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

Reports of the Joint Procedures Committee

Author(s):
International Monetary Fund. Secretary's Department
Published Date:
November 1987
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ChairmanBahrain
Vice ChairmenArgentina
New Zealand
Reporting MemberUnited States

Other Members: Belgium, Burundi, France, The Gambia, Germany, Greece, Guatemala, Jamaica, Japan, Korea, Malta, Mauritania, Mauritius, Saudi Arabia, Singapore, Tunisia, United Kingdom, Venezuela

Report II1

October 1, 1987

Mr. Chairman:

At the meeting of the Joint Procedures Committee held on September 30, 1987, the items of business on the agenda of the Board of Governors of the International Monetary Fund were considered.

The Committee submits the following report and recommendations:

1. 1987 Annual Report

The Committee noted that provision had been made for the annual discussion of the business of the Fund.

2. Report of the Chairman of the Interim Committee

The Committee noted the presentation made by the Chairman of the Interim Committee.2

The Committee recommends that the Board of Governors of the Fund thank the Interim Committee for its work.

3. Financial Statements, Report on Audit, and Administrative Budget

The Committee considered the Report on Audit for the financial year ended April 30, 1987, the Financial Statements contained therein (Fund Document No. 6 and Appendix VIII of the 1987 Annual Report), and the Administrative Budget for the financial year ending April 30, 1988, and the Capital Budget for capital projects beginning in financial year 1988 (Fund Document No. 8 and Appendix VII of the 1987 Annual Report).

The Committee recommends that the Board of Governors of the Fund adopt the draft resolution set forth in Fund Document No. 7.3

Approved:

/s/ J.L. Machinea/s/ R.B. Keating
Argentina—Acting ChairmanUnited States—Reporting Member

Report III1

October 1, 1987

Mr. Chairman:

The Joint Procedures Committee met on September 30, 1987 and submits the following report:

1. Development Committee

The Committee noted that the Annual Report of the Joint Ministerial Committee of the Boards of Governors of the Bank and the Fund on the Transfer of Real Resources to Developing Countries (Development Committee) has been presented to the Boards of Governors of the Bank and the Fund pursuant to paragraph 5 of Resolutions Nos. 294 and 29–9 of the Bank and the Fund, respectively (Bank Document No. 3 and Fund Document No. 5)[Annex].

The Committee recommends that the Boards of Governors of the Bank and the Fund note the report and thank the Development Committee for its work.

2. Officers and Joint Procedures Committee for 1987/88

The Committee recommends that the Governor for Sweden be Chairman, and the Governors for Italy and Pakistan be Vice Chairmen, of the Boards of Governors of the Bank and its affiliates and of the Fund, to hold office until the close of the next Annual Meetings.

It is further recommended that a Joint Procedures Committee be established to be available, after the termination of these meetings and until the close of the next Annual Meetings, for consultation at the discretion of the Chairman, normally by correspondence and, if the occasion requires, by convening; and that this Committee shall consist of the Governors for the following members: Austria, Burkina Faso, Brazil, Central African Republic, China, Fiji, France, Federal Republic of Germany, Honduras, Italy, Japan, Republic of Mozambique, Oman, Pakistan, Philippines, St. Lucia, Saudi Arabia, Seychelles, Sweden, United Kingdom, United States, and Uruguay.

It is recommended that the Chairman of the Joint Procedures Committee shall be the Governor for Sweden, and the Vice Chairmen shall be the Governors for Italy and Pakistan, and that the Governor for Austria shall serve as Reporting Member.

Approved:

/s/ J.L. Machinea/s/ R.B. Keating
Argentina—Acting ChairmanUnited States—Reporting Member

Annex to Report III

September 29, 1987

Sir:

As Chairman of the Joint Ministerial Committee of the Boards of the Governors of the Bank and the Fund on the Transfer of Real Resources to Developing Countries (Development Committee), I have the honor to present herewith to the Boards of Governors a report by the Committee on the progress of its work during the period July 1986–June 1987. The report is presented in compliance with Section 5(i) of the Bank Board of Governors Resolution No. 294 and the Fund Board of Governors Resolution No. 29-9, adopted on October 2, 1974.

Sincerely yours,

/s/

B.T.G. Chidzero

Chairman

Development Committee

Attachment

His Excellency

Ibrahim Abdul Karim

Chairman of the Boards of Governors International Monetary Fund and the World Bank

Attachment. Report of the Joint Ministerial Committee of the Boards of Governors of the Bank and the Fund on the Transfer of Real Resources to Developing Countries

(July 1986-June 1987)

I. Introduction

1. This is the thirteenth annual report of the Joint Ministerial Committee of the Boards of Governors of the Bank and the Fund on the Transfer of Real Resources to Developing Countries (Development Committee) covering the period from July 1986 to June 1987.

2. The Committee held three meetings during the year. The first meeting was convened in Washington, D.C. on September 29, 1986, chaired by His Excellency Ghulam Ishaq Khan, Chairman of the Senate of Pakistan, and was followed by a short procedural meeting on October 2, 1986 for the selection of a new chairman. The Committee selected the Honorable B.T.G. Chidzero, Minister of Finance, Economic Planning and Development of Zimbabwe, as Chairman. The third meeting of the Committee also took place in Washington, D.C, on April 10, 1987.

3. The substantive meetings of the Committee during the year continued to be held on the basis of a morning plenary session followed by an informal afternoon debate which facilitated free discussion among members on development issues. During the year the Committee received advance statements and papers from the following observers: African Development Bank (AfDB), Commonwealth Secretariat (COMSEC), Development Assistance Committee (DAC), General Agreement on Tariffs and Trade (GATT), Inter-American Development Bank (IDB), International Fund for Agricultural Development (IFAD), Islamic Development Bank (IsDB), United Nations Conference on Trade and Development (UNCTAD), and the United Nations.

