to lower tariffs on most goods to 5 percent or less within 12 to 15 years. This goal is not only in line with AFTA policies but reflects Indonesia’s own strong commitment to a more open trading regime. Our goal is trade creation, increased competition, and increased consumer choices. In the past, when the ASEAN economies were heavily dependent on basic commodities and natural resources, the potential benefits from such an arrangement were small. But today, rapid industrialization and the diversification and expansion of ASEAN exports have set the stage for more dynamic gains from AFTA.

Although the use of natural resources on a sustainable basis remains important for Indonesia’s development, the potential trading opportunities that will be created under AFTA will allow us to benefit from economies of scale while further developing our comparative advantage. Moreover, we have designed a system that will attract investment to a market of almost 350 million people. Indonesia remains committed to lowering trade barriers for all trading partners, in line with the AFTA agreement and consistent with the spirit of the GATT.

Another pressing issue facing the international community is the continuing debt problem of a large number of low-income countries. Indonesia itself has a substantial external debt, but our sound economic policies and debt management have enabled us to service our debt fully. Let me reaffirm to the international financial community Indonesia’s commitment to continue with its prudent macroeconomic policies and management and its unwavering commitment to fully honor all its international financial obligations. Our concern is with the debt problems of those 50 low-income, highly indebted developing countries that remain most seriously afflicted by the crisis. In this regard, I would like to quote from President Soeharto’s Message to the Leaders of the Group of Seven given in Tokyo on July 5 of this year. He said:

… the Non-Aligned Movement would wish to stress the necessity for a coordinated approach, involving debtor and creditor countries as well as financial institutions in alleviating this debt burden in a way that would … allow recovery and continued growth in the developing countries. The recent… debt-reduction schemes are to be welcomed, but they are still far from adequate.

It is true that in the ten years since the beginning of the debt crisis, and in the four years since the Brady initiative was launched, some progress has been made in resolving the debt problems of the developing countries. But most of the benefits have accrued to a group of ten middle-income debtor nations. In some circles, there is a perception that the debt crisis is largely over. Such optimism, however, is premature for many heavily indebted countries, especially the severely indebted low-and lower-middle-income countries of Africa, Latin America, and Asia, for whom the debt crisis remains a major obstacle to restoring sustainable economic recovery and growth.

Let me restate the areas requiring urgent action that were identified by President Soeharto in his memorandum to the Group of Seven:

  • decisive reduction of bilateral debt and debt service to eliminate accumulated arrears of principal and interest and to prevent such arrears from building up in the future;

  • a realistic and systematic approach to the growing burden of multilateral debt and debt service; and

  • continued meaningful reductions in the level of commercial debt and debt service.

It is important that these three categories of debt be tackled simultaneously. Although for many countries, commercial bank debt is no longer the most significant problem, for others the commercial debt burden remains large. The World Bank’s Debt Reduction Facility, which makes resources available to countries eligible under the International Development Association (IDA) to buy back commercial bank debt, is a promising new initiative to address this problem. We hope that this facility can be widely used.

Multilateral debts take an increasing percentage of debt-service payments. New initiatives on sustainable bilateral and multilateral debt relief are needed because, in most instances, the measures to date have not been sufficient.

As was noted in President Soeharto’s memorandum, it is vitally important that we recognize the links between debt relief, economic growth, and new resource flows. In this respect I would add that to ensure that debt relief and new resource flows result in economic growth, it is essential that the developing countries continue with their efforts to formulate, and successfully implement, sound macroeconomic policies. Such efforts need to be grounded in the development of sound government institutions, by policies that encourage private foreign and domestic investment, and by a strong sustained effort to mobilize domestic resources. Within this framework, debt relief, combined with new resource flows, can lead to renewed economic growth. Hence, it is important that debt relief and new financial assistance be negotiated simultaneously as integral components of a comprehensive external financing package. These measures are required so that the severely indebted developing countries can achieve a return to economic growth and restore creditworthiness. This, in turn, will stimulate foreign direct investment and other private capital flows essential to maintaining long-term economic viability.

Let me state again that Indonesia itself, while concerned about the debt problem of the most severely indebted low-income countries, remains totally committed to fully discharging its own debt-service obligations. At the same time, we note that the successful resolution of the debt crisis is in the interest of developing and developed countries alike. As I noted above, the continued growth of the developing countries depends very much on the world economic environment. The interrelated issues of external debt, market access, resource flows, and conditionalities are of vital importance for the developing countries. Effective solutions to these issues can be found only through meaningful dialogue and cooperation between the developing and the industrial countries, based on a recognition of genuine interdependence and shared responsibility, with the positions of each side clearly presented, elaborated, and rationally discussed and negotiated.

