Discussion of Policy at Fifth Joint Session1

International Monetary Fund. Secretary's Department
Published Date:
November 1993
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Statement by the Governor of the Bank for Cambodia—Sam Rainsy

It is a great pleasure and an honor for me to represent Cambodia at the Annual Meetings of the World Bank and the International Monetary Fund, here in Washington, D.C. Cambodia has returned to the international arena after a lengthy absence of 20 years, due to wars, genocide, foreign occupation, and unprecedented political turmoil. The renewal of our official links with the international community marks the commencement of a new era of opportunity for Cambodia and its people. This new era has just started. It has been marked by a notable achievement of the United Nations—the election organized in May this year. This has led to the drafting and adoption of a new constitutional monarchy. Last Friday, September 24, Prince Norodom Sihanouk acceded to the throne. He has promulgated the constitution and appointed the First and Second Prime Ministers to form the Royal Government of Cambodia. Our reentry into the international arena comes at a difficult time for the world economy marked by slower-than-expected growth. Mr. Camdessus, the Managing Director of the Fund, pointed out, in his press conference last week, that a weaker estimated growth in the industrial nations of only 1.1 percent in 1993 means a reduced world growth of only 2.2 percent. And this figure is only possible because of the Asian nations’ growth of 6 percent. He is rightly urging measures to stimulate growth in those slower-growing economies.

In Cambodia we are starting from a very low base. Due to the past destruction, Cambodia is today a dilapidated, disjointed, and exhausted country. This is why, by all international standards, Cambodia is one of the world’s poorest nations. Nevertheless, we expect our GDP to grow by 5 percent in 1993, and faster in 1994 to 7 percent or 8 percent. In this perspective, since the May elections, Cambodia has confirmed its irrevocable passage from a centrally planned to a market economy. The Government has launched a vast program of reform designed to put the administrative structure of government and management methods in line with the mechanism of a market economy. A macroeconomic stabilization policy has been recently implemented that has already reduced inflation dramatically. The 93 percent inflation over the first six months was reversed to a negative 10 percent over the last three months thanks to a sharp reduction in the budget deficit. We have now stopped printing money to finance the deficit.

Budget revenues have dramatically increased over the last few months. From an average of 12 billion riels per month up to June, they reached 16 billion riels in July and 22 billion riels in August. For the first time in many years, such revenues permit the Government to meet its payroll. It can cover its most urgent current expenditures. For the rest of our current needs, we count on international financial assistance for a further limited period. We are pursuing an active policy toward the improvement of public finances thanks to new fiscal and customs measures and a better control of the expenditures. For the first time in many years, we are preparing a real budget along rigorous and rational lines for 1994. With the appropriate technical assistance, we are setting up a legal framework for economic activities. We are also streamlining and modernizing our administration in order to reduce bureaucracy and increase efficiency. One of our major priorities is the development of human resources.

I want to thank the staff members of the Bank and the Fund who have worked with me and my colleagues in Cambodia to produce the Memorandum on Economic and Financial Policies that has established immediate monetary and fiscal objectives and set the scene for the medium term. This work will help Cambodia gain access to Fund resources from the systemic transformation facility (STF). This renewed access to Fund resources is only possible because of the invaluable assistance of our support group, whose contributions together with our own slender resources have enabled us to clear our arrears with the Fund. Later this week I shall be negotiating the terms and conditions of, and concluding the agreement for, a major International Development Association (IDA) loan. The loan will provide resources to meet the immediate balance of payments needs and provide funding for projects in many important sectors of the economy.

Three weeks ago in Paris, members of the International Committee for the Reconstruction of Cambodia (ICORC) added almost $120 million to pledges made in Tokyo in June 1992. I thank the numerous ICORC national contributors, the United Nations (UN) organizations, the World Bank, and our regional development institution, the Asian Development Bank, for the earlier and additional pledges. The Royal Government of Cambodia relies on our National Committee for Rehabilitation and Development, for coordinating with appropriate technical assistance all program and project activities to avoid unnecessary duplication of donor efforts and expedite the effective use of funds already committed.

I conclude with the sincere good wishes of the Cambodian delegation for the success of these Annual Meetings and with the hope that a revival in world economic growth will help Cambodia and other developing countries to enjoy sustained future growth.

Statement by the Governor of the Fund for Ukraine—Hryhory O. Pyatachenko

Mr. Camdessus provided us on Tuesday morning with the key tasks for world economic management. I would like to focus on the third task—global economic cooperation and integration—and to clarify some issues that, in my view, are worthy of greater attention. Although I will do this by reference to events in my own country, these are problems that derive from an analysis of interests common to all countries in the new and complete global community that is now represented in this august group of institutions.

Ukraine: On the Way to a Market Economy with Social Orientation

Ukraine is a young, independent state and a new signatory of the Bretton Woods agreements. On August 24, we celebrated our second anniversary of independence and, on September 3, the first anniversary of our membership in these highly respected multilateral financial institutions, the International Monetary Fund and the World Bank. Let me first note some key events in Ukraine during this year.

First, the democratic process in Ukraine is deepening on a legal and constitutionally stable basis. It is confirmed by the wise and undisputed decision of the Parliament to have early elections on March 27, 1994, and by that of the President to hold early presidential elections on June 26, 1994.

Second, there is no political party or group opposed to the approved strategic course of reforms leading to a market economy with a social orientation. This consensus on reform will be given practical meaning even before the outcome of democratic elections, with President Kravchuk taking full responsibility for leading the Government’s immediate stabilization and reform efforts.

Third, with these changes, we are developing a better mutual understanding with experts of respected international financial institutions through a growing awareness of certain difficulties of reform, which derive from the structure of the economy. These include the need to develop better mechanisms of managing and disciplining those enterprises not yet privatized, and the special inherited burden of a large military industrial complex that must eventually be subject to conversion or decline. We continue to gain experience in the economic reform process, moving from a central administrative command to a market-oriented economy. Now there is an urgent need to accelerate structural changes in the economy, formulating high-priority projects, including a list of enterprises that should be privatized. We must take steps to break inflation not only through monetary and credit policies now, but by following through with structural reform in the production area, where the root causes of inflation are found. Economic instruments that accelerate privatization and that improve state property management need greater attention.

Fourth, there is, unfortunately, a dearth of worldwide information about Ukraine’s positive steps toward economic reforms and its achievements. This explains, to a certain extent, the occasional negative comments on Ukraine’s reform implementation process. In fact, we have experienced many positive changes since the beginning of this year. The process of creating joint ventures with foreign partners has been accelerated, reaching a total of 1,800 enterprises, more than half of which are producing goods and services. In different parts of Ukraine, joint enterprises with American, German, French, Austrian, Polish, and other partners are operating. Overall, Ukraine has joint venture partners from 90 countries worldwide. In 1992, 14 state and 109 municipal enterprises were privatized; in the first half of this year alone, 230 state and 332 municipal enterprises have been privatized, and this privatization process embraces all regions of Ukraine. Entrepreneurship is supported by favorable conditions of taxation and credit policies. The total amount of new farmers’ plots equals almost 25,000, including 10,000 created in the first half of the year, averaging 25 hectares. We foresee extending favorable tax conditions as well as budget funds to support them, especially in obtaining equipment credits.

Common Interest of All the Countries in Economic Recovery

The problems and achievements of Ukraine are in many ways similar to, and even typical of, many former socialist countries. These are unusual historical times for this group of countries, and we are happy to see that the Fund, the Bank, and others have realized this and reacted to it with such unusual historical initiatives as the systemic transformation facility and, for certain countries, special preceding complementary financial initiatives by groups of donor countries. This is certainly the right approach to supporting countries where the difficult process of nation building, the evolution of democracy, and economic transformation must move forward simultaneously. We in Ukraine look forward to such early, widespread support to help reaffirm our political strategy and economic stability.

