Chapter

Discussion of Fund Policy at Fifth Joint Session1

Author(s):
International Monetary Fund. Secretary's Department
Published Date:
November 1991
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Statement by the Governor of the Bank for El Salvador—Mima Lievano de Marques

I join previous speakers in welcoming the new members of the World Bank Group and International Monetary Fund. I am grateful on behalf of the Government of El Salvador for this opportunity to share with you some reflections and to briefly present the achievements we have made in implementing our economic and social program and the challenges still facing us.

The 1990s have begun with a series of major worldwide changes that fill us with optimism insofar as they strengthen democracy and international cooperation. But it is a cause for concern for developing countries such as El Salvador that the sources of official development financing are increasingly limited at a time when some of our countries are working to consolidate an internal transformation by seeking to lay the foundations for sustained growth and mitigate the poverty of our populations.

We are seeing genuine efforts to reduce trade barriers and promote new areas of free trade, which have been obvious in Latin America, in particular Central America, whose consolidation requires that the less developed countries receive the support they need to strengthen and modernize their productive apparatus.

This international climate has fostered and seen the rebirth of regional blocs. In Central America this effort has received the firm support of all the presidents of the countries in the area. So that these efforts may bear fruit, El Salvador is supporting forms of integration based on trade liberalization and trusts that integration programs in Central America will help to enhance economic efficiency, improve living conditions for the poorest groups, and, in political terms, consolidate the process of democracy and building peace in the region.

Internally, El Salvador is engaged in major economic, social, and political changes. In the economics sphere, we have gone through a stabilization phase, with highly satisfactory results. After more than a decade of economic stagnation, high inflation, and growing imbalances, economic activity increased 3.4 percent in 1990—the highest rate since 1978—and inflation fell from 23 percent in 1989 to 19 percent in 1990. It is expected that economic activity will again grow by around 3 percent in 1991, despite a severe drought that has affected much of the country this year, and it is expected that inflation will decline to 14 percent.

These achievements stem from the implementation of stabilization and structural adjustment programs, the main measures being: (a) a continuing effort to maintain monetary and fiscal discipline; (b) a free exchange rate policy and the establishment of exchange offices; (c) a start on the deregulation of interest rates; (d) elimination of price controls and adjustments to public service rates; (e) a program to reduce customs duties (currently ranging from 5 percent to 30 percent) and quantitative barriers to trade; (f) the elimination of state monopolies on foreign trade in coffee and sugar; (g) tax reforms, especially as regards income and sales taxes; (h) financial reforms, involving the strengthening of the Superintendency of the financial system, rehabilitation of the banks, the launching of the privatization of the nationalized banks and a new legal framework for the operations of banks and financial institutions, as well as greater autonomy for the Central Bank; and (i) institutional reforms that include a start on efforts to privatize state enterprises and activities.

In the social sphere, the Government has implemented a series of programs to offset the costs of adjustment on the low-income sectors. Direct subsidies have been introduced for the poorest groups, along with employment and family income enhancement programs. The El Salvador Social Investment Fund (FISS) has also been established and started operations this year, channeling resources to nongovernmental organizations as a way of amplifying government activities.

As part of the strategy to alleviate extreme poverty, priorities have been adjusted and changes made in the level and structure of social expenditure, both targeted on the poorest groups. Currently, a larger proportion of the national budget is being targeted at the social sectors, and efforts are focusing on the poorest and most vulnerable groups. Greater emphasis is being given to preprimary and primary education, preventive health and primary health care, a comprehensive approach to the family, and solutions to the housing and sanitation problems of the poorest communities.

These internal efforts have received the technical and financial support of the IMF and the World Bank. We have satisfactorily concluded a stand-by arrangement with the IMF for 1990-91. To consolidate economic stabilization, we are negotiating a second stand-by program for 1992, which we hope will be approved within a few months.

With the World Bank, we have signed the first structural adjustment loan and the first sectoral loan, designed to rehabilitate the social sectors with an emphasis on improving health and education services, and a technical assistance loan to develop the energy sector.

Also under the auspices of the World Bank, the first Consultative Group for El Salvador took place, providing support for the Economic and Social Program, the Public Investment Plan, and the Post-War Economic and Social Recovery Plan prepared by the Government.

The more recent efforts of the Government include the establishment of the Secretariat of the Environment to tackle the problems of environmental degradation in El Salvador, a situation aggravated by the conflict of the last decade, demographic pressure, and our prevailing poverty.

Three days ago President Cristiani opened the First International Conference on the Environment held in El Salvador under the auspices of multilateral and bilateral organizations and attended by more than 20 international nongovernmental organizations and all the local environmental nongovernmental organizations. The conference saw the presentation of El Salvador’s environmental program and an action plan to promote sustainable development, which was prepared with input from public agencies and nongovernmental organizations and with the support of other sectors of national life.

In the political arena, the past year has also seen profound changes in our national life; new constitutional reforms that will strengthen electoral institutions and procedures; the modernization and strengthening of the legal system; and the establishment and strengthening of institutions concerned with human rights and reforms of the armed forces, all of which are certain to help consolidate democracy in El Salvador.

The search for peace and national reconciliation through dialogue has been one of President Cristiani’s priority objectives. The agreements reached in September in New York have enabled the dialogue to enter a final phase and a cease-fire agreement is possible by the end of this year.

If the cease-fire does materialize, the Government, with the consensus of all the sectors of national life, will implement a Post-War Economic and Social Recovery Plan, containing programs targeted at the demobilized forces, communities uprooted and affected by the war, and those areas of El Salvador that have suffered the effects of the violence.

This gigantic task requires the support and solidarity of the international community. We trust that in the event of a cease-fire, we will receive the support of a Consultative Group for National Reconstruction, brought together by the World Bank.

In conclusion, El Salvador has implemented comprehensive economic, social, and political and legal reforms that have led to substantial progress toward the establishment of a peaceful and democratic society. I quote from the speech of the President of the Republic, Alfredo Cristiani, to the General Assembly of the United Nations a few days ago: “El Salvador has been the object of worldwide attention because of war; now we deserve and request worldwide attention for peace.”

Statement by the Governor of the Bank for Malaysia—Anwar Ibrahim

May I begin by offering my congratulations to Mr. Preston and Michel Camdessus. May I also offer our appreciation to the people and Government of Thailand for the excellent arrangements. We have in recent years witnessed the unfolding of some momentous events that will have far-reaching repercussions on the global economy. However, we must not delude ourselves into thinking that the impetus and pace of these changes alone will lead to a new world order. The major predicament of the past—the scourge of poverty, illiteracy, disease, and social decay—is yet to be resolved.

The strategy of development of the past was founded on using financial flows to stimulate economic growth and development in the less-developed countries. But the results have been variable at best, and at times counterproductive. Real wealth creation continues to defy our stated intent that the flow must be from the rich to the poor. On the contrary, what is happening now is that the net flow of resources is from the poor to the rich.

Developing countries need more substantial inflows of financial resources for development. With limited resources, developing countries will have to compete not only with other developing countries but also with new claims on global financial resources. It is doubtful that the 1990 increase in official development assistance can be sustained to cater to the ever-increasing need for resources.

The political and economic transformation in Eastern Europe and the U.S.S.R., as well as the reconstruction of economies affected by the Gulf war, have brought urgent demands for resources. While supporting these new claims for international resource flows, we must never allow them to be reduced to meet the needs of particularly the poorest of the developing countries.

The debt problem of developing countries continues to be a matter of serious concern. The resolution of the problem has not progressed much since the crisis began in 1982, although the international debt strategy has evolved considerably in recent years. The present debt relief provided by the Paris Club does not offer a satisfactory solution to a number of the poorest countries. Further progress in extending debt relief is necessary, as proposed in the Trinidad and Tobago terms and endorsed in the recent Group of Seven London summit. Malaysia feels strongly that the initiative provided to Poland and Egypt should be similarly extended to low- and middle-income, severely indebted countries that are undertaking adjustment. A two-tier solution that discriminates against the poorest and hardest hit is not consistent with the pronouncements of the new order.

In recent years, new and fresh obstacles have been laid in the way of the free flow of trade. The immediate priority to sustain an open and a competitive system of trade is to bring the Uruguay Round to a successful conclusion. The developed nations need to seek a pragmatic solution to the issue and allow competition to flourish through market forces and not through subsidization of inefficient industries. Unless the logic of the free market is applied by the powerful, we cannot deflect the dangers of protectionism and inward-looking regionalism.

The development priorities of the Bank, that is, the achievement of sustainable economic growth and the reduction of poverty, as well as the protection of the environment, are most appropriate. Indeed we applaud the Bank’s view that development and the alleviation of poverty of the human race is the most important challenge facing the human race. Steady and significant growth in the countries of the Organization for Economic Cooperation and Development (OECD) is a prerequisite for global economic expansion. We believe the present stance of cautious but not unduly restrictive monetary policies in the industrial countries is a positive step toward this direction.

Developing countries must, of course, on their own, undertake appropriate adjustments, deregulation, and privatization to facilitate the process of sustainable development. However, it is obvious that, for the developing countries, synergizing local initiative and domestic savings alone is inadequate. Self-help can work only with the right conjunction between local imperatives and the global order. The recent announcement by the United States about unilateral arms reduction, coupled with the end of the Cold War, should rightly bring about a huge peace dividend, which should be translated into the much-needed development assistance that the poorest of the developing countries are seeking. . . .

It is a matter of concern that we now see the trend toward the imposition of new conditions that are totally unconnected with trade. It would seem that the standard of what constitutes an acceptable and adequate approach to development is now higher for Third World countries compared to presently developed countries when they were at a comparable level of development. We must realize that common rules and aspirations can work only when they are adapted to the dynamics of specific problems and to the realities of the specific countries and their varying needs. The complexity of our interdependent world demands a genuinely democratic global response. We must also take into account the impact of domestic economic policies on development and the social cost of these policies when applied to specific countries.

The decade of the 1990s presents tremendous opportunities for the world and challenges to the Bretton Woods institutions. The increasing appreciation of the positive role of market forces, the pluralistic political structure, and the environment require a new approach in international cooperation. While developing countries must persevere to create an appropriate macroeconomic framework, the developed countries must simultaneously cooperate in providing a suitable international environment that will serve the purpose of both the developed and developing countries.

These opportunities and problems will make very strong demands on our tenacity and commitment to implement difficult adjustment policies, translating noble sentiments into tangible actions.

Statement by the Governor of the Bank for Hungary—Mihaly Kupa

I am honored to have the opportunity to address this distinguished audience. Let me first say a few words about the recent developments in the Hungarian economy and then highlight some important issues.

