Summary Proceedings of the Forty-Second Annual Meetings of the Board of Governors 1987

Concluding Remarks1

International Monetary Fund. Secretary's Department
Published Date:
November 1987
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Statement by the Governor of the Fund for Sweden—Bengt Dennis

It is indeed an honor for Sweden to have been selected for the chairmanship of the Boards of Governors of the Fund and the Bank for the coming year. We shall endeavor to carry out the duties of this office with the same efficiency and flair that have characterized these Meetings under the chairmanship of Ibrahim Abdul Karim, the Governor for Bahrain.

As reflected in the statements by my fellow Governors, the international economy presently faces considerable problems and strains. This presents challenges for us all. As members of the Fund and the Bank, we should give these institutions our full support to secure and enhance their central roles in international economic and financial cooperation. In the coming year, discussions will continue on the Ninth Quota Review in the Fund and on the general capital increase in the Bank. I do hope that at next year’s reunion we shall be able to take note of satisfactory progress on these issues.

I would also like to use this opportunity to commend Mr. Camdessus and Mr. Conable and the Executive Directors and the staffs of both institutions for their excellent work and dedication to their important tasks. It will be a great pleasure to work with them in the year ahead. I look forward to welcoming all of you at the 1988 Annual Meetings in Berlin.

Statement by the Chairman of the Executive Board and Managing Director of the International Monetary Fund—M. Camdessus

We have had a thoughtful and stimulating exchange of views. Three subjects have been in the forefront of the discussions. The first has been how to reduce imbalances and improve economic performance in the industrial countries. Governors welcomed the long record of continued growth and the fact that inflation remains for the time being under control in the major countries. But they also noted that output growth has been lackluster; that it has been associated with inadequate rates of productive investment and continued high levels of unemployment in most industrial countries; and that very large current account imbalances in the three largest countries have made the foundations of the recovery rather fragile.

There was little dissent from the proposition that the imbalances need to be dealt with in a way that does not undercut the growth of economic activity, nor refuel inflation. Several conclusions were drawn. First, it was crucial that the United States build on its notable success in 1987 and reduce its budget deficit further in 1988 and beyond. Second, in the main surplus countries domestic spending needs to grow more rapidly than output for an extended period. Third, the mix of policies must be such as to avoid higher interest rates. Fourth, effective structural policy reform has a vital role to play in strengthening the growth of output in all countries, including newly industrialized economies enjoying large current account surpluses.

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Second, debt and development. The President of the United States surely echoed a widely held view when he referred to the debt burden as an international problem and emphasized the need to see debt retired not by extracting wealth from nations that are already too poor but by increasing the level of economic activity and servicing the debt from new wealth.

A number of proposals for refining the debt strategy have been put forward. But I heard no suggestion that the basic principles underlying our approach have become invalid. What I did hear was a clear call for a reinforcement of the strategy, whereby all the principal actors would do more to play their parts to the full.

It has long been recognized that for developing countries to accelerate their pace of development and begin to grow out of their debt burdens, a number of conditions will need to be satisfied. Governors re-emphasized that the first condition, the pursuit of effective policies in the countries themselves, remains fundamental. But it was recognized that self-help may yield discouragingly slow results in the absence of the second condition, a healthy world economy. This was seen as underscoring an essential point, namely, that it is not only countries that need to use the Fund’s resources that must be expected to adjust. As regards the third element—an adequate flow of foreign capital—most speakers were disturbed that the availability of external financing in recent years had fallen short of the amounts that developing countries could productively use.

In the case of the highly indebted low-income countries, speakers considered that there is no viable approach other than concessional assistance. Official creditors have a special responsibility here.

In the middle-income countries the primary focus fell on the contribution that private lenders must make to reinvigorating investment and growth. Most speakers welcomed the recent development in bank financing packages of alternative financial instruments. They believed that the “menu” of options could usefully be broadened, and that national regulatory agencies could help this process. But concern was expressed about the banks’ reluctance to add to their existing claims. Concern was also voiced about the burden on the debtor countries of higher interest rates—a development totally beyond their control. A number of speakers emphasized that the way forward does not lie with unilateral approaches or generalized debt relief. Rather, debtors and creditors have to recognize their common interest in reaching understandings which address the realities of the situation they face. Such understandings should be freely negotiated and market-based.

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Third, how to harness the mechanisms of international cooperation more effectively. There are a number of areas in which Governors saw the need for cooperation as vital. One is the effective coordination of policies among the industrial countries. Speakers were generally encouraged by the progress made since the last Annual Meetings. They particularly applauded the Louvre and Venice accords as providing a strategy for maintaining growth while payments imbalances are brought into a more sustainable pattern, and they welcomed the greater stability in exchange rates of recent months.

The use of indicators was seen as having a key role to play in facilitating policy coordination—not as an invitation to fine tuning, nor as a device for overriding the exercise of judgment, but as a means of sharpening the focus of the analysis and measuring progress toward clearly defined medium-term objectives. I am pleased that you welcomed our efforts in this area and have urged us to develop our work further. In this connection, I noted the suggestion of a number of speakers that the range of indicators might be broadened to incorporate an early-warning signal of potentially troublesome price trends. I also noted that several Governors encouraged us to pursue research on strengthening the international monetary system.

A second area in which an enhanced sense of internationalism was seen to be needed—and sorely needed—is in trade policy. I have been impressed that speaker after speaker—led by yourself, Mr. Chairman—urged all governments to resist protectionist pressures and seize the opportunity afforded by the Uruguay Round to usher in a more genuinely open system of international trade—for manufactures, agricultural goods, and services alike.

The third sphere in which international cooperation clearly has a major part to play is through the work of the multilateral financial institutions. As concerns the Fund, I noted that Governors addressed not only the issue of available resources but also whether the features of various financial facilities remain appropriate in the current circumstances. On the former, I am gratified by the wide support voiced for an enhancement of the SAF within this year. It is clear that a momentum has been established that must not be lost. We shall proceed as rapidly as possible in our discussions with potential contributors. I am also pleased by the broad backing for my proposal that Fund quotas be increased substantially.

As regards the features of Fund facilities, I spoke earlier of the need for the Fund to continue to evolve with the times. Like its partners in the debt strategy, it must carefully examine the contribution it is making and ask whether it, too, cannot do more or better. On this, we have had a rich discussion. Speakers have been receptive to a number of ideas in my opening remarks, and have well understood those ideas to be inspired by the wish to make conditionality more effective. Many speakers have also commented on various suggestions in the important reports of the Group of Ten and Group of Twenty-Four. And the Governor for the United States has advanced a number of important new proposals. Those comments and proposals will certainly make an important contribution to the ongoing work of the Executive Board.

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Finally, let me add that, as the Governor of the Philippines told us this morning, the hour is late. This means that this is no time for weakness, for complacency, for burying our money in the strong box or our heads in the sand. It is a time for strength, for solidarity, and for cooperation. I should like to join Barber Conable in complimenting you, Mr. Chairman, on the skillful conduct of our Meetings; in congratulating the Governor for Sweden, who will chair next year’s Meetings; and in looking forward to seeing you all in Berlin (West) a year from now. Let me add, on a personal basis, that I have been greatly touched this week by your warm words of welcome and expressions of support.

Delivered at the Closing Joint Session, October 1, 1987.

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