Presentation of the Forty-Sixth Annual Report1

International Monetary Fund. Secretary's Department
Published Date:
November 1991
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By the Chairman of the Executive Board and Managing Director of the International Monetary Fund

M. Camdessus

I welcome you to our Annual Meetings. In particular I extend a warm welcome to Mongolia, which has joined the membership, and to the delegations of Albania, Estonia, Latvia, Lithuania, the Marshall Islands, Micronesia, Switzerland, and the U.S.S.R. In addition, I would like to extend a cordial greeting to the new President of the World Bank. Like many of you, I have known and admired Lewis T. Preston for many years. I look forward to working with him and benefiting from his wisdom and experience. You may be assured that the close and constructive collaboration that we developed with Barber Conable will continue.

Since you have invited me to continue to serve as Managing Director of the Fund for a second term of office, may I simply thank you for your confidence in me, and say that I look forward to what promises to be a very challenging period.

I would also like to express my gratitude to our Thai hosts for their wonderful hospitality. They have given us a fine introduction to Thailand’s magnificent culture. Our meetings are affording us the opportunity to view at first hand its example of successful development, which has combined rapid growth, relatively moderate inflation, and progress in reducing poverty. More remains to be done, but I believe that Thailand is well positioned to continue to make rapid progress.

Governors, we come together at a unique moment in history. We face historic opportunities, stemming from the better prospects for peace and development

  • • in the Middle East, after the tragedy of last year;

  • • in Southern Africa, with the dismantling of apartheid and the lifting of sanctions;

  • • in the countries of Eastern Europe and the Soviet Union, with their fundamental transition to democracy and a market economy; and

  • • in so many other countries throughout the world where stronger economic policies are being implemented.

These prospects have created an unprecedented opportunity to improve the livs of many millions of people. But the period of transition ahead will be difficult. One of the central functions of the Fund is to assist countries during difficult times of transition. We face formidable responsibilities. So it is important for us this morning to identify our priorities clearly: first, to assess what remains to be done with respect to the issues still on our agenda from the 1980s; second, to identify the new tasks that are emerging; and third, to see how we can find enough savings in the world to meet both past needs for financing and those now emerging.

Our Unfinished Agenda

Let us start here in Asia. The sustained success that Thailand and several other Asian countries have achieved over the past decades should be an inspiration to others. The achievements of seven2 dynamic Asian economies during the 1980s, despite a frequently difficult international environment, are remarkable. They grew by about 7 percent a year—more than twice the average of all other developing countries—while maintaining viable external payments positions and, for most of the decade, relatively low inflation.

What can we learn from this Asian experience? Six basic elements of an effective economic strategy:

  • • prudent fiscal and monetary policies, conducted in a medium-term perspective;

  • • structural policies that emphasize private initiative, an outward orientation, and efficient markets;

  • • sustained high rates of saving allowing substantial productive investment, thereby promoting growth while avoiding excessive foreign borrowing;

  • • sound management of the public sector;

  • • an open approach to trade and financial activities, as well as to the payments system; and

  • • continuing efforts to bring about genuine improvement in the human condition, through education and better health services—in short, through a concern for social progress and respect for the environment.

The Asian continent is, nevertheless, far from completing its agenda. Even the highly successful economies still confront important challenges. Moreover, large numbers of Asians still live in extreme poverty. Eradicating this evil must be a priority for the 1990s. Strong and sustained growth is, in the end, the only way to conquer poverty, but growth loses its key raison d’etre if it does not lead to an improvement in the living standards of the population as a whole, in particular the poor. If the growth process does not satisfy this basic objective, it cannot mobilize human potential, so that in the end it cannot be sustained.

What is encouraging is that an increasing number of Asian countries are now implementing bold economic policies. And here I would mention India as a case in point, where the authorities have recently introduced a strong program, with substantial IMF assistance, in a major effort to revitalize an economy that faces a severe crisis.