In general terms, we can depict a positive picture. The Government’s economic program is progressing in line with the International Monetary Fund and World Bank agreements, even though Hungary was affected by four shocks in 1991:

  • • the effects of the Gulf war;

  • • the collapse of the markets in Eastern Europe and the Soviet Union in particular (while exports to the Soviet Union represented more than 30 percent in our total trade in 1989, they have dropped to below 15 percent and continue to fall);

  • • the Yugoslav crisis; and

  • • the drastic cut in price and production subsidies.

As a result, gross domestic product (GDP) will decrease by 6-8 percent, while unemployment will rise more rapidly than anticipated, and will reach an expected rate of 6-7 percent by the end of the year.

The Hungarian economy has overcome these difficulties, however. In my view, there are three areas where the positive developments are of particular importance: First, direct foreign investment and privatization; second, the balance of payments and the state budget; and third, the vitality and drive of Hungarian private business.

As one of the most important features in my country, the changes in the structure of economic institutions have significantly accelerated. Parallel to privatization, the number of corporations in Hungary doubled in 1990, while in the first eight months of 1991, this figure increased again by 50 percent.

The nature of this structural change may best be characterized by the fact that the decisive majority of these new businesses—more than 90 percent—are small operations with fewer than 50 staff. Thirty percent of the new companies have some form of foreign capital interest. Privatization has also begun to accelerate, especially from the middle of the year onward. In the months of July and August, 41 former state companies were divested. Up to now, in the course of privatization, $1 billion worth of direct foreign investments has come into the country. We now record over 110,000 partnerships and about 375,000 sole proprietors.

As for the balance of payments in 1990, there was significant improvement: the overall balance improved by $1.5 billion to reach a $100 million surplus. This positive trend has continued in 1991, with the balance of payments proven to be very good.

The strong responsiveness of the economy is well reflected in the fast pace of change in foreign trade. This quicker-than-expected development has gone some way to making up for the fall in exports to the former Council for Mutual Economic Assistance (CMEA) countries, while exports to Western markets are growing rapidly. It is a favorable sign that an ever-increasing proportion of this export growth may be credited to the newly formed private, small businesses.

In line with our economic program, the monthly rate of inflation has been kept below 2 percent in the past four months. Considering, however, the big rise in prices at the beginning of the year, an inflation rate of 33-36 percent is expected for the year as a whole, and will continue to moderate.

As another positive element, the net increase in personal savings is to be noted, something that will be able to cover the expansion in corporate debts and the slightly greater-than-expected state budget deficit. On this latter point, may I say that we do not wish to compensate for the losses concomitant with the changes in foreign trade by way of tax increases. Consequently, the balance of the state budget will be less favorable despite the fact that expenditure will not increase. The budget deficit is 3 percent of GDP in 1991, and it will be about 2 percent in the next year, which is, in fact, quite a good result.

Let me echo Mr. Preston’s report to the Development Committee regarding the debt issue. I fully agree with him when he states that the debt overhang is a severe constraint on growth in many countries. The interests of the heavily indebted countries will be best served with their continued participation in the international financial system. With reference to this, I would like to say some words about those countries, including, of course, Hungary, which are maintaining the full service of their debt and are performing satisfactorily under World Bank and Fund programs. These economies, with strong determination and, believe me, sacrifices, have been able to endure external shocks and avoid rescheduling. For these countries the preservation of market access is of vital importance. No doubt, the Bretton Woods institutions are closely following the developments in these cases. But, I am convinced, this is not enough and will not be enough in the future, when the access to markets is not going to be easier. The World Bank and the Fund should find the ways and means to give strong and, if needed, repeated signals of full support toward the markets. This would back the efforts of these committed governments and people.

I mentioned earlier the devastating difficulties that have emerged as a consequence of a more-severe-than-expected disruption of the former so-called CMEA relations. For the Central European countries, the most important problems originate from the almost total disruption in the commercial relations with the Soviet Union. We welcome the Soviet membership application, which will contribute to the Soviets joining the world economy for the benefit of all of us. We agree that the Bretton Woods institutions should help this country to create the necessary economic conditions for membership in our institutions. Having said this, I would like to remind ourselves of a potential danger. Namely, that owing to the high political voltage, the intellectual and material attention paid by us to the developments in the Soviet Union should not overshadow other important issues. This would not serve the interests of our member countries. I am representing a Central European country, which has made substantial progress during the last two years in the transition to democratic society and a market economy. This progress clearly demonstrates not only that the Soviet and the Central European cases differ greatly, but also that these are at two different stages of evolution. But we agree on the need to provide reasonable assistance to the Soviet Union and firmly wish to take an active role in debt assistance.

In the past few years Hungary has already achieved nearly full liberalization of the price and trade systems. This has led us to significant external adjustment and a de facto convertibility of the Hungarian currency for current transactions. This helped us to have a continuing buoyancy of foreign direct investments and a better-than-expected current account position. We are determined to continue our policy of liberalization. Let me underline a very important obstacle to our export-led adjustment, which is equally important for the other Central European countries. I am talking about market access. In order to reap the full gains of its rapid reorientation of exports, Hungary needs additional support on trade issues. Only greater access to the markets of the industrial world can give Hungary and Central Europe the stimulus needed for the restoration of growth and full integration into the world economy.

Hungary is pursuing its economic policy consistently, resulting in an outstanding economic performance, due debt service, a good balance of payments, fast shift of foreign markets, improved market access, strength and presence on private financial markets, including direct foreign investments. We are working hard. We want to be successful. I am sure that with the confidence of the international financial institutions and community, Hungary has a good chance of victory.

Finally, let me thank the Thai Government for the excellent organization of these meetings and their kind hospitality.

Statement by the Alternate Governor of the Fund for Paraguay—Ovidio Otazu Gimenez

It is a great honor to represent the Republic of Paraguay before the joint Annual Meetings of the World Bank and the International Monetary Fund. We wish to extend our greetings and best wishes for success to the Chairman of the meeting, Mr. Pablo R. Better, to the President and Directors of the World Bank and its affiliates, and to the Managing Director and authorities of the IMF, as well as to the delegate Governors and other participants of this meeting.

At a time when the world economy is undergoing a process of profound changes, we come to this important meeting to reaffirm our recognition and support for the World Bank Group and the International Monetary Fund in the hope that they will continue to be main actors in the world economic order.

In the new world environment that is being forged, both an opportunity and challenge arise for the developing countries to join in the virtuous circle of development through more efficient and equitable integration into the competitive international economy. To do so, it often becomes necessary to adopt a series of reforms. Paraguay, among others, has started on this process in this context of the new external situation.

However, we know that the needed stabilization and economic adjustment policies have unwanted social and political effects in the short run, and, consequently, they generate resistance from certain economic groups, making their implementation more difficult. These circumstances tend to delay the successful integration of many small economies into the international economy.

In this context, we are aware that the Fund and the Bank have a prominent role in supporting developing countries, both financially and with technical assistance, to enhance the adjustment programs in order to correct macroeconomic disequilibria and promote sustained growth and development.

According to what has been said so far, we note a general view, also held in Paraguay, that the IMF should be given sufficient resources to meet its basic function of supporting adjustment programs and structural reforms that will improve the economic and social development of our countries. In that sense, the Fund should be strengthened institutionally and financially. Hence, it is with great pleasure that I announce that the Government of Paraguay has approved the Third Amendment of the Articles of Agreement and has authorized the increase of our quota according to the Ninth Replenishment of resources.

We live in an increasingly more interdependent world, where isolated efforts generate basically poor results. Therefore, the improvement of the international environment is necessary to complement the internal efforts being undertaken by developing economies.

In that sense, it is worth mentioning the unfavorable international economic conditions, such as the persistence of slow growth of output and world trade and the protectionism of industrial countries, which has weakened trade and lowered the price of raw materials. The latter comprise the larger part of exportable goods of developing countries. As a result, much of the internal effort will be diluted unless protectionism is reversed and agricultural subsidies in the developed countries are discontinued.

Similarly, in an increasingly interrelated world, it is even more important that the countries seek mechanisms to avoid strong fluctuation in exchange rates and in the level of foreign reserves, because this generates uncertainty and affects trade, investments, and the allocation of resources.

A number of developing countries have designed policies to reverse the situation of negative transfers of resources and, simultaneously, normalize their relations with external creditors. We can say that the external debt affected our economies as negatively as would a war. Therefore, it has hindered our access to the fresh external resources so necessary to complement domestic savings. Paraguay has not escaped the pernicious transfers and the direct effects mentioned above. The restrictions that the Government faces constitute a constant obstacle to the process of economic reform that has been carried out with effort and persistence since February 1989.

The Stabilization and Adjustment Effort in Paraguay

Throughout the 1960s and 1970s, the Paraguayan economy was characterized by high rates of growth, price stability, and prudent external indebtedness. However, the macroeconomic performance began to deteriorate after 1981 as a result of the absence of adjustment and the economic recession of the early 1980s. These factors led to stagnation and to the acceleration of inflation and external indebtedness.

This situation led to a crisis by the end of 1988, characterized by persistent balance of payments deficits, a fall in international reserves, high fiscal and quasi-fiscal deficits, an increase in the external and internal debt, arrears of external payments, a net transfer of resources, strong inflationary pressures, a drop in investment, and a loss of confidence of the economic agents.

Moreover, the Government that took office in February 1989 applied a series of policies that tended to stabilize the economy through the correction of the internal and external disequilibria. The new policy design is founded basically in the strength of the individual and in collective freedom, as well as in a market economy, where private initiative is favored within a framework of free competition, more openness to the external economy, and the gradual elimination of the barriers that hinder the development of the productive forces.

Early in 1989, the new Government introduced a system of free-floating exchange rates and started the gradual liberalization of interest rates, which was concluded by October 1990. The new exchange rate policy contributed to reducing the pressure on international reserves, and the quasi-fiscal losses of the Central Bank were eliminated. The interest rate policy has promoted domestic savings and deeper financial intermediation, leading to higher levels of investment. The fiscal situation also improved significantly as a result of better administration of resources, taxes and expenditure, and better management of government goods and services. We have also passed a new investment law; another law provides incentives to nontraditional exports.

The National Congress is currently debating three important law proposals for the structural reform of the economy. These are the new tax law, the privatization law, and the investments guarantee law. The next step will be to present the new Central Bank Law, which will provide a modern legal framework. The new law will provide the Central Bank with the necessary tools to implement monetary policies that aim at ensuring the stability of the whole system and appropriate supervision of the financial institutions.

The Government of Paraguay defines stability and economic growth as its main objectives. For this reason, the actions of the Central Bank involve monetary discipline, promoting efficient market intermediation, and prudent supervision. The Central Bank, searching for better monetary control and trying to avoid rigid monetary policy instruments, has started recently to engage in open market operations.

