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Summary Proceedings of the Forty-Second Annual Meetings of the Board of Governors 1987
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Discussion of Fund Policy at Second Joint Session1. Report to the Board of Governors of the International Monetary Fund by the Chairman of the Interim Committee of the Board of Governors on the International Monetary System

Author(s):
International Monetary Fund. Secretary's Department
Published Date:
November 1987
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Author(s)
H.O. Ruding

I have the honor of reporting to you in my capacity as Chairman of the Interim Committee on its two meetings since this Board of Governors last met a year ago. At both meetings, considerable discussion was devoted to the world economic outlook, use of selected indicators in Fund surveillance, and the situation of the heavily indebted member countries. Other subjects to receive attention included the question of an SDR allocation, access limits for the use of Fund resources in 1988, the Ninth General Review of Quotas, and the Managing Director’s initiative for enhancement of the structural adjustment facility (SAF). As the principal conclusions of these two meetings are contained in their respective communiqués, I shall be brief and touch upon only some of the more important points.

World Economic Outlook and Fund Surveillance

In assessing the performance of the world economy, Committee members noted certain positive features: the economic expansion, now in its fifth year, continues without signs of cyclical strains; inflation has remained moderate; payments imbalances among the larger industrial countries have begun to decline in real terms; and economic growth in the non-fuel exporting developing countries is improving. Nevertheless, in certain other aspects, performance is falling short of expectations: unemployment, with its attendant economic, social, and human costs, is still high in many industrial countries; the persistence of large current account imbalances in some industrial countries is a matter for concern; the predicament of the heavily indebted middle-income countries remains difficult; and the desperate plight of low-income countries, especially those with declining per capita incomes, continues to be a matter of grave concern. Furthermore, although commodity prices have recovered a little of late, they remain historically low in real terms.

Committee members welcomed the reduction in the U.S. fiscal deficit, were pleased by the recent decision of the President of the United States reaffirming the resolve to carry this process further, and noted that continuing such reduction in 1988 and beyond was necessary to facilitate external adjustment without harming capital formation. It was stressed that countries with strong external surplus positions, price stability, and moderate government deficits needed to ensure that domestic demand grew faster than their GNP. Some newly industrialized countries were also urged to play a greater role in the global adjustment process.

Committee members expressed concern over the worsening environment for international trade. They noted that macroeconomic imbalances contributed to protectionist pressures, which was all the more reason for correcting them as rapidly as possible. But trade restrictions provide no solution. On the contrary, by inviting retaliation, they are likely to damage employment prospects internationally and worsen economic welfare. The Fund should therefore continue to do its utmost to support the GATT. The Committee also stressed the importance of early and decisive progress in the ongoing Uruguay Round.

The Committee welcomed the significant improvements accomplished during the past year in the international coordination of economic policies, particularly among the major industrial countries. In its consideration of ways to strengthen the process of policy coordination and multilateral surveillance, the Committee welcomed the application of key indicators in the Fund’s world economic outlook exercises and asked the Executive Board to pursue its work on extending the use of indicators in the context of its surveillance responsibilities, both in its reviews of the world economic outlook and in Article IV consultations with members. They encouraged the Executive Board to develop criteria that would be helpful in assessing the sustainability and desirability of the evolution of a limited set of key economic variables. In this connection, the Committee noted the importance of stable exchange market conditions and welcomed the progress made since the Louvre accord.

Debt Issues—Middle-Income Countries

In the discussion of the situation of the heavily indebted middle-income countries, members observed that while significant progress had been made away from the crisis environment of five years ago, considering the uncertainties in the current economic environment and the uneven adjustment experience of many indebted countries, satisfactory resolution of debt problems was going to require cooperative efforts and perseverance over the long haul by all concerned. A supportive international economic, financial, and trade environment is clearly necessary for the debt situation to remain tractable. At the same time, if debtor-creditor relations are to return to normal, it is essential that the indebted countries follow policies to restore macroeconomic balance, to enhance growth prospects, and to induce a reflow of private capital.

Committee members believed that the case-by-case approach continued to be appropriate, as it was the only approach that permitted the tailoring of adjustment programs and financing flows to the circumstances of each country. They also remarked that unilateral initiatives carried heavy risks for all parties in the strategy. In light of these considerations, members reaffirmed the Fund’s central role in helping members to formulate growth-oriented adjustment programs and in mobilizing finance. They also welcomed the continuing close cooperation between the Bank and the Fund, especially in their structural adjustment lending.

The Committee noted with satisfaction that financing arrangements negotiated between debtors and creditors have recently included diversified features and particularly welcomed the emergence of more eclectic solutions incorporating mutually agreed market-oriented approaches. It also encouraged the trend toward a broadening of financing options and, in that regard, took particular note of the emergence of various forms of securitization and other mechanisms that do not add further to the stock of debt. The Committee again stressed that sound adjustment programs in heavily indebted middle-income countries, particularly some of the smaller ones, could be jeopardized if there were delays in the provision of adequate commercial bank financing on appropriate terms.

Situation of Low-Income Indebted Countries

Committee members expressed deep concern about the critical situation facing many low-income countries. They were encouraged by the progress of operations under the structural adjustment facility, which was established last year specifically to provide balance of payments assistance on concessional terms to needy low-income countries. Sustainable growth in such countries can be achieved only through comprehensive programs of macroeconomic and structural reform, and the Committee noted with satisfaction that the policy framework papers, which are developed jointly with the World Bank in conjunction with the SAF, are making a key contribution to the design and monitoring of such programs. The Committee also welcomed the increased emphasis on support for policy reforms by bilateral and multilateral donors.

The Committee recognized that adjustment policies in these countries, to be fully effective, need to be supported by exceptional assistance on concessional terms. It also recalled that it had expressed the hope that arrangements under the SAF would attract additional financial support. In that context, the Committee strongly endorsed the initiative of the Managing Director for a substantial increase in the resources available for lending in association with programs supported by the SAF, noting the complementarity between this initiative and others under consideration elsewhere in the international community, particularly in the World Bank. The Committee welcomed the progress achieved thus far, including the exploration of appropriate financial modalities consistent with the monetary character of the Fund, and asked the Managing Director and the Executive Board to proceed as quickly as possible with further consultations with potential contributors, in order to conclude those discussions within this year.

The Committee welcomed the longer grace and repayment periods extended to some low-income countries in recent Paris Club reschedulings and noted that the possibility of applying lower interest rates to existing official debts under appropriate circumstances was under consideration. It welcomed the conversion of official debt into grants, and measures with similar effects, by certain creditor countries for the poorest in this group and encouraged other official creditors to follow that example.

Fund Policies Concerning Quotas, Access Limits, Conditionality, and the SDR

The Committee noted that the Committee of the Whole on the Ninth General Review of Quotas had begun its work by considering preliminary quota calculations and reviewing issues bearing on the size of the Fund. The Committee urged the Executive Directors to pursue their work on the quota review with a view to making appropriate recommendations in due course.

The Committee reaffirmed the temporary character of the enlarged access policy. In view of the difficult balance of payments positions of many member countries and the prospect of continuing sizable payments imbalances, the Committee agreed that the policy should continue to be in effect in 1988 and that the present access limits under that policy should be retained in 1988. As regards access limits under the special facilities, the Committee requested that the Executive Board’s review of the compensatory financing facility be completed before the Committee’s next meeting and agreed that, for the time being, the access limits under the special facilities would be maintained. Action to implement the above agreements reached in the Committee is to be taken by the Executive Board before the end of the current year.

The Committee welcomed the Executive Board’s decision to carry out a comprehensive examination of adjustment programs and of supporting Fund arrangements in the context of growth-oriented strategies. Such an examination will also provide an opportunity to consider whether the Fund’s guidelines on conditionality need to be re-examined in light of changes in the economic circumstances of member countries that have taken place since 1978–79, when these guidelines were adopted.

The Committee also welcomed the recent report of the Group of Twenty-Four on the role of the Fund, which complements earlier reports by both the Group of Ten and the Group of Twenty-Four. It noted that the Executive Board has begun its examination of the analyses and recommendations contained in the report and requested that a status report be submitted for consideration at the Committee’s next meeting.

On the question of SDR allocations, the Managing Director reported to the Committee that the broad support necessary for a resumption of allocations had not so far emerged. It was agreed that the Executive Board would continue its examination of the issues and would also continue its examination of the functioning of the SDR, with a view to enhancing its attractiveness as a reserve asset under current international monetary arrangements.

The next meeting of the Committee will take place on April 14, 1988, in Washington, D.C.

Statement by the Governor of the Bank for Denmark—Palle Simonsen

Since Denmark currently holds the Presidency of the Council of the European Communities, I have the honor to address you in the name of the member states.

World economic developments over the past 12 months have not lived up to initial forecasts. In the course of the winter of 1986–87 there were signs of weakening in demand and production in several industrial countries. A clear sense of uncertainty was noticeable during this period. If sustained, it would likely have negative effects on the world economy.

However, we have seen signs that both demand and production are now again on an upward trend. Although the decline in energy prices has been partially reversed in 1987, we think that price developments so far have been encouraging. Nevertheless, it is worrying that, both within the European Community and in most other industrial countries, we are still faced with a rate of unemployment that is too high, with a rate of new productive investment that is still inadequate, and with large current account imbalances in the major industrial countries that are, however, declining in real terms.

Against the background of the very substantial adjustment of exchange rates that took place in 1985 and 1986, the agreement reached in Paris in February, which was subsequently supported by the April meeting of the Interim Committee of the Fund and by the Venice summit in June, proved timely and successful. It has contributed to a better functioning of the international monetary system, especially because it was backed by domestic policy commitments.

As was stated in the Paris meeting, preconditions for exchange rate stability and more balanced global growth are that the policies announced by the major countries be fully implemented and that economic policy coordination be intensified. In this context, we welcome the greater use of indicators as an instrument of multilateral surveillance to promote international economic policy coordination.

In parallel with the international efforts to achieve a higher degree of exchange rate stability, we have at the European level agreed upon a further strengthening of the European Monetary System. We feel that developments since early 1987 have been satisfactory, and we are presently improving our cooperation in the monetary field even further. In line with the approach followed within the Fund and in Venice in June, we are planning to make increased use of indicators in our internal surveillance activities. This will be aimed at improving the convergence of economic fundamentals within the Community.

We find developments so far in the Uruguay Round satisfactory, but much needs to be done to successfully conclude the preparatory phase by the end of this year. The European Community intends to participate constructively in these negotiations. We are very concerned about the pressures for increasing protection while the trade negotiations are still in progress. One particularly difficult and sensitive subject in this context is the question of international trade in agricultural products. Almost all countries bear some responsibility for current problems. Within the European Community we are aware of our responsibilities in this field.

We welcome the satisfactory conclusions of UNCTAD VII, which have led to a common evaluation of the international economic situation and to a willingness to strengthen the efforts of the international community.

Turning now to the debt strategy, the member states feel serious concern about the debt problems facing the poorest countries, particularly in sub-Saharan Africa.

The member states of the Community remain committed to the case-by-case approach that assures the best possibilities of taking into account the special circumstances of different indebted countries. While this strategy has served all the parties concerned well, it has also been evident for some time that it needs reinforcement and that all its elements have to be implemented more effectively.

Viewed against this background, some positive developments have taken place since the meeting of the Interim Committee in April this year, in particular in regard to the poorest countries, and, among these, primarily the sub-Saharan African countries. Intensified deliberations in the Paris Club have already resulted in longer repayment and grace periods with respect to rescheduled official credits for certain countries in support of their far-reaching economic reforms. Proposals for lower interest rates have been put forward. However, the outlook for these countries remains extremely bleak.

An important new development is the proposals by the Managing Director of the Fund for a substantial increase in the resources of the Fund’s structural adjustment facility (SAF) over the three-year period 1988–90, to be associated with the adoption of strong growth-oriented adjustment programs by low-income countries in close collaboration with the World Bank.

The member states of the Community welcome the principles underlying these proposals and, despite some difficult issues which are not all purely technical, share the willingness to conclude discussions on these proposals by the end of this year. In the context of this facility, collaboration between the Bank and the Fund will be important for the envisaged catalytic role of the facility to materialize.

Primary product exporters, particularly those dependent on a single commodity, deserve special consideration. It may be appropriate to make adequate resources available to them on concessional terms.

As far as the middle-income debtors are concerned, there have been further useful innovations broadening the range of procedures and financing techniques by commercial bank creditors, which hopefully will facilitate the assembling and implementation of financial packages. However, the process of normalizing debtor-creditor relations so as to regain normal market access is inevitably taking a long time. Although progress has been made by several countries, the perseverance in adjustment policies in some debtor countries has not always measured up to what is needed. Also, financial flows to the developing countries have fallen short of expectations.

