Discussion of Policy at Fourth Joint Session1

International Monetary Fund. Secretary's Department
Published Date:
November 1993
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Statement by the Governor of the Fund for South Africa—Derek L. Keys

On the occasion of last year’s Annual Meetings, I remarked that I hoped it would be the last occasion that South Africa would address these meetings as a “non-normal” member of the Bretton Woods institutions. We’ve nearly made it. The momentous events of the last few days herald the imminent return of South Africa to the international financial community. We have therefore noted with appreciation both the statement by the Managing Director of the International Monetary Fund entitled “The IMF Is Helping South Africa Through the Transition,” and referring to the courageous steps that are being taken by South African statesmen to build a new South Africa, and also the prospect of renewed access to financial facilities—the first since 1982.

In addressing these meetings earlier, the President of the World Bank also confirmed the willingness of the World Bank Group to support development efforts in the new South Africa. In this context, we welcome the decision of the Board of Directors of the Multilateral Investment Guarantee Agency (MIGA) to reclassify South Africa as a Part II country. We also look forward to the International Finance Corporation (IFC) commencing operations and will work closely with the World Bank to develop programs that will reduce poverty and create employment. The fundamental point is that South Africa now is set in every respect to resume normal membership with the exception of the fact that we must still join a constituency on the Executive Boards of both the World Bank and the Fund. This is a matter that South Africa will aim to resolve with full legitimacy before the next election of Executive Directors. In the meantime, we express our thanks for the special arrangements made thus far for our representation and also for the manifold good wishes members have extended to us for further success in the process of democratization.

In this climate of reacceptance, South Africa looks forward to expanding its existing trade and financial ties and to establishing new linkages. We attach particular importance to our relationships with the newly industrializing economies, from whose policy experience we can only benefit. Along with all other primary producer countries, we have a particular interest in strengthening global economic growth. With them, we therefore regret the repeated delays in concluding the Uruguay Round of the General Agreement on Tariffs and Trade and are disturbed by increasing levels of protectionism that occur at a time when international commodity markets are still moving against the developing and transforming countries, such as ours. The extensive exchange market tensions of recent months have also had a negative impact on our own exchange rate, leading to fewer monetary policy options as well as limiting our flexibility in financial policy generally. South Africa thus continues to hope that the industrial world will more effectively acknowledge its responsibility toward global macroeconomic stability.

An international issue affecting developing countries is the accelerated trend toward regional integration. The complementarities and trade-offs between multilateral, regional, and bilateral trade arrangements are certainly areas where vision and a progressive spirit are needed. These realities of changing global and regional circumstances also need to be addressed by the countries of southern Africa. This is involving us in a careful assessment of existing bilateral and multilateral relationships so as to advance optimally the welfare of the peoples in the region. As South Africa transforms and rebuilds its economy within the confines of its limited resources relative to its needs and expectations, we also stand ready to play an appropriate role in helping address regional concerns and facilitating regional cooperation.

The financing needs of developing and transforming countries continue to be a major problem due to, inter alia, their limited access to international capital markets, existing debt burdens, global competition for funds, and budgetary and political constraints on official development assistance in many industrial countries. In these circumstances, the Bank and the Fund are bound to assume even more prominent roles. Their financial facilities, policy and technical advice, and donor coordination make such an outcome virtually certain. South Africa therefore appreciates the introduction of the systemic transformation facility and welcomes the present debate on a further SDR allocation and a successor to the enhanced structural adjustment facility. We urge the membership to ensure that the changes contemplated will effectively address the disadvantages of those members that need these facilities most.

It is well known that South Africa’s progress toward a nonracial democracy is gathering momentum. Democracy brings political freedom, but the transformation will not be robust if it is not accompanied by an economic system and policies that are just and encourage high-quality growth that leads to an improved standard of living for the whole population. A new South Africa will have to reconcile, to manage, the expectations resulting from democracy with the capacity of its economy. The greater the economy’s ability to grow and provide a stable foundation, the greater the country’s prospects to become a peaceful and stable political entity.

International experience suggests that there are few instances of successful, simultaneous political and economic liberalization. South Africa therefore needs to be cautious and yet courageous in its approach and must seek to benefit from the experience of others. We look to the international community and its multilateral institutions for support in our transformation. This community, which has displayed its collective will in past involvement in sanctions, disinvestment, and other measures to accelerate change in South Africa, now has the opportunity to remain equally involved by displaying that same commitment to support positive development in South Africa.

An appropriate amount and mix of foreign funding will be a crucial element in any future economic strategy. Responsibly managed, it makes possible greater immediate fulfillment of expectations and will also enable the economy to achieve a higher rate of growth. In stating this, we remain aware that the necessary condition for this as regards our own behavior is to conduct financial policies in a disciplined manner that will meet with the approval of the markets and international community and will support the servicing of future debt commitments. Unless this is achieved, expectations regarding the potential for resource flows to South Africa will undoubtedly be disappointed. Normalization of international financial relations is not a license to relax financial vigilance. If anything, it necessitates even more prudent policies to maximize the advantages of potential resource flows.

We have already made an encouraging start in establishing a credible track record to this effect. The final external debt arrangement with foreign banks announced two days ago, South Africa’s recent offer for tariff adjustments in terms of the Uruguay Round, the present discussions regarding the IMF’s compensatory and contingency financing facility, as well as in-depth discussions with the World Bank, IFC, and MIGA, involve all the major political groupings in the country and are a manifestation of the cooperative spirit and sense of financial responsibility that now exists in our country. For the first time also, the South Africans present at these meetings and involved in the various discussions reflect the full diversity of the peoples of our country. South Africa is not only a country of challenges and disparities, but also of opportunities and unutilized resources. It will require skill and leadership, sacrifice and patience, some measure of immediate gratification, and more willingness to wait for future benefits. Above all, expectation and reality must not be confused, but reconciled. With the assistance of our host institutions, the markets, and the international community, this can and will be done.

Statement by the Governor of the Bank for the Islamic Republic of Iran—Mohsen Nourbakhsh

Let me begin by welcoming the new members to the Bretton Woods institutions and wish them success in their development efforts. All available evidence, including that of the World Economic Outlook, suggests that the world economy has entered a new era in which the developing countries are fast becoming crucial contributors to global prosperity. With about 10 percent annual growth in imports, the developing countries can now directly affect the prospects for growth in the industrial world. The rapid expansion of developing country markets in recent years has been one of the very few elements of dynamism in the world economy that, if properly nurtured, could spell the difference between the resumption of growth and continued stagnation in the world economy.

The industrial countries have long advocated that developing countries must, with responsible economic policies, strive to become equal partners in the development of a prosperous world economy. At this juncture, it is particularly important that the industrial countries not lose sight of this vision at a time when the developing countries have unilaterally painfully adjusted, restructured, and reformed their economies and liberalized their trade and exchange systems with the expectation of a supportive global international trade and financial system. There are a number of steps that need to be taken to buttress the strength of the world economy.

The first is a successful completion of the Uruguay Round of trade negotiations. I will not elaborate on the risks that threaten the proper functioning of world trade should these negotiations fail; suffice it to say, to many developing countries that have adopted an outward-looking strategy and have pinned their hopes on the emergence of an open and fair multilateral trading system, the continuing impasse in the Uruguay Round negotiations has been profoundly disappointing.

Second, means have to be found to enhance developing country access to international capital markets in order to strengthen their productive capacity and to allow continuation of structural reforms. Clearly, the recent increase in private capital flows to developing countries is welcome, but these flows have been concentrated in a few countries. Ways must be found for other countries to benefit from these flows. The role of the international financial institutions is crucial in channeling these resources to these countries. It is also important that the traditional sources of program-based concessional lending by the Bretton Woods institutions be strengthened. We fully support the creation of an enhanced structural adjustment facility (ESAF) successor facility and the replenishment of the International Development Association (IDA), and we hope that the ESAF successor facility is fully funded and operational before the year’s end. There is also a need for a new SDR allocation to reduce the enormous pressure on the reserves of many developing countries, and we strongly support the valiant efforts of the Managing Director of the Fund in this direction.

Third, international cooperation is needed not only in the area of economic policy formulation but also in the creation of an environment conducive to greater mobilization of resources. In this regard, world financial resources would be greatly enhanced if the major countries would take the leadership to reduce their own military expenditures and aggressively move to lower various regional tensions in order to allow the developing countries the opportunity to realize savings in this area as well.

Fourth, significant efforts must be made to focus attention on the economic problems of Africa. While we highly appreciate and commend the efforts of Mr. Camdessus and Mr. Preston in calling the attention of the world financial community to the plight of Africa, we encourage them to be particularly vigilant in preserving the Bretton Woods institutions’ solidarity with that continent and to continue to provide an effective platform from which Africa can proceed to engage the wider global community.

As to recent economic developments in my own country, we have continued our reconstruction efforts while pursuing economic adjustment and reform. Thus, the fiscal deficit was reduced from 51 percent of the total budget in 1988/89 to 6.7 percent in 1992/93. For this year, we have enacted a balanced budget law, and we expect no deficit at all. In the monetary area we have eliminated liquidity overhang, removed credit ceilings, and liberalized the rate of return structure. Moreover, the exchange rates were unified a year ahead of schedule, and the trade and exchange system was fully liberalized. As a result, non-oil exports have increased by 70 percent a year over the past four years and economic growth has averaged 8.1 percent during the same period.

I would like to take this opportunity to make a few remarks to clarify my country’s policies. After the war and despite the fact that the United Nations (UN) has officially declared that the Islamic Republic of Iran was aggressed against and that the war was imposed upon it, to date no attempt has been made by the international community either to help Iran to obtain compensation for the devastation caused by the war or to provide any assistance in the reconstruction efforts. Even under these conditions, when our people have tried to undertake reconstruction by relying on themselves while simultaneously helping to maintain peace and stability in the region, all sorts of baseless allegations are being manufactured to distort the real image of our country. Among these unfounded accusations are that Iran is expanding its military expenditures and attempting to obtain weapons of mass destruction to destabilize the region.

One very important source of saving in our economy has been a substantial reduction in military expenditures. In the past two years this spending has been reduced by 7 percent, from 21 percent to 14 percent of the budget. The data provided by internationally reputed sources, such as Stockholm International Peace Research Institute (SIPRI) of Stockholm, show that Iran’s total military expenditures were 1.5 percent in 1990, compared with the average of 8.1 percent for the region. The International Atomic Energy Commission has also repeatedly verified that all research activities in the Islamic Republic of Iran in the field of atomic energy are for peaceful purposes. As a signatory to the convention on nonproliferation of chemical weapons, the Islamic Republic of Iran has no intention of obtaining weapons of mass destruction. As evidence of willful malice, however, over the past two months, considerable misinformation was spread regarding allegations that a Chinese ship was carrying prohibited chemical raw materials to the Islamic Republic of Iran for the purpose of producing chemical weapons. Inspection of that ship proved these allegations to be totally baseless.

