Opening Address by the Chairman of the Boards of Governors and Governor of the Fund and the Bank for Bangladesh1, M. Saifur Rahman

International Monetary Fund. Secretary's Department
Published Date:
November 1994
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It is a personal honor for me to chair, on behalf of Bangladesh, the 1994 Annual Meetings of the Boards of Governors of the International Monetary Fund and the World Bank Group, especially as this year marks the fiftieth anniversary of the establishment of these influential institutions. I would like to begin today by thanking His Majesty King Juan Carlos I of Spain and the people of Spain for the generous hospitality that is extended to us in this beautiful city of Madrid. I would also like to offer a warm welcome to our newest member, Eritrea, which joined the Bretton Woods institutions in July of this year.

We are at the crossroads of human history. In the past few years, we have seen momentous transformations occurring in the global economic and sociopolitical scene. The end of the Cold War and the emergence of the nations of Eastern Europe and the Commonwealth of Independent States, peace treaties in the Middle East, and the emergence of a democratic South Africa all bear testimony to the triumph of human spirit, freedom, and peace. However, we are deeply shocked and disturbed by the heart-rending tragedy and intolerable sufferings of men, women, and children in Bosnia, Rwanda, and other strife-ridden areas of the world. In the realm of global trade and investment, a new chapter has begun with the successful conclusion of the Uruguay Round. Upon our responses as a global community to emerging challenges and opportunities, our journey to the high ground of prosperity and poverty reduction largely depends. Undeterred by many limitations and constraints, we rest our faith on the resilience, tolerance, commitment, and dedication of mankind to overcome the odds and build a brighter future for generations to come.

These meetings provide all of us an opportunity to rededicate ourselves to achieving, through our continued cooperation, the purposes for which the Fund and the World Bank were created fifty years ago. The current recovery of global economic activity, stimulated by the successful conclusion of the Uruguay Round, represents an opportunity for all nations to push ahead with solid economic programs aimed at ensuring a balanced growth of trade among nations and higher levels of employment and real income nationally and globally.

The recovery of world economic activity has clearly gathered momentum over the past several months, with world output expected to reach 3 percent by the end of this year and 3.5 percent in 1995. One of the main impulses behind the current global recovery has been the rapid expansion in many Asian and some Latin American developing countries, and growth in the developing countries as a group—at close to 6 percent—has again been robust this year. Nevertheless, many developing countries, including some of the poorest, continue to experience economic stagnation and declining living standards. The economic recovery in the industrial world is now well established, with the annual growth rate expected to reach 2.5 percent in 1994, and several of the Central European countries, the Baltics, and other economies in transition are also beginning to show signs of recovery. However, the outlook for the Russian Federation and some other economies in transition remains uncertain. This overall outlook shows that, while significant progress has been made on the road toward sustained global expansion, much remains to be done to ensure greater prosperity for all.

The economic outlook for the industrial countries is more encouraging than it has been for several years. These countries should be encouraged to make better use of this situation than they have in the past by seizing the opportunity provided by the current favorable global environment to follow the advice they have consistently given others, namely, to address long-standing fiscal deficits and structural rigidities, which increase uncertainty, breed unemployment, and lead to calls for protectionism.

The steadfast efforts of the developing countries as a group to restructure and revitalize their economies have produced major benefits for many, and they have clearly opened the way for sustained vigorous growth in the years ahead. Indeed, something of a role reversal has taken place, with the developing countries providing the critical boost to the global economic recovery. Developing countries should now forge ahead with strong programs aimed at economic liberalization, private sector development, and the improvement of living standards.

We appreciate the complexity of the challenges confronted by most developing countries and the difficult measures that they must take to achieve effective economic stabilization and reform. Politically courageous decisions will be required to advance their development agendas. In this effort, they will need tangible encouragement, especially financial and technical support, from the international community. The expansion in recent years of the financing facilities and technical assistance of the Fund and the World Bank are important steps in the right direction, but it is critical to focus this assistance on the areas most in need. Perhaps even more important in the effort to combat world poverty is the need for the Bretton Woods institutions to carefully take into account the specific sociopolitical and economic circumstances of individual countries in providing policy advice. In particular, there is a clear need to place greater emphasis on the provision of adequate social safety nets and the improvement of health, education, and human resource development.

As testimony to the benefits of comprehensive economic adjustment, I would point to my own country’s performance in 1993/94, which was characterized by an increase in the GDP growth rate to 5 percent, largely as a result of the macroeconomic stabilization and structural reform efforts carried out over recent years. Now that we have established macroeconomic stability, deregulated the financial sector, adopted a flexible exchange rate policy, and strengthened the promotion of export activities, there is a growing consensus on the need for further structural reforms in key macroeconomic areas, including the public administration, the public enterprises, and the labor market, in order to place the economy on a sustainable path toward rapid growth and the alleviation of poverty.