4. The major theme of discussions at Committee meetings during the year was the revival and sustaining of growth in the developing countries. Under this theme the Committee reviewed several pressing development issues: progress of the heavily indebted middle-income countries; developments in sub-Saharan Africa; the role of the World Bank and the Fund; market prospects of raw materials, including consideration of the impact of industrial countries’ agricultural policies on developing countries’ economic prospects; international trade implications for development; the poverty impact of structural adjustment and developmental lending; and environment, growth, and development. These issues were considered against the background of current developments in the global economy.

II. Global Economic Setting

5. In statements by the Chairman, the Managing Director of the IMF, and the President of the World Bank, a picture was drawn of the global economic setting against which the Committee held its discussions. In the fall of 1986 there were indications of a slowing down in economic activity in the industrial countries relative to earlier expectations. Strong growth in the United States, containment of inflation, decline in interest rates, and the fall in oil prices had earlier been expected to have a favorable impact on growth prospects. Export earnings and growth in many developing countries were affected by the intensification of protectionist measures in the industrial countries and a continued decline in commodity prices. The growth prospects of industrial countries in the next few years were assessed by the World Bank at a level of under 3 percent.

6. The outlook for trade was also not encouraging. Between 1984 and 1985 international trade slowed appreciably and no faster growth was expected in 1986. An increasing volume of imports from developing countries was largely dependent on the United States’ import growth as compared with all other major industrial countries. At the same time, there were mounting pressures for protectionism in the United States. These adverse trends in world trade were not compensated by enlarged flows of capital to the developing countries, with total net financial inflows to the developing countries reduced significantly. Total net financial flows to the developing countries, particularly commercial bank lending, had declined further. Net long-term capital flows to developing countries have continued to decline since 1981, reaching a level in 1985 less than half the 1981 level. The balance of payments and external debt position of many developing countries continued to be difficult and was expected to worsen in the near term despite the decline in international interest rates, leading to a reduction in the cost of servicing debt.

7. These developments in the global economy have had an adverse impact on the developing countries, leading to a downward revision in World Bank estimates of GDP growth for those countries in 1986 to 3.3 percent as compared to an earlier estimate of 3.8 percent. Revised per capita growth for 1986 was estimated at 1.2 percent, which was low by historical levels. Among the developing countries, the group of most heavily indebted countries was expected to have a decline in growth in 1986 after some recovery between 1983 and 1985. The prospects for the oil importing countries had improved from the decline in oil prices, while the outlook for the oil exporting countries had worsened substantially. Some improvement for the oil exporters was expected in 1987. While low-income countries as a group had shown fair growth in 1986, growth in the small low-income countries was expected to fall in 1987. The general outlook for growth in the developing countries was less favorable than earlier forecast, although the near-term prospects seemed better than the performance in the early 1980s.

8. At the April 1987 Development Committee meeting, the Managing Director of the IMF, in reviewing the discussions in the Interim Committee, summarized the world economic outlook in the following terms: real GNP growth in the industrial countries was likely to remain at 2½ percent in 1987; the global economic environment, with the adverse terms of trade and constrained external financing, continued to be difficult for the developing countries in 1987; the external current account situation had weakened. The oil exporting countries were the hardest hit among the developing countries in 1986 with a contraction of output and a significant deficit in their current account balance; economic growth in the heavily indebted countries was mixed, while the group, as a whole, recorded a marked decline in inflation. Externally, their position weakened significantly more than for the developing countries as a group. The small low-income countries, including sub-Saharan Africa, had some increase in real per capita GDP in 1986 but their external accounts remained vulnerable and the outlook continued to be extremely difficult.

III. Consideration of Development Issues

A. Progress in the Heavily Indebted Middle-Income Countries

9. Against the economic setting indicated above, during the year the Committee focused on the theme of growth in its discussion on the pressing problem areas among the developing countries. Progress of the heavily indebted middle-income countries and the implementation of growth-oriented programs were reviewed and discussed in the light of the consensus reached at the Seoul meeting in October 1985. This consensus called for concerted action by all the major parties—the indebted countries, the industrial countries, the commercial banks, and the multilateral financial institutions. The greater involvement of the multilateral development banks, particularly the World Bank in close collaboration with the IMF, was conceived so as to help the heavily indebted countries move as quickly as possible toward sustained economic growth through the design, financing, and monitoring of growth-oriented adjustment programs. In September 1986 the Committee reviewed the experience of the heavily indebted middle-income countries in the revival of growth. It was noted that although a good start had been made by many developing countries, some of the key assumptions underpinning the consensus approach, notably rapid export growth and increased capital flows, had not yet materialized. The overall picture was mixed, with some countries successful in dealing with the deteriorating trends in growth, while others, particularly those where adjustment programs were not fully underway, continued to experience declining income and worsening financial instability. Where improvements in the current accounts have taken place, this was often through compression of imports and domestic demand. Continuation of this development would undermine the capacity to grow, the servicing of debt, and external borrowing.

10. The Committee reaffirmed at its September 1986 meeting the broad approach to achieving sustainable growth which it had adopted at previous meetings but noted that substantial additional efforts were required by the indebted countries, industrial countries, commercial banks, and the international financial institutions. The heavily indebted countries were encouraged to continue to implement growth-oriented adjustment programs with support from the Fund and the Bank. Industrial countries could contribute to the success of these programs by improving their own policy framework with a better coordination of macroeconomic policies, domestic policy changes, and trade liberalization to achieve a higher level of sustained growth. An increase in net lending was required particularly from the commercial banks. So far as the international financial and development institutions were concerned, the initiatives taken by the World Bank and the IMF in many heavily indebted countries were welcomed by the Committee noting particularly, in addition to their financial roles, the catalytic and advisory roles of these institutions. Expanded lending by the World Bank for structural and sectoral reform programs in the past year was welcomed.

11. A further detailed review of progress in the implementation of growth-oriented programs in the heavily indebted middle-income countries took place at the April 1987 meeting with reports on particular country cases. The Committee noted the difficulties that many indebted middle-income countries faced in pursuing adjustment programs aimed at achieving growth, improving living standards, and strengthening their external financial situation. The deterioration in the terms of trade and the slack in commercial bank financing had adversely affected many countries. The Bank and the Fund were asked by the Committee to examine additional measures to refine and strengthen the implementation of growth-oriented programs and to make recommendations to the Committee at a future meeting.