Second, let us turn to Africa—but what I have to say about Africa also applies to all other parts of the world where extreme poverty is the predominant fact of life. Yet there is a striking contrast between their harsh plight at present and their encouraging prospects if they apply sound policies to generate adequate and sustainable growth.

It bears noting that the picture in Africa is varied. Some countries have been set back as a result of civil wars, ethnic conflicts, large-scale migrations of refugees, famine, or natural disasters. They face severe handicaps in their efforts to create acceptable living standards for their people. These countries require quick humanitarian assistance to alleviate the immediate suffering. We must stand ready to help them generously when they move to implement credible programs of reconstruction and economic reform.

Some of these countries, such as Liberia, Sierra Leone, Somalia, the Sudan, and Zambia have accumulated financial arrears to the Bretton Woods institutions. To help them, the IMF has recently established a new instrument, known as the “rights accumulation” program. This instrument is already proving to be useful. I call on all countries in arrears to work with us with a view to resolving this problem so that they can return to the mainstream of international cooperation.

Fortunately, the overall situation in Africa is more promising. More and more African countries are recognizing the need to embark on far-reaching reforms, and to persevere with a strategy that will produce sustainable growth. Many of them are implementing strong programs and moving toward a more democratic political system. I am heartened by their courage and commitment. At present some twenty-five African countries are implementing economic adjustment programs supported by Fund arrangements. At the end of September, outstanding Fund credit to these countries totaled about $7.8 billion. Moreover, negotiations for similar programs have recently been concluded with three additional countries, while talks are under way with several more. So the prospects are good that soon more than 30 African countries will be implementing growth-oriented adjustment strategies supported by the IMF. Our assistance is helping to catalyze wide international support for these countries.

Where programs have been implemented vigorously, they are producing impressive results. In particular, the countries that have seriously pursued reform programs supported by our “concessional facilities” (the structural adjustment (SAF) and enhanced structural adjustment (ESAF) facilities have achieved annual average growth of over 4 percent over the past three to four years, compared with only about half that rate in the three years before these programs were introduced.3 Moreover, the export performance of many of these countries has improved sharply as nontraditional exports have responded well to realistic exchange rates and structural reforms. And these countries could do better.

These results reinforce my firm belief that it is possible to reverse the downward trend in per capita income that has blighted Africa for the past twenty years or so. And that it is possible to improve the external situation and reduce the vulnerability of these economies, even in the context of the pronounced deterioration in their terms of trade in recent years.

The IMF’s recent experience in Africa indicates that we now have an appropriate instrument, in the enhanced structural adjustment facility, to help low-income countries within the framework of constructive collaboration with the World Bank and the regional development banks. The progress made would not have been possible without concessional help. I am encouraged by indications of support for my proposal to extend the eligibility of ESAF to ten or eleven additional low-income countries.

The outlook for African countries and other poor countries is now surely more promising than before. To fulfill this promise, however, these countries need strong international support and must themselves be fully committed to the firm implementation of sound policies. Several countries have not yet embarked on this path, but when they are ready the Fund will be unflinching in its support.

Third, I would like to refer not to a region but to a problem, one that in the minds of many is associated mainly with Latin America but in fact also affects many countries in Africa, Eastern Europe, and elsewhere: debt. We have made good but slow progress with regard to the debt problem. We know now that this slowness was perhaps inevitable in view of the sheer size of the problem and these countries’ deeply-rooted structural and macroeconomic imbalances—of which high inflation and excessive debt were only the most telling symptoms.

Some of the countries with the most severe problems have made significant strides. These countries are overcoming their difficulties through their own strong efforts, backed by considerable assistance from the international community. The example of Mexico—only a few years ago one of the countries most heavily encumbered by debt, but now showing vigorous growth—has been an inspiration to others. It is encouraging for the Fund to see that several debtor countries, and I mention only Chile, Mexico, and Venezuela as examples, are now leaving the ranks of countries with serious debt problems, and joining those of countries with buoyant opportunities. This is well illustrated by the renewal of net spontaneous flows of external resources to them and their improved access to world capital markets. Argentina also has made great strides in restructuring its economy, and is attracting capital inflows. The major sacrifices these countries have made, and the sustained support by the international community, are bearing fruit.