The experience we have all gained since the last Annual Meetings of the Fund and the Bank confirms the necessity for coordination of such unique efforts directed at creating evenhanded and fair conditions for the integration of all former socialist countries into the world market. Integration will provide mutual benefits from expanding free trade, investment potential, and step-by-step economic recovery for our country, our neighbors near and far, and the wider global economy.

Statement by the Governor of the Fund for Kiribati—Taomati Iuta

I am extremely happy to have this opportunity to address for the first time these very important Annual Meetings of the Boards of Governors of the World Bank and the International Monetary Fund. It is a very important gathering because both the Fund and the Bank are now recognized as truly worldwide institutions, and they are helping to deal with a number of global problems. On behalf of the Governors of the Solomon Islands, Western Samoa, Vanuatu, and the Marshall Islands, together with all members of the delegations, may I, once again, welcome the new members—Tajikistan and, of course, our Pacific neighbor, the Federated States of Micronesia.

It is very encouraging to hear that net total aid flows to developing countries from the industrial countries have reached a record level of over $120 billion. Unfortunately, flows from official development assistance sources only have declined and are likely to continue to decline in the immediate future. This will not be helpful for most of the small member countries in the Pacific, given their greater resource limitations, economic vulnerability, and dependency on foreign aid for financing their development programs.

In the case of Kiribati itself, over 90 percent of the development budget is financed from external grants and soft loans. For some of the island countries, natural disasters are becoming an annual event and are certainly very unpredictable. For these reasons, we will encourage all the development partners in our part of the world to undertake plans similar to those of Japan and the World Bank to develop financial and technical assistance packages on an appropriate scale that are relevant for addressing the specific problems of each country.

The projected decline in external grants to developing countries would probably mean that the level of grants for technical assistance would also decline. Members of my constituency are or will be implementing adjustment programs and sound macroeconomic policies that are crucial for sustaining the economic development of the islands. In order to implement the programs successfully, we will require a lot of well-designed technical assistance to formulate and establish the necessary legal and administrative requirements, which, at this stage, are lacking in most of the islands. The majority of our technical assistance needs should focus on capacity and institution-building efforts and increased support in human investment, in particular toward better health and education.

In the past, most consultancy activities and appraisal missions by the institutions have tended to leave the recipient country after completing the studies. They believed that it is the responsibility of the recipient countries to implement the recommendations of the consultants. With limited (domestic) funds and technical capability, our countries would benefit a lot more if the Fund and the Bank would also provide a technical assistance program that concentrates on the implementation of the recommendations with a view to achieving sustainability and self-reliance over the long term. We are very grateful that this approach has been informally adopted and urge that it becomes a formal part of future technical assistance schemes from the institutions to our part of the world. We are ready to assume our responsibilities on this basis, and we welcome the Bank’s increased emphasis on the quality of its assistance to member countries.

We welcome the World Bank Group’s renewed efforts to assist our region and are very grateful that the Bank has completed the economic and the various sector studies for our region. There remains a need to do similar studies in other important sectors, and we urge the Bank to undertake them as a matter of priority. The studies that we have now, such as those on the education and health sectors, contain urgent recommendations, and implementing them is one area where the Bank’s technical assistance would be very beneficial.

The international outlook remains subdued, but, as others have noted, the industrial countries could do much for themselves, as well as for the rest of the world, by using what scope there is to reduce interest rates further. As small open economies, we are affected by what happens in the rest of the world. We have all benefited from the opening up of the world economy in the postwar period. The signs of renewed protectionism are therefore very disturbing. We are particularly concerned that the Uruguay Round has still not reached any conclusion. We believe that we can gain a lot from world trade that is free from unnecessary tariff and nontariff barriers. Most of us have few commodities for export, and any restrictions will affect their competitiveness on the international market and will have a great impact on the returns we will receive. We can only hope that the parties concerned will “make the right choice” at the December meeting, which will be a fruitful one for all of us.

In conclusion, may I join the previous Governors in congratulating you on your appointment as Chairman of this year’s meetings and in wishing you very successful meetings.

Statement by Governor of the Fund for Croatia—Pero Jurkovic

It is my great honor and privilege to address these Annual Meetings of the Boards of Governors of the World Bank and the International Monetary Fund. As you all know, Croatia is a newly independent and sovereign country. Therefore, first of all, I would like to sincerely thank you for accepting Croatia as a full-fledged member of those two vital international financial institutions. Second, I would like to express my gratitude to our hosts for their warm hospitality and for the admirable organization of these meetings.

World economic circumstances are still marked by obstacles and weaknesses. In spite of a slight recovery in overall economic activity, high unemployment and sluggish growth in many parts of the world (as in most industrial countries, Europe, and Africa) remain a fact of daily life. Therefore, greater cooperation and coordination in policy actions to lay foundations for sustainable and noninflationary world economic development are indispensable. Both the Fund and the World Bank can play instrumental roles in the world development process. This is especially true when speaking about the creation of the global monetary order. The Fund’s role in strengthening surveillance of macroeconomic policies in general, and especially the exchange rate policies of its member countries, must be particularly stressed.

In the last couple of years, we have witnessed not only historical political changes, especially in Europe, but also a decisive policy effort to transform centrally planned economies into market-oriented ones. The creation of more than twenty new independent countries has obviously put a lot of new pressure on the Fund and the World Bank. But the Fund has responded swiftly to these new challenges, first, by extending its standard operations (stand-by arrangements, enhanced structural adjustment facility (ESAF), etc.) to transforming economies and newly formed countries, and second, by introducing other instruments, such as the systemic transformation facility (STF). Training activities and technical assistance offered by the Fund represent a vital part of the Fund’s role in creating the new monetary order, particularly for new member countries. Macroeconomic stability, structural reforms, and privatization represent the necessary conditions for successful transformation. International cooperation, and active support by the Fund and the World Bank Group, seems vital for sustaining the momentum of reforms in economies in transition.

The Croatian Economic Situation

Croatia today belongs to a group of economies in transition. Immediately after its independence, Croatia undertook activities to become a member of international financial institutions. As already pointed out, Croatia became a member of the Fund on December 14, 1992, as a successor to the former Socialist Federal Republic of Yugoslavia. On the same basis, Croatia became a member of the World Bank on February 25, 1993.

Unfortunately, the breakup of the former Yugoslavia resulted in open aggression on Croatia. This aggression substantially aggravated the already difficult economic situation. Like other former socialist countries during the 1980s, Croatia went through a decade of stagnation. As a result of war and the decomposition of the former Yugoslavia, the gross social product (GSP) declined to no more than half its value in 1990. War damages alone are estimated to be more than double the GSP in 1992 (or more than $20 billion). Risk-averse service industries, like tourism and transportation, which are considered comparative advantages for the Croatian economy, were hit particularly hard. One has to point out that the Croatian population increased substantially in a very short time due to the inflow of more than 500,000 displaced persons and refugees, half of whom came from Bosnia and Herzegovina. In spite of international humananitarian help, they represent a very heavy burden on the social safety net. About one third of Croatia’s territory is still occupied.

It is no surprise that macroeconomic imbalances are prevalent. The unemployment rate almost doubled from 9 percent in 1990 to a very high 17.2 percent today. The fall in real wages was equally dramatic: today they are less than half their prewar level. Very high inflation, in the range of 25 percent to 30 percent per month in the last year, remains one of the largest problems and greatest threats to economic reforms.

Therefore, stabilization policies are both warranted and necessary. I would like to point out that in December 1992 the Croatian Parliament approved an outline of the stabilization program. Its content and spirit have been highly praised by Fund staff. The main objectives of the stabilization program include free prices, a liberal external regime including competitive exchange rates, fiscal restraint, and restrictive monetary policies. These measures should be combined with structural policies supporting the program. Due to the continuing aggression on Croatia, occupation of its territory, and a large number of refugees, the full and comprehensive implementation of the program has been temporarily postponed, although major changes aimed primarily at curbing inflation will be introduced very soon.