I would like to take note of the new information policy recently approved by the World Bank’s Executive Directors. We welcome this new policy to the extent that it will increase local participation and enhance the Bank’s effectiveness. We also believe that it may serve the important purpose of mobilizing support for development assistance policies in the donor countries. However, we hope that, in implementing this policy of greater transparency, the Bank will bear in mind the need to respect those elements of confidentiality that are an essential part of the client relationship between the Bank and its borrowers.

Let me conclude by expressing the appreciation of the Government of Indonesia to the World Bank and the International Monetary Fund for the sustained support they have given to Indonesia’s development efforts. The contributions of the World Bank and the International Monetary Fund to our development efforts have been important. But the contribution cannot be measured only by its dollar value. We also receive insights into our own development problems from our dialogue with the staffs of both institutions, who also bring to us a global perspective on development issues and experiences. We look forward to continued support and further constructive dialogue with the Bank and the IMF, for our mutual benefit.

Statement by the Governor of the Fund for Finland—Sirkka Hamalainen

At the outset, speaking on behalf of the five Nordic countries— Denmark, Iceland, Norway, Sweden, and Finland—let me welcome all the new members of the Fund. The global economy has experienced profound structural and systemic change over the past couple of years. This has posed major challenges to international organizations—the Fund in particular—as they have had to rearrange their activities and priorities. In adapting to new challenges, we should not lose sight of the principles expressed in the Fund’s Articles—to promote international monetary cooperation and exchange rate stability and to assist in the elimination of barriers to world trade. It is to these basic questions that we now need to direct our attention.

Since last year’s Annual Meetings, the world economy has had anything but a satisfactory record. The prolonged recession, increasing unemployment, and the uncertainties surrounding the momentum of recovery are of serious concern. Recently the international community’s attention has focused on events in the exchange market, particularly on the turmoil in Europe but also in a global context, on movements between the major currencies. As the exchange market unrest in Europe has continued, interest rates have long remained relatively high, which has also hampered economic growth.

The turmoil in Europe has obviously been related to tensions that arose when fixed but adjustable exchange rates had to be reconciled with free capital movements. Allowing wider exchange rate mechanism (ERM) bands has provided some room to proceed with interest rate reductions but only where they will not endanger price stability. Monetary policy should continue to be geared toward stability, including the avoidance of competitive depreciations.

Free capital movements and rapid changes in market expectations impose, indeed, a demanding new environment for policymakers. Much is required from the formulation of economic policy if credibility and consumer and business confidence are to be restored. In this context, the coordinated growth initiative put forward by the European Community and the European Free Trade Association (EFTA) countries could make a useful contribution. To achieve sustainable growth and a high level of employment, it is necessary to pursue an economic policy characterized by monetary stability and fiscal discipline. The events of the past year have again demonstrated that no exchange rate system can be a substitute for sound economic policies. Unfortunately, not even sound fundamentals have been enough to resist currency unrest in some cases.

The bright spots in the present economic situation are to be found outside the industrial countries. Growth prospects for Asia and Latin America have, by and large, even improved. Economic development, particularly in those less developed countries that have adopted firm stabilization programs, has been very promising and has, in fact, been supporting activity in the world economy. Unfortunately, this general picture does not hold true for the poorest African countries.

The countries in transition are passing through a most difficult phase of adjustment. Generally speaking, those countries that have implemented stabilization policies and structural reforms have the best prospects. The Baltic countries and some countries in Central and Eastern Europe are good examples of what can be achieved. However, all the transition economies still have a long way to go.

Trade will be a crucial element in the transformation of these economies. Promoting free trade should, even more generally, receive the recognition it deserves as a vehicle for growth and employment in the world economy. I would like to state emphatically that free trade, one of the cornerstones of the Fund’s philosophy, should be promoted and protectionist sentiments resisted in every way. A successful conclusion of the Uruguay Round would give the markets a positive signal urgently needed at this juncture.