Given the very sensitive nature of conditions in the Middle East and based on pragmatic analyses, my country believes that all activities that cause instability in the region should be stopped. It firmly advocates the principle that the destructive competition in military spending should be replaced by expansion in economic cooperation. As I have said, the Islamic Republic of Iran has already substantially reduced its military expenditures and, by continuing economic reforms to ensure sustainable growth, the Islamic Republic of Iran intends to play a significant role in the economic development of the region in an atmosphere of friendship and cooperation.

Statement by the Governor of the Bank for the Federated States of Micronesia—Aloysius J. Tuuth

The delegation from the Federated States of Micronesia is very proud to be here with you today to attend our very first joint Annual Meetings as full members. Even though the place of Micronesia in the global community of development finance is quite modest, we’re pleased to note that the chairs for our delegates are the same size as those for other member countries. Apparently they are not affected by SDR quota calculations. It is a distinct honor to convey my country’s sincere appreciation for that full measure of devotion provided by so many among you who have labored to make the Fund and the World Bank Group what they are today. Many of our wisest leaders in Micronesia adopted a cautious approach to the membership process. Now that it is completed, our nation’s IMF and World Bank memberships have been transformed from a ten-year-old dream to a reality.

The Federated States of Micronesia is a large country—somewhat larger than India—but with the ratio of land to water reversed! It is north of the equator, so while we’re on the best of terms with our neighboring South Pacific island nations, a more accurate geographical label for us is central Pacific. In fact, Micronesia is very central, being roughly equidistant from Honolulu, Tokyo, Hong Kong, and Sydney. For those of you who have never seen Micronesia, please accept this as my personal invitation. Please come and visit. Micronesians are a friendly people—some say the second friendliest on earth. We always have a smile for you, whether you’re “just passing through,” or have come for a nice long rest.

Recently, Argentina established diplomatic relations with the Federated States of Micronesia, bringing the list to 37 nations. Ambassadors from the Commonwealth of Australia, the People’s Republic of China, and, of course, the United States are in residence.

Literacy rates approach 90 percent for both men and women, and our population is bilingual. English is the second, but single-most widely understood, language. As a developing nation, we still suffer from an unfavorable balance of trade, so we look forward to working with other member nations of these august financial institutions to improve our export position at the earliest possible date. As for fiscal management, you may be interested to know that the Micronesian Government always balances its budget. As a matter of law, a deficit is not permitted.

Yet life in Micronesia is not completely worry free. We worry about energy prices. We worry about spending our development money wisely. We worry that we may have too many people working in government. Like any nation we dream of having a self-reliant and self-sustaining economy. As we learn more about the kinds of assistance that the Fund and the World Bank Group can provide, our belief that such a dream is achievable is reinforced. Nor do the policy reform ideas go unnoticed.

Micronesia’s economic assistance relationship with the United States is undergoing adjustment. Assistance is being phased out before our market economy is fully phased in. Privatization efforts are under active consideration, and we know we will need better infrastructure to support the growth potential of our private sector. We are hopeful that better education and health services will, in time, produce an educated and healthy labor force. We know we have a lot to learn, and much to improve, and we are probably going to make many of the same mistakes that some have made before us. With the assistance and guidance of the Fund and the World Bank Group, perhaps we won’t have to repeat every last one of them.

Statement by the Alternate Governor of the Fund for Canada—C. Scott Clark

It is a privilege for me to address the Annual Meetings of the World Bank and the International Monetary Fund. Let me first join others in welcoming our newest members. I know we have a very full agenda so I will keep my remarks brief and focus primarily on policy issues facing the Fund and the Bank.

Policy Directions for the Fund

We all share a strong self-interest in the smooth functioning of the international economy. Greater integration of goods, services, and capital markets, and the expansion of our membership in recent years, have increased the complexity of the oversight task this entails. In the current environment, the multilateral surveillance function of the IMF has an ever-growing importance. As the Managing Director of the Fund stressed in his opening address, a major challenge for the Fund is to help its larger members understand the longer-term consequences of policy actions and balance their domestic considerations and broader international implications. The mark of success in this area will be a more cooperative and effective growth strategy.

Turning to specific policy issues, perhaps the most pressing on the Fund agenda is the successor to the enhanced structural adjustment facility (ESAF). The ESAF was created to support low-income members that need special assistance to access Fund resources on a timely basis. Evidence to date suggests it has done this job well. Loans on concessional terms have allowed many low-income countries to strengthen their economies while maintaining sound debt-management policies. As we all know, the resources initially provided to the ESAF are now nearly fully committed. We believe it is imperative that arrangements be made to continue the ESAF’s valuable work. Canada stands ready to contribute to such arrangements as soon as an agreement on equitable burden sharing can be reached.

As the Managing Director noted in his remarks, the Fund has also discussed a new SDR allocation. In our view, such an allocation is neither appropriate nor necessary at this time. We see no convincing evidence of a shortage in global liquidity. More important, we believe that countries that pursue sound economic policies are able to attract the financing they need. For this reason, we believe that the resources currently available to the Fund through its regular facilities and the new systemic transformation facility (STF) are broadly adequate.

In grappling with the challenges facing countries in transition, the Fund has demonstrated considerable ingenuity in the establishment of the STF. The challenge ahead is to make it work. In this context, it is incumbent on us to keep its objectives firmly in mind. The STF was established to provide financial support to formerly centrally planned economies embarking on aggressive programs of economic reform entailing the adoption of market principles. The reforms supported by the STF are designed to bring a country to the position where it can negotiate a full-fledged stand-by arrangement with the IMF. A reform program must be comprehensive and pursued on a sustained basis. Not only do “on-again, off-again” policies provide no permanent benefits, but they also act to undermine the credibility of the whole reform effort. Experience has taught us that, in the pursuit of economic reforms, half measures are little better than no measures at all.

A credible reform package must have at its core the restoration of macroeconomic stability. This requires that budget deficits be brought under control and the expansion of credit moderated. It also requires an aggressive program of structural reforms. For many countries, the early restructuring and privatization of state enterprises has become a touchstone for the reform process. However, parallel progress on price liberalization, trade reform, financial sector reform, and the development of a professional civil service are also key, if nascent private sectors are to grow and flourish. While none of this is easy in practice, there is no other way. The hard lesson is that attempts to “buy time” and delay reforms only make the process of reform that much more difficult in the long run.

It is also worth reminding ourselves that the primary responsibility for transforming former centrally planned economies into well-functioning market economies does not lie with Western governments, nor with the international financial institutions, but with the countries themselves. They bear the main burden of this transformation, but also reap the largest rewards from its success. External assistance can only be effective when it reinforces a sound domestic reform program. Indeed, external assistance in the presence of severe macroeconomic imbalances simply contributes to capital flight.

Policy Directions for the Bank

Let me now turn to World Bank issues. Looking back over the past year, I am encouraged by the progress that the Bank has made in transforming itself into a more open and transparent institution. The recent decision to broaden its policy on the disclosure of information is a case in point. Development is a complex business that is easily misunderstood. Making more information available to the public about the Bank’s activities helps minimize such misunderstandings and, ultimately, can increase the confidence of all parties involved.

I am also encouraged by the Bank’s recent efforts to ensure greater local participation in the design and implementation of projects, particularly those that affect the poor. It is critical that the Bank embrace participatory development and the other key recommendations of the Wapenhans Task Force. The Action Plan, which was recently approved by the Bank’s Executive Board, should go some distance toward improving portfolio performance and increasing the effectiveness of the Bank’s lending operations. To be effective, however, these actions need to be implemented consistently throughout the institution.

For many donor governments, growing pressure on aid budgets has become a fact of life. My own view is that international institutions have been relatively slow to recognize this fact. Although the Bank and the Fund are beginning to adapt to this new reality, considerably more needs to be done. In the future, our institutions will need to exercise greater control over the cost of their own administration. I am encouraged by the assurances we have received from President Preston that next year’s World Bank budget will start from a more reasonable base than previous exercises. We expect to see the same approach to budgeting at the Fund as well. Cost control is essential if the Bretton Woods institutions are to retain the confidence of their members. Increased attention to administrative efficiencies can free up resources for other uses, particularly for the poorest members through transfers to the International Development Association (IDA) at the Bank, or to the ESAF at the Fund.

The International Trading System

The challenge of improving global economic performance adds greater urgency to the need for a successful conclusion of the Uruguay Round. As both President Preston and Managing Director Camdessus have stated, “trade comes first.” At this stage, it would be tragic if we were unable to resolve our differences. The benefits that would flow from lower trade barriers and improved access to global markets are readily evident. While a failure of the Uruguay Round would hurt everyone, it would be a particularly bitter blow to those countries that have pursued ambitious adjustment programs and liberalized their economies in order to benefit from global trading opportunities.

In addition to the Uruguay Round, I should report that Canada has passed legislation authorizing ratification of the North America Free Trade Agreement, or NAFTA. As with our early free trade agreement with the United States, our objective in NAFTA is to establish a building block for greater international cooperation and a more open world trading system, not to create an inward-looking trading arrangement. In line with this, NAFTA does not add barriers to trade with other countries. Under the current Canadian-Caribbean (CaribCan) arrangement, for example, 98 percent of exports from the Commonwealth Caribbean enter Canada duty free. This will not change. As such, NAFTA remains fully consistent with the principles that underlie the General Agreement on Tariffs and Trade.

Concluding Remarks

Next year will mark the fiftieth anniversary of the Bretton Woods institutions. Certainly, no one doubts the profoundly positive influence that these institutions have had on the world in which we live. They have tackled some of the most intractable problems facing the international system with flexibility and creativity. In the coming year, we will all be reflecting on this contribution and considering how we might enhance our efforts to strengthen global prosperity.

Statement by the Governor of the Bank for Lebanon—Fuad A. B. Siniora

It is indeed an honor and a great pleasure to address you today on behalf of Lebanon, a country that has suffered devastating and dehumanizing wars on its soil, but succeeded, through the tenacity and perseverance of its people, to resurrect itself and to join, once again, the peaceful nations of this world. Today, our people are bound more than ever to their independence and democratic institutions, and are firmly committed to the principle of coexistence and collective living, as well as to a comprehensive, just, and lasting peace in the Middle East.