Although current developments in the Croatian economy do not look very favorable, the medium-term prospects are much more encouraging. The Croatian economy has always been relatively open and liberal. Last year, in spite of an unfavorable environment, the external sector equaled the value of GSP.

Relations with the Fund and the World Bank

Numerous missions of the Fund and the World Bank have visited Croatia. The Fund’s staff report for the 1993 Article IV consultation and the technical assistance missions particularly stand out. Indeed, we are very grateful for all the sincere efforts of the staffs of the Fund and the Bank in helping Croatia. Unfortunately, no financial agreement has been reached so far.

In spite of all the present economic difficulties, positive results deserve to be pointed out: The legal framework will be completed by the end of this year. Foreign exchange reserves of the National Bank rose from virtually zero at the beginning of 1992 to almost $500 million today. Important changes were introduced in monetary policy. The abolition of selective credits, competitive exchange rate policy (the external sector remained relatively strong), and the increased financial discipline of banks are but a few of them. Being aware of the dangers of rising inflation, the National Bank has recently implemented substantive packages of new restrictive measures aimed at curbing the rise in base money. Those acts will ensure efficient control over the monetary effects of foreign exchange transactions. But strain on monetary policies remains strong. Large loss-making entities (such as shipbuilding, public enterprises, the health fund, etc.) that are still not privatized exert strong pressure on banks to extend new loans. Banks, with their nonperforming loans rising in turn look toward the central bank for fresh money. Financial constraints and structural policies obviously are without alternatives. Reforming the banking sector (especially by speeding up the process of privatizing banks) is still a task in front of us.

In its current activities, the Government has been taking some additional steps toward the necessary reduction of expenditures, such as wages, welfare, pensions, and public company loses. The introduction of a more adequate organization and functioning of the public finance system is proceeding in connection with the adoption of the new fiscal policy. Activities are focused on enforcing stricter control and collection of taxes, fees, and other revenues.

Today, in addition to transition problems, which are common to all countries moving toward a market economy, the Republic of Croatia is facing large economic and human consequences of war damages. This double and simultaneous task of stabilizing and restructuring its economy represents an enormous task for Croatia. Foreign help is necessary. Therefore, we intend to pursue the policy of cooperative and active membership not only in the Fund but in other international financial institutions as well. A stand-by arrangement with the Fund would have multiple benefits for the Croatian economy. First, it would mean very much needed financial help. Second, it would be a clear signal to other creditors and would be catalytic for investment in Croatia. Third, it would greatly facilitate current negotiations with official and private creditors. Without substantial foreign investment, the restructuring of our economy will be much slower than warranted. From our side, we can promise to be more decisive in regulating and meeting our foreign financial obligations. The same is true for the removal of some foreign exchange restrictions. Close cooperation with the Fund on technical assistance, policy design, and policy implementation remains very high on our agenda.

Croatia has assumed all the responsibilities of membership in the Fund and the World Bank. It has regularly serviced all old debts and commitments and has also contributed to the increase of their capital. At the same time, expectations that the very same institutions would be the first to become actively involved in meeting the urgent reconstruction, development, and social requirements of Croatia have been fulfilled to a very limited extent, mainly in the form of preliminary technical expertise and fact-finding missions. What, in our view, is of utmost importance is the fact that Croatia has a clear goal of where it is heading. Taking into consideration the sensitive geopolitical environment, Croatia’s policy priorities are directed toward achieving peace, stability, and prosperity in the region as a whole. Realistic expectations of the resources that could be mobilized indicate that Croatia would not need large amounts of new money during the program period. But, as already pointed out, initial and prompt support from the Fund and the Bank would be very helpful. The road to a market economy is much longer and more winding than previously expected. Combined with the challenges of the present situation in Croatia, namely, the consequences of the aggression on Croatia, this task looks very distant. But, “An obstacle is something you see when you take your eyes off the goal.” Therefore, we are confident about the final outcome of our decisions and efforts.

Statement by the Governor of the Bank for Fiji—Paul F. Manueli

On behalf of the Republic of Fiji, it gives me great honor to address the 1993 Annual Meetings of the World Bank Group and the International Monetary Fund. I would also like to gratefully acknowledge the excellent arrangements and preparations made by the Fund and the Bank staffs for these meetings. May I also take the opportunity to extend a warm welcome to all the new members of the Bretton Woods institutions.

In the past three years, global growth prospects frequently have been revised downward and, while this is realistic, it is noteworthy that the principal cause of these rather dismal prospects is the lack of growth in the industrial countries. While there are some encouraging signs of recovery in the United States and the United Kingdom, the recessions in Continental Europe and Japan are expected to persist. The industrial countries, therefore, need to earnestly pursue a coordinated policy agenda of fiscal consolidation, an interest rate structure conducive to investment, and structural reforms, particularly of the labor market.

Against this backdrop of hesitant and uneven recovery in the industrial countries, the global economy has been supported by the strong performances of developing countries. The successes of developing countries are built on the firm foundation of an outward-looking policy, with trade liberalization as one of its central themes. This cooperative action has led to the significant growth in trade among developing countries. Unfortunately, this liberal trading stance has not been reciprocated by the industrial countries. Instead, it is disappointing to see the sentiment of protectionism gaining popularity in response to sagging economic activity and persistent unemployment. Such a trend should be strongly resisted and reversed. International trade is the backbone of sustained world economic growth and the General Agreement on Tariffs and Trade (GATT) framework should be an integral component, promoting the spirit of multilateralism and supervising the ground rules of the game. We appeal, once again, to the major trading partners to demonstrate political leadership in bringing the Uruguay Round negotiations to a successful conclusion by year end. The momentum and confidence that will be lost if this deadline is not met may take years to rebuild.

Moreover, the adjustment efforts of developing countries cannot be sustained without access to financial resources. With the integration of the former centrally planned economies, the higher demand for liquidity is not matched by a concomitant rise in supply. The fiscal imbalances in industrial countries are squeezing the availability of official development assistance. While access to international capital markets by developing countries is slowly improving, access alone is not enough—the supply of capital must be adequate and on properly structured terms. Under the circumstances, there is a clear need for a new SDR allocation to supplement global resources and international liquidity. In addition, the absence of a new allocation will deny the SDR its potential role as the principal reserve asset envisaged by the Fund’s Articles of Agreement. We therefore support the Managing Director’s proposal for an allocation of SDR 36 million over the next four years.

We also welcome the timely introduction of the systemic transformation facility in response to the daunting challenges facing the former centrally planned economies. Furthermore, we are encouraged by the consensus to establish a successor to the enhanced structural adjustment facility (ESAF). While we would have preferred funding the ESAF successor from the General Resources Account, we could agree to the enlargement of the existing ESAF Trust structure and also agree with the Managing Director that the interest rate should remain unchanged. We urge potential contributors to immediately pledge sufficient resources to the facility to enable low-income countries to continue, without disruption, their adjustment programs. In this regard, we welcome the agreement of donor countries to the IDA-10 Replenishment of SDR 13 billion.

Let me now turn to the debt problems of developing countries. Thanks to the assistance of the Bretton Woods institutions and the support of the Paris Club, including the recent conclusion of the “enhanced Toronto terms” and the Trinidad terms, the debt problem no longer poses a threat to the international financial institutions. However, the debt problem is by no means over and it continues to constrain the economic expansion of these countries. Rescheduling alone is not enough. In our view, a more durable debt solution is one that is linked to the fundamental issue of affordability, while front-loading the reduction in the stock of debt should provide added thrust to the efforts of developing countries to shed forever their debt burden. Of course, these countries need to adopt a supportive macroeconomic environment. In this context, adequate provisions should also be given to countries such as Fiji that have, through prudent economic management, continued to fulfill all their debt obligations.