All parties involved must make further progress in a cooperative spirit for the full implementation of the debt strategy, including the vital support of private financing, both by the banks and in the form of non-debt-creating capital flows to debtor countries.

The member states of the Community continue to take the view that the resources of the Fund should predominantly come from quota subscriptions. For the Fund to be able to continue to play a central role both in the adjustment process and as the global monetary institution, it will be important that the Fund have sufficient usable resources. Therefore, we welcome the Executive Board’s initiation of discussions on the Ninth General Review of Quotas. The member states of the European Community will participate constructively.

The member states of the Community adhere to the view that the Fund’s enlarged access policy is a temporary facility. However, in view of the continued payments imbalances and difficulties in several member countries, we welcome the agreement reached in the Interim Committee on an unchanged continuation of that policy for 1988.

The member states of the European Community also look forward to the results of the ongoing review of the compensatory financing facility.

Over the past couple of years, there has been increasing cooperation between the Fund and the World Bank, in particular with respect to the poorest developing countries in solving their economic problems . . . .

The member states of the European Community feel strongly that special and innovative measures are called for to help debt-distressed countries in sub-Saharan Africa undertaking rigorous policy reform. The World Bank, together with the Fund, has an essential role to play in promoting and coordinating these measures. We therefore welcome the increased emphasis on these issues as recently reflected in the Bank’s effort for additional financing from the donor community in order to assist the sub-Saharan countries’ own efforts in tackling their problems . . . .

Statement by the Governor of the Fund for France—Edouard Balladur

This year’s Annual Meetings of the World Bank and the International Monetary Fund should, in my view, mark a special stage in international cooperation: The strategy of cooperation instituted by the Louvre agreement represents a genuine success and, in my opinion, gives encouragement to those who, like myself, believe in the need to restore a more stable international monetary system.

The debt strategy adopted in Seoul must be pursued and adjusted. In this regard, I call upon the international community to give the multilateral institutions the means to cope with their task.

What is the state of the world economy? Inflation is again at a very low rate and seems unlikely to accelerate. We have had more than five straight years of growth, although the growth rate has fallen to a level which I deem too low. World trade is expanding, but inadequately. The trends in the developing countries are highly uneven, ranging between the two extremes of remarkable growth in the newly industrialized countries of Asia and intensifying difficulties in the poorest African countries south of the Sahara.

To help improve the world economic situation, both the industrial countries and the developing countries have a part to play.

The contribution which the major industrial countries can and must make lies, first of all, in consistent application of the cooperative strategy set forth at the Louvre in February and repeatedly confirmed since then. We have already seen the results in terms of exchange rate stabilization, and that is no small matter considering the risks of inflation and recession which a dollar slippage would impose on the world economy. The studies prepared by the Fund bear this out. This success, in my view, confirms our ability to organize and manage an orderly monetary system. It is necessary, of course, for the largest countries to demonstrate the will to cooperate through sound and compatible economic policies. France, which, you will recall, has always supported this view, is more convinced of it today than ever.

We must naturally continue along this path. The major industrial countries have just confirmed the Louvre agreement. This means that each of them must provide itself with the means to honor its commitments. To this end, it is necessary to continue to reduce deficits where needed and to favor high levels of growth in the surplus countries.

I would also stress the need to avoid another rise in interest rates, which would place a hurdle in the way of our hopes for growth and would severely burden the indebted countries.

These efforts are vital if we are to avoid the worst of all solutions—resorting to protectionism. The temptation is there; we must resist it. My country attaches great importance to the new round of trade negotiations launched a year ago at Punta del Este. These negotiations will be lengthy and difficult, but they are crucial for the strengthening of the multilateral system. They will have to cover all aspects of trade, while preserving their global nature. France, which will consistently strive for this balance, will contribute fully to these negotiations.

I turn now to the developing countries. As a whole, they are pursuing rigorous recovery and adjustment programs with determination. But they must persist in their efforts in order to promote an in-depth strengthening of their economies and lay the groundwork for a return to lasting, balanced growth. Let us not delude ourselves: the adjustment process will be long. But, in return, the international community must give solid backing to the recovery effort. How can we expect sacrifices of some if the rest of us are not willing to make any?

It is therefore vital that we mobilize adequate financial resources for development. This is not happening today. These resources can be provided mainly by the multilateral institutions. However great the efforts—often underestimated—made by the Paris Club and international commercial banks, however great the effort made to attract private capital, only the multilateral institutions, especially the Bretton Woods institutions, are in a position to make sufficiently rapid, meaningful, and large contributions. But what is actually occurring? The net contribution of the Fund is becoming negative and the lending capacity of the World Bank is approaching exhaustion.

This situation cannot go on. The international community must urgently take further steps to demonstrate its commitment. I shall limit myself at this point to stressing the following areas for priority action . . . .

With respect to the Fund, its Articles provide that a decision on the Ninth General Review of Quotas must be made by March 31, 1988. I feel that a substantial increase is needed, one that would enable the capital of the Fund to keep pace with the world economy. Since 1965, the Fund’s capital has been reduced by half in relation to world production, and by two thirds in relation to world trade. The Fund’s financing must continue to be based chiefly on quotas, not on borrowing. This is necessary if its assistance is to be on more attractive terms than those offered by the market.

The Bretton Woods institutions must also adapt their activities to the needs of the poorest countries; this is a priority of the international community. The approach most appropriate to their needs rests on a substantial increase in the long-term resources available to them on highly concessional terms.

The proposal of the Fund’s Managing Director for a tripling of the structural adjustment facility is certainly the most significant initiative of those to which we must react. It meets some of the objectives of the proposals I made in April, and I regard it as a priority. My country therefore supports it fully and indeed expects to see it adopted by the end of the year. I can assure you that I shall work toward this end, and I hereby announce that France is prepared to devote at least $500 million to it over the next three years . . . .

The debt consolidation effort in the Paris Club must also be pursued. I am pleased to note that an extension of rescheduling periods has now been applied to the very poor, highly indebted countries which are engaged in adjustment efforts.

With respect to the objective of a reduction in interest rates on existing debt, a consensus on two steps which would have an immediate impact should not be beyond reach. First, concessional rates on rescheduled development assistance loans should be systematically applied, and, second, the margins charged by creditor countries over the cost of their borrowed funds should be reduced, or even eliminated, on consolidated commercial credits.

This reference to the Paris Club naturally leads me to bring up the case of the highly indebted middle-income countries. A moment ago I mentioned how important it is to strengthen the Bretton Woods institutions, whose resources are a key element in the process of balance of payments adjustment for these countries.

But efforts to mobilize commercial bank financing and to expand private investment are no less essential. Progress has been made, for example, with the idea of “menus with options,” which I personally hope will be as diversified and as imaginative as possible, provided that the fundamental principle of freedom of choice for banks is upheld.

I cannot conclude without reiterating how concerned I am with the trend in commodity prices. The drop in prices has been so sharp and persistent that it seriously jeopardizes the economic potential of many developing countries and raises doubts about whether the courageous adjustment efforts they have undertaken have any chance of success. That is why I deem it crucial for the international community to strengthen its activities in this area. The review of the compensatory financing facility we have agreed to will give us an excellent opportunity for reflection.

All of us know how attached France is to the effective launching of a common fund for commodities. I hope that this fund will soon be established. It will then be necessary to look realistically at the procedures for using its resources. I also think that the World Bank must play an active role in this area.

Those, then, are the principal concerns guiding my country. I shall conclude by appealing to the imagination and generosity of the international community as a whole, so that further progress may be achieved. You may rest assured that France, for one, will continue to do its utmost to work toward this goal.

Statement by the Governor of the Fund for China—Chen Muhua

I congratulate Mr. Abdul Karim on his election as Chairman of the current Annual Meetings and wish the meetings every success under his wise guidance. This is the first time I have participated in the Annual Meetings of the World Bank and the International Monetary Fund in my capacity as Governor of the People’s Bank of China and Governor of the Fund for China. It gives me great pleasure to have this opportunity to exchange views on major issues with my fellow distinguished Governors at this international gathering.

Now please allow me to address some of the major issues confronting the current Annual Meetings.

World peace and development are genuinely desired by people throughout the world, and the achievement of these two goals deserves our unwavering devotion. Unfortunately, however, matters of concern and uncertainty still exist in the current world economic situation. Economic growth in industrial countries has continued to be weak, and external imbalances among the major industrial countries have stayed at historic highs. Exchange rates between the major currencies have remained volatile. Trade protectionist practices and sentiments are being intensified. Financial flows to the developing countries have dwindled and, in some cases, even been reversed. Many countries in this group are still hindered by heavy debts, and economic growth for them is therefore extremely difficult—even after strenuous and austere adjustment. The gap between rich nations and poor ones, far from being narrowed, is—if anything—being widened.

The international community has become increasingly aware of the interdependence of nations’ economic development and prosperity. Based on this awareness and in order to facilitate global economic growth, the industrial countries must provide necessary assistance to the developing countries. And this assistance should, of course, be mutually beneficial and promotive. After all, the industrial countries would not be able to develop further, and tensions and strife would remain a permanent part of the international economic situation if they pursued only immediate self-interests and disregarded the interests of the developing countries.

An early reversal of the unfavorable world economic situation requires concerted efforts by both the industrial and the developing countries, with promotion of economic growth and resolution of the debt problem regarded as the most important objectives. To this end, the industrial countries should bear a greater responsibility, since their economic positions are much stronger than those of the developing countries in the world economy.

First and foremost, the major industrial countries should intensify efforts in policy coordination, in accelerating economic growth, in eliminating external imbalances, in pursuing active and symmetrical economic adjustment, and in stabilizing the exchange rates. When formulating economic policies, they need to bear in mind their responsibility to the international community and the impact they have on the interests of the developing countries.

In the meantime, industrial countries should roll back trade protectionism, particularly protectionist measures against export products of developing countries, so that conditions can be created conducive to the latter’s expansion of exports, economic development, and solution to the debt problem.

It has been our consistent view that the solution to the debt problem lies in the economic development of the debtor countries, and that debtors, creditors, multilateral financial institutions, and commercial banks should bear common responsibilities, engage in dialogues, and explore reasonable and realistic solutions through expanded channels. A solution to the debt problem would only be possible when the objective of economic development and an increase in the export earnings of the debtors are realized. The practice of servicing debt at the expense of development leads nowhere. What is more important right now is to find ways to alleviate the debt burdens of debtor countries by every possible means to at least allow them some breathing space. At the same time, debtor countries should formulate correct economic adjustment policies based on their specific conditions so as to facilitate stable and healthy economic development and create favorable conditions for repayment of their debts.

The plight of the sub-Saharan African countries merits closer attention by the international community. In view of the gravity and urgency of their problems, the Development Committee at its April meeting this year requested the World Bank and the Fund to submit to the Annual Meetings a Program for Special Action aimed at a solution to their problems. We are pleased to see that a tentative program has been worked out and has been supported by the countries concerned. It is our view that many of the proposals therein are positive and practicable; therefore, we would give our support and hope to see an active response from those same parties so that action can be undertaken quickly.

The World Bank and the Fund have, ever since their inception, been entrusted with the important task of promoting international economic cooperation, world economic growth, and financial stability. During the past decades, these two institutions have carried out their work effectively, and experience has shown that development and vitality have been enjoyed by the two institutions whenever they have adapted to changing circumstances, have been flexible with adjustment policies, and have been responsive to the trends in international economic development—particularly to the needs of the developing countries. Otherwise, they could lose their dynamism, leading to damage to their images.

In recent years, the Bank and the Fund have played a positive role in resolving the debt problem and in providing financing to the developing countries. Nevertheless, in comparison with the responsibilities that the two institutions are supposed to undertake and with what they have been expected to accomplish, the roles of the two multilateral financial institutions have not been brought into full play and there still are great potentials to be tapped. Of course, the catalytic role of the Bank and the Fund is important, but that in no way suggests we should overlook the capacity and the responsibilities of the two institutions in direct financing.

In our view, one of the most pressing needs confronting the Bank and the Fund is to strengthen their ability to finance, so that they can face the challenges ahead and play a more effective role in assisting their member countries. We are pleased that this issue has been placed on the agenda for the current Annual Meetings. Regarding the Fund, the size of its quota is far from meeting the needs of the world economy. The increasing reliance of the institution on borrowed resources during the past few years has raised the cost of borrowing by developing countries. From a long-term point of view, this reliance, if not reversed, could affect the nature of the Fund. With this in mind, we favor a substantial increase in Fund quotas in the Ninth General Review, and we believe the Ninth General Review should be completed in a fair, reasonable, and timely manner, taking into account the interests of all parties. This would promote sustainable world economic growth and sound development of the international monetary system.