In order to reduce its role in the economy, thereby allowing markets to flourish on their own, the Government of Bangladesh recently established a Privatization Board to clear the way for several public enterprises to be opened up for private sector participation, and appropriate legal steps have been taken to ensure the smooth operation of the capital market. As a result of changes such as these, the Dhaka stock exchange is experiencing remarkable buoyancy, with keen interest from both foreign and local investors. Since skilled manpower is one of the most essential agents for growth, my Government is placing increasing emphasis on improving education, health, and family welfare, as well as human resource development, in particular with respect to the role of women in development, in both rural and urban areas.

The continuous pursuit of economic stabilization and reform over many years has not been easy for my country. However, as a result of the untiring efforts of the Bangladeshi people, my country now stands on the brink of a much brighter future, a future that entails far better economic prospects for all of its people than would have been possible only a short time ago. The past few years have brought about a sea of change in the global economic environment as well as in the prospects of individual countries. In this environment—characterized by the rapid globalization of markets, including for goods, capital, and, to some extent, labor—the Bretton Woods institutions have faced new and complex challenges in their efforts to promote international cooperation and economic growth.

One of the many ways in which the Fund has responded to these challenges is by stepping up its surveillance activities—including over regional developments—with a view to identifying and addressing in a timely manner problems that may give rise to tensions in the world economy and undesirable misalignments in exchange rates. It is also making continued efforts to redirect surveillance activities in a way that will contribute to better policy formulation and implementation in both industrial and developing countries, while promoting greater policy coordination among all of its members. In light of these objectives, the Fund is committed to further strengthening its collaborative efforts with other international organizations, including the World Trade Organization, in order to coordinate better the provision of financing, technical assistance, and policy advice to all countries.

It may be pointed out that the lack of a coordination mechanism among the major industrial countries has been responsible for their macroeconomic imbalances and structural rigidities. It is both just and desirable that the cost of adjustment is shared equitably by both the developing and the developed nations. The industrial nations should strengthen their fiscal and monetary policies, achieve greater macro-economic convergence, and establish a more formal system of coordination. In the interest of stabilizing the international economic situation, the IMF should exercise greater and more effective surveillance over the macroeconomic policies of the major industrial countries.

Given the track record of the enhanced structural adjustment facility (ESAF) in helping low-income developing countries to implement the comprehensive macroeconomic and structural policies needed to strengthen their balance of payments positions, foster growth, and attract external financing, I welcome the extension and expansion of the ESAF Trust in December 1993. Also with respect to the Fund’s continued efforts to adapt its facilities for the provision of financial assistance to members, I welcome the temporary increase in the access limit for stand-by and extended arrangements and the proposal for increased access under the systemic transformation facility. I strongly encourage the Fund to also increase members’ access under the ESAF.

I encourage the Fund to move quickly to address the issues that as of now prevent us from reaching an agreement on an SDR allocation. I am convinced that such an allocation could have gone a long way toward addressing not only the equity problems among its members with respect to SDRs but also the acute stringency of international reserves hindering many developing countries and the economies in transition.

With respect to the Tenth General Review of Quotas, let me emphasize that members’ quotas in the Fund must reflect their positions in the world economy. Given the momentous changes that have taken place in the international arena since 1990, the next review of quotas will be extremely important for all countries. It will, therefore, be critically important to have available reliable and up-to-date statistical information on the position of individual countries. Moreover, it will also be necessary to examine thoroughly the formulas used to calculate quotas with a view to more accurately assessing appropriate quotas and voting shares in the Fund. As soon as this can be accomplished, we should move quickly to complete the next review of quotas.

I encourage the Fund, in all of its future endeavors, to strengthen its efforts to take social issues into account, in particular by modifying the mix and sequencing of the adjustment and reform measures it recommends in order to make reform less painful for the most vulnerable.

The World Bank and its affiliates—the International Development Association (IDA), the International Finance Corporation (IFC), and the Multilateral Investment Guarantee Agency (MIGA)—have also responded to the challenges posed by changes in the global environment. Their message is loud and clear—the priority is reducing poverty and investing in people within a sustainable environmental balance. As a citizen and representative of a developing country whose struggles and triumphs I have already described, I soundly applaud that resolve, and I encourage all of us gathered here today to join in this effort. Mr. Preston will certainly elaborate on some of the main activities of the Bank Group as it works to achieve the overarching objective to reduce poverty. However, let me highlight several areas in which accomplishments have been most notable and appreciated.

With the benefit of fifty years of experience in the development arena, the Bank itself is uniquely able to address these challenges, having proved itself adaptable to the changing needs of its clients. In this light, I welcome the Bank’s focus on enhancing the development effectiveness of its programs and encouraging borrower ownership and participation in project design and implementation. No longer will it be acceptable to pursue a “one size fits all” approach to development. Strategies, programs, and projects must be designed to meet specific country conditions and requirements. To achieve a better understanding of what those specific conditions and requirements are, the Bank has begun to encourage actively the participation of beneficiaries in the design and implementation of programs and projects. What better way to know what people want and need than to ask them? This a most welcome change indeed.