At meetings in international forums over the years, we, the decision makers, have kept repeating the same policy prescriptions in our communiqués. There has been consensus on what has to be done:

  • we should keep inflation low;

  • we should consolidate public finances, thereby creating room for the lowering of interest rates;

  • we should tackle the unemployment problem by adding flexibility in labor markets; and, finally,

  • we should open our markets to a free flow of goods and services.

This is what we have said. Why, then, have these policy declarations and commitments not been implemented? Why has international policy coordination not been vigorously pursued? There are, of course, many answers to these questions. In an integrated world economy the transmission of policy measures has changed. There are new restrictions on national economic policies stemming from heightened interdependence. It is obvious that we have not been able to sell this message of interdependence to all interest groups and all political decision makers.

With the move toward greater global monetary integration, international cooperation and stability assume increased importance. Because cooperation has not been strong enough, one must conclude that it is more urgent than ever for the Fund to focus on its surveillance function, for which it should now be better equipped. I am pleased to note that progress has been made as the Fund has sharpened its analysis of policy issues and of global developments and increased its coverage of exchange rate policy issues. However, “peer pressure” exercised through the Fund still seems to be inadequate. As members—both big and small—our duty is to cooperate in the Fund in order to fulfill the purposes of the Articles.

Statement by the Governor of the Fund for Guinea—Soriba Kaba

On behalf of my fellow African Governors, I would like to welcome the new members in the Bretton Woods institutions since our last meeting in September 1992. We wish them every success in their efforts to integrate their economies into the world economy. We welcome the historic breakthrough in the Middle East and hope also that the agreements reached will result in a lasting peace.

Overall Economic Performance

Contrary to expectations, the acceleration in the recovery of the world economy did not materialize in 1992, principally on account of continued weakness in economic activity in the industrial countries and the prolonged recession in the countries of the former Soviet Union and in Eastern Europe. While the economies of most developing countries have shown some resilience to the weakness of economic activity in the industrial countries, unprecedented drought, civil wars, and the collapse of primary commodity prices, among other factors, have adversely affected the economic and financial performance of the African countries. As a result, output growth slowed down considerably from 1.5 percent in 1991 to 0.9 percent in 1992, leading to a further decline in real per capita GDP for the third consecutive year. Moreover, reflecting the continued erosion in the value of our exports and the poor economic performance recorded over the years, Africa’s share in world trade dwindled to just over 2 percent in 1992 from an average of 4 percent over the decade 1975–84.

Adjustment and Developmental Assistance

It is worrisome to note that at a time when our export earnings are declining, financial flows to Africa have begun a downward trend, largely because the attention of the donor community has been shifting to other regions. This development is reinforcing the perception of an increased economic and financial marginalization of our continent. This perceived marginalization should not be allowed to continue. It can be reversed if bilateral donors, multilateral institutions, and African countries come together to adopt a whole new approach to developmental assistance.

We are aware of the fact that the primary responsibility for creating the appropriate domestic environment for the resumption of sustainable growth and for the reduction of poverty lies with African countries individually and collectively. As the political reforms under way in many of our countries take hold, the sociopolitical environment should stabilize, and transparency and efficiency in resource allocation should increase. However, it should be stressed that these political reforms are not without their share of difficulties and costs. In many countries, they have led to serious disruptions in the functioning of existing institutions and, in some others, to a paralysis of the economic apparatus.

Notwithstanding these difficulties, the majority of African countries are pursuing macroeconomic stabilization and structural reform programs. As an indication of the general acceptance of the need to adjust, several African countries are currently implementing adjustment programs supported by the Bretton Woods institutions. Some of these countries have achieved external viability, and others have made important progress toward the attainment of this objective. However, a few others, although keenly determined to address their economic and financial difficulties, cannot avail themselves of the support of the Bret-ton Woods institutions because of their overdue financial obligations to these institutions, a manifestation of the severe external payments difficulties confronting these countries. We would therefore urge these institutions to show understanding and flexibility in dealing with them.

While our countries are committed to shouldering their responsibilities in improving the domestic environment and in correcting their economic and financial imbalances, it should be recognized that their efforts are being frustrated by adverse exogenous factors that are beyond their control. Indeed, the adverse impact of the sharp deterioration in terms of trade and of the heavy debt burden, to name just two, on the economic and financial performance of our countries cannot be overemphasized.