The country has also canceled its external debt with Brazil, and it is regularly serving its debt to the multilateral financial institutions. At the same time, government officials are in constant meetings with bilateral debtors to find mechanisms that will permit the country to regularize its overdue portion of the debt. In that respect, we are aware that the commitments have to be honored.

Regarding trade policies, it is important to point out that the country has reduced and simplified import and export taxes and has joined other countries in the region in a common market (Mercosur). In addition, Paraguay is in the process of becoming a member of the General Agreement on Tariffs and Trade (GATT).

The stabilization efforts are showing positive results. The nonfinancial public sector had a surplus of more than 3 percent of gross national product (GNP) during 1989 and 1990, and we are expecting a surplus of 2 percent of GNP this year.

The exchange rate has been stable for a considerable time, and net international reserves, which were negative in 1988, have been restored to more appropriate levels. The inflation rate, which was about 44 percent last year, came down to an annual rate of 17 percent in September 1991, and we are expecting a rate of 15 percent at the end of this year. Growth has slowed with respect to 1990, but this was due to exogenous weather conditions and the effects of adjustment. We are expecting a 3 percent growth rate for 1991 and an improvement in 1992 and the following years.

I consider the economic results to be generally positive, given the short-run stability objectives chosen by the Government. We will keep working to consolidate the stability and will count on external savings to improve the economic development prospects. We can summarize the main economic policy goals of the Government to be:

  • • to promote market-based economic policies, so as to enhance the allocation of resources through the price mechanism;

  • • to modernize and restructure the public sector;

  • • to keep a policy of free trade, free exchange rates, and market-determined interest rates;

  • • to increase domestic saving; and

  • • to rebuild the financial position of the country in the international community.

To conclude, on behalf of the Paraguayan delegation, we express our gratitude to the people and the Government of Thailand for their kind hospitality and sweet smile that they have shown us at all times, and we wish that the meeting concludes with valuable lessons for the countries that each of us came here to represent, given that the challenge of globalization of our economies demands, now more than ever, the active participation of the World Bank and the International Monetary Fund. Last but not least, we express our best wishes to Mr. Preston, President of the World Bank, and to Mr. Camdessus, Managing Director of the International Monetary Fund, and our congratulations to the Thai authorities.

Statement by the Governor of the Bank for Poland—Andrzej Topinski

Two years ago, Poland formed the first noncommunist government in Central Europe. This was followed by a wave of sweeping political and economic changes in Central Europe and the U.S.S.R. We have witnessed the disappearance of communism; we have also seen new governments undertake serious economic and political reforms designed to make the transition to free markets and democracy.

The extent of the transformation makes it clear that communist totalitarianism has definitively ended in this part of the world. However, what kind of political and economic system will emerge in its place is still far from clear.

The governments of Central and Eastern Europe do not need to be convinced of the urgency to continue the reforms. They do, however, need strong, unflinching, and innovative support from the developed West and the whole international community. Following the spirit of the Bretton Woods institutions, we have embraced the principles of free trade and opened our markets to foreign competition. We expect all countries, especially the highly industrial ones, to do likewise.

Given the harsh international climate in which the reforms are taking place, it is essential that the support offered by the international community be allocated in a most efficient and effective manner and be tailored to the recipient’s needs. We are still in a crucial period in our reform process—one in which international cooperation and solidarity in removing the remaining obstacles continue to be urgently required.

The transition from a centrally planned economy to an economy based on private ownership and a functioning market has no blueprints to follow. However, there are solutions used by other countries that are applicable to our economic reality. We are eager to use these tested models and are ready to offer our technical expertise and assistance to other countries wishing to follow our way down the path of transition.

For the international community, the World Bank, the International Monetary Fund, and other multilateral organizations concerned with world economic development, the recent changes in Central and Eastern Europe pose a great challenge. This “new region,” which was previously isolated from the rest of the international community, is now trying to reintegrate with it, bringing new problems as well as new opportunities. The challenges of development must be supplemented with the challenges of transition, including such issues as restructuring and mass privatization.

The question arises: Will this region, so rich in natural and human resources, successfully make the transition to free-market democracy and become an area of development and an engine of growth for the world economy? Or will the difficult reforms, now being launched or implemented, fail due to lack of internal and external support, causing the region to slide into a vicious circle of economic regression and political instability, thus becoming a perpetual drain on the international community’s resources?

Of course, the answer to this question depends mostly on ourselves and our own patience and resourcefulness. The reforms could not have taken place without the wide popular support for the process in the respective countries, and it must be recognized that the path to economic improvement exacts a heavy social cost on the population: the risk of destabilization—as a result of popular discontent or from powerful opposing interest groups—becomes much greater. In order to maintain stability in the period of transition, economic reforms must go hand in hand with political reforms.

We have enjoyed overwhelming political support from the international community for our reforms. Without this endorsement, proceeding on the path to a market-style economy would be impossible. This support helped tremendously in achieving acceptance for the reforms on the domestic front.

We note with gratitude the assistance and understanding provided to the countries of Central and Eastern Europe by the international community and the most helpful activities of the international financial organizations. But we are very sensitive to the fact that the IMF and the World Bank must not neglect their more traditional borrowing countries. We certainly hope that the Bank and the Fund will do everything in their powers to maintain the level of support to their regular clients and, at the same time, provide adequate support for the adjustment programs of Central and Eastern European states. Moreover, we look to the entire international community of nations for an increase in economic and political contacts, reintegrating the region into the post-Cold War, world order.

We welcome the association of the U.S.S.R. with the International Monetary Fund. We would be glad to see the U.S.S.R. and its former republics that choose an independent path integrated as full-fledged members of the international financial organizations. The acceptance of this region’s countries into the international financial community assures that the changes will not be reversed and solidifies the fragile stability in the region.

I would like to finish with words of special thanks to Mr. Barber Conable, who served the World Bank as its President, and welcomed Poland to the family of the World Bank Group. We also bid a warm welcome to Mr. Lewis T. Preston who will be guiding the Bank through the ever-so-rapidly changing map of the global economy, and congratulate Mr. Michel Camdessus for his re-election as Managing Director of the Fund for another term.

And finally, let me commend and thank our gracious hosts—the Thai Government and the Thai people—who have impressed us with the professionalism and superb organization of this year’s proceedings, and conquered our hearts with the stunning beauty of their country and their warm hospitality. To all those who made this meeting possible I give you my most sincere “wai.”

Statement by the Alternate Governor of the Fund for Kuwait—Sheikh Salem Abdulaziz Al-Sabah

Last year at this time, Kuwait was under occupation of the brutal Iraqi regime. Now, Kuwait is back to its people, and now with the help of God Kuwait is free and under its sovereign and legitimate government, no words can express the gratitude of the Kuwaiti people to the international community that stood united against the aggression and to the international coalition forces who risked and sacrificed their lives to see Kuwait free again.

As I speak, over 2,000 Kuwaiti men, women, and children remain in Iraqi jails or are missing. A cloud of smoke from the oil fires hovers over Kuwait, the Gulf, and neighboring countries and poses one of the world’s worst environmental disasters. Thousands of families from different parts of the world remain displaced and suffer from the loss of their property. Many parts of Kuwait remain inaccessible because of mines and ammunition left behind by the Iraqi forces. As Kuwaitis begin to face the depth and magnitude of the economic, social, and psychological damage caused by the Iraqi invasion, we join the international community in hoping that the reduction of international and regional tensions would allow us all, the industrial and developing countries, to reduce arms expenditure and devote more of our resources toward the betterment of mankind. Let me assure you of our strong commitment to the international community and the multilateral institutions that we have built together.

The reconstruction of Kuwait is expected to take a few years. Losses to our infrastructure and domestic assets are expected to be in the tens of billions of dollars. In the oil sector, there was severe damage to the infrastructure, which has substantially decreased our oil revenues. With respect to the oil well fires, we expect all fires to be put out, at the latest by the first quarter of next year.

Present production of crude is 260,000 barrels a day. This will rise to 400,000 barrels a day by year end and we hope to produce 800,000 barrels a day by June 1992, well below our previous capacity of 2 million barrels a day. Despite the damage, oil exports commenced in July, and we will be working to re-establish our previous position in the international markets. The Kuwait Petroleum Corporation will also continue its investments in emerging markets, which recently include a network of service stations in our host country, Thailand, and in Hungary.

The restoration of oil production, storage, refining, and export capability is critical to the restoration of oil revenues and meeting reconstruction and development needs. Meantime, in addition to subsistence expenses for Kuwaitis during the occupation and immediate reconstruction requirements, we have so far managed to meet $23 billion of commitments for the international coalition operation costs and for economic aid from investment reserves. Our investment policy remains one of long-term diversification in the major capital markets, and we will continue to hold our core investments. To meet our short-term financial needs, the Kuwait Government will be borrowing foreign currencies in the international financial markets.

The borrowing instruments are expected to include syndicated loans, export credits, and other credit instruments. Over the medium term, the borrowing program will also be supplemented with actions to rationalize expenditure. The objective will remain to restructure the economy toward greater efficiency and a larger role for the private sector.

The role of the Central Bank of Kuwait and our financial institutions has been critical to the start-up of the economy. The banks, which continued during the occupation to honor their foreign obligations, were well prepared to reopen after liberation. Pursuant to an action plan prepared during this period, the notes previously in circulation, a large stock of which was looted by the Iraqi occupation forces, were replaced by a new issue immediately after liberation. Temporary restrictions aimed at fighting an expected surge in inflation and allowing for the banks to reorganize their services were placed on withdrawals from the banks and on transfers into foreign currency, with exceptions for economic activities and humanitarian cases. Toward last August, all restrictions were lifted.

The Central Bank’s monetary policy during reconstruction continues to aim at controlling inflation and preparing the environment for stable growth. Toward this goal, the exchange rate for the Kuwaiti dinar after liberation has been based, as before the occupation, on a basket of currencies of our major trade and financial partners. The interest rate on the Kuwaiti dinar is in line with international interest rates.

The Central Bank has also been addressing the problems facing our banking system as a result of the destruction and plunder of private sector assets. The Central Bank of Kuwait is studying a program aimed at cleaning up the balance sheets of the banks’ difficult loans. This is also expected to be an opportunity for restructuring and consolidating the banking system. The Government continues to guarantee all depositors’ rights with Kuwaiti banks.