Furthermore, the developing countries need a stable exchange rate environment to maximize their contribution to world economic growth. We have watched with concern the crisis in the exchange rate mechanism (ERM). It brings home to us the important principles that economic fundamentals should underpin developments in foreign exchange markets and that convergence is a prerequisite for stability in a common fixed exchange area like the ERM. The global integration of capital markets creates the threat that volatility in exchange rates will have more unstable, wider, and more rapid ramifications throughout the world. The Fund’s supervisory role, therefore, becomes crucial, and we welcome the Fund’s enhanced surveillance procedures. But, at the same time, we encourage the Fund to shorten its response time and to adopt a proactive surveillance stance to avoid exchange market crisis.

Finally, I wish to take this opportunity to highlight some recent economic developments in Fiji. The parliamentary election, held in May last year, completed the return to normalcy of the political situation in the country. Despite the depressed international economic environment, Fiji has recorded positive growth rates since 1989, with a modest 2.8 percent growth achieved in 1992. The outward-looking policy initiated in 1988 has enhanced the potential of the country to graduate to a higher growth path. This strategy has been complemented by a package including, among other things, tax incentives for exports, the reduction and standardization of tariffs, taxation reforms, and the decentralization of the labor market. While we are fully aware of the magnitude of the problems that still need to be addressed, we are glad to report that this export-oriented stance has, so far, strongly supported the diversification efforts of the country, with significant output gains in the manufacturing sector.

We wish to conclude by expressing our satisfaction with the operations of the Bretton Woods institutions and our full endorsement of their policies. We are grateful to the Bank and the Fund for their past and ongoing assistance to the country. We look forward to the successful completion of the Bank’s project aimed at strengthening all levels of the education system in Fiji, and the timely implementation of the privatization policy currently being reviewed.

Statement by the Governor of the Bank for the Lao People’s Democratic Republic—Khamsay Souphanouvong

The delegation of the Lao People’s Democratic Republic is pleased and very honored to attend the forty-eighth joint Annual Meetings of the World Bank Group and the International Monetary Fund. On behalf of the Government of the Lao People’s Democratic Republic, we wish to convey warm greetings to the Chairman of these meetings, to the President of the World Bank Group, to the Managing Director of the Fund, and to the Governors and Delegates of all member countries. We join fellow Governors in welcoming new members of the two institutions. On this occasion, we would also like to thank the host country for its warm hospitality.

The 1993 Annual Meetings are being held at a time when the current global economic growth situation has been slower than expected. The prospect of the Uruguay Round remains uncertain. With the uneven growth among the regions, regional economic integration and formation of regional blocs have intensified. Such a situation has impeded the structural adjustment and exports of developing countries. In addition, the foreign debt of those countries has gradually increased. The gap between the rich and the poor countries is still growing. We hope that the industrial countries will demonstrate greater willingness to work for common development and to break expeditiously the deadlock of the Uruguay Round so as to pave the way for a smooth development of world trade and revitalize the global economy.

We support the Bank’s strategic priorities, especially on poverty reduction, human resources development, the use of natural resources, and environmental sustainability. However, recipients of International Development Association (IDA) assistance need uninterrupted support. IDA’s performance over the last decades has indeed proved that its assistance to the low-income countries in their economic development is highly effective. Therefore, we strongly urge the World Bank and the donor countries to continue their efforts to speed up the ratification process for the Tenth Replenishment of IDA. We furthermore are looking forward to seeing a consensus on the enhanced structural adjustment facility (ESAF) issue.

We believe that investing in development is not solely for economic growth purposes, but overcoming poverty must be the overarching goal of economic development. In line with such an understanding, from now to the year 2000, while focusing on infrastructure investment and export development, the Lao Government has also explored larger investment projects to tap the huge potential in natural resources of the country’s central region. First of all, we will focus during the next five to seven years on hydropower investment, which would be a big potential source of electricity for the neighborhood region. At the same time, to develop further trade activities, investment in infrastructure will also be made, for instance, transit roads from the Lao People’s Democratic Republic to other countries in the region. To exploit efficiently natural resources, focus will moreover be put on agro-forestry processing investments. Another important concern of our Government is the protection of the environment, particularly the tropical forest, which might affect the utilization of the lower Mekong River basin. Our Government also views highly human resources development and the social sphere in order to improve the living conditions of the people.

The continued assistance of the World Bank and the Fund constitutes a significant source of funds for our country and has actively contributed to the development and the economic reform in the Lao People’s Democratic Republic. The implementation of structural and adjustment programs has indeed contributed to a preliminary success of economic reforms in our country. This has been illustrated by the increase in GNP of 7.2 percent in 1992, up from 4 percent during the previous year. The inflation rate is at present 7 percent, down from 76 percent at the end of 1989. Foreign exchange rates remain stable. The deficit of the balance of payments has also been reduced.

Apart from fundamental achievements attained on the macroeconomic front, the Lao Government has also paid attention to social security policy and social safety nets. In parallel with the administrative reform and retrenchment of civil servants, we have established measures to increase salaries of civil servants. We have also promoted the poor small producers in rural areas by providing them with reasonable financial support. Funds for social insurance and other allowance funds have also been created.

We agree with the report on adjustment experiences in low-income countries, which indicates that macroeconomic stability depends not only on economic reforms, but is also a function of the external environment, such as the favorable world economic climate, external finance support, and the expansion of external trade. We, therefore, call on industrial countries to provide flexible policy on trade toward developing countries, as well as the necessary funds.

In the future, we do hope that the World Bank and the Fund will continue to further provide financial support for our strategic socioeconomic development plan from now until the year 2000. We are ready to discuss lending programs with the World Bank for the period 1993–96 as well as the implementation of the ESAF arrangement with the Fund for the period 1993–95. In line with the consistent policy of expanding foreign economic relations, we believe that international financial institutions, international organizations, and donor countries should continue to increase their cooperation by providing grant funds, concessional loans, and technical assistance and by promoting foreign investment and creating trade opportunities with our country.

In conclusion, we wish this meeting every success and are looking forward to increased support from the World Bank Group and the Fund.

Statement by the Governor of the Bank for New Zealand—Murray J. Horn

Over the past two years, the poor performance of the international economy has highlighted the fundamental necessity of maintaining good rates of economic growth. Indeed, one of the most important lessons from our recent experience is the need for governments and international agencies to be committed to the development and enhancement of conditions for sustainable economic growth. Growth is a necessary condition for ensuring greater economic security, in terms both of raising incomes and improving employment opportunities. In the current global environment, it is also timely to remember that strong growth makes it easier to maintain the momentum for greater economic openness; domestic policy reform; and economic, social, and environmental development. In this sense, it is self-reinforcing. That is not to say that the reforms necessary to secure growth should await favorable world trading conditions; they should not.

These are issues that New Zealand has, unavoidably, had to confront in a very direct way. After decades of poor performance, we were simply left with very few alternatives other than comprehensive policy reform. Just ten years ago we were probably the most overregulated and underperforming economy in the Organization for Economic Cooperation and Development (OECD). Our experience offers some salient lessons for other economies.

The first lesson is that establishing an environment conducive to growth has entailed two distinct phases. The first of these was macroeconomic stabilization and a dramatic liberalization of product, labor, and capital markets. The necessity and motivation for these reforms will no doubt be well understood. However, it needs to be emphasized that “one-off liberalization is not sufficient in itself to ensure growth. To reinforce these reforms has required a second policy phase—the establishment of a comprehensive and ongoing economic strategy package to maintain the focus of policy squarely on a “growth-friendly” environment.

In the case of New Zealand, there are four key components to such a strategy: pursuing stable and balanced macroeconomic policies; building stronger international linkages; promoting a more competitive enterprise economy; and pursuing a more highly skilled work force. It is important that the elements of the strategy interact in a mutually reinforcing way to foster economic growth. For example, by reducing the degree of uncertainty about future prices, taxes, and interest rates, stable and balanced macroeconomic policies improve the incentives and ability of investors to identify profitable investment opportunities. In particular, when combined with greater international openness, they increase the likelihood of high-quality foreign investment. This in turn can be an important source of new technology, innovation, and trade linkages.

