Discussion of Fund Policy at Second Joint Session1
- International Monetary Fund. Secretary's Department
- Published Date:
- November 1991
Report to the Board of Governors of the International Monetary Fund by the Chairman of the Interim Committee of the Board of Governors on the International Monetary System—Carlos Solchaga
It is a great pleasure to have this opportunity to report to Governors, in my capacity as Chairman of the Interim Committee, on the work of the Committee at its spring meeting, on April 29-30, which was chaired by my predecessor, Mr. Wilson, and at its most recent meeting on October 13-14. The spring meeting was held following the end of the Middle East crisis and at a time when the recession in industrial countries started to bottom out. The recent meeting was held against the backdrop of the sweeping changes in the U.S.S.R. and as the economic recovery had begun. Indeed, the developments over the last twelve months have brought into focus the historical challenges and opportunities that face the global economy. It is against this background that the Committee dealt with a number of important issues at these two meetings. As these issues have been well covered by the two communiqués, I shall limit myself to commenting briefly on the main items.
In reviewing the world economic outlook, the Committee noted that following the pronounced slowdown in 1991, world economic growth was expected to rebound moderately in 1992. The decline in oil prices, the end of the uncertainties associated with the conflict in the Middle East, and lower interest rates in some countries are expected to contribute to a strengthening of economic activity in the industrial countries. Growth in the developing countries as a group is also expected to pick up in 1992. Moreover, the recent moderation of inflation would likely continue, improving prospects for sustained growth in the medium term.
The Committee agreed that monetary and fiscal policies in the industrial countries should continue to be directed toward achieving the medium-term objectives of sustained global expansion with price stability and providing the basis for lower real interest rates. While welcoming the budgetary actions in several countries to strengthen their fiscal positions, the Committee stressed that continued progress in fiscal consolidation would help to increase saving and raise private investment and potential output, and alleviate the debt-service burden of heavily indebted countries. Structural reforms, including measures to reduce trade restrictions and to improve the functioning of labor markets, are also needed to enhance economic efficiency and, in many countries, reduce persistently high unemployment.
The need to increase saving by both industrial and developing countries was recognized by the Committee. The new claims on resources associated with the economic transformation of Eastern Europe and the U.S.S.R., unification in Germany, and reconstruction in the Middle East would come on top of the sizable investment requirements of the industrial countries and the other developing countries. It is therefore essential that these additional demands be met by reductions in the absorption of saving by governments and an increase in private saving. Members of the Committee stressed, in that respect, the important contribution that could be made by reassessing spending on defense and agricultural and industrial subsidies.
The Committee reaffirmed its support for the debt strategy and was encouraged by the progress made by an increasing number of developing countries toward restoring external viability and achieving sustainable growth. This progress is clear evidence of the effectiveness of the growth-oriented adjustment polices pursued by these countries. The Committee stressed the importance of continued adequate and timely financial support for all countries that are sustaining sound economic policies. It commended the prompt action of the Fund to assist countries seriously affected by the crisis in the Middle East. The Committee underscored that sustained support by official bilateral creditors through direct financial assistance and debt restructuring remains essential. It called on the Paris Club to continue its discussions on how best to implement additional debt relief measures going beyond Toronto terms, on a case-by-case basis, for the poorest countries. The Committee also urged commercial banks to provide support to countries engaged in strong economic reform programs.
The Committee welcomed the continuing commitment of Eastern European countries in the process of market-oriented economic reforms and structural change. Despite the initial output and employment losses, the Committee was of the view that strong and all-encompassing reforms in these countries were the best way to achieve sustainable growth and full integration in the world economy. It stressed that reform efforts must continue to be actively supported by adequate and timely financing from both public and private sources. Improved access to industrial country markets also is indispensable to ensure the success of these efforts.
The signing of the Special Association between the U.S.S.R. and the Fund, as a step toward membership, was warmly welcomed by the Committee. Under this association the Fund will assist the authorities in moving forward with economic stabilization and structural reforms which are urgently needed for a successful transformation of the U.S.S.R. economy. A U.S.S.R. delegation was invited to attend some of the discussion of the Committee at its most recent meeting, and the Committee heard a very interesting presentation by Mr. Yavlinsky on developments in the U.S.S.R. The intention of the authorities to intensify reliance on market mechanisms and to integrate the economy with the multilateral trade and payments system was also welcomed.
Members of the Committee were unanimous in expressing their concern over the delays in the Uruguay Round, stressing that a failure of the Round could seriously jeopardize the international trade and payment system, as well as the outward-looking economic reforms supported by the Fund and the World Bank. The Committee emphasized that the liberalization of the trade system would contribute importantly to global economic growth and thereby to the resolution of the debt problem. The Committee urged all members to attach high priority to a speedy and successful conclusion of the Round.
Turning to the international monetary system, at its spring 1991 meeting, the Committee encouraged the Executive Board to continue its analysis of developments and of key issues in the functioning of the system and to keep the role of the SDR under review.
At its recent meeting, the Committee reviewed the progress made by members in consenting to increases in their quotas under the Ninth Review and in accepting the Third Amendment and urged those members who have not done so to complete the necessary procedures before the end of this year.
Finally, it was agreed that the spring meeting of the Committee will take place in Washington, D.C., on April 27, 1992.
Report to the Boards of Governors of the Fund and the Bank by the Chairman of the Joint Ministerial Committee of the Boards of Governors on the Transfer of Real Resources to Developing Countries (Development Committee)—Alejandro Foxley
The Development Committee is formally a Joint Committee of the Governors of both the Bank and the Fund, and it is required to present a report each year to the Boards of Governors. That Annual Report is before you today, and has been circulated already. It covers the last meeting chaired by my distinguished predecessor, Bernard Chidzero, and the first meeting that I had the honor of chairing in April of this year.
I believe that the Committee has made progress in becoming a more policy-oriented body, and I hope to move further in that direction. I will not repeat the details of our debates, which are set out very clearly in our report. Instead, let me illustrate the Committee’s achievements by singling out four main topics and showing how our deliberations have had an impact.
One of the themes in the spring meeting of the Committee was the encouragement of the private sector. This coincides with a renewed interest in developing countries on the need for foreign direct investment. There was a degree of unanimity in the Committee’s debates on these two topics that would have been impossible ten or even five years ago. The pace of change has clearly and rightly differed among countries, but the direction of change is unmistakable. The World Bank has responded with a reorientation of its operations toward the private sector and with a related agreement on the capital increase of International Finance Corporation (IFC). These World Bank changes have been welcome steps in the right direction. In my opinion, increased lending to small and medium-sized private firms is a logical next step. Such Bank and Fund lending can become important means of creating jobs and thereby reducing poverty.
The fight against poverty has been a second main topic. We have had two debates now on poverty and on its financial consequences. There was already, of course, an emerging consensus on the need to put poverty at the head of any development agenda. I believe our two discussions and the communiqués that followed have crystalized that consensus. Both the Bank and the Fund have found this clear consensus helpful, and their internal procedures are now being revised to include a much stronger “poverty” component in most of their programs. I am sure this is also having its effect on bilateral donors, many of whom were at the forefront of the battle against poverty.
The third area where I think the Committee has had an impact is debt. This is, of course, a subject for the Interim Committee as well. In the last year or so, however, the emphasis has shifted from debt owed to commercial banks—already covered by the Brady Plan—toward official bilateral debt of the kind handled in the Paris Club. This seems to me so close to the question of development assistance that it was right for the Development Committee to discuss it, too. I am pleased that the so-called Trinidad proposals were so widely welcomed at our last two meetings, because this has undoubtedly had an impact on the creditor governments. This was shown by the recent agreement at the London summit. The Committee yesterday called on all the creditor governments to put that agreement into force as quickly as possible.
The fourth topic is the environment. Its discussion began at the Berlin meeting three years ago and led to the recent creation of the Global Environment Facility. I do not think that would have happened so quickly without the early discussions in the Development Committee, which stimulated others into action. We now hope that the Global Environment Facility will be able to help countries to act decisively to improve the conditions of urban life, traffic congestion, water and air contamination, noise, and deterioration of rural life by over- and mal-exploitation of natural resources. This is a topic of the highest priority for the future work of the Development Committee.
So there are four areas where I believe the Development Committee has had an impact. I wish I could say the same about my fifth theme: trade. The Committee has just decided that it wants to take an annual look at the way the policies of industrial countries impact upon the developing world. The most obvious case is access to markets. The continued deadlock in the General Agreement on Tariffs and Trade (GATT) talks, despite all the speeches and all the communiqués of the past year, is particularly worrisome.
If the GATT Uruguay Round is not successfully concluded, the prospects for economic growth in the developing world and in the industrial countries themselves will be threatened. My Committee, like the Interim Committee, could debate it endlessly; that would do no good. But finance ministers and central bank governors can certainly help by telling their governments and parliaments how short-sighted it is to allow narrow sectoral interests to impede a new trade agreement. The World Bank has said it before, and I make no apology for repeating it today on behalf of the Development Committee: if all the existing barriers that prevent developing countries from selling their goods could be removed at a stroke, this would do more good to the developing countries than doubling the flow of aid—welcome though that would be. And as most of us here are finance ministers, let me remind you: it would also be cheaper.
I have singled out five themes. The Committee discussed a good many others. They are all in the report, and in our last two communiqués. For example, we spent some time discussing the impact of the Middle East crisis. Perhaps this illustrates that the Committee can respond to short-term and immediate crises, as well as to longer-term development issues. In yesterday’s communique we said something about Development Priorities for the Nineties; and about Human Resource Development—which includes women in development, one of our most underutilized resources. This is another area where the Committee has helped to set the tone of the international debate.
I invite my Development Committee colleagues to continue the effort. While our work involves long hours and is never done, I am confident that we are moving toward the goal of development.
I hope, Mr. Chairman, that the Committee will assume a significant role in the future, even more so than in the past. I am sure that the Managing Director, and still more the new President of the World Bank, whom I join in welcoming to his first Annual Meetings, will take note of what we have to say. And I hope that all the governments represented here today will do the same.
Statement by the Governor of the Bank for the Netherlands—W. Kok
Since the Netherlands currently holds the Presidency of the Council of the European Communities (EC), I have the honor of addressing this meeting on behalf of the 12 member states. First of all, I would like to thank the Thai Government for the excellent organization of this meeting and the cordial welcome we have received here in Bangkok. I welcome Mongolia and Albania to the membership of the Bretton Woods institutions. The new applications are to be welcomed too. Finally, I wish to congratulate Mr. Camdessus on his second term at the helm of the International Monetary Fund and Mr. Preston on his appointment as President of the World Bank Group.
The European Community is currently engaged in forging stronger bonds between its 12 member states through the present negotiations on economic and monetary union and on political union. There will be a corresponding increase in the Community’s involvement in the international community. The European Community intends to take an active role in meeting the demands that the world puts before us today. Among these are macroeconomic stability, including price stability, and openness of trade and financial systems. Equal importance has to be attached to continued support for the developing countries in their struggle against poverty and to the alleviation of the debt burden of the developing countries. Moreover, the integration of the Soviet Union and the republics into the world economy, and the transformation of Eastern Europe, pose vast challenges, as does the protection of the environment. Achieving these aims is a task that involves the entire international community and that can only be met if responsibility is shared widely and equitably.
Last year we were able to welcome the Soviet Union as an observer at the Annual Meetings of the Bretton Woods institutions. Since then, events have underscored how deep-seated the wish of the people of the Soviet Union is for democratic and economic reform.
