Discussion of Policy at Fourth Joint Session1
- International Monetary Fund. Secretary's Department
- Published Date:
- November 1992
Statement by the Governor of the Fund for South Africa—Derek L. Keys
I would like to associate myself with my fellow Governors in welcoming the new members to the Bretton Woods institutions. As one of the founding members, we see their accession as final confirmation of the fact that the Fund and the World Bank Group have now become truly global. At the same time it underscores the dramatic changes that have taken place in recent years in the world’s political, economic, and social structures.
Since our last meeting, dramatic and exceedingly difficult restructuring has been taking place in Eastern Europe and the former Soviet Union. Progress, albeit sometimes haltingly, has been made toward economic and political integration in Europe, while, with the support and cooperation of multilateral institutions, some success has been achieved in dealing with the debt crisis in certain developing countries. Last, economic liberalization and political democratization have progressed further in sub-Saharan African countries, including my own country, South Africa.
Major changes are occurring in both industrial and developing countries, leading to an increasing interdependence and interaction between countries and regions. Universality of membership in these institutions both reflects and facilitates this process. Current changes and further adjustments will place exceptional demands on the financial and human resources of both the Fund and the Bank. In this regard, it is unfortunate that the increase in the quotas of the Fund has been left in abeyance. Nevertheless, the manner in which these problems have already been addressed augurs well for the future, and I am confident that under the very capable leadership of Messrs. Camdessus and Preston, these institutions will successfully meet this challenge.
Reflecting on recent international economic developments and focusing on the needs of the group of developing economies to which South Africa belongs, one is gratified by the acceptance of the need for, and movement toward, well-conceived macroeconomic reforms based on appropriate structural policies aimed at achieving economic stability in an environment conducive to sustainable growth.
The sacrifices involved in such changes unfortunately often fall disproportionately on those who can least afford to bear them. Where institutional capacity and the capability to implement reforms are also lacking, and appropriate and timely financial and technical assistance is not forthcoming, adjustment programs are often bound to fail—and regrettably, any opportunity and growth lost then, is an opportunity irreversibly forgone.
Success in such matters often critically depends on the strength and stability of the global economy. It is therefore imperative that the industrial countries improve their economic performance. Universal economic adjustment is a sine qua non for optimum economic growth, which in turn makes the adjustment process itself successful.
While the Bretton Woods institutions, through regular consultations as well as in their public pronouncements, have stressed the need for corrective action, the trade policies of especially the industrial countries continue to be characterized by unjustifiable market distortions, generous subsidies, and protectionism. Furthermore, the Uruguay Round of Multilateral Trade Negotiations is at a virtual standstill, despite the potential benefits for all countries when contrasted with the inherent dangers of a further retrogression toward inward-looking regionalism. The responsibility clearly rests with the industrial countries to ensure a speedy and positive outcome of these negotiations.
A further factor of concern is the stagnation in real official development assistance (ODA) during the past decade, accompanied by aid diversion as a result of new demands from a large number of new as well as established member countries. The prospects for a reversal of these trends are poor, given the budget constraints in many donor countries. Yet, in this climate of restricted international trade and declining developmental assistance, developing countries are expected to show a sustained commitment to sound macroeconomic policies and structural adjustments, while also addressing the problems of poverty, the environment, human resources, and democratization. We should, therefore, indeed be thankful for the increased emphasis that the Bank is placing on poverty reduction through its initiatives to measure development performance against this vital yardstick.
Whatever denials or rationalizations are put forward, the facts are, unfortunately, that Africa is increasingly being marginalized with tragic consequences, especially now when democratization and good governance are becoming realities on our continent.
Related to the issue of ODA is the external debt problem of developing countries. While some success in dealing with this issue is evident, as illustrated in the Fund’s Annual Report, only limited progress has been made in implementing debt-reduction strategies for low-income countries, especially those in sub-Saharan Africa, where the current external debt is more than three times the level of 1980. This is certainly a matter of grave concern.
It is clear that to succeed in the 1990s, the developing countries will have to integrate sound and sustainable national economic policies in an accommodative international economic environment with sufficient access to affordable external financing.
A few words would not be amiss about South and southern Africa. Like many other countries on various continents, South Africa is also a country in transition to democracy, but unfortunately in an environment of social unrest and economic stagnation with the added constraint of the most severe drought in living memory in the region. Nonetheless, South Africa is committed to address current economic imbalances.
We have already gone some distance on the difficult road toward establishing the internal and external financial stability needed to support sustainable economic growth in the long term. Eventually, this program should raise the wealth-creating capacity of the economy, and also increase our international competitiveness. It will also, hopefully, through the monetary system of the South African rand bloc countries, that is, the Common Monetary Area of southern Africa, have a spin-off effect on the economies of other countries in the southern region of Africa.
We have noted with appreciation the comments made to the Interim Committee by the Managing Director on South Africa’s extraordinary transportation efforts to assist its neighbors in obtaining vital foodstuffs. While we are, in this process, also providing some ancillary assistance, further financial assistance needs to be provided by aid institutions. South Africa has always sought regional cooperation, and various initiatives have been launched over time. The existing formal and informal structures must, however, adapt to changing circumstances, including the increased movement of people within the region and refugees from impoverished neighboring countries. It is therefore incumbent on all countries to strive for practical regional structures and mechanisms that take cognizance of the regional realities. We are ready and willing to explore these possibilities in a constructive manner with all our neighbors.
Finally, one is gratified that the Fund has continuously been positively involved in South Africa and that the World Bank Group is, through its technical assistance, as well as policy and sectoral work, positioning itself for greater future involvement. In view of our urgent current needs, the absence of firmer and more substantive commitments at this juncture is unfortunate. I would, however, hope that this is the last occasion when South Africa would have to speak to the Annual Meetings as a nonnormal member, that is, a member with a special, though nevertheless constrained and artificial, relationship with the Fund and the Bank, and one not accommodated in a constituency to represent it on the Executive Boards of these institutions.
Statement by the Governor of the Fund for Hungary—Peter Akos Bod
First of all, let me extend my warm welcome to our new members. The goal of universality has been brought much closer as the Fund’s membership, augmented by the new applicants, approaches 180. The international financial institutions, and the entire international community, are now challenged to coordinate their policies and their activities to promote this expansion of the world economy. The challenge is the greater for the IMF and World Bank and the international community because they must now cope not only with the problems of sluggish recovery, high interest rates, and fiscal imbalances in most industrial countries, but also with the enormous problems of the post-socialist countries of Central and Eastern Europe and the former Soviet Union.
The post-socialist countries, heavily burdened with the difficult tasks of economic stabilization and transformation, find their burdens made much heavier by the problems of the industrial world I have just mentioned. I think the problems of neither group of countries can be solved without mutual understanding and a flexible approach. The cooperation of the whole international community is the key to keeping the costs of the transition sustainable and thus avoiding the risk of setbacks or even failure of the reform efforts in Central and Eastern Europe and Central Asia.
Policy advice and technical assistance in building market institutions, and financial assistance for building up reserves and financing investment projects, are obviously essential for getting these economies back onto a growth path—but this time a sustainable and organic growth path. But it is equally important for the rest of the world, and above all the industrial countries, to open their markets to the exports of the reforming countries. A rapid and successful conclusion of the Uruguay Round would be an extremely helpful step toward this goal.
Economic prosperity is the key to political stability. The key to prosperity is better integration into the world economy. For Hungary, this means first of all gaining full membership in the European Community.
The fact that I have stressed the things Hungary needs from the rest of the world does not mean that we Hungarians are less than fully aware that the main responsibility for our success or failure belongs to us. The intensity and effectiveness of our own reform efforts are crucial to success. Everyone will agree that its three-year macroeconomic adjustment process has carried Hungary the furthest toward creating a market economy, building up market institutions, dismantling state control, encouraging private sector activity, reducing inflation, and, following the collapse of the Council for Mutual Economic Assistance (CMEA), finding new markets in the West. While carefully preserving its access to international capital markets, Hungary has managed to accumulate current account surpluses and to build up its international reserves, which now cover over five months of imports of goods and services. The very substantial support received from the IMF, the World Bank, and the international financial community has enabled Hungary to strengthen its foreign financial position. The confidence of the international community has made it possible for my country to receive more than 50 percent of the foreign direct investment flows to Eastern Europe.
But time and great short-term sacrifices are needed to create a market economy equipped with the institutions and mechanisms that are taken for granted in the industrial countries. My account of Hungary’s transition process will not be complete until I add to the positive aspects just summarized the setbacks and disadvantages as well. The continuing weakness of the world economy, the collapse of Eastern European trade, and a sharp decline in domestic demand have all conspired to make the duration of the transition period, the output losses, and the cost in terms of fiscal imbalances a good deal greater than we originally expected.
Though recent developments encourage a cautious optimism that the output downturn may be over, its lasting effects include erosion of the tax base and a shrinkage of fiscal revenues. The reform process also had revenue-reducing effects, through its introduction of more realistic amortization rates and loss-provisioning practices. The proliferation of private enterprises has made tax collection more difficult. Household savings have increased markedly, partly in reaction to better interest rate conditions. These developments, which are normal for an economy preparing for a new beginning, have incidentally contributed to the decrease in consumption and in the value-added tax receipts. In transition economies, there seems to be a trade-off between the speed of structural reforms and the size of the budget deficit: bold reforms tend to widen the deficit temporarily, until such time as the reform measures begin to bear fruit in the form of increased tax revenues. These are burning questions for all the transition countries, and discussions with the Fund staff will doubtless prove very useful in finding the best possible solutions.