The invasion of Kuwait precipitated a severe economic crisis in many countries. The international community responded quickly to President Bush’s initiative to form the Gulf Crisis Financial Coordination Group, and the Bank and the Fund provided critical technical support and accelerated their programs of assistance to the countries affected by the crisis. Kuwait committed close to $5 billion to seven countries most immediately affected by the crisis. The multilateral institutions now need to address some longer-term structural changes in interregional trade and capital flows. As many Arab countries restructure their economies to adjust to the effects of the crisis and a rapidly changing and competitive international environment, there is a unique opportunity for regional cooperation on resource flows, trade, and private sector activity. In this respect, Kuwait has agreed to set up holding companies with a capitalization of $500 million in Egypt and $200 million in the Syrian Arab Republic for commercial investments.

Besides direct government assistance, the Kuwait Fund for Arab Economic Development continued its concessional aid program even during the invasion. Eleven loans and four technical assistance grants totaling the equivalent of $405 million were extended during the period. Despite the difficulties of recreating its books from temporary headquarters, project evaluation, follow-ups, commitments, and disbursements were on schedule. As part of His Highness the Amir’s initiative to alleviate the debt burden of the developing countries, $42 million of interest on Kuwait Fund loans was waived to benefit seven Arab countries, 24 African countries, and 12 Asian countries. We will also be looking at ways to alleviate the burden of repayment on the poorest countries on a case-by-case basis. In this respect, we welcome the recent Group of Seven agreement for additional relief to the poorest, most indebted countries beyond the Toronto terms.

The Kuwait Fund was instrumental during the crisis in responding to the needs of the countries most immediately affected with grass-roots-oriented projects and quick-disbursing loans. Total Kuwait Fund commitments, since its formation, reached a level of $6 billion, benefiting 65 developing countries.

Kuwait participated in the Sixth Replenishment of the African Development Fund with an amount of $100 million as pledged, which is equivalent to ten times our share. Kuwait also contributed $20 million to the Special Program of Assistance to Africa. We also supported the capital increases in the Bank and IFC and doubled our contribution to IDA-9. In this respect, we support an increase of IDA-10 to reflect the increasing needs of the least developed countries and will continue through the Kuwait Fund to work closely with the multilateral and bilateral development institutions. Additionally, the Government of Kuwait is supporting the IMF Ninth General Review of Quotas.

We would like to take this opportunity to convey our special gratitude to the financial authorities in the many countries that protected Kuwaiti investments from falling into the hands of the Iraqi regime and to the financial community that supported Kuwaiti institutions as they began operations from temporary headquarters outside Kuwait.

Our special gratitude also to His Majesty the King, the Government, and the people of Thailand for their gracious hospitality in their beautiful country.

Statement by the Governor of the Fund for Bulgaria—Todor Y. Valtchev

It is just one year since Bulgaria became a member of the International Monetary Fund and the World Bank. We are now happy to welcome the representatives of the new member countries—Albania and Mongolia—as well as the countries applying for membership.

I would like to remind you of the fact that only by late January 1991, that is, somewhat later than most of the Eastern European countries, did the political situation in the country allow the Bulgarian Government to launch a comprehensive and bold economic reform. No one needs to be convinced now that the transition to a market economy will take more time and engender more hardship than was apparent at the start. This is true for Eastern Europe as a whole and for Bulgaria in particular, where the conditions are particularly unfavorable because of the years-long unilateral dependence on the Council for Mutual Economic Assistance (CMEA) market. This has resulted in a tremendous loss of markets to which Bulgaria has traditionally had access, both on the export and on the import side. The much sharper drop in both output and living standards than that experienced in other Eastern European countries is by and large a consequence of this major dislocation.

Under these conditions, the inflow of foreign financial resources could—in principle—facilitate the Bulgarian transition process. Yet, the reform government was virtually deprived of any support as the communist regime had succeeded in accumulating a huge external debt and the last socialist government, faced with the depletion of foreign exchange reserves, had declared a unilateral moratorium on debt service. Now, Bulgaria has no access to world capital markets whatsoever. To this could be added the specific internal political situation which until recently was characterized by a confrontation of the major political forces—the BSP or Socialist Party, which is the former Communist Party, and the Union of Democratic Forces (UDF)—with the majority of the BSP representatives being in Parliament and within the economic institutions. The evidence reaching Bangkok on the preliminary results of the general and municipal elections that were held on October 13 gives reason to consider as a plausible outcome that a Cabinet excluding the Socialist Party would be in place. Hence we can expect a major increase of legislative activity within Parliament.

Despite the unfavorable starting conditions in early 1991, the Government did not hesitate to take a number of harsh monetary and fiscal measures. As prices were liberalized, a unified exchange rate started floating on the emerging interbank foreign exchange market. The Bulgarian National Bank, the central bank, no longer depends on the Government and is carrying out an anti-inflationary policy supported by high interest rates and credit ceilings. The government budget no longer finances production, consumption, and exports; it has sharply cut back investments and administrative outlays, but it has had to accommodate the higher-than-expected costs of the social safety net. Social peace was thus preserved due to the operation of the tripartite agreement between the Government, the employers, and the trade unions. The people were remarkably patient in bearing the burden of the severe hardships and the sharp drop in real incomes. We are currently facing increased pressure on the part of some trade unions that are demanding higher wages in an amount that neither the economy nor the budget can accommodate.

Parliament adopted several important economic laws, such as the Law on Commerce, the Law on Foreign Investment, and the Law on Land Restitution. Other laws, for example, the Privatization Bill, the Tax Bill, the Banking and Credit Bill, and the Securities Exchange Bill, were not passed, though. In the process of preparing and implementing the reform, we have worked in close cooperation with the Fund and the Bank missions. They succeeded in getting straight to the specifics of our economy. We therefore are particularly grateful to them for their continuing effort and involvement. It is a pity to have to recognize once again that the international financial organizations have ways of their own and sometimes fairly complicated procedures, and that action by the international financial community as a whole turned out to be particularly slow. Financial aid from official sources came in quite late in substantially reduced amounts. Instead of the envisaged US$1.5 billion to bridge the gap in our balance of payments for 1991, Bulgaria might receive barely half of this amount, if not even less. This will further aggravate the depression, and by now we see no signs of revival whatsoever.

The Sunday election results, as they are now reported in the media, provide ample support to our determination to proceed with the reform with unabated zeal and commitment. First and foremost, we are focusing on giving a major impetus to privatization in various forms and under different schemes, incorporating both domestic and foreign investors.

Similarly, the reform of the banking system, elaborated in close cooperation with the World Bank, is pending. The disproportionately large number of state-owned, small, and largely decapitalized commercial banks will consolidate and clean up their balance sheets. Their shares will subsequently be offered for public sale—to residents as well as to foreign investors and banks. We welcome the emergence of foreign banks in Bulgaria. We are all too well aware that without a modern banking system, it would prove impossible to restructure the economy successfully.

We are now expecting continuing financial support from official sources through 1992. Without the provision of reasonably tailored financial support from the relevant institution, the Bulgarian reform process could well lose momentum and internal political support. We are nevertheless determined to pursue our efforts to further consolidate the early achievements of the stabilization program. We do hope that we are close to a broader political consensus and to increased political stability.

The Bulgarian road to the market economy has so far been characterized by a lack of violence, armed conflicts, or casualties. Bulgaria, therefore, is clearly a stabilizing factor in the Balkans and Europe. Prospects are, it is hoped, that this situation will be retained and further consolidated.

Statement by the Governor of the Fund for Mali—Bassary Toure

Let me first of all express on behalf of the Malian delegation, which I have the honor to lead, my sincere thanks to the authorities and people of Thailand for their hospitality. I would next like to offer my warm congratulations to you, Mr. Chairman, on the confidence that the entire international financial community has placed in you to conduct our work.

Let me pay tribute to Mr. Conable’s wise and farsighted leadership of the World Bank Group; he became President at a time when the international economic situation was both uncertain and difficult. I would also like to wish every success to his successor, Mr. Lewis T. Preston, whose immense experience will be most valuable for the attainment of the noble aims of our institution. Let me also warmly congratulate Mr. Michel Camdessus on being re-elected Managing Director of the IMF.

Like previous speakers, I too want to take this opportunity to welcome the new members of our institution. I am sure they will help to strengthen the ideal that has always inspired it, namely, international cooperation in a context of solidarity and peace.

I do not intend to discuss the major issues that have preoccupied the international community in recent times and that have already been expounded by more authoritative voices than mine, but rather to inform you of developments in the economic, political, and social situation in Mali since our last meeting and of the new prospects for democratic renewal.

As you know, the Malian people made major sacrifices at the beginning of 1991 to restore freedom, democracy, and economic and social progress to our country. The scope and originality of this triumph gained for Mali the sympathy and esteem of all the nations in the world who are attached to peace and justice.

This is the occasion for me to thank on behalf of the Government of Mali all those friendly countries and humanitarian organizations that provided moral and material support to the people of Mali during their struggle to restore a democratic regime. When basic liberties have been stifled for a long period they are bound to be reasserted with greater force, and sometimes, unfortunately, with violence. The restoration of liberty in Mali was no exception to this rule.

In March 1991, Mali experienced a social eruption as a result of the people’s desire for a pluralist democratic system. A Transitional Committee for the Salvation of the People, made up of representatives of all shades of political opinion, is now governing the country until new democratic institutions are established. The Government of Mali that has taken charge since the democratic revolution is faced by an enormous task which it will perform until the end of the transition period; power will be transferred to democratically elected political institutions at the start of next year.

The starting point for this process was the national conference held from July 29 to August 12, 1991. This national conference, considered by many to have been a success, laid the legal foundations for the new republic, specifically by preparing a draft constitution, to be voted in a referendum, a draft electoral code, and a draft political party charter. The draft constitution already provides a satisfactory framework for the expression of the various political tendencies and the growth of a free, private, and independent press.

The Government is well aware of the scale of the difficulties facing it, which were aggravated by the riots last March. Their immediate consequence was the destruction of a large part of Mali’s industrial and commercial base and the ransacking across the country of many offices vital to the management and implementation of the reform program (Treasury, Customs, Civil Service, etc.). The economic losses are provisionally estimated at CFAF 30 billion. At the same time socioprofessional demands have exploded, further weakening a very shaky economy.

Despite the legitimacy of these demands (for higher wages and scholarships, better health services, and housing, etc.), the Government cannot accommodate them without endangering the economic and financial adjustment process launched with the support of the Bretton Woods institutions.

The Government is determined to firmly control the unfortunate consequences of the disturbances, restore the state’s authority, and reestablish a climate of confidence before the end of 1991. The Government is also committed to pursuing the reform program supported by the World Bank and a number of partners within a macroeconomic framework agreed with the IMF, in order to help Mali achieve sound and sustained economic growth in an environment of domestic and external financial stability.