The Fund and the World Bank are called upon immediately to offer their advice and support for the macroeconomic stabilization and structural, market-oriented reforms that are required in that country. We warmly welcome the “special association” of the Soviet Union in both institutions as soon as possible.
The EC will take its responsibility to contribute to the integration of the Soviet Union in the world economic family. The talks I had today with Mr. Yavlinsky strengthened me in my personal conviction that the processes of economic and political integration are strongly interrelated. The creation of an effective economic union depends on political understanding of that need. We in Europe can contribute to this by intensive and sustained contacts with responsible people at all levels: economic and technical assistance. In addition of course, immediate problems must be dealt with. To that end, the EC will continue to support the Soviet Union and the republics with technical assistance, medical aid, and food aid, preferably as part of a coordinated international operation.
During this last year the Central and Eastern European countries have begun a tremendous effort to transform their command economies into market-oriented systems. In this process they have benefited from the invaluable support of multilateral organizations and institutions. All should be commended for their swift and flexible response to this new challenge. Since last April a new institution exclusively devoted to the development of Eastern Europe—the European Bank for Reconstruction and Development (EBRD)-—has joined the ranks. The smooth coordination of the various contributions and, in particular, the issue of sufficient financial assistance with an equitable burden-sharing between the EC and other donor countries remain crucial to the successful implementation of the comprehensive strategy put forward by the Bretton Woods institutions.
Even with all these kinds of support, the transformation process in Central and Eastern Europe has proved to be a daunting task, as witnessed by the decrease in production, the rise in unemployment, and the external financing problems. The situation has been aggravated by the decline in international trade in the region, both among the Central and Eastern European countries themselves and with the Soviet Union.
However, there is no alternative to the present transformation course if growth is to be restored and if the expectations of the people are to be met. The countries of Central and Eastern Europe should persevere in the creation of a stable macroeconomic environment and the implementation of essential structural reforms, among which privatization should receive the highest priority. The international community should stand ready to assist wherever necessary.
The EC will live up to Eastern Europe’s needs for increased market access. It aims at concluding the negotiations with Poland, Hungary, and the Czech and Slovak Federal Republic on special and enhanced Association agreements by the end of this month and will initiate discussions on arrangements with Romania, Bulgaria, and the Baltic States. The EC also hopes to be able to conclude a trade and cooperation agreement with Albania.
These fundamental developments should not divert our attention from the problems of the developing countries. The EC supports a market-oriented approach as the cornerstone for a development strategy.
This does not imply a negligible role for the state in promoting development. On the contrary, the state has an important task in providing the economy with a framework of macroeconomic stability and with flexible markets, as well as in alleviating poverty and creating a stimulating environment. A substantial investment in human resources and physical infrastructure is required. The effectiveness of such policies depends on international economic cooperation and support, but mainly on good governance, and could often be enhanced by a cutback of disproportionate military expenditures.
Growth of private enterprise is in many cases hampered by the lack of well-developed capital markets. The strengthening of capital markets in developing countries should therefore be given a high priority. The International Finance Corporation (IFC) can play an important role in mobilizing capital for the private sector, and the EC members therefore welcome the agreement on the IFC capital increase.
Many developing countries see their development efforts complicated by an excessive debt burden. The continued validity of the strengthened debt strategy is underscored by the fact that several developing countries, particularly in Latin America, seem to be emerging from their debt problems. Sound and sustained adjustment policies have resulted in a more viable balance of payments situation and a promising return of private capital flows.
However, the strengthened debt strategy can offer only limited relief for the severely indebted lower-income countries, since they owe the bulk of their debt to official creditors. At the time of the last Annual Meetings, a series of initiatives was launched to tackle this problem; these proposals included additional debt-relief measures on a case-by-case basis, going well beyond the relief already granted under Toronto terms. We call upon the Paris Club to round off the discussion on these initiatives successfully.
Arrears to international financial institutions and notably the Bretton Woods institutions still continue to require special attention; they intensify the financing problems of the countries in arrears, both during and after the default period, but they also jeopardize the support of these institutions to other countries with external financing problems.
With the Rights Approach and the Shadow Adjustment Program both the Fund and the World Bank have reached out to their members in arrears. A way out of the problems is mapped out, albeit along an inevitably difficult route. Some members have readily accepted this offer, and we urge others to follow suit with the support of donor countries. Only then can they become eligible again for the vital assistance of the IMF and the World Bank.
The Bretton Woods institutions will only be able to play their invaluable part in helping to redress balance of payments deficits if provided with the necessary means. All members are urged to ensure that both the pending quota increase and the Third Amendment to the Articles of Agreement of the IMF are made effective as early as possible. In doing so, we should avail ourselves of the opportunity to end the Fund’s borrowing. In the World Bank Group, the International Development Association will continue to need substantial resources in order to pursue its lending operations in the years ahead.
The EC countries attach great importance to a more stable international monetary system; in a world with highly integrated capital markets, exchange rate stability can only be achieved through stability-oriented domestic policies and further improvement of the economic coordination process. The IMF should continue to support this coordination process actively and to address this topic in its surveillance of the international monetary system and of the policies of individual members. All countries, large and small, should pay heed to the Fund’s recommendations; to do so is also in their own interest.
Within the European Monetary System, stability-oriented policies and intensified policy coordination have indeed resulted in an extended period of stable exchange rates in an environment of free capital movements. Despite economic disturbances, no exchange rate adjustment has taken place since 1987. The European Community considers this an important contribution to global stability and international monetary cooperation.
Building on this experience, all EC members are now discussing amendments to the EC Treaty, which would establish a legal framework for the progressive realization of the Economic and Monetary Union, including a single currency and monetary policy and a European System of Central Banks. With the internal market completed, the final stage of the Economic and Monetary Union will set the seal upon this major European effort.
Besides a more stable monetary system, economic growth should also be enhanced by abolishing trade restrictions. By the opening up of markets, the developing countries and the Central and Eastern European countries will be helped to help themselves. Even generous financial support is a mere palliative, if these countries are denied access to export markets and export-led growth opportunities. Owing to persistent protectionism propped up by special interest groups, inefficient patterns of production have become more and more ingrained in the world economy and increasingly difficult to uproot. The EC countries intend to overcome such pressures. In this context, it is essential that the Uruguay Round comes to a successful conclusion before the end of this year.
In the field of agriculture, the EC, along with the other participants in the General Agreement on Tariffs and Trade (GATT), has stated its willingness to conduct negotiations to achieve specific binding commitments on domestic support, market access, and export competition. Reform of the Common Agricultural Policy is being debated in the Community and should contribute positively to the GATT discussions and help in arriving at a successful conclusion of the Uruguay Round.
However, progress will have to be made in other areas as well, such as services, intellectual property, textiles, tariffs, and other issues of market access. All parties bear a heavy responsibility in these matters. If the Uruguay Round fails, all participants will suffer for years to come. . . .
Statement by the Governor of the Fund for Tanzania—Steven A. Kibona
The African Group would like to begin by paying tribute to Mr. Barber B. Conable, who presided over the World Bank Group during a period of fundamental changes and challenges in the international economy. We also wish him success in his future activities and endeavors. We would also like to extend a warm welcome to Mr. Lewis T. Preston, the new President of the World Bank Group. We are confident that with his wealth of experience, Mr. Preston will provide the required leadership that will help developing countries meet the challenges of the 1990s.
The need for adjustment is now widely accepted in developing countries. This is certainly the case in Africa, where efforts toward economic reform continue unabated. The vast majority of African countries are undertaking programs supported by both the Bank and the Fund. In spite of the difficulties and sacrifices encountered in implementing the reforms, we are determined to stay the course. It must be unmistakably clear that African governments are committed to doing what is necessary and feasible to rejuvenate their economies and set the stage for improved standards of living.
This is a daunting and formidable task. The number of low-income countries in Africa has increased in recent years, as several countries previously classified as middle-income have lost that status. For sub-Saharan Africa, recent projections by the staff of both the Bank and the Fund suggest that real per capita gross domestic product (GDP) is unlikely to be more than it was some twenty years ago and that the economic decline that has characterized the region over the past two decades will barely be arrested, if at all. In addition, the United Nations Food and Agriculture Organization (UNFAO) only a few months ago drew attention to the increased risk of malnutrition in Africa, with the possibility that conditions could become worse than during the famine of 1984, in which several million Africans lost their lives.
Looking to the future, our hope that the deterioration in living standards will be reversed through the sustained implementation of strong adjustment programs is dampened by the persistence of an adverse external environment. Certainly, progress is threatened, and the cost of adjustment has been increased, by the slowdown in the growth of the world economy for the third consecutive year. The impact of the Gulf crisis has worsened the situation. At the same time, warnings are being sounded about a global capital shortage, which means that African countries, particularly the low-income among them, will have a more difficult time competing for their capital requirements. Moreover, Africa is still burdened by a growing debt overhang, a dwindling share of world trade, and unfavorable prospects for the prices of its major exports.
There is now a heightened risk that Africa will be left on the periphery of the international economy, which seems to be moving along two separate tracks: one toward greater financial and economic integration among industrial countries, the other toward the progressive delinking of the economies of a large number of developing countries from the rest of the international community. With all the emphasis being laid on economic adjustment and structural change, it remains the singular task of the Bretton Woods institutions to find a way to put the world economy onto a path of growth and development that is beneficial to all their constituent members. Only thus can the sacrifices of adjustment and economic reform be turned into opportunities for sustained growth and improved living standards in Africa and the developing world as a whole. Therefore, the Bretton Woods institutions should take into account the objective of the integration of our economies in the adjustment programs they support.
The priority in Africa’s economic agenda is the reduction of poverty through the resumption of strong, sustainable growth. The critical requirement is to increase investment. The ratio of investment to national income in Africa has fallen by some 25 percent since 1980. In some of our countries the process of “decapitalization” is at the point where the current rate of investment cannot even replace worn-out capital. While adjustment, particularly in the public sector, is an essential condition for increasing domestic savings and for growth, it is equally crucial to increase external financial assistance to help raise investment levels for the success of any poverty reduction strategy.
Substantial resource flows from the international community are needed for Africa to break away from the low savings-investment trap. The Fund and the Bank have important roles to play in this regard. We should begin to think now about extending and expanding the Fund’s enhanced structural adjustment facility (ESAF), given its compatibility with the economic profile of a large number of member countries. … In sum, we are appealing to the donor community to increase its support of our growth-oriented adjustment efforts. Despite the seemingly intractable problems in Africa, we do have a message of hope: that, more than at any other time, the economic and political changes now under way in Africa put it within our reach to reverse the continent’s socioeconomic decline. Currently, however, substantially more assistance will be needed.
We want to stress that sustainable growth requires that all sectors of the economy fully play their part. The public sector continues to have an important role—even as we seek to streamline the direct involvement of the state in economic activities. The specific circumstances vary from country to country, ranging from the provision of infrastructure to investment in the social sectors. The fact should not be obscured that the private sector itself can flourish only where there is a reasonably well-developed physical and social infrastructure. . . .