Meanwhile, the Fund should resume the allocation of SDRs during the Fifth Basic Period as soon as possible. This is absolutely essential to alleviate difficulties in the world economy, to supplement international reserve assets, and to enhance the role of the SDR. Unfortunately, a consensus has not been arrived at, primarily because of the opposition of a few countries. We urge those countries opposing allocation to reconsider their positions so that resumption of the SDR allocation can be effected . . . .

Apart from strengthening their actual base of financing, the Bank and the Fund—to better undertake their responsibilities—must also enforce adjustment in formulating policies of conditionality and in designing economic adjustment programs. In this connection, we regard as desirable the special action aimed at helping low-income countries and the initiative to enhance the structural adjustment facility (SAF). It is our hope that strides toward progress will be larger and more active and that they will be seen by the international community—and especially the developing countries—as a genuinely supportive force in international economic cooperation.

Now I would like to turn briefly to the economic development of China. It has been nine years since we launched all-encompassing reform and began opening our economy to the outside world. At that time—in 1979—our main focus was on economic reconstruction. Since then, China has enjoyed political stability and unity, sustained and coordinated economic development, and enhancement of socialist democracy and of the legal system. Productive forces have been emancipated to a great extent, and the standard of living has improved markedly, with the food and clothing problems largely solved for our population of about one billion.

Compared with the pre-reform period, four growth rates have doubled, that is, the gross value of industrial and agricultural ouput; gross national product (GNP); fiscal revenue; and per capita income. Import and export volumes have tripled. In the last nine years, China has experienced the best economic performance, the fastest growth in economic power, and the highest standard of living for the people since the founding of the People’s Republic.

Experience has proved that the reform and opening have provided a powerful impetus to our work in all aspects. These policies have gained the full support of the mass of the people and shall not, and cannot, be changed. It is our firm determination to carry out these policies for many, many years to come. China is right now still at the elementary stage of socialism. And the main conflict of this stage is that between the ever-growing material needs of the population and the backwardness of the social productive forces.

In 1979 we formulated a basic strategy of economic development, taking fully into account our national characteristics. The strategy consisted of three steps: first, to double GNP and solve the basic problem of food and clothing within ten years; second, to improve living standards by quadrupling GNP by the end of this century; and third, to catch up with the medium-level developed countries in terms of per capita GNP and standard of living by the middle of the next century.

So far, we have achieved our goal for the first step. We are now working for realization of the second. Although we are confronted with numerous problems, we firmly believe that these goals are attainable through persistent and arduous efforts. China is willing to cooperate with the rest of the world on the basis of principle of mutual benefit in the fields of economic, trading, and financing matters.

China has always been supportive of all correct and reasonable policies and actions by the World Bank and the Fund, especially those that are favorable to the world economy and the interests of the developing countries. It is our sincere intention to continue and to strengthen our cooperation with the World Bank and the Fund, and to play our part in facilitating the attainment of their respective goals in facing the challenges of today.

Finally, on behalf of the Chinese Government, I would like to avail myself of this opportunity to offer to host the Annual Meetings of the two institutions in Beijing in the near future.

Statement by the Governor of the Bank for Costa Rica—Fernando E. Naranjo

I am highly honored to serve as spokesman at these Annual Meetings for Argentina, Bolivia, Brazil, Chile, Colombia, the Dominican Republic, Ecuador, El Salvador, Guatemala, Guyana, Haiti, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, the Philippines, Suriname, Trinidad and Tobago, Uruguay, Venezuela, and my country, Costa Rica.

Latin America remains caught in a difficult economic situation from which there still appears to be no way out, despite all efforts made. Notwithstanding the turnaround in growth in the last two years, gross product per capita is still less than in 1979. Since 1980, the region has suffered a cumulative deterioration of roughly 20 percent in its terms of trade and over the last five-year period has made net transfers of resources abroad in excess of $20 billion a year. It is obvious that a region whose level of relative development requires a substantial inflow of external resources cannot continue transferring abroad a volume of resources of this magnitude without significantly diminishing its development potential. Until a viable solution to the external debt problem is found, Latin America will be impeded in its task of advancing its own development, which must be its fundamental concern.

Two years ago, in Seoul, the international community recognized that the external debt problem could be solved only by more rapid economic growth in the debtor countries. The Seoul program focused on three main areas:

  • — far-reaching structural reforms in the debtor countries designed to expand domestic saving, increase exportable surpluses, and bring about a more efficient use of resources;

  • — a recovery in the growth rate of the industrial countries that would enable them to absorb a greater volume of exports from the debtor countries; and

  • — significant increases in capital flows to the debtor countries from the commercial banks, international financial institutions, and bilateral agencies.

Headway has been made in only one of the three areas, namely, adjustment in the debtor countries. The turnaround in the industrial countries has not had the impact or been of the magnitude envisaged; as a result, protectionist pressures have emerged there, tending to frustrate the export efforts of debtor countries.

As for capital flows to heavily indebted countries, they continue to be negative. Net commercial bank credit to these countries in 1986 was negative in the amount of $3.5 billion. The new resources provided by banks in certain cases resulted from difficult, grueling negotiations and were intended for the sole purpose of keeping up recipients’ interest payments. Net Fund financing of this group of countries has also become negative, in 1986 by $100 million, a highly significant figure when viewed against the average positive level of $4.8 billion annually in 1983–84, and above all, against the Fund’s primary purpose. As regards net transfers from the World Bank to the highly indebted countries, although still positive, they have been drastically reduced. From an average of $1.5 billion per annum in 1984–85, they declined to only $700 million per annum in 1986–87. Finally, the net flow of official development assistance to the highly indebted countries has also become negative, in the amount of $3.1 billion, in the last two years.

In the circumstances, it can be no surprise that the external debt problem has escalated rapidly, particularly in the last two years, or that the outlook for development of the debtor countries is darker than before.

Under present conditions, service of the external debt is obviously so burdensome to these countries that it has significantly limited the growth which is universally recognized as the prerequisite for any lasting solution of the debt problem. A small, highly indebted country like Costa Rica would have to devote 6 percent of its domestic product and 25 percent of its export earnings simply to covering its contractual interest commitments. Such figures speak for themselves.

In the face of this desolate outlook for the debtor countries, the international community faces a choice between continued short-term stopgap solutions founded on unrealistic hypotheses and a pragmatic strategy that not only helps overcome the financial problem but gets to the root of the fundamental problem, that of revitalizing the economies of the developing countries, and the highly indebted among them in particular. So the decision is either to go on doing more of the same, although it leads to no lasting solution, or to introduce something that is new, realistic, and promising, as much for the debtor countries as for the international financial community. Unless we take a frank approach to the external debt problem, we shall soon find ourselves returning here to Washington, under even more oppressive conditions, and bewailing the fact that there is still no real solution in sight.

We firmly believe that the new strategy must be based on the premise that the fundamental objective of the developing countries is their economic development. The ability to service the external debt can be nothing other than the consequence of an accelerated growth process that generates the resources for that purpose. And, as we have said, the servicing of the external debt has to fit in with the real capacities of debtor countries, capacities that are themselves determined by their rate of economic growth.

A key principle of this new strategy is that the costs it involves have to be shared equitably between the principal actors: debtors and creditors. There can be no suggestion that the costs of such a complex problem, a solution to which is of equal interest to both sides, should be allowed to fall exclusively on the shoulders of the debtors, as has happened until now.

It is up to us debtor countries to continue promoting responsible policies of adjustment and structural change conducive to orderly, sustained growth, which in turn will enable us to meet our judiciously restructured external financial commitments.

It is up to creditor country governments to coordinate macroeconomic policies among themselves to prevent undesirable trends and instability in the behavior of key variables—especially interest and exchange rates—which have global impact and can generate fundamental imbalances in world trade and capital flows. It is also up to the creditor country to guarantee increased access for the debtor countries’ exports; otherwise, as they themselves recognize, it would be impossible to generate the foreign exchange to cover the debtors’ development needs and, hence, their financial commitments. The industrial countries must likewise introduce more flexible laws and regulations enabling the commercial banks to respond more appropriately to the need for adjustment of their external lending terms. Finally, but no less importantly, the industrial countries must increase their official aid significantly, particularly the concessional component so urgently needed by the developing countries.

The multilateral financial agencies, in their turn, must play a more active role in channeling resources to the debtor countries . . . .

On another point, the multilateral financial institutions should also assume, just as they do with the developing countries, the important function of surveillance of the industrial countries’ macroeconomic policies, given the magnitude of their impact on other economies via changes in world financial, exchange, and commercial markets. Such surveillance would help improve the ability of these agencies to respond to shortcomings of a systemic nature in international trade and payment mechanisms.

The commercial banks, for their part, should assume responsibility for placing on a sound footing the portfolios of their loans to developing countries, and should gradually reduce the nominal value of these assets to their real value. On this score, the provisioning effort recently initiated by the commercial banks should evolve into a gradual process of revision of the value of this portfolio.

The new strategy to which we have referred should take account of the basic distinction between existing debt and new debt, since they require different policies and treatments.

As far as existing debt is concerned, its nominal value is widely known to be very much higher than its real value. Since the market has already recognized this discount, concerted efforts need to be made, either through formalization of a general scheme or on a case-by-case basis, to ensure that the differential is recognized and properly assessed, and in particular that a method is devised by which the discount will benefit the debtor countries, effectively reducing their outstanding liability.

Mechanisms such as conversion of debt into financial or equity investment and the orderly transformation of the debt are useful and should be facilitated by governments, regulatory agencies, commercial banks, and international financial institutions. In the immediate future, the recent efforts in this direction should be redoubled.

As regards already contracted debt, the recent upward trend of interest rates is cause for deep concern. In the case of Mexico alone, for example, the recent increase in interest rates will require additional annual outlays of $1.5 billion.

At the recent meeting of the Cartagena Consensus, held August 26–28 in Montevideo, Uruguay, a proposal was made to examine options for establishing limits on interest payments and the possibility of capitalizing interest when those limits are exceeded. We do not see any justification for interest rates on already contracted debt to continue to fluctuate according to current financial market conditions. Such fluctuations are a consequence of the policies of the industrial countries and have little to do with the conditions under which the loans originated or which prevail in the debtor countries. The interest rates should be governed by their normal historical level.

A solution to the problem of valuation of the existing debt, and the interest payable on it, along the lines stated above, is an absolute prerequisite for a future restoration of normal financial relations on market conditions.

I should like to conclude this statement with some thoughts on the political, economic, and social crisis that has affected Central America and on the document defining a procedure for establishing lasting peace in Central America signed by the five Presidents in Guatemala on August 7, 1987.

Since 1979, the Central American countries have been caught in a profound economic crisis, whose causes, both external and internal, are widely known. After eight years, there are still no signs to indicate the beginnings of economic recovery. During those years, per capita income has undergone a steady, dramatic decline in the five countries, ranging from 39.6 percent in Nicaragua to 9.3 percent in Costa Rica between 1978 and last year. Intra-regional trade, which reached its highest level in 1980 with a value of $1.13 billion, has fallen off considerably; estimates for 1987 indicate that it will be below $400 million, or less than 35 percent of its nominal value seven years ago. The area’s total exports barely reached $4.05 billion in 1986—a poor contrast with the 1979 figure of $4.67 billion—while external debt rose from $4.85 billion in 1980 to $16.79 billion in 1986. These figures reflect the magnitude and depth of the Central American crisis and the enormous effort its people and governments will be called upon to make in the future.

In some countries in the region, the compounding of economic problems with social and political factors has led to even greater deterioration, the most visible manifestation of which has been extreme financial weakness, exchange instability, and marked social deterioration.

The Central American governments, either jointly in the context of integration arrangements or separately, have taken significant steps to cope with the effects of the crisis and find a solution to it. In this task, however, more pronounced help from the international community was lacking.

The political will has manifested itself clearly in various instances. The Central American Presidents, at their recent meeting in Guatemala, Esquipulas II, reaffirmed the decisions they had adopted in May 1968 at Esquipulas I, stating that:

We request respect and assistance from the international community for our efforts. We have Central American paths toward peace and development, but we need assistance in making a reality of them. We request international treatment that guarantees development so that the peace we seek may be lasting. We reiterate with conviction that peace and development are inseparable.