In our view, the donor community should refocus its assistance and work more closely with recipient countries to make such assistance more efficient and better targeted. Lessons should be learned from the errors of the past to help minimize the incidence of failed projects. External resources, which would complement our domestic resource mobilization efforts, should be directed to improving the infrastructural networks and the human resources in line with our own priorities. Given the importance that we attach to economic integration among our countries, as outlined in the treaty establishing the African Economic Community, and the efforts that we are making toward effective regional arrangements, increased attention should be paid to reviving and establishing projects cast in a regional context.

Uruguay Round

Bilateral donors could make a great contribution toward supporting our adjustment efforts by securing a successful conclusion of the Uruguay Round of trade negotiations, thereby ensuring freer access of our products to their markets. As we have stated on previous occasions, trade is better than aid. The decline in our share of world trade needs to be reversed, and it is incumbent on bilateral donors to help in this endeavor. While we strongly urge that the Uruguay Round negotiations be rapidly concluded, we cannot ignore the fact that a number of African countries may suffer in the short term as a result. The Bretton Woods institutions should assess the resultant losses of earnings and the transitional compensatory measures that would need to be taken to enable these countries to adjust to the new situation that would arise following conclusion of the ongoing discussions.

The Debt Problem

The debt burden continues to hamper the prospects for economic growth in most African countries. While recognizing the efforts of the international financial community to alleviate the debt of African countries, recent experience has shown that more remains to be done. The adoption and implementation of the Trinidad terms or of arrangements that go beyond current debt-relief schemes are absolutely essential if stabilization and structural adjustment programs in low-income countries are to work. A recent IMF study has shown that the successive rescheduling operations undertaken so far under the aegis of the Paris Club have, beyond temporary short-term relief, added to the debt burden of our countries. It is, therefore, of paramount importance that the issue of the stock of debt be fully addressed; and in order to bring outstanding debt more in line with the payments capacity of these countries, an outright reduction of such debt should be granted. We, therefore, wish to impress upon the international financial community the need to pursue the Pronk proposal aimed at the cancellation of the stock of debt of the low-income countries in Africa. Special measures similar to those applied to Poland should be considered for the middle-income countries. Finally, strong support should be given to the heavily indebted African countries that have continued to meet their debt-service obligations despite unfavorable economic and financial situations.

Resource Flows

Enhanced Structural Adjustment Facility Successor

We have been very much encouraged by the role that the Fund has played in our countries through the structural adjustment facility (SAF) and the enhanced structural adjustment facility (ESAF). Given that the financial conditions of the SAF and the ESAF are more in line with the debt-servicing capacity of the low-income countries, these two facilities have been instrumental in improving the medium-term prospects for the countries that have availed themselves of SAF/ESAF resources. As indicated above, a few African countries have strengthened their external position, and some others have made important progress toward this objective following successful implementation of SAF/ESAF-supported adjustment programs. It will be crucial for the Fund to maintain its ability to provide this concessional assistance to help eligible countries build on the progress already made and to encourage others to embark on comprehensive growth-oriented programs. In this regard, we are pleased with the overwhelming support by the Interim Committee for the establishment of an ESAF successor by the end of November 1993. The progress made by the Executive Board in considering this issue is noteworthy, and we hope that the donor community will provide the necessary financial support to ensure that the target date of end-November 1993 is met. Here, we wish to draw attention to the paramount importance of attaching a contingency mechanism to the successor facility to protect programs from exogenous adverse developments.

Resumption of SDR Allocation

In view of the very low level of the reserve holdings of the great majority of the membership, the very high cost of owning reserves, and the disruptive effects that the continued reserve stringencies will have on the international monetary system, we firmly believe that the conditions for a resumption of SDR allocations have been largely met. The resumption of SDR allocations, which is long overdue, will enable the Fund to reduce the burden on member countries of acquiring and holding reserves as well as contribute to making the SDR the principal reserve asset in the international monetary system.

Private Flows

Over the past ten years, we in Africa have adopted measures, as indicated earlier, to create a stable economic and sociopolitical environment favorable for foreign investment. These include opening all sectors of economic activity to foreign investors through the adoption of more favorable investment codes. However, these efforts have yielded mixed results. Thus, we invite the International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA) to be more involved in our countries and to help us design action programs, including the development of capital markets, that would facilitate foreign investment flows to Africa.