It is necessary to raise, once again, the issue of program design. We think that there is still room to bring programs up to the point where they take full account of the diverse circumstances among countries seeking support from the Bank and the Fund. For example, programs continue to assume that policies that are implemented will produce quick, positive results. However, experience shows that, mainly due to structural rigidities embedded in our economies, policy instruments often tend to produce unintended negative effects, such as inflation, unemployment, and low levels of investment and production. The need to be more innovative takes on an added dimension in the light of the current climate of political pluralism. It is therefore imperative that national authorities should play the leading role in designing adjustment programs, thus enabling the authorities to “own,” and the public to support, such programs.
We welcome the renewed focus on poverty reduction by the Bank. The next step now is to ensure that this becomes an integral part of the adjustment strategy for Africa in the 1990s. In particular, efforts should be intensified to raise the level of agricultural investment and to promote food security in our region, to increase investment in physical infrastructure and human resources development, and to promote economic diversification in the context of a vibrant private sector. These are essential undertakings for creating employment and for enhancing productivity and are important objectives, considering that some 100 million people were estimated to be unemployed or underemployed in sub-Saharan Africa in 1989. It is also now accepted that access to basic education and health care can improve the productivity of the poor and of the labor force in general.
It is for that reason that we are also firmly committed to increased popular participation in the development process, as set out in the African Charter for Popular Participation and Transformation, which was endorsed by our Heads of State last year. We are also aware that good governance is an indispensable framework for genuine popular participation. However, African governments will not accept conditionalities premised on the prescription of certain political systems for them.
Poverty reduction must, of necessity, be integrated with programs to protect the environment and arrest environmental degradation. There is a serious environmental crisis in Africa that requires renewed efforts by our governments, supported by assistance from the international community. African Governors are of the view that if poverty reduction and sustainable development are to be meaningful, equal emphasis should be given to arresting and reversing environmental degradation. Concerning the regional and global aspects of the environment, we welcome the establishment and operation of the Global Environment Facility. We expect to see under its aegis the development of programs that address major global environmental concerns, including pollution, desertification, and preservation of the natural resource base in all countries.
The debt overhang is still an albatross around the neck of many African countries. Reducing this burden is a sine qua non for achieving the goal of sustained economic growth and reviving investors’ confidence. The Bank and the Fund must be the lead institutions in getting this message across to official creditors and the commercial banks through the inclusion, in adjustment programs, of debt reduction proposals consistent with a country’s ability to repay, with adequate margin for growth. The need for the injection of new money in debt reduction packages should also be emphasized. At the same time, we urge the Paris Club to fully implement the United Kingdom’s debt and debt-service reduction proposal, made in Trinidad and Tobago in 1990 and endorsed by the major industrial countries at the London summit of July 1991, and to extend the arrangement concluded with Poland to African countries whose circumstances warrant similar treatment. We also call attention to the successful efforts being made by a number of countries, including some with heavy debt burdens in terms of conventional ratios, to weather external shocks while maintaining full debt-service payments and avoiding rescheduling. We urge industrial countries and multilateral organizations to provide appropriate support to these efforts so as to facilitate the retention of access to international capital markets and the provision of voluntary loans to these countries. It is essential that prompt, adequate, and flexible official assistance be made available to support such efforts.
Africa is more dependent on technical assistance than ever. Indeed, vast sums of money have been spent on foreign experts and too little on building and sustaining local capacities and institutions. We therefore expect better results from the capacity-building initiative that was launched recently and hope that it will lead to greater use of African managerial and technical expertise in both the public and private sectors.
On the Uruguay Round of negotiations, we call on the negotiating parties, and especially the industrial countries, to take due cognizance of the Resolution adopted by the Summit of our African Heads of State and Government in Abuja, Nigeria, in June 1991, to ensure maximum transparency in the negotiations at all levels during the final and decisive phase of the Uruguay Round of negotiations, if we get there at all. The Resolution, among others, calls on the industrial countries to take into account African interests in the finalization of the negotiations so that the outcome of these negotiations will result in improved access for all products of interest to African countries and in more vigorous application of the principles of special and differential treatment for African countries, and so that no additional obligations are imposed on African countries without additional offsetting rights to safeguard the existing balance on GATT rights and obligations.
At the international conference on sub-Saharan Africa in Maastricht, the Netherlands, in July 1990, the Global Coalition for Africa was formed. We would like to take this opportunity to urge the international community to lend its full support to this initiative, which can become a creative forum, not only for the exchange of development ideas and experiences, but also for joint action for the economic development of Africa. We would also like to draw attention to the final report of the South Commission entitled The Challenge to the South, which deals with major issues in our development agenda, such as development strategies for the sustainable use of resources, self-reliance, and the promotion of regional cooperation among developing countries.
In conclusion, we remain confident that, with the support of the international community, including both the World Bank Group and the International Monetary Fund, Africa can and will reverse the decline and despair of the past decades and enter a period of peace, security, and sustained growth in the 1990s and beyond.
Statement by the Governor of the Bank and the Fund for the United States—Nicholas F. Brady
I want to express the gratitude of my delegation for the warm hospitality extended by our Thai hosts. Here in Bangkok, we are reminded of Asia’s economic dynamism and the region’s growing importance in our economic future. I would like to welcome the newest members of the International Monetary Fund and the World Bank: Albania and Mongolia. And also to welcome the special guests from the Baltics and the Soviet Union.
We meet at a turning point in history. Market-based systems that produce better economic performance and higher living standards are sweeping the globe. Countries in every region of the world, now including the Soviet Union, are shifting course in their direction. We can glimpse possibilities previously beyond our view: global economic integration, cooperation, and prosperity.
These developments confront the international financial institutions with an unprecedented challenge. Inevitably, these institutions will be held accountable in an important way for the success or failure of efforts to integrate former command and state-dominated economies into the global market system. Like it or not, that is the reality.
The difficulty of this kind of transformation should not be underestimated. There are no time-tested blueprints for charting the course from a state-dominated command system to a successful market economy. But what is clear is that this transformation is a fundamental, all-encompassing process. Every area of economic activity and policy is involved.
This reality brings with it an important question. Are we up to the task? To rise to this challenge, the international financial institutions must be willing to adapt. They must change their attitudes, broaden their objectives, and improve their assistance capabilities. And they must begin this process right away.
Recently, the IMF and the World Bank have demonstrated their capacity to diversify in response to emerging needs. During and after the Gulf conflict, they moved quickly to provide resources to those countries most seriously affected. The IMF rapidly disbursed resources through the compensatory and contingency financing facility (CCFF) to help countries adjust to the economic costs of Iraq’s aggression. The World Bank expanded lending programs and accelerated disbursements to assist sectoral adjustment and to resettle worker refugees.
In Eastern Europe, the IMF and the World Bank have been at the forefront of efforts to promote free markets and democracy. With IMF and World Bank assistance, these countries are implementing programs of reform and stabilization. IMF financial commitments to Bulgaria, Czechoslovakia, Hungary, Poland, and Romania in 1991 total $8 billion. World Bank commitments to Eastern Europe for fiscal year 1991 reached over $2.6 billion.
The IMF and the World Bank have established a special association with the Soviet Union to help that country address the pressing problems of comprehensive reform. We welcome this special association and urge that no effort be spared to work intensively in the days ahead. Like others, we believe special association will help clear the way for full Soviet membership in both institutions.
In the Soviet Union and Eastern Europe, we are confronted with the most radical economic change in the postwar period. The search for new values has its costs. These countries have made a conscious decision to switch rapidly from one political and economic system to another. They are literally rewriting all the rules. My visit to the Soviet Union last month brought to mind the Colonial American experience of making a fresh start and creating a new form of government. Over two hundred years ago, the United States began its efforts to create stable institutions—a process which took decades to complete. Yet the Soviet Union is trying to accomplish a similar task in only a matter of months.
The international financial institutions will have a special role in assisting this transformation. In defining this role, we must understand what transforming countries need. There is no question that part of what they need is provided by the traditional IMF-World Bank approach: advice on formulating comprehensive economic policy programs and the financial assistance to support those programs. But they also need more fundamental assistance that goes well beyond standard adjustment programs.
Let me list the tasks:
(1) Attitudes toward the creation of wealth need to be changed to release the dynamism of the private sector. Free enterprise and entrepreneurship means that businesses and individuals are free to succeed. State orders are no substitute for individual initiative.
(2) Countries need help in building basic private and government economic institutions, such as the development of capital markets and banking and reserve systems.
(3) They need basic training on how to run profitable private businesses, which involve the special professions of cost accounting, contract negotiations, distribution, and marketing.
(4) They need practical advice on the operation of a sound fiscal system: a tax code and collection system, a public sector budget mechanism, a customs operation for the borders, and a data collection system.
(5) And last but not least, they need assistance on how to establish a workable legal system for private enterprise, including an enforceable contract system.
These are the basic underpinnings of a successful market economy. We will be up to the task only if the World Bank and the IMF build on this institutional framework, as well as instituting macroeconomic policy reform. To do this, the Bretton Woods institutions need to develop a partnership with the private sector to elicit their expertise in helping countries build solid foundations for market economies.
To provide assistance in all of these areas, the IMF and the World Bank will need to develop new modes of operation. Brief mission visits to negotiate adjustment programs with central governments will not be enough. The IMF and the World Bank will have to pay much greater attention to the human capital component of their programs. They will have to put people in-country for extended periods of time. They will have to draw on experts from national governments, business, banking, law, and universities.
The Fund and the Bank will also have to expand in-country contacts to all levels of government. This assistance cannot be provided by dealing with central governments only. Fund and Bank staff will have to advise and educate individuals in the private sector and in local government.
Some have legitimately raised the question of whether this emphasis on the Eastern European countries and the Soviet Union will result in a diminution of resources to traditional recipients. Both the World Bank and the IMF are well capitalized, and I see no reason why there should be any shortfall in financial flows. Resources will be adequate to the task.
Others have asked whether there will be any reduction of IMF and World Bank technical expertise available to traditional recipients due to a concentration of attention on Soviet and Eastern European problems. Legitimate traditional priorities should not be weakened. In addition, the gains for world stability should be well worth the price for countries large and small.
In other regions of the world, the IMF and the World Bank are addressing their ongoing responsibilities by playing a crucial part in the success of the international debt strategy. Under this strategy, the IMF and the World Bank have encouraged market reforms and supported a wide variety of commercial bank packages in several debtor countries in varied economic circumstances. Mexico, Chile, and Venezuela are once again enjoying voluntary access to the international capital markets, new investment, and returning flight capital. Only a short while ago, they were mired in debt.
To complement the benefits of commercial bank debt reduction packages under the debt strategy for countries which are heavily indebted to commercial banks, President Bush’s Enterprise for the Americas Initiative proposes to reduce debts owed to the U.S. Government by eligible countries within Latin America and the Caribbean. Chile, Jamaica, and Bolivia have already received initial benefits under this program. The Inter-American Development Bank (IDB) has moved to implement a new investment sector loan program to encourage investment reforms in developing countries. The United States has also proposed a Multilateral Investment Fund to help the economies in the region adapt to today’s competitive world. The United States and Japan each propose to contribute $500 million to this Fund. We expect others will be joining us in this effort in the near future.
In the poorest countries, including those of sub-Saharan Africa, the IMF and the World Bank are providing concessional resources to promote sustained growth and the alleviation of poverty. Some of these countries have turned the corner. Their example confirms that market-oriented reform is possible and beneficial at all stages of development. For our part, over the past year the United States has forgiven $2.3 billion in bilateral concessional debt owed by these countries. We also support an expansion of the list of countries eligible for the enhanced structural adjustment facility (ESAF) in order to increase the Fund’s capacity to support low-income countries.