Constructing a democratic state in a poor country is a hard task that can only be accomplished with the active support of the international community. Since domestic resources are insufficient, our new difficulties force us to request external financial assistance, both multilateral and bilateral, on a much larger scale than before.

Financial missions from France, the World Bank, and the IMF have examined the budgetary consequences of the events already mentioned. An appropriate macroeconomic framework and a range of sector measures were discussed with the ministers involved in the adjustment program during the joint IMF-World Bank mission in May 1991.

With the support of the Bretton Woods institutions and assistance from France, a meeting of the friends of Mali was held in Paris on July 3, 1991. Its purpose was to establish a consistent macroeconomic framework for government actions and to obtain confirmation from these partners of their commitments, as well as additional assistance to cover the expenses of reconstruction and the financing gap in the state’s financial operations. The results of these meetings were very satisfactory, in that the international community, supporting the efforts made by the Government, agreed to mobilize additional resources beyond the identified financial needs, thereby enabling the democratic process to continue.

The provisional data available on September 30, 1991 indicate that the Government of Mali is fulfilling all its commitments to its development partners. In economic terms, program results have been satisfactory. Budget receipts have reached the desired level and all external debt commitments have been honored. Likewise, obligations to the private sector have been fulfilled and the state’s debt to the banking system has been kept within reasonable limits to maintain macroeconomic equilibrium.

A range of structural measures has been implemented, involving the enhancement of the regulatory framework, the downsizing and rationalization of the public sector, a voluntary retirement program for civil servants, and the introduction of price deregulation. The Government of Mali is convinced that only the establishment of broad economic cooperative arrangements can provide the basis for viable economic development in the medium term.

Mali will continue its policy of vigorous subregional cooperation. My country will work actively with the partners with whom it already shares a number of common institutions for West African integration. Standing at the crossroads of civilizations in sub-Saharan Africa, Mali’s African policy is based on acting as a good neighbor and on the geopolitical equilibrium of the entire zone. Our consistent approach on this issue has earned us the esteem and support of the international community.

Meanwhile, the Government of Mali, in establishing a democratic regime, is working to maintain the principles of rigor, transparency, and empowerment in the management of public affairs. The rule of law, in which basic human liberties will be guaranteed by the constitution, is now becoming a reality. It is in the name of these same principles, recommended by the national conference and which we reaffirm, that the program with the IMF will be continued by the institutions of the Third Republic.

Mali more than ever before in this new phase of democratic renewal is resolved to continue the democratic regime which we consider is here to stay. We realize, of course, in these efforts we must work first and foremost by ourselves. But I am sure you will understand that the international community’s assistance is of the essence, and we trust it will be with us.

Statement by the Governor of the Bank and the Fund for Vanuatu—Sela Molisa

On behalf of my own country, Vanuatu, and other countries in our constituency, Kiribati, Solomon Islands, and Western Samoa, I wish to join previous speakers in extending our warmest greetings to the newest member of our constituency, Mongolia, and also in welcoming Albania, the newest member of the Bank and the Fund. A further welcome is extended to countries attending this meeting for the first time, in particular our neighbor, the Federated States of Micronesia. The presence for the first time of a Soviet delegation as associate member to the Annual Meetings is encouraging, and it is hoped that it will not be too long before the Soviet Union becomes a member of the World Bank and the Fund. Our congratulations to the Government and the people of Thailand for organizing the Annual Meetings in this beautiful city of Bangkok, with the usual Thai hospitality.

The Fund’s World Economic Outlook has brought out many developments that are not so encouraging as in the recent past. World economic growth has been decelerating in the last two years, from the significant rates of expansion achieved in the earlier years up to 1988, and it is expected to decline further in 1991 to a scant 1 percent growth, the lowest rate of growth since 1982. The growth of world trade has also slowed down as a result. Many industrial countries have just started to recover from the economic recession. The collapse of trade among the former members of the Council for Mutual Economic Assistance (CMEA) has substantial adverse impact on real output of the Eastern European countries and the Soviet Union. On the other hand, further progress on economic and monetary convergence among European Community (EC) members provided encouraging background for optimism for the future. Progress toward completing the single market among EC members has been accelerated; negotiations continued relating to both the establishment of a common market arrangement among members of the EC and the European Free Trade Association (EFTA), and the association arrangements with the Eastern European countries. Moderate recovery is thus projected by the Fund staff for 1992, which, it is hoped, will lay the groundwork for a period of sustained growth.

The economies of the small countries of our constituency continue to be dominated by increasing external trade deficits and are likely to remain so for a long time. With limited resource bases, weak infrastructure, and isolation from the major markets, our export commodities are less competitive. The downward trend in international prices of our primary exports and the restrictive trade practices of industrial developed countries, especially relating to trade in agricultural products, produced depressing effects on our efforts to compete in international trade. The successful conclusion of the Uruguay Round of multilateral trade negotiations could thus help to improve the plight of our external trade position.

We firmly believe that our goals toward economic development basically depend on our own efforts. However, because of the specific position of small island countries with poor resource endowment, development of our economies relies heavily on the inflow of external resources through either foreign direct investment or foreign aid, in order to improve both the natural and human resource bases of our economies. Capital injections required for private sector investments in our island economies are relatively small, but meeting them could produce large catalytic effects on structural economic adjustments. The main constraint to this is the paucity of technical background to identify profitable projects for private investment. The initiatives of the International Finance Corporation (IFC) in giving technical advice and assistance relating to project identification and formulation could go a long way toward meeting the needs of our economies, where the level of evaluation and formulation of project designs is not yet well developed; in addition, we could dispense with government guarantees for projects financed under its auspices. The recent capital increase of the IFC is therefore a welcome development.

In the rapidly changing economic conditions, there is a great need by us to train our nationals, preparing them for the intricate administrative and managerial responsibilities. In this respect, the technical assistance programs of the Bank and the Fund for providing advice and local counterpart training have been most beneficial. The training provided by the institutes of the Bank and the Fund has also proved to be useful for improving our manpower resources. Small island economies would continue to need these facilities in order to improve and maintain their economic performance. It is therefore imperative that the Bank and the Fund continue and accelerate their technical assistance and training programs, now that increasing demands would be forthcoming from new membership, in addition to the continuing needs from old members.

In conclusion, I wish to express our appreciation to you, Mr. Chairman, for the admirable way in which you have conducted the Annual Meetings, and to thank the new President of the World Bank, Mr. Lewis T. Preston, and Mr. Michel Camdessus for their interesting annual addresses.

Statement by the Governor of the Bank and the Fund for Australia—John Charles Kerin

I am very pleased to have the opportunity to address this meeting of the Governors of the World Bank and the International Monetary Fund, my first as Governor for Australia. On behalf of Australia, I extend a warm welcome to Mr. Preston. We look forward to working closely with you in your important role as the new Bank President. I also congratulate Mr. Camdessus on his reappointment as Managing Director of the Fund. Australia is very pleased to welcome Albania and Mongolia, the newest additions to our membership. Our particular thanks go to the Government and people of Thailand, for their impressive efforts in hosting this event and for their charming hospitality.

The past year has been one of great difficulty in the world economy. The countries of Eastern Europe and the Soviet Union are in upheaval. The aftermath of the Gulf war, the difficulties of many heavily indebted countries, and the recession in several major countries have affected not only the countries concerned but the whole of the international community. The best available forecasts for the world economy suggest that the economic tide has turned. But there remain two major dangers.

One danger is that fiscal and monetary policies in industrial countries may depart from their adherence to a medium-term approach. It is vital that their macroeconomic policies be directed toward the medium-term objective of securing sustainable growth with low inflation. Rising demands on global savings will need to be met by fiscal consolidation, particularly in the United States. Fiscal and monetary policies must avoid pump priming and safeguard against a return to high inflation. That would undermine much of what has been achieved over the past decade.

The second danger lies in the urgent problem of international trade, where the industrial countries have a special responsibility to show leadership. As the President of the Bank has noted, 20 of the 24 countries of the Organization for Economic Cooperation and Development (OECD) are more protectionist now than they were ten years ago. The loss in income to developing countries caused by industrial countries’ protectionism is estimated to be about twice the total value of all official development assistance. The cost to themselves of industrial countries’ protectionism is even greater. It has been estimated that the ending of agricultural subsidies would reduce the U.S. trade deficit by more than $40 billion, and generate 3 million new jobs within the European Community (EC).

Success in the Uruguay Round, in the very near future, is critical to the future of the multilateral trading system. The President of the Bank has already observed that no international issue affects the developing countries more than this. If the Round fails, many countries may react by stepping backward into direct protectionism and inward-looking trading blocs, depriving the world of large efficiency and welfare gains. Australia was profoundly disappointed at the failure of leadership shown by industrial countries in the Uruguay Round last year. We must ensure that this is not repeated this year. As finance ministers, we have a special responsibility to insist that our ministerial colleagues for agriculture and industry recognize the broader national and international interests involved.

Reductions in protection, especially in Europe and especially in agriculture, are necessary for success in each of the great economic endeavors before us now—bringing prosperity to Eastern Europe and the republics of the Soviet Union, helping countries in other regions to make the transition to open, market-oriented economies, and restoring heavily indebted countries to a more viable condition.

The challenge for industrial countries in reducing protection is considerable—as we in Australia know from recent experience—but it should be seen in perspective. The extent of adjustment required on the part of sectional interests in the industrial countries is much less than what is now occurring in Eastern Europe, or what is required of many developing countries under the Fund’s and the Bank’s adjustment programs.

Our host country, Thailand, is one of several in the Asian region that demonstrate to all the benefits of adopting market-oriented policies. Other countries in Indochina are beginning to move in a similar direction. The comprehensive settlement in Cambodia, which is now imminent, should mark a turning point in external assistance to this area, including that from the Fund and the Bank. The time has now come to help Viet Nam clear its arrears and become eligible for drawings, which I hope will be associated with a sound program of structural adjustment and financial assistance from other sources.

Australia has been particularly hard hit by the current export subsidy war in agricultural products between the European Community and the United States. We have experienced our most severe recession in 60 years, and there has been a sharp cyclical turnaround in our fiscal situation from surplus to deficit. Despite this, we have increased our aid budget this year, but our capacity to provide aid in coming years will remain constrained.

Whereas in past replenishments of multilateral funds we have been able, on several occasions, to help fill gaps beyond our burden-sharing allocations, we have now been forced, regretfully, to reduce our share of the next replenishment of the Asian Development Fund. We shall need to take the same approach toward the next replenishment of the International Development Association (IDA). I stress that this is not motivated by any large misgivings about IDA’s objectives or methods, which we continue to support, but only by the present constraint on our capacity to make new financial commitments.