Lebanon, since its independence in 1943, has always assumed a leading role in the Arab world as it evolved into the business, financial, and tourist center of the region. The advanced educational system and its strong tradition of openness and liberalism bestowed on Lebanon a comparative advantage as an indispensable intermediary between Arab countries and the rest of the world. However, it is to Lebanon’s misfortune that the regional political problems occurring during the early 1970s were reflected on the internal web of the country. Consequently, between 1975 and 1990, as the rest of the world progressed, Lebanon suffered from instability and violent conflict. War damage to infrastructure and physical assets is estimated at $25 billion with none of the principal sectors emerging from the war unscathed. As a result of these wars, effective control over the budget was lacking particularly from the mid-1980s onward, which entailed spiraling domestic demand pressures and inflation together with rapid and sustained depreciation of the Lebanese pound. Most significantly, and to the dismay of all Lebanese and many of our friends in the international community, a distorted image of Lebanon was projected to the world and the word “Lebanization” entered the English vocabulary.

Fortunately, the basis for a peaceful settlement to the conflict was provided by the 1989 Taif Accord for national reconciliation. Since then, the Government’s most important accomplishment has been the restoration and enhancement of the internal political stability and security in the country. The Lebanese security forces are once more reunited and the militia groups have been successfully dissolved and disarmed. At last, law and order have been re-established.

The restoration of peace and security and the formation of a new and credible Government in October 1992 following the first parliamentary elections in almost twenty years fostered renewed confidence especially since the country began to operate as a coherent state. Nonetheless, as you are all aware, a legacy of 17 years of war and economic dislocation poses an extremely daunting challenge that requires clarity of mind and purpose, a strong commitment, and stubborn perseverance. Let me assure you that the Lebanese Government is firmly committed to the reconstruction and rehabilitation of the Lebanese economy with particular emphasis on infrastructural development.

Upon taking office, the present Government succeeded in restoring a sense of confidence in the economic management of the country. This was reflected in the substantial reduction in the budget deficit, the sizable inflow of capital, and more specifically in the appreciation of the Lebanese pound which broke the cycle of exchange rate depreciation and inflation.

While welcoming these positive economic developments, we recognize fully that these gains need to be consolidated and built upon so as to ensure their sustainability. With this in mind, the present Government adopted several measures aimed at containing and reducing the drain on public resources through public expenditure control and enhancement of revenue collection. To date, the results of these efforts have been very encouraging.

In framing fiscal policy, however, the Government is striving to simultaneously achieve its goals of deficit reduction and the preservation of price and exchange rate stability on one hand, and the regeneration of economic activity on the other. It is thus preparing a reconstruction and public investment program that, over a ten-year period, will require about $10 billion. This program represents our vision for the future and aims at rehabilitating and expanding the destroyed infrastructure and productive capacity so as to enable Lebanon to regain and build upon its previous role in the region. Currently we are focusing on an initial three-year investment program that will begin to lay the foundations of a smooth-functioning economy.

Indeed, we recognize fully that the objective of restoring economic prosperity and achieving rapid and sustained economic growth hinges, crucially, on our ability to mobilize private sector resources, both Lebanese and international, toward domestic private investment. In this context, it is essential to recall that despite many years of successive wars on Lebanese soil, Lebanon has never wavered from meeting its obligations and honoring its external commitments. Most significantly, Lebanon has retained the sanctity of its liberal and free economic system characterized by an open trade and exchange system, full currency convertibility, a highly deregulated production structure, and sacrosanct respect for private property.

In sum, we in Lebanon have placed our hopes on the abilities of our people both at home and abroad, and the capabilities of our private institutions to shoulder the main burden of rebuilding our country. However, the needs that have evolved over a long period of chaos are far greater than what we can hope to mobilize from the Lebanese alone. Consequently, we look to our friends in the international community to support and assist us in overcoming the daunting challenge confronting us. History has taught us that it is only through the collective mobilization of internal and external resources and support that a country torn by war can hope to rebuild. Here I note with appreciation the statement made on behalf of the Arab Governors of the World Bank and the International Monetary Fund and by the Ministers of the Group of Twenty-Four on International Monetary Affairs calling on the international financial community to support Lebanon’s reconstruction and rehabilitation efforts.

Today, as we awake from our prolonged nightmare, we observe, sadly, that the process of fragmentation, disintegration, and destruction has spread throughout many parts of the world. To all the people who are suffering this undeserved plight, let me assure you that the Lebanese understand fully what you are going through and sympathize greatly with your current misfortune. However, we in Lebanon also know that the will of life ultimately triumphs over wars and that nations fragmented by conflicts emerge stronger, unanimous, and more capable of rebuilding. Through our own efforts in Lebanon as well as through the assistance of the international financial community, let us all hope that the word Lebanization will from now on be used to describe reintegration, coexistence, and nation building.

Statement by the Governor of the Bank for Poland—Hanna Gronkiewicz-Waltz

It is an honor for me to address this joint annual discussion of the Boards of Governors of the World Bank and the International Monetary Fund. I would like to welcome the new members who have joined us since the last Annual Meetings. Many of them are countries in transition. It is indeed encouraging that the number of countries undertaking the transformation from a planned economy to a market economy is increasing so dramatically.

In the last few years, one of the most important phenomena of the world economy has been the transformation of economic and political systems in the former socialist countries. As you are well aware, Poland has been one of the leaders of these changes from the beginning. It was very challenging to deal simultaneously with both political and economic changes, as two sides of the same coin.

There is no doubt that, in the short run, it would be much easier to deal with the economic reforms, having a strong government that is less dependent on a constantly changing political environment. However, we believe that the most important ingredient of economic transformation is the support of the population, who must be able to understand and accept both the transition itself and its usually enormous social costs. In Poland, we have found that this process requires a lot of time and effort, which is typical of any mass process of historic dimensions.

We have tried to achieve this goal through frequent local and national elections. Within the last four years, we have had three parliamentary elections, with a fifth government to be appointed soon. The last election took place only a few days ago. Although frequent changes are undoubtedly a costly aspect of the learning process, at the same time we believe that elections—and public discussions associated with them—will help the Polish population to gain faster and better understanding of economic and social changes.

Poland has been fortunate because these political changes have not had a substantial, negative impact on economic performance. Structural and institutional changes that have taken place during the transformation are already so deeply rooted in Poland that I believe the reforms are no longer in grave danger. The scale of some processes might change to some extent, but both the existence and the direction of economic reforms in Poland will proceed in the future as they have in the past.

Poland seems to have reached a path of sustained growth, with clearly reduced inflation. It should be stressed that the acceleration of economic growth is being associated with—and is probably the result of—a rapid growth of the private sector. Its share is already higher than two thirds of total employment and half of GDP. Inflation is decelerating as projected by the Government and the central bank, and growth is proving to be stronger than expected. In 1993, the GDP is expected to grow by more than 4 percent and inflation by approximately 34 percent.

The major economic difficulty we have been facing recently is the trade balance deficit. External factors have played an important role in aggravating problems with Polish exports. Nontariff barriers in Western markets, in the member countries of the Organization for Economic Cooperation and Development (OECD) in particular, have proved to be a major obstacle to some of Poland’s most competitive exports, already affected by the slowdown in economic activity in Western Europe. However, we have to stress that unless access to markets in the industrial countries is relaxed, economic recovery in the countries in transition will be slow, and their debt reduction will be problematic. The Polish authorities are giving high priority to normalizing relations with all our external creditors, and we are glad to see some progress in the negotiations with our commercial bank creditors on debt- and debt-service-reduction operations.

We are glad to see that the Polish economic program is supported by the International Monetary Fund under stand-by arrangements, as discussed by the Executive Directors two weeks ago. We appreciate the World Bank’s support of our attempts to improve our economic performance. Because we are interested in increasing the effectiveness of resources supplied by the Bank, we welcome the Bank’s initiative to manage its portfolio on an overall country basis rather than simply on a project-by-project basis. We are fairly confident that this approach will enable us to improve the effectiveness of the Bank’s loans to Poland. What lessons follow from this briefly outlined experience of the Polish transition process?

First, I would like to repeat the important findings unveiled a year ago at this podium by my colleague, Polish Minister of Finance Jerzy Osiatyński. He said that the countries undergoing the process of transformation should not be misled by macroeconomic success, such as a balanced budget, in the early stages of the reforms. Rather, they should concentrate on structural and institutional reforms.

Second, economic reforms in countries in transition should be associated with the growing participation of the population in elaborating policy—economic reform is usually a painful social process. In the long run, it proves to be beneficial, although in the short run, the more frequent changes of the government may cause more inconvenience.

Third, enormous restructuring efforts in the economies in transition cannot be separated from the economic restructuring process in the OECD countries. If this process is not followed in both groups of countries, the efforts of the countries in transition cannot yield fully satisfactory results. These countries have already paid a high price in the form of enormous declines in their economic growth and consumption, and of dramatic growth of the unemployment rate. Now we can observe a greater tendency in the OECD countries to use trade barriers to protect their domestic jobs. Are we sure this is the right example to be followed in the future by the countries in transition?

Statement by the Governor of the Fund for Israel—Avraham B. Shochat

I am very pleased to address these meetings of the World Bank Group and the International Monetary Fund. As a Minister of the State of Israel, it gives me the opportunity to talk about the exciting events in the Middle East peace process. We, in Israel and the Middle East, are living in exciting times. The walls of hatred around Israel are falling. In this, the birthplace of three great religions, where three continents meet, the chances for peace are better than ever before. This century may bring an end to the Arab-Israeli conflict. The Israel-Palestinian agreement signals a departure from the past for the sake of a better future.

We, in Israel, were able to generate economic growth, in spite of the conflict. Our neighbors now realize that, in today’s world, a prosperous future is an important part of peoples’ legitimate aspirations. Whereas before we fought over a piece of land, today we are committed to jointly making our region a showcase of economic cooperation. Israel will have to make painful sacrifices. We are ready to take risks for peace. Our economy will have to pay a high price, but in the end, the fruits of peace will be worth it. To ensure success, the international community must mobilize. We will need economic and political support. Israel looks to the world community for understanding, since those who are against peace have not yet been disarmed. The World Bank has a major role to play, and its excellent study on the economies of the West Bank and Gaza will promote the direction those economies should take.

Today, regional conflicts are the main threat to international peace. The key to the solution of many of these conflicts is economic cooperation and mutual interest in regional development. In areas of tension, the solution may be in the hands of the economic powers: with their help in creating trade links with all sides in a conflict, they can bring about reconciliation. The core issues today are economic ones. International cooperation, therefore, must be based on the ideas of market economics and free trade. This focus on economic relations means that economic disputes are damaging to the international system. Today, most countries want to copy the industrial nations. Export-led growth and free trade are the keys to economic development. Free trade is seen as the engine of growth, and this policy choice leads to domestic economic reforms. Free trade not only helps growth, it encourages international stability and cooperation.