The IMF and the World Bank are to be congratulated for their emphasis on the environment. I very much agree with Prime Minister Anand’s remarks this morning that we all need a common commitment to the environment for our own sake and for the sake of future generations. In addition, poverty reduction and the role of women in development require stronger emphasis. We must ensure sustained progress on these fronts.
The time has come for the Fund and the Bank to strengthen their support for the private sector. The World Bank is reviewing what changes need to be made in the Articles of Agreement in order to permit direct lending to the private sector. As countries release ownership of enterprises to the private sector, individual companies in the process of privatization will need resource flows from the World Bank. At stake is the relevance of the World Bank in support of economic development. To this end, we are pleased to support the $1 billion International Finance Corporation (IFC) capital increase and related private sector policy measures.
The expanding financial needs in debtor countries, Eastern Europe, and the poorest countries necessitate that the international financial institutions have ample resources. To this end, the United States strongly supports the IMF quota increase to meet its global financial responsibilities.
In closing, allow me to again stress that the international financial institutions must now implement programs for economic transformation and for the ultimate achievement of a unified global economic system. IMF and World Bank activities must adapt and expand as this unprecedented global economic potential comes into view. We must seize the opportunity provided by near universality of membership in our institutions and acceptance of market-oriented principles. Leadership by the IMF and the World Bank can translate shared economic philosophy into shared prosperity.
Seldom in the course of human affairs has the world’s community of nations been faced with an opportunity such as we face today. With imagination, with determination, with vision, and with courage, I believe that it is within our ability to seize this moment and to translate that glimpse of prosperity and harmony of which I spoke earlier into a reality. I believe that we are up to that task.
Statement by the Governor of the Bank for Venezuela—Miguel A. Rodriguez F.
On behalf of all the Latin American and Caribbean countries, I have the honor to express our gratitude to the Government of Thailand for the magnificent hospitality and attention it is providing to the participants at these meetings. I would also like to convey our sincere congratulations to Mr. Preston on his recent appointment to the important position of President of the World Bank. We are confident that his extensive experience and professionalism will enable him to run successfully an institution that we consider of critical importance to our economic development. The countries of our region will support him in his efforts, and we declare in advance our intention to participate actively in the work of the Bank, contribute to its efficiency, and play a key role in the formulation of its policies. Perhaps as never before, changes worldwide, in our region, and within the Bank require the countries of Latin America and the Caribbean to take on much greater responsibilities and rights as shareholders of the institution. We are, and will continue to be, its clients. It is for that reason we have a fundamental interest in the soundness and efficiency of the Bank over the long run. As we know, men, ideas—and ideologies—as well as theories, come and go. But institutions remain, independent of the specific interests of any given region or any particular country. We have great confidence in the Bank’s experience, capacity, and vision for implementing an agenda that guarantees the long-term strengthening of our institution. The Bank can count on its shareholders in Latin America to carry out initiatives that promote this vision of independence and universality.
The development priorities for the 1990s seem very clear to everybody. We discussed them yesterday at the Development Committee Meeting and we were in full agreement on the basic objectives.
First, we must continue to promote economic growth through the intensification of macroeconomic policies that guarantee external sector and price stability. The structural changes, namely, further progress toward openness, fiscal and financial reforms, restructuring of the public sector and privatization, will help to maintain growth and efficiency in the long term.
But growth is a necessary rather than a sufficient condition for economic development. This growth must have a human face; it must truly promote the development and welfare of the vast majority of the population and it must entail a fair distribution of income and wealth in our nations. It makes no sense to talk about high rates of economic growth if the additional income is concentrated in a few hands and is not reflected in real wages, better public services, and improved living standards for the majority. This is easy to say, and easier still to repeat in speeches. It is much more difficult to take specific steps that will transform these principles into systematic efforts to turn growth into true development.
We therefore propose that the Development Committee give priority to two essential areas that will have a decisive impact for the achievement of these goals: strengthening human resources, and social programs to the most vulnerable groups. . . .
Also in support of human resources, it would be desirable for the Bank and the IMF to incorporate in their evaluations of structural adjustment programs, as in the case of project lending, an analysis of social indicators such as nutrition, health, primary and secondary education, use of family planning services, and the like. Social and income distribution indicators should be made an integral part of the daily methodology used by the Bank and the IMF, just as the balance of payments is studied or the environmental impact of projects measured. . . .
We fully agree with Messrs. Camdessus and Preston in their recent description of the management of global resources as being inefficient, unfair, and irrational. Agricultural subsidies and military expenditures are among the most flagrant instances. The issue of military expenditure must be treated realistically and fairly for the benefit of all members of the international community. As for the Uruguay Round, not much can be added to all that has already been said about how much hope and frustration is associated with this process.
The successful completion of the Uruguay Round is essential not only in order to enhance international flows of goods and services, with the obvious repercussions for the well-being of all that this entails. The success of this process has already acquired a very important symbolic value in relation to such issues as international cooperation, the moral authority to ask others to do what one cannot do oneself, credibility, sustainability of reforms, and so on.
We can only hope that these obvious implications will also be apparent to those who have the historic opportunity and responsibility to put permanent change above short-term political interests. May frustration and rhetoric soon be replaced by hope and deeds.
Statement by the Governor of the Fund for China—Li Guixian
It gives me great pleasure to have this opportunity to address the Annual Meetings of the World Bank Group and the International Monetary Fund. First of all, please allow me, in the name of the Chinese delegation, to extend our sincere gratitude to our host, the Thai Government, for its warm welcome and for the excellent arrangements it has made for these meetings. I would also like to welcome the new members joining the Bretton Woods institutions and to congratulate Mr. Preston on his assumption of the presidency of the World Bank, as well as extend our congratulations to Mr. Camdessus on his reappointment as Managing Director of the International Monetary Fund. In addition, we wish the meetings much success under your chairmanship.
We have noted that, in the preceding year, deceleration of the world economy and trade became more pronounced. Other than Japan and Germany, major industrial countries either moved into recession or continued their slowdown of economic growth. Notwithstanding the signs that economic activity in the major industrial countries may improve somewhat, recovery will be slow and weak. Underlying difficulties remain in the economies of the industrial countries.
In recent years, although major industrial countries took a few measures to improve their fiscal positions, high fiscal deficits remained virtually unresolved. These huge budgetary imbalances and the resulting monetization gave rise to either inflationary pressures or constrained productive investment, both of which have been detrimental to economic growth. The failure to complete the multilateral talks of the Uruguay Round as scheduled, together with escalating world protectionism, has had serious repercussions for the steady growth of the world economy and trade. Despite the resumption of multilateral talks, prospects remain gloomy. Although improvements have been observed in the external imbalances among the three largest industrial countries since 1990, this reflects to a large extent temporary progress related to the Gulf war, and the underlying factors affecting the external imbalances have not been eliminated.
We note that short-term interest rates in the major industrial countries have been reduced since 1990 with the objective of fostering economic recovery. However, to avoid a rekindling of excess demand and inflation, major industrial countries should further improve their fiscal positions, curtail the crowding-out effects on other sectors of the economy, and increase productive investment. These measures are imperative in order to increase public saving, ease the global shortage of savings, and foster sustained world economic growth. Over the past few years, efforts have been made to consolidate the fiscal position in the major industrial countries. This policy stance should be continued.
We have noted with regret in recent years the trend toward slower economic growth in the developing countries compared with the industrial countries. In addition, the external environment confronting the developing countries has deteriorated further. This situation has imposed more difficulties on the macroeconomic and structural adjustments of the developing countries, which, in turn, has widened the gap between the North and the South.
In order to revive domestic economies and achieve long-term economic growth, in past years many developing countries, especially the heavily indebted ones, designed and implemented measures to stabilize their economies and readjusted the economic structure with the purpose of obtaining price stability, export promotion, and increased foreign exchange earnings in order to ease their external debt burdens. Nevertheless, the slowdown in economic activity in the major industrial countries has led to reduced demand for exports from developing countries. As a result of a continued decline in non-fuel commodity prices, the terms of trade of the developing countries have deteriorated further. Because of the sharp rise in oil prices in late 1990, albeit short-lived, the burden of the oil importing developing countries has increased and inflationary pressures in these countries intensified, all of which hampered economic growth. Furthermore, the changes in Eastern Europe and the U.S.S.R. have aggravated the uncertainties of world economic prospects. Global saving shortfalls, compounded by the financing demands related to reconstruction in the Gulf region, restructuring in Eastern Europe and the U.S.S.R., and the reunification of Germany, have intensified the difficulties of the developing countries in gaining external financial assistance. Despite recent reductions in interest rates, real interest rates remain high, which has exacerbated the debt-service burden of the heavily indebted developing countries.
There is no doubt that, faced with an unfavorable external environment, the developing world should steadfastly continue with adjustment policies that are commensurate with domestic situations and conducive to economic growth. More important, industrial countries should:
• strengthen economic policy coordination in order to reduce external imbalances among the major industrial countries;
• adjust macroeconomic policies with a view to creating an international economic framework conducive to well-ordered adjustments and continued developments in developing countries;
• roll back trade protectionism and complete the Uruguay Round negotiations as early as possible so as to foster the development and perfection of the multilateral trade system; and
• take effective action, in particular through provision of sufficient financial assistance, to help developing countries overcome their economic difficulties. It is widely recognized by the international community that, without the arrest of the continuing widening gap between the North and the South in which the poor become poorer and the rich richer, the world economy will encounter more and more difficulties in maintaining long-term, steady growth. Thus, global peace and development will be endangered.
We have noted that, since 1990, some progress has been made in addressing the debt problems facing the developing countries through the concerted efforts of debtors, creditors, and multilateral financial institutions such as the Fund and the World Bank. We have to recognize, however, that the debt strategy has advanced slowly. The present magnitude of the number of countries confronting debt problems questions the efficacy of the conditions imposed in debt reduction operations to improve the underlying debt problems of the developing countries. Obviously, the debt problems remain grave. Unfavorable external conditions have impeded the implementation of macroeconomic stabilization and structural reforms in debtor countries and have also aggravated their exports and economic growth. It is our belief that the underlying solution to the debt problem will depend on economic growth and increases in exports. Nonetheless, adjustments should not only be made by the debtor countries. Concerted efforts by both debtors and creditors are required. In this connection, we urge major industrial countries to make efforts to improve the international economic environment with the aim of creating a better external environment for adjustment and growth in the developing countries.
In light of the increasing role of the Fund in the debt strategy and mounting demand for Fund resources by the developing members in pursuit of adjustment, we endorse the increase in quotas as a result of the Ninth General Review. We note with concern, however, the continuing decline in the share of the developing countries as a group in the overall quotas of the Fund. Against this background, we call on the Fund to try every means to avoid a further decline in the developing countries’ share in the coming Tenth General Review of Quotas.
With regard to the arrears in financial obligations of members of the Bretton Woods institutions, we consistently maintain that members in arrears should not be compelled to repay the debt. Punitive measures should not be the means by which the Fund deals with members in arrears. The underlying approach in order to fundamentally solve the arrears problem would be to assist the members in question to achieve long-term economic growth.