B. Developments in Sub-Saharan Africa

12. The Committee continued to monitor closely developments in sub-Saharan Africa. Since the Committee’s review of a World Bank report on “Financing Adjustment with Growth in Sub-Saharan Africa, 1986 to 1990,” the United Nations General Assembly had convened in May 1986 a Special Session on the critical situation in Africa. At that session, a consensus had crystallized between African governments and donor governments in a commitment to undertake reforms embodied in the UN Program of Action for African Economic Recovery and Development in Africa 1986–1990. While the Committee noted progress by many African governments in undertaking policy reforms, there was still a decline in long-term economic and social trends. The introduction of budgetary and financial reform, as well as pricing and exchange rate policies in many African countries, was noted. As a result, an increased number of countries had become eligible for the World Bank’s Special Facility for Sub-Saharan Africa, bringing the total to 20 by mid-1986. The Committee urged bilateral and multilateral agencies to support the implementation of the program, particularly noting the estimated annual gap of $2.5 billion in concessional flows over the next five years by low-income countries in sub-Saharan Africa.

13. At its April 1987 meeting, the Committee had a report from the World Bank on the economic situation and resource requirements of sub-Saharan African countries. In particular, progress in the implementation of growth-oriented programs in sub-Saharan African countries was addressed. The picture for sub-Saharan Africa in 1986 was mixed. Prospects were not encouraging, with a further decline in primary commodity prices, a projected weakening in export growth, and the overhang of the debt burden. It was noted that some 25 countries in sub-Saharan Africa are in the course of implementing or about to initiate major programs of structural reforms. It had been a major achievement of African governments to undertake such wide-ranging reform programs with social and political costs. Consequently, there was a need to strengthen the financial support to these countries in order to sustain the reform process.

14. While there had been an encouraging increase to sub-Saharan Africa in official concessional flows in 1985, this was more than offset by a decrease in net official nonconcessional and private loans. Total gross capital flows to all sub-Saharan Africa stagnated in real terms. However, the Bank, through IDA and the Special Facility for Africa, had increased disbursements by 80 percent in 1986 over 1985 in 22 IDA-eligible countries in Africa. Fund and Bank programs of assistance had been strengthened through the formulation of policy framework papers for those sub-Saharan African countries that had adopted or requested programs supported by the IMF’s structural adjustment facility (SAF), under which credits of SDR 327 million had been approved in April 1987 for ten countries. The Committee had called on industrial countries to close the estimated annual gap of $2.5 billion in concessional flows by providing additional ODA through both bilateral and multilateral channels to countries undertaking significant reform programs. A year later the need for enlarged concessional flows was reiterated by ministers, particularly noting the severe problem of indebtedness faced by many of these low-income countries.

15. A Bank report noted that the gravity of the African debt problem should not be underestimated. For low-income sub-Saharan Africa, the debt service ratio rose by almost half between 1980 and 1985 and, but for a large number of reschedulings, would have been higher. For several of these countries with prolonged debt problems, even continued debt rescheduling on liberal terms would leave their debt burden unmanageably high in the near term. The World Bank estimates that in 1986 to 1988 the multilateral share of debt service payments for 13 of these sub-Saharan African countries would exceed $1 billion annually, accounting for around three fourths of actual debt service payments. To deal with this problem, the Bank report pointed out that massive new flows of aid and/or innovative debt relief of some sort was needed.

16. At the April 1987 meeting, the Committee agreed that additional measures were needed to undertake growth-oriented programs, thereby improving the capacity of these countries to service their debts. Note was taken of the indications given by the Paris Club to move toward more realistic rescheduling terms for the poorest nations undertaking strong growth-oriented adjustment programs. The Bank and the Fund were requested to put forward proposals of action at the Development Committee meeting in September 1987 to address the problems of countries facing exceptional difficulties. This should also take account of the actions being undertaken under the United Nations Program of Action for African Economic Recovery and Development in Africa 1986–1990.

C. Aid Coordination in Sub-Saharan Africa

17. Following a report by the World Bank on aid coordination at the April 1986 meeting, when there was strong support for enhanced aid coordination, the Committee had a further review of aid coordination in sub-Saharan Africa in September 1986. The Bank provided a background paper on “Improving the Effectiveness of Aid Coordination in Sub-Saharan Africa,” and put forward proposals of areas in which aid coordination could be improved between recipient countries and donors. The paper pointed to the need for more reciprocal undertakings between recipient countries and donor governments with donors strengthening their support for medium-term growth-oriented programs; the quality of aid needed to be improved with more fast-disbursing assistance in support of structural and sectoral adjustment operations; improvements in aid coordination mechanisms in the functioning of Consultative Groups and Round Tables as well as their monitoring were required. At the September 1986 meeting, ministers reaffirmed the importance of strengthening the coordination of aid flows in low-income countries so as to increase their effectiveness. The World Bank was called on to take the lead in the initiatives contained in their report to the meeting, particularly in strengthening the capacity of recipient governments to play the central role in aid coordination and encourage mechanisms for joint monitoring. A report was requested by the Committee in a year’s time on progress achieved in aid coordination.

D. Role of the World Bank and the International Monetary Fund

18. The role of the World Bank and the Fund in the revival of growth was discussed at the September 1986 meeting. The Committee reaffirmed the central role it attached to the World Bank as a global development institution with the fundamental objectives of accelerating economic growth and alleviating poverty. It was agreed that both the Bank and the Fund had a catalytic and advisory role in the design, financing and monitoring of growth-oriented adjustment programs for the heavily indebted and other countries. Expanded lending by the Bank for structural and sectoral reform programs in the heavily indebted countries in the last year was welcomed by the Committee.

19. There was also a discussion in September 1986 on the World Bank’s overall lending program in relation to the continued adequacy of the World Bank’s capital, including the need for a general capital increase. In the previous year, the Committee had had extensive discussions on the Bank’s lending program and its resource requirements following consideration of the subject in the Bank’s Executive Board. The Committee had requested the Bank to prepare for its September 1986 meeting a progress report on work in the Bank’s Board.