The Central American reality, with all its harshness, achievements, and limitations, was debated in depth at the XIII Ordinary Meeting of the Latin American Council of SELA (Latin American Economic System), held a few days ago in Caracas, Venezuela. The outcome of the meeting was a “Statement in Support of Central America.” Proclaiming as the foundation of the actions to be taken that peace and development for the Central American peoples are indissolubly linked, this statement advocates and requests that the international community “be forthcoming with extraordinary, preferential, and nondiscriminatory support for Central America in the spheres of economic, financial, and technical cooperation through a sustained program that assures the consolidation of peace through economic and social development.”

Against the background of the new concept of promoting adjustment with economic development, the priority given to the latter stands out: development is not possible if the sacrifices exacted by adjustment conspire against it. The catalytic element in this contradiction can be implemented through two channels: first, in significant and sustained financial aid for Central America and, second, in the need to ensure that such assistance, as well as aid of other types, is provided with due account to the real needs of the five countries, with their individual peculiarities and features. The efforts being made to strengthen and capitalize the regional development banks must be supported unstintingly, as in the IDB case which I mentioned earlier, and the strengthening of the Central American Bank for Economic Integration, particularly by bringing in partners from outside the region.

The Central American Presidents have taken a historic decision. The war must end and peace must be reborn. Instead of arms and repression, there must be more liberty, more respect for political rights, and more bread. There can be no lasting peace without economic and social development.

Central America has experienced an unprecedented economic, social, and political crisis. Here today, in this historic setting, we urge the international community, governments, banks, and institutions to provide the region with decisive financial aid in amounts and on terms that are appropriate and flexible, in support of the efforts we are making to restore peace, political stability, and orderly economic and social development so that we can achieve the levels of well-being claimed by our 20 million people.

Statement by the Alternate Governor of the Fund and the Bank for Japan—Satoshi Sumita

It is indeed a pleasure to have this opportunity to meet with the honorable Governors for a constructive exchange of views on the many issues of mutual concern. Before stating my own views on these issues, I would like to express my appreciation for the arrangements that the United States has made for these meetings and my high regard for the outstanding leadership that the Managing Director of the Fund, Mr. Camdessus, and the President of the World Bank, Mr. Conable, have demonstrated and the peerless support that they have received from their staffs.

Current Situation and Problems Ahead for the World Economy

Outlook

At our last meeting, we reaffirmed our shared concern in sustaining economic growth, stabilizing exchange rates, and reducing international imbalances. Over the last year, we have made efforts to attain these goals and thereby to achieve sustained and noninflationary world economic growth.

As a result of these efforts, the world economy has continued its gradual but steady growth, with the industrial countries in particular showing signs of economic expansion. These developments bode well for our shared future.

Much of the progress that has been achieved may be attributed to efforts that have been made for policy coordination to stabilize exchange rates. At the same time, the progress in policy coordination is contributing importantly to the alleviation of external imbalances. Adjustments in the trade flows are already under way.

The Role of the Japanese Economy

Japan has contributed to these favorable international economic developments. As Governor Miyazawa told you when we met last year, Japan fully recognizes its international responsibilities in the management of its economy.

In 1986, the Japanese economy recorded a growth of 4 percent in domestic demand, although the negative growth in external demand that resulted from the yen’s appreciation and other factors brought the overall growth rate down to 2.4 percent.

Looking at the economic situation since the beginning of this year, domestic demand has been increasing vigorously and our economy is firmly on the road to recovery. For example, individual consumption has continued to grow steadily, and housing starts have enjoyed double-digit growth for four straight quarters beginning in the third quarter of last year. Capital investment has also picked up recently after last year’s sluggishness. This expansion in domestic demand is pulling in more imports and contributing to the balanced development of the world economy.

While promoting policy coordination with the other leading countries, we announced emergency economic measures in May, despite our severe fiscal constraints, to ensure that domestic demand continues expanding and the overall economy continues growing vigorously, and also to reduce the international imbalances for more harmonious external economic relations.

These economic measures include unprecedented front-loading of public works, a record Y 5 trillion (about $36 billion) in additional expenditures for public works and the like, and the advanced implementation of income tax reductions. The supplementary budget for these economic measures was passed in July.

Earlier this month, a tax reform bill was passed providing for a total of Y 1.54 trillion (about $11 billion) in income tax cuts. These latest reductions have been accompanied by the reform of the tax-exempt savings system.

These are just a few examples of how we are seriously working to respond to the social and economic changes taking place in Japan and the rest of the world. These measures are expected to ensure continued firm growth in domestic demand and steady economic recovery.

Japan is determined to achieve noninflationary economic expansion led by strong domestic demand. We believe this will contribute to enhancing the quality of life and will meet the expectations of the countries that have called upon Japan to play a greater role commensurate with its increasing importance in the world economy.

Looking at financial and capital markets, we have instituted a number of measures to deregulate interest rates, to strengthen and expand short-term financial and capital markets, to improve access to Japanese markets for foreign financial institutions, and otherwise to promote the deregulation and internationalization of the Japanese financial and capital markets.

Consistent with the progressive globalization of markets, we are working to ensure that Japanese financial and capital markets are able to play an important role in the world. In June we announced further interest deregulation, the establishment of a market for commercial paper, and other changes to further enhance short-term financial markets. I assure you that we intend to proceed apace with deregulation and internationalization.

Issues for the Future

Despite the progress that has been made, there are still a number of important issues remaining in the world economy.

The first of these is that of promoting noninflationary world economic growth and reducing the still large external imbalances while continuing to work to reduce the massive fiscal deficits in many of our countries in light of the problems they cause. Policy coordination and exchange rate stability are both very important in this context.

Second is the need to resolve the serious problems of debt and development. This is not simply an issue facing the developing countries but is a crucial issue for all of us, for failure to achieve a satisfactory solution could easily impact adversely on the industrial countries and disrupt the entire world economy.

In seeking to resolve these problems, it should go without saying that it is imperative that we roll back the protectionist pressures emerging in some quarters and preserve and strengthen free trade arrangements. In this regard, I am most hopeful that major progress will be made in the Uruguay Round of Multilateral Trade Negotiations, and I urge all countries everywhere to make the maximum effort to ensure that these negotiations are successful.

International Policy Coordination and the Outlook for a Stable Monetary System

Policy Coordination and Exchange Rate Stability

The cooperative efforts that have been made since the 1985 Plaza agreement have enabled us to achieve the goal of rectifying the prolonged overvaluation of the U. S. dollar and have taken us on the first strong step toward a solution of the issues bedeviling the world economy.

Consulting closely since our last meeting, we have engaged in both macro-economic policy coordination and exchange market cooperation. While this may lack the drama of a major institutional change in the international monetary system, I am confident that such an incremental and practical approach is the best way to achieve steady progress and evolution in the monetary system.

Our cooperation in exchange markets should be seen not simply as a means of tiding us over a time of temporary volatility in exchange rates but as a part of our international cooperation toward the longer-term goals of achieving sustained and noninflationary growth and reducing the major external imbalances.

The international consensus evolving through the process of such pragmatic efforts and cooperation offers the prospect of a stable monetary system. Japan has been, and will continue to be, an active participant in this process.

The current international monetary system was launched in 1978 when it was decided, in the Second Amendment of the Articles of Agreement of the Fund, to abolish the official price of gold and to gradually reduce gold’s role. This was indicative of our determination that it should be possible to stabilize international currency values through resolute agreement even without the traditional crutch of the gold exchange standard. I am convinced that we must persevere in this direction.

Although the dollar continues to play an important role as a key reserve currency, we are encouraged to see that the Japanese yen is one of the currencies which has also been playing an increasingly important supplementary role. Consistent with this, Japan has promoted the yen’s internationalization. While SDRs now serve primarily as a safety net for future contingencies, I believe it is important that we continue to re-examine their function in the international monetary system.

The Role of the Fund

I have the highest regard for the role that the Fund has played in the development of our current international monetary system. I am encouraged at the progress being made in studies on implementing multilateral surveillance consistent with increasing international policy coordination. I am confident that the Fund’s provision of the World Economic Outlook and other materials for discussion will contribute to international monetary stability, and that member countries will be able to undertake their best efforts to reach understandings based on a free and full discussion of these materials.

Seeking to further strengthen the central role of the Fund in promoting international monetary stability, it is imperative that we enhance the Fund’s financial base. This enhancement should be in the form of a quota increase, and Japan intends to contribute to the forthcoming Ninth Quota increase commensurate with its economic abilities.

The Fund has also played an important role in the defusing and resolution of the debt problems, and I very much hope that it will continue to play this central role. From this perspective, I am therefore appreciative of the fact that the Trust Fund established in 1976 and financed with the proceeds from the sale of the Fund’s gold stock was used to assist countries facing severe balance of payments difficulties, and that the structural adjustment facility (SAF) was established last year utilizing the repayments to the Trust Fund. Regarding the enhancement of the SAF now under discussion, I hope that the negotiations between the Fund and the countries concerned will result in the creation of a framework conducive to positive cooperation, and, assuming this can be done, Japan is prepared to participate within this framework.

Responding to the Debt and Development Issues

The Debt Situation at Present and the Basis for a Viable Debt and Development Strategy

The developing countries still face serious debt situations. Their debt outstanding continues to rise, and, even though it is anticipated that the increase will taper off a bit, no decline appears in store.

While the developing countries’ own self-help efforts are basic to any strategy to solve the debt problem, it is important that the international institutions, industrial countries, and private banks undertake cooperative actions to respond to the problem on a case-by-case basis. Japan believes it is important that the debtor countries, in keeping with their growth-oriented economic structural adjustments, adopt market-oriented debt and development strategies, including promotion of the private sector, encouragement for the financial and capital markets, higher savings ratios, efforts to block capital flight, and the creation of a climate conducive to attracting more direct investment.

Japan’s Positive Response

Over the last year, Japan has been acting to resolve these debt and development problems by seeking to recycle a total of approximately $10 billion, including the establishment of a special fund within the World Bank and increased lending to the Fund. This May, we announced that we would recycle an additional $20 billion of completely untied public and private funds to the developing countries over a three-year period. These funds will be recycled in the form of budgetary contributions to the multilateral development banks, their additional borrowing on Japan’s financial and capital markets, and cofinancing with these institutions by the Export-Import Bank of Japan, the Overseas Economic Cooperation Fund, and commercial banks.

Looking at official development assistance (ODA) overall, Japan is working for the earliest possible implementation of its Third Medium-Term Target. We have thus decided to advance the original seven-year doubling target by two years and to see that our actual ODA disbursements during 1990 are in excess of $7.6 billion.

Strengthening the Role of International Financial Institutions

Understandably, there are increasing expectations of the role to be played by the international financial institutions in this international response to the debt and development problems. Japan supports the strengthening and enhancement of the international financial institutions to enable them to respond to the development challenge.

Both the Fund and the World Bank have central roles to play in the solution of the debt problems, and it is essential that the World Bank, in cooperation with the Fund, support the debtor countries’ growth- and market-oriented adjustment efforts and that it step up its policy advisory capability to enable these countries to regain the financial community’s trust. Likewise, every effort should be made to provide these countries with the additional resources they require as efficiently and effectively as possible, including the greater use of structural adjustment loans and sector adjustment loans. . . .

Conclusion

The expansion of trade and capital mobility has made all of our economies highly interdependent. As a result, the need to achieve balanced development for the world economy increasingly requires that all of us promote mutual understanding and work to implement cooperative policies in our shared best interests.

I am encouraged by the fact that the Fund and the World Bank are crucial catalysts and major forums for this mutual understanding and cooperation, and I trust they will continue to play central roles as our consciences and our better selves.

Cooperating with the other member countries, Japan intends to play a leading role within the Fund/World Bank structure and to work to the benefit of the industrial countries and the developing countries alike, for we know that this is one of the crucial issues for humanity. The only future we have is a shared future. It is up to us to make it work.

Statement by the Governor of the Bank for Indonesia—Arifin M. Siregar

Let me, first of all, avail myself of this opportunity to convey my Government’s expression of welcome and high esteem to the new leadership of the Fund under Mr. Camdessus.

A number of positive developments have been observed in the world economy during 1986 and the early part of 1987. Continued progress in controlling inflation has been achieved. Enhanced efforts to better coordinate economic policies among major industrial countries have brought some progress on certain major fronts, particularly in bringing better alignment of major currencies.

But despite these achievements, a number of pressing problems continue to beset the world economy. One problem of crucial importance is the slowing down of the overall rate of growth of industrial countries. In light of the size of the United States and the role it plays in the world economy, it is important that its economic growth be sustained. Since the budget deficit lies at the heart of the U.S. adjustment problem, I believe that the outlook for growth in the United States will remain uncertain. To ensure a significant growth in the United States, an increasing effort has to be made to reduce the sizable fiscal deficit. This fiscal effort could only have a beneficial impact on the world economy if it is supported by stronger domestic growth in the major industrial countries, thereby helping to bring down the U.S. current account deficit and dampening protectionist trade sentiments.