Achievement of development is the greatest challenge facing the international community in the 1990s. . . . Since the initiation of reform and opening policies, remarkable achievements in China, as well as considerable improvements in the living standards of the Chinese population, have been made. With the continued deepening of reform and opening, contact between China and the rest of the world has been increasing. As a result of increased integration of the world economy and strengthening of interdependence among countries, the Chinese economy has increasingly become an indispensable part of the world economy. China has benefited from the opening policy and has made due contribution to world economic development. Therefore, reform and opening will continue to be the underlying policy of China.
In 1991, the Chinese economy is continuing to maintain appropriate growth, reflecting mainly an improvement in the industrial sector as well as a continued rise in agricultural production, in spite of severe floods. Moreover, there has been further improvement in the balance of payments position. Use of foreign capital continues to increase, while the external debt has been kept within the capacity to repay. Despite upward adjustment in retail prices of grain and edible oils, the price index for the year as a whole will continue to remain low.
Notwithstanding the good performance of economic activity, some difficulties remain in the economy, including the low efficiency of enterprises, the unresolved stockpiling of unsold products, the large magnitude of interenterprise debt, a weaker fiscal position, and the potential rekindling of inflation. In this context, the stabilization policy, as well as continued deepening of economic reform, will continue to be pursued.
In short, the underlying resolution to the above-said economic problems depends on a further deepening of reform. In this context, reform measures have been taken in many areas. They include:
• further adjustment in retail prices of grain and edible oils toward the market level;
• elimination of subsidies on foreign trade corporations;
• reinvigoration of large and medium-sized enterprises through increased investment in technological transformation and scaling back of the mandatory plan imposed on them; and
• wider opening of the financial sector to foreign competitors and the continued development of the financial markets.
In communicating with the rest of the world, we continue to maintain the view of respect of sovereignty, peaceful coexistence, equality, and mutual benefits. Based on the history and experience of individual countries, the people and governments have the right to choose their own social and economic systems commensurate with their specific situations. We firmly believe that as long as China adheres to socialist programs and persists in reform and opening, the living standard of the population will continue to improve, and the nation will become more prosperous.
Statement by the Governor of the Fund for Spain—Carlos Solchaga
I would like to begin by extending to the U.S.S.R. my warmest welcome to the Bretton Woods institutions. The Special Association agreement recently signed by the U.S.S.R. and the International Monetary Fund marks the beginning of a new era in international economic relations, thereby opening as well a new and exciting period for the multilateral institutions which have made a decisive contribution to the prosperity of their member countries over the past four decades by promoting the stability of the multilateral payments system.
Despite the critical importance of gradually incorporating the countries of Eastern Europe and the U.S.S.R. into the market economy, it is difficult to shed the impression that a substantial proportion of the work of these meetings, however, will be dominated by the relative discouragement produced by the mediocre economic performance of 1991, and by the anxiety generated by the news that 1992 will constitute the point of departure for a new growth phase in the international economic cycle.
Accordingly, I wish to express my views on the international economic situation before addressing the topic of the role that our multilateral institutions should play in the gradual process of reincorporating the countries of Eastern and Central Europe and the U.S.S.R. into the international economy.
Indeed, 1991 has not been a good year for the international economy. In the industrial countries, economic growth has slowed significantly, as a consequence of which job creation has suffered, as shown by the 1 percentage point increase in the unemployment rate in the region. Moreover, average inflation in those countries has not changed significantly since last year, and in a good number of countries budget imbalances have worsened as a result of built-in stabilizers. The only unquestionably positive result of the year seems to be the reduction in the asymmetric external position of the leading countries of the region.
As regards the developing countries, suffice it to say that this year their average growth rate will be negative, a result that, although due basically to the exceptional circumstances in the Middle East and Eastern and Central Europe, would not have occurred even in the extremely difficult decade of the external debt crisis. There are many reasons for this weak economic balance, but two of them stand out. First, the difficulties encountered by the traditional economic policy instruments in making adjustments for the surpluses and distortions generated by the prolonged period of growth experienced by the international economy until 1990 have exacerbated the slowdown. Second, the confidence we all expected after the Gulf war did not materialize, and this clearly had a considerable negative impact on the consumption, savings, and investment decisions made by economic agents.
Although these factors still persist to a greater or less extent—especially the fragility of the expectations of those who are counting on rapid economic recovery—the results for 1991 need merely be compared with those for 1982, when the previous growth cycle began, to justify the recovery projections for the next fiscal year.
As regards the industrial countries, despite the previous downturn, the current cycle is characterized by relatively less slowdown in growth in both gross domestic product (GDP) and domestic demand, inflation that is virtually half of what it was on average in 1982, an aggregate fiscal deficit that accounts for 1 percentage point less of the GDP in the region, and an unemployment rate more than 1 percentage point lower than that experienced at the start of the decade.
For the developing countries, I need merely recall that many of them were then beginning their forced exclusion from the international capital markets that turned the subsequent years into the “lost decade.” However, in 1991 the international financial markets again became accessible to those countries which, having persevered in their structural adjustment processes, managed to restore international credibility in their economies.
Beyond our own hesitations and lack of confidence, there are thus no objective reasons to prevent 1992 from being a year of economic recovery, provided that we are able to safeguard in all quarters the basic elements of economic policy that made it possible first to spur and then sustain the period of growth that began in 1982. In other words, monetary and fiscal policies must continue to ensure balanced and noninflationary growth in the economy; the behavior of agents must be consistent with the requirements of the competitive environment that has emerged after a decade of liberalization and deregulation; and there must be a willingness to make structural reforms resulting in more efficient allocation of resources and thereby enhancing the growth potential of the economy.
In sum, relative optimism for the future of the international economy is justified if we can avoid the fruitless temptation to speed up growth over the short run at the cost of higher inflation or a worsening of some other basic imbalance.
As we have been doing for nearly a decade, Spain will continue to maintain an economic policy that promotes noninflationary growth because we have seen that this produces satisfactory results in terms of economic efficiency as well as prosperity and well-being. As you know, in 1991 Spain’s economy, after enjoying an intense and prolonged period of growth, has continued to expand at nearly 3 percent, and we project that in the coming fiscal year the rate will be even higher. At the same time, inflation and the current account deficit have been reduced and the fiscal deficit stabilized. If we had the support of the price and cost setters, we would thus be able to fully tap the growth potential of our economy and more rapidly bring our inflation rate into line with that in the most stable countries of the community with which we are going to establish the European Economic and Monetary Union.
In order to strengthen this direction in macroeconomic policy, we have designed a new package of structural reforms. A new round of reforms in the labor market; better vocational training; complete deregulation of capital transactions; autonomy of the Bank of Spain in the design, orchestration, and implementation of the monetary policy; and strengthening of the policy of competitiveness are the foundations of the structural policy we will be developing over the coming months and which cannot but yield very positive results for production and employment, especially if the expected recovery in the international economy occurs.
In concluding, I will return to the topic of re-incorporation into the market economy of the U.S.S.R. and the countries of Eastern and Central Europe. The months that have elapsed since the transcendental political and economic changes began in some of them have convincingly demonstrated the enormous difficulties involved in moving from a planned economy to a market economy and from an authoritarian regime to a democratic and multiparty system.
We have also learned that the transition takes much more time than initially thought. This time factor may be the most important aspect in shaping the role that our multilateral institutions, and in particular the IMF and World Bank, are to play. Indeed, the transition from a planned to a market economy is a matter with which the international economy will have to live for a good number of years, as it copes simultaneously with another series of problems that have been experienced for some time, including the stability of the international monetary system and the definitive solution to the external debt problem.
For the Bretton Woods institutions to be truly effective in each and every area entrusted to them, we, their shareholders, must also be prepared to make the necessary changes dictated by the new international context. In particular, two areas are now no less than urgent: strengthening of the linkages between our institutions and GATT and a significant increase in the IMF’s own financial resources.
It would be politically regrettable and economically very costly if we were not to seize the historic opportunity offered by the Uruguay Round for expanding trade liberalization in our economies. The debt crisis has shown us that access to capital markets is not a substitute for access to goods markets and that without a freer trade structure, the possibilities for sustained growth in a good number of developing countries are poor. We therefore feel that the time has come for closer coordination between the IMF, World Bank, and GATT, recreating the three pillars on which the recovery of international prosperity was based after World War II.
Moreover, the Bretton Woods institutions cannot play the role incumbent upon them unless they have sufficient funding. Payments must be made as soon as possible under the IMF’s Ninth Quota Review, although it may already be insufficient, and we may have to begin thinking about a tenth review. Let us hope that by then we can once again make the quotas serve their original purpose as a source of all rights and obligations, leading to a rapid closure of the negotiations, the ultimate goal of which should be a marked improvement in the financial soundness of the institutions on which much of the stability of the international economy rests.
Statement by the Governor of the Bank for France—Jacques de Larosière
I should like to echo the thanks expressed by other speakers to the Thai authorities for their excellent hospitality and warm welcome. We are living in extraordinary times, which are full of opportunity but also full of risks. International economic cooperation is more necessary than ever. Our ability to organize it and strengthen it will determine the world’s stability and the prosperity of its peoples in coming years.
Today, as in the past, governments turn first to the Bretton Woods institutions to help them deal with the new challenges: to ensure strong growth together with price stability, support the transition from centrally planned to market-oriented economies in the U.S.S.R. and Eastern Europe, and to fight for development and poverty alleviation. These have been traditional missions for our institution. They are by no means mutually exclusive. But they must be accomplished in a new world characterized by rapid and complex changes in the political, geographical, and military environment.
In 1991, world economic growth slowed down appreciably. Signs of recovery are perceptible, and the Fund’s—perhaps optimistic—outlook foresees a resumption of growth, to approximately 3 percent in 1992, without any increase in inflation. Inflation may even decline in many industrial countries, as money creation, on the whole, is well under control, wage increases tend to become moderate, and exchange rates and oil prices are stable.
The trend is positive, but the breadth of the recovery is less certain, despite the existence of available productive capacity in many developed countries. The countries where inflation has been brought under lasting control can take action to promote a decline in interest rates. Several have done so in recent months, to the appropriate extent. Depending on market conditions, others now have or will have the opportunity to do so as well. But, above all, those countries that have high public deficits must strengthen their fiscal consolidation efforts. In the short term, this would alleviate the excessive burden put at present on monetary policy and open the way to a noninflationary decrease in real interest rates. In the longer run, the reduction and elimination of unproductive public expenditure would free the savings resources needed for reconstruction in the former centrally planned countries as well as for continued adjustment in developing countries.
Our economies are interdependent. We must preserve and consolidate the multilateral trade system and make the benefits of open and rapidly growing markets available to Eastern European and developing countries alike. Rapid conclusion of the Uruguay Round is a priority. To be fully successful, it must be associated with economic policies that enable strong growth while avoiding the resurgence of destabilizing international imbalances as well as the uncertainties associated with disorderly exchange rate fluctuations.
The international community has responded with remarkable speed to the opening of the centralized economies of Eastern Europe. The bold reforms initiated by governments were quickly backed by substantial financial flows and significant technical assistance. The “burden sharing” of this financing is probably not optimal today. But we can be legitimately proud of the quickness and courage with which the Fund and then the World Bank reacted to events. In this regard, I would like to mention how much France is pleased that Lithuania, Estonia, and Latvia have regained their independence and are preparing to join our institutions. These countries should be able to count on our support for their successful integration into the international financial community.