Fears over the future of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) have created uncertainty. The Round has gone on three years longer than planned. Its success is still uncertain, and its failure cannot be allowed. The major economies must cooperate. Only cooperation and coordination can help the world economy. Economic disputes and trade wars threaten global economic growth. Failure to reach agreement may affect more than world growth. The Round’s success will add over $120 billion permanently to world income. The Group of Seven’s Tokyo summit agreements recognized this.

Small states find themselves caught between the major trading blocs. We depend on an open and working world economy. Small countries are like small companies in a national economy: we are not big enough to gain from economies of scale. We, therefore, have to depend on innovation, technology, and business skills. We play an important part in the production process. We complement the economic powers more than we compete with them. Israel, in particular, has much to contribute. In return, we need market access to support our economic progress and stability.

Israel has free trade agreements with the United States, the European Community, and the European Free Trade Association. Still, we want the Uruguay Round to work. Adding new areas to the GATT, such as trade in services, will benefit everyone. Every shock to the GATT hurts small nations, which depend on export markets. Despite our free trade agreements and the delays in the completion of the Uruguay Round, Israel has unilaterally taken trade liberalization steps, regardless of the short-term costs.

The changing world has created a chance for peace—a chance that Israel has jumped at. The process has gained momentum, and within this framework there is an important role for multinational companies to help us succeed. They must see that not only does political stability promote economic growth, but economic activity helps the forces seeking political solutions. Israel offers large companies the perfect location in which to invest. We have a skilled, educated, and multilingual labor force, an advanced infrastructure, and a developed economy. As peace comes nearer, Israel will be the place in which to be based. Already, many companies have understood this. Noneconomic reasons, like the Arab boycott, should be set aside. The interest and assistance of the industrial nations are also needed to help develop the region. For the sake of international stability, they will also need to open their economies to trade with the Middle East. They, too, must fight the Arab boycott since it contradicts the GATT’s principles and harms the region’s future.

With peace, Israel’s democratic, economically advanced society will contribute to regional stability. Israel must carry on with its economic reforms to fully benefit from peace. Our economy has had to carry the weight of a large defense bill, and, in the past, defense costs led to government deficits. For security reasons, the Government was too involved in the running of the economy, and we built up a large military industry. In all these areas we are changing. We are preparing for peace. The reforms in our economy and our reordering of priorities show this. We are liberalizing and deregulating our economy. The absorption of half a million new immigrants since 1989 has given us an added push. Only through reforms and economic growth will we be able to absorb the million immigrants who will have arrived by the end of the 1990s.

In 1992, our GDP grew by 6.6 percent. Our per capita GDP stands at $13,000. Inflation has been reduced to 10 percent. Exports grew by 15 percent and imports by 11 percent. At the same time, unemployment is dropping to 10 percent. As part of the reforms, we have brought the government deficit down to 3 percent of GDP. At the same time, we have reduced the tax burden on companies and individuals to European levels. Subsidies have been cut or abolished, and we have begun the process of privatization.

Our changes in the capital markets have been significant. We are committed to ending the few currency controls still in place. We are opening our banking system to greater competition. We want foreign companies to enter our market and be able to compete. By 1997, the sum of $7.1 billion will have been invested in infrastructure. Public and private investment will reach over $40 billion. This year, investment will increase by 20 percent over last year.

Israel is an example of what a state can do, and of the problems it can face. Our economic achievements have made political risk possible. Our continued success is important to all. We have chosen the accepted path for economic growth. In return, we expect our progress to be encouraged. We will be a test case: if the trading blocs do not assist us, then others will not follow our path. In this new world, we must be led by the vision of peace and global markets. Free trade and economic coordination and cooperation will act as engines for world growth.

Had I given this speech only one month ago, I would have ended it here. But I feel that the historical events that have occurred in the Middle East require some additional words. We have the chance to transform the Middle East from a region ridden with religious strife and rivalry into a showcase of cooperation. This region, rich in talent, pride, and ancient traditions, has proven in the past that it can bring great advances to humanity. Here at the junction of three continents, at the meeting place of great cultures and religions, we can create a new center for growth and prosperity. We have within our grasp the chance to incorporate the economies of the region into the mainstream of the international economy. For this, we seek the international community’s support in assisting the Palestinians and the forces in the region that support the peace process.

Statement by the Governor of the Fund for Nicaragua—Jose Evenor Taboada Arana

On April 25, 1990, Violeta de Chamorro assumed office as President of Nicaragua. The country and the international community knew that the task of rescuing Nicaragua from the deep crisis in which it was mired was going to be exceptionally complex and difficult. What was impossible for anyone to determine was precisely how complex, costly, and slow the execution of this task would be. It was an experience without precedent in the world: grappling at the same time with immense tasks that no other people had been obliged to tackle simultaneously. First, there was postwar reconstruction and the reconciliation of Nicaraguan families sundered by more than ten years of military conflict. Second, there was the building of democracy and of the constitutional state. Third, there was the transition from a state-controlled economy—overregulated and centralized, with major distortions and hyperinflation—to a market economy, with stability and growth. In brief, the aim was to achieve the radical transformation of an economic and political system, starting from a state of poverty and a society polarized by war. It is hard to distill into a few words the extraordinary difficulties of seeking to carry out this threefold task at one and the same time. Much has been accomplished, but still more remains to be done. I will try first to summarize briefly where we started and where we are and will then discuss some topics we believe need to be considered if we are to continue making progress. The successes achieved to date are due chiefly to a clear policy of reconciliation and dialogue pursued by the Government of our President, Violeta de Chamorro; to the great capacity for sacrifice and the optimism of our people; and to the generous international support received.

Transition from War to Peace

Between 1978 and 1990, Nicaragua lived through two domestic wars, separated by a short spell of relative peace. The wars left 5 percent of the population dead or wounded and 0.4 percent disabled; the combatants on both sides added up to 8 percent of the economically active population, and about 7 percent of that population worked to support the war. The damage to the economy caused by so many years of war, together with the destruction of the civil and productive infrastructure, is most extensive and warrants a special large-scale reconstruction plan similar to those put into effect in other countries in a postwar phase.

Today the civil war is over. The 22,000 members of the former Nicaraguan resistance have been demobilized. The army has been cut back to 15 percent of the size it was in April 1990. Financing the demobilization of so many persons under arms, facilitating their reincorporation into civil life, helping with their rehabilitation and with national reconciliation, and asking them to exercise patience so as to give democracy a chance and allow the economic and political transformation of the system to take place have been undertakings whose cost exceeds the country’s capacity and involves complications that are not immediately apparent.

Building Democracy

Nicaragua began its life as a democracy in 1990. A new political and social system is being built. In this new environment, the corrective stabilization and adjustment measures needed to rescue the economy from the crisis it is in are being implemented, while, at the same time, the human rights and freedoms of the citizens are being fully observed. Such measures conflict at times with the expectations of a people who presumed the change of government and of system would bring about a swift improvement in their economic situation. This conflict complicates the transition and fuels violent manifestations of discontent among the masses.

Transition to a Market Economy

In the 1980s, Nicaragua’s economy was largely controlled by the state and was, to a large extent, centrally planned. State enterprises handled all foreign trade; the state completely controlled the financial and insurance system and also a significant proportion of domestic trade. Today, trade is free and in the hands of the private sector. The state no longer participates in foreign trade. The state-run financial system has been replaced by a system in which 3 state banks, 7 private banks, and 13 totally private exchange houses are operating. Seventy-two percent of the enterprises nationalized in the past decade have been privatized, and the privatization of the rest is proceeding swiftly. The state and its enterprises have let surplus personnel go. Privatization has meant significant gains for the state because these enterprises operated at sizable losses that the state had to make good. As for properties confiscated by the previous Government, those of all types have been handed back when the Government was able to do so, and progress is being made with the issuance of compensation bonds to former owners whose properties cannot be restored to them.

Economic Recovery

In 1992 the decline of GDP over the past eight years was reversed and 0.7 percent growth was posted. This growth is very modest in comparison with that achieved by other economies in the early stages of transition, but adverse exogenous factors must also be taken into account: three years of drought followed by floods in 1993, combined with abysmally low international prices for our chief products. Considering the fall in GDP since 1978 and the increase in population, per capita income for Nicaraguans has dropped to pre-1950 levels.


Hyperinflation reached a record level of 33,657 percent in 1988 and in 1990 inflation was still running at 13,940 percent, the longest period of hyperinflation in world economic history. By December 1992 inflation had been brought down to 3.4 percent, and today, following a cumulative devaluation of 23.5 percent since January, inflation is not more than 22 percent.

Public Finances

In 1990 the total deficit amounted to 17.2 percent of GDP. Today, this deficit is just 4 percent. The current account deficit in 1990 was 15.2 percent of GDP, which was turned into a 3.8 percent surplus in 1993. These two figures clearly show the magnitude of the effort the country has been making.

Social Sector

In order to improve the Nicaraguan people’s living conditions and to mitigate the effects of adjustment in a context of limited resources, the Government is implementing a social agenda with the immediate objectives of increasing the efficiency of the provision of basic services (health, education, and social infrastructure); meeting the needs of the poorest and most vulnerable segments of the population (children in difficult circumstances, the disabled, and those lacking basic services); and supporting the productive sectors that are without access to the market’s social mechanisms (credit, technical assistance, etc.). The execution of special programs is effected through the Ministry of Social Action and the Emergency Social Investment Fund. The Government will continue strengthening the social security system because it is not only right from a human standpoint but is also necessary for preserving democracy in an impoverished society with an exceptionally high level of unemployment. Of total public expenditure in 1993, 46.6 percent is allocated to the social sector, the highest percentage in our history.

External Sector

The situation of the Nicaraguan external sector is very difficult because of the large trade deficit, the size of the country’s external debt, and its complete dependence on international cooperation. I will refer here only to the external debt inherited from the preceding government, which was in excess of $11 billion, the second-highest per capita level in the world and equivalent to six times Nicaragua’s GDP. The per capita debt was $2,750, which was more than six times the per capita income figure. This debt is equivalent to more than 45 times our annual exports. The countries listed as the most heavily indebted have on average a debt volume equivalent to 1.1 times their GDP and 4 times the value of their exports. In the last three years, Nicaragua has allocated more than 60 percent of all liquid resources received from external sources, both loans and grants, to paying off this debt. Despite all these efforts, no realistic solution has yet been found to this huge external debt.

The Future

Nicaragua’s adjustment has been dramatic, and stabilization has been most successful, but important tasks still remain. However, the high social costs associated with economic transformation are stressing the nation, and the urgency and importance of accelerating economic growth are becoming increasingly evident. And while the positive effects of stabilization are appreciated and there is consensus regarding the direction of adjustment, the necessity of introducing some measure of flexibility into the structural adjustment program, to suit it to the causes of the crisis and to Nicaraguan reality, is also recognized.