The second lesson concerns the management of government itself. Better economic outcomes depend on more than just the performance of the business sector. They depend equally on the performance of the public sector. Put simply, a prerequisite for good economic management is good government management. There are several aspects to this: corporatization of government trading activities, privatization of commercial enterprises, and reform of the core public sector. In this regard, New Zealand has focused particular attention on instituting public sector management and financial reforms. These measures have undoubtedly improved the efficiency of the public sector as well as the quality of expenditure decisions. Perhaps more important, they have also increased the accountability of public sector agencies.

The Government has also recognized that “bottom-up” pressures on fiscal decision making should be reinforced by “top-down” pressures. In a major new policy initiative, the Government has introduced legislation that will require it to regularly make public an explicit fiscal strategy. This strategy will include its medium- and long-term objectives. The Government must also make explicit the implications of its fiscal stance in terms of aggregate expenditure, taxation, and debt levels over the following ten years. This approach increases the transparency of fiscal policy actions and raises public awareness of the need for sound financial performance by government. It constantly reminds decision makers of the need to maintain a medium-term focus. Too often fiscal decision making is distracted by short-term pressures.

The third lesson is that, while the gains from reform are substantial, they will not always be made easily or quickly. Too often institutions and individuals promoting reform have been inclined to oversell the immediacy of the benefits. Although a faster transition may have been possible, it has taken almost a decade of substantive reform in New Zealand for widespread benefits to emerge, and the path of growth has required substantial economic and social adjustment. Our experience is that there are no easy options. Meaningful change requires both persistence and a commitment to tackle the “hard” issues: industrial protection, agricultural subsidies, labor market rigidity, and welfare reform. There is often a major question as to whether reform is worth it. Unequivocally the results in New Zealand speak for themselves. Despite being a small trading nation with a predominantly agricultural export base, we have weathered the international recession well. Indeed, New Zealand now has one of the fastest growing growth rates in the OECD, underpinned by a very strong export performance and combined with one of the lowest inflation rates. Both the budget and current account deficits are improving, and gains are flowing through into stronger investment and employment. More important, for the first time in over twenty years, all the signs indicate that the recovery in performance will be a lasting one, anu this is reflected in business and consumer confidence.

Clearly both the Fund and the Bank have a key role to play in encouraging and supporting economic policies that are conducive to growth. There are two aspects to this role. The first is to promote international coordination and the effective monitoring of country economic developments. The second is the pursuit of financial and technical assistance programs that will enhance macroeconomic stabilization, competitiveness, growth, and increased opportunities for the disadvantaged. It is particularly important that development and structural adjustment assistance be framed, in terms not only of providing financial resources, but also of advice and practical support in favor of sound fiscal and monetary policies and open and efficient markets. When lending institutions are contributing financial resources, it is crucial that they ensure that such assistance is targeted to the areas of greatest need and effectiveness. This message is reinforced when the international financial institutions exhibit tight budgetary discipline.

Finally, international financial institutions must continue to play a leading role in achieving and supporting stronger international trade and investment linkages. In the case of trade, increasing attention is being given to bilateral and regional trading arrangements, including managed trade arrangements. This reflects frustration over the shortcomings of existing multilateral trading arrangements and the difficulty in bringing the Uruguay Round of multilateral negotiations to a successful conclusion. The absence of a completion to the negotiations is a major stumbling block to world trade and growth prospects.

It is quite legitimate for developing nations to question the point of liberalization if their export potential is subsequently held back by the failure of wealthy nations to agree on reducing trade barriers. Again, New Zealand offers a lesson. We have unilaterally removed agricultural subsidies, abolished import quotas, and reduced tariffs. The results are unambiguously positive—a more efficient, competitive, and innovative export sector. It is all too easy to blame others for the failure to bring the Uruguay Round to a conclusion. We all have a responsibility to ensure that it is concluded successfully because we all stand to benefit from the liberalized trading environment that will result. But political courage and commitment will be needed to put aside narrow sectoral interests and weigh up the overall benefit of the package across all sectors. These negotiations offer a far wider and deeper range of gains for the world economy than any previous Round. But if the Round is not concluded this year, there is a real likelihood that it will collapse and these gains will be lost. I would therefore urge you all to support the completion of the Round this year.

Statement by the Governor of the Bank for Papua New Guinea—Julius Chan

It is with great pleasure that I make this statement on behalf of the independent state of Papua New Guinea. I join with other countries in congratulating the organizers on the usual efficient arrangements they have made for the meetings and also for the wonderful hospitality that has been provided.

I should like to focus my statement initially on the difficulties being experienced by small trading nations such as Papua New Guinea as a result of the protracted world recession. I shall then go on to develop the view that both the Bank and the Fund could be doing more to assist the smaller trading nations through the development of more innovative and efficient responses to meet the needs of the times.

Papua New Guinea is blessed with abundant resources and, as a result, is doing better than many smaller nations in these difficult times. Recent economic growth has been strong at 9.5 percent in 1991 and 9 percent in 1992 and is likely to exceed 10 percent in 1993. Much of the growth has been driven by new gold and oil production. Inflation was contained to 4.3 percent in 1992 and, to date, is running at levels below this for 1993.

The monetary aggregates are stable, with the total money supply growing by 12.5 percent in 1992, and similar growth anticipated for this year. The recent growth of private credit has been modest. A phased reduction of almost 5 percentage points in interest rates has occurred in the past year and should decline not only more, but faster.

The external accounts are at a comfortable level, with the current account being in considerable surplus for over 15 months now, since oil exports first came on stream. In annual terms, the current account surplus is about 10 percent of GDP. While foreign reserves have not yet accumulated significantly, there has been a very marked reduction in the private and public debt over the past year. The ratio of outstanding total private and public debt to GDP is expected to fall from 80 percent in 1992 to below 60 percent by the end of 1993.

However, to some extent, these sound and, indeed, relatively impressive economic indicators mask the difficulties that have been imposed on Papua New Guinea as a result of the current sluggishness in the world economy. On the export side, Papua New Guinea is principally a trader of commodities and, in this regard, is in a similar position to many other producers that have been confronted by an extended period of weak demand and very low commodity prices. Papua New Guinea is mainly affected by the collapse in oil prices but has long been disadvantaged by low prices for coffee, cocoa, copra, and palm oil. Our only bright spots in 1993 have been some modest improvements in the prices of gold, timber, and coffee, but even these upturns now seem to be proving short-lived.

While the current world situation has not led to any foreign exchange crises for Papua New Guinea, as it has for many other countries, the effects have, nevertheless, been severe. With most of our population employed in rural areas, the depressing effects on productive employment generation and on domestic production, trade, and commerce have been severe. The Government has endeavored to offset adverse price movements by providing some support to growers in the short term. This, of course, involves a high cost to the national budget but is necessary to keep the 90 percent of our population living in rural areas in active rural development instead of migrating to the cities. Our national budget has been particularly disadvantaged by the collapse in oil prices, weak copper prices, and, despite some improvement in 1993, the general long-term weakness in the price of gold. To some extent, we have been giving away our scarce nonrenewable resources at very low returns to the people of Papua New Guinea.

The revenue effects of these international circumstances have been severe and have left small nations with difficult choices between cutting government goods and services, raising taxes at a difficult and inappropriate time, or widening fiscal deficits and increasing public borrowing. Our own fiscal deficit rose from 1.2 percent of GDP in 1989 to 5.6 percent of GDP in 1992—a level that we deemed to be excessive and unsustainable over the medium term. Papua New Guinea has had a fine record of prudent and sound macroeconomic management over the years. The Government continues to believe in strict fiscal discipline, including the running of responsible fiscal deficits and the attainment of budgeted expenditure levels. We are conscious of our medium- to long-term objectives and plan to realign our macroeconomic parameters over this time horizon. We are constantly engaged in reducing our fiscal gap. This process commenced in 1993 and further reductions are planned for 1994 and beyond.