Australia supports the Bank’s recent initiatives on poverty reduction, human resource development—including women in development—and protection for the environment. We have also stressed the need for borrowing countries themselves to increase their budgetary support in these areas. We would encourage other countries to examine critically their public expenditures, especially military spending, and ask themselves whether they can afford not to have these resources devoted to education, to health, or to other constructive purposes. We also support the increased emphasis being given by the Bank to private sector development in mixed market economies.

Australia believes that both the Bank and the Fund have important roles to play in helping to overcome the many challenges facing the world economy, and in fostering a favorable environment for economic growth. The institutions need support from all of us in performing their roles.

The extent of that support in the future will be enhanced by evidence of their effectiveness in implementing programs and projects, and the efficiency with which they administer themselves. They have an opportunity to show the same strength of purpose in pruning activities and in cutting costs as we are being encouraged to have as ministers in our own governments.

So, Mr. Chairman, I am finishing where I began—extending support to the Bank’s new President, and the Fund’s re-elected Managing Director, in their leadership of their institutions, and ourselves as members, in the challenging years ahead.

Statement by Governor of the Bank for Fui—J.N. Kamikamica

It is a great honor to attend the Forty-Sixth Annual Meetings of the World Bank and the International Monetary Fund in this picturesque city of Bangkok. On behalf of my delegation from the Republic of Fiji, I take this opportunity to thank the Government and the people of the Kingdom of Thailand for their warm reception and the excellent arrangements for the hosting of these Annual Meetings. I would also like to welcome Mongolia as a new member.

I should like to join my fellow Governors in warmly welcoming the new President of the Bank, Mr. Lewis T. Preston, and look forward to seeing him continue the determination and commitment that his predecessors have all displayed in discharging their important responsibility of addressing the development challenges. In particular, I should like to record my appreciation to Mr. Barber Conable, the past President of the Bank, for his able and effective leadership during the past five years. I should also like to congratulate Mr. Michel Camdessus on his reappointment as Managing Director of the Fund for a second term.

In their annual addresses, the President of the World Bank and the Managing Director of the Fund have set out the roles of the two institutions in the search for solutions to the difficult issues facing the global economy. Both the President and the Managing Director are to be congratulated for their vision and leadership, and we wish them and their staff well in the challenging tasks ahead. Indeed, the successes of the two institutions in meeting the challenges of the past give one hope and confidence for the future.

The events of the past 12 months have clearly indicated that the world economic scene is experiencing a period of rapid and significant change. When we met in Washington a year ago, we were heavily preoccupied by the events in the Gulf and the implications for economic development, particularly for the potential escalation in oil prices. Fortunately, the speedy resolution of the crisis has mitigated the adverse effects that were originally envisaged.

The economic and political reforms in Eastern Europe, including the recent events in the Soviet Union, are indeed remarkable both in scope and pace. The way ahead toward market-based economies and the effective integration of these countries into the world economy will, of course, take time. It will also require close coordination in the mobilization of capital resources and the implementation of appropriate packages of economic and structural adjustment policies.

In my view these developments have clearly brought out two important issues. First, a market-oriented regime, whereby private enterprises are free to make choices in a competitive environment, is the best way to achieve long-term sustainable economic well-being. Second, there are increasing demands on global liquidity to cater to reconstruction in the Gulf and to finance the reforms in Eastern Europe.

These developments have direct implications on the role of the Bank and the Fund. There will be a significant increase in the demands on Bank and Fund resources. It is therefore of concern that the increase in quotas under the Ninth General Review has not yet been implemented. In common with many countries, Fiji has already given its consent, and it is to be hoped that those other countries will follow suit, so that the increase in quotas can be implemented as soon as possible. I would also encourage the Fund to continue its efforts to obtain the necessary support for a third SDR allocation.

These issues have implications for the developing contries, an increasing number of which are undertaking structural and economic reforms. There have been encouraging signs that these reforms are beginning to show benefits in developing countries, and it is expected that these initiatives will continue to be supported by the Fund and the Bank. Developing countries must be assured that the increased demands on resources would not be met by a squeeze on their requirements. Greater emphasis should also be placed on flexibility and speedy response to the changing and divergent needs of developing countries. . . .

The suspension of the Uruguay Round negotiations is another concern of developing countries, as it poses a direct threat to our long-term growth and external viability. World trade is expected to grow by about 2 percent in 1991 as against 7 percent in 1990. As part of the overall trend toward market-oriented economies, developing countries are liberalizing their trade policies on the reasonable expectation that the international trading system will be supportive of their efforts. The outcome of the General Agreement on Tariffs and Trade (GATT) negotiations will be crucial to the future pattern of world trade, the economic prospects of developing countries, and the solutions to their external debt problems. Let us, therefore, be mindful of the comment by the past President of the World Bank, Mr. Conable, to the Development Committee earlier this year that “the potential annual gains to developing countries from the removal of developed countries’ trade barriers represent double the interest payments by developing countries on their public debt or double the annual flow of official development assistance.” These are striking calculations indeed. While we welcome the reactivation of negotiations, a deliberate commitment should be made and a firm date set to bring the Uruguay Round to a successful conclusion.

World economic growth is expected to slow in 1991 to around 1 percent (compared with 2 percent in 1990), reflecting the slowdown in economic activity of the industrial countries, which has, in turn, adversely affected the economic growth in developing countries. The problems that developing countries continue to face are low rates of domestic savings, lower levels of investment, and high debt-servicing costs. To overcome these problems, the developing nations will need to persevere with comprehensive policies and structural adjustments that are appropriate to their individual situations. However, the onus of adjustment should also be shared by developed countries to the extent that their domestic policies should be realigned to be consistent with the objectives of economic growth and liberalization of international trade.

On the debt problem, I am happy to note that some progress has been achieved in this area, with several debtor countries concluding debt restructuring and rescheduling agreements. The Paris Club members must be commended for their initiatives in debt reduction and increased concessions to heavily indebted low-income countries. The World Bank should also be supported in its efforts in finding acceptable solutions to debt problems and should be encouraged to continue this role. However, at the same time adequate assistance should continue to be available to those developing countries that have been able to avoid debt-servicing difficulties.

I would now like to say a few words about my country’s economic development in recent years. Fiji is fully committed to an overall policy of promoting an outward-looking strategy, thereby developing a framework conducive to sustained economic growth. In support of this overall strategy, we have begun implementing policy measures and structural reforms that will provide incentives to the private sector, encourage efficiency, enhance competition, and reduce the Government’s role in the economy. Our efforts are generally in line with the broad international trend toward a market-based economy. We foresee the role of government in future as providing infrastructure and essential services and the necessary supervision and regulatory framework to ensure the efficient operation of markets. I am pleased to report that the results of these reforms have been encouraging, with the country recording an average growth rate of over 5 percent in the last three years. We are confident that the promulgation of our country’s new constitution in 1990 and the holding of a parliamentary election early next year will provide further impetus to investment and economic growth. In this regard, I must record my country’s appreciation to the Fund and the Bank for their assistance in helping chart our future direction and in providing financial and technical support when needed.

I would like to conclude by again referring to the changes that the world economy is undergoing. In this regard, I am reminded of the words of Henry Morgenthau, Jr., then U.S. Treasury Secretary, at the closing session of the 1944 Bretton Woods Conference:

We have come to recognize that the wisest and most effective way to protect our national interests is through international cooperation. This is to say, through united effort for the attainment of common goals. This has been the great lesson of contemporary life, that the peoples of the earth are inseparably linked to one another by a deep, underlying community of purpose.

The lessons that emerge very clearly are that we cannot survive in isolation, that domestic policies should be closely attuned to the international market place, and that multilateralism accrues benefits to all of us. I share in the optimism that with international cooperation and firm commitment we can collectively find solutions to the challenges that lie ahead.

Statement by the Governor of the Bank for the Lao People’s Democratic Republic—Khamphout Keoboualapha

It is an honor and a great pleasure for me to represent the Government of the Lao People’s Democratic Republic at these Annual Meetings of the World Bank and the International Monetary Fund in Bangkok. I welcome Mr. Lewis T. Preston as the President of the World Bank and congratulate him on his taking office. I also wish to congratulate Mr. Michel Camdessus on his extension as Managing Director of the IMF for five more years from January 1992. I extend a warm welcome to the delegations of new member countries.

On behalf of the Lao Government, I wish to thank the two institutions and the Thai Government and people, for the excellent arrangements made to ensure the success of these meetings.

Following the creation of the Lao People’s Democratic Republic, all the Government and people wanted was peace and security and the development of the economy for the ultimate prosperity of all. Since 1985, we have been implementing our New Economic Mechanism, changing, step by step, from a subsistence economy to one based on goods and services—a market economy, opened up to the outside world, giving encouragement to all sectors of the economy. The new mechanism is clearly successful as witnessed by the progress already achieved in the country. The integrity of the policy is consistent; socioeconomic progress is steady; and living conditions improve continuously.

Our success owes a great deal to assistance from abroad, from international organizations, including the tremendous and efficient support of the World Bank and the IMF. At this time, I should express many special thanks to the World Bank and the IMF, their experts, and their staff who continue to support us.

However, we still face many difficulties owing to our small economic base; the most serious are our lack of capital, of technical know-how, and of management experience. The current state of our development and the present constraints limit our ability to use our rich resources to their fullest.

In the next five years, the Lao People’s Democratic Republic will firmly encourage the production of goods for local consumption and for export, enhancing international relations and cooperation. We shall develop agriculture and forestry for further industrial processing and for trade, and we will endeavor to solve the problems of sectoral growth. We wish to promote mining and hydropower generation for the full exploitation of our hidden resources. We will struggle to develop our national economy at a 5 percent annual growth rate from 1992 onward.

In order to achieve this success, we must call upon vast amounts of capital and technology from abroad. We need the strong help and support of friendly countries and international organizations, including the World Bank and the IMF.

Our Government steadfastly supports the World Bank and IMF strategies toward the developing countries, especially those that give priority to the development of human resources and economic growth corresponding to the needs and conditions of member countries.

Statement by the Governor of the Bank for Malta—George Bonello Du Puis

It gives me great pleasure to address the Forty-Sixth Annual Meetings of the World Bank and the International Monetary Fund on behalf of my country. Permit me first of all to express my delegation’s sincere gratitude to the Government of Thailand as well as the authorities of this beautiful city of Bangkok for their excellent arrangements and their generous hospitality.