External Debt

The external debt, which we have been partially servicing only since 1991, has reached unsustainable levels. Without a prompt and radical solution to the inherited debt, including forgiveness of 95 percent, on average, of the total stock, Nicaragua’s recovery will be all the more difficult.

Adjustment of Main Economic Policies

We consider it necessary to agree with our friends in the international cooperative institutions and multilateral agencies on some adjustments that will enable us to align our economic program more closely on the realities of our situation and on the difficulties inherent in the threefold transition we referred to at the beginning of this statement. In particular, we emphasize the need to adapt the pace of fiscal adjustment, tariff reduction, and the liberalization of the financial system to our circumstances.

External Cooperation

We reiterate our gratitude for the external cooperation so generously extended to our people by friendly countries, private organizations, and the multilateral agencies. Without this assistance, we would have been unable to achieve the successes posted so far. Assuming that we are able to obtain an appreciable reduction in the amount of the debt, if we are to meet the cost of the threefold transition and also grow, the present levels of assistance will have to be maintained, with the addition of $200 million a year exclusively for economic reactivation and strengthening of the social security system. Especially important to the achievement of this goal is increasing the participation of the multilateral financing agencies. We recognize the cooperation furnished to Nicaragua. However, substantial additional contributions are required from these institutions, in order to obtain significant net resource flows that complement the country’s own efforts and those of bilateral cooperation.

Formalization of the Enhanced Structural Adjustment Facility (ESAF) Arrangement

We have been holding talks with the IMF authorities with a view to negotiating an ESAF arrangement. We are in agreement on the essence of the goals to be achieved, but we still have to reconcile the magnitude of certain of these goals and how quickly they are to be achieved. We trust we will be able to resolve these points shortly in line with the possibilities of our situation. We have done a lot. We want to continue moving ahead. But the magnitude and pace have to be consistent with our possibilities. Disbursement of other resources from multilateral and bilateral institutions, which are essential for maintaining the considerable advances that we, in conjunction with the international community, have been able to post to date, is subject to conclusion of this arrangement.


We reiterate our faith in the private sector as the motor for development; in the growth of exports as the essential factor for achieving self-sufficiency; and in free enterprise, free competition, and the opening of international markets. We are convinced that we are moving in the right direction. But we also believe that to ensure the success of the threefold transition that Nicaragua has to make, we must adjust the speed with which we pursue the goals to the hard facts of our circumstances and the social cost of each measure. In conclusion, allow me, on behalf of our President, Violeta Barrios de Chamorro, her Government, and the people of Nicaragua, to reiterate our firm commitment to the building of democracy, a lasting peace, observance of human rights, a market economy, and a better world for all. To accomplish these goals, we must continue to rely on the steadfast support of your governments, your peoples, and your institutions.

Statement by the Governor of the Bank for the Socialist People’s Libyan Arab Jamahiriya—Mohamed A. Bait El Mai

On behalf of the delegation of the Great Jamahiriya, I am pleased to congratulate you, Mr. Chairman, on your selection to preside over the Board of Governors this year. I would like also to convey my best wishes for your success in chairing these meetings and attaining positive results that will be of benefit to all peoples of the world through the various programs and policies implemented by the Bretton Woods institutions. It is also my pleasure to welcome the new members of the Bank and the Fund.

The world economy is still weak, and no improvement is expected before 1994. This is due, in particular, to weak growth rates in the industrial countries, attributable to their economic policies and the lack of policy coordination among them, and to the budget deficits in some industrial countries and the policies pursued to address them. As a result, the developing countries have been, to a great extent, adversely affected; although some of them have achieved reasonable growth rates, their standards of living have deteriorated, especially in Africa. The policies followed by the industrial countries have an impact on all countries of the world, especially on developing countries. It is, therefore, necessary for the former to reconsider their policy stance in order to achieve reasonable growth rates that could have a positive impact on developing countries and on the economic prosperity of the world. In this regard, the role of the IMF in the policy coordination process among industrial countries and in the monitoring of their economic indicators is to be emphasized.

We pointed out at the 1992 Annual Meetings the adverse effects of the industrial countries’ trade barriers affecting exports from developing countries, and the serious consequences thereof, leading to sharp decreases in the developing countries’ foreign exchange revenues and to the loss of valuable resources for their economies. This, in turn, has led to a deterioration in their economic and social development programs, and to an increase in their external indebtedness. Moreover, these barriers have been intensified through taxes and fees on imports from developing countries, as evidenced by attempts to levy a so-called carbon tax.

The Libyan delegation would like once again to point out the adverse effects of such policies, which harm not only the developing countries but also the industrial countries themselves. In our view, these barriers to world trade should be eliminated, including the proposed taxation of oil imports by industrial countries. We also urge these countries to open their markets to exports from developing countries, in particular to raw materials, in order to achieve an integrated world economy and the prosperity of all countries. In this regard, it is essential to reach an early conclusion of the Uruguay Round.

The development of the international trade and payments system requires an increase in international liquidity. The Libyan delegation therefore affirms the crucial importance of a new SDR allocation and urges the opposing countries to align themselves on this issue with the majority of Fund members. We support the proposal by the Managing Director to allocate SDR 36 billion for the period 1992-96, and that the distribution of these reserves should be reconsidered, taking into account the interests of the developing countries, including those of Eastern Europe.

The Arab people of the Jamahiriya are still suffering from coercive measures imposed by the United Nations (UN) Security Council in the context of the so-called Lockerbie crisis, and from other measures previously imposed by a superpower, resulting in an economic blockade of the Great Jamahiriya since 1986. The coercive measures imposed by the UN Security Council include an embargo on air travel to and from the Jamahiriya, which has had serious adverse effects on all activities in Libya. Among these are the following:

On the Human Level:

  • It has been impossible to deal with some 8,525 cases of serious diseases that cannot be locally treated: heart disease, kidney transplants, detached retinas, brain surgery and neurosurgery, bone marrow transplants, and various forms of cancer. Among these serious cases, 230 people have died during overland travel to airports in neighboring countries.

  • Roughly 200 infants and more than 50 mothers have died in childbirth, a problem attributable to delays in receiving specific drugs imported by special order.

  • Difficulties and complications in receiving and stocking all kinds of serums, vaccines, blood products, and materials used in testing for the AIDS virus, all of which require deep-freezing during transportation.

  • The death of 157 persons in the crash of a domestic Libyan flight, resulting from the lack of spare parts.

On the Economic Level:

Implementation of the air embargo has severely damaged the Libyan economy. The losses incurred by the various economic sectors are estimated at about $2.4 billion, affecting mainly agriculture, livestock, transportation, and communications.

The pressures exerted by some major countries on the Jamahiriya through the Security Council, in the context of the so-called Lockerbie issue, is nothing but a case of the Security Council applying a double standard to some countries, including the Jamahiriya. But the Jamahiriya has never threatened world peace and security, and indeed is unwilling and unable to do so. Libya is a small developing country endeavoring to develop its economy and use its resources for development purposes, in addition to supporting and providing loans to friendly and Arab countries for the same purposes. It is noteworthy that the Jamahiriya’s lending to 36 countries has totaled $3.5 billion, despite the fact that these resources are needed domestically for development projects.

The Great Jamahiriya has indicated its readiness to cooperate with the Secretary-General of the United Nations and other parties to implement Security Council Resolution 731. However, this offer has been rejected by those who now seek to force an escalation and to impose additional sanctions. In fact, those parties are threatening the international community; they would take unilateral action, and reach oppressive decisions, in the event the Security Council and the United Nations failed to respond to their wishes. On the other hand, many popular, governmental, regional, and international organizations are calling upon the United Nations to repeal the sanctions imposed upon the Jamahiriya and to resolve the conflict through dialogue and cooperation. The threat to apply economic and financial sanctions against the Jamahiriya and to freeze its reserve funds is a clear violation of the IMF Articles of Agreement, which prohibit member states from taking any restrictive measures that impede international payments and the normal flow of goods and services, especially when the currency of the country or countries taking or requesting such restrictive measures is an international reserve currency.

The draft resolution that those countries intend to submit to the Security Council is, in fact, overwhelming evidence of their disrespect for international law, conventions, and traditions. Regarding financial matters, the draft resolution calls for a freezing of all funds and other financial assets directly or indirectly owned or administered by the Libyan Government, or by Libyan public authorities or any other Libyan entity. The resolution’s purpose is to ensure that no funds or other financial assets can be disposed of, directly or indirectly, by Libyan nationals or residents, including any commercial or industrial undertaking or any public project directly or indirectly owned or operated by the Libyan Government or public authorities, or any other entity owned or supervised by the Libyan Government, or any person known to be a representative of the Libyan Government. Furthermore, these countries have gone too far in violating basic human rights, which they claim to advocate and support, and which they have endorsed in the past. If adopted, the draft resolution’s eighth paragraph would call upon all countries to take the necessary steps to bar any claim by the Libyan Government or public authorities, or by a Libyan national or any other Libyan entity, or by any person acting as an intermediary in respect of any contract, transaction, or commercial operation impaired pursuant to the measures imposed by the resolution or related resolutions. Is this the justice, or the human rights, protected by the international community as represented by the United Nations and its institutions?

By a 1986 Executive Order, the United States froze all Libyan financial assets within its territory. However, it did not succeed in imposing its will on other countries or even on the subsidiaries of its own corporations and banks abroad. On the contrary, the international financial community refused to adhere to this unlawful decision, and the courts have refused to take any action of the kind. As a result, Libya’s financial assets remained intact all over the world.

Now the United States, supported by the United Kingdom and France—whose courts and other institutions have refused to go along with the unilateral U.S. decision—is again seeking, through the Security Council, to force the international community and financial institutions to go along with the unilateral step taken by Executive Order in 1986. The draft resolution before the Security Council does not affect U.S. financial institutions and interests; rather, it fosters them, and threatens international financial institutions and interests, subjecting them to the foreign policy of a single country. To a great extent, the draft resolution is the opposite of international cooperation: it complicates financial procedures, is an impediment to financial flows and transactions, and imposes on individual countries resolutions that they did not approve.

Such a course of action is unacceptable. It behooves financial institutions to voice their opinions on this issue and to oppose this draft resolution, or even its consideration. The countries in question should resolve their conflicts with the Jamahiriya within the framework of the United Nations Charter, that is, through negotiation and intermediation and ultimately through the International Court of Justice. Individual actions should meet with individual punishment or reward. Political actions should be restricted, in their effect, to the political arena, while legal matters should be decided by the International Court of Justice. But financial matters and the free exchange of funds and goods should be dealt with separately.

The people of the Great Jamahiriya appeal to you to take the appropriate measures to resolve the economic, financial, and monetary problems which beset us and other peoples as well. These problems must be solved in order to achieve the security and prosperity of all peoples the world over, and to overcome poverty, illiteracy, and disease.