Partly because the policies and procedures of the Fund and the Bank are quite unsuited to such nations as Papua New Guinea, most of our external financing this year is being provided from commercial banking sources. Because we manage our affairs responsibly and are not in any immediate crisis, the programs of the International Monetary Fund are essentially of no use to our immediate needs. This is not to suggest that emergency assistance from the Fund was not welcome in more difficult times, especially in 1989 at the time of closure of our large gold and copper mine at Bougainville. What we would like to see from the Fund is an increased emphasis on longer-term financing programs that are available not only to those who, for mismanagement or other reasons, find themselves in a state of crisis. We would like to see those in the low- and middle-income categories, who manage their affairs soundly, be given greater access to Fund resources over a medium-term framework.

With regard to the Bank, in recent years we have unfortunately been drawing less and less on Bank resources, despite an ever-increasing need for long-term development capital to build our physical and social infrastructure. It is partly a question of price. Because of long delays in appraisal and implementation and the approach to interest rate setting, Bank financing is currently relatively expensive in relation to alternatives in the marketplace. However, price is not the major issue. Of greater concern is the question of organizational and administrative capacity within the Bank to deal with smaller countries such as Papua New Guinea. Even those projects that do eventually get off the ground are frequently not well designed for Pacific Island conditions and thus are very slow in implementation. A number are never implemented at all.

Papua New Guinea’s 1993 Consultative Group Meeting, which, as usual, was chaired by the Bank, focused on issues of slow implementation within Papua New Guinea. All faults are certainly not confined to the Bank alone. Numerous areas for improvement were identified within our own public sector and with other major donors. We are hopeful that the dialogue with the Bank over implementation problems, which commenced at the Consultative Group Meeting in May of this year, can be intensified.

For its part, the state has moved rapidly since May, with the reorganization of its Planning Division and the finalization of the separate Implementation and Monitoring Division virtually completed. We want to reverse recent negative trends in disbursements by the Bank. Without rapid movement on the part of the Bank to adapt its management approaches to the realities of absorptive capacities within Papua New Guinea, a continued decline in the utilization of Bank resources can be anticipated. This is not an outcome that Papua New Guinea relishes, and we will be working very hard with the Bank in the future to help it improve its disbursement record.

While, fortunately, Papua New Guinea’s strong external outlook will enable it to attract external commercial lenders, this is an option we would prefer to use in moderation. Other smaller nations, particularly many in the South Pacific, with low resource endowments are even more dependent on the multilateral institutions tailoring their programs more specifically to local needs and capacities. We thus make our usual annual plea for greater regional presence and understanding on the part of the Bank.

On a broader note, the Fund and, to a lesser extent, the Bank could be of most benefit to countries such as Papua New Guinea by facilitating the speed of international recovery. As noted by many other speakers, this could be facilitated by a speedier resolution of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT). It could also be helped by the application of more honest action and less procrastination on protection issues by many of the leading higher-income countries. Improved performances of the German, Japanese, and U.S. economies will also be needed.

Despite the difficult environment in which all countries currently operate, we remain essentially optimistic about the long-term prospects in Papua New Guinea, especially if the world recovery occurs in a way that will improve prices for our resources. We are working hard to attract long-term development financing to allow our economic diversification through a substantial growth in efficient value added within Papua New Guinea. We will continue to work closely with the Bank and the Fund to improve efficient management and to work our way through current difficulties. There is an urgent need for both the Bank and the Fund to develop positive and practical programs of assistance in the future that will be of greater relevance to smaller low- and middle-income countries. I once again thank the organizers and all other Governors for their contributions. I have no doubt that positive deliberations will, in time, result in tangible benefits for our constituents.

Statement by the Governor of the Bank for the Philippines—Ernest C. Leung

I join other Governors in welcoming the new members of the World Bank and the International Monetary Fund. The universal character of our Bretton Woods institutions has been enriched by the accession of new states in quest of a change to more democratic and market-oriented systems. Such transformation clearly merits support. The initiatives taken in providing special assistance to these states reflect well on the flexibility of our institutions to respond to unusual circumstances. Yet the challenges remain and are constantly being redefined by new realities.

The long-awaited recovery from the downturn of global activity has yet to be achieved. Major industrial countries remain mired in low growth, and the road to recovery has been stalled by the persistence of macroeconomic imbalances. However, more robust recovery has been noted, although only in a handful of industrial countries. There is a glimmer of hope for the rest, which have started to take the bull by the horns. Recent experience shows conclusive evidence that, indeed, countries that reversed their imbalances decisively were the first to lift the gloom of recession from their backyards. Despite the setbacks and the continuing poor state of the global economy, the bonds of interdependence among nations are constantly being forged. For the global economy to improve, a global cooperative effort is essential. Unfortunately, the ongoing collaborative efforts to liberalize trade that will help global recovery have been entangled at the negotiating tables.

The completion of the Uruguay Round, vital to the continued growth in world trade, remains unresolved. The absence of progress has induced countries to move toward regional economic blocs. Although regional blocs in the past were a stepping stone to greater liberalization in the rest of the world, current trends may fall down a slippery slope, discriminating against those outside the blocs. We should not allow this to happen. Extra efforts must be made by participating countries in unanimously drawing the Uruguay Round negotiations to a close. Failure to do so will nullify all the work and negotiations undertaken to liberalize trade. If this comes to pass, the world will lose another impulse for growth. To safeguard against such an event, we have to pull together to shift out of inward-looking policies toward outward, growth-oriented ones.

The bright picture on the economic horizon is Asia. The dynamism of the region continues to grow at the fastest rate in the world, buoyed by strong export performance. While rapid growth was initially concentrated in a handful of countries, there are indications that this is spreading to neighboring countries as well. Following the example of the initial wave of export dragons, Asian countries have started to deregulate, privatize, and liberalize their economies. They have maintained a favorable macroeconomic environment, keeping a tight watch on their fiscal deficits and liquidity levels. They have focused on improving their infrastructure support. These measures have resulted in a torrent of investments onto their shores and, with these investments, soaring exports and rapid growth.

Indeed, we can learn valuable lessons from the Asian experience. But these lessons do not come with free lunches similar to the ones that we have during these Annual Meetings. These lessons require sacrifices on our part. The most obvious is allowing our industries to feel the competitive pressure of the outside world. While the short-term effects are negative for employment and growth, the longer-term effects on the economy are significant. Opening up the economy is usually met with strong opposition from vested sectors, which hook their interests on “nationalist” arguments. It takes persuasive powers to explain to our people that the setbacks are temporary, that there are industries or sectors where we could be competitive, and that only if we focus our efforts on these sectors may we join the list of rapidly growing economies.

Further, we may need to introduce safety nets to make the landing less painful. We may have to do some delicate balancing act because safety nets, if overdone, could worsen our fiscal position, which must be strong if macroeconomic stability is to be achieved.

The economic restructuring being implemented in Asia is matched only by the ongoing transformation of formerly centrally planned economies. We agree that growing interdependence should reach out and extend toward countries that, by reason of politics and ideologies, have closed their economies in the past. In order to facilitate their transition, both financial and technical support must be readily available for them if they should seek it.

But the resources available for these global economic transformations are limited and we, developing countries, have to compete more fiercely for our share of the pie. It may be wrong to shift resources from one group of economies to another just because they have not used these facilities in the past. No group of countries should be denied the opportunity to avail themselves of development funds. But to satisfy the growing demand for these funds, drastic action is needed on the part of surplus countries to beef up the loanable funds of these institutions. Recent reports of the World Bank do not yet show a marked shift of its facilities to these new users. But if nothing is done about the resource base of the bilateral and multilateral institutions, the financing requirements of these countries will exceed available funds and could delay the implementation of global economic reforms. It would be unsound and unfair to fund the needs of Ivan from the pockets of Juan, especially since Juan has hardly recovered. This is what we risk doing by keeping interest charges on Bank loans on the current pool of borrowers to fund or cover the risks of lending to new borrowers.