Special Program of Assistance for Sub-Saharan Africa

We trust that development needs in other parts of the world will not distract the attention of donors from the necessity of making a special effort to assist our countries. We are gratified by the contribution made by the World Bank to the mobilization of resources for Africa, particularly through the Special Program of Assistance (SPA) and through the International Development Association (IDA). The SPA, whose third phase (SPA3), covering the three years 1994-96, was approved in June 1993, is an eloquent demonstration of the effective role that the World Bank can continue to play in coordinating assistance and mobilizing resources.

Tenth Replenishment of International Development Association (IDA-10)

We are pleased to note the conclusion of the discussions on the Tenth Replenishment of IDA (IDA-10). We urge the donor countries to conduct the ratification process in such a way that there is no interruption in commitments. We welcome the decision of the IDA Deputies to maintain sub-Saharan Africa’s share of IDA-10 resources at 45-50 percent. However, we are disappointed that the total amount of the replenishment was not larger in real terms than that of IDA-9, given the increase in the number of eligible countries and the fact that IDA remains the principal source of financing for these countries.

Portfolio Management

We welcome Mr. Preston’s initiative in creating a task force to examine the quality of the Bank’s portfolio. The report, known as the Wapenhans Report, is reassuring. Overall, the Bank’s portfolio is satisfactory. The report’s recommendations are very useful in that they offer prospects for upgrading the status of the portfolio from good to excellent. This will lead to an acceleration of disbursements and an increase in the World Bank’s volume of commitments. We share the view expressed in the report concerning the need to reinforce a country’s sense of ownership of its projects. To improve project quality at entry, the leadership role should be left to the borrowers, with the national project-executing agencies more closely involved. It is thus essential that all elements necessary to the success of a project and all obstacles to be overcome during its implementation be understood from the very outset. Nevertheless, the desire to improve quality at entry should not hold up project processing.

Human Resource Development

We note the increasing importance that the World Bank accords to human resource development, and, above all, the fact that it is making this a component of its poverty-reduction strategy. Like the World Bank, we believe that the demographic issue is a key element in poverty-reduction programs. Several of our countries have adopted policies designed to control population growth, but so far little has been achieved because of the rigidities inherent in our societies and the lack of adequate health facilities. We appeal to the international community to support our human resource development programs, in particular to arrest the spread of the AIDS scourge, which could bring to nought all the efforts made so far to achieve our countries’ economic and social development. In this context, we welcome the Bank’s decision to seek improvements in the organization of its technical assistance activities, in terms of objectives, financing, and coordination with other donors. To this end, we are pleased to learn of the Bank’s intention to support programs designed to help the African countries acquire local financial and economic management capacities. An action plan needs to be drawn up to promote the more widespread utilization of African professionals or local consultants. We hope that this new approach will be fully shared by the donor community, and that we shall start to see more intensive use of African consultants in the preparation of economic and social development programs.

Poverty Reduction

We are, therefore, particularly gratified to note that the Bretton Woods institutions have recognized the need to include human resource development and environmental impact on the poor in the programs they support and have agreed also to integrate safety nets into the various reform programs in consultation with individual countries. However, we regret that the results of these efforts have so far been disappointing. We, therefore, call upon the World Bank to help us organize an international conference on poverty in Africa, much in line with the appeal made by the Honorable Minister Daniel Kablan Duncan during the Development Committee’s spring meeting.

Agriculture

Agriculture remains the central pivot around which all poverty-reduction programs must turn. We welcome the Bank’s recent strategy for agricultural development in sub-Saharan Africa. We feel, however, that this should be followed by preparation of a specific action program. We support the idea that appropriate policies and incentives will make it possible to increase farmers’ incomes, improve farm performance, and encourage private sector development. Nevertheless, decisive participation by the rural communities will only be achieved if appropriate technologies are effectively transferred to them and if they are provided with appropriate social and health infrastructures. In addition, if Africa’s small farmers are to be justly compensated for their efforts, we believe that it behooves the industrial countries to contribute more to set international trade on an equitable footing and to reduce or abolish subsidies they grant to certain agricultural subsectors.

Research is an important component of any agricultural strategy. We are counting on the international community to assist us by providing adequate support for the Special Program for African Agricultural Research (SPAAR) and the Consultative Group on International Agricultural Research (CGIAR). This assistance will ensure the desired efficiency in the areas of agricultural research in Africa, natural resource management, and environmental protection.

It is our belief that agricultural extension and research programs should be promoted and developed with the aim of establishing increased food security for our communities. The drought and famine afflicting many of our countries in 1992 pointed to the urgent need to establish food security systems and appropriate mechanisms for responding promptly to exceptional situations, thereby saving thousands of lives and alleviating human suffering.