20. A full report of discussions by the World Bank’s Executive Directors on the modalities of achieving a general capital increase (GCI) was presented to the Committee in September 1986. This report identified the issues to be considered, such as share allocations and voting power, the size and timing of a GCI, the anticipated increase in Bank lending commitments for fiscal year 1988 to the heavily indebted countries as well as other countries, which would significantly exceed the sustainable level of lending and thereby provide strong justification for early action on a GCI. Other issues were the adjustments in the shareholdings of the major countries through a reallocation of existing shareholdings of the industrial countries, the allocation of membership shares to protect the voting power of small members, and the question of the size of the paid-in capital.

21. Against this background, after noting the expanded needs of Bank borrowers, including the heavily indebted countries, the Committee reaffirmed its position that the lack of capital should not constrain increases in the Bank’s quality lending. It was then also noted that the existing capital base of the Bank would allow a maximum lending level by the Bank of about $14.5–15 billion per year. The Committee therefore concluded at its September 1986 meeting that a substantial GCI would be required if quality lending materializes as expected, and the Bank’s Executive Directors were requested to continue to pursue discussions on the modalities of a general capital increase so as to reach agreement in time to ensure that the Bank’s lending program is not constrained by a lack of capital. Note was also taken of the fact that the lending program for fiscal year 1988 might exceed the sustainable level of lending on a temporary basis.

22. At its April 1987 meeting, the Committee encouraged the Bank to increase its lending program to support growth and reform programs of its borrowers. The Committee also reaffirmed the position it had taken in September 1986 that a substantial general capital increase will be required if quality lending materializes as expected. Bank Executive Directors were again urged to continue their discussions of the modalities for a general capital increase so as to avoid any constraint in the Bank’s lending program.

23. In a statement to the Committee, the Managing Director of the IMF in September 1986 delineated the Fund’s role in the process of the revival of growth. First, through the exercise of its surveillance responsibilities, the Fund could contribute to the coordination of macroeconomic policies in the major industrial countries in order to promote a stable global economic environment for the pursuit of sustainable growth. Second, growth and adjustment would be supported through financial and technical assistance to developing countries in the context of sound programs and in close collaboration with the Bank. Third, the Fund would act as a catalyst for the mobilization of financial resources from other sources in support of developing countries’ adjustment programs. Finally, in assisting low-income countries that face protracted balance of payments problems, the Fund, in close collaboration with the World Bank, would provide policy advice and assistance on concessional terms under the structural adjustment facility.

24. In reviewing the implications of a growth-oriented strategy, the Managing Director in April 1987 noted the key role of the strength and quality of the macroeconomic and structural policies of the developing countries. He stressed that programs needed to be designed in a medium-term framework but that there was no standard policy package; account had to be taken of individual situations. Major industrial countries have a responsibility to help establish an environment that eases the adjustment efforts of other countries. On the international level, a growth strategy required a clear commitment to open trade and continued policy coordination among major countries. Concerning the resource needs of the developing countries, the Fund had been able to assist the low-income countries through the SAF, but their requirements were such that additional concessional assistance would be needed from both multilateral and bilateral sources.

E. Market Prospects of Raw Materials

25. In their consideration of the theme “Sustaining Growth in the Developing Countries,” at the April 1987 meeting the Committee discussed the impact on the developing countries of the sharp declining trend in commodity prices and of the agricultural policies of the industrial countries. The Committee noted that non-fuel commodity prices between 1980 and 1986 had reached their lowest point in real terms since the depression of the 1930s and that there was an even more dramatic fall in oil prices in 1986. A World Bank paper noted among the causes for the prevailing state of the commodity markets: slack economic conditions in industrial countries, oversupply due to past investment, a distortion in the international markets for some commodities, and finally, a secular shift in demand due to changes in taste, synthetic substitutes, and new production processes. The background paper, as well as the World Development Report 1986, indicated the need for a rationalization of agricultural policies in the industrial countries. These policies caused serious burdens for poor countries seeking to increase productivity and exports and involved subsidies borne by the consumer and also by suppliers in some industrial countries. The developing countries stood to gain substantially from the liberalization of trade in tropical products.

26. In discussing the impact of industrial countries’ agricultural policies on the economic prospects of the developing countries, the Committee at its April 1987 meeting also touched on the impact of the industrial policies of the developed countries. The Committee concluded that the liberalization of industrial protection warranted urgent attention. The Bank and the Fund were accordingly requested to prepare for the Committee’s consideration a report on the impact of the industrial policies of the developed countries.

27. The Committee concluded at its April 1987 meeting that, while global growth would improve the prospects of commodities, multilateral institutions should assist in diversifying the developing countries’ commodity export base and in offsetting temporary fluctuations in their export earnings. Accordingly, the Committee called on the World Bank and the IMF to develop options for coping with these commodity problems to be considered at a future meeting.

F. International Trade Issues

28. Following an established practice, the Committee was kept informed about developments in international trade by the Director General of GATT, Mr. Arthur Dunkel. At the September 1986 meeting, the Committee was fully briefed by the GATT Director General on the conclusions of the Special Session of the GATT Contracting Parties at Punta del Este on September 15–19, 1986 when a new round of trade negotiations—the Uruguay Round—was launched. The Director General emphasized the interaction between trade policies and efforts to improve the macroeconomic and structural environment bearing on the debt and development situation of developing countries. A trade negotiations committee had been set up to carry out the negotiations for the Uruguay Round, and the surveillance mechanism set up under this committee was expected to play an important role in reviewing the implementation of the commitments for standstills and rollbacks by governments. The Development Committee welcomed the presentation by the GATT Director General on the launching of the Uruguay Round, which was seen as a significant step in strengthening and expanding the international trading system. The Committee looked forward to the success of the new round and for the implementation of the standstill and rollback commitments for reducing protectionism.