But this is only the revenue side of the coin. On the expenditure side, the Government must meet the social needs of the population, which is all the more difficult since the “paternal state” of the former regime created expectations that are difficult to change. Now that unemployment is rising and real incomes falling, these social requirements must be met in order to alleviate social tensions and preserve public support for the continuation of the reform process.
The question is, how long and to what extent can the resulting budget deficits be financed without jeopardizing recovery in the medium term? In other words, the key issue is how to balance the speed of adjustment against the requirements of growth. In any economy it is very hard to determine the threshold at which further tightening of policies actually becomes counterproductive by undermining public support for the reforms.
I also wish to seize this opportunity to underline that the countries in transition are all at different stages of their reform processes and that their problems therefore require a case-by-case approach. There is no economics textbook to go by for countries making this kind of economic transition. Nor is there any sociology textbook for mapping the attitudes, expectations, and the limits of tolerance of people exposed to systemic changes. The best strategy under these circumstances is “learning by doing.” We are well aware that all of us must pass through all the phases of transforming our economies into market economies, but countries having a good track record can reach full integration into the world economy sooner. As one such country, Hungary naturally wishes to do this as early as possible. In support of this endeavor we seek the help of the distinguished Bretton Woods institutions and of the whole international community. For its own part, the Government of Hungary remains committed to vigorous pursuit of its reforms. I am confident that Hungary will fulfill its historic task.
Statement by the Governor of the Bank for Nepal—Mahesh Acharya
It is indeed a great pleasure and privilege for me to address the Fund-Bank joint Annual Meetings as a representative of Nepal. At the outset, I would like to welcome the new member countries in the Bretton Woods institutions, and I look forward to fruitful cooperation with them.
Notwithstanding the relatively better economic performance of the developing countries, particularly in Asia, the achievements of the least-developed countries have remained far from satisfactory. However, the end of the cold war and the political and economic emancipation in many countries have brought new hopes. The challenge before us now is to provide tangible benefits to the poor and the deprived members of the world community.
With the increasing interdependence among the developed and the developing countries, we consider that both have equal responsibilities to contribute to the development agenda and to take the requisite actions to reform their economies. However, the industrial countries’ response to the reform of their own economies and to the issues of growth and poverty in the developing countries is not encouraging. The stalemate in the Uruguay Round and the disappointing level of the official development assistance (ODA) flow are evidence of the lukewarm approach to the problem.
Many developing countries, on the other hand, are continuing to reform their economies through the painful adjustment process to increase overall economic efficiency, increase domestic savings, accelerate private sector development, and attract foreign direct investments. Nevertheless, this process alone will not be sufficient for injecting dynamism and accelerating growth with social justice in the developing countries. Inter alia, without an adequate provision of external assistance, and reforms in global trade and technology transfer, our development agenda will, no doubt, turn into myths. In this context, early and successful conclusion of the Uruguay Round, transfer of resources as per ODA target, and increased flow of foreign direct investment become more important.
The Bank and the Fund have important roles to play in fostering a more conducive global economic environment and in facilitating concessional resource transfer in low-income countries. However, the donor communities’ response to the increased resource needs of the developing countries in the recent meeting of IDA deputies is not encouraging. Funding for the “Earth Increment” drew, to our surprise, little support from donors. We, therefore, earnestly urge all donor countries to recognize the difficulties of the poorer countries and increase resources in real terms to the IDA-10 Replenishment. We sincerely hope for substantial progress at the final meeting of IDA deputies in November.
We are concerned with the delay in the effectiveness of the Ninth Quota Review of the IMF. At a time of a greater need of resources, we consider that a serious look at quota effectiveness has become urgent. We welcome the extension of the enhanced structural adjustment facility commitment period to November 1993 and look forward to the establishment of a permanent concessional arm in the Fund.
Turning to my own country, we have completed the election of local bodies, which was essential for the institutionalization and consolidation of democracy and for creating a dynamic political structure required for decentralized development. Now we’ are concentrating our efforts on economic stabilization and sustainable growth to meet the growing aspirations of the downtrodden masses by “putting the people first” in our development agenda. The strategy toward this end has been to rely more on a market-based system, a redefined role of the Government primarily as facilitator, and a decentralized system of governance.
Since the last Annual Meetings, Nepal has taken several restructuring and adjustment steps, some of which were politically sensitive. Initially, this restructuring and adjustment has been painful. Prices have surged sharply. The industrial sector has suffered owing to the loss of competitiveness in the domestic market. Farmers have been hard hit. Output growth has remained sluggish. And, although exports have grown faster and imports have been less buoyant, the trade deficit has worsened further. Despite these adverse scenarios, we realize that initial shocks and pain have to be borne to pave the way for stable growth and the expansion of employment and income-earning opportunities. We are continually urging the private sector and the people at large to bear the short-run shocks for long-term prosperity.
To further strengthen and consolidate the reform process and keep the economy on a sound footing, the Government has recently adopted a three-year economic reform program and has already made a request to the Fund and the Bank to support it in the reform process through an enhanced structural adjustment program. These commitments to economic reforms are testimony to our earnest effort to build a prosperous economy.
Having said this, let me express a few words of caution as well. We do not want to see our reform process degenerate into an elitist reform. If the social cost becomes increasingly unbearable and compels people to compare the merits of democracy with the bread and jobs of the autocratic regime, we will be the net loser. The morality of reform and adjustment will surely be questioned if it ends up with a tarnished human development index. The hard realities of life have, time and again, exploded many stubbornly cherished beliefs. The development process has never been linear. The swings and curves in the dynamics of development are made of economic as well as sociopolitical reactions of the people. Therefore, the reform process must be accompanied by conscious efforts to win their confidence and to protect the vulnerable sections of our society and be so paced that it minimizes the threat to our newly gained democracy. It is in this regard that I expect more understanding and assistance from our bilateral and multilateral donor communities.
I want to reiterate that the central theme of our development agenda is poverty alleviation. Therefore, we want to keep the people in the forefront of our development efforts and stimulate economic growth that is responsive to the needs of the people. For such development to be self-propelled, people’s participation, as well as their leading role in the development process, becomes a precondition. By implementing liberal, open, and transparent economic policies, we want to create a dynamic environment conducive to empowering the people to work for their own destiny. Finally, I would like to extend our sincere appreciation to the Fund-Bank staff for their continuing support in our development efforts.
Statement by the Governor of the Fund for Ukraine—Hryhory O. Pyatachenko
Ukraine as a Member of the World Community
Ukraine as a young independent state celebrated its first year of independence on August 24, 1992, and on September 3, 1992, became a member of the International Monetary Fund and the World Bank—the most respected financial institutions in the world.
Having chosen the path toward a market-oriented economy, formulating its own economic policy, based on the principles of democracy, free entrepreneurship, and integration into the world economic community, today Ukraine is experiencing tremendous difficulties in efforts to achieve two goals: first, to build a modern state with all the major institutions and instruments that political independence requires; and second, to build a foundation for a market-oriented economy by stepwise implementation of economic reforms.
To achieve the above-mentioned goals it is necessary first of all to have adequate laws. Despite the fact that our Parliament has approved more than 160 laws in a short time, there are still not enough of them to provide the legislative infrastructure needed in a market economy.
We also must not forget that the reasons for the economic crisis are common to most economies of the former U.S.S.R. Since these economies are highly interconnected, it is very hard for Ukraine to avoid inflation, which has been accelerating since January 1992.
It must be emphasized that by October or November 1992 the Parliament of Ukraine will discuss the laws that are critical for implementation of the economic reforms. The Cabinet of Ministers is finalizing measures that will make the economic reform program more concrete.
The Economic Reform Program: A Mutual Effort of the IMF, the IBRD, and Ukraine
The Government of Ukraine at the beginning of this year requested from the IMF and the IBRD technical assistance to formulate an economic reform program. Today we would like to express our gratitude to the experts of these financial institutions for their response to the request. Discussions since the beginning of this year led to understanding those problems that are characteristic of the command-administrative system. A unique aspect of the Ukrainian economy is the high share of the military industrial complex, which through a conversion program will be oriented toward producing consumer goods to meet the demands of the population.
By the end of October 1992, we will be ready to discuss the measures of the Government of Ukraine that will be undertaken to include concrete projects in the economic reform program. We expect that we will find mutual understanding, that this program will be our common result, and that it will therefore be supported by the IMF and the World Bank.
Integration of Ukraine with World Economic Community
Our economic reform program envisages an open economy, which will facilitate its further integration with the world market and its fundamental restructuring. During the process of liberalization of foreign economic relations, the main concern of the Government of Ukraine is not to lead to destruction of the key sectors of the national economy.
With the above-mentioned considerations as a guideline, the use of foreign investments and credits in the economy in the first place should be directed toward structural changes with the implementation of modern, efficient technologies, machines, and equipment. The final goal is to restore the national economy on this basis, and in the first place to balance the domestic consumer market, also using for this purpose foreign trade, and then to move toward broader activities on the world market for the benefit of the entire world community.
The Common Interest of Member Countries Is Growth of World Economy
As the IMF and the World Bank have become truly global institutions, we can set before ourselves a truly global task of reviving economic growth. The special new challenge of integrating former socialist countries into world markets, if undertaken with a concerted effort by industrial, developing, and transforming economies, can only ensure mutual benefits. The long-term gains are expanded trade and investment opportunities and the consequent revival of economic growth.
To avoid the short-run risk of inadequate financing, it is essential for all three partners—industrial, developing, and transforming economies—to stimulate global resource mobilization. The first condition for this, as has been clearly set out by Mr. Camdessus in his opening address, is the reduction of public deficits, which drain investment funds, strangle private initiative, and result only in monetary expansion, which feeds destructive inflation.