Despite the not-too-optimistic outlook for the world economy, the Philippines continues to implement restructural reforms needed to make our economy globally competitive. Except for a short list, we have removed most of our quantitative restrictions. We continue to implement tariff reductions, liberalize foreign exchange transactions, and open up our economy to foreign investments. We have privatized or abolished 75 government corporations and reprivatized 293 nonperforming private sector assets that were transferred to the Government during the difficult times in the mid-1980s. We have also enacted a law to set up a new central monetary authority that is capable of effective liquidity management. Despite the absence of an economic program with the IMF, we have maintained our public sector deficit at manageable magnitudes and our liquidity within prudent levels. As a matter of fact, we have ended two consecutive years with our consolidated fiscal deficit well below our targets. As a result of these efforts, interest rates have plunged to about 11 percent from over 20 percent two years ago. Inflation has been trimmed to 4.6 percent (based on the GNP deflator) from double-digit levels more than a year ago. But economic growth is slow in coming. It took three years of negative or minimal growth before our economy moved up by 3.5 percent in the second quarter this year.

A power crisis has delayed our economic recovery. We have taken some drastic action to eradicate this problem. One strategy we employed was to get the private sector to invest in power projects through the Build-Operate-Transfer (BOT) scheme. As of mid-August 1993, BOT projects are operational, with a capacity of 263 megawatts, and more projects will become operational soon. At the same time, we continue to develop the potential of geothermal energy, which is plentiful in our part of the world. By the end of this year, brownouts will be minimized to tolerable levels, and by mid-1994 we expect to solve the power problem once and for all.

But major reforms will still need to be implemented. The remaining quantitative restrictions have to be dismantled, and tariff rates will have to be further cut. Reforms in energy pricing, domestic capital market development, and internal taxation are needed. More privatization and further opening up to foreign investments should be done. Reforms have to be decisively and quickly pursued. In addition, our aging and obsolete infrastructure has to be modernized through broader private sector participation. The government bureaucracy has to be streamlined because deregulation and decentralization have made certain government offices unnecessary.

Things have improved in the Philippines since we attended this forum a year ago. A bond to cooperate has been sealed between the executive branch and the legislative branch of government and the private sector. In an economic summit earlier this month, the two branches of government and the private sector sealed a social compact on the major policy measures to restructure the economy. Moreover, political stability, combined with a “just and honorable” peace with military rebels, insurgents, and the southern secessionists, has provided a peaceful background for growth and change in the Philippine economy. In an environment where disparate social forces join together to solve the ills that confront them, the likelihood for success is greater. Dialogues could resolve conflicting viewpoints. Compromises could be forged. In the end, things get done. With these reforms, we expect the Philippines to participate more actively in the dynamism of growth in our part of the world. And with Asia showing in very concrete terms what needs to be done to post rapid industrial advances, the rest of the world cannot be far behind.

We hope that our trade negotiators will finally untangle the knots that have kept the Uruguay Round from conclusion and that the multilateral financial institutions will be ready to provide support as countries adopt economic reforms. We should not let pass a historic opportunity to make global economic transformation succeed.

Statement by the Governor of the Bank for Tonga—James Cecil Cocker

It is a pleasure for me to have this opportunity to address the Forty-Eighth Annual Meetings of the World Bank Group and the International Monetary Fund. I join other Governors in expressing thanks to the Chairman, His Excellency Mr. Ivan Szabo; to the President of the Bank, Mr. Lewis Preston; to the Managing Director of the Fund, Mr. Michel Camdessus; and to the staffs of the Bank and the Fund for the excellent arrangements under which we meet. I would also like to join my fellow Governors in welcoming the new members who have joined the Fund and the World Bank Group since the last Annual Meetings.

The past year has seen a continuing period of economic adjustment in the major industrial economies and the need for cooperation to strengthen the prospects for durable noninflationary growth. The rise in protectionist sentiment under conditions of growing unemployment in the industrial nations increases the need for a quick and favorable conclusion of the Uruguay Round. An international environment of freer trade will promote the prospects for a return to sustained economic growth, reduced unemployment, and increased productivity.

To pursue noninflationary growth policies, Tonga, like other small developing island countries, needs a conducive external environment, including stable growth in industrial countries; a stable domestic macroeconomic environment with adequate and open markets for exports; and external capital inflows.

In the decade of the 1990s, Tonga has embarked on a strategy of promoting growth through export diversification and private sector development. The 1993–94 budget seeks to consolidate gains attained under earlier policies directed toward the promotion of private sector development, agricultural and fishery export growth, and promotion of tourism to achieve our objectives of increasing employment, incomes, and the equitable distribution of employment opportunities. The Government of Tonga, through official development financial institutions, continues to direct the much-needed resources toward financing new entrepreneurs as well as gender-specific development activities. In this regard, current assistance from the World Bank Group is gratefully acknowledged, and further support in this area is considered of high priority.

The Government continues to place importance on its social development policies through the improvement of physical and social infrastructure facilities. Great emphasis is also placed on equitable regional development, given the wide dispersion of the islands of the kingdom.

Turning to Fund matters, we share the view that many developing countries will continue to need concessional assistance for some time to come. We trust that finalization of the arrangements for a successor facility to the enhanced structural adjustment facility, which is due to expire in November 1993, will be treated with some degree of urgency.

On Bank matters, we fully support the development priorities for the 1990s of poverty reduction and the achievement of sustainable growth. Tonga firmly supports the Bank’s conclusions on human resource development, and we look forward to closer coordination with donors on this issue. The emphasis placed on the Bank’s programs of environmental protection is of special interest to small island countries. The economies of the Pacific region are particularly dependent on a healthy environment. At the same time, it is considered appropriate that the active role undertaken by the Bank in this area should be a balanced approach that remains in harmony with the other priorities of developing member countries. We urge that appropriate consideration be given to supporting their continuing development endeavors.

We applaud the Fund and the Bank for the speedy implementation and flexibility of the new facilities granted to those economies undergoing transition toward market economies in Eastern Europe and the former Soviet Union. While we recognize the need for resources to be devoted to these economies in order to maintain economic and social stability, this should not be achieved at the expense of existing member countries. Tonga is very conscious of the value of being a member of the Fund and the World Bank Group, particularly for the technical assistance provided by the Fund, and looks forward to continued assistance to support our development efforts.

Statement by the Governor of the Bank for Slovenia—Mitja Gaspari

It is a privilege for me to be able to address this assembly of Bretton Woods institutions as the first Governor speaking on behalf of the Republic of Slovenia. Formal and close association with international financial institutions is extremely important, particularly for developing countries. In connection with this, let me mention that perhaps a lot of precious time was lost for Slovenia.

Despite the fact that my country is in a so-called triple transition (toward independence, establishment of market economy, and reorientation of economic ties) and thus needs assistance even more, we had to wait some time to succeed to the former Yugoslavia’s membership and to gain access to your financial assistance. Now that this process is completed, we are firmly resolved, as I hope you are, to strengthen further cooperation with the World Bank Group and the International Monetary Fund, two institutions that can contribute considerably to any country’s economic stabilization, transition, and economic growth.

The Republic of Slovenia is a small country, eager and in a position to demonstrate already some success in political and economic transformation. Since independence, Slovenia has moved on, step-by-step, to building a new country on the basis of a true political democracy; establishing and reinforcing a stable market economy; and reorienting trade from former Yugoslav and other traditional partners to international markets—mostly those of the industrial countries.