Although this is already the stance of policies agreed upon at the Venice economic summit in June 1987, recent evidence of continuing slow growth and large trade surpluses in both Japan and Germany casts doubts in our mind whether the coordinated international strategy would work fast enough with existing policies and exchange rates. I believe there is much to be said for boosting growth outside the United States through appropriate structural adjustment measures. In addition, macroeconomic policies can also help to bolster domestic demand now that activity has not recovered as strongly as expected in the second half of 1987.

This slowing of growth of industrial economies is also adversely affecting the ability of developing countries to achieve their growth and development objectives. But the negative developments that have taken place in trade and resource flows between industrial and developing countries are even more worrisome. In the last few years, we have observed the slowdown in the expansion of world trade, increased protectionism, and a continuing slump in commodity prices. There has also been a decline in financial flows from commercial banks and other private sources to developing countries. All these developments have further weakened the financial position of most developing countries and have reduced the sensitivity of their economies to growth impulses from abroad.

The above negative developments have aggravated the world debt problem. We are interested in a successful resolution of the debt problem. It should be emphasized that as long as this problem remains unresolved, it also affects the willingness of financial markets to increase exposure even to creditworthy developing countries as well as the terms on which credit is provided. We are not oblivious to some important steps that have been taken toward the solution of the debt problem, thereby mitigating somewhat the systemic threats of the problem. Nevertheless, more decisive steps are needed if we are not to lose the momentum of our cooperative efforts. The gravity of the debt problem requires a major intensification of efforts and cooperation on the part of debtor and creditor countries, commercial banks, and multilateral institutions, especially the Bank and the Fund. Activity should be aimed at offsetting the negative impacts of recent external developments. The Bank and the Fund should continue to play a meaningful role through their financial support to underpin adjustment efforts in debtor countries. The Fund, in particular, should continue to play its vital role as a catalyst in mobilizing resources from other sources and in its multilateral surveillance efforts.

If the Bank and the Fund are to carry out their central role effectively, they should not be unduly constrained by inadequate resources to meet the increased needs of member countries for financial and technical assistance. The latest World Economic Outlook indicates a possible increase in the external financing requirements of member countries, particularly certain indebted primary producers that have faced severe declines in their terms of trade and real incomes. On the other hand, the currently meager financial flows to developing countries are expected to continue in the late 1980s. Therefore the present level of access limits under the enlarged access policy and special facilities of the Fund for 1988 should be maintained. Since the size of structural adjustment facility (SAF) resources has been far from adequate to support the wide-ranging macroeconomic adjustment and structural reforms it seeks to promote, the proposal by the Managing Director of the Fund to triple SAF resources should be concluded as soon as possible so that disbursements can start in January 1988.

In view of the expected role of the Fund, it is necessary to bring the size of the Fund back into a more appropriate balance with the world economy. I strongly support a minimum quota increase of 100 percent under the Ninth General Review of Quotas, as well as an acceleration of the process for the new quotas to be effective. . . .

I should also like to call upon the industrial countries to accelerate the process of ratification for the IDA-VIII Replenishment so that funds will become available for lending to low-income countries on concessional terms, complementing in a substantial fashion adjustment programs supported under an enhanced SAF of the Fund.

Furthermore, present conditions in many developing countries require more flexibility in the lending operations of the Bank and the Fund. Of particular importance is the flexibility with regard to the actual access and the conditionality attached to the use of the resources of these two institutions. Flexibility in actual access is essential to ensure that the adjustment program put in place still allows the achievement of a reasonable rate of growth. As for conditionality, flexibility is required to ensure that the adjustment efforts are within the limits of social and political tolerance of the country. Flexibility also appears to be required in the terms of the Bank’s project loans. To fit the conditions in some member countries, the Bank should continue allowing the use of some portion of the loan funds to finance local currency costs of projects.

Finally, I wish to express our disappointment that no agreement has been reached in favor of resuming SDR allocations. As a result, we have denied the SDR its potential role as the principal reserve asset, as envisaged in the Fund’s Articles of Agreement. We have also failed to appreciate the positive contribution an SDR allocation could have made toward the resolution of present world problems. I do hope that more positive considerations will be given to this matter in our future deliberations so that SDR allocations can be resumed as soon as possible.

I would like to conclude my address by expressing, on behalf of my delegation, our appreciation and gratitude to the U.S. Government whose hospitality and assistance have made our Meetings and stay here a pleasant and rewarding experience.

Statement by the Governor of the Fund and the Bank for Korea—Il Sakong

It is an honor to be here for the Forty-Second Annual Meetings of the World Bank and the International Monetary Fund. Over the years, the Bank and the Fund have played such a critical role in enhancing the world’s financial stability and international cooperation. In today’s increasingly interdependent world, such efforts are even more vital to global economic health than they were 40 years ago. I am confident that the frank exchange of views at today’s meetings will contribute greatly toward these ends, and I welcome the opportunity to participate in the discussions.

Before I continue, I would like to join my fellow Governors in extending congratulations to Mr. Michel Camdessus on his first Annual Meetings as the new Managing Director of the International Monetary Fund. Mr. Camdessus’ broad experience and inspirational leadership will, I am sure, greatly enhance the effectiveness of the Fund.

This afternoon I would like to touch briefly upon the two economic issues I view as being most critical to our time: the rising trend of protectionism and Third World debt, both of which are inextricably linked together.

Protectionism in an Interdependent World

The world is becoming more and more interdependent every day. In this kind of global community, no nation can manage its economy successfully without taking into account its economic relations with other countries. It is no longer possible for a nation, isolated and alone, to achieve economic success and prosperity for its people. Thus, even when making domestic economic policy decisions, a country requires leadership with broad vision and courage because that leadership must look beyond its own borders.

Nevertheless, it is unfortunate that there is a rising trend of protectionism that we all know reduces world trade and increases the likelihood of a global economic downturn. The only way to ensure prosperity for our interdependent economies is through sustained, noninflationary world growth. To accomplish this, we should work together to fight against protectionism. In this regard, the new round of GATT negotiations, now known as the Uruguay Round, is extremely important. Both developed and developing nations have a big stake in bringing this multilateral negotiation to an early and successful conclusion.

Debt Reduction Is Dependent on Free Trade

Despite lower international interest rates, the decrease in international financial lending to developing nations has exacerbated the debt service burden of many indebted countries. It is needless to say that these indebted nations must rely on trade to service their debts. Restricted access to foreign markets means that an indebted nation loses opportunities to earn the foreign exchange it needs to repay its external borrowings. It is important to avoid the vicious circle of protectionism that can only lead to the eventual collapse of world financial markets.

Korea is a good example of how trade can be used effectively to service and repay debt. Even though Korea has the fourth largest external debt in the Third World, it is scarcely mentioned together with highly indebted nations and rarely worried about. This is because Korea has been successful in implementing an outward-looking development strategy based on trade. However, let me state quite clearly that if Korea’s access to foreign markets had been further restricted or obstructed, it too would have become a subject of discussion and worry at talks regarding heavily indebted developing nations. Moreover, if the protectionist threat is not brought under control, such a bleak scenario could well become reality.

I am happy to report to the Governors that, after suffering from continuous current account deficits and accumulating external debt, Korea last year achieved a modest current account surplus and, as a result, has been able to reduce its debt in absolute terms. At the same time, Korea has also been able to improve the composition of its debt outstanding.

With tongue in cheek, I would also like to point out to the Governors that, as recently as two years ago, Korea was urged by others to devalue its currency more than it had at the time. It is a measure of our success that today Korea is under pressure to do just the opposite.

“The proof of the pudding is in the eating,” they say, and if the success of the Korean economy is any indication, then the adoption and careful implementation of an outward-looking development strategy based on trade is the correct path to take. Moreover, I am convinced that this outward orientation will continue to reap benefits in the future. That is why Korea continues to follow this strategy and why we push strongly for market liberalization both at home and abroad. As a trade-oriented nation, Korea knows that it must open its market if its industries and firms are to mature properly and maintain competitiveness.

Incidentally, I wish to point out that differences between the economies of developing nations mean that a generalized policy response to them may not be appropriate. Korea is unique in that it is now generating an external surplus while also still heavily indebted. Korea has borrowed and it has grown; it is now paying back its loans. In order to do so, Korea must acquire a moderate surplus in its current account for the time being.

Thus, I would like to emphasize that, based on our own successful experience with debt-related development and in using trade as an engine for growth, greater trade liberalization at home and abroad, not protectionism, is called for to restore sustained world economic growth and eventually to help resolve debt problems in the Third World.

Other Steps to Solve the Third World Debt Problem

There are, of course, other steps that can and should be taken to alleviate the debt crisis. Besides keeping their markets open, industrial countries should work closely with their commercial banks in devising constructive ways to solve the debt problem and, if necessary, provide them with financial assistance and/or tax incentives.

As for the commercial banks themselves, they need to recognize that preventing insolvency in the short run for these troubled countries is not the answer. The real answer can only be found by taking a long-term view. In this regard, a substantial deferral of principal and possibly interest payments for those heavily indebted countries that have reached their limit on debt-servicing capacity may be both necessary and desirable. This is preferable to stopgap measures that inevitably result in the snowballing of bad loans. Fresh loans that will enhance the debtor nations’ long-term repayment capabilities will also be a necessary step.

As for the debtor countries, they must exhibit strong political leadership and a commitment to adjustment policies aimed at reviving growth in their economies. They must also work toward building a consensus on the need for reform in order to secure cooperation and effective policy implementation.

Increased Role for the World Bank and the International Monetary Fund

Before concluding, I would also like to mention in passing that international institutions such as the Fund and the Bank also have a more active role to play in discouraging protectionism and alleviating debt problems. They should, first of all, focus efforts on coordinating economic policy actions among both developed and developing nations. As I have already pointed out, in today’s complex world independent policy actions are ineffective and sometimes harmful in addressing global problem areas. Only by taking joint actions under a strong and unified framework can we manage effectively to improve the world economic environment. In this respect, the Bank and the Fund can play a vital role.

This year significant progress was made in strengthening coordination of economic policies among the major industrial nations, as noted in the Louvre accord and the Venice economic declaration. The joint commitment of these nations to foster sustainable noninflationary expansion, intensify coordination efforts, and monitor economic developments in close cooperation with the Fund bodes well for the global economy.

In addition, both the International Monetary Fund and the World Bank should play a central role in providing and arranging adequate financing for the adjustment efforts of debtor countries. To this end, the capital base of both the Bank and the Fund should be expanded. Korea welcomes an early agreement on the IDA-VIII replenishment and urges IDA donor countries to expedite their contributions. Korea also welcomes the Fund’s initiative to enlarge the structural adjustment facility. The Bank’s capital expansion is overdue, and Korea supports early consideration of a sizable general capital increase. As for the Fund, the Ninth General Review of Quotas should be completed expeditiously and guided by a concern to provide the Fund with resources appropriate to the challenges of the 1990s.

Conclusion

It is time to sum up this statement. In my view, substantial progress has been made in improving our external economic environment, but many serious problems still remain to be resolved. Among these, the rising trends of protectionism and Third World debt pose the greatest threat to global economic health. In order to overcome these threats, independent policy actions are not enough; we must act in concert in a clear and consistent manner. Moreover, the nature of these problems—protectionism and debt—demands that they be dealt with together rather than separately.

To address these problems we are left with a hard road to follow, and all of us must take responsibility if we are to make further progress. As we strive to bring this about, we must continue to look to the World Bank and the International Monetary Fund for guidance, cohesion, and coordination.

We have come a long way since the early 1980s in laying the foundation for sustained world growth. Now more than ever we must join together to consolidate this foundation and take bold steps in building a stronger global economy for the future.

Statement by the Governor of the Fund for Italy—Giuliano Amato

Despite some unfavorable indications in the first part of this year, we can now be confident of the maintenance of the current growth path in the world economy in the coming months—there will not be, however, any substantive reduction of unemployment.

The latest projections for growth in industrial countries are more encouraging than they were in the spring, and there are no significant signs of a resurgence of inflation. There are, however, dangers in connection with persistent strong payments imbalances, mainly in the three major countries. In addition, I draw attention to the weak performance of fixed investment, which is affected by uncertainties about the evolution of exchange and interest rates as well as about the degree of openness of foreign markets.

A strengthened coordination process between major countries has contributed to identifying the direction of adjustment and to steering economic policies required to correct imbalances.

