Chapter

Opening Address by the Chairman of the Boards of Governors, the Governor of the Fund and the Bank for Morocco1, Mohamed Berrada

Author(s):
International Monetary Fund. Secretary's Department
Published Date:
November 1992
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It is an honor and a pleasure for me to chair, on behalf of the Kingdom of Morocco, the Annual Meeting of the Boards of Governors of the International Monetary Fund and the World Bank Group. Our meetings are particularly important this year. They bear witness to the fact that our institutional family has grown substantially larger. Sixteen new member countries have joined our institutions since our meetings in Bangkok. On your behalf, I welcome them all, namely, Armenia, Azerbaijan, Belarus, Estonia, Georgia, Kazakhstan, Kyrgyzstan, Latvia, Lithuania, the Marshall Islands, Moldova, the Russian Federation, Switzerland, Turkmenistan, Ukraine, and Uzbekistan. Let me take this opportunity to congratulate our institutions’ decision makers and their staffs for the efforts they have made to facilitate the rapid integration of these countries into the international financial community.

Our organizations are today acquiring a more universal dimension than ever before. As Governors of the Fund and the Bank, we have truly become more representative of the world community as a whole. The peoples of the world are currently facing new opportunities and new challenges. We must assist them to seize these opportunities and to rise to these challenges.

As we all know, a full-fledged resumption of growth is proving slow to appear, and this, in fact, is our primary concern. World economic growth is estimated this year at barely 1 percent following the stagnation in 1991. A growth rate of 3 percent is forecast for 1993, but such a rate, even if achieved, would merely match the average for the last twenty years. Growth is expected to be more rapid in the developing countries, but the outlook is none too reassuring for many African countries where moderate expansion has been forecast after years in which per capita income declined in real terms. Many of the poorest countries continue to suffer the effects of sluggish world demand and declining prices for basic commodities.

The world today does not merely need growth that is high enough to ensure the welfare of the majority of the population. It also needs regular and sustainable growth of a kind that avoids sharp and erratic economic cycles in which phases of excessive expansion are followed by phases of brutal deceleration; it needs growth of a kind that protects the environment—the kind of growth where the resulting benefits are equitably shared among the various countries and various regions of the world.

Sustainable growth is vital to the viability of the less developed countries and vital to improving the welfare of their inhabitants. It is vital for the heavily indebted middle-income countries that hope to be able to discharge their debt by exporting to the industrial countries. It is also vital for the formerly planned economies that, in the absence of such growth, will be unable to meet their considerable needs in terms of saving and investment, and will see their integration into the world economic and financial situation put at risk. Last, such growth is vital for the industrial countries, which in some cases are facing major budget deficits and high levels of unemployment. For these countries in particular, growth is necessary in order to prevent latent protectionist sentiments from manifesting themselves in shortsighted policies that close off markets, undermine world economic efficiency, and place a damper on the aspirations of the poorest countries.

Why, then, is a genuine resumption of growth proving so slow to appear?

The first reason, in my view, is to be found in the lack of coordination of economic and financial policies in an increasingly interdependent world. At a time when economic trends are spreading very rapidly and the mechanisms of the market economy are gaining universal acceptance, it is more crucial than ever for government policies to display a consistent and overarching vision that takes account of the repercussions of such policies on other countries. The governments of all countries must make sure that their policies are consistent with the imperatives of a sustainable growth strategy, and in pursuing these objectives they should use the appropriate tools at the appropriate time.

What things can we observe at this juncture? We find that the economic and financial policies pursued in certain countries are not always characterized by the requisite degree of stringency and consistency. In these countries we observe worsening budget deficits and inappropriate use of monetary policy instruments, with the resulting drains on world saving and strains on long-term interest rates at a time when the formerly planned economies and the developing countries need substantial resources to finance their restructuring and growth. These policies are also at the root of the upheavals in financial markets that we observe today, a factor that exacerbates the climate of uncertainty prevailing in the world economy.

Sustainable growth requires, from industrial countries and developing countries alike, more coordination and more consistency, as well as more stringency in economic and financial management. It would thus be advisable for the IMF to exercise more extensive and effective supervision over the macroeconomic policies of the major industrial countries, given their decisive influence on the world economy, and the IMF should also help to improve the coordination of these policies with the aim of enhancing the functioning of the monetary system and ensuring that the costs of adjustment are shared equitably.

Sustainable growth also requires that the mechanisms of the market economy be respected, and this is especially true of international trade. While we welcome the emerging phenomenon of regional associations—which has undeniably been instrumental in improving coordination and efficiency at the regional level—we must not allow a situation to arise in which this phenomenon results in the formation of discriminatory trade blocs. Efforts to achieve regional integration and cooperation should seek to assist rather than to replace the progress toward a more open trade system.