I am happy to associate myself with other distinguished speakers in extending a warm welcome to Mr. Lewis T. Preston, the new President of the World Bank. At the same time I would also like to congratulate Mr. Michel Camdessus on his reappointment as Managing Director of the Fund. I am sure that he will continue to provide the Fund with effective leadership at a time of fundamental change in the world economy. It is also a pleasure to welcome Mongolia and Albania as new members and the U.S.S.R. as an associate member of the Fund. The widening membership of the Bretton Woods institutions bears witness to the increasing solidarity among nations as well as to the determination of many countries to transform their economies and integrate them into the international system.

While prospects for international economic cooperation are indeed brighter as a result of these developments, the current outlook for world economic activity and trade is less encouraging. The world economy is still experiencing a significant slowdown, with the growth rate this year expected to be the lowest since 1982. World trade volume growth is also expected to slow substantially for the second year in succession. There is no doubt that the continuation of recessionary conditions in the industrial countries and uncertainty about the timing of a recovery are having a negative impact on the international economic environment at a time when a large number of developing countries are facing severe structural problems and a sharp contraction in output growth.

Small and open island economies like my own are also very vulnerable to adverse economic developments abroad. A sustained fall in the level of external demand has serious implications for our export sector. We, therefore, cannot but view with concern the uncertain economic outlook for the industrial countries especially where this concerns the European Community (EC) states, most of which are our major trading partners. We believe that given the progress achieved so far in controlling inflation, and favorable projections about international price movements, it may now be an appropriate time for industrial countries to review their fiscal and monetary stance with the aim of stimulating global demand.

A more favorable international climate is essential if countries at a less advanced stage of development are to be in a position to introduce the necessary market-oriented reforms. This can only come about if industrial countries enhance the economic policy coordination process in a way that promotes global sustainable growth. In this regard the Fund’s role in overseeing macroeconomic policies should be made more effective, possibly by ensuring that Fund analyses of economic policies and performance in Group of Seven countries highlight more forcefully the impact of such policies on the rest of the world. The Fund may then be in a stronger position to exert persuasive pressure on the individual countries concerned to ensure that these implement corrective measures in the interests of the international community.

Global adjustment also implies that developing countries have an important role to play in enhancing the international economic environment. They should strive to create a favorable domestic climate of adopting prudent macroeconomic policies and introducing meaningful structural reforms. There are clear signs that many developing countries have recognized the benefits of such an approach and have started to implement market-oriented policies that emphasize the important role of the private sector as the main generator of economic development.

On its part, the Maltese Government is fully committed to the fundamental objective of creating a domestic environment more conducive to private sector participation. Over the past year we have continued to liberalize trade policy and reform our tax system. We have continued to restructure our financial institutions with the aim of encouraging more participation by the public in the share ownership of the commercial banks. A stock exchange has also been established and will commence operations at the beginning of next year.

As has been stated so effectively in this year’s excellent World Development Report, the challenge of development is to get the state and the market to work in harness, the basis of their strategy being a “market-friendly “ approach to development. The Maltese Government firmly believes that the state should focus on areas where it can complement and support the private sector rather than supplant it in areas where it already operates efficiently. The Government in recent years has therefore invested its limited financial resources in the development of the physical infrastructure, the education and training of its human resources, and in health care and other social services. . . .

Without doubt a major problem facing developing countries is the scarcity of international financial flows. These have fallen sharply from the levels of the early 1980s. Given the substantial needs of Eastern Europe and the U.S.S.R. there is a fear that unless resources are boosted substantially there could be a diversion of financial resources from other developing countries to the Eastern region. It is therefore obvious that additional resources will have to be mobilized. In this respect the ending of the Cold War offers an opportunity for both developed and developing countries to release funds previously directed to military expenditure for deployment in programs that contribute to economic development worldwide.

There are a number of other areas where concerted action could be taken to augment the level of capital flows. For instance, a first step would definitely be for countries of the Organization for Economic Cooperation and Development (OECD) to increase their contributions of official development assistance so that the United Nations (UN) target of 0.7 percent of gross national product (GNP) is finally met. In the area of debt refinancing, we would like to see the introduction of more effective forms of relief to alleviate the debt burden of the heavily indebted countries. The Brady initiative has been successful, but its application so far has been limited. For the low-income countries, the debt relief measures proposed by the United Kingdom at last year’s Commonwealth Finance Minister’s meeting certainly improve on the Toronto terms package and should be endorsed by creditor countries.

Within this context it is pertinent to mention the active and constructive role that the Bretton Woods institutions continue to play in the debt strategy and in efforts to direct greater resources to developing countries. We note with satisfaction the Fund’s decision late last year to widen the scope for use of the compensatory and contingency financing facility (CCFF) by the inclusion of an oil import element. While the decision was taken in response to the Gulf crisis, there is certainly a case for maintaining coverage of this element into the future, given the destabilizing impact that a sudden surge in oil prices can have on the balance of payments of fuel-importing developing countries.

Since a global shortage of capital implies that the rising demand on world savings will have to be met predominantly by official financing, it is imperative that the resources of the international financial institutions are augmented as soon as possible. Here it is preoccupying to observe that while approval for the IFC capital increase is expected to proceed smoothly, the procedures to make the Fund’s Ninth General Review of Quotas effective by the end of this year still have not been completed by the necessary number of member countries. I am glad to say that my country has consented to the increase in its quota and has accepted the Third Amendment of the Articles of Agreement in accordance with its law.

At a time when the liquidity problems of the developing countries have become more acute, my country also feels that a fresh allocation of SDRs is warranted, particularly if it is accompanied by a redistribution linked to development needs. A fresh allocation is sure to contribute to a strengthening of the SDR’s role as an international reserve asset.

There are many other important issues that need to be addressed at an international level. Trade policy developments are certainly high on the list. Although much progress has been achieved in recent years in expanding international trade, protectionist tendencies still persist in certain areas. There is, therefore, a pressing need to bring the Uruguay Round negotiations to a successful conclusion since the efforts of the developing countries to maintain growth and diversify their export products can only succeed if access to the markets of the industrial countries is improved.

The need for an open, multilateral trading system is paramount, but at the same time the potential benefits of regional integration cannot be ignored. Such benefits accrue all the more when the small size of an individual country may limit its economic efficiency and bargaining strength. I am pleased to say that the Maltese Government has long recognized the advantages of regional integration and this is evidenced by its decision last year to apply for membership in the European Community.

Global environmental conservation is another area of major concern to the international community, and both developed and developing countries have a duty to take the necessary measures to reverse environmental degradation. However, it should be recognized that the resources of developing countries to meet environmental protection costs are very limited. In this connection the Bank’s active role in promoting environmental programs should be acknowledged, particularly its success in establishing, together with the specialized agencies of the UN, the Global Environment Facility. This facility will certainly be instrumental in assisting countries to develop cost-effective programs and projects which take into account the protection of the environment.

I am proud to say that my country is, in a small way, giving its full support to environmental conservation initiatives. During the past year it participated in the Mediterranean Technical Assistance Programme (METAP) launched by the Bank and the European Investment Bank to deal with the Mediterranean region’s pressing environmental problems. It was also actively involved in the discussions of the Intergovernmental Panel on Climate Change and successfully initiated a UN resolution that sets in motion negotiations for a framework convention on global climate change.

Finally, on the important subject of women’s contribution to economic development, I would briefly like to say that my government continues to encourage the participation of women at all levels of the economic development process. Earlier this year it passed legislation that renders discrimination on the grounds of sex a violation of fundamental rights and freedom of the individual.

Before closing I would like to thank the Fund for its continued support in meeting some of our requests for technical assistance and training, notwithstanding the fact that the demand for such assistance from other members has increased significantly in recent years. As I had occasion to mention at last year’s Annual Meetings, Malta has so far never sought financial assistance from the Fund, although its resources remain very limited. It has, however, taken advantage of Fund technical assistance at a time of profound change in the Government’s approach to economic and financial policy. As the process of reform continues, it is our intention to seek further technical assistance in relevant areas. We are sure that this will be forthcoming and will continue to contribute positively to the development of our country.

I will conclude by reaffirming Malta’s full support for the Bank and the Fund in their endeavors to fulfill their commitments and carry out their responsibilities in the interest of the global community.

Statement by the Governor of the Bank for Tonga—Tutoatasi Fakafanua

It is a pleasure and an honor for me to have this opportunity to address the Forty-Sixth Annual Meetings of the World Bank Group and the International Monetary Fund. I join other Governors in expressing thanks to the Chairman, Mr. Better; to President Preston; Managing Director Camdessus; the management and staff of the Bank and the Fund; and to the Government of the Kingdom of Thailand for the excellent arrangements under which we meet. May I take this opportunity to welcome Mongolia as a new member of the World Bank Group and the International Monetary Fund.

Since the previous Annual Meetings, we have seen major changes in many parts of the world, particularly in Europe. As a result of these changes, the Bank and the Fund are expected to play a prominent role in facilitating greater global economic stability. It is also important that greater coordination of economic policies is pursued by member countries in order to ensure overall stability. These changes have brought uncertain times, with global economic growth slowing considerably during 1991. Tonga, as a small and relatively isolated country, is not immune to those developments.

I should now like to comment on domestic economic policies in Tonga. In the decade of the 1990s Tonga is embarking on a strategy of promoting growth of the private sector to broaden the base of the economy. Our 1991/92 budget continues to build on earlier policies directed toward the liberalization of the private sector. The Government has maintained incentives to farmers and fishermen through income tax exemptions and additional support for the manufacturing sector, as well as ensuring continued lines of credit specifically for development in all sectors in the economy.

Much emphasis is placed on tourism as a sector with potential for providing economic growth, employment, and foreign exchange earnings in the 1990s. The Government therefore continues to improve physical infrastructure and provide incentives to tourism to enable this sector to compete effectively in the international arena.

At the same time, the Government continues to strengthen its social development policies. These policies are targeted at alleviating rural and urban poverty through programs designed to improve health facilities and to provide access to education and basic shelter. In recognition of the isolation of some of our island groups, the Government is placing greater emphasis on providing public services to these areas.

Tonga strongly endorses the enhanced roles and responsibilities given to the World Bank and the Fund with respect to the historical changes now occurring at mind-dazzling speed in the economies of Eastern Europe and the U.S.S.R. That the two institutions were chosen to undertake these important tasks pays due tribute to their acknowledged skills and expertise.

Tonga recently expressed its good faith in the Fund in more concrete ways: on April 8, 1991, it accepted the obligations of Article VIII status, and Tonga was quick to consent to the increases in quota under Resolution No. 45-2, and to accept the proposed Third Amendment of the Articles of Agreement. Tonga also shares the Fund’s concerns that the integration of the U.S.S.R. and Eastern Europe into the global economy, together with the vast sums needed to reconstruct the war-damaged economies of the Middle East, implies a long period of relative scarcity of capital and, potentially, upward pressure on global interest rates. Minimizing the disruptions these developments will invariably impart to the world economy is rightly a priority for the Fund; the successful conclusion of the stalled Uruguay Round, through its impact on trade liberalization, would prove very useful in this context. . . .