Our task is a common one. But some countries can achieve fiscal discipline more easily than others. Industrial economies must take the lead in our common task, not only because of their great weight in global finance but also because their economic and social situation permits quicker results. The rest of us must ensure that financial stabilization is reinforced by fundamental reforms in the economy and by the structural changes that create the base for revival of economic growth.
Statement by the Governor of the Fund for Tanzania—K. A. Malima
First of all, we would like to welcome the new members of our two Bretton Woods institutions. Now that these countries have joined the International Monetary Fund and the World Bank Group, the Bretton Woods institutions have become truly universal in scope.
We note the comprehensive reform programs that have been set in motion by the countries of Central and Eastern Europe and the states of the former Soviet Union to bring about a radical transformation of their economies. Such a tremendous undertaking deserves the full support of the international community. We encourage the Fund and the World Bank to do their utmost to support this endeavor, bearing in mind that the task is even more difficult in African countries. We are confident that the expansion in the membership of our institutions will encourage the international community to do everything possible to increase the flows commensurate with the financing needs of the expanded membership.
The Global Economic Environment
The world economy has hardly improved since the Annual Meetings in Bangkok. Global output has declined slightly, the expansion of international trade has slowed down, and the signs of a shortage of global savings have grown stronger. Furthermore, protectionism in the industrial countries, the debt problem, difficult climatic conditions that we cannot control, and the continued decline in commodity prices are some of the many unfavorable factors that constitute causes for deep concern. They cast a shadow over the prospects for growth in the developing countries, especially in the sub-Saharan African countries where the economic situation is most alarming and where the chances for successful and durable macroeconomic adjustment efforts and structural reforms are threatened.
It is difficult to keep silent about the tragedy caused by the serious drought that is devastating sub-Saharan Africa, in particular the southern and eastern regions, which has aggravated an already precarious economic and food supply situation. It has brought about a serious reversal in expectations in countries that, otherwise, had begun to see their adjustment efforts bear fruit, and has exacerbated the suffering of these people in countries torn by armed conflicts. We thank the donor community and the multilateral organizations that responded promptly to the appeal launched by our governments for assistance to relieve the suffering of these peoples. The initial relief operations have brought some comfort to some of our peoples, but the needs are still enormous. We, therefore, call on the donors to increase their humanitarian assistance and the Bretton Woods institutions to complement this assistance through appropriate financing instruments, arrangements, and facilities.
Strategies for Africa’s Economic Revival
It is against this particularly difficult internal and external environment that the majority of our countries are undertaking political and social reforms while implementing comprehensive economic and structural adjustment programs to improve the living conditions of our people. A better grasp of data is necessary to help identify the most adequate solutions to Africa’s development problems. In this respect, the Global Coalition for Africa (GCA) is an appropriate forum for organizing a new partnership between Africa and the community of donors. We call on the international community to support this initiative, which should become the vehicle for a positive exchange of ideas on and experience with Africa. Indeed, contrary to a certain pessimism that seems to be spreading, it is our strong belief that Africa’s economic revival could be facilitated, inter alia, through
the pursuit of ongoing economic and political reforms that involve greater participation by the people and more efficient resource management and enhancement of institutional capacity building;
regional cooperation and economic integration;
seeking a lasting solution to the debt problem, involving, in particular, a substantial reduction of the debt and debt-service burden, as well as addressing the problem of falling commodity prices and economic diversification;
promotion of public and private investment and increased real resource flows;
development of an efficient agricultural sector to ensure food security and surpluses for export;
preservation of the environment; and
human resource development.
Political and Economic Reforms
We believe that greater transparency in the system of governance is ultimately the best guarantee for a balanced economic and social development of our countries. However, despite the strong commitment of our governments to economic reform and structural adjustment programs, delays are inevitable in the implementation of specific measures owing to the need to muster a broad social consensus and to ensure that there is genuine support by the people for these policies. These inescapable delays, which result from the introduction of political reforms, should not cause the Bretton Woods institutions and the donors to suspend their support for the adjustment efforts of our countries. Equity considerations and the consensus-building process also entail additional costs necessary to meet the legitimate demands from the poorest segments of the population that constitute the majority. We urge the bilateral donors to provide additional resources to ensure the success of the ongoing political and economic reforms in our countries. We also urge the Fund and the World Bank to adapt the sequencing of the measures and policy actions to the political and socioeconomic realities of each country. In any case, we strongly believe that a judgment on the reforms of the political systems in our countries does not lie within their jurisdiction and should not be linked to donors’ assistance in support of our adjustment programs.
Regional Cooperation and Economic Integration
We believe that expanding the economic area in Africa through economic integration and regional cooperation is an essential way to foster development in our individual countries. In order to shore up the numerous initiatives already taken by our governments to develop closer economic ties among themselves, the Fund and the World Bank should be endowed with the appropriate means and instruments to assist us in achieving this objective. Vigorous support and closer cooperation with the regional and subregional organizations will be of paramount importance in this respect.
The Debt and Commodity Problems
Although the external debt indicators for the developing countries as a whole have improved in recent years, the debt burden of the African countries continues to hamper the prospects for growth in most of them. Servicing their debt absorbs a substantial share of available resources and jeopardizes the success of their growth-oriented adjustment programs. We regret the fact that very little progress has been made in alleviating the debt burden of the African countries. While we welcome the adoption by the Paris Club of enhanced concessions with terms more favorable than the Toronto Terms, we cannot but emphasize that much remains to be done, as the debt situation of the African countries is still worrisome. We urge member countries of the Paris Club to take another step forward in seeking a lasting solution to the problem of our countries’ indebtedness by adopting the terms proposed in Trinidad and Tobago as a minimum starting point. We also believe that strong support should be given to the heavily indebted African countries that have continued to meet their debt obligations despite adverse economic and financial situations.
We are pleased with the World Bank’s decision to renew for two years the Debt Reduction Facility for IDA-only countries. However, we are concerned by the slow use of this facility, and we encourage the Bank to speed up the procedures to allow a large number of eligible countries to take advantage of these resources. We urge the Bank and the Fund to take bold initiatives aimed at reducing the debt and debt-service burden of our countries, thereby enabling them to devote most of their resources to development and to the fight against poverty.
We note with concern that prices of Africa’s major exports continue to decline, and the outlook for their recovery remains gloomy, thereby exacerbating our debt-servicing difficulties. We call on the industrial countries to take appropriate actions that would improve the prospects for export commodity prices and to remove protectionist measures that hamper entry of Africa’s exports into their markets. Again, while we note the emphasis put by the Bretton Woods institutions on trade liberalization in our countries, we urge them to support our efforts at economic diversification for economic growth. It is our strong belief that improved commodity prices and adequate economic diversification would contribute to a lasting solution to the debt problem.
Promotion of Investments and Resource Flows
We would like to point out that reducing poverty and improving the living standards of our people are the ultimate goals of our adjustment programs. We believe that the resumption of sustained economic growth is the most efficient way to attain these goals. While recognizing the importance of macroeconomic stabilization measures, it is nevertheless important to avoid curtailing investment, as this would endanger the development of infrastructure and other facilities, especially in the health and education sectors, and constrain the development of private sector investment. It is, therefore, essential that the level of investment be increased, in order to contribute to a lasting recovery of economic activity. In addition to our domestic resource mobilization efforts, Africa needs continued firm support from the international community in the form of large flows and net positive transfers of concessional resources through various multilateral and bilateral channels to promote its development. On their part, the Bretton Woods institutions, through appropriate financing instruments and arrangements, must actively participate in international efforts aimed at mobilizing resources for Africa, including non-debt-creating flows, particularly in the form of private investment. To this end, the Bretton Woods institutions are called upon to assist African countries in formulating and implementing the necessary policies.
In addition to its central role of exercising surveillance over the economic policies of its members, the Fund must direct its efforts toward adapting its financing facilities, particularly the enhanced structural adjustment facility (ESAF), to the medium-term adjustment needs of its poorest members. Indeed, the usefulness of the ESAF has been well established, as evidenced by the progress achieved by those countries that are implementing programs supported by arrangements under this facility. We urge donors to make more resources available to the Fund for extending ESAF-type assistance to its poorest member countries on a permanent basis. In this regard, we welcome the recent decision of the Executive Board to extend the ESAF cutoff date by an additional year and to conduct a full examination of all the options for the subsequent period, including a renewal of the facility. Time being of the essence, we encourage the Fund to undertake expeditiously the necessary work so as to have the successor facility in place by mid-1993.
Another area where the Fund could usefully support the adjustment efforts of developing countries concerns the resumption of SDR allocations. Given the pressing global need for liquidity, the scarcity of international savings, and the inability of private markets to create sufficient liquidity, there is no doubt that the time has come for a resumption of SDR allocations. The historical changes taking place in the world also justify substantial allocations of SDRs so that the SDR may play a central role in the international monetary system. We, therefore, urge the countries still opposed to SDR allocations to reconsider their position so that quick progress could be made on this issue.