The slow rate of progress toward establishing a more transparent and more open system of international trade relations is, I think, the second explanation for the slow emergence of a sustained resumption of growth.

A major part of the responsibility for opening up world trade must devolve upon the industrial countries, which account for the bulk of commercial flows. These countries have made great progress in enlarging and liberalizing world trade since the first round of multilateral trade negotiations (the “Kennedy Round”) in the 1960s; however, much still remains to be done. At a time when tariff barriers have generally declined, it is troubling to find that these have been replaced to some extent by other, more insidious obstacles that are often less easy to identify and more difficult to eliminate by means of international agreements. Certain bilateral agreements relating, for example, to voluntary restrictions on exports and various practices in the area of government procurement, are a most unwelcome development and one that is hardly compatible with the principles of nondiscrimination and equality of treatment. Subsidies for certain sectors or branches of activity also have the effect of distorting trade, and agricultural subsidies particularly affect developing countries, where exports are composed primarily of agricultural or agroindustrial products. Such practices hamper the export prospects of many countries whose economies were formerly of the planned variety and further complicate their efforts to achieve reform and to integrate themselves into the world economy.

The extent to which developing countries can trigger growth is largely contingent upon the maintenance of unimpeded access to the markets of industrial countries. The cost of protectionism for developing countries has, in fact, been estimated at double the flows of official development assistance. In addition, the growth of the industrial countries depends—sometimes quite significantly—on their export performance, including with regard to the developing countries.

In view of the special importance of trade for developing countries and industrial countries alike, I cannot help but express my concern regarding the slow rate of progress in the Uruguay Round of multilateral trade negotiations, and I urge the negotiators to reach agreement on the unresolved issues. Certain countries have already made significant concessions with respect to trade in services and intellectual property, and the conclusion of the negotiations at this time would appear to depend merely on an agreement on agricultural products. I am very concerned that those countries that have so far moved slowly in this area should take action to ensure that these matters can be resolved, for this is in all the countries’ interests. The slow pace of the negotiations cannot but be frowned upon by those countries that have already taken painful measures to liberalize their foreign trade on their own initiative or on the recommendation of international financial institutions.

The external debt problems of developing countries still pose a severe constraint for these countries, hampering their ability to make a meaningful contribution to growth and to world trade; this I regard as the third factor standing in the way of sustainable growth. Developing countries have undertaken substantial efforts in the area of adjustment and restructuring as a way to ease this constraint. Creditors and international financial institutions have supported these efforts by implementing a debt strategy that has achieved appreciable progress in terms of debt relief for certain countries. Much, however, still remains to be done. If low-income countries have benefited from public debt-reduction measures within the framework of the Toronto summit recommendations, additional efforts must still be made to assist the poorest countries by means of cancellation of their debt.

With respect to the heavily indebted middle-income countries, the debt strategy should be more carefully tailored to the efforts undertaken by each country, the better to complement these countries’ access to new private or official financing and foreign private investment. Official creditors are urged to introduce new debt-relief measures, to increase the availability of new types of financing bearing appropriate terms and conditions, and also to take measures to encourage flows of investment into these countries. Commercial banks should facilitate the integration of these countries into the international financial market. Accordingly, the rules of bank accounting and supervision in industrial countries must not come to limit unduly the access of debtor countries to new loans and to increase excessively the cost of such financing.

As I noted earlier, if growth is to be both even and sustained, it should also be quality growth that takes considerations of environmental preservation into account. More than ever, the protection of the environment is a matter of concern to all the countries in the world. We are all responsible together for the environmental problems that we have caused and that we must also solve.

The deterioration of the environment manifests itself in various ways, but its effects are felt especially by the billion people still living in poverty around the world. The effects of air and water pollution on health, and the loss of harvests owing to increasing soil erosion caused by deforestation—to name but a few of such harmful effects—have a significantly adverse impact on the quality of life of poor people. The persistence of poverty, combined with rapid population growth, intensifies the pressures on the environment, thereby forcing poor people to place excessive demands on natural resources.

Measures designed to break the vicious circle of poverty and underdevelopment come into competition with the measures called for by environmental protection. That is why we are faced with difficult choices between the needs of the present generation and the needs of future generations; yet we cannot flinch from these choices. To preserve the environment, developing nations and developed countries alike must make the necessary changes to their policies, their institutions, and their technological decisions. Whether we are talking about multilateral institutions, national and local governments, industrial and commercial enterprises, or small farmers and households, each has a responsibility to contribute to the protection of the environment. I can thus only welcome the historic agreements concluded at the recent UN Conference on Environment and Development in Rio de Janeiro, and I hope that these agreements will rapidly give rise to tangible measures. I also welcome the maintenance of the financing for the Global Environment Facility, which assists developing countries that are taking action in this area. We have taken the first steps, but a great deal of ground remains to be covered and many challenges lie in store for us.