Yet many debtors are still in a precarious situation, especially those that postponed the decision to embark on a strong strategy of economic recovery. Clearly, the debt strategy will continue to require major efforts on the part of all participants—the debtors themselves, friendly governments, the international institutions, and the commercial banks—for several years to come. Allow me to mention four areas where particular efforts are called for.

There is, first, a pressing need to ease the burden of official debt on the poorest countries. I very much welcome the declaration issued at the London summit reaffirming that the poorest and most indebted countries must benefit from “very special” terms, going well beyond the Toronto terms. I am certain that the London declaration reflected a broad consensus among the creditor countries, and I hope that the Paris Club will soon apply a more concessional approach to its restructuring operations, in cases justified by the plight and the efforts of debtor countries.

Second, we should do better when we apply the debt strategy to those heavily indebted middle-income countries that face an onerous burden of official bilateral debt. Reduction of this burden would certainly be merited, again on a case-by-case basis, where the burden cannot be eased by traditional rescheduling techniques and where it threatens to undermine adjustment efforts.

Third, it is important that countries seeking a restructuring of their obligations, and their bankers, move expeditiously to comprehensive settlements as part of their overall adjustment effort.

Fourth, I am concerned about the situation of certain countries that have refrained from seeking a rescheduling of their sizable debt despite constrained external circumstances, and are implementing strong policies. It is important that these countries should receive adequate support from official donors and commercial banks.

New Challenges

New challenges are ahead: reconstruction in the Middle East and the process of reform in Central and Eastern Europe and the Soviet Union.

The Middle East crisis was a tragic reminder of the fragility of peace. The war’s immediate impact on a number of countries was severe, and its repercussions were widespread. However, the community of nations responded swiftly and effectively. The Fund adapted its mechanisms and devised new means of coordination and action. Shortly after the Annual Meetings last year, the Executive Board completed its review of the IMF’s facilities and approved the adaptation of some instruments in order to enable us to provide early and effective assistance to those member countries that were seriously affected. The Fund has committed more than $14 billion4 of financial assistance to member countries since the onset of the crisis, which has helped many of the countries that were adversely affected.

Looking beyond the immediate consequences of the crisis, I am hopeful that several of the affected countries will undertake more determined reform efforts. I am especially encouraged that Egypt has embarked on a major program of structural adjustment and reform, in conjunction with firmer macroeconomic policies. Progress can also be expected in Algeria, where an impressive array of structural reforms is under way. The vigorous policies being implemented in Morocco, Tunisia, and other countries, are opening up promising prospects for the region.

The countries of Central and Eastern Europe have now embarked on an unprecedented political and economic transformation. They are moving toward free and democratic societies, and passing from a failed system of central planning to market-oriented economies. They are also seeking closer integration into the global trading and financial networks, following the disintegration of the Council for Mutual Economic Assistance (CMEA) trading system. They know that introduction of market-oriented systems will succeed only if it is accompanied by firm and consistent macroeconomic policies to deal with their immediate economic problems, keep inflation under control, and ensure a viable external position. These countries need and deserve substantial and sustained support from the rest of the world. It is essential that expanding markets be open to them.

The IMF is actively helping the fundamental reforms of Central and Eastern Europe. Our disbursement of over $4 billion in financial assistance to five member countries5 in the region in 1991 will help to catalyze over $20 billion in total flows to these countries. This total includes substantial assistance from the World Bank, the Group of 24 under the leadership of the European Community (EC), the Paris Club, and private capital flows. The amounts committed are even larger. This is an impressive demonstration of international solidarity, and we should be encouraged by the results of these programs so far. But we should entertain no illusions: most of these countries will require much technical and financial assistance for some years to come, although foreign private capital should eventually take the place of official assistance. Moreover the efforts must soon be broadened to include Albania, and we must be prepared to provide more assistance to Yugoslavia once a peaceful solution is found to its present conflicts.