Statement by the Governor of the Fund for Bulgaria—Todor Yordanov Vulchev

The Bulgarian delegation is glad to welcome the numerous new member states of the World Bank and the International Monetary Fund and to wish them fruitful cooperation and economic prosperity. Three years after the beginning of the reforms in Eastern and Central Europe, politicians, businesses, international organizations, and the public at large have overcome the illusion of a fast and easy transition to a market economy and have finally realized the enormous complexity of the process. The countries in this part of the world still share similar problems, but the diversification is steadily increasing. It stems from the different conditions and factors that impact these countries, and the approach of the international financial institutions should be appropriately diversified. A case in point is the particularly adverse impact of the events in the former Yugoslavia on the countries in southeastern Europe.

So far, Bulgaria has managed to maintain its position as a stable and reliable partner in southeastern Europe and has actively started market-based reforms. Prices were liberalized, as were the money and foreign exchange markets. Though quite high, inflation is under control. The foreign exchange regime is liberal. Parliament has adopted the major economic laws. Approximately one half of the arable land and the retail trade businesses are in the hands of private farmers and traders. The implementation of a mass privatization program is pending, as is the solution to the problem of bad debts. There is no doubt that economic reforms are going ahead, even if progress is slower than we would like it to be, especially in the areas of privatization and tax system reform. There are important domestic reasons for this, such as frequent change of governments, certain political tension, and meager efficiency of the new democratic institutions. At the same time, it should be noted that Bulgaria has been very heavily affected by external events and factors out of its control, such as the trade and economic sanctions against the former Yugoslavia, pursuant to Resolution 820 of the UN Security Council, which Bulgaria strictly observes. The former Yugoslavia is our neighbor to the west, and the embargo has practically severed our shortest and most important routes to our western trading partners. Even the international waterway along the Danube is not safe and is, on occasion, blocked completely. Bulgaria has been left physically and geographically isolated from the West. Observing delivery times is difficult, and transportation of fresh agricultural products is practically impossible. Losses from the embargo are estimated at hundreds of millions and even billions of dollars. The embargo played an important role in reducing Bulgarian exports and changed our 1992 trade surplus into a deficit in 1993, thus resulting in a further drop in our business performance and reducing our foreign exchange reserves.

Since the beginning of the reforms, Bulgaria has been faced with the task of overcoming its excessive commitments (over 60 percent of our imports and exports) to the former Soviet Union. The events in this country—frequent changes in governmental institutions, high inflation, and uncertainty of settlements—further reduced our trade turnover with the former Soviet republics. Bulgaria has the production capacities and the products needed to provide for the basic needs of the former Soviet republics’ population, but exports are hindered by the lack of reliable payment mechanisms. The idea of creating an East European payment system or a European currency unit (ECU) payment system with the participation of Western banks has proved impracticable.

In 1993, Bulgaria suffered the worst drought in the past 60 years. We would not want to overstate its importance, since many countries sustain natural calamities, but only note that throughout this winter Bulgaria will have to import considerable quantities of agricultural products. It will cost us several million dollars and will be at the expense of our scarce foreign exchange reserves.

As you see, this year the transition to a market economy is being carried out in difficult conditions. Under these circumstances, fulfillment of all commitments and all indicators specified in our Letters of Intent and Development presented to the Fund and the World Bank is practically impossible. Unfortunately, what comes next is that the international financial institutions with which we cooperate most will effectively put us in a kind of financial isolation or, figuratively speaking, they will impose an embargo on us. As a result, we will be isolated from all sources of financial support. Certainly, we could survive even under conditions of isolation, but the social, political, and economic costs would be too high. We would not like the international financial institutions to change their rules and principles for our sake, but we hope that greater flexibility might be expressed. The targets are, of course, important, and they should be achieved, but the more important thing for this country and its people is to sustain the reform effort toward a market economy, democracy, stabilization, and growth. If the nonfulfillment of some targets or some transitory delay in the course of reform would deprive us of the support of the international financial institutions, we would face ever more intractable problems.

Our relations with the European Community and the bank creditors within the London Club are proceeding along similar lines. Bulgaria signed an Association Agreement with the European Community which was greeted with admiration in the country, although it will take years before we see its tangible effects. Nevertheless, the interim agreement on trade and trade-related matters has not come into force because of some disagreements between the member countries—disagreements which are by no means related to Bulgaria. Thus, there are some obstacles hindering our exports to the European Community countries at a moment when Western markets are of growing importance to us. As a result of the persistent efforts of the Bulgarian Government, on July 2, 1993 the Committee on the Sanctions against Yugoslavia (Serbia and Montenegro) to the Security Council of the UN approved a separate recommendation regarding Bulgaria that acknowledged its specific economic problems and urged all countries, international organizations, and financial institutions to render urgent assistance. So far our country has not received adequate assistance and support to solve its pressing financial, economic, and social problems. The serious losses and damages and the delay of the economic reform could be partially compensated by reducing the debt burden with the official creditors of Bulgaria and by reaching an agreement on the debt- and debt-service-reduction package with the private creditors. The fundamental issue for a quick resolution with the London Club is to recognize the financial constraints of Bulgaria and its capacity to service its debt.

Finally, we would mention that we hope the financial community will invest funds to solve the transportation problems in southeastern Europe. Not only are the East-West ways important but also the North-South axis, which seems to be neglected to a certain extent. Steps are already being taken to provide a transportation connection between the Mediterranean and the Baltic Sea. Such considerable investments exceed our present capacity, and they are needed in the short term. These investments have a positive effect not only on the Balkans, but also on Europe and the region as a whole, and they should be accelerated. At a time when the countries of Central and Eastern Europe are undergoing deep reforms, the international cooperation and limited support provided by the international financial community are more necessary than ever.

Statement by the Governor of the Bank and the Fund for the United Arab Emirates—Ahmed Humaid Al-Tayer

It is an honor and privilege for me to address you on behalf of the members of the Gulf Cooperation Council (GCC) of Arab States. Allow me to begin my remarks by welcoming the new members to the Bretton Woods institutions.

We are closely following, with optimism, the constructive efforts which led to the signing of the agreement between the Palestinians and Israel. Our countries have endorsed this agreement since its declaration. The excellent report prepared by the World Bank on the economies of the West Bank and the Gaza Strip highlights the enormous human and physical needs in both areas. We believe that the World Bank is particularly well-equipped to play a catalytic role in social development, infrastructure building, and the coordination of assistance to the self-rule authorities. Such efforts will require the full support and specific commitment of the international community. Accordingly, we cannot but welcome the various initiatives already announced in this respect. The GCC countries have offered substantial assistance to the Palestinian people over the years and stand ready to provide further assistance.

Our meetings are being held at a time when the world economy is going through what could only be described as a remarkable period of transition. At present, there seems to be a widespread and justified feeling that we are at the crossroads of a new era in history, ushered in over the last few years by a host of novel political events and developments which have taken shape at an unprecedented pace. Such developments have, therefore, led to the emergence of serious challenges which are compounded by persistent weakness in the performance of the world economy.

From this standpoint, collective action at this particular juncture is necessary to buttress economic activity. The major industrial countries have a special responsibility in this respect because their policies have a great impact on the world economy, and in view of their current weak economic performance. We believe that there is scope for adopting measures to increase business confidence and to improve the prospects for resuming noninflationary growth in the industrial countries by adopting economic programs aimed at reducing fiscal deficits over the medium term, coupled with structural reforms aimed primarily at improving the prospects for achieving more normal patterns of production. Moreover, it is important to hasten to introduce labor market reforms in order to increase the efficiency of these markets and enhance their ability to respond to technological advances and market signals. Such reforms should be designed in a fashion which is conducive to a radical solution to the problem of unemployment, which has been exacerbated in many industrial countries, especially in Europe, and seems to portend tremendous protectionist pressures.

It is clear that the current critical phase of the world economy requires extensive international economic cooperation. It would be no exaggeration to say that such cooperation hinges on the adoption of serious and persuasive measures to liberalize global trade. Such measures would not only improve growth prospects in the industrial countries in the medium and long terms, they would also improve short-term prospects as they increase business confidence. Better access to industrial country markets on the part of the developing countries and previously centrally planned economies would eliminate a major stumbling block which hinders these countries from fully harnessing their investment potential. From this perspective, we urge all parties concerned to spare no effort to successfully conclude the Uruguay Round of multilateral trade negotiations.

I have previously referred to the importance of collective action and cooperation to revive the world economy at present, and to enable the international community to transform the challenges it has faced over the last few years into new opportunities for reconstruction, progress, and prosperity. Collective action and cooperation are two main principles supporting our activity in the Gulf Cooperation Council for Arab States. In mentioning collective action and cooperation, I do not mean cooperation within the GCC countries alone, but am referring also to our cooperation with all countries, developing and developed, in all fields. Such cooperation is facilitated to a large extent by the fact that our economies, since their inception, have been built on the principle of market economies based on free trade, investment, and capital movements.

The rapid expansion of developing countries’ markets over the last few years has contributed significantly to supporting demand for industrial country exports, and to supporting world economic activity in a period of economic recession in the industrial countries. Available data bear witness to the vital role played by the continuous economic growth in the developing world as a whole during the recent recession as an invaluable source of global economic recovery. It is truly regrettable, indeed paradoxical, that while certain developing countries are opening their markets wide to industrial country exports, as in the case of the GCC countries, and while other developing countries are intent on achieving more liberal trade regimes through the implementation of Bank- and Fund-supported economic adjustment, industrial countries persist in imposing protectionist measures against the exports of the developing world, including our own. These measures include discriminatory taxes levied on petroleum products and are a cause of major concern for us as oil producing countries and for the developing world as a whole. Suffice it to say in this regard that in 1991, oil producing countries’ earnings from their oil exports to the European Community (EC) countries stood at approximately $70 billion, while the EC governments collected some $220 billion in taxes on said exports. Such a situation is a cause for grave concern for us, as it has a direct negative impact on our countries and runs counter to the spirit of cooperation which must govern oil producer and consumer relations if oil markets are to enjoy the state of stability which the GCC countries have relentlessly sought to achieve over the years.

The significance of the GCC countries to the world economy resides not merely in their ownership of the largest world oil reserves, but also in the fact that they are markets for the exports of goods and services from the industrial and developing worlds. Moreover, the GCC countries have played an extremely positive role over the years in providing concessional assistance to developing countries through national, regional, and international financing institutions, at a rate much higher, as a percentage of GDP, than industrial countries’ financial assistance. I would also like in this regard to underscore our unwavering support for international organizations over the years as proof of the special importance we attach in our countries to international cooperation. We welcome the support given, and being given, by the Bretton Woods institutions to Arab countries and invite them to continue their support of reform efforts through the provision of further financial and technical assistance. It would be remiss of me, in referring to technical assistance, not to highlight the importance for the Bank and the Fund of increasing resources for this end in Arab countries, especially those amongst them which do not use Bank and Fund resources, including GCC countries.