While it is no longer necessary to demonstrate that the resumption of growth requires an appropriate economic environment, one must recognize that the sustained resumption of growth requires a favorable political environment. In fact, sustainable growth and economic recovery go hand in hand with democracy, respect for human rights, and sound governance. Democracy represents the surest guarantee that growth will be based on sound and sustained foundations, given that public approval and the establishment of a climate of dialogue and transparency serve to improve the conditions under which economic policies are designed and implemented.

Indulge me, if you will, in a brief review of the experiences of my own country, which has restored macroeconomic equilibria and has set in motion sound and sustainable growth against a backdrop of economic freedom and political pluralism, and which is currently achieving further progress in these different areas. With its unique geographical location between the industrial countries of Europe, the countries of sub-Saharan Africa, and the Arab countries of the Middle East, Morocco throughout its history has been a bridge and a crossroads between the various streams of civilization. That is why my country is interested in the highest degree in the major economic and political changes unfolding on the international scene. The Kingdom of Morocco welcomes these changes, which are all part of the overall groundswell of freedom, the consolidation of international and regional cooperation, and the strengthening of democracy.

Since 1983, Morocco has pursued macroeconomic and structural adjustment policies whose results have been manifestly beneficial in terms of reducing domestic and external financial disequilibria, building up the production apparatus, and improving the living standards of the population. Over this period, the budget deficit has been brought down from 11 percent to 1 percent of GDP, while the current account deficit of the balance of payments has been reduced from 13 percent to 2.5 percent of GDP; inflation has been reduced by half, averaging out not more than 5 percent in recent years, while foreign assets have been substantially strengthened to the extent that they now cover more than four months of imports.

The structural reforms that have been undertaken have made it possible to consolidate the liberalization of the Moroccan economy and market-oriented mechanisms and to stimulate economic growth, to be achieved primarily through price deregulation, the reform of public enterprises and taxation, the reduction of protection in respect of Morocco’s imports, the easing of exchange regulations, and the adoption of a realistic exchange rate. In addition, a wide-ranging reform of the financial sector has been undertaken, including, in particular, the lifting of credit controls and the liberalization of interest rates.

The reforms and policies pursued have considerably reinforced the dynamism of private enterprise, as evidenced by the upsurge in both domestic and foreign private investment. Foreign direct investment thus amounted to some $400 million in 1991; in other words, it trebled in the space of three years. A qualitative improvement has also been observed in the structure of our exports, where manufactured goods now account for over 60 percent. It is just as important to stress that, in the course of this adjustment period, the average annual rate of economic growth has been maintained at 4.5 percent over the last five years, which corresponds to an increase of 2 percent in real per capita GDP.

Thanks to these efforts and these encouraging results, Morocco is now better prepared to restore its financial viability on both the domestic and external fronts, to dispense with its reliance on IMF resources, to bring an end to the cycle of reschedulings, and thus to restore normal relations with its official and private creditors. Morocco is in a position henceforth to honor its entire debt service and to make the dirham convertible for international transactions starting in 1993.

Now that the debt crisis is drawing to a close, Morocco intends to persevere in its efforts to achieve restructuring and to pursue rigorous economic and financial policies. It is also preparing to deal more effectively with the problems of employment and the requirements entailed by the development of the social sectors (education, health, housing). While these social priorities are an integral part of any efforts to enhance human resources, they are also essential if human dignity and fundamental human rights are to be respected. Such an approach will make it possible to soften the impact of adjustment on certain segments of the population, thus making it possible to mobilize their energies to the fullest. The development of the social sectors and of the support infrastructure for private investment will help to lay the foundations for a lasting improvement in the welfare of the general public.

As a country with a democratic tradition, Morocco is constantly engaged in modernizing its constitutional and legislative framework, which was recently strengthened with the adoption of a new constitution that attaches further importance to respect for human rights, increases the powers of parliament and the responsibility of the Government, and takes the regionalization process to more advanced stages.

As it prepares for the arrival of the twenty-first century, Morocco is cognizant of the emergence of regional associations around the world and sees its economic future as part of such associations. That is why Morocco took a key role in the formation of the Arab Union of the Maghreb, a vital feature of the southern shores of the Mediterranean. That is also why Morocco is preparing to better integrate its economy into the European Community (EC) framework, and discussions are under way with a view to establishing a free trade area with the EC.