The creation of political institutions in an independent society has been the first priority for Slovenia. The adoption of the new constitution, completion of free elections, and streamlining of the Parliament and the Government, all attest to the success achieved in meeting this objective. It is important to point out that stabilization of the economy has been an equally important priority for the Slovene authorities, although this was an enormous task because of the inherited and extremely adverse immediate environment, as well as the external shock this young country had to cope with, particularly in the last two and a half years. War and flood damage in 1991; the loss of all its foreign exchange revenues and property to Belgrade; the unresolved questions of claims toward the Gulf and former Soviet Union countries; the loss of the former Yugoslav markets and former Soviet Union market; the presence of huge numbers of refugees due to the continuation of wars in Croatia and Bosnia; and recession in Western Europe are only a few examples of the difficulties my Government has had to cope with.

However, I shall mention that despite very little external support and in such an adverse environment, there is good news. We would probably all agree that Slovenia had a solid starting position, stronger than other former Yugoslav republics, although with a distorted micro-foundation of loss-making enterprises and related banking sector, additionally complicated by the ownership issue of the former system of social property and self-management. Bank and Fund reports confirm that in the last two years the country has made remarkable progress and achieved macroeconomic stability through very strict monetary policy; it introduced successfully its new currency, and it has further liberalized trade, while keeping wages under control and maintaining an impeccable payment record.

Inflation has been brought down from a monthly rate of over 20 percent during late 1991 to less than 2 percent a month since January of this year. Exports to industrial countries have slightly increased, despite recession there and notwithstanding a considerable drop in Slovenia’s industrial production of some 16 percent cumulative over 1991 and 1992. Foreign exchange reserves, nonexistent in mid-1991, reached well over three months’ imports or $1.4 billion this year. The social fabric of society is strong, and despite constant reduction in living standards, a strong constituency supporting the reforms enables the Government to keep wages under control. Ownership of reform programs has not been a problem in Slovenia.

I would like to take this opportunity to emphasize that Slovene authorities have been aware that the economic stability could not be sustained without a transformation of the system of self-management and without the curtailment of the ownership links between enterprises and banks, which had helped perpetuate bank financing of enterprise losses. That is why we made privatization and the reconstructing of socially owned enterprises, the reform of enterprises in public services, and the rehabilitation of the banking sector the central forces of our current economic program, recently also supported by the first World Bank loan. As pointed out in the Bank’s recent Board of Executive Directors discussion, when approving this financial and enterprise sector adjustment loan, the Slovene economic program, which was developed in cooperation with World Bank Group and the IMF, could well become a model for other developing countries, particularly for those members in transition. Despite solid progress, results are still fragile. Slovenia is a very small, open economy, extremely vulnerable to external unfavorable developments. Therefore, support from the Bank, the Fund, and other financial institutions is essential (although balance of payments financing from the IMF has not been needed), could be a kind of a buffer from other shocks, and should help to consolidate a stable economy, concentrating next on investment and recovery.

By completing Bank Group and Fund membership procedures, Slovenia has also made significant progress in creating its completely independent financial identity and in delinking its country risk from the one associated with that of what used to be Yugoslavia, all this being an important element for renewed access to international capital markets. In this respect, a priority objective for Slovenia is to regulate and legalize fully its relationship with foreign creditors. We have been regularly servicing all our foreign obligations incurred under the former Yugoslavia, but one final legal step is needed. As with international financial institutions, Slovenia’s external debt obligations need to be defined and codified into new, separate arrangements with bilateral official creditors and commercial banks also. Mutually acceptable general principles have already been established with the Paris Club. Unfortunately, it seems there are still significant differences that have to be overcome to reach a similar arrangement with some commercial banks that have to accept that Slovenia could only be liable for a certain, but fair, share of the former Yugoslav debt. The Bank and the Fund could provide active support to reach such an agreement.

A word on our institutions. The Bank Group and the Fund have in the past twelve months continued to play an important role in world development efforts and have successfully assisted their members. New facilities have been introduced, policies have been reviewed and updated, programs and projects have been approved, and many have been implemented and completed during this period. Both institutions are financially and professionally stronger, which is indispensable in view of the fact that world economic problems are numerous.

The Fund’s standard and new facilities are now available to a number of new members, particularly to new countries, all also trying to transform their economies. These reforms are difficult and painful but should take place, and it is imperative that the Fund be actively involved in them. Monetary and fiscal policies have to be in order before sustainable development can be achieved. We are pleased that some of the new instruments, particularly the systematic transformation facility, are now available to all transforming economies, including those Central European countries that began reforms earlier than others.

The Bank has also continued to adjust to the changing and increasing needs of the developing countries. Redefinition of its objectives has shown once again that the reduction of poverty is the ultimate goal, and we are pleased that this and other priorities are starting to be more clearly spelled out in each operation. We strongly support the Bank’s closer presence in the field, though we notice that cost factors often preclude smaller members from a more permanent and active representation of the World Bank in a country. Though we would prefer to see a larger volume and number of new commitments at the end of this fiscal year, we also support Bank management in its new campaign and action for better implementation of projects, agreeing that this is very much needed and should be given the attention of all staff, and should ultimately result in a more effective use of the Bank’s resources, while contributing to the faster economic development of recipient countries. Let me also say that my Government wishes to express support for the role that the International Finance Corporation (IFC) has played in promoting private sector activities in developing countries, and, at the same time, for its renewed activities in my country. We also hope that the Multilateral Investment Guarantee Agency (MIGA) will strengthen its operations.

Allow me to conclude Slovenia’s first address before this distinguished group by wishing you, the President of the Bank Group and the Managing Director of the International Monetary Fund, success in what remains to be done during these meetings and, most important, during the coming years. Also, I would like to point out again that Bank and Fund assistance to, and cooperation with, smaller members and new, particularly transforming, countries should be given strong and patient attention, since such support could be even more important to these members than it is perhaps to those already established, which often have stronger and less vulnerable economies. The human, technical, and financial resources of the Bretton Woods institutions could and should be increased and strengthened further, while being distributed to and used by members in an equitable and fair way, so that infant and establishing members would also have a chance to develop and grow properly and adequately into the international family of economies. Finally, our special gratitude goes also to the organizers and the host country of this meeting and to Washington, D.C., all of whom once again have made your and our visits productive and pleasant.

Statement by the Governor of the Bank for Bangladesh—M. Saifur Rahman

Bangladesh is honored to accept the chairmanship of the Forty-Ninth Annual Meetings of the World Bank Group and the International Monetary Fund for the coming year. In carrying out the duties of the Chairman, particularly at a time of momentous and far-reaching socioeconomic transformation around the world, we shall endeavor to achieve the same graciousness and efficiency that have characterized these meetings under the distinguished chairmanship of our colleague, Mr. Szabó, Governor for Hungary.

July 1994 marks the fiftieth anniversary of the International Monetary and Financial Conference at which the Articles of Agreement of the Fund and the World Bank were drafted. It is perhaps fitting that in the coming year we not only reflect on the vital contributions of our institutions to the world economy in the last half century, but also, drawing on the lessons of the past, continue to work toward achieving the full potential of global cooperation envisioned at Bretton Woods.

Turning to our tasks ahead, the resources of the Bretton Woods institutions are today directed to fashioning creative and innovative responses to the challenges of economic reforms and structural adjustments, poverty reduction, development of human resources, and enhanced levels of official and multilateral aid to poorer countries to pursue their reform programs in a sustainable way. Besides, good governance, accountability, transparency, and the rule of law will also remain guiding principles of market-based democracies. The task of harmonizing policies for the common good has become urgent and compelling in an increasingly integrated world economy. Consequently, in days to come, we have to pursue mutually supportive stabilization and reform efforts to their logical conclusion.

In preceding years, much has been achieved. Both President Preston and Managing Director Camdessus deserve our praise for their vision, dynamism, and tireless efforts in dealing with problems of great complexity. It is my firm belief that both the Bank and the Fund will continue to grow in strength and play an even more vigorous, flexible, and creative role in dealing with the complex and difficult problems of global growth. We look forward to working with Mr. Camdessus and Mr. Preston, the Executive Directors, and the staffs of the two institutions in the coming year, and to welcoming all of you at the 1994 Annual Meetings in Madrid, Spain.

September 30, 1993.

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