Having highlighted the importance of human resources development in the reform program of my own country, I particularly welcome the emphasis in Bank activities on human resources development. By focusing increased resources on this area, which includes health, education, population, and nutrition, the Bank is helping its clients to strengthen their institutional and human capacity, without which no development is possible. Poor, hungry, sick, malnourished, uneducated people cannot efficiently or effectively participate in the arduous tasks of accelerating growth and sustaining economic development. What matters to them is how they are going to make it from one day to the next. They do not spend much time thinking about the long-term decisions that affect their future, except that the immediate impact often worsens their current condition. Even for the healthy and the educated, joblessness and homelessness can be the reality. The crisis brought on by growing numbers of unemployed people throughout the world has come to the forefront of economic policy discussions in developed and developing countries. The need for development strategies to create new job opportunities is critical in the poorest of countries, but the economic prospects for doing so are anything but bright. Without a more successful effort to reshape policies and programs to secure a more rapid growth in employment, many countries face increasing risks of mass unemployment and social disintegration. Hence, the Bank’s emphasis on assisting borrowers to focus on employment issues and employment-generating activities is crucial and timely.

In all of these activities, there is an underlying imperative to ensure that national strategies for economic development are also environmentally sound and sustainable. Over the past year, the World Bank Group has continued to give an increased priority and commitment to policies and programs that integrate economic, social, financial, technical, and ecological dimensions of development. This attention is both welcome and urgent, as the serious challenges of growing populations, environmental pollution, and natural resource degradation become more and more acute. In this regard, the Bank Group must assume a central role in mobilizing the global financial resources necessary to advance protection of the environment in the developing countries. And importantly, the Bank Group must continue to assist its borrowing members in preparing and implementing national environmental strategies that safeguard vital land and water resources and that target the special challenges of rapidly growing urban areas.

Many governments are according top priority to the development of the private sector as an instrument for achieving economic growth and providing productive employment. Working together, the Bank, IFC, and MIGA have done much to improve the business environment in many of their member countries. The Bank has intensified its promotion of private sector activities, with increasing support for privatization and necessary improvements in the regulatory framework. Policies and programs that include measures to encourage the creation and productivity of small and medium-sized enterprises should be promoted.

With respect to IFC, the largest multilateral source of loan and equity financing for private sector projects in the developing world, I am happy to observe that some progress has been made this past year in achieving its objective of a regionally balanced and diversified portfolio. It should now make special efforts to explore its true potential for promoting investment programs, particularly in countries experiencing initial difficulties in private capital flows. It should also give more attention to playing its desired role by collaborating more closely with the Bank and by making greater and more serious efforts toward pursuing a consistent private sector development strategy focusing on the poorest countries. Its emphasis on mobilizing international debt and equity financing for viable job-creating projects and its expertise in technical assistance and advisory services should be redirected to bringing a new dynamism to encourage the private sector in the poorest developing countries with low levels of private resource flows. I note IFC’s recognition of the fact that conditions in host countries vary dramatically and, therefore, it should develop innovative strategies and specialized vehicles for achieving its objective of regional diversity, even in situations where the investment climate is challenging. These special efforts should continue and be expanded where necessary.

I commend the efforts by MIGA, whose programs to guarantee against noncommercial risks facilitate the flow of international capital to those areas in which it is needed the most. We applaud the launching of a global network of investment promotion agencies to stimulate the exchange of information and to promote worldwide investment. In addition to these areas of emphasis, I welcome the initiative taken by the Bank to establish an independent inspection panel to investigate any complaints that the Bank has not followed its own policies and procedures in any development project that it supports. Further, the recent decision to expand the public’s access to the Bank’s operational information by establishing the Public Information Center is commendable. Greater transparency is always welcome. However, we caution that every effort be made to protect the confidentiality of certain types of information.

On the occasion of the Bretton Woods institutions’ fiftieth birthday, I invite all countries to look back over time on the immense progress that has been made, through our cooperative efforts, in helping countries resolve macroeconomic imbalances and structural rigidities while bearing in mind their global responsibilities. Clearly, we have come a long way; the current international economic environment barely resembles that of 1944. While the developing countries were barely players at Bretton Woods, they have shown such strength and resilience that they cannot but continue to gain influence in the years ahead. Moreover, the conclusion of the Uruguay Round will give a new impetus to world trade, lead to better efficiency in the use of resources, and bolster business and consumer confidence worldwide. In this light, it is almost astonishing to note not only the progress toward economic integration that has been made thus far but also the prospects that lie ahead. However, our work is far from complete: risks to economic stability still linger around every corner, and many hundreds of thousands still go hungry each day. Therefore, I call on all countries to renew their commitment—and, indeed, their obligation— to support the Bretton Woods institutions as the pillars of economic cooperation and to enhance the ability of these institutions to ensure continued stability in the international economic environment over the decades to come.

Delivered at the Opening Joint Session, October 4, 1994.

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