Nobody can deny that important progress has been made with regard to fiscal policies. The United States has achieved impressive results in reducing the budget deficit for the current fiscal year and is taking steps to reduce it further in 1988. Japan and the Federal Republic of Germany are implementing expansionary fiscal measures. We are convinced that there is scope in some countries for further fiscal action, particularly on the tax front, in the coming year, for the purpose of raising domestic absorption in some countries while preserving price stability.

As regards the correction of external imbalances, an important contribution should come from those industrial countries in surplus which are not facing inflationary pressures as well as from some newly industrializing developing countries, which, owing to their exchange rate policy, are accumulating sizable surpluses. The policies of all these countries should aim at counterbalancing to some extent the withdrawal of fiscal stimulus to the world economy which stems from consolidation of the federal budget in the United States.

Changes in fiscal policies should be accompanied by the use of other instruments in order to correct imbalances and achieve greater exchange rate stability. Interventions in exchange markets are being used more frequently than in the past and have proved effective for limited periods. However, they are not a valid substitute for policy correction. Indeed, their cost may become very high if they are protracted for too long, whereas their effectiveness is enhanced if they are accompanied by adjustments in monetary policies. We are aware of the limits to the use of monetary policy for exchange rate purposes because of the need of keeping liquidity creation under control. Developments in the last few weeks, with interest rates rising almost everywhere, are already signaling some tensions in the markets.

The situation of developing countries is complex and heterogeneous and is affected by the elements of uncertainty present in the world economy. These countries as a group are likely to show an improvement in their growth performance by the end of the year. However, efforts by these countries to reduce their current account deficits are to an extent frustrated by the slow expansion of international trade, adverse terms of trade, and debt management problems. Their task will certainly be made more difficult by increased protectionist pressures, the rise in borrowing costs, and the disappointing performance of financial resources transfers, especially on the part of commercial lenders.

In sum, our sentiment about the future is that the world economy is still facing risks. The huge amount of accumulated debt not exclusively owed by developing countries and the persistence of high real interest rates may bring about unsustainable tensions in the medium term. It would be impossible to relieve the plight of the highly indebted countries without continuous sustained expansion of the industrial economies, adequate flows and reflows of capital, and openness of the markets. In this respect, it is to be hoped that a reversal of protectionist practices will take place soon, even before the conclusion of the current negotiations for trade liberalization in the framework of GATT and other concerned multilateral institutions.

The latest data confirm the seriousness of the debt problem of developing countries. The total outstanding debt reached $1.1 trillion at the end of 1986. Lending from nonofficial sources is likely to remain inadequate and concessional flows are expected to level off in 1987.

Some of the elements of the debt strategy have not lived up to expectations: the role of commercial banks is, inter alia, a case in point. Although the basic principles, objectives, and instruments of the debt strategy, and in particular the case-by-case approach, are still valid, certain operational aspects need to be reviewed. Commercial banks can play a vital role in middle-income heavily indebted countries. The tendency of the banks to move from balance of payments loans toward trade and investment financing certainly goes in the right direction. Furthermore, the “menu” approach has added flexibility to the debt strategy, although it can only marginally change the distribution of risk between creditors and debtors.

Important initiatives have been taken in favor of the poorest countries. We are supporting the new approach of the Paris Club aimed at lengthening grace and repayment periods and lowering interest rates. Our special concern for low-income countries is demonstrated by the strong support the Italian Government is giving to the proposals advanced within the World Bank and the International Monetary Fund favoring the Special Action Program and the enhanced structural adjustment facility. We consider the role of these institutions as essential in fostering structural reforms in these countries and promoting their economic development.

The Italian Government is making a special effort in favor of some African countries. Recently, rescheduling operations have been concluded at highly concessional terms and conditions, especially as regards interest rates.

The Italian Economy

At this point, let me refer briefly to the Italian economy. I wish to recall that during the 1980s a major effort was made toward adjustment. The rate of inflation was brought down from over 20 percent to less than 5 percent; the current account deficit was wiped out; the degree of Italy’s financial integration in the world economy was substantially increased. The economic rehabilitation was accompanied by a rate of growth of GDP higher than that recorded on average in other European countries.

These achievements were made possible as a result of the combined use of rigorous incomes policy, strict monetary and exchange rate policies within the European Monetary System (EMS), and significant efforts to reduce budgetary imbalances. Clearly, they also benefited in the last two years from the improvement in our terms of trade.

The expansion of the Italian economy gained momentum during the first half of 1987, sustained both by consumption, especially of durable goods, and by investment. Domestic demand increased at the rate of 4.5 percent in real terms, while exports were held back, mainly as a result of stagnant demand by trade partners. The trade balance was adversely affected also by higher oil prices and food imports. The current account surplus of $4.4 billion recorded in 1986 was being rapidly eroded.

Since the second quarter, it was also becoming progressively clear that the government borrowing requirement was exceeding the target originally set. The difficult political phase, which led to early general elections in mid-June, did not allow for immediate corrective action.

On the monetary and exchange rate fronts, after the EMS realignment in January, sizable capital inflows led to easier monetary conditions. The situation started changing in the second quarter, when the above-mentioned domestic developments began to be felt. The evidence that the decline in inflation was coming to a halt, and the risks of a certain pickup, mainly as a result of external factors, compounded the problems.

Beginning in May, to maintain control of money and credit aggregates and to ensure market financing of the Treasury deficit, monetary conditions were tightened and interest rates went up. This action was also necessary to counter the reversal of capital flows, which followed the liberalization of most foreign investments by residents, in the context of the full integration of financial markets in Europe. Indeed, interest rates rose to levels which the Fund regards as the highest among industrial countries in real terms. Moreover, at the end of August the Government introduced measures designed to curb domestic demand and to reduce the public sector deficit. In particular, the VAT rate on most consumption durable goods was increased by 4 percentage points, and the tax on gasoline and fuel oil was increased in order to offset the decline in prices in real terms that had occurred over the last two years. The discount rate was raised from 11.5 percent to 12 percent.

Taking these measures into account, in the current year we expect to achieve a rate of growth of 2.8 percent in GDP and of 3.5 percent in domestic demand, with consumer prices rising by 4.6 percent and the current account showing a small surplus. Moreover, the state sector borrowing requirement should remain at the 1986 level, which corresponds to a decline of nearly 1 percentage point in terms of GDP.

The overall balance of payments registered large deficits in July and August, and the exchange markets entered a period of turmoil at the beginning of September. Several factors were at play in this period: a worsening of the terms of trade, capital outflows related to the portfolio adjustment following the liberalization of capital transactions, and expectations of an impending EMS realignment. Temporary administrative controls were thus reintroduced in mid-September to check the exchange outflow and curb credit expansion.

Together with exchange rate stability, consolidation of public finances remains a major objective of the Italian authorities. The finance bill for 1988 aims at a reduction of the public sector deficit to 10.5 percent of GDP from 11.2 percent in 1987. This will be achieved mainly through a lower rate of growth of public expenditure and a moderately higher taxation, the burden of which has been shifted from social security contributions and direct taxes to indirect ones.

The main macroeconomic assumptions and objectives underlying the finance bill can be summarized as follows. Real GDP growth should be 2.8 percent. The rate of inflation measured by consumer prices should be 4.5 percent, the same as in 1987, in spite of the unavoidable mechanical impact on prices of the increase in indirect taxes, notably the adjustment in the VAT rate. The current account balance should be in approximate balance. To achieve these macroeconomic objectives, wage moderation is of critical importance; for the economic system as a whole, nominal wages should not increase by more than 5.5 percent.

I wish to underline that the most important social problem we are confronted with remains unemployment, which stands at some 11 percent of the labor force and is characterized by regional and age imbalances. Therefore, we are encouraging investments, especially in southern Italy in order to foster the creation of new jobs.

In sum, the finance bill has two main objectives. The first is to ensure a rate of expansion of domestic demand consistent with sustainable growth and external equilibrium in a context of lower underlying inflation. The second is to promote greater flexibility and efficiency of the economic system and to boost private saving. In this framework monetary and credit policies will continue on a path consistent with disinflation and exchange rate stability. The credit flow target set for 1988 provides, however, adequate room for the financing of strong investment growth.

These prospects for the Italian economy are obviously linked to satisfactory growth at the world level. It is incumbent upon all countries to do their part to encourage noninflationary growth and to reduce payments imbalances in a context of stable exchange rates.

Fund Policies

I wish to make at this point a short reference to the institutional aspects of our agenda. First of all, I would like to touch upon the problem of surveillance and indicators that has been widely treated by the Executive Board of the Fund. The effort to improve the framework for moving toward a sustained and balanced growth in industrial and developing economies can be helped by the use of indicators in multilateral surveillance. The development of the indicators exercise can provide us with an information base that is more structured and comparable across countries.

The analytical framework provided by the Fund can make it easier to assess the international compatibility of national policies, to single out areas of weak performance at an early stage, and, possibly, to achieve a higher measure of self-discipline in the conduct of national economic policies.

We have followed with great attention the efforts made to arrive at defining indicators and criteria for their use. Recent developments confirm our opinion that they can help signal internal inconsistencies in the policy stance of individual countries or incompatibility among policies of major countries.

We have noted that the policy of enlarged access to Fund resources has proved to be effective in easing tensions related to the debt problem. The Fund has acted selectively in granting credit under this policy and has been successful in complementing its financing with the structural adjustment facility. Moreover, we have been informed that the liquidity position of the Fund will be satisfactory in 1988. Hence, the policy of enlarged access should be continued with unchanged limits, as a clear signal of continuing support to the debt strategy and concrete encouragement to countries pursuing adjustment and to commercial bank lending.

In recognition of the special attention to be given to low-income countries, we support the efforts to arrive at a substantial enlargement of SAF resources, in accordance with the commitment made in Venice. We have examined the estimates presented by the Bank and the Fund on the likely financial needs of these countries to pursue extensive economic reforms, and concur that adding SDR 6 billion to the SAF should be our deliberate target.

As regards financing of the facility, several problems must be carefully considered. Given the budget difficulties that many donor countries are facing, the enlargement of the facility is not likely to be met by relying solely on national official resources. As to burden sharing among donor countries, our opinion is that it would be appropriate to refer jointly to Fund quotas, balance of payments performance, and exposure vis-à-vis beneficiary countries.

Concerning the quota review, we recognize that, since SAF negotiations are already under way and the general capital increase of the World Bank has a higher priority, a delay of no more than a few quarters will not be unduly damaging.

On the issue of SDR allocation, we reiterate our support for a moderate distribution in the fifth basic period, since all the preconditions prescribed in the Articles of Agreement are reasonably met. . . .

Before I conclude, I want to express my gratitude and my warm wishes to Mr. Camdessus and Mr. Conable.

Statement by the Temporary Alternate Governor of the Fund and the Bank for Canada—Tom Hockin

It is a great pleasure to participate in the Annual Meetings of the World Bank and the International Monetary Fund.

In my remarks today I want to give my view of the priorities we should set for the coming year in cooperation with the World Bank and the International Monetary Fund.

Priorities for Sustaining Economic Growth

To sustain growth, I believe our policies should address three main priorities:

  • —first, correcting economic imbalances;

  • —second, promoting freer international trade; and

  • —third, reducing the threat posed by the debt situation.

Correcting Economic Imbalances

Let me begin with the importance of correcting imbalances.

Let me state the central problem, which is no less central because it is familiar to all of us. The large U.S. current account deficit and the counterpart surpluses in Japan and the Federal Republic of Germany must be reduced. Their size and persistence have unsettled currency and financial markets and encouraged protectionist policies—policies that are damanging both to the countries where they originate and to their trading partners.

I believe that in the Group of Seven Louvre accord we have a positive strategy for combating these imbalances. I believe the strategy is working. I believe the United States is taking important steps to reduce its fiscal deficit, that Japan has introduced significant budgetary and structural measures to sustain domestic demand, and that the Federal Republic of Germany is proceeding with tax reductions. As the result, we have witnessed a period of exchange rate stability, and stability helps prevent disruption of trade and investment flows.

Monetary policy also has a role to play, by ensuring price stability and facilitating smooth adjustments in financial and exchange markets. However, and this is also central to us, we cannot rely on monetary policy to address fundamental imbalances. Let us never do that. We must strive for a balance of policies that will avoid the need for higher interest rates, with all their consequent costs in terms of growth and the debt strategy.

We have made progress, but as President Reagan made clear this morning, the job is not finished. We cannot yet be satisfied with the results. That is why the countries of the Group of Seven reaffirmed the Louvre strategy on Saturday.