Last, but by no means least, the historic changes under way in the Baltic states and the Soviet Union present a major and most welcome challenge to us all. They have opened a “new frontier” for our spirit of initiative and cooperation. For the Bretton Woods institutions, a long-awaited opportunity for them to become truly universal, and to serve the entire family of nations with a renewed sense of commitment, is drawing close. The IMF is fully aware of the difficulty of this task. But we are prepared to do everything in our power to facilitate these countries’ transition, in close cooperation with other institutions and contributors. We have started to work with the Baltic countries. And on October 5, I had the honor of signing with President Gorbachev an agreement on a special association. This will enable us to work with the Union and the Republics to help them design and implement their reforms, and to provide wide-ranging technical assistance, all in the strong hope that this special association may soon lead to full membership. Needless to say, we look forward to being able to help this great country realize its enormous economic potential, to working with this community of peoples who have contributed so much over the centuries to the arts, to technology, indeed to all areas of intellectual and spiritual life, to our civilization at its highest.

Governors, it is easy to identify our common responsibilities:

  • • to persevere with and support sound strategies in Asia, Africa, and Latin America; and

  • • to meet the new challenges in the Middle East, Eastern Europe, and the Soviet Union.

But how can we find an effective strategy to meet these historic challenges? How, when we see a decline in saving in the industrial countries; when vast amounts of public resources are being wasted on unproductive spending; when the Uruguay Round is still not completed; when official development assistance is stagnating in real terms; and when our support mechanisms are so frequently paralyzed by endless discussions about burden sharing? How, when we are not confident of our ability to meet the existing challenges, can we take on new ones?

The answer lies in two ideas: universal adjustment and appropriate financing.

Universal Adjustment and Appropriate Financing

Adjustment has to be universal. Every country has to adjust. Both the surplus and the deficit countries must strive for better policies. Any country that believes it can make a smaller effort than its neighbors is simply refusing to take on its fair share of the common effort. Stronger policies are essential, both in developing countries and in the industrial countries, whose contribution to the growth of the world economy is vital.

It is therefore crucial to promote:

  • • sound monetary and fiscal policies;

  • • measures to enhance the efficiency of markets by means of structural adjustment, free competition, and redefinition of the role of the state—with less government involvement, but more effective performance in those areas where government involvement is necessary;

  • • an open and liberal approach to international trade and investment; and

  • • promotion of national saving, inter alia through cuts in unproductive public spending.

Every country needs to do better in several of these areas, if not in all. It is by applying to themselves the highest standards of management that a country will also make its most valuable contribution to the prosperity of the rest of the world.

Let us briefly consider each of these elements.

First, sound monetary and fiscal policies. The slowdown in the industrial countries is putting economic policies and our system of policy coordination and surveillance to the test. We must restore conditions that will allow sustained growth at a satisfactory pace, while improving price stability and avoiding a re-emergence of excessive payments imbalances. The Fund will continue and intensify its work to promote sound policies in the industrial countries, and effective cooperation between them, through the exercise of Fund surveillance. This is one of our most important tasks.

Recent developments point to a moderate recovery in the industrial countries. We expect their growth in 1992 to be just below 3 percent, about its average for the 1980s. These countries should take steps to ensure that the expansionary phase that is beginning is a sustained one that is not marred by high inflation or other symptoms of macroeconomic imbalance. A continued pursuit of cautious monetary policies is needed, because the recession has bottomed out with inflation still at an excessive rate of 4.5 percent. The steps already taken to reduce fiscal deficits in several industrial countries—notably Canada, Germany, Italy, and the United States—go in the right direction. In the United States, it is essential that the Budget Agreement be fully implemented, and complemented by additional measures if these are necessary to achieve the medium-term fiscal goal.