Concerning the World Bank Group, in particular IDA, we are confident that the donor countries will take into account the marked increase in demand for IDA resources stemming from the growing needs of the poorest countries and those of the new or potential members who qualify for IDA financing in deciding their contributions to IDA replenishment. While we are aware of the budget constraints on a large number of donor countries, we would nevertheless urge them to increase IDA-10 resources to a level substantially higher, in real terms, than that of IDA-9, in order to provide IDA with the means to respond effectively to the increased needs of its present and future eligible members. Additionally, the UNCED summit held in Rio de Janeiro has resolved that special consideration by IDA deputies be given to the proposal made by the President of the World Bank at the summit for an Earth Increment to IDA to help address national environmental problems in IDA recipient countries. As regards allocation of IDA’s resources, we consider that special consideration should be given to the countries lacking access to other sources of financing, such as international capital markets, and whose domestic markets are too small to attract foreign private investment. The Bank must also ensure that IDA’s commitments to sub-Saharan Africa are consistent with the understanding reached with the donors. We are concerned to note that for fiscal 1991 the proportion of IDA commitments that went to sub-Saharan Africa was only 43.4 percent of the total, much short of that understanding. Despite the recent increase of that percentage for fiscal 1992, we urge the Bank to make every effort to eliminate the cumulative lag so that sub-Saharan Africa’s share can be increased to about 50 percent, in order to support the efforts under way to alleviate the widespread poverty in the region.
We are pleased to note that the World Bank is refocusing its assistance on poverty reduction. However, the number of poor people in Africa has continued to increase, and few countries have benefited from the Bank’s support in order to formulate genuine strategies for combating poverty. It is our expectation that the Bank will accelerate the poverty assessment programs so that it can quickly translate the results into specific action programs. We are convinced that such programs should rely on increased investment in the agricultural sector, and in the economic and social infrastructure, as well as in human resource development. In particular, it is imperative to involve women as crucial participants in the development process. In this connection, we call upon the World Bank to put more emphasis on programs that give due consideration to the role of women so as to enable them to contribute fully to the development process.
Special Program of Assistance
The Bank’s Special Program of Assistance (SPA) has proved effective in mobilizing cofinancing for low-income African countries. We are encouraged by the support that the majority of donors are continuing to give to this program; we are confident that the SPA will not replace IDA and that the resources under these cofinancing arrangements will be disbursed quickly so as not to delay the schedule of the programs involved. We are also confident that they will not contain any additional conditionally. For its part, the Bank should ensure that the criteria for resource allocation through the SPA are as objective and transparent as possible.
The 1992 World Development Report focuses most competently on environmental issues. Protection of nature and prevention of the degradation of the environment have always been the central concerns of our authorities who, notwithstanding unfavorable economic situations, have not failed to devote substantial resources to them. These efforts deserve the active support of the international community. We are certain that the environmental problems of the developing countries, and of the African countries in particular, are closely related to poverty and that the solution lies in sustainable and equitable growth that can, and must, be compatible with improvement of the environment. We support the efforts made by the Bank Group to help member countries to formulate and implement programs that take due account of the environment. In this context, we invite the Bank to provide the technical and financial assistance needed in order to draw up environmental impact studies and national environmental action plans. The latter have to be based on a dynamic concept of the environment that must identify a set of perennial and profitable activities and involve the populations concerned in the design of the policies to be implemented. Desertification, drought, deforestation, and soil erosion are major environment-related problems confronting our peoples. As a first step in international action to combat these problems, we urge the speedy implementation of the UNCED agreement on the initiation of negotiations for a Desertification Convention.
Environmental problems affect the entire world and only joint action will produce lasting solutions. We accordingly recognize that the actions and priorities set forth in the 1992 World Development Report call for additional technical and financial resources that are beyond the capacity of the developing countries. We, therefore, call on the industrial countries, which have the necessary technical, financial, and human resources, to bear a greater responsibility in the financing of the immense efforts for the protection of the environment in the poor countries. The existing institutions, such as IDA and the African Development Fund, are, in our view, the most appropriate vehicles for ensuring the swift, efficient, and transparent utilization of these additional resources. We also invite the industrial countries to facilitate, at reasonable cost, the transfer of nonpolluting technology to the developing countries.
We note the progress made by the Global Environment Facility (GEF). As a multilateral financing mechanism, it should play a lead role in mobilizing new and supplementary financial resources to meet the additional costs connected with the preservation of the world environment, including the fight against desertification and deforestation. We agree that all countries should be encouraged to join the GEF and that the modalities of its administration should be reviewed in order to ensure effective representation and participation by all countries.
Enhancement of Institutional and Capacity Building
Africa spends large sums on foreign experts while its own institutional capacities remain weak and fragile. We, African Governors, are determined to strengthen the local capacities and institutions in order to provide our countries with the necessary means for analyzing, planning, and managing our economies. We have enthusiastically welcomed the World Bank’s recent initiative to set up an Institutional Development Fund. We hope that sufficient resources will be made available to this fund to assist our countries to promote local institutions and to make better use of African capacities and technical know-how, in both the public and private sectors.
Trade Policies and the Uruguay Round
At the present time, the highest priority must be accorded to bringing the Uruguay Round trade negotiations to a rapid and successful conclusion. Liberalization of international trade will enable the developing countries to increase their export earnings. According to World Bank staff, the increase in export earnings could be over $50 billion, that is, the equivalent of official development assistance. However, the benefits from expanded international trade will go essentially to developing countries that are exporters of manufactured goods. The African countries might even be penalized in the short and medium term as a result of a reduction of the preferences they currently enjoy in the European markets under Lomé IV. It would, accordingly, be desirable to set up a transitional compensatory system to enable the African countries to adapt gradually to the downscaling of European Community tariff preferences. This supplementary financial assistance should be devoted primarily to facilitating the African economies’ adaptation to the new conditions in world trade. Moreover, there is a need for specific offsetting measures for the net food-importing developing countries, including food and financial aid, as well as technical assistance, to improve food production and productivity in these countries during the transitional period.
Representation on the Executive Boards
The rapid growth in Fund and World Bank Group membership, especially in the course of this year, brings into focus the need to maintain the multilateral character of the institutions and the importance of preserving the existing geographical representation of the developing countries on the Executive Boards. In this respect, we welcome the increase in the number of the seats on the Executive Boards and urge the rest of the membership to ensure that when the matter is reviewed, the interests of developing countries in general, and Africa in particular, are preserved.
Notwithstanding the complexity of the problems confronting Africa, our message is nevertheless one of hope. Today more than ever, the economic and political transformations taking place give us grounds for higher hope. Substantial resources made available on concessional terms are needed to buttress these transformations. We, therefore, appeal to the international community to support our economic and political adjustment efforts. The easing of tensions in the world provides a historic opportunity to cut military spending and use the peace dividend to boost official development assistance so as to achieve and exceed the target of 0.7 percent of GNP in this decade. These actions require a firm political will and the emergence of true international cooperation for development. We are convinced that with the support of the international community the economic marginalization of Africa will be quickly brought to an end, thereby enabling Africa to usher in an era of peace, security, and sustainable growth. Finally, Mr. Chairman, we commend Mr. Camdessus and Mr. Preston and their staffs for their continuing support for our countries.
Statement by the Governor of the Bank for China—Wang Bingqian
I have the great pleasure to attend the 1992 IMF and World Bank Annual Meetings during this beautiful season in Washington. First of all, Mr. Chairman, please allow me to extend, in the name of the Chinese delegation, our sincere congratulations to you on your assuming the chairmanship of this year’s Annual Meetings. I would also like to take this opportunity to welcome the new members.
I. The present-day world is in a historical period of profound change, with polarization giving way to multipolarization in the international arena. At present, global economic growth remains sluggish; economic activities in the major developed countries are slowing down; economies in the states of the former Soviet Union and in the Eastern European countries continue on a downward path; eastern and southern Africa are in the throes of a severe drought; the Latin American economies have recovered somewhat, but the debt burden is still heavy; and the East Asian and Pacific economies have, on the whole, maintained their relatively strong performance, although the poor population remains very large. With the uneven growth among the regions, trade regionalization has intensified.
As a developing country, China is naturally very much concerned with the developing countries’ current economic status in the world economy. We cannot but be worried about the increasing difficulties faced by developing countries, resulting from the sluggish growth of the world economy, the uncertain prospect of the Uruguay Round, and the increasing shortage of development funds. In recent years, while many developing countries have been making great efforts to open up their economies and lower tariffs, industrial countries have been stepping up their trade protectionism, which has directly impeded the structural adjustment and exports of developing countries. We hope that the industrial countries will demonstrate greater willingness to work for common development, and to break expeditiously the deadlock of the Uruguay Round, so as to pave the way for a smooth development of world trade and revitalize the global economy.
Maintaining peace and promoting development remain the two major global issues. Development requires peace, and peace relies on development. China believes that peace and development should be put on an equal footing and be given equal weight: With the ever-increasing interdependence of the economies in today’s world, economic growth in the developed countries will be constrained without economic development in the developing countries. We urge the international community, especially developed countries, to increase their assistance and financial support to developing countries in order to arrest the widening gap between the North and the South.
International economic cooperation should be based on the principle of respecting each country’s own choice, ensuring equality and mutual benefit. The world displays a variety of features. Countries differ in historical and cultural background, as well as in their level of economic development. No single development model should be imposed on all countries regardless of their specific circumstances, and no political conditionalities should be attached to economic assistance. Otherwise, the foundation of international development cooperation would be undermined.
II. As international financial institutions, the IMF and the World Bank are in a unique position to promote the stability of the world economy and to help developing countries in their economic and social development. Over the past four decades, the two institutions have done tremendous work in fulfilling their respective missions. We hope that, in continued pursuance of their mandates, they will maintain independence in decision making and treat their members equally without discrimination. We would like the two institutions to play a greater role in helping the developing members in their economic reform and development.