I welcome too the budgetary measures that Japan and the Federal Republic of Germany have introduced to bolster domestic demand. Sustained efforts to reduce Japanese dependence on export-led growth will make a further impact on imbalances, thereby improving prospects for global trade.

I am pleased to report, in the spirit of the Louvre accord, that Canada has made substantial progress in implementing its own Agenda for Economic Renewal, which was introduced three years ago.

We have cut the fiscal deficit. We have trimmed government spending. We have privatized a number of major Crown corporations. We have reduced regulatory burdens within the Canadian economy, most notably in the transportation and energy sectors.

We are reforming fundamentally the rules governing Canada’s financial sector, permitting financial institutions to engage in a broader range of financial activities. We are strengthening the system of prudential safeguards in this sector.

In June, the Government of Canada released proposals for comprehensive tax reform that will increase fairness, improve economic competitiveness, and enhance the incentives for Canadians to work, save, and invest.

Deficit reduction, privatization, financial sector reform, fundamental tax reform—this strategy for economic renewal is now paying handsome dividends in our economic performance. Canada’s growth in 1986 was the strongest among the major industrial countries, despite the negative impact of sharply lower international oil and grain prices. This year our economy is expanding at an even faster clip.

Since September 1984, interest rates have declined almost 3 percentage points in Canada. In that same period, the number of jobs in our country has grown by more than 8 percent. The unemployment rate has dropped by 3 percentage points.

All of this has strengthened investor confidence, both domestic and foreign. Domestic investment is up. In addition, foreign direct investment in Canada is running at a record pace. Our strategy is paying off. Canada is doing its part under the Louvre accord.

A key element to further progress in reducing international imbalances is the Fund’s continuing leadership in multilateral surveillance and the use of indicators. Stronger multilateral surveillance is helping to improve global welfare by highlighting the interaction of our economies. The Fund’s work on indicators shows how valuable a common set of indicators can be in measuring progress toward clearly defined medium-term economic objectives. We strongly support further development of this work.

Freer International Trade

The second priority I believe we must address—one that is crucial for the world economy—is the promotion of freer international trade.

Canada’s own economic strategy is based on trade liberalization. We believe firmly that freer trade can benefit all countries. Freer trade encourages investment, provides new jobs, and raises living standards. Expanding world trade is also the only long-term solution to the debt problem.

Over the past two years Canada has pursued further liberalization of international trade on two fronts: bilateral trade negotiations with the United States and the multilateral negotiations under the GATT. Like others in this room, I was present at Punta del Este and shared in the relief and optimism we all felt were emerging from the agreement launching the round.

Now, however, despite our efforts and those of others, I fear that protectionist forces are gathering strength.

The trade bill now before the U.S. Congress is a source of anxiety to us all. We know that its final shape will have an important influence on the success of the new round of the multilateral trade negotiations.

World agricultural trade is a key sector where action is required. Prime Minister Mulroney has been at the forefront of efforts to restore sanity to this sector. Canada has pushed for rational policies in the summit, the OECD, the GATT, and through the Cairns Group. I want to repeat here the call for early results in the multilateral trade negotiations.

However, our limited success so far must give us all pause. We all know that freer international trade is in our collective and individual best interests. Why can we not attain it?

So let us advance the agenda for freer international trade, an agenda that we know will improve the prospects for economic well-being in all nations. We look to the Bank and the Fund to play a larger role in this process by analyzing the costs of trade restraints and being more critical of restrictive trade practices.

As you know, Canada will host the 1988 economic suimmit in Toronto. We intend to make the question of restoring momentum to trade liberalization a major focal point in that forum.

Reducing the Threat from the Debt Problem

The final priority I want to underline today is to reduce the threat posed by the large and persistent burden of the developing countries’ debt.

There are two critical and quite distinct debt problems here—that of the middle-income countries and that of the poorest developing countries. Despite the difficulties, the overall strategy we have followed since the Bank-Fund meetings in Seoul two years ago remains the best route to follow.

For the middle-income countries, the best course is still policies that aim at restoring fiscal balance and encouraging domestic savings and investment. These policies will work, but they take time.

In particular, interest and exchange rates must be set realistically in order to attract foreign investment and bring back flight capital. And indeed, the Bank and the Fund can assist countries with advice and resources. But ultimately, responsibility for sound and effective policies rests, as always, with each individual debtor country.

The commercial banks too have a role to play. Over the past few months, many commercial banks have increased their provisions. I support this. I believe this action has been positive. It has strengthened private financial institutions against contingencies. It is not, however, a step to relieve either banks or borrowers of their obligations.

It is in the long-term interest of banks to continue to lend to countries which adopt constructive policies. I urge the banks to engage borrowers in discussions of medium-term strategies and financing innovations. Likewise, I urge borrowers to seek realistic solutions. They cannot hope to restore the confidence of lenders by opting out of the Bretton Woods institutions.

In the coming year we must look seriously at the adequacy of the resources of the Bank and Fund. Both institutions need the financial means to back up their policy advice and assist with necessary adjustments. It is an urgent priority that we increase the Bank’s capital. We must also move ahead with a substantial increase in Fund quotas. These institutions need this vote of confidence from us to exercise their proper leadership roles.

Yet, the debt problems of the poorest countries are of a different order. We know that the debts of the poorest are primarily to other national governments and official institutions rather than to commercial lenders. We know their ability to service these debts has been severely constrained by limited domestic resources and by adverse world commodity price developments.

Our priorities for the poorest nations must be twofold: an early implementation of IDA-VIII and a substantial enlargement of the Fund’s structural adjustment facility. Canada accepted a larger share of the IDA-VIII Replenishment. We are ready to pay our contribution now. I urge others to fulfill their commitments.

As for the structural adjustment facility, Canada is announcing at these Meetings that it is willing to contribute the sum of SDR 200 million to this facility, assuming a tripling of the facility as proposed by the Managing Director. By judicious policy-based lending today, we have an opportunity to prevent a problem from becoming more serious tomorrow. Should we not act, the inevitable cost of a solution will only grow. We must not delay.

Consistent with the emphasis in two major Parliamentary studies in my country, one on foreign policy generally and the other on official development assistance, the Government of Canada believes that Bank and Fund lending decisions over the coming year will have to give priority to encouraging policies for adjustment and growth, and in so doing, these institutions must be more sensitive to the environmental and the social impact of their loans. In Canada we have learned from our experience with acid rain how large the costs of ignoring environmental factors can be.

I very much hope the developing countries can learn from the experience of the developed countries how to escape the worst by-products of economic development. I commend the Bank for its efforts to upgrade its work in this area, and I urge it to continue doing so.

Conclusion

It would be trite to say that these are uniquely challenging times for the world community. What is not trite, however, is to express some optimism. In the past, Canada and other countries that share the goal of a stronger world community have helped build multilateral institutions that have been equal to the task. We are continuing to do this. And to those of us who have some fears occasionally for the future, I am reminded of Sylvia Ostry, the Per Jacobsson lecturer, on Sunday when she said, “Fear gives sudden instincts of skill.”

Statement by the Governor of the Fund and the Bank for Malaysia—Daim Zainuddin

I would like to begin by extending my congratulations and good wishes ta Mr. Michel Camdessus on his appointment as Managing Director of the Fund. I am confident that he will bring new perspectives and fresh ideas to the Fund in the years ahead.

Little has changed for the better since our last meeting. If anything, the uncertainty of sustained world economic growth has increased. Trade imbalances among the major economies are still large, protectionist pressures have not eased, and policy coordination among the major countries seems more remote. The debt situation looks as intractable as ever. Likewise, the terms of trade and real incomes of developing countries continue to stagnate, or even decline.

To their credit, the developing countries have been able to cope under the circumstances. Oil price rises have helped some of them, but most have successfully adjusted and survived a period of reduced expectations. It is important to emphasize that their efforts must be complemented by reciprocal actions of industrial countries and a supportive international environment, as well as an increased flow of resources. In this context, the Bank and the Fund have important financial catalytic and advisory roles to play.

The Fund’s structural adjustment and compensatory financing facilities are important sources of funds to the developing countries. Unfortunately, these facilities are granted on such terms that it is becoming quite difficult for these countries to utilize them. Yet, effective adjustment with growth cannot come about without such financing. We believe these facilities should be made more accessible and the terms less stringent.

We should also take the opportunity to enhance the resources of the Fund at the forthcoming Ninth General Review of Quotas. The increase in quotas by SDR 29 billion, which we decided on in 1982, has proved to be grossly inadequate. I would urge fellow Governors to work this time for a significant and meaningful revision in quotas. Statements of the underlying problem must be followed by a sincere intention to achieve goals. We all know that much more needs to be done. . . .

In our desire to attain institutional effectiveness, we must not forget that both the Bank and the Fund should continue to maintain their multilateral character. Any attempt to dominate these institutions by certain quarters would seriously impair their operation, efficiency, and effectiveness—particularly the developmental role they must play in the borrowing member countries.

I urge major industrial countries to stand by their commitments and to forge ahead with their efforts to tackle the underlying problems of external imbalances, instability in the exchange and financial markets, unresolved debt problems, stagnant world trade, increased protectionism, and, above all, sluggish world growth, in a concerted and coordinated manner. The developing countries have taken painful adjustment measures. However, further progress will be severely hampered if a supportive international environment and adequate financial flows fail.

I believe that the Bank and the Fund have important roles to play. It is my hope that decisions taken during these Annual Meetings will enable us to achieve the desired goal of economic prosperity for all.

Statement by the Governor of the Fund for New Zealand—R. O. Douglas

One of the catchphrases of this and most of the recent Joint Annual Meetings of the World Bank and the Fund is the need for adjustment. In New Zealand, we have in fact spent the last three years pursuing in a resolute and wide-ranging manner the kinds of adjustment reforms recommended by the Bank and the Fund. We have gone from being one of the more highly regulated economies in the OECD to one of the least regulated.

We have floated the New Zealand dollar, introduced a firm, anti-inflationary monetary policy, and removed exchange controls. In our traditional manufacturing sector, we are moving with speed to remove all import licensing at the same time as reducing tariffs across the board. In the public sector, we have established nine new government corporations with output equal to 12½ percent of GDP that were previously run as government departments in a noncommercial way. We are proceeding with a program of selling shares in a number of other government-owned enterprises. In the labor market, we have taken steps to overhaul the wage bargaining and industrial relations systems, which had remained virtually unchanged since the turn of the century. Major tax reform has been undertaken with a flattening of marginal tax rates and the introduction of a broad-based consumption tax at a flat rate of 10 percent.

In our most important export industry—pastoral agriculture—we have virtually removed all government subsidies, concessional tax treatments, and soft lending. New Zealand therefore strongly endorses President Reagan’s call for the removal of distortions in trade in agriculture. As President Reagan said, this would be a major step toward raising living standards, especially in developing countries, and increasing growth in world trade. Such reforms would achieve far more than any amount of concessional lending. Most delegates, I believe, recognize that agricultural reform is both desirable and necessary. The real question is whether there is sufficient political courage to introduce the required changes.

Members are generally agreed about what needs to be done to ensure higher economic growth and employment levels on a worldwide basis. The key ingredient of this process is the political will and effective management of structural adjustment.

I want to share with you some of the lessons we in New Zealand have learned in implementing our reforms. First, change must be made in quantum leaps. It must be comprehensive and wide ranging. Piecemeal reform can undermine the process of change.

Second, reforms must be implemented in the form of packages in which there are offsetting costs and benefits for the community as a whole. There must be a sense of fairness, in which all groups are seen to share the burden and benefits of adjustment.

At the same time, there must be careful attention to the pace of change. There are considerable lags between the implementation of policy changes and the achievement of positive outcomes. Insufficient momentum risks deferring the benefits of adjustments and thereby increasing the costs. This in turn risks eroding the constituency for the overall strategy.

Public education is important. It must be made clear why past approaches have failed, why there must be change, and what the benefits of change will be. Vested interest groups have in the past captured the policy process for their own benefit at the expense of the consumer. As we move to reverse this situation, we must learn to ignore the cries of the vested interest groups and talk directly to the general public about the benefits that will flow to them.

Fourth, change must be harmonized in different areas so that they are all mutually reinforcing. Improvements in fiscal and monetary policy, liberalization of markets, and the reduction of excessive debt levels must all be put in place at the same time.

Finally, we should all remember that the price for refusing to change will be a lot higher for all of us than the price of changing. I might add also that such an approach to change can also bring political rewards as well. At least, that has been New Zealand’s experience.

Statement by the Governor of the Bank for Greece—Constantine Simitis

I should like to join previous speakers and begin by congratulating Mr. Michel Camdessus on his assumption of the Managing Directorship of the Fund. With his vast and varied experience of public service, we are confident he will provide strong and inspiring leadership to the Fund to meet the challenges that lie ahead. We wish him every success in his new assignment.