Tonga is very conscious of the value of its membership in both the Bank and the Fund. Apart from the obvious benefit of access to Bank resources, the regular consultations and technical missions help us to focus on areas of concern in the economy. We are also grateful for the long-term technical assistance provided by the Fund in the establishment of our central bank. We hope this assistance can be continued until the reorganization of our financial sector has been completed; this will enable the Reserve Bank to play its full role in the development of a more market-oriented economy in Tonga.

In conclusion, I wish the Bank and the Fund every success in the coming year in meeting the difficult challenges that lie ahead.

Statement by the Governor of the Bank and the Fund for Viet Nam—Cao Si Kiem

On behalf of the Government of the Socialist Republic of Viet Nam, I would like to express our sincere thanks for the excellent arrangements for these Annual Meetings and the warm hospitality extended to all of us by the Government and people of the Kingdom of Thailand.

One year ago, during the 1990 Annual Meetings held in Washington, we expressed our great concern for the prospect of the world economy which was then being adversely affected by the Gulf war. It is fortunate that the Gulf crisis is over. The world economy, however, is now facing a number of acute problems: declining growth, an increasing external debt burden, persistent poverty, and the worsening of environmental pollution in developing countries. This situation underscores the need for all countries to set in place and implement sound macroeconomic and structural adjustment policies, the success of which depends greatly on the provision of assistance to the developing countries by the industrial countries. We express our great appreciation for the Bank’s effort to alleviate poverty in low-income countries during the last year. However, it is clear that concessional resources available for this purpose remained below this requirement. We also greatly appreciate the Fund’s and the Bank’s initiatives in solving the debt problems. Yet, it is our view that improvement of the debt-servicing capacity of the highly indebted countries greatly depends on assistance by creditors to debtors to foster sustained economic growth and increase their export earnings. Debt relief, debt restructuring, and removal of the trade barriers by the industrial countries would help achieve these two objectives. This also calls for a closer coordination of policies among member countries and a more active role for the Bretton Woods institutions. The Vietnamese economy has been undergoing new difficulties: the substantial decline in trade and financial assistance with traditional markets and sources, including with the Middle East countries, and increasing domestic import demand for growth in a situation of sharp reductions of export earnings while new markets have to be established. Our economic reform and adjustment process has been adversely affected by the continuous economic embargo.

Facing this critical situation, our Government has introduced various emergency actions while continuing its economic reform in line with the market economy. Our efforts during the past 12 months primarily focused on macromanagement and on establishing a proper legal framework, including the implementation of the banking decree laws, promulgation of the commercial and company laws, amendment of a number of tax laws, and preparation of the property and bankruptcy laws. These, in turn, will facilitate activities in all economic sectors.

During the past 12 months, we have introduced a number of policies and measures to stabilize the economy and reduce inflation. In particular, the Vietnamese Government is now implementing and will introduce strong macroeconomic management measures to restructure the state enterprises to improve their efficiency, to liquidate or close the loss-making enterprises, while extending the scope of the nonpublic sector.

Parallel with these policies, monetary policy must also be geared to expand credit to the nonpublic sectors, in particular to household farmers. Interest rates will be increased to positive real levels and universally applied to various economic sectors, so that the last indirect subsidies through negative interest rates may be removed.

The exchange rate of the Vietnamese dong against foreign currencies is established according to the market level. A foreign exchange trading center has been opened in Ho Chi Minh City as a prelude to a future exchange market in the country.

On the principle of mutual respect and benefit, the Vietnamese Government has made great efforts to broaden and improve relations with all countries over the world, especially with those in the region. This policy has enjoyed support from many countries. What needs to be stressed here is that, despite limited export earnings and ever-increasing import needs, we have made efforts to earmark part of our small foreign exchange for servicing our debt to external creditors. In particular, to multilateral institutions, such as the Bank and the Fund.

For the Fund, we have fulfilled our financial obligations falling due, totaling SDR 24.2 million during the past 12 months; these payments represent a considerable proportion of our debt servicing to the external creditors, while the relationship between Viet Nam and the Fund has not yet been normalized as envisaged by the intensified collaborative approach initiated by the Fund itself. This, in turn, has put a heavy burden on our limited foreign exchange resources. We are grateful for the technical assistance given by the Fund and the Bank; discussions on a policy framework paper are well advanced with the Fund and the Bank staffs, and Bank staff have already prepared a number of project and sector reviews in Viet Nam. Once again, we call on both the Fund and the Bank to reestablish full financial relations with Viet Nam to help Viet Nam overcome its economic difficulties and facilitate the economic reform and enable Viet Nam to re-enter the world economic community. In this context, we express our great appreciation to all countries, especially France, Australia, and Sweden in supporting the normalization of the relations between Viet Nam and the Fund as well as their active participation in the formulation of a support group for Viet Nam. I would like to welcome any cooperative relations between Viet Nam and other countries, as well as with international institutions, on the principle of mutual benefit and for the prosperity of each country and mankind as a whole.

Statement by the Governor of the Fund for Yugoslavia—Dusan Vlatkovic

Let me first extend our congratulations to our hosts on the excellent organization of this magnificent gathering, and our warm appreciation for the hospitality we have been enjoying since arriving in this beautiful country. I also wish to welcome Mongolia, as the new member of the Bank and the Fund, and the U.S.S.R. as special associate member.

Our congratulations and best wishes are also directed to Mr. Lewis T. Preston, the new Bank President, and Mr. Michel Camdessus, the re-elected Fund Managing Director, and we wish them all the success in their challenging tasks ahead.

My fellow Governors, I believe, share my view that both the Bank and the Fund made enormous efforts in 1990 and 1991 to respond to the challenges posed by the dramatic and dynamic events taking place in this period: the Gulf crisis and the impressive changes in the political and economic systems in the Central and Eastern European countries and in the U.S.S.R.

The most recent developments have, naturally, not diverted our attention from the long-standing problems present internationally: the difficult position of the poorest countries, deterioration of the environment, protectionism, bilateralization of world trade, enormous capital outflow from developing countries, and so on. The external environment is such that unfortunately it does not favor a faster resolution of these problems. A drastic fall in capital inflow—particularly from private sources, which has fallen to symbolic levels—is our greatest concern.

The Bank and the Fund undertook numerous actions, in line with their statutory obligations, to alleviate the existing difficulties, while simultaneously respecting jointly accepted principles in designing, applying, and supporting stabilization programs through structural adjustment. However, when a large number of countries are discarding dogmatic ideologies and starting the fundamental reconstruction of their economies without the chance to thoroughly prepare for such a task, the support modalities of the Bank and the Fund are to be enriched and adapted to these efforts. Allow me to underline in this connection that in 1989 and early 1990 Yugoslavia successfully began to implement its own economic reform program, which was fully supported by the two institutions. The program required enormous investments and sacrifices, but, nonetheless, it did produce positive results. Inflation was drastically curbed; internal convertibility of the domestic currency was achieved, as were remarkable results in the external sector; and the restructuring and transformation of real economy ownership was initiated.

The implementation of the program slowed down and was halted after the introduction of the multiparty system in all Yugoslav republics. It was thus necessary to intensify the transformation process in the economic structure and search for the most appropriate forms of cooperation for Yugoslavia’s nations and republics.

The multiparty system gave birth to largely diversified views and interests that not only halted implementation of the economic program but also resulted in a dramatic political situation that included unilateral decisions by Slovenia and Croatia to secede from Yugoslavia and finally climaxed in armed clashes. Economic and financial flows in the country were thus disrupted, while the functioning of the economic and financial-monetary system was largely blocked. All these difficulties probably could have been alleviated had implementation of the economic program been promptly backed by sufficient external resources, particularly because the fundamental approach to the economic reforms was accepted nationwide and because the territory of Yugoslavia—irrespective of its future internal structure—will, for many objective reasons, remain in many respects a joint economic area.

Yugoslavia, as one of the founding member countries of the Bank and the Fund, has had a continuous, mutually useful, and successfully cooperative relationship with these institutions. The relationship evolved and was enriched over almost two decades through arrangements agreed upon with the Federation as a legitimate member of these institutions, as well as through direct contact with the republics. It is with pleasure that we can acknowledge that both the Bank and the Fund intend to resume the thus far fruitful relationship with Yugoslavia and its republics along the same lines.

I hope you understand the reasons I focused so extensively on my country. The dramatic situation Yugoslavia is currently facing fully justifies this approach. It is also my view that current developments in my country have broader implications. Therefore, I believe that, at this time of turbulent economic and political changes, the international community—the Bank and the Fund in the first place—will have to earmark the available funds with utmost selectivity, but do so faster and more determinedly and thus ensure that the initiated reform process is not slowed down or halted. This will perhaps mean a deviation from the prevailing policies and practices of the two institutions and may even entail certain higher risks, but this seems to be inevitable in the present circumstances.

You all know Yugoslavia as a country which, since the establishment of the United Nations and the Bretton Woods institutions, has been an active member, contributing to the development and promotion of their work, and at the same time using their services and resources to develop its own economy and improve its standard of living. The developments in Yugoslavia have now taken a direction that nobody expected, and the country is currently the object of concern of the institutions and its friends worldwide. There is, nevertheless, still hope for Yugoslavia. With adequate institutionalized international support and the help of these institutions, we will overcome our own difficulties. It is clear that a formula must be sought for Yugoslavia that corresponds to both legitimate national interests and the present integrational flows and world cooperation on new foundations.

It is known that the Hague Conference on Yugoslavia is, in particular, dealing with this aspect. Solutions are being sought in a package, not partially, for all of Yugoslavia’s problems. There are good prospects and expectations that future relations in Yugoslavia will be characterized by major participation of the republics. It will be essential, however, for the economic system to function successfully on open market principles, and for regulation of other issues and activities of joint interest. This will require optimal redefinition of the implementation of economic reforms and transformation previously initiated and some redesigning to accommodate for likely changes.

I would like, finally, to underline once again that Yugoslavia, irrespective of its future structure, will need strong cooperation with the Bank and the Fund. It is therefore necessary to maintain a permanent dialogue so that the strategy of cooperation can be defined in a timely way to best suit the new circumstances. In the meantime it will be of the utmost importance to design models of technical and financial support, while reaching agreement on the definite structure of the country, which would further reaffirm the importance of cooperation with these institutions.

This is the only way in which the Bank and the Fund will be able to respond quickly to the dynamic and fast political and economic changes in their member countries and offer help that best suits the real needs of the countries concerned.

October 17, 1991.

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