The continued reform and adjustment in many developing countries and the entry of new members have increased the demand for the use of the Fund’s resources. We, therefore, urge members that have not yet consented to the quota increase under the Ninth General Review to take the necessary steps to complete this important task as soon as possible. It should be pointed out that, following the quota increase under the Ninth General Review, the quota share of the developing member countries as a whole will have declined. We think that all the members should make efforts to reverse the declining trend during the Tenth General Review of Quotas. We note that the Fund has not been able to reach agreement to resume SDR allocations during the sixth basic period. We hope that the industrial countries will take positive steps to bring this issue to an early and satisfactory conclusion.
It should be noted that while the number of borrowers increased in the past fiscal year, the IBRD lending commitments decreased. This is not commensurate with the urgent needs of developing members. It should be pointed out that the Bank has been constrained in its ability to play its role effectively, mainly because of the excessive conditionalities on its lending operations, the ever-increasing restrictions on the sectors for its involvement, and the outside interference in its decision making. China shares other members’ concern over this situation.
IDA’s performance over the last three decades has proved that its assistance to the low-income countries in their economic development is highly effective. At present, more than one billion people are still living in poverty, and nearly half of them are in Asia. We call on the World Bank and the donor countries to continue their efforts to ensure that the size of IDA-10 will be adequate to meet the urgent needs of developing countries in their reforms and development. IDA must continue to uphold the principles of fairness and equity in resource allocation and to encourage efficiency in resource utilization. As the biggest low-income country in the world, China currently needs IDA’s support to accelerate the processes of poverty reduction and environmental improvement, thereby enabling us to make greater contributions to global development in the future.
III. It is thirteen years since China adopted its policy of economic reform and opening up to the outside world. During this period, productive forces have been unleashed and greatly expanded, thanks to reform and opening up. The rapid growth of the national economy and the great benefits that have accrued to the people compare favorably with any other period in our history. From 1978 to 1991, China’s GNP growth registered an average annual increase of 8.7 percent; labor productivity increased at an annual average rate of 4 percent; and the prices of up to 80 percent of commodities are now determined by market forces. The Chinese economic system has experienced a profound transformation, and all these achievements have brought about fundamental changes in China.
The key issue of the economic reform is how to handle the relationship between planning and the market. The objective of our reform is to establish a socialist commodity economy in which the merits of planning and the market can be organically combined. To develop the commodity economy further, market mechanisms must be brought into full play. An open and unified market will be developed across the country, with an extensive relationship to be established with international markets, thereby enhancing the vitality of the economy and improving its efficiency.
Developing and perfecting the socialist commodity economy requires the conversion of government functions in economic management. We will ensure that government administration is separated from enterprise management; that macroeconomic control is strengthened and microlevel decision making decentralized; that programming, coordinating, monitoring, and providing service are well managed; and that economic levers are used to exercise macroeconomic control, thus guiding the economy along the path of healthy growth.
With regard to ownership, we practice a multiple-ownership system, in which public ownership as the dominant form will coexist and develop on a long-term basis with other forms of ownership, such as individual and private enterprises and joint-venture companies.
The reform of state-owned enterprises will focus on transforming the enterprise operational mechanism. Enterprises are to be granted extensive operational autonomy according to state laws, especially regarding decision making on operation, investment, pricing, distribution of wages and bonuses, and employment policies. Selected state-owned local enterprises have begun to experiment with the joint-stock system, and stock exchange markets have been developed in Shenzhen and Shanghai.
With regard to fiscal reform, an internationally practiced revenue-sharing system between central and local governments will be established. Enterprises will be subject to a legal entity income tax system and conform to the internationally accepted accounting standard.
Financial sector reform will focus on strengthening the central bank’s functions, perfecting the financial macroregulation, and fostering the growth of the financial market.
With regard to price reform, we will accelerate the fostering of various commodity and factor markets and subject the prices of all but a few goods and services to market forces.
Opening up to the outside world is a long-term national policy of China. Since the beginning of the year, we have quickened our pace to open up further. Opening up is extending from the coastal areas to the inland provinces, and a multidimensional opening-up pattern has been formed. Sectors open to foreign investment have been extended from industries and tourism to finance, trade, commerce, transportation, and other service sectors. We will further improve the environment for foreign investment and shift from a region-oriented to a sector-oriented preferential treatment. We will also move from merely granting tax exemption to fostering an overall favorable investment environment. China will take steps to further improve its import-management system according to the international standard under the GATT, including reducing the scope of import licensing and increasing the transparency of import management so as to promote growth in imports and exports and raise domestic efficiency in production. Moreover, we will reform the system of foreign exchange administration and build a unified foreign exchange swap center in a bid to phase in the single exchange rate system for our currency and create favorable conditions to make it convertible at the earliest possible date.
IV. It is a challenge to implement an all-round reform and opening up in a low-income country that accounts for one fifth of the world’s population. But this undertaking will bring great benefits to our 1.1 billion people. We firmly believe that we are moving along the right track. So long as we continue unswervingly along the road suitable to the specific situation of China, we are bound to be successful.
Over the past decade, the economic relationship between China and the rest of the world has been developed continuously, and it is expected to be further strengthened. China is willing to maintain its economic and technological cooperation and exchanges with all other countries in the world. We are looking forward to increased support from the IMF and the World Bank. As a member of the international community, China will consistently fulfill its obligations to promote world peace and development and make its due contributions in this respect.
Statement by the Governor of the Fund for France—Michel Sapin
Since our last meeting in Bangkok, the growth of the world economy has remained modest. The year 1991 was marked by quasi stagnation. It appears that 1992 will also be disappointing, with world growth at 1.2 percent. Some industrial countries are in recession; others have experienced slight growth. On the whole, the prospects for recovery are uncertain. One key element—the confidence of households and businesses—is still tenuous in many countries.
In this context, the relative performance of the French economy appears very favorable. The International Monetary Fund forecasts, in my country, growth of 2.7 percent for 1993, the highest in Europe. Inflation is under control and is now the lowest of all major industrial countries. Problems remain, of course, chief among them unemployment, the persistently high level of which is one of the Government’s central concerns and one that calls for constant vigilance and sustained action. But never, in the course of our recent history, have the fundamentals been so good for the French economy and for the strength of its currency: external competitiveness is today greater than at the end of the 1970s, the market shares of French exporters have been increasing steadily for two years, and the trade balance recorded a significant surplus for the first seven months of 1992.
Efforts still need to be made by all our countries. These efforts primarily relate to the public deficits that are absorbing an excessively large proportion of our economies’ resources. Reducing these deficits is a priority matter. We must in particular continue to enhance the efficiency of public policies and reduce the amount of unproductive expenditure. As you know, as concerns France, I have agreed to make prudent use of automatic budgetary stabilizers, by not compensating for the losses of tax revenue resulting from the slowdown in growth while maintaining strict control over public expenditure. More generally, in all our countries, control over budget deficits is essential to restoring confidence and creating the conditions for the lowering of long-term interest rates without jeopardizing the achievements of the struggle against inflation.
In the course of last year, unprecedented developments have occurred in Eastern Europe. Eastern European countries have continued their progress toward both the market and democracy. The disappearance of the Soviet Union and its replacement by the new independent states, the membership of these states in the Bretton Woods institutions, and their consequent integration into the international financial community are truly watershed events in history.
I am pleased to see how quickly the Bretton Woods institutions were able to make room for the new independent states and to develop with them cooperation on a wide-ranging basis. A first credit tranche arrangement was signed during the summer between the Fund and the Russian Federation. Soon after, the World Bank extended its first loan. It is my hope that the determined pursuit of reform programs will make it possible to prolong and amplify these financing efforts while at the same time extending them to all the other states, some of which—in particular the Baltic states—have already firmly embarked upon a course of stabilization. I also welcome the membership of Switzerland—whose importance in the international community is well-known—in the International Monetary Fund and the World Bank. I am also satisfied that the two institutions have duly recognized the new members on their Executive Boards. It was appropriate to find a formula that would preserve the representation of the developing countries while giving the new members every opportunity to have a voice. From now on, the International Monetary Fund and the World Bank will be truly universal institutions, as befits their missions.
But care must be taken not to let other forms of exclusion restrict the scope of action of our institutions. Viet Nam and Cambodia are cases in point. France is convinced, especially in view of the favorable developments at the regional level, that the efforts made by those two countries to date and the ongoing process of economic reform merit the full support of the international financial community. For its part, France is willing to work to achieve this goal.
While expanding their action to new regions of the world, both the Fund and the Bank should pay special attention to the situation of the developing countries, in particular that of the poorest nations, more especially those of sub-Saharan Africa. It is essential that the IMF retain a concessional window for the benefit of its poorest members. It must continue to contribute to the financing of their adjustment efforts.
I therefore welcome the one-year extension of the enhanced structural adjustment facility (ESAF) and the additions to the list of eligible countries.
But what we must now do is think of the future. It is essential that the Fund continue to operate a concessional facility for the benefit of the poorest countries. In this way it can serve as a catalyst for the provision to those countries of resources appropriate to their situation and needs, within the framework of programs closely linking macroeconomic stabilization with deep-seated structural reforms.
For the Fund to abandon such an instrument would be tantamount to virtual abdication of its activity and presence among the poorest of the poor. We thus await with interest the results of the ongoing discussions led by the Fund on a mechanism that would succeed the ESAF.
In parallel, replenishment of IDA resources is a matter of extreme urgency. Maintenance of the value of IDA in real terms is a good objective, provided that each state should assume its part of the burden, and that the World Bank also fully plays its role: with its level of net income, it is in a position to transfer a large volume of additional resources to IDA, and the soundness of its balance sheet is such that it can offset, through its lending activity, the reduction of IDA credits to certain creditworthy countries.