I will turn now to the recent developments in the Soviet Union. Since our last meeting, the forces favorable to democracy and openness have prevailed over their opponents, but this movement has gone together with a significant deterioration of economic conditions. The international community must act quickly and in coordination to consolidate this process and help sustain the unity of the Union’s economic space, without prejudging the right of self-determination of its peoples. My country welcomes the recent conclusion of the Special Association agreement between the Fund and the U.S.S.R. This agreement, of course, is not an end in itself, but it does constitute a first and useful step toward full membership in the Bretton Woods institutions. It allows the Union and its republics to start benefiting immediately from our expertise in economic stabilization and structural reform. Further, I hope that the Fund in particular, but also the World Bank, the European Bank for Reconstruction and Development (EBRD), and other competent institutions, will enable us to better analyze the situation and define the conditions for establishing a zone of monetary stability and freedom conducive to investment growth in this area. This will require strong international coordination, but also a clarification of the allocation of powers and responsibilities among the various republics which compose the Union as it now stands.
Developing countries do not intend to and must not remain on the sidelines of the great movement toward openness and democratization which is taking place in all regions of the world. Many of them have recently undertaken radical and bold reforms, unilaterally opening their markets and abolishing restrictions and obstacles to foreign investment. They should be encouraged to continue along this path, as well as to pursue macroeconomic stability; indeed, in the worldwide competition for allocation of savings, it is necessary today to create the proper conditions and environment to induce spontaneous inflows of private capital. In Latin America, the steps taken by Mexico and Chile in this regard appear to be of exemplary worth.
As regards the debt of the poorest countries, it is now urgent to reach agreement over substantial improvement of the Toronto terms. France supports debt reduction of 50 percent to 80 percent on a case-by-case basis with a menu of concessional options. All creditors should quickly join the emerging consensus.
As for the lower-middle-income countries, solutions have been found in the cases of Poland and Egypt. They neither constitute a general precedent nor can be considered as absolute exceptions. Paris Club creditors should be allowed to offer on a case-by-case basis debt or debt-service reduction for those countries which are engaged in strong adjustment efforts.
In parallel with bilateral donors, and with their support, international institutions should also contribute to increasing the volume and reducing the cost of financing to the poorest and the most indebted countries. It would both be fair and consistent to extend eligibility for the enhanced structural adjustment facility to all presently International Development Association (IDA)-eligible countries. . . .
The World Bank and Fund have played—and will continue to play—an essential role in the present juncture. I am happy to welcome the new President of the World Bank, Lewis T. Preston, who is my good friend. Now his perceptive vision and authority are recognized by all, and I associate myself with his words in praise of Barber Conable. I also wish to pay tribute to Moeen Qureshi, who is retiring from the Bank after a brilliant career devoted to development. I finally want to congratulate Michel Camdessus on his re-election as Managing Director of the Fund, which evidences the unanimous appreciation of his efforts by the international community.
However, our institutions need resources. It is crucial that the Fund’s Ninth Review of Quotas enter into force as envisaged. We also attach the highest importance to the study requested by the Interim Committee at its spring meeting on the opportunity and potential modalities for a future SDR allocation. In fact, we can already perceive in certain regions of the world the negative effects which could stem from a shortage of reserves, particularly for those countries that have recently decided to make their currencies externally convertible.
In conclusion, I would like to stress the democratization and liberalization movement we now witness. This movement brings great hope. But it is clear that the countries that are now moving forward on the democratic path are also faced with the emergence of new tensions. Democracy is a difficult art. This is why we must make every effort required to increase international solidarity and thus to offer humanity the necessary elements of stability and prosperity.
Statement by the Governor of the Bank for the Philippines—Jesus P. Estanislao
I join my fellow Governors in thanking the people and Royal Government of Thailand for the graciousness and efficiency with which they have welcomed us and helped us to hold meetings in these magnificent surroundings, in welcoming our newest member, Mongolia, in wishing Mr. Preston well as he takes up the reins of the World Bank Group, and in thanking Mr. Camdessus for agreeing to carry on serving as Managing Director of the Fund. This is not an opportune time for us to be overwhelmed by shadows, when we can bask in some of the light that is shining through. Problems remain, and they are crying out to heaven for solutions. But new opportunities have arisen, and they are waiting for us to seize them.
The iron curtain has been drawn back, and we can go beyond merely scaling down the arms race. Can we now call it off? The threat of physical scarcity has receded, as the global supply of food and energy has surged to meet world demand: Can we now wipe out famine from the face of the earth and mitigate hunger in all the poorest areas of the world? The overhang of debt continues to enfeeble and strain, but the international financial system has moved further away from collapse along with a few countries that have smartly grown out of the debt trap: Can we now take the decisive steps that can put this issue behind us?
Indeed, our agenda is no longer limited to finding solutions to problems. It now extends to seizing the opportunities before us. The opportunities have arisen out of the narrowing of differences and broadening of consensus. Taught by the experience of several decades, encouraged by the success of several neighbors, made wiser by the sufferings of those who have failed, we are now following the same script of short-term adjustments. We are singing the same tune of medium-term reforms. We are speaking the same language of long-term development.
The imperative of keeping one’s fiscal house in order, the necessity of respecting the limits of prudence by an independent monetary authority, and the advisability of allowing exchange markets to clear under a truly competitive environment: these are the directives for a stable, conducive macroeconomic environment. Limiting government to the little it does best, liberalizing the trade regime, and opening markets and removing distortions are some of the most effective prods for our economy to become more efficient. Local autonomy, privatization, land reform, countryside agro-industrial development, and environmental improvement are at the top of our agenda for progress.
If the list of items in the agenda for adjustment, reform, and development is increasingly becoming similar, why then do problems still multiply by the day? Why do countries appear to drag their feet along the path that leads to much higher welfare for the great majority of their people? Why, indeed, is there so much domestic static around broad prescriptions that have gained wide international currency? The answer to these questions can vary from one country to another. Duty demands that we sift through the diversity for common strands that can guide us in translating the agreed agendas into completed actions.
We must first recognize a change in decision making. Whereas, before, only a very few were involved, now in more open societies, many more have the mandate to participate. We must then accept the fact that, among the many who have the voice or vote or both in the process of formulating policy, there is a wide disparity in ideological persuasion, and in the willingness and readiness to appreciate the facts, the logic, and the timing behind policy as well as in the ability to harmonize short-term parochial concerns with long-term societal imperatives.
We must also face up to the consequences of institutional arrangements having broken down before new ones have firmed up. The required effort may appear too draining, the process too time consuming, and the focus too glaring on personalities to make almost everyone despair about getting anything done on time or at all.
The recognition of the problem is a first step toward its solution. Problems are no longer centered on what to do, but on how to get it done; no longer on where to go, but on the means to get there; and no longer on the economic ability to see the right policy, but on the political will to bring the process of its successful implementation to final completion. We cannot pretend that consensus over broad policy suffices. We have to appreciate the often heroic efforts of individual countries to deliver on agreements. We often have to meet even the slippages of those who do their best with the warm prod of a helping hand, rather than with the cold indifference of an iron heart.
We know that in more open societies, governments must take on the added duty of informing, of educating, of consulting, and of winning support from a broad circle. This takes time and effort, but is well worth the wide base that makes for stability, and is well compensated by the extraordinary common sense of common people everywhere.
We recognize the idea of maximum freedom being exercised with maximum responsibility. But day-to-day reality brings out small groups with their own narrow agendas and hears vocal minorities with their claims on privileges. Leadership must pit against the broad agenda for the common good and the equal application of rules to all; and it must give unto all the subsidiary units of society the corresponding rights and duties due them.
We are still building up the strength of our societies upon the strength of our institutions. Until new institutions get to function smoothly, personalities prevail, personal vetoes often hold, and personal preferences take center court. We have to move quickly and ensure that the dictatorship of the autocrat already removed is replaced by a working system of institutional rules that effectively delimit individual prerogatives.
Economic education, people empowerment, and institution building: these are the three prongs of a program that can help many countries translate agreed agendas into completed actions. These are the pathways open that democratic societies have to travel to go beyond broad consensus into concrete results.
Let not the bureaucracies of governments stop at railing out of frustration from the difficulties on the way. They have to start with the understanding that though the way is long, it is trodden with effort and vigor. Let not the multilateral agencies see countries only through the prism of abstract formulas to be applied neatly in every instance. They have to look at concrete situations, with the array of real forces that often make actual results fall below the ideal. Let not the creditor institutions weigh only the benefits of short-term transactions. They have to continue to count the rewards and responsibilities of long-term partnership with countries that take their obligations seriously.
The spark of freedom that has always flickered in the hearts of men has now become hundreds of millions of points of light across the globe. They now have to be fanned into a worldwide conflagration of development: one that transforms swords into plowshares; one that transports food from bulging warehouses into empty stomachs; and one that transfers resources from frivolous abuse to more productive uses.
The opportunity to substantiate freedom with progress and democracy with development is before us. Let us all seize it, and in seizing it, let us remember: freedom has its price, and democracy its peculiar difficulties. For the sake of progress and for the cause of development, let us reach out farthest to all those putting in the best effort in paying the price and in facing up to difficulties.
Statement by the Governor of the Fund for Italy—Guido Carli
I wish to express my appreciation for the splendid hospitality of the Thai authorities.
The new geopolitical order emerging from the extraordinary events that have taken place since our last meeting opens entirely new grounds for international cooperation. It will show new patterns, and it will reveal new needs, some of an unprecedented scale.
To fully develop these patterns, to accommodate these needs, sustained noninflationary growth in industrial countries remains a most important prerequisite. In the majority of them, economic recovery is visible, yet faint. The high levels of long-term interest rates inherited from the 1980s are an obstacle to economic recovery and stable growth in many countries. An internationally coordinated reduction is needed, and the necessary conditions should be created.
First, the process should be led by countries where the cyclical recovery is uncertain, or the risk of inflation is lower. Second, countries with excessive budget deficits, like Italy, should reduce their deficits in the short run and implement fiscal consolidation in the medium term. Monetary policy should continue to exert firm control on inflationary expectations. Third, all impediments to the growth of private saving and to the efficient functioning of capital markets should be removed.
The slowdown in world demand and trade has had its impact on the Italian economy. The decline in our growth has not yet run its course, but official projections remain moderately favorable for 1992, owing to the expected improvement in world demand and in domestic investment.
The lira is firmly established in the narrow band of the European Monetary System (EMS). The 1990s will witness Italy’s participation in the European Monetary Union (EMU). Entry into the second and third stages of the EMU will require a continuing effort to converge with the best performing countries within the union, built on the pillars of price stability, sound public finance, and free and competitive markets.
At the present time, the persistence of inflation and interest rate differentials with respect to other partners of the EMS is impairing the competitiveness of our private sector. It is imperative that the budget deficit reduction and the incomes policy measures contained in the financial bill for 1992 be approved and implemented so as to reduce inflation and promote the stabilization of the debt-to-GDP ratio.
This Annual Meeting has marked the historical beginning of a new dialogue with the U.S.S.R. whose interim associate status we welcome. We look forward to the U.S.S.R. achieving full membership in the Bretton Woods institutions. The establishment of this new relationship with a country, which since the war has been out of the world’s international financial organizations and which is undergoing a profound irreversible transformation, is a complex task. The Group of Seven will be accompanying the new U.S.S.R. during its dialogue with the international community and during its travel to the establishment of a market economy. The Group of Seven initiative will complement the action that the international financial institutions are already undertaking. It cannot be a substitute for the role that the individual governments will have on a bilateral basis. During the present extraordinary opening of the Soviet Union, we are fully conscious of our responsibility to provide support and advice in the field of economic policy. Effective economic policy can only follow from the new institutional setting with which only the Soviet people can endow themselves.