29. The Committee was further briefed by the Director General of GATT at its April 1987 meeting, in the context of its discussion on sustaining growth in the developing countries with a view to improving the situation of the indebted countries. The Director General placed great emphasis on the importance of trade in stimulating growth, noting that the Uruguay Round was now under way, with a Group of Negotiations on Goods reviewing the implementation of the commitments for standstills and rollbacks with the surveillance mechanism in Punta del Este now in place. Governments were encouraged not to wait for the deadline agreed to in Punta del Este for the termination of the negotiations (1990) to put into effect the improvements in trade policies which were urgently required. The importance of respected rules in the trade field for the encouragement of investment to sustain growth was emphasized as the main link between the new trade round and the growth strategies of the Bank and the Fund.

30. The Committee welcomed the inclusion of agricultural trade in the Uruguay Round of multilateral trade negotiations, particularly because of the importance to the developing countries of an appropriate policy environment for trade in agricultural products. Protectionist agricultural policies were seen as one of the causes of distortions including depressed commodity prices in the world market.

31. The Committee looked to the Uruguay Round of negotiations to achieve a greater liberalization of trade in agriculture and increased discipline in the use of subsidies for production and exports. Besides the priority attention which would be given these matters in the GATT, ministers looked to other international fora, including the OECD Ministerial Council, the Venice economic summit, and UNCTAD VII to advance rapid progress on these issues.

G. Overview of Trends in the Transfer of Resources

32. In line with the mandate of the Committee to focus on the transfer of real resources to the developing countries, at its September 1986 meeting, the Committee agreed to maintain a regular overview of developments in the transfer of resources to developing countries. At the April 1987 meeting, the World Bank presented a review of trends in resource flows to developing countries. The report indicated a continued decline in total long-term resource flows (i.e., net disbursements) and a reduction in these flows from $102.5 billion in 1981 to $51 billion in 1985, largely accounted for by declines from private financial institutions (mainly commercial banks).

33. Flows of official development assistance, although increasing somewhat between 1984 to 1985, were still below the level of 1980 in real terms. The Chairman of the Development Assistance Committee (DAC) reported that ODA from DAC member countries increased by less than 2 percent in real terms between 1984 and 1985. Net private direct investment increased slightly to $10.9 billion in 1985 from a level of $10.4 billion, but was still well below the annual average for 1981–82 of $13.6 billion. The World Bank’s World Debt Tables for 1986–87 estimated a negative net transfer of $16.1 billion in 1985 for all debtor reporting countries for public and publicly guaranteed debt-creating flows. This reflected a further deterioration from the situation in 1984 when the extent of the negative net transfers was only $350 million. Note was taken of the fact that the bulk of the negative net transfers was concentrated in several countries, largely from the heavily indebted countries. The Bank’s report also noted the continuing need for substantial financial flows to low-income Asian countries.

34. The general picture of the overview of the flow of financial resources was characterized in the Bank’s report as not promising, since, with few exceptions, stagnation or decline in flows was noted. In reviewing this report, the Committee concluded that a reversal of the trends indicated was important and that improved conditions to stimulate expanded flows of investments and other capital movements needed to be created in both developing and developed countries. In April 1987, the Committee agreed to hold a further discussion in September on the adequacy of resource transfers to all developing countries and requested a report on this issue to facilitate its deliberations.

35. In September 1986 the Committee, with the participation of the Chairman of the OECD Development Assistance Committee, discussed the resource needs of all the low-income countries. There was concern at the slow rate of growth of ODA flows, which remained inadequate for the needs of the low-income countries. The Committee made an appeal to donor countries to make a maximum effort to increase their ODA budgets, especially to help meet the needs of the poor countries. In this context, the value of a system of strong multilateral concessional assistance was emphasized.

H. Poverty Impact of Structural Adjustment Lending

36. The Committee had a discussion in April 1987 on the poverty impact of structural adjustment and development programs against the background of a paper prepared by the World Bank on “Protecting the Poor During Periods of Adjustment.” The Bank’s background paper provided evidence of a worsening in economic and social conditions in recent years in many developing countries, particularly in the heavily indebted middle-income countries and the low-income countries in Africa. The question posed was whether there were ways in which the adjustment process could be designed and/or complemented to reduce the difficulties for low-income groups. It was noted that adjustment, if pursued in the context of economic concerns with growth-oriented policies, would result in lower social costs. The Bank was therefore making major efforts to design viable growth-oriented adjustment programs, adequately supported by external resources, which would cushion the effects of the adjustment process. The Bank would help governments design adjustment programs that target social expenditures so as to protect the poor as far as possible. For low-income African countries the social costs of adjustment are linked to pervasive poverty problems. Consequently, poverty alleviation and economic growth are seen as the most effective ways by the Bank to help the poor deal with the social costs of adjustment.

37. The increasing poverty trends and deteriorating social conditions in many developing countries led to expressions of concern by the Committee at its April meeting. Not only was it important that the design and implementation of policy reform programs should protect the poor, but increased capital flows and a more targeted use of resources to alleviate their plight seemed essential. The initiatives taken by the Bank in this field were welcomed, as well as the proposal to strengthen the support for nongovernmental organizations (NGOs) participating in these programs. The Committee looked forward to another discussion on the subject with further work by the Bank and the Fund.

I. Environment, Growth, and Development

38. The Committee considered the subject of environment, growth, and development against the background of a paper prepared by the World Bank on the subject. The paper underlined concern about the adequate management of natural resources in both developed and developing countries. Environmental degradation threatened the sustainability of development, especially in poor countries heavily dependent on an eroding base in natural resources. The promotion of growth, the alleviation of poverty, and the protection of the environment were mutually supportive objectives, but it was recognized that countries and international agencies often have difficult choices to make as different goals are pursued. There are sometimes conflicts between environmental and other objectives, particularly in poor countries where the priorities to avoid pollution or degradation of the environment could not be expected to be the highest. Governments needed to give greater attention to natural resource management when developing national policies.