Appropriate debt management naturally plays a major role in our efforts to reduce poverty, together with the granting of new credits. I therefore welcome the recent progress in this area, be it the implementation of the “London” terms to the debt of the poorest and most severely indebted countries by the Paris Club early this year or, following the recent Munich summit and the French initiative, the debt of certain severely indebted lower-middle-income countries, whose situation is basically very similar to that of the poorest countries.
There is, for our institutions, no possible future without preservation and development of their resources and their instruments. In this perspective, it is of course essential that the Ninth General Review of Quotas be implemented without delay. The Fund could also develop instruments for action through a new, substantial SDR allocation, a topic that we should keep under close consideration. France has already made precise proposals for adapted use of this instrument and wishes that these ideas and those of other countries who expressed their views on this subject be, from then on, carefully examined.
At a time when the world economy faces deep changes, the reinforcement of international cooperation is more necessary than ever. We shall need, to this end, the Bretton Woods institutions. France remains, as it always has been, determined to support their actions and their efforts.
Statement by the Governor of the Bank for Kazakhstan—Daulet Khamitovich Sembayev
The Government of Kazakhstan greatly appreciates this opportunity to stand before you today. This year’s Annual Meetings of the International Monetary Fund and the World Bank sum up the year when the disintegration of the enormous Communist state occurred. On the map of the world, 15 sovereign republics have appeared, most of which have become members of the leading international organizations.
These events, which mark the threshold of an era of new principles in the development of world society, give the present meetings a historic importance.
Kazakhstan, having repudiated totalitarian rule and central planning of the economy, has chosen the path that leads to the building of a democratic society. Our republic has rejected the former U.S.S.R.’s view that the international financial institutions are tools serving political purposes and has become a full-fledged member of most of these organizations. By the same token, it has abandoned the attitude of antagonism and isolationism, and eliminated the political and administrative obstacles that had blocked its participation in the world economic system.
It is well-known that the collapse of the U.S.S.R. has been accompanied by a worsening economic crisis marked by large losses in productivity, disruption of the system of finance and credit, and galloping inflation. But it must be noted that all these adverse developments were rooted in the economic model that existed in the U.S.S.R. and in the injection of political considerations into economic decision making.
For this reason, the solution of the most complex problems of transformation of a command economy into an efficiently functioning market system must be brought about by eliminating instability from the economy at all levels by means of the proven methods of world practice.
This year Kazakhstan is already engaged in transformations that will serve as a basis for the measures aimed at stabilizing the economy. The latter include liberalization of prices, economic relationships, and foreign trade and lowering the budget deficit. A new tax system has been introduced, credit policies have been tightened, and privatization and land reform are actively being pursued. This will create a favorable environment for external financial assistance and for attracting foreign investors. The republic has also created the legislative framework required during the initial phase by passing a number of laws defining the ground rules for commercial market relationships.
Today it should be noted that many provisions of the ongoing reforms have not led to the expected results. This has been caused by both internal and exogenous factors. In addition, some measures have turned out to be inadequate under the increasingly complex conditions. It has not been possible to halt the decline in production or achieve financial stability. The transition to market relations was begun without any institutional foundation.
Kazakhstan’s economic situation has been complicated by the unstable political situation within the Commonwealth of Independent States (CIS) in the form of growing divisive tendencies. Among the destabilizing influences are the lack of consensus about the future of the ruble area, the lack of a unified credit policy, the present levels of budgetary deficits, and the present system of settlement between production industries. Plans to settle financial disputes by setting up a ruble area tribunal and to establish a Coordinating Economic Committee were proposed by Kazakhstan at the founding meeting of the heads of state of the CIS. Then the economic crisis deepened and social tensions grew. The shortage of personnel qualified to work under market economy conditions grew acute. In the noncompetitive, highly monopolistic economy, price liberalization sharply cut demand, giving rise to economic instability. This led in turn to a fall in production, a deepening of the crisis in the investment sphere, shortages of goods and services, and lower living standards for the population. Unemployment is expected to rise rather steeply due to mandatory closings of obsolete and unproductive enterprises.
In light of the deteriorating situation, the Government of the republic is completing preparations for a program of deeper economic reforms scheduled for the next three years. At the tactical level it is aimed at restoring normal blood circulation in the economic body and creating incentives for labor.
The activities of the Government are primarily aimed at achieving macroeconomic stability and halting the decline in production. The program was designed with the specific economic environment of Kazakhstan in mind and is based on the establishment of a market system foundation by the systematic approach to the implementation of economic reforms, and on the solution of closely connected macroeconomic and microeconomic problems, both long-term and short-term.
In order to accomplish its program the republic must strive to preserve its ever more complicated economic ties with the other republics of the former U.S.S.R. and formulate economic policies in keeping with bilateral and multilateral agreements.
The Government believes that the logic of its proposals for fine-tuning their reform efforts will meet the requirements for stabilizing the financial situation and at the same time permit speeding up the process of systemic changes in the direction of a social market economy. The realization of the economic reforms must preserve Kazakhstan’s democratic gains and integrity, and increase the effectiveness of the utilization of its productive, economic, and labor resources.
The principal outlines of the program are set forth in the letter of agreement with the IMF. The experts of the Fund and the Bank have made an essential contribution to the accomplishment of this important task.
A successful solution for the problems described above will depend greatly on choosing the correct strategies and tactics for the economic reforms in the republic. However, the international financial institutions must also play a role in the accomplishment of these reforms by taking measures to support the reform process by providing technical and financial assistance. They have begun their part of this task and we hope they will continue it. Kazakhstan meets all the necessary qualifications. These are relative economic and political stability, based on popular support for the economic policies of the President and the Government; considerable production potential, based on rich mineral and natural resources; and favorable conditions for agriculture.
We hope that the membership of Kazakhstan in the Fund and the Bank will have a positive effect on the conduct of the measures aimed at stabilizing the economy, on the elimination of balance of payments problems, and on the accomplishment of systemic structural reforms. The republic will require external financial support, to ensure in the end a positive result in terms of raising the standard of living of the people by speeding up the formation of market relationships.
Statement by the Governor of the Fund for Moldova—Andrei Sangheli
On behalf of the Government of the Republic of Moldova, I want to thank you for Moldova’s membership in these two famous international financial institutions, membership that has been and is considered in our country as a clear sign of the support of our democratization and economic reform processes.
Three weeks ago the people of Moldova celebrated the first anniversary of the independence of our republic. We are now taking the necessary steps to let the country get the place it deserves in the international community. The transition process is a difficult one for all former socialist countries because it requires also the changing of the population’s mentality and meets with strong resistance from the pro-imperialistic forces still, unfortunately, powerful. I wish to stress that the great majority of the conflicts in our states are owed to these forces, and these conflicts do not have an ethnic character but a mere political one. Most probably, supplementary proofs are to be given to these states concerning their determination to support the progressive path. Unfortunately, economic weapons are also used successfully. The example of Moldova shows that during certain periods, these methods could take a leading role as a pressure instrument. During this period, the international financial institutions could have a fundamental role. At this very moment, the economy of Moldova is in a deep crisis, determined by a range of both objective and subjective measures. It is important to underline the great dependence of our economy on the raw material markets in the Commonwealth of Independent States (CIS), which have been deeply influenced by the sharp rise of prices and the shortages of raw materials—especially energy.
The situation becomes even more complicated because of external factors destabilizing the internal order. Moldova’s drought of 1992 was the severest one in the last fifty years. This year’s agricultural crop will be under the average annual level of 1986–90 with 32 percent, and the agricultural output of January-July 1992 with 13 percent under the level of the similar period last year.
We do need a special program to support our private producers, who are important suppliers for our internal market. We do have to do our utmost to annihilate fatal consequences for our livestock. Because of our lack of internal resources, we need external financial assistance. We are looking forward to reforming our banking and financial systems as well as our fiscal policies to give proper incentives to investment projects and introduce new technologies in our production lines.
We have started to liberalize our foreign trade to reduce monopolies on our production and to support entrepreneurship and foreign direct investment. We hope to create a competitive environment and to be able to modify the monopolistic and oligopolistic structure of our economy. We intend to learn the lessons from the experience of the transition process in Central and Eastern Europe. The IMF’s and the World Bank’s assistance are crucial to the successful design and implementation of our economic reform. Now that all CIS republics are members of the IMF and the World Bank, we very much hope that they will behave responsibly and consistently to carry out the monetary and financial discipline required by a market economy. If this assumption proves to be correct, then it will be impossible for any of them to repeat practices similar to the ones that took place recently in the Transnitar region, meaning the transformation of banking and financial instruments and institutions into political weapons, even more in main sources of support for the regional conflict.
We are asking specifically the IMF to express a consistent and comprehensive view concerning the ruble area, the possibilities of introducing national currencies in CIS republics, as well as the implementation of a correct interrepublican banking practice, and the World Bank to help us clarify the specific interrepublican trade issues.
I would like to express my gratitude to the IMF and the World Bank management for the high quality of IMF and World Bank missions to Moldova, their impressive work, and their sincere wish to help us. We very much hope that both the IMF and the World Bank will be at the height of their historical task consisting of showing to the whole world that they are indeed international financial institutions for which the former Soviet Union means not 1 country but 15, and that the IMF and the World Bank are willing and ready to help equally all 15 countries in achieving their democratic process and their fundamental economic reforms, without which we could say that not only our regional stability, but international stability as well, could be jeopardized.
The tomorrow of mankind is in your hands, ladies and gentlemen of the IMF and the World Bank. On our side, we, Moldovans, are firmly committed and have decided to make, together, this tomorrow much better.