Conclusion

In conclusion, we know that we must, above all, rely upon ourselves to take up the challenge of reversing Africa’s economic decline. We are determined to meet this challenge, specifically through the implementation of stabilization and structural adjustment programs and through improved project execution. The support of the international community is, however, indispensable. The adoption and implementation of the Trinidad terms, or of arrangements that go beyond current debt-relief schemes have become a matter of urgency. Moreover, the strengthening of our project execution and economic and financial management capacities requires the adoption of a new approach to technical assistance, such as that recommended by the World Bank. Lastly, we need the international community’s support to mobilize sufficient resources to enable us to achieve growth performance that will enable us to alleviate poverty in our countries. We invite the donor community to support our proposal to organize an international conference on poverty in Africa as soon as possible.

Statement by the Governor of the Fund for France—Edmond Alphandery

Since our last meeting in Washington, the world has undergone considerable change. The new political situation and economic changes that have occurred must be reflected in the objectives pursued by the Bretton Woods institutions. The arguments and recommendations presented by the President of the World Bank and the Managing Director of the IMF here today have clearly outlined the path that must be followed by the international community. The growth of the world economy appears to be on a firmer footing. There is a strong recovery, particularly in developing countries, a development that we warmly welcome. The situation of industrial countries, however, is mixed. Some are in recession, while others are experiencing sluggish growth. Overall, however, the outlook is uncertain, since, in many countries, the confidence of both households and businesses is still very shaky. In this context, three issues require particular attention today: exchange rate regimes, public finances, and international trade.

On the first point, the crisis of the European Monetary System this summer culminated in a widening of the bands, which succeeded in thwarting speculation. However, the aim of this enlargement was not to change the economic policy stance of its members. This is indeed the case for France. The four major components of our economic policy remain as valid as they were before August 2: to promote a revival of growth through measures to strengthen the competitiveness of our economy; to maintain exchange rate stability in Europe and maintain the balance of the major economic aggregates, which are the guarantees of sustainable growth and successful functioning of the single market; to broaden the convergence of policies and economies within the European Community (EC), where we have not, perhaps, done enough, and which was perhaps one of the reasons for the currency crisis in July; and, to implement the necessary structural reforms without which the unemployment problem cannot be successfully addressed.

As to the second point, public finances, confidence will depend on the efforts we shall make to reduce fiscal deficits that absorb too large a share of our economies’ resources. In all our countries, the control of fiscal deficits is essential to restore confidence and lay the basis for a fall in long-term interest rates without losing the precious ground gained in the fight against inflation.

Finally, I would like to say a word on world trade. France, whose economy is, as you know, very open to the outside world, as is that of its partners in the EC, is acutely aware of the impact of trade on economic growth. This is why we attach great importance to the speediest possible conclusion of the General Agreement on Tariffs and Trade (GATT) negotiations on the basis of a global and balanced agreement, respecting the interests of all parties.

Since last year, when the Bretton Woods institutions became truly universal by opening their doors to the countries of the former Soviet Union and to Switzerland, the Eastern European countries have continued their move toward democracy and market reform. The Bretton Woods institutions have made every effort to meet these new challenges. An excellent example and model has been afforded by the IMF, with its remarkably prompt action in preparing and establishing the new systemic transformation facility. My hope is that the governments of countries benefiting from this facility will continue to implement reform programs, enabling them to respond to this exceptional financial effort of the international community and make it fully effective. However, I also believe that we must take great care to prevent other forms of exclusion from hampering the successful actions of our institutions. I am thinking particularly of Viet Nam and Cambodia, and I am very happy to see that they have now regained their rightful place within our institutions. France, as you know, made every effort to ensure their readmission, as we are convinced, in light of positive regional developments, that the efforts being made by those two countries and their ongoing reform programs deserved the full support of the international community. This is why France initiated and organized the support group process in favor of these two nations.