39. The paper indicated that the World Bank would be prepared to assist borrowers integrate natural resource management in decision making. The Bank would itself seek to ensure that environmental safeguards are included in its projects and to invest in projects intended to protect and enhance the environment, alleviate poverty, and promote growth. The Bank report indicated that appropriate adjustments would be made in the Bank’s organization and staff dealing with environmental aspects of projects and policies and that the Bank would work with NGOs and appropriate international organizations on these matters.

40. In April 1987, members welcomed the initiatives taken by the Bank in the environmental field but felt that further work had yet to be undertaken. The Bank was accordingly requested to report again to the Committee on the Bank’s environment program. The Report of the World Commission on Environment and Development shortly to be published was also expected to benefit the Committee in its further discussion on this subject. In their discussions, members generally stressed the importance of environmental protection in the pursuit of growth and development objectives. These objectives were often mutually reinforcing, since poverty was a major cause of environmental degradation suffered by the poorest members of society.

J. Working Group Report on the Position of Executive Secretary

41. The April 1987 meeting of the Committee established a working group of six members—Canada, France, The Gambia, India, Mexico, and the Netherlands—to review the role, responsibilities, reporting relationships, and resources required by the Executive Secretary to perform the duties required of him in service to the Chairman and the Committee. The meeting also agreed that the appointment of the Executive Secretary, which should have taken place in April 1987, should be deferred until September 1987 and that the present incumbent should be requested to continue in office until a new Executive Secretary was elected. The working group under the chairmanship of a representative from Canada presented its report to the Chairman on June 2, 1987. In accordance with the procedures laid down at the April 1987 meeting of the Committee, the report was transmitted by the Chairman with his comments to the President of the Bank and the Managing Director of the Fund on June 5, 1987 for the consideration of their respective Boards sitting as Committees of the Whole. The report and its recommendations were endorsed by the Executive Directors of the Bank at their meeting on June 25, 1987 and by the Executive Directors of the Fund on June 29, 1987, taking into account the Chairman’s comments. On July 2, 1987 the Chairman circulated to members the report and its recommendations, which were approved on a no-objection basis on July 20, 1987.

Annexes

A. Members of the Committee

B. Observers to the Committee

C. Text of Parallel IBRD and IMF Resolutions Establishing the Development Committee (see Summary Proceedings, 1975, pages 278–82)

D. Agendas and Press Communiqués of Meetings Held in September and October 1986 and April 1987.

Annex A. Members of the Committee

MemberCountries
1.His ExcellencySaudi Arabia
Sheikh Mohammad Abalkhail
Minister of Finance and National Economy
Saudi Arabia
2.His ExcellencyBahrain, Egypt, Iraq, Jordan, Kuwait, Lebanon, Maldives, Oman, Pakistan, Qatar, Syrian Arab Republic, United Arab Emirates, Yemen Arab Republic
Ibrahim Abdul Karim
Minister of Finance and National Economy
Bahrain
3.His ExcellencyArgentina, Bolivia, Chile, Paraguay, Peru, Uruguay
Luis Alva Castro
President of the Council of Ministers and Minister of Economy and Finance
Peru
4.The HonorableUnited States
James A. Baker III
Secretary of the Treasury
United States
5.His ExcellencyFrance
Edouard Balladur
Minister of Economy, Finance and Privatization
France
6.His ExcellencyAfghanistan, Algeria, Ghana, Islamic Republic of Iran, Libya, Morocco, Tunisia, People’s Democratic Republic of Yemen
Mohamed Berrada
Minister of Finance
Morocco
7.The HonorableBotswana, Burundi, Ethiopia, The Gambia, Guinea, Kenya, Lesotho, Liberia, Malawi, Mozambique, Nigeria, Seychelles, Sierra Leone, Sudan, Swaziland, Tanzania, Trinidad and Tobago, Uganda, Zambia, Zimbabwe
B.T.G. Chidzero1
Minister of Finance, Economic Planning and Development
Zimbabwe
8.His ExcellencyBrazil, Colombia, Dominican Republic, Ecuador, Haiti, Philippines
Domingo Cordovez2
Minister of Finance and Public Credit
Ecuador
9.His ExcellencyAustria, Belgium, Hungary, Luxembourg, Turkey
Mark Eyskens
Minister of Finance
Belgium
10.The HonorableGreece, Italy, Malta, Portugal
Giovanni Goria
Minister of the Treasury
Italy
11.The HonorableAustralia, Kiribati, Korea, New Zealand, Papua New Guinea, Solomon Islands, Vanuatu, Western Samoa
Paul J. Keating, M.P.
Treasurer
Australia
12.His ExcellencyFederal Republic of Germany
Hans Klein
Federal Minister for Economic Cooperation
Germany
13.His ExcellencyBenin, Burkina Faso, Cameroon, Cape Verde, Central African Republic, Chad, Comoros, Congo, Côte d’Ivoire, Djibouti, Equatorial Guinea, Gabon, Guinea-Bissau, Madagascar, Mali, Mauritania, Mauritius, Niger, Rwanda, Sao Tomé and Principe, Senegal, Somalia, Togo, Zaire
Abdoulaye Koné
Minister of Economy and Finance
Côte d’Ivoire
14.The Right HonorableUnited Kingdom
Nigel Lawson, M.P.
Chancellor of the Exchequer
United Kingdom
15.His ExcellencyJapan
Kiichi Miyazawa
Minister of Finance
Japan
16.His ExcellencyCosta Rica, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Spain, Suriname, Venezuela
Gustavo Petricioli
Secretary of Finance and Public Credit
Mexico
17.His ExcellencyCyprus, Israel, Netherlands, Romania, Yugoslavia
H.O. Ruding
Minister of Finance
Netherlands
18.His ExcellencyBurma, Fiji, Indonesia, Lao People’s Democratic Republic, Malaysia, Nepal, Singapore, Thailand, Tonga, Viet Nam
Suthee Singhasaneh
Minister of Finance
Thailand
19.The HonorableBangladesh, Bhutan, India, Sri Lanka
S. Venkitaramanan
Finance Secretary
India
20.His ExcellencyDenmark, Finland, Iceland, Norway, Sweden
Pekka Vennamo
Minister, Ministry of Finance
Finland
21.His ExcellencyChina
Wang Bingqian
State Counselor and Minister of Finance
China
22.The HonorableAntigua and Barbuda, The Bahamas, Barbados, Belize, Canada, Dominica, Grenada, Guyana, Ireland, Jamaica, St. Kitts and Nevis, St. Lucia, St. Vincent
Michael H. Wilson
Minister of Finance
Canada