Statement by the Governor of the Bank for Israel—Jacob A. Frenkel
I am honored and pleased to address this distinguished meeting of the Governors of the International Monetary Fund and the World Bank Group as Governor for Israel.
I wish to take this opportunity to welcome the numerous new members who have joined these distinguished institutions during the preceding year. The number in itself is a manifestation of the important role the Fund and the World Bank Group play in the achievement of economic stability, development, and growth in its members. With its membership, both the IMF and the World Bank have become truly global institutions.
What is the world economy that we have today and that the new members have joined? It is instructive to compare where we are now and where we were just five years ago, and the picture is mixed. On the one hand, growth today in the world economy is projected to be 1.1 percent; only five years ago, in 1988, it was 4.3 percent in the industrial countries, and the same in the European Community. On the other hand, in the developing countries, growth this year is projected to be over 6 percent compared with only 3.8 percent five years ago. The industrial world has reduced its performance; the developing world has improved. Likewise, on the inflation front, there is a similar situation.
But we have a problem. World trade today is projected to grow by only 4 percent, whereas it grew by close to 9 percent just five years ago. On the other hand again, the developing countries’ debt burden has diminished. With this perspective, we note the projections indicate that world growth is expected to recover, but at a moderate pace. At the same time, the balance of risk remains on the downside
We always have the conflict of a medium-term strategy for the budget with short-term needs, and we recognize that today’s long-term real interest rates are at historically high levels.
Today, as in the past four or five years, our problem is and remains the shortage of savings and investment, and that is why we have to put financial reform high on our agenda in the sense of intermediation, as well as structural reform, which makes the economies more flexible so as to enable savings to be transformed into capital formation.
But how do we do it in an integrated world? International policy coordination and cooperation is indeed called for, and the Fund always has been, and I hope will be, in the center of such activities. After all, credibility is granted and is never owned.
As we look into the future, we obviously aspire to increase the number of countries that, as the Managing Director used to say “belong to the low-inflation club,” and recognize complementarity between structural reform and macroeconomic policies.
As we look today at Latin America, Mexico, Argentina, and Chile and note the capital reflows, remembering the picture of less than a decade ago, we note some very encouraging effects. In echoing the speech of yesterday by the Managing Director, programs must be realistic, balanced, and well coordinated. If so, we will be on the right road.
Within this context, I would like to describe the Israeli economy. Israel is a small country; it has 5 million inhabitants, and its income per capita is about $11,000—slightly below the United Kingdom and Australia, and about par with New Zealand. The economy is well diversified and industrialized. It depends very much on open trade, and that is why its strategy is to open its economy, increase its flexibility, privatize, and renew private sector initiative.
Within this context, we hope growth will indeed accelerate. Since the 1950s up to the present, our average growth rate has been 6.9 percent in real terms. The growth rate during each of the past two years was 5–6 percent, and investment grew by about 25 percent a year.
Our main objective today, however, is a successful absorption of the extraordinary flow of immigrants coming to our borders, mainly from the former Soviet Union. We wish to absorb them properly, which means through the private sector and without bloating the public sector. This requires perseverance, a long-term perspective, and the rapid elimination of distortions.
We are optimistic about this because, as we look at the world today, we note the results of the silent revolution—the revolution that brought victory to the notion of free markets and private enterprise. Economic policy is no longer dictated by ideology, the concepts of privatization, trade liberalization, financial market reform, internationalization of the economy, and prudent macroeconomic policy are no longer subject to ideological debate, but rather they are understood to be the sine qua non of survival in the global system.
As we consider the global system, we can only hope that the Uruguay Round will succeed at long last in the very near future because, after all, it is the only and the cheapest mechanism by which the industrial world can help itself as well as the developing world without any budgetary consequences.
If we look today at Eastern Europe, Central Europe, and the former Soviet states, we note that the difficulties are there and they can be alleviated to a large extent by opening the borders and by enabling a better trading system. It is important to recall in this connection that the poor performance and the hardships of many of these economies are not a reflection of poor economic strategy in the present time, but rather of the collapse of the trading system. If we can only open the trading system, life will be much simpler for them and for all of us.
Let me conclude by expressing my appreciation for the continuous efforts that Managing Director Camdessus, President Preston, The Boards of Governors, and the staff are making in order to advance global cooperation, stability, and development. I would also like to state my appreciation for the splendid arrangements that the United States and the Joint Secretariat have, as usual, made for this meeting.
Statement by the Governor of the Fund for Viet Nam—Cao Si Kiem
Let me, on behalf of the delegation from the Socialist Republic of Viet Nam, express my deep gratitude to the leadership and the staffs of the International Monetary Fund and the World Bank for their warm and generous hospitality extended to us and all the members attending these well-prepared Forty-Seventh Annual Meetings.
I take special pleasure in extending our hearty welcome to all the new members who have just joined the Fund-Bank family this year.
In the somber mood of this hall today, as we gather during one of the most turbulent moments of the world’s financial history, we cannot help but reaffirm once again our confidence in the determination, imagination, and creativity of the two great institutions in discharging their responsibility of restoring normalcy to the world’s monetary scene.
At this time of difficulty, it seems appropriate for us all to recall that, as early as January 1974, the spirit of mutual interest, equality, and fairness was already recognized as the foundation for international cooperation by the Committee of Twenty, which advocated that “in managing their international payments, countries must not adopt policies that would merely aggravate the problems of the other countries.”
In that spirit of cooperation, Viet Nam has endeavored over the past few years to integrate itself in the world community and to join with other nations in building a new world of peace, stability, and prosperity. During the past twelve months since we last met in Bangkok, Thailand, Viet Nam has tried to put its house in order, to address its economic and financial disequilibrium and validate its commitment to the IMF and the World Bank.
Today, I am pleased to report that some measure of success has been achieved: nearly all prices have been freed, most subsidies have been eliminated, and credit to the state enterprises has been severely tightened. Moreover, we have put a firm brake on using money creation to finance budget deficits, and since July of this year, we have achieved a positive interest rate structure.
All of these measures have helped to correct our structural imbalances and to stabilize the economy. The rate of inflation has fallen to an annualized rate of 19 percent a year as compared to 72 percent last year and over 300 percent in the late 1980s. As well as unifying our exchange rates, the monetary and fiscal measures have induced an appreciation of our currency by nearly 35 percent since the beginning of the year.
In order to stimulate agricultural production, we have pursued actions to improve incentives to farmers through agricultural reform, realistic pricing, and increased availability of inputs. These policies have resulted in a sharp increase in rice output, which has helped the country achieve the very first surplus in its balance of trade ever since World War II.
Unfortunately, these achievements are far from being a source of joy to us. For a while, we have achieved some degree of stabilization; there has been very little or no economic growth. The economy as a whole has grown only at a little over 2 percent a year over the past two years, barely keeping pace with population growth. Viet Nam remains among the countries at the bottom of the pyramid of poverty, and has little domestic savings to finance its development.
Particularly difficult is the fact that we have to absorb two external shocks simultaneously: the sudden termination of foreign assistance and the inevitable shift in the direction of trade away from the nonconvertible area. Because of these shocks, whatever improvement has been achieved in our export earnings has been used to compensate for the loss of past inflows of resources.
Moreover, the current trade isolation of Viet Nam has made our task of building a market economy extremely difficult. The crushing burden of this isolation unfortunately weighs most heavily on our small farmers who account for over 70 percent of the labor force and who are playing an increasingly important role in the economy.
Compared with all countries pursuing the road of transition, Viet Nam is the only country that is simultaneously undertaking a dual transition—one from a command to market economy, the other from a war economy to a peace economy. We are moving forward because, unlike in the past, we have finally reached a national consensus on the nature, magnitude, and speed of transition.
Above all, we have institutionalized the change of direction by inscribing in our new constitution the necessity of the free market. In this context, we have divested the state-owned industrial enterprises and have increasingly provided credit to the nonstate sector. At this time, over 70 percent of retail trade has already been carried by private entrepreneurs.
Our people have shown that they are prepared to accept the hardship of external shocks as well as the heavy cost of dual transitions. Nevertheless, they need international support in terms of resources, and in creating an environment favorable for their undertaking. In this context, we are heartened by the recent decision of the Board of Directors of the IMF to terminate Viet Nam’s ineligibility with respect to SDRs. We hope that this will signify the serious intention of both the IMF and the World Bank to help remove obstacles to our normalizing relations with the two organizations.
Viet Nam is proud to be one of the oldest members of the Bretton Woods institutions. During the thirty-five years of our association with them, we have witnessed their ups and downs, but we have never seen them fail in responding to the requirements of a changing world. We will, therefore, continue to maintain our confidence in their responsiveness to our and other members’ needs at this critical juncture of history.
Statement by the Governor of the Bank for the Socialist People’s Libyan Arab Jamahiriya—Mohamed El Madani Al-Bukhari
It gives me great pleasure, Mr. Chairman, to congratulate you, on behalf of the delegation of the Libyan Arab Jamahiriya, on your being chosen as Chairman of the Board of Governors for the current year. I would like to wish you every success in this office. I am confident that you will fulfill your mandate successfully, thanks to your extensive experience and knowledge. I would also like to welcome those countries that have recently become members of the World Bank Group and of the International Monetary Fund.