The fight against inflation is no less urgent in the developing countries. Experience clearly shows that it is financial stability, not inflation, that allows high growth to be sustained over the long run.

Second, structural and systemic reforms are essential to revitalize the operation of a market-based economy and improve overall efficiency. This also entails a profound rethinking of the role of the state. There are two types of measures which are relevant to most countries:

  • • The deregulation and modernization of markets to enable them more effectively to play their roles of creating growth and employment. This is particularly important in Western Europe, which needs to cure the social cancer of long-term unemployment, with its tragic waste of human potential. This can best be achieved by reforming the functioning of labor markets, not by deflecting macroeconomic policies from their long-term objective of maintaining sustainable growth.

  • • A shift in the role of the state, to complement the expanded role of markets. Government can now focus on those important areas where its actions are indispensable and most effective—security, education, health, social safety nets, and establishing transparent rules so that markets operate efficiently—rather than participating directly in the production and distribution of goods. This is the crux of what is meant by the concept of “good governance,” whose key principles include transparency, accountability, and the “Rule of Law,” on which I recently elaborated in Kampala.

Third, liberal trade and investment. The experience of the entire postwar era—the past four decades or more—provides conclusive evidence that trade and development are closely interlinked. An outward-looking orientation has been an important ingredient in the growth strategy of all the successful countries. Indeed, the gradual liberalization of international trade has gone hand in hand with the emergence of greater freedom in domestic economic systems and with the increased recognition that the most powerful source of growth is private initiative. There is now a clear consensus that all countries can benefit from policies that expose the economy to both domestic and international competition.

In sum, a greater openness to international trade and investment is an essential corollary to domestic measures aimed at promoting efficiency and adaptability to change.

In today’s world of rapid and fundamental change, it is important for domestic and external policies to be mutually reinforcing. I regret, therefore, that many industrial countries continue to use trade policy defensively. This runs counter to their own domestic interest in promoting competition and efficiency at home, and it hurts their trade partners. By contrast, many developing countries, particularly in Latin America and Eastern Europe, have recently implemented trade liberalization measures, as an essential element of their growth-oriented strategies. Some forty-five of them have acted unilaterally to liberalize trade substantially, without waiting for the conclusion of the Uruguay Round.

The need for a successful conclusion to the Uruguay Round cannot be overemphasized. The industrial countries must act now to reject protectionism and to reaffirm their commitment to an open multilateral system in which global market forces determine resource allocation. This would powerfully stimulate the world economy in the decade ahead and contribute materially to solving its major problems.

Many countries are benefiting from the increased scope for international investment flows, as capital markets have become more global with the dismantling of restrictions. In particular those countries that are introducing market-based reforms are finding that measures to encourage capital inflows can contribute powerfully to their growth strategies.

Fourth, saving and investment. Policies to promote saving and investment are key elements of a credible strategy to meet the old and the new global challenges. But here we face a serious risk: saving and investment rates in the industrial countries have been declining over the past fifteen years. The sluggish growth of saving has contributed significantly to an increase in real interest rates, from negative levels in the late 1970s to positive high levels in the 1980s. A continued decline in saving and investment rates would be most unfortunate. On the contrary, the industrial countries will need to increase business fixed investment substantially, even to maintain an average growth rate of about 2¾ percent in the coming decade. Since private saving rates in the industrial countries are not likely to rise much, if at all, over the medium term, there is no alternative to raising public savings in order to meet this need. In addition, the developing countries will need to raise their investment rates substantially in relation to gross national product (GNP)—by about 2 percent according to the most recent estimates—if they are to show a better growth performance in the 1990s than in the 1980s. This problem of an ex ante shortfall of investment capital has been with us for a long time, but there now are major additional claims on the global supply of savings.

In the absence of concerted and decisive action, the potential imbalance between projected savings and intended investment can only be resolved by a further increase in real interest rates. This would discourage some investment, most probably to the detriment of the developing and reforming countries. It would increase debt-service burdens and undermine the growth strategies of all.