Finally, allow me, on behalf of the GCC countries, to commend the efforts made toward designing a program to improve the delivery of World Bank projects and achieve tangible results on the development front in debtor countries. I would also like to express our endorsement of the proposal made by the Managing Director of the IMF aiming at a new SDR allocation and our belief that the Fund should continue helping its poorest members.

Statement by the Governor of the Bank for Finland—Iiro Viinanen

On behalf of the five Nordic countries—Denmark, Finland, Iceland, Norway, and Sweden—I want to extend a warm welcome to the new members of the Bank. I would like to start by welcoming the success reached in the Middle East peace talks and the ensuing signing of the Declaration of Principle by the Israelis and the Palestinians. There is now an urgent need to consolidate and strengthen this process of conciliation by building the social and physical infrastructure and to revitalize economic activity in the region. The Nordic countries are prepared to assist the parties in this effort. The Nordic countries welcome the Bank’s prompt response to this great challenge by undertaking comprehensive analytic work and by setting up a trust fund for pre-investment studies. This would enable the Bank to take on an important role in the assistance to the occupied territories. The Nordic countries encourage the Bank to examine the possibility of financing investments in the occupied territories, without jeopardizing other high-priority Bank work.

Economic recession has been plaguing the world economy for some time now. Many industrial economies, including my own, are facing large public sector deficits, which affect their ability to increase official flows. At the same time, global challenges are mounting. Mass poverty prevails in large parts of the developing world, not least in Africa. The implementation of Agenda 21 will require large amounts of financing. Natural and man-made disasters are proliferating, thus adding to the need for humanitarian and other external assistance. At the same time, countries in Central and Eastern Europe are going through a process of painful, yet crucial, economic, social, and political transformation, also calling for support. The external financing needs of Central and Eastern Europe must, however, be met in tandem with the needs of poor developing countries, not at their expense.

The World Bank, with its primary objective of poverty reduction, has clear responsibilities to its entire membership. And the regional diversification of development challenges points to the need for more diverse strategies and tools on the part of the Bank. It must be able to assist middle-income countries to use efficiently the increased private capital flows. This inflow will in turn make it easier to channel official concessional flows to the poorest countries committed to reform. These countries still lack the basic social and physical infrastructure, which has to be built with the assistance of the Bank.

Stable economic and political progress in the countries in transition is crucial for peaceful development in Europe and the whole world. These countries’ own resources, human as well as physical, must be the prime instrument for this effort. But foreign private financing will also have to play a major role. Therefore, obstacles to such increased flows should be urgently removed. Crucial for both domestic and foreign private entrepreneurship is the creation of an enabling environment. The development of transparent and predictable legal, financial, and institutional systems is necessary in order to create confidence in the business community and among foreign investors. Systemic reforms and financing, therefore, go hand in hand.

The Bank has a critical role to play in assisting in the formulation of appropriate structural reforms. Under the chairmanship of the Bank, the consultative group process has been launched for many countries of the former Soviet Union to help coordinate the efforts of bilateral and multilateral donors. The Nordic countries are active partners in this process and are able to provide valuable experience gained through our own assistance efforts. In the case of very large countries, such as Russia, small pilot projects can be used regionally and be replicated elsewhere. I believe that here lies a larger scope for cooperation between our countries and the Bank than hitherto utilized.

Poverty is still the main development challenge ahead of us. It is understood more and more clearly that poverty is not only a problem of the poor. As poverty is strongly linked with population growth, environmental degradation, and, more and more often, with civil strife as well as with the problem of refugees, it has become a problem of all humankind. Economic growth and stability of any society is a prerequisite for poverty reduction.

More has to be done also with regard to the burning issue of population growth. Population issues have to be addressed taking into account all their social, economic, ethical, and cultural linkages. It is of particular importance to improve the economic security, health, and educational status of women in order to slow down population growth. The Nordic countries believe that the International Conference on Population and Development to be held in Cairo next year could be a turning point toward achieving a balance between population and natural resources as well as a definition of rights and responsibilities in this field.

The Bank has been showing how to maximize the poverty reduction effect of economic reforms. Environmental concerns should by now be integrated into any national program. To address the global environmental problems, it is vital that the negotiations on the restructured Global Environment Facility and its replenishment be concluded by the end of this year or soon thereafter.

Another necessary condition to improve living conditions in the developing countries is to address the health situation. In the Bank’s latest World Development Report it is shown that health policies have to be linked with economic programs; not only does better performance of the economy facilitate improvement in the health situation, but healthier people also contribute to economic growth. The Nordic countries look forward to proposals from the Bank on how to implement the recommendations of the Report. An interesting finding is that education of girls is one of the most effective health policies. This demonstrates the importance of gender issues as an integral part of all development efforts.

These are only a few of the resource demands ahead of us. How shall we cope with this equation of increasing demands and scarce resources? We have witnessed an unfortunate tendency to place the burden on the international financial institutions like the Bank and the Fund alone. It is obvious that concessional flows, bilateral and multilateral, are not adequate to cope with the global financing needs. The International Development Association (IDA) is the main channel of official concessional financing. It must be guaranteed adequate resources to perform its tasks. I urge all donors to make every effort toward a prompt ratification of the agreement on the Tenth Replenishment. It is also of paramount importance to look freshly into the financing of IDA in spite of tight budgets and cuts in development assistance in many donor countries. A fair burden sharing is central to safeguard IDA also in a more long-term perspective.

The Bank itself has a crucial role to play in other than the poorest countries with its traditional lending instruments, policy advice, and technical assistance. This role is enhanced by the Bank’s catalytic effect on private flows such as export credits. It is, after all, from private businesses and private capital markets that the bulk of the resources must come. Private flows are needed urgently, in particular as they can directly contribute to the creation of the export-earning capacity of the recipient countries. And it is through foreign trade that both developing countries and countries in transition can create new wealth, provided of course that these countries are guaranteed market access in the industrial countries.

The importance of a well-functioning, multilateral trading system, and thereby a predictable trading environment, cannot be repeated too often. This is particularly the case for countries undergoing a process of development, be they in Europe, Africa, or elsewhere. Apart from the badly needed impetus for the world economy, this is one of the most compelling reasons why it is so crucial to finalize the Uruguay Round this year.

Both private and official funds should be channeled and used efficiently and effectively. Funds channeled through aid budgets must have as large a catalytic effect as possible in the form of, inter alia, innovative cofinancing arrangements with private businesses and guarantees for borrowing in the capital markets. Grant funds should be concentrated on those most in need, with the grant element diminishing with the recipient’s increased ability to pay.

The rate of success of development programs and projects must also be improved. In this connection, the Bank has been one of the forerunners. We appreciate the frank and self-critical Wapenhans Report commissioned by Mr. Preston, the President of the Bank, and endorse the action plan to improve the performance of the Bank’s projects and programs. Effective implementation of projects deserves equal importance as the preparation and approval of new loans. It is important that all Bank staff gear up for this thinking. Recent Board decisions on a more open policy for disclosure of information and on establishing an inspection function are also important steps in the follow-up.

Not only are improvements in donor practices needed, but also in recipient countries’ own performances. This includes success in the implementation of economic reforms as well as what has been labeled as governance issues. Here the key words are accountability, transparency, and legal framework. It is vital that each development program and project is truly “owned” by the government concerned. This has also become a necessary prerequisite for sustained public support for development assistance in the donor countries.

In conclusion, needs are many but means are few. Moreover, a whole series of requirements needs to be satisfied in order to mobilize the scarce resources. We must be able to find and avail ourselves of the comparative advantages of each player in the development arena in order to maximize the impact of the multilateral system. I believe we are moving in the right direction, but much still remains to be done.

Statement by the Governor of the Bank and the Fund for Armenia—H rant A. Bagratian

These are the second Annual Meetings of the World Bank and the Fund attended by the Republic of Armenia. During this past year, Armenia’s GDP declined by approximately 30 percent. This followed a similar sharp decline in the previous year. The principal reason for this decline was the severe energy crisis. For example, power generation during the first eight months of 1993 was 4 billion kwm—only 67 percent of that in a comparable period in 1992. Again, this followed a similar decline in the previous year. Of a total installed capacity of 3,500 MW, 800 MW, representing the nuclear facility, were out of commission. Interruption of the transportation routes and dramatic increases in fuel prices were the other factors responsible for the energy crisis.

Consequently, the standard of living declined dramatically for a fourth consecutive year. The per capita income declined from $4,471 in 1990 to around $780 in 1993. Disposable incomes barely cover basic food and minimal services, and lifetime savings are declining rapidly. The living conditions of the vulnerable groups are particularly severe, and the situation is intolerable for the refugees and victims of the 1988 earthquake who, after nearly five years, are still living in temporary, makeshift shelters, without any heat, water, or sanitation. Considering the severity of the winters in Armenia, provision of some heating to the population is one of the most pressing problems for the Government.

We are very grateful for the humanitarian assistance that we have received from United Nations (UN) organizations, the European Community, the Red Cross, Russia, the United States, and others. We are also thankful for the investment and technical assistance provided by the World Bank and the European Bank for Reconstruction and Development. Such assistance during these difficult times is greatly appreciated.

Meanwhile, under the difficult economic conditions that I just described, the structural and institutional reforms have continued. The reforms have included completion of the agrarian reforms, total price liberalization, removal of all export restrictions and import quotas, and adoption of import tariffs for only a limited number of commodities, ranging from 5 percent to 20 percent of production value. A large-scale privatization program is scheduled to begin before the end of this year. Moreover, the organizational framework for a targeted social safety net has been created, and will be fully operational by this winter.

The reforms could have been more extensive, far-reaching, and could have been implemented more quickly if there had been more effective assistance from the international financial institutions. After nearly two years of intensive discussions and implementation of major reforms by the Government, the IMF has held back any financial assistance for economic stabilization. The World Bank, while it has provided very substantial analytical support in several sectors—for which we are grateful—nevertheless, is still hesitating to present an emergency earthquake loan to the Executive Board. This loan is mainly a humanitarian intervention to complete the unfurnished houses and other structures before this winter. The procurement processes have already been completed in accordance with Bank guidelines, but construction cannot begin because funding from the Bank is not available. Meanwhile, the construction season is passing quickly, and winter is approaching rapidly. Clearly, this blending of political considerations with economic criteria by the international financial institutions reduces their effectiveness in providing economic assistance. In the case of Armenia, lack of significant economic assistance during the past years has slowed the intensity of the reforms, particularly in the financial sector, which is imperative for successful macroeconomic management.