But the fact that the Fund and the World Bank have expanded their geographic reach must not cause them to lose interest in the developing countries, in particular the very poorest nations such as those of sub-Saharan Africa. The IMF needs to continue to have a concessional window available to its poorest members and to help finance their adjustment efforts. For this reason, I feel it is essential to decide on a successor to the enhanced structural adjustment facility without delay. France has already expressed its willingness to participate in the establishment of such a successor facility and is prepared to contribute 15 percent, or over F 5 billion, in the form of loans at market rates and to make a contribution to the pledge and subsidy facilities. I call upon all countries to work for a speedy outcome of this process. For their part, the countries involved must undertake to conclude agreements with the Fund. France encourages them to do so and will support them with bilateral aid. This is the point I made in Abidjan to the countries of the French franc area. But the most striking problem is that of the poorest countries. France will never let them down. They have not yet started on the road to balanced and sustainable growth. Nevertheless, although they may not always achieve the results we expect of them, it is imperative that we keep up our assistance to those countries, since without it they will never cast off the shackles of extreme poverty.

Finally, with the dangers of inflation subsiding throughout the world, I believe that we must consider the possibility of a substantial new SDR allocation, particularly to accommodate the new members of the international financial community. On this issue, the Managing Director of the IMF knows that he has my country’s full support. With the changing face of the world economy, it is more necessary than ever to strengthen international cooperation. The Bretton Woods institutions have a key role to play in this area. France has always called for assistance and solidarity among peoples. This is why the Bretton Woods institutions know that, more than ever, they can rely on France’s unwavering support.

Statement by the Governor of the Bank for Portugal—J. Braga de Macedo

Let me begin by welcoming the new members of the Bretton Woods institutions. The World Bank and the Fund are now truly global organizations that provide us all a unique opportunity to exchange ideas and to build a consensus on how to manage our economies and how to cope with the present difficulties.

Examples of structural problems with global significance can be found in many parts of the world. This morning we have already heard a fascinating account from Central and Eastern Europe. Here I would like to highlight current policy challenges in Western Europe and Africa. The present situation in the European economic area is a matter for concern. It is characterized by negative growth, rising unemployment, and deteriorating competitiveness. Indeed, the European model of economic development is challenged at the very moment when former command economies and developing countries are increasingly attracted to it. The reasons for the present situation are to be found in an unbalanced policy mix and enduring rigidities in factor prices for labor, capital, and natural resources. A number of steps are being taken that should improve the prospects for a stable and sustainable recovery throughout Europe.

First, the determination of the 12 member states of the European Community (EC) to meet convergence criteria for economic and monetary union should help restore confidence. Second, with the slowdown in economic activity and the success in wage moderation, the inflation outlook has improved, paving the way for a less restrictive stance in monetary policy and for a decline in interest rates—that is, for financial rental—or moderation. Third and foremost, structural rigidities are being tackled. It is now acknowledged that the European model of economic development has allowed competitiveness to deteriorate and does not create sufficient employment per unit of output growth. We need to consider what changes should be made in the European model to restore employment competitiveness and growth. This is a very far-reaching issue, and we need to discuss and compare our national experiences, and also to learn from the experience of non-EC countries. Last year, I summarized Portugal’s medium-term development strategy. Let me add today that we are persevering in our convergence efforts now that the escudo is a fully convertible currency.

Turning to the African continent, and specifically to the sub-Saharan region, we can only be concerned with the decline in the share of World Bank financing to these countries at a time when the difficulties facing them are increasing. I hope the decline will be reversed next year, and I welcome the continued high priority for Africa under IDA-10.1 would like to suggest that the present situation calls not only for a strengthening of the existing forms of assistance, but also for new forms of policy cooperation that would complement and support the present instruments. Most of these countries now recognize the social benefits of an open market economy with free competition, and they are engaged in a process of deregulation, restructuring, and liberalization. They also show a political willingness to further regional integration. We could assist their efforts by encouraging the setting up of a regional multilateral surveillance mechanism with particular emphasis on monetary stability, along the lines of policy cooperation championed by the Bretton Woods institutions and the European Commission. A proposal for such a scheme has been discussed with the five Portuguese-speaking countries of Africa, and it has been welcomed. Its implementation would help African countries to build the institutional structure of a market economy, leading to a more favorable investment climate and a surge in African private initiative. Above all, it would foster the convergence of their economies toward strong and balanced growth.

These two examples point to the need for structural reforms. Let me conclude by saying that structural reforms are essential to restore stable and sustainable growth in the world economy. They are difficult to implement, and they require time to succeed. This is why we all need the continuous support of the Bretton Woods institutions and the forum for policy cooperation they provide. Policy cooperation is the key—as it was nearly fifty years ago, when the Bank and the Fund were established at a famous conference at the Hotel Mount Washington.

September 28, 1993.

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