Annex B. Observers to the Committee

African Development Bank

Arab Bank for Economic Development in Africa

Arab Fund for Economic and Social Development

Asian Development Bank

Commission of the European Communities

Commonwealth Secretariat

Development Assistance Committee

European Investment Bank

General Agreement on Tariffs and Trade

Inter-American Development Bank

International Fund for Agricultural Development

Islamic Development Bank

OPEC Fund for International Development

Organization for Economic Cooperation and Development

Government of Switzerland

United Nations

United Nations Conference on Trade and Development

United Nations Development Program

Annex C

The text of the parallel IBRD and IMF Resolutions establishing the Development Committee is reproduced in the Summary Proceedings, 1975, pages 278–82.

Annex D. Agendas and Press Communiqués of Meetings Held in September and October 1986 and April 1987

Meeting of September 29, 1986

  • A. Agenda

    • 1. Revival of Growth and the Role of the World Bank and the Fund

      • —Review of progress in heavily indebted middle-income countries

      • —Further actions needed to revive growth in these countries

      • —Review of the World Bank’s overall lending program in relation to the continued adequacy of the World Bank’s capital, including the need for a general capital increase.

    • 2. Review of

      • —Prospects for capital flows, particularly official development assistance, and their relation to growth and adjustment in low-income courtries

      • —Recent sub-Saharan African developments

      • —Aid coordination in sub-Saharan Africa.

    • 3. Progress Reports

      • —Eighth replenishment of IDA

      • —Report on the Convention establishing the Multilateral Investment Guarantee Agency (MIGA).

    • 4. Annual Report of the Committee

    • 5. Other Business

  • B. Press Communiqué (text published in Summary Proceedings, 1986, pages 316–21).

Meeting of October 2, 1986

  • A. Agenda

    • 1. Adoption of Provisional Agenda

    • 2. Selection of Chairman

    • 3. Press Announcement

    • 4. Other Business

  • B. Press Announcement (text published in Summary Proceedings, 1986, page 322).

Meeting of April 10, 1987

  • A. Agenda

    • 1. Sustaining Growth in Developing Countries

      • —Implementaton of growth-oriented programs

      • —Poverty impact of structural adjustment and development programs

      • —Market prospects of raw materials, including consideration of the impact of industrial countries’ agricultural policies on developing countries’ economic prospects

      • —Overview of trends in the transfer of resources.

    • 2. Environment, Growth, and Development

    • 3. Progress Reports

      • —Current international trade issues

      • —World Bank general capital increase (GCI), IDA, and MIGA.

    • 4. Appointment of Executive Secretary

    • 5. Other Business

  • B. Press Communiqué

1. The Development Committee held its thirty-first meeting in Washington, D.C, on April 10, 1987, under the chairmanship of the Honorable B.T.G. Chidzero, Minister of Finance, Economic Planning and Development of Zimbabwe. Mr. Barber B. Conable, President of the World Bank, Mr. Michel Camdessus, Managing Director of the International Monetary Fund, and Mr. Fritz Fischer, Executive Secretary of the Development Committee, participated in the meeting. Mr. Svetozar Rikanovic, Chairman of the Group of Twenty-Four, also took part in the meeting. Observers from a number of international and regional organizations and Switzerland also attended. The Members of the Committee were pleased to welcome Mr. Camdessus who was present for the first time as Managing Director and wished him all success in the important and demanding tasks he had assumed.

2. The Committee focused attention on how growth in developing countries could be sustained and enhanced at a time of depressed commodity prices, sluggish growth in the industrial countries, and the uncertain prospects for increased external financial flows. Members re-emphasized that only through concerted efforts by developed and developing countries could prospects for stimulating and sustaining growth for developing countries be significantly improved. A more promising outlook for growth is important to secure and maintain public support for adjustment efforts.

3. Members noted that many heavily indebted middle-income countries have pursued strong adjustment programs in efforts to achieve growth, improve living standards, and strengthen their external payments position. For a number of countries, this proved to be a very difficult task, in view of the adverse shift in the terms of trade and the reluctance of commercial banks to provide the required flows. While the process of adjustment with growth has been fostered since the launching of Secretary Baker’s initiative in 1985, the Committee noted that difficult problems still remain. To resolve these problems, the Committee stressed that all parties—the commercial banks, creditor governments, and debtor countries—should play their part. The Committee reasserted the central role of the Bank and the Fund in the promotion of growth-oriented adjustment programs and the mobilization of resources from official and private sources. It requested the Bank and the Fund to continue to examine additional measures to refine and strengthen the implementation of growth-oriented programs and submit a report with possible recommendations for consideration at a future meeting of the Committee.

4. Ministers reiterated their commitment to support the low-income countries in their development and adjustment efforts. They recognized that many of these countries, especially sub-Saharan Africa, face severe problems of indebtedness. Ministers stressed the need for larger concessional flows and agreed that for many of these countries additional measures were needed to improve their capacity to service their debts and at the same time undertake growth-oriented programs. In this connection, the Committee welcomed the intentions of the official creditors in the Paris Club to work toward realistic rescheduling terms for the poorest nations undertaking strong growth-oriented adjustment programs. The Bank and the Fund were asked to make proposals of action, at its next meeting, to address the problems of countries facing exceptional difficulties, which should also take into account the assessment of the implementation of the United Nations Program of Action for African Economic Recovery and Development.