As an Arab country, Morocco is especially sensitive to anything that affects the Middle East. Following the tragic events that unfolded in this region two years ago, Morocco is making an urgent plea for an improvement in the conditions in this part of the world and for the development of a spirit of understanding, peace, and solidarity so that the region’s resources may serve the progress and welfare of all its peoples.

As an African country, Morocco welcomes the progress that has been achieved in the area of democratization in the African continent. Nonetheless, Africa continues to face a profound economic crisis that jeopardizes growth and the efforts to improve the living conditions of the African people. Still more serious is the fact that certain regions of the African continent remain vulnerable to poverty, malnutrition, famine, and civil war. Somalia provides a particularly disturbing example. Accordingly, we urge the international community to come to the aid of famine victims and to take action to restore peace in the African continent. More generally, the international community is urged to increase its contribution to the furtherance of economic growth and social progress in the region.

If coordination among countries, particularly the industrial countries, continues to be essential to the resumption of sustainable, noninflationary growth, the role of the Bretton Woods institutions today is a crucial one. In strengthening the action mechanisms of these institutions, we welcome their commitment to establishing a stable and appropriate financial and economic environment and their commitment to developing more fruitful multilateral cooperation.

I wish to touch upon certain of the main questions that are put to the Fund and the Bank and that will be discussed at length by Mr. Camdessus and Mr. Preston.

For the Fund, it is imperative for the quota increases under the Ninth General Review to enter into force so that the Fund’s assistance for the new member countries does not restrict its other role, which is no less important—namely, that of restoring the medium-term viability of the heavily indebted countries and of the less developed countries. I am also anxious that the negotiations relating to the Tenth General Review of Quotas—which will not be possible to complete, in any case, until well after the initially envisaged date—should begin as soon as possible. The increasing pressures currently being exerted on the supply of world liquidity likewise argue in favor of a resumption of SDR allocations.

The IMF’s Executive Board has decided to extend through November 30, 1993, the commitment period for the utilization of resources under the enhanced structural adjustment facility. I welcome this decision, which confirms that the Executive Board appreciates the need for the Fund to maintain its concessional financial assistance for those member countries most in need of it. I hope that an agreement in principle can be reached by the beginning of next year on the modalities for a new facility to replace the enhanced structural adjustment facility.

Sustainable economic growth, the reduction of poverty, and environmental protection are now firmly established as central concerns of the World Bank and its affiliates—the International Development Association (IDA), the International Finance Corporation (IFC), and the Multilateral Investment Guarantee Agency (MIGA). The Bank has undertaken to strengthen its operations in these areas, and I commend the Bank for this. Assessments of poverty have been completed—or will be by the end of the current financial year—in regard to twenty countries, accounting for the bulk of the population and over two thirds of the poor people in the developing countries. Last year, the World Bank continued to record substantial progress in integrating ecological concerns into its entire range of lending and research activities and into its general policy dialogue with borrowers.

The Bank has also made progress in other areas of special operational importance, in particular in researching and enhancing the role of women and the private sector in development. The World Bank Group as a whole takes the view, with which I fully concur, that the development of the private sector is an essential element in the attainment of the World Bank’s primary objective, which is to raise living standards and reduce poverty. Working in concert, the Bank, IFC, and MIGA have successfully implemented an action program centering on four key areas: the creation of an emphatically pro-business environment, the restructuring of the public sector, the development of the financial sector, and the fostering of a spirit of entrepreneurship.

IFC staff have remained in heavy demand throughout the past financial year, reflecting the membership of new member countries and the introduction of market-oriented reforms throughout the world. Last May, the Board of Governors approved an increase of $1 billion in the capital of IFC. I fully approve of this decision, as a result of which IFC will be far better equipped to respond to the needs of the new member countries of Central and Eastern Europe and of Central Asia, while expanding and diversifying its operations in other regions of the world.

I welcome the fact that other countries have become signatories of the MIGA Convention, thereby raising the total number to 122. I encourage all those who have not yet done so to join MIGA, which has as its mission that of encouraging the supply to developing countries, for productive purposes, of foreign direct investment from developed countries or other developing countries.

Throughout the coming years, the demand for concessional funds on the part of the poorest countries will be greater than ever. We must be ready to meet the needs of member countries. As such, it is becoming urgently necessary to complete the tenth replenishment of IDA’s resources at a substantial level.

In the course of the coming year, the Fund and the Bank, in their capacity as universal institutions, will have occasion to attest to the magnitude of the importance of links and relationships among countries. Let us give them our undivided support, the better to assist them to achieve the ideal of international cooperation and solidarity, and the furtherance of world peace.

Delivered at the Opening Joint Session, September 22, 1992.

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