In the Eastern European countries, the breakdown of the intraregional trade agreements has added to a fall in output and the spread of unemployment. The expected reward of the courageous reform efforts of some of these countries became elusive at the very moment of its initial appearance. These countries have engaged in trade liberalization reforms in anticipation of an increased access to markets. Western countries should act accordingly.
Failure to successfully conclude the Uruguay Round would seriously challenge the progress made in recent years in the area of international economic relations and could even raise the risk of major setbacks in current commercial agreements or practices.
The primary objective of my country’s economic policy is to limit the growth of public expenditure and to reduce the budgetary deficit. Nonetheless, we will continue to make every effort to deploy resources for development aid. In such a contingency, when the trade-offs with domestic uses of resources are stringent, all public expenditure decisions must be highly selective and be based on rigorously defined priorities.
This last year has revealed more clearly than any other time in the past the unprecedented scale of the financial efforts required from the industrial nations for the next decade. It has also revealed, in a world where few countries’ current accounts and budgets are in surplus, the difficulty of undertaking these efforts. We believe that the time to think again of an increase in international liquidity through an SDR allocation has come. We also believe that this can be done in a noninflationary fashion, and we suggest that it should be studied anew by the IMF.
At a time when unprecedented forces tend to divide peoples, breaking pre-existing regional orders and creating new extraordinary needs, it is essential to reassure the developing world that this will not bring neglect or lower the commitment of industrial nations. Today, there is even greater scope than in the past for strengthening the leading role of the IMF and the World Bank by increasing their resources; this is in recognition that these institutions, together with the newborn European Bank for Reconstruction and Development, are the place where all nations can formulate common economic strategies for the pursuit of the world’s welfare.
Statement by the Alternate Governor of the Bank and Fund for Japan—Yasushi Mieno
Before I begin my remarks today as the Alternate Governor for Japan, I would like to express my sincere gratitude to the Government of Thailand for the marvelous job it has done in hosting these meetings.
I would also like to extend my heartfelt welcome to the Mongolian People’s Republic as a new member of the World Bank and the IMF, and the Republic of Albania whose membership we have just voted for. At the same time, I would like to congratulate Mr. Preston on his appointment as President of the World Bank, and Mr. Camdessus on his reappointment as Managing Director of the IMF. Under their excellent leadership, I am sure that the World Bank and the IMF will continue to grow.
The political and economic transformations that began sweeping Eastern Europe in 1989 have spread further dramatically this year to the U.S.S.R. These changes have put an end to the Cold War and the standoff between East and West, which is something that we can all welcome. In this time of momentous transition, it is very significant to those of us who are responsible for the management of fiscal and monetary policies all over the world to exchange our views on the new challenges that face the world economy at this meeting.
I find it most gratifying that a series of recent developments in the U.S.S.R. has paved the way for democracy and economic reform. I feel that it is vital for us to assist the U.S.S.R. in becoming integrated with the market economies of the rest of the world. In particular, appropriate emergency assistance is necessary to tide it over the current difficulties in order to maintain the current momentum.
On October 8, we announced that Japan was prepared to provide the U.S.S.R. with humanitarian assistance in the form of a Japan Export-Import Bank loan of up to $500 million to alleviate its shortage of food and medicine. In addition to this, we decided to extend export credits and guarantees amounting to around $2 billion to facilitate troubled trade and economic activities in the U.S.S.R.
Obviously, it will be vital to the U.S.S.R. that the World Bank, the IMF, the European Bank for Reconstruction and Development (EBRD), and other international institutions provide technical assistance and coordinate their activities as the Soviets formulate and implement reforms to establish a market economy. We therefore welcome the Special Association that was recently established with the IMF and the Trust Fund for the U.S.S.R. set up in the World Bank as these will allow even further provision of such assistance.
Japan on its own is also prepared to provide significant technical assistance to the U.S.S.R. and other countries that are trying to make the transition to market economies.
The World Economy
I would now like to turn to the world economic outlook and the Japanese economy. The economies of the major industrial countries are, on the whole, expanding. To solidify this trend, the industrial countries will need to pursue further the economic path of sustained, noninflationary growth in a medium-term context. This means that they will have to adopt fiscal and monetary policies that provide the basis for such a path. For this purpose, we feel it is of the utmost importance that industrial nations continue policy coordination among themselves, reflecting the differing situations in each country.
Also essential for the steady development of the world economy will be the stabilization of the relationship between the currencies of Japan, the United States, and the European Community. It is commendable that close cooperation among the major industrial countries in the exchange markets has made a significant contribution to the stabilization of currency movements.
Furthermore, it is vital to the solid foundation of global economic development that we maintain and enhance the multilateral free trade system. Therefore, each and every one of us needs to cooperate more fully to bring about a successful conclusion to the Uruguay Round before the end of 1991.
The growth rate of the Japanese economy is not as high as it was in previous years and is decelerating. However, solid, self-sustained growth continues overall. We expect Japan to sustain the steady expansion led by domestic demand in the future.
Since 1986, the Japanese current account surplus has declined steadily. The large appreciation of the yen after the Plaza Accord was a major factor, though the Government’s efforts to pursue policies aimed at growth led by domestic demand also contributed to the process. Nevertheless, Japan, while running a surplus on its current account, is making ongoing efforts to improve access to its markets and is giving its fullest consideration to providing development funds to developing countries.
The Global Capital Shortage
I would next like to turn to the global capital shortage issue. Developing countries still need large sums of funds for development purposes, and moreover, there is additional demand for financial resources now expected from the unification of Germany, economic reforms in former centrally planned economies, and postwar reconstruction in the Gulf. But while the demand for investment is high around the world, global savings growth is stagnant.
The international supply and demand for funds is thus becoming tighter, and we need to enhance savings around the world. First and foremost, we urge that countries with budget deficits, especially some of the major industrial countries, make every effort to cut their deficits, as this is one policy that can be adopted by governments individually.
Furthermore, we need to recognize the importance of providing sufficient funds for tangible investments that will help the real economy to grow in the future. To this end, all countries in the world will need to hold down nonproductive public expenditure, especially excessive military spending, and make more of an effort to spend public money on increasing productivity and welfare.
Due to the global capital shortage, the World Bank and the IMF, which supply member countries with needed funds, will take on an increasingly important role. We should also note that their funds work as a catalyst for other funds from those able to provide it, while inducing the improvement of the economic fundamentals of the recipient countries over the middle and long term.
If, against the background of a global capital shortage, the IMF is to do an adequate job in the tasks that have been placed before it, it will need to strengthen its financial resources. It is, therefore, urgent that the Ninth Quota Increase be implemented promptly as scheduled. Unfortunately, the progress being made by member countries in complying with their domestic procedures, seems to be much slower than originally expected. I would exhort those members who have not yet consented to the quota increase or accepted the Amendment to the Articles of Agreement, to complete their domestic procedures as promptly as possible.
In the IMF Interim Committee last April, we proposed a new allocation of SDRs and the use of allocated SDRs with a view to supplying the global economy with appropriate liquidity. We expect and hope that the IMF Board of Executive Directors will continue to consider this proposal and other issues related to global liquidity and the flow of funds.
Future Development Strategies
I would next like to outline Japan’s basic thinking on future development strategies.
Private Sector Development
First and foremost, we believe that the emphasis in future development strategies must be on the role of the private sector. Not only in the U.S.S.R. and Eastern Europe but also in other developing countries, it is essential to create efficient and competitive market economies, and more especially, to develop the private sector, which is at the core of such economies.
In this respect, direct investment from abroad and support from international institutions will play a significant role. Vigorous efforts should be made to increase the flow of direct investment, which will enable the transfer of technology and know-how to developing countries and improve the efficiency of the private sector as a whole through market competition. Developing countries will need to create the kind of environment that appeals to investors, and industrial countries should try to assist them, for example, by providing financial support for their infrastructure programs. . . .
The Debt Issue
My second topic regarding development strategy is the debt issue. In order to reach a fundamental solution to this problem, it is essential that debtor countries reach agreements with the IMF, the World Bank, and other international financial institutions on programs for economic structural adjustment and put all their energies into rebuilding their economies.
On our part, Japan is prepared to continue its strong support for all countries that will act to have confidence in their economic management restored through disciplined economic policies and debt restructuring under the strengthened debt initiative. . . .
Finally, I believe that the issue of official debt reduction should be approached with great caution, since the reduction would discourage debtor countries that are now faithfully repaying their borrowings to continue doing so and prevent developing countries from attracting new money.
Development and the Environment
The third topic I would like to address is the importance of environmental issues in economic development.
First, there is the problem of pollution within developing countries. Environmental problems first came to light in Japan in the 1960s, and, since that time, the Government and private sectors have worked together to make significant improvements. Our experience leads us to believe that the most effective way to deal with the problem is not to depend on government expenditure but to enforce strict regulations and the “polluter pays” principle so as to internalize the external diseconomies involved. We also believe it continues to be the responsibility of the international development institutions involved to carefully assess environmental impact before approving new loans for development.
An important element in future development strategies will be the worldwide efforts to solve global environmental issues, such as global warming and ozone depletion. I therefore welcome the establishment in May this year of the Global Environment Facility that will act as a comprehensive funding mechanism for issues relating to the protection of the world’s environment.
In this connection, I would like to note that Japan has also been making efforts to expand and enhance its official development and technical assistance in this domain, utilizing its know-how and experience.
The Asian Experience
Our meeting here in Bangkok marks the first time in six years that the World Bank and IMF Governors have gathered in Asia. I would therefore like to talk for a moment on the Asian experience. Asia has achieved such remarkable economic development that the past ten years have been called the “decade of the Asian economic miracle.” As a dynamo for world economic growth, Asia has now taken on a role of great significance in the development of the world economy as a whole.
As I noted earlier, true economic growth is only achieved by encouraging the private sector in order to cultivate entrepreneurship and improve productivity. But I would like to point out that it is also necessary for the government to complement the market mechanism and create the kind of environment in which free markets can function effectively. The countries of Asia are an example of how this can be accomplished.
To be more specific, the role of the government should be: (1) to set goals for the middle and long term as an indicator for the private sector; (2) to manage economic policy appropriately with particular emphasis being placed on the implementation of disciplined fiscal policies, prudent monetary policies, and responsible foreign exchange policies; (3) to take the initiative in promoting education, human resources development, and scientific and technical research; and (4) to encourage national savings and construct a financial system able to put savings to work in productive investments effectively.
Experience in Asia has shown that although development strategies require a healthy respect for market mechanisms, the role of the government cannot be forgotten. I would like to see the World Bank and the IMF take the lead in a wide-ranging study that would define the theoretical underpinnings of this approach and clarify the areas in which it can be successfully applied to other parts of the globe. I also hope that the fruit of such a study will be applied extensively to development strategies. We are committed to support such a study and its application.
The fact that the Governors are meeting here in Bangkok provides us with an opportunity to rethink the development strategies being adopted by our various countries in light of the Asian experience.
We have now entered an era when the world sees a free economy unfolding on a truly global scale. But this world needs to pool its wisdom if all its people are to develop economically. It needs a strengthened international economic order led by the World Bank and the IMF.
In this time of historical transition, Japan is committed to play a more important role as a member of the World Bank and the IMF, providing greater human resources and assisting in the formulation, adoption, and implementation of policy.