Like other colleagues who have spoken before me, I would like to express our disappointment and concern about the development of the world economy over the last twelve months. Despite the opportunities presented by lower oil and non-oil commodity prices and the associated falls in inflation and interest rates, we have seen a marked slowdown of growth in the industrial countries in late 1986 and early 1987, a weakening of investment, continued high unemployment, especially in Europe, sluggish world trade, and deteriorating economic conditions in many developing countries.

There are signs of a recovery in some industrial countries in recent months that suggest slightly more buoyant activity in the second half of 1987, but this trend is still not firmly established; in other countries the picture is still uncertain. It is encouraging to note that the current Fund projections point to a sustained recovery over the period to end-1988.

Nonetheless, the projected rate of economic growth in industrial countries will not be sufficient to reduce unemployment rates or to make an impact on developing countries. The inflation outlook, while still satisfactory in most industrial countries, has nonetheless worsened somewhat and has led to a rise in interest rates.

A number of speakers have already expressed concern about the persistence of unsustainably large current account imbalances among the largest industrial countries, the increase in protectionist actions, and the rapidly aggravating debt crisis. We share this concern, as we see in these developments a serious risk of deterioration in the world economic situation.

Against this background of unfavorable world economic conditions, it is crucial that our efforts be intensified to improve the environment for growth and financial stability. I think we would all agree that we cannot be satisfied with the present situation and prospects. All countries have a responsibility and must be prepared to play their part in a cooperative effort. In view of the impact that national policies of the leading industrial countries exert on the world economy, there is a need to further enhance the coordination of these policies to help improve the international environment. Important steps have been taken in that area over the last couple of years. The agreement reached in Paris in February, which was reaffirmed at the Venice summit in June, is an important achievement in this direction. It is important that concrete steps be taken with a view to implementing this commitment fully and resolutely.

Redressing the imbalances that have been allowed to build up in the world economy will not be an easy task. It is now generally accepted that exchange rate changes alone are insufficient to correct large payments imbalances among the major industrial countries and improve economic performance. The impact of exchange rate adjustments must be reinforced by appropriate domestic economic policies. However, it is imperative that these policies be geared to sustaining the momentum of growth while also safeguarding the progress made in containing inflation and dampening inflationary expectations. We are convinced that such a coordinated approach will lead to a reduction in interest rates, thereby enhancing investment and growth and making a contribution to the easing of the problems associated with external indebtedness. In this respect, we find the communiqué of the Group of Seven encouraging.

Reversing the protectionist trend is also essential for sustaining and enhancing global economic growth and improving the environment for financial stability. We follow developments in the Uruguay Round of trade negotiations with great interest and I believe, in concert with my colleagues in the European Community, that positive progress in these negotiations is crucial to preserving and further developing the open trading system. However, we should be realistic and accept that progress in liberalizing trade in some areas will have to be gradual. In the same spirit, I welcome the conclusions of UNCTAD-VII.

With these concerns in mind, let me now briefly outline to you the economic situation in my own country.

Developments over the last couple of years have been strongly influenced by the current stabilization and recovery program introduced in October 1985. The program has been designed as a first step toward a comprehensive adjustment effort with the aim of restoring a more sustainable balance of payments position, substantially reducing inflation, and establishing the underlying conditions needed to achieve sustained growth over the medium term.

Both the objectives for inflation and the current account of the balance of payments were virtually met in 1986, with the current account deficit shrinking to $1.7 billion (some 4¼ percent of GDP) from a peak level of $3.3 billion (some 9¾ percent of GDP) reached in 1985, and the rate of consumer price inflation falling to 16.3 percent from 25 percent at the end of 1985.

Developments so far this year have shown further progress toward stabilization on both fronts. On the external side, the current account deficit in the first eight months narrowed further, and a further improvement is projected for the remainder of this year. We are therefore confident that the reduction of the current account deficit to $1.25 billion, or 3 percent of GDP as targeted for the year as a whole, is not only attainable but indeed probable.

The disinflationary process continued in 1987. Despite a pickup early this year, due mostly to extraordinary factors, consumer price inflation has further decelerated in the first eight months of the year to a rate that can reasonably be expected to decline by the end of this year by about 3 percentage points, in comparison with 1986.

It is fair to say that the main objectives of the program have by and large been achieved. It is encouraging to note that the improvement achieved in fundamentals over the past two years has led to the restoration of business confidence and a recovery of private investment.

My Government is determined to continue the adjustment effort in 1988 and over the medium term, with increasing emphasis on the correction of structural weaknesses and rigidities in the economy. The immediate targets for 1988 are the further deceleration of inflation, hopefully to a single-digit figure, and a further improvement in the balance of payments, which will permit the stabilization of the external debt. It should be recognized, however, that the success of our adjustment effort depends critically upon firmer growth in our partner countries that have made the greatest headway in the adjustment process and on the improvement of global conditions in the international financial and trade environment.

I will now turn to matters more directly related to Bank and Fund activities.

I am pleased with, and fully support, the initiatives of the Managing Director of the Fund (1) to seek a tripling of resources to be made available to the structural adjustment facility over the three years 1988–90 for the benefit of low-income developing countries; and (2) to place greater emphasis on growth-oriented structural adjustment programs designed with the assistance of the Bank and the Fund. I also want to express my satisfaction for the World Bank’s proposal for a Special Action Program to obtain additional donor financing in order to assist debt-distressed countries in sub-Saharan Africa undergoing rigorous structural adjustment in their economies. By adopting the enhanced structural adjustment facility, by making the debt-rescheduling terms under the auspices of the Paris Club more favorable than those granted so far, and by making additional concessional resources available from bilateral donors and the International Development Association, the world community will be taking an important and urgently needed step toward addressing the special circumstances of the heavily indebted low-income countries. However, the time has come for a more comprehensive and innovative re-examination of debtor-creditor relations, with due respect to the diversity of situations, if the debt problem is to be resolved. This is more so for the middle-income debtors for which private financing has been slow in coming, belying their expectations.

In this context, the Bank and the Fund might be called upon to devise new strategies not only to efficiently manage but also to eventually overcome the debt crisis.

With respect to the Fund’s role in assisting member countries in their adjustment efforts, I support the continuation of the Fund’s enlarged access policy in 1988, and I applaud the reactivation of the compensatory financing facility while awaiting the results of the ongoing review, following the weak export performance of primary producers and depressed commodity prices in 1986. I also hope that the discussions on the Ninth General Review of Quotas will be fruitful and will result in a substantial increase in usable resources, which the Fund urgently needs to perform its enhanced mission. Moreover, I want to reaffirm my conviction that a general capital increase is necessary if the World Bank is to meet the increasing needs of the developing countries. Finally, on the question of a new SDR allocation, Greece’s position remains that such an allocation is desirable both on technical grounds—as Fund studies have repeatedly demonstrated the advantages of substituting SDRs for borrowed reserves—and on world economic stability considerations, since the allocation would enhance the capacity of the indebted countries to deal more effectively with the task of debt reconstruction.

Statement by the Governor of the Bank for Yugoslavia—Svetozar Rikanovic

It is my great honor and privilege to address this distinguished gathering on behalf of the Yugoslav Government. I wish to join my fellow Governors in extending gratitude to our hosts for their hospitality and excellent organization of the Annual Meetings. Also, I would like to wish well and successful work to Mr. Camdessus, the Managing Director of the International Monetary Fund, who is addressing these Meetings for the first time.

This year I again have to express my deep concern over the continued slowdown in international economic activities, particularly in the developing countries. The per capita GNP in African countries has been decreasing for seven consecutive years. Stagnation or negative economic trends characterize many Latin American economies. Economic results in most developing countries, as recorded during the 1980s, were at their lowest levels of the past three decades. There were only a few exceptions, mainly in Asia.

The world economy is still facing a number of serious problems and, because of depressed investment activity, its future is uncertain. As we know, primary commodity prices have been at very low levels for quite some time. These prices are expected to drop further, by some estimates by even more than 10 percent this year. The financial flows to developing countries are negative and represent an absurd contrast to the efforts of these countries that are trying to adapt and structurally reform their economies. Repayments by developing countries to commercial banks have exceeded by more than $5 billion the newly approved bank loans in 1986. At the moment when support by international financial institutions is most urgently needed, the net outflow of resources from developing countries to the Fund was SDR 1.6 billion over the period January to April 1987.

The present debt strategy of the creditors has evidently failed in restoring economic growth in debtor countries. Two of the three essential prerequisites for the success of the strategy—a more favorable international economic environment and increased financing of debtor countries—have not materialized. Enormous efforts invested by debtors to stabilize their economies, frequently at a high cost of economic, political, and social difficulties, are thus at stake. This results in discontinued economic development, internal destabilization, impoverishment of nations and regions, and jeopardized global economic recovery, which affect the overall international financial and economic system. A growing number of debtors, both among the most heavily indebted and the poorest countries, are no longer able to settle their debt obligations. What else is needed for the international community to recognize that it is at a turning point where it must opt either for economic growth and global progress or for stagnation and recession?

During the past days we have been listening with certain hope to the voices speaking of a better international understanding, particularly when they refer to the poorest and the most debt-distressed developing countries. I share the view of numerous developing country representatives that the nations with strong economic power, knowledge, and high technology must more rapidly and efficiently harmonize their economic policies with more universal development objectives in order to allow greater justice and equality for all members of the international community.

Finance ministers of the Group of Twenty-Four have wholeheartedly emphasized in their report, and particularly in the Statement on Immediate Action, the following:

  • —urgent implementation of the initiatives and proposals for assistance to the poorest countries, especially those in sub-Saharan Africa;

  • —tripling of SAF resources, in line with the proposal given by the Managing Director of the Fund, Mr. Camdessus;

  • —urgent general capital increase for the World Bank and early conclusion of the Ninth Review of Quotas in the Fund, with an objective of at least doubling the resources of our two institutions;

  • —substantial increase in financial flows to the developing countries and recycling of the balance of payments surpluses of some highly developed countries; and

  • —removal of protectionist barriers to the developing countries’ exports in developed countries.

The role of the International Monetary Fund in adjustment with growth should be urgently reviewed along the lines of the proposals contained in the Group of Twenty-Four report. My country fully supports these requests. We welcome brighter prospects for the general capital increase of the World Bank and we would like to encourage President Conable and the Bank management to complete their endeavors as soon as possible.

Allow me to briefly refer to the developing countries’ debt problem, which has grown into a paramount obstacle to economic growth and development. Under the circumstances, it is only realistic to expect further deterioration of the international debt crisis. It is no longer disputable that the global problem of the developing countries’ indebtedness can only be solved by their accelerated economic growth and development. In order to solve the debt crisis, not only are longer repayment and grace periods necessary, but also lower interest rates and other costs are needed, as well. There is an increasing consensus that only reduced debt obligations and shared adjustment costs between debtors and creditors can lead to a lasting debt problem solution. Market forces and signals also point to the way to a long-term debt problem solution. Let us try to enrich these with new approaches and techniques, taking into account development needs of debtors. We support the proposals made by the Group of Twenty-Four, which persistently and backed by strong arguments, call for an intensive dialogue among all participants and partners in the debt crisis and for their more active endeavors and cooperation.

Allow me in concluding to say that my country has been experiencing a rather sluggish adjustment process during the 1980s, with a special focus on attaining external balance. A surplus in the current account of the balance of payments has been maintained for five consecutive years. External adjustment aggravated domestic imbalances and brought about accelerated price increases. Net capital outflow on account of credit transactions has been continuously rising in favor of all our creditors, particularly in favor of commercial banks. In circumstances when the GNP growth rate is less than 3 percent, almost 10 percent of the country’s GNP has to be allocated for debt obligations and interest payments due in 1986 and 1987. Such developments have brought about disinvestment and a drain of resources, and threaten at the same time to further aggravate external debt management.

In Yugoslavia, we are presently engaged in the preparation of a program of comprehensive stabilization, which is mainly anti-inflationary oriented. It will serve as a basis for the initiation of adjustment with growth, basically by relying on market forces and mechanisms.

We believe that we will thus succeed in mobilizing all our potentials and that the austere adjustment program will be implemented in a way which will get the support of our creditors: the governments, commercial banks, the Bank, and the Fund.

We hope that the volume and quality of our creditors’ resources will match our needs. We further hope that such support will be timely and allow simultaneous growth and the process of adjustment. Such an approach, in our view, will not lead to increased indebtedness during the next few years. Nonetheless, we do not count on a further debt decrease in the forthcoming period.

September 29, 1987.

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