Such a scenario is unacceptable. But it is avoidable, provided all countries act soon to improve their savings performance, especially by cutting unproductive spending. How?

It will be essential for some of the major industrial countries to reinforce their efforts to reduce their fiscal deficits. Many developing countries also need to reduce their budget deficits and encourage higher rates of private savings formation. And all countries should redouble their efforts to cut unproductive spending. The possibilities for budget cuts will vary from country to country—wherever there is waste, or inefficient investment, or unnecessary spending on prestige projects, or on programs that have outlived their usefulness.

We need to tackle at the international level one of the most glaring and pernicious examples of unproductive spending—excessive protective subsidies. Reductions in these subsidies could release substantial budgetary resources for other, more productive, uses. This should be seen as an essential component of any strategy to promote efficiency and competition. There are many examples, but I will cite only one. The abolition of agricultural support measures in the industrial countries would allow a reduction in budgetary outlays of more than $100 billion a year.

Military spending is another area where substantial savings are now possible. International tensions are subsiding, and this should allow deep cuts, for the first time perhaps in more than half a century. We all welcome the recent announcements by major countries that they will reduce their military spending. A lot is at stake here. Each country must judge for itself what level of defense spending is consistent with its national priorities. But this clearly also has important economic and financial effects. This is therefore directly relevant to the work of the IMF.

If the industrial countries were to reduce their military expenditures by only 20 percent from their level in 1989—and this is by no means an unthinkable cut—there would be budgetary savings of some $90 billion or more a year, after the initial cost of the major reallocation of resources. Moreover, average military spending in the world is some 4.5 percent of gross domestic product (GDP). This is surely too high, in present circumstances. I hope that all countries will examine whether they have scope to reduce their military spending. And if the countries whose military spending is relatively high can reduce it to the world average, they will release some $140 billion for other uses.

In sum, many countries should now be in a better position to reallocate human and financial resources from military purposes to more productive uses, and so improve both their own prospects for growth and those of their partners.

While on this subject, may I enter a particular plea. We must not ignore the international trade in armaments. It is most desirable to avoid a recurrence of a situation in which substantial holdings of offensive weapons—far beyond the justified needs for defense-—can be readily accumulated and indeed financed on easy terms. One very practical first step would be to tighten the rules for granting export credits for arms sales.

The scope for these potential budgetary savings is substantial. In just these two areas taken together, they amount to several times—I repeat several times—the additional need for savings to meet the new global challenges. This is not to say, however, that this will be easy to achieve. Quite the contrary. We all know that strong vested interests will have to be confronted, and we know the courage and statesmanship that will be required by all of you who are responsible for these decisions.

In essence, the problem of global saving is not so much one of scarcity as one of misuse. We want to avoid a most unfortunate new increase in real interest rates. Therefore we need action by all countries to reassess their priorities for government spending, to reflect the results of this reassessment in national budgets, and to promote higher national savings.

* * * *

Let us assume that all countries embark on adjustment efforts such as I have just outlined. Let us assume, as part of these efforts, that the developing countries, and those in transition to a market economy, adopt credible programs and commit themselves to their implementation. What then? Will that be sufficient? Will they face an international environment in which their efforts will succeed? And will the present international mechanisms for cooperation and financial support be sufficient? Will the IMF be able to fulfill its basic mandate to help mobilize this support? Will the IMF be properly equipped, for example, to assist member countries—and here I quote Article I(v) of the Articles of Agreement—“. . .to correct maladjustments in their balance of payments without resorting to measures destructive of national or international prosperity”?

There are no easy answers to these questions. I know that those of you who work so hard, and not always successfully, to put together appropriate financing packages for deserving countries, sometimes have doubts.

Can we fully allay these doubts? I do not know. But I can propose three concrete measures that together should help the community of nations to meet the financial challenges of the period ahead.