5. The industrial countries need to broaden the range of resource flows to developing countries, notably through export earnings of the latter countries, which can make a significant contribution toward meeting debt service and stimulating growth. An appropriate policy environment for trade in agricultural products is of particular importance to developing countries. Ministers identified protectionist agricultural policies as a major cause of distortions including depressed commodity prices on the world markets, surplus production, and budgetary drain. Recognizing that these conditions have made development efforts of many developing countries more difficult, the Committee emphasized that open and unencumbered international agricultural trade and the reduction of domestic support would foster development efforts and promote the adjustment process.

6. Members emphasized the responsibility of industrial as well as developing nations to implement growth-oriented policies so that both could resist protectionism and benefit from an open trading system. In this context, Ministers welcomed the inclusion of agricultural trade in the Uruguay Round of multilateral trade negotiations and looked to these negotiations to achieve greater liberalization of trade in agriculture and increased discipline on the use of all direct and indirect subsidies to production and exports. The Committee also felt that the liberalization of industrial protection warranted urgent attention and requested the Bank and the Fund to prepare a report on the impact of the industrial policies of the developed countries. The Committee was informed by the GATT Director General of current developments in international trade negotiations and noted governments’ commitments to halt and reverse the escalation of protectionism. Ministers hoped that rapid progress would be made in actions requiring priority attention in the GATT and in other international fora, including the OECD Ministerial Council Meeting, Venice economic summit, and UNCTAD VII.

7. The Committee reviewed the depressed state of international commodity markets as well as the unfavorable prospects for any substantial improvement for most commodities. It recognized that an acceleration of global growth would improve the prospects for commodities and that actions are required on many fronts, including the assistance of the multilateral institutions, to broaden the export base of countries dependent on commodities and to offset temporary fluctuations in their export earnings. The World Bank in cooperation with the Fund should prepare options for the next meeting of the Committee.

8. The Committee noted declining trends in capital flows to developing countries and stressed the importance and urgency of reversing this trend. The decline has been particularly significant in the case of flows from commercial banks. Private investment flows remain disappointing. Improved conditions to stimulate expanded flows of private investment and other capital movements need to be created in both developing and developed countries. The IFC should play a helpful complementary role in this area.

9. Multilateral financial institutions should continue to strengthen their efforts to support the growth and adjustment process. The Committee welcomed the recent agreement on a $12.4 billion ID A-VIII replenishment and commended the group of IDA donor countries which had made the agreement possible as such concessional flows were critical to support adjustment, growth, and poverty alleviation in low-income countries. The Committee urged early approval by the IDA Board of Governors of the IDA-VIII Resolution. The Committee noted the efforts of the Bank and the Fund to assist low-income countries in implementing programs to foster growth and strengthen the balance of payments by providing concessional loans supported by IDA resources and the newly established structural adjustment facility (SAF). Ministers stressed that larger resources would be needed to complement both SAF and IDA programs to support policies and programs for higher growth in low-income countries. Ministers were asked to review at a future meeting ongoing efforts of the Bank, the Fund, and bilateral agencies designed to assist the poorest countries to implement growth programs.

10. In response to the needs of Bank borrowers, the Bank was encouraged to increase its lending programs to support growth and reform efforts. The Committee reiterated the call on the Bank last September to maintain the momentum of the reform effort and to permit the growth in the IBRD lending envisaged for the period through fiscal year 1990, the Committee agreed that a substantial general capital increase (GCI) will be required if quality lending materializes as expected. The Committee urged the Bank’s Executive Directors to continue their discussions of GCI modalities to permit agreement on a proposal for a general capital increase as needed to ensure that the Bank’s lending program is not constrained by the availability of capital. In this context, Members of the Committee recognized that, should quality lending materialize as projected, it is possible that the program for fiscal year 1988 might exceed the sustainable lending limit on a temporary basis.

11. The Committee agreed to discuss, in September, the adequacy of resource transfers to all developing countries to enhance the momentum of their development. The Committee requested a report on this issue to facilitate its deliberations.

12. The Committee expressed concern at increasing poverty trends and deteriorating social conditions in many developing countries. Ministers urged that in the design and implementation of policy reforms, governments and international institutions should give special attention to protecting the most vulnerable groups. Members agreed that increased flows and more targeted use of resources, both external and domestic, would help to alleviate the plight of the poor in the process of adjustment. Members highlighted the importance of increased investments in the poverty alleviation programs and welcomed recent Bank initiatives to impart a greater poverty focus in its operations and to strengthen support for nongovernmental organizations’ humanitarian aid programs. The Committee agreed to have a broader discussion of this subject at a future meeting on the basis of further work by the Bank and the Fund.

13. The Committee stressed the importance of environmental protection in pursuing growth and development objectives. Members emphasized that the pursuit of these objectives is often mutually reinforcing, for poverty is a major cause of environmental damage and it is typically the poorest members of society that suffer most from environmental degradation. The Committee welcomed the Bank’s current initiatives at increasing emphasis on environmental protection in its lending and helping borrowers to integrate natural resource management into the planning and implementation of their development activities. The Committee felt that further work needed to be undertaken in the light of its discussions. In this context, the Committee looked forward to a further report by the President of the Bank at its next meeting and hoped to benefit from the findings of the World Commission on Environment and Development whose report would be published soon.

14. The Committee agreed to meet again in Washington, D.C. on September 28, 1987.

Report I dealt with the business of the Boards of Governors of the Bank, IFC, and IDA. Report II and the Resolution recommended therein were adopted by the Board of Governors of the Fund, in Joint Session with the Boards of Governors of the Bank, IFC, and IDA, on October 1, 1987.

See pages 27–31.

Resolution No. 42-3; see page 253.

Report III and the recommendations contained therein were adopted by the Boards of Governors of the Bank, IFC, and IDA, and of the Fund, in Joint Session, on October 1, 1987.

The Honorable Sheriff S. Sisay, Minister of Finance and Trade, The Gambia, served as Alternate Member to permit the Honorable B.T.G. Chidzero to serve as Chairman of the April 10, 1987 Meeting.

His Excellency Rodrigo Espinosa Bermeo became Minister of Finance and Public Credit of Ecuador in June 1987.

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