Statement by the Governor of the Bank for Portugal—Luis Miguel Couceiro Pizarro Beleza
It is an honor and a pleasure for me to address these Annual Meetings of the World Bank and the International Monetary Fund. First, allow me to thank the Thai authorities and the people of Bangkok for their very warm welcome and magnificent hospitality and to welcome Albania into the Bretton Woods institutions. I also want to congratulate warmly Mr. Lewis T. Preston on his appointment as President of the World Bank Group and to wish him success in his new and demanding position. I am sure that Mr. Preston’s proven abilities will provide the necessary leadership which, in cooperation with the Board of Governors and their representatives in the Executive Board, will ensure a most efficient implementation of the World Bank’s policy priorities.
Jean Monnet once said on the then-infant European Community, “like our provinces in the past, today our peoples must learn to live together under the freely accepted common rules and institutions if they want to attain the necessary dimensions to their progress, and remain masters of their own destinies.”1 I believe that those prophetic words ought to, and hopefully will, in the near future be appropriate to the world as a whole, and not just to the European Community. And, of course, the Bretton Woods institutions are at the forefront in this respect.
The International Bank for Reconstruction and Development’s (IBRD) mandate—in particular, the reduction of poverty and the protection of the environment—unfortunately must remain no less a priority than they have been in the recent past. These all-important objectives will only be possible with the firm commitment of both the donor community and the borrowing countries.
Poverty reduction means sustainable economic growth. This has to be the benchmark for the evaluation of how efficient is the use of official development assistance resources.
Greater demand for cooperation funds is bound to increase the need to establish clear priorities for the allocation of ever-scarce resources. Special efforts will be needed from all of us, borrowers and lenders, bilateral donors and multilateral institutions, in order to ensure a better, more efficient use of funds.
Portugal, although facing its own challenge of converging toward the better-performing of our European partners, is very much aware of the scarcity of available resources. Our historic relations with sub-Saharan Africa and Latin America aid us to focus on the main development issues and problems. This has been reflected in the special efforts we have been undertaking in the area of official development assistance, increasing our aid and rendering its use more productive.
We have strengthened, and will continue to strengthen, our presence in several multilateral institutions, such as the new United Nations Development Program (UNDP) Trust Fund and the Multi-Country Loan Facility. . . .
We are also considering new, more flexible, and highly concessional alternatives regarding bilateral debt of poorer, highly indebted countries. Our contribution will, of course, depend on the beneficiaries’ own adjustment efforts.
We warmly welcome the thrust of the recent and ongoing fundamental changes in Central and Eastern Europe, including, of course, the Soviet Union and its republics. We especially welcome the soon-to-be members of the Bretton Woods institutions, Estonia, Latvia, and Lithuania, and the Special Association agreement between the Soviet Union and the IMF, which we regard as a first step toward full membership.
The Bretton Woods institutions have a fundamental role in aiding the adjustment of those countries, and we wholeheartedly support their role within a framework of a fair and equitable burden sharing and allocation of available resources.
Let me now turn briefly to the European Community. The European Community faces important challenges in the immediate future. Those are, of course, the completion of the single market program and (rapid) progress toward economic and monetary union (EMU), as well as political union.
Portugal’s rapid growth, improving monetary stability, and structural reforms aimed at a more open and efficient economy constitute important steps along the path to a successful integration in EMU. Among the latter, I would stress our far-reaching, ongoing privatization program and the fundamental reform of financial markets, which by and large substituted marked mechanisms for often heavy-handed government intervention.
The Portuguese presidency of the European Community in the first half of 1992 will provide an excellent opportunity for us to contribute to the building up of a Europe which is both increasingly united and open. Europe must assume its role as an area of stability and thus contribute to the overall soundness of the international payments system. But we must not let intra-European issues, no matter how important, distract us from our responsibilities toward the developing countries.
Think of the Uruguay Round, Mr. Chairman, and let me simply remind us of the admirable words of David Ricardo:
Under a system of perfectly free commerce, each country naturally devotes its capital and labor to such employments as are most beneficial to each. This pursuit of individual advantage is admirably connected with the universal good of the whole. . . . While, by increasing the general mass of productions, it diffuses general benefit, and binds together, by one common tie of interest and intercourse, the universal society of nations throughout the civilized world.2
Statement by the Governor of the Bank and the Fund for Ireland—Maurice O’Connell
I would like to associate myself with the welcome for new members expressed by earlier speakers here this afternoon. This is a time of complex change and new challenges in the world economic order. In a short period we have witnessed momentous changes throughout the world. The growing impetus for economic and monetary union within the European Community, the reunification of Germany, and the movement toward reform of the Central and Eastern European economies are opening great new opportunities in Europe. There are signs of real and sustained progress in a number of developing countries. This is the good news. The continuing failure to complete the General Agreement on Tariffs and Trade (GATT) negotiations has been a big disappointment. A year ago there was optimism that these negotiations would finally be brought to a satisfactory conclusion quickly, opening the way for a steady and balanced expansion of world trade. I sincerely hope that the general accord on the need for a successful conclusion will lead to an early and positive outcome.
The World Economy
World economic expansion continues to rest on a rather fragile foundation. The crisis in the Middle East created new uncertainties, not just for the region but for the whole world, and we cannot yet assess fully the consequences of recent developments in the Soviet Union. Following a number of years of continuing steady growth, the economic environment deteriorated over the past year, but the decline has stopped short of a world recession. There are now signs of recovery, and the general expectation is that the economic slowdown in the industrial countries will be no more than a temporary phenomenon.
We all accept the principle that expansion of world trade and free movement of capital are the key to success. This in turn requires the curtailing of protectionism and improved access to markets. The good health of the world economy depends on greater international cooperation, sustained opposition to inflation, and greater emphasis on savings. It is particularly important that those developing countries that are undertaking difficult adjustment measures, on the best advice from the international community, are not excluded from industrial markets. The new appreciation that many of these developing nations have of the merits of strict economic discipline and their efforts to promote overdue structural reforms deserve better recognition.
Our discussions throughout the 1980s were dominated by the debt crisis. The fact that this issue is no longer at the top of the agenda is a reflection of the concerted efforts in recent years to implement an effective debt strategy. Much of the credit for this must go to the international institutions. The problem is still acute, however, and debt and debt servicing continue to impose an enormous burden on the developing countries in particular. The problem is aggravated in some instances by accumulated arrears and poor track records in making adjustments. It is a hard fact of life that a number of countries are caught in a vicious circle and have no prospect of making progress without outside assistance. The international community has an obligation to provide such assistance and to insist in return that certain disciplines are enforced.
Earlier this year, the war in the Middle East and its aftermath brought home to us vividly the pain and misery of great human suffering. The world response, initially belated and hesitant, was praiseworthy. The Middle East disaster, however, was high profile. Grinding poverty and destitution continue to be the norm in many parts of the world and, sadly, there is little evidence so far of a breakthrough despite the excellent programs sponsored by the international institutions. There are notable exceptions, of course, not least that of our host country, Thailand. The scale of poverty in a prosperous world is an indictment of our society and imposes an obligation on the world community to find more effective answers on a coordinated basis. We know too well from bitter experience that charity alone and the goodwill of ordinary citizens cannot cope adequately with this enormous problem. Policies for the poorer world cannot achieve their potential in isolation, and ultimately their success depends on a fairer world trading environment. If we cannot narrow the gap between rich and poor appreciably within a reasonable time scale, then it is time to reassess fundamentally the approaches that we have followed up to now.
In the past year Ireland has provided a supplementary contribution for the Ninth Replenishment of the International Development Association. We agreed to this contribution on the principle that the poorer developing countries are the most urgent priority and that it would be entirely wrong to reduce the programs of assistance for these countries because of inadequate funding. The threat of such a reduction was fortunately averted. Negotiations on the Tenth Replenishment of International Development Association (IDA) will begin shortly and, as indicated at the preliminary meeting, Ireland will take a positive approach to these negotiations.
I note that the voting procedure for an increase in the capital of the International Finance Corporation has been initiated. IFC is making a valuable contribution to development, and I expect that Ireland will respond favorably to the provision of additional resources for its activities.
The environment and conservation have been high on the agenda for some time. Care for the environment is so important that we cannot overstate its significance. The modern world makes enormous demands on the environment in several ways, and we have yet to fully realize that economic growth is dependent on the maintenance of a natural balance. Economic development, if it is to be sustainable, has to be consistent and compatible with maintaining the balance of nature. There are still in progress in several countries so-called developments that have official sanction and that are frightening in terms of their potential destructive capacity. While much has been done to correct abuse, we still do not attach sufficient urgency to the problem of reconciling development and environmental protection. There is need for much greater international coordination and a greater focus of public attention on the continuing dangers to the environment.
We look to the United Nations Conference on Environment and Development, which is scheduled for June 1992, to set new ground rules for protection of the environment worldwide. In the meantime, Ireland will make its special contribution by hosting the International Conference on Water and the Environment in January 1992. This will be the first major world conference on water resources in several years.
As a member of the European Community, Ireland welcomes the momentum for greater integration that is gaining expression in the Intergovernmental Conferences on Political and Economic and Monetary Union. Europe is emerging as a much more powerful and cohesive force in the world economy. As a small and open trading nation, Ireland understands the general concern that the Community should be at the forefront in promoting and assisting the orderly growth of the world economy. The Community is very conscious of its obligations in this regard, and I believe that it can be relied upon to make a leading contribution toward fostering growth and employment, and in assisting the developing countries of the world. The Community has rightfully taken the lead in organizing assistance for those countries in Central and Eastern Europe which are making the difficult transition to democracy and a market economy. It is also responding in an effective manner to the new situation in the Soviet Union. The entry of the Soviet Union into the mainstream world economy will require new coordination procedures—both for the transition and in the longer term. I welcome the decision of the Group of Seven, announced on Sunday, to pursue further dialogue in Moscow with the Soviet authorities.
In line with European Community requirements, Ireland has now largely liberalized capital movements. This has been possible because of the growing strength and stability of the Irish economy and our increased ability to attract foreign capital. We are strongly competitive and our inflation rate is among the lowest in the European Community. As with so many other countries represented here, our greatest difficulty is the generation of sufficient employment. It is a priority that does not get sufficient attention from the wealthier nations of the world who dominate the world economy and who have the capacity to deal with unemployment which is not readily available to the less well off.
The International Monetary Fund and the World Bank are central to the efforts of the world community to achieve greater growth and development on a coordinated basis. These two institutions provide a forum in which the concerns of all countries can be voiced. They are a powerful force and a powerful influence, and programs supported by them are an essential element in achieving improvements in the world economy. They have demonstrated repeatedly their ability to respond quickly and effectively to difficult situations. Ultimately, however, they can only be as strong as the commitment of the member nations. I would like to pay tribute to their sense of professionalism in the exercise of their responsibilities. We, as Governors, have a duty to ensure that they have adequate resources and proper authority to continue their good work effectively.
In conclusion, I would like to pay tribute to Mr. Conable on his retirement from the World Bank. I also wish to thank the Thai authorities for hosting this year’s Annual Meetings and for the excellent arrangements that they have made for us.
October 15, 1991.
Jean Monnet, Mémoires (Librairie Artheme Fayard, 1975), page 788.
David Ricardo, The Principles of Political Economy and Taxation, Chap. VII, (London: Dent, 1973), page 81.