First, the donor countries should increase the provision of official development assistance in real terms. This is essential for at least three reasons:

  • • to give a new impetus to development, especially in the very poor countries where the transition to more democratic regimes is making the challenge of development both more urgent and more promising, and where we know very well that increased trade and commercial flows cannot alone be the answer;

  • • to help create more effective social safety nets, and to maintain education and health care at acceptable levels;

  • • to help with the demobilization of military or guerrilla forces that is becoming possible with the reduction in tensions and armed conflicts, and to help these people return to productive jobs.

But can we increase official development assistance (ODA)? I see no convincing reason why not. In the new world that we face today, surely the industrial countries should intensify their efforts to meet the UN objective of 0.7 percent of their GNP. Yet at present they are only halfway toward its achievement. Do we not all remember the many proposals over the years, which suggested that a reduction in military spending would lead to a simultaneous increase in official development assistance? We are now living at an exceptional moment in history when this must be possible.

Second, we need to strengthen the international institutions’, so that they can play their proper roles more effectively. The multilateral institutions have admirably committed staff with the necessary experience. And their existing mechanisms for burden sharing represent a workable compromise. Therefore I hope the membership will continue to provide adequate resources to the World Bank Group and the regional development banks.

In the IMF, are our resources sufficient at a time when the Fund has some $50 billion in outstanding assistance,6 when we have programs in effect with some 50 members, and when some 20 to 25 other members are approaching us for help?

The expected pace of temporary IMF assistance to members in the next several years will call for large additional commitments of monetary resources. Nevertheless, provided the quota increase comes into effect on time, the Fund’s own resources will be adequate to meet the projected demands for the period immediately ahead. But these new resources are now needed urgently. I therefore appeal to our members to ensure that the quota increase and the Third Amendment come into effect with no further delays.

It is also the duty of the Fund to always be ready for the unexpected. This requires, more than ever, that we meet new challenges with imaginative solutions. That is why I particularly welcome the proposal by Japan to re-examine the twin questions of SDR allocations and the method of their distribution. These issues will be on the agenda of the Executive Board this coming winter, and we will report on them to the April meeting of the Interim Committee. I hope that we will be able to address this question in the spirit of searching for a truly universal international monetary system. We should avoid any temptation to pour the young wine of our new challenges into the old wineskins of yesterday’s rhetoric. For new challenges, there must be new solutions.

This has already brought me to the last of my three points, how to strengthen the international monetary system. There is scope for improvement in the working of the system. In addition to the SDR issue, the Fund will continue working in the period ahead to create better conditions for exchange rates to be less volatile, and to provide a credible yardstick for price stability. Both are essential features of a sound and stable international monetary system.

* * * *

I have talked about the need for universal adjustment and financing, in sum, about the need for universal cooperation in these difficult times of transition, so that all countries continue to apply sound policies and receive sufficient support. Universal adjustment and financing, universal cooperation—if we can give these concepts new vitality, new meaning, what a difference this will make to the world! Let us join forces in this common effort. Let us enlarge our sense of responsibility to encompass the new dimensions of the world, as it becomes truly one world.

October 15, 1991.

Hong Kong, Indonesia, Korea, Malaysia, Singapore, Taiwan Province of China, and Thailand.

This increase may appear insufficient. I agree. The short-term gains may be slight, particularly in per capita terms. But if this growth continues, in the longer term it will result in a fundamental improvement in living conditions. For example, a recent Fund study shows that if real per capita income in Bangladesh—one of the poorest countries in Asia—were to continue to grow at the meager 1 percent annual rate recorded over the past decade, it would take this country some forty years to reach the stage at which the average person will cross the poverty line. But if growth is increased to the rate recently seen in many of the Fund’s SAF and ESAF programs, this will allow an annual increase of about 2.5 percent in real per capita income, and the crossover time will be reduced to 16 years. That is a striking difference, and shows why the effort is worthwhile.

Including $3 billion under the compensatory and contingency financing facility (CCFF).

Bulgaria, Czechoslovakia, Hungary, Poland, and Romania.

Outstanding Fund credit and undrawn balances under commitments.

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