Before I begin my formal remarks, I must share with you a story that perhaps captures the essence of the turbulence of our times and economic upheaval:
President Bush went into a coma and after many months suddenly woke up. Calmly standing at his bedside was Acting President Quayle, who said, “Relax, Mr. President, everything is under control.” President Bush immediately said, “What’s going on? What’s happened to the deficit, and where are the interest rates?” Vice President Quayle confidently said, “There is no deficit, and the interest rates are 1 percent!”
|Bush:||What about inflation?|
|Bush:||Wait a minute! Give me a benchmark. What does a telephone call cost?|
In spite of the signs of worldwide economic recovery during the first half of 1992, the expansion of economic activity in the industrial countries continues to be slow and uneven due to the great imbalances in the budgets of a long number of them and to the different economic policies they are pursuing. This fact hampers the development prospects of the developing countries and their attempts to overcome underdevelopment. Consequently, in order to improve the prospects of the world economy, industrial nations should reduce the deficit in their budgets and the financial support given to certain sectors and do away with tax exemptions in some of those countries.
On the other hand, barriers against the trade of developing countries have been intensified by the United States of America, Japan, and the group of Western European countries. To this should be added the financial support given by some of these countries to their industries, which has the effect of impeding the exports of developing countries and of preventing them from increasing their foreign exchange earnings, with the result that the burden of their external debts is increased. This also prevents these countries from correcting the path of their economies in spite of the financial support they are receiving from international and regional financial institutions. Therefore, what is required of industrial nations is that they reduce or remove those barriers and the different forms of subsidies to their industries so that the exports of developing countries can have unimpeded access to the markets of industrial countries. In this context, there is an urgent need to finalize the Uruguay Round of Multilateral Trade Negotiations. Delay in doing that would lead to the intensification of protectionist measures and to the emergence of bilateral and regional groupings.
Despite the efforts being made by developing countries to restructure their economies with the help of international and regional financial and monetary institutions, they continue to be faced with the problem of the size and burden of their external indebtedness. In particular, the problem of sub-Saharan African countries suffering large-scale starvation and disease requires that the world community give greater attention to the plight of the most indebted among them, to increase financial flows to them on favorable conditions, to take all measures to reduce their external debts, and to transform a substantial part of them into grants and other forms of aid.
The problems of poverty, hunger, and disease continue to threaten the lives of millions of people in Africa and Asia. In Somalia alone, hunger is threatening the lives of one and a half million Somalis. Therefore, the world community, the World Bank, and the IMF should assume the responsibility for saving mankind from those scourges. Any delay in responding to this serious situation would only result in further losses and deaths.
In order to enable the IMF to assume its role in assisting member states and to provide the funds required for expanding the international trade, the Libyan Arab Jamahiriya hopes that the Ninth General Review of Quotas will soon come into effect and that the IMF will make new allocations of SDRs, the distribution of which should be effected according to the criteria that attach a great importance to expanding the reserves of developing countries. We think that the newly independent states of the former Soviet Union should be helped.
The Arab people of the Libyan Jamahiriya are making considerable efforts to overcome underdevelopment and to develop their society in accordance with the Jamahiriya theory. To that end, the main people’s conferences of the Libyan Jamahiriya formulate the different economic plans and policies that are then implemented by the people’s committees. Large resources are being allocated to the implementation of transformation and development programs.
Aware of the seriousness of the water resources, the main people’s conferences have taken the decision to build the Great Industrial River that will carry millions of cubic meters of water from the south to the north of the country with the aim of providing large quantities of water for agricultural purposes. This year, the people of the Libyan Arab Jamahiriya have celebrated the arrival of water from the Industrial River to the main dams. The water will be distributed shortly to thousands of hectares of agricultural land. It is expected that this gigantic and vital project, which cost billions of dollars, will considerably increase the agricultural output, which will be used for both domestic consumption and export.
In addition to that, the Arab people of the Libyan Jamahiriya have made numerous achievements in the various sectors, but they continue to be faced with intransigence on the part of certain Western countries that are intent on depriving us of using our resources for developing our economy and for assisting those of friendly and sister countries.
Since January 1986, our country has continued to be subjected to an economic blockade by the United States of America. Thus, on January 19, 1991, the blockade was further tightened by the United States through the abolition of a derogation clause in its decision of February 18, 1991, which allowed the clearance of remittances involving the Libyan state through foreign banks (third parties) in the U.S. banks. By so doing, the United States is preventing Libyan corporations of all kinds from using their funds (in U.S. dollars) to meet their financial and commercial commitments. According to the above-mentioned decision of the United States made on January 19, 1991, all U.S. banks and their subsidiaries abroad are required to freeze all Libyan funds and the payments in their possession regardless of their origin, destination, or beneficiaries so long as those funds and payments concern, directly or indirectly, Libyan interests or entities (including any remittances to individuals or companies in Libya carried out by the financial institutions of the Libyan state).
The decision in question runs counter to the spirit as well as to the express letter of the IMF convention, which prohibits the taking by member states of any restrictive measures that would impede international payments. Further, it constitutes a violation of all international norms and customs and hampers the free flow of commodities, services, and international trade, particularly when the currency of the state adopting such restrictive measures is an international reserve currency widely used in the settlement of international exchanges and payments.
The delegation of the Libyan Arab Jamahiriya would like to affirm before this forum that the decision to charge two Libyan nationals with the blowing up of a Pan American plane (103) is not based on any evidence or proof. Their premature conviction without a fair and impartial trial is in contravention to the established principle enunciated in all constitutions and in the Human Rights Covenants, namely, that “the accused shall be presumed innocent until proven guilty.”
Libya has publicly reiterated—and I would like to repeat it once again before world public opinion—that its policy is opposed to any kind of terrorism or terrorist acts against innocent civilians; that it has never and will never associate itself with a group under any name committing such inhuman acts, since Libya itself had been a victim of terrorism; and that the world will be able to ascertain that policy in a practical, specific, and clear manner. Furthermore, the Libyan Arab Jamahiriya would like to recall that it has never allowed—and will never allow—its soil or nationals to be used for terrorist activities.
In conclusion, my delegation would like to affirm that the new international order is essentially a political one. Unless it is grounded on a sense of human brotherhood, it will not achieve its declared purpose, namely, progress for the human race. My country has such a view of the world tomorrow as to compel us all to reconsider our positions and policies. Instead of the language of threats, requisitioning, embargoes, freezes, and blockades, which seems to belong to an old vanishing world, the Libyan Arab Jamahiriya is calling, in conformity with the principles introduced by its leader, for building a world of brotherhood and love free from intolerance, partiality, and selfishness.
In the view of the delegation of the Libyan Arab Jamahiriya, the financial, monetary, and economic policies on which a new international economic order should aptly be based may be briefly summarized as follows:
To organize relations between creditor and debtor countries in an atmosphere of trust and to respond to the conditions of the developing world in a human spirit transcending strict material borders. This would raise cooperation between states to a more sublime level, instead of being subject to harsh restrictions imposed by regional and international financial and monetary institutions.
To help the poorest nations by canceling the interest on the loans extended to them; to review the size of their accumulated debts; to ease the burden of such debts on their diminishing resources; and to exempt them totally from such debts.
To encourage member states to act as partners in the economic institutions and activities, thereby putting an end to the exploitation of the labor force. We view with appreciation and hope the application by some companies in capitalist societies of the principle “partners, not laborers,” which would end the chronic struggle between capital holders and producers.
To alleviate the problems of fluctuating exchange rates and the increasing costs of imports by developing countries, already suffering from balance of payments problems, from countries with convertible currencies, the Libyan Arab Jamahiriya has adopted and implemented a “policy of barter” in agreements with friendly and sister countries. This policy has proved effective in overcoming monetary problems and has given greater value for the commodities produced by developing countries.
These are briefly the main features that should be incorporated into the new world order (whose features have not yet been defined, and of which the world leaders and decision makers speak constantly). Economic experts should take those features into account and incorporate them into the Charter that may have to be redrafted to suit the future world toward which we are marching with confidence and conviction.
Statement by the Governor of the Fund for Paraguay—José Enrique Paez
It is a great honor for me to present before this eminently qualified and distinguished assembly some ideas concerning the central topic of these meetings and to highlight the most noteworthy aspects of Paraguay’s recent economic policy.
Today, nearly fifty years after their creation, the Bretton Woods institutions are as effective and as important as ever, thanks to the fact that in the pursuit of their objectives they have adjusted to the changes occurring in the international financial environment.
The creation of the International Monetary Fund and the World Bank served to strengthen economic and financial cooperation, which has worked to the benefit of the member countries. We accordingly share the view that development can and should be accompanied by continued stability and growth in the industrial countries, since this will facilitate the international cooperation and dialogue that are key elements in a world that is becoming increasingly interdependent.
With the emergence of a commonality of interests coupled with the globalization of economies, the international financial institutions are finding that they have a key role to play in the efforts to shape an international economy that is more equitable and open, more dynamic and integrated, and consequently more dependent on multilateral commitments.
The 1990s will present major challenges for the economies of many regions, such as the need to formulate consistent and timely domestic policies that keep pace with the changes occurring and offer a flexible response to societies anxious for pragmatic action that will help their people achieve a higher level of well-being. Such well-being is a basic prerequisite for the maintenance of peace in a world growing more and more skeptical of fine-sounding pronouncements that are not backed by action. For this reason, a mandatory topic in many international forums is the need for “economic growth with equity” within and among countries.
After three decades of significant economic progress, Latin America experienced a serious recession in the 1980s as a result of the dizzying increase in its external debt and debt-service obligations, together with a deterioration in its terms of trade, owing in part to the contraction of the world economy. Even though the financial crisis has not yet been fully surmounted, the stabilization and adjustment programs undertaken by many countries are starting to bear fruit, including those of certain economies that have been able to return to the voluntary credit markets. Nevertheless, adjustment fatigue persists in some countries, while in others the macroeconomic stability achieved is very vulnerable. All of this calls for greater