As I pointed out last year, the people of Armenia have endured much hardship in the hope of a better tomorrow, when peace will be restored to the region, and the benefits of the reforms will be realized by Armenia and its neighbors. The absence of significant foreign economic assistance during this difficult period of structural reforms and transition will slow down these processes to a point where the people will question the wisdom of the reforms and the sincerity of the Western economies in helping to improve conditions in Armenia and the region, and they will attempt to reverse the reforms and restore a variation of the old order.

Statement by the Governor of the Fund for the Former Yugoslav Republic of Macedonia—Borko Stanoevski

In the almost half-century history of the Bretton Woods institutions, a delegation has not often spoken on behalf of a country that is a member of only one of the two Bretton Woods sisters. Particularly unique is that this delegation represents one of the successor republics of one of the small group of founding fathers of these institutions. Let me tell you, we would rather not be in this unique situation—we wish we had been able to fulfill by now the conditions for membership of the World Bank by clearing the arrears we inherited as part of the former Yugoslavia. The former Yugoslav Republic of Macedonia is the poorest of the former republics of Yugoslavia; we inherited a debt that we—by ourselves—would not have incurred in the first place, being recognized as IDA-eligible as an independent nation. However, we have assumed our obligations, and we guarantee repayment, but, given the developments in the area and the external shocks, the amounts concerned and the mounting arrears cannot be borne by us alone, and we urgently need the help of the international donor community.

Unlike other former Yugoslav republics, the former Yugoslav Republic of Macedonia managed to break out of the federation without having to suffer the horrible consequences of the senseless war that is still ravaging that part of the Balkans. This was a result of the peaceful and democratic policies that it conducted throughout this period. We have proven our strong commitment to democracy and human rights, including those of ethnic minorities, by introducing and complying with appropriate legislation, as the international community appreciates. It is our deepest conviction that our ethnically diversified people can live in harmony, in peace and democracy, with each other.

We are also strongly committed to economic reform, as we are confronted with the same economic legacy as other countries in transition in the region. We know we have to reform, and we are prepared to implement reform. However, we are handicapped by an even harsher external environment than many of our neighboring countries. Indeed, we have introduced our own currency, we have reduced our inflation to a controllable level, we have adopted the necessary laws in the financial and banking system and the foreign exchange and trade system, and we have introduced a fluctuating exchange rate, which has been relatively stable. We are in the process of completely abolishing subsidized credits and have not only passed a privatization law but have actually started to implement it. Together with the IMF, we are working on stabilization and structural reforms, including wage control, tax policies, restructuring of the enterprise and banking systems, further reduction of the fiscal deficit, appropriate monetary policies, and putting in place an adequate social safety net.

Nevertheless, we are concerned that our efforts will fail to bear fruit, given the external conditions and shocks. In particular, the United Nations (UN) sanctions toward the Federal Republic of Yugoslavia (Serbia and Montenegro) are strangling our economy. Our neighbors at least have alternative routes and borders through which they can trade. Let me state clearly our readiness to implement those sanctions, which we have proven through serious investments in building border posts and providing the necessary police and customs staff. This clearly shows that Macedonia now fully complies and will continue to comply with UN sanctions. However, I would like the international community to understand the costs of this to our extremely small, open, landlocked, and vulnerable economy, which is choked because it cannot trade, as well as the urgent need of appropriate support for the former Yugoslav Republic of Macedonia. We have lost 70 percent of our former markets, and they cannot be replaced at short notice. Imports of crucial products, especially oil, have been interrupted. Our people have suffered a decline in income of one third over the last three years, and—even under the optimistic scenario—further declines are envisaged for at least two more years. We cannot survive without your help. Our democracy cannot survive without your help. Our economic reform cannot survive without your help. We need the IMF, and I sincerely express my thanks for its active contribution. We need the World Bank, and we are extremely eager to have the Bank contribute. For that, agreement on the clearance of arrears to the Bank is a precondition and that we cannot do without you, without the donor community. Furthermore, we need your support to enable us to embark upon a path of sustainable economic development.

We know that the former Yugoslav Republic of Macedonia has the vision and willingness to implement further reforms and might become one of the “success stories” in the process of transition to a modern market economy. However, we know that we have reached the point where the support of these financial institutions and the international community is of immediate urgency if our reforms are to yield further positive results. On behalf of the former Yugoslav Republic of Macedonia, I can promise that we will live up to the expectations and conditions connected with this support.

Let me end by sincerely thanking the authorities of the Kingdom of the Netherlands for taking the lead role as coordinator of the support group that would enable us to become a member of the World Bank and help us continue along the path to economic reform, on which we have already embarked. Allow me finally to extend my gratitude to all countries that already have committed or will commit themselves to participating in this process. Once again—we know we can do it, but not without you.

Statement by the Governor of the Fund for Uzbekistan—Mullajonov Faizulla Makhsudjonovich

I take pleasure in welcoming you on behalf of the Republic of Uzbekistan, which has celebrated the second anniversary of its state and national independence. The past two years on the path to a sovereign state constitution have held great significance for us. Notwithstanding predictions of some politicians and sociologists in our country, as well as in foreign countries, we have made every effort to strengthen political stability and social peace in the community and to reorient the population’s mentality in the direction of new values. We have provided a viable economic environment through the reforms carried out in the Republic and have created a sound foundation for the building of a democratic society based on the principles of free market relations. Uzbekistan has been able not only to achieve political recognition in the international community but to attract great interest from businessmen in all parts of the world. These have been years of discovery—destroying Uzbekistan’s information and economic isolation and acquiring the rights that are enjoyed by other countries of the world economy.

Uzbekistan’s large market has in practice not been open to international capital. The Republic possesses unique natural resources, high economic, scientific, and technical capacity, and intellectual and spiritual potential. History has predetermined Uzbekistan’s location at the main crossroads of Europe and Asia, connecting the West with the East and the South with the North. This location fills the prerequisite for the Republic’s development into a center for the international transfer of goods, services, and capital.

The development process chosen by Uzbekistan is founded on constitutional principles and thereby is aimed primarily at the creation of a socially oriented market economy serving the interests, conditions, and peculiarities of the Republic to a large extent. The strategy of economic reforms being implemented in Uzbekistan is based on the following five principles:

  • economic liberation from ideological tenets;

  • the state as the principal reformer;

  • the law dominating all aspects of life;

  • implementation of strong social policy; and

  • gradual transition to a market economy.

The introduction of these principles will ensure social and political stability in the Republic.

Uzbekistan has created a legal framework for the introduction of market relations; the privatization process is widespread in the country; and the list of subsidized prices is being shortened. Production and banking infrastructure has started to meet market requirements, and foreign economic relations are being liberalized in the Republic.

The process of changing forms of ownership is being developed actively, especially in the rural regions. Most prices have been liberalized, while only bread and flour remain subsidized. A social safety net for the population is being implemented. We should note that a legal and economic framework has been established in the Republic to attract and to insure foreign investments. In particular, the National Insurance Fund has been set up, following the opening of special accounts with foreign banks, with respect to foreign exchange values.

The procedures governing the establishment, registration, and activity of joint ventures have been liberalized significantly. At present, about 800 joint ventures in Uzbekistan have been authorized to trade without obtaining the normally required license for the export of their products. Joint venture revenue reinvested into the improvement of production, the introduction of modern technology, and the performance of social programs is tax free. Import taxes on all kinds of goods have been abolished; the importation of foodstuffs and medicine, as well as of equipment, spare parts, and raw material required for their production, is tax free. In this connection, I would like to draw your attention to areas where close cooperation would be to our mutual benefit.

First, the mining and metallurgical industry: It is well known that Uzbekistan ranks eighth among the world’s gold producers. The location of deposits and the economic potential of the country would allow a doubling of the output of precious metals. Projects such as the increased output and processing of nonferrous precious and rare metals are also long lasting.

Second, oil and gas: Exploitation is of great importance; at present, 150 gas and oil fields have been discovered in the Republic, and 92 are being exploited. The volume of gas output meets the Republic’s needs and permits exports to neighboring countries. In the near future, Uzbekistan will rid itself of the necessity of importing oil products and will then increase its exports of oil and oil products. As you know, this type of activity requires a high level of investment, as well as prospecting and project exploration, and the purchase and installation of complicated technological equipment. For this, we need reliable, experienced partners who are able to find optimal solutions.

Third, the textile industry: Uzbekistan is a major cotton producer, and it also produces silk, rayon, and wool yarn.

Investment in food processing, chemical, and other industries is of remarkable interest.

More than 4,000 historical monuments are located within Uzbekistan, many of which are under United Nations Educational, Scientific and Cultural Organization (UNESCO) protection.

The inflow of foreign capital is based on two principles. First, enterprises should receive foreign investment only if it is directed to the production of exports to be bought with hard currency. Second, all enterprises should establish mutually beneficial relations with foreign countries. Only then will we be able to build an open economy closely linked with the world market and industrial countries. Projects connected with the financing of construction, reconstruction, and the introduction of modern technology into the enterprises in the above-mentioned sectors are highly profitable and very attractive from a commercial point of view. We are pleased to note that foreign companies and banks have expressed great interest in cooperating with our country. For example, we have achieved fruitful cooperation in the area of gold production. Obviously, we recognize that without attracting foreign investment, it is not possible to build an open economy integrated with the world market and connected with developed countries. We are pleased that several banks and international financial institutions have opened representative offices in Tashkent. I should also add that offices representing large international and commercial banks and major world companies and firms are opening daily, so that it is possible to say that Tashkent is ready to become an important center on the revitalized Silk Road.

In the process of achieving these tremendous tasks, we are determined to continue implementing the reforms called for by economic transformation and to carry out a reasonable economic policy. At the same time, I would like to note that in order to achieve a successful transformation of the economic system, the Republic will require tremendous capital expenditures, owing to the level of internal resources, as well as foreign capital.

As is well known, Uzbekistan possesses great potential, but it remains one of the poorest countries of the former Soviet Union, with the lowest per capita income. The World Bank report “Uzbekistan: Economic Reform Plan,” based on the conclusions of two economic staff missions, states that the preliminary estimate of GNP per capita for 1992 was $860. However, at present, GNP per capita amounts to not more than $750. Under these conditions of large-scale reforms under way in the economy, the need to improve the welfare of the population requires the assistance of international financial institutions to finance large industrial development projects. We are most grateful for the work performed by the employees of the International Monetary Fund and the World Bank in developing programs in Uzbekistan. We would like to ask that early consideration be given to extending the Fund’s financial assistance to Uzbekistan. I would also like to take this opportunity to express my confidence that, in the future, our cooperation will develop actively on the basis of equality and mutual benefit for the good of 22 million Uzbek people and the whole world.

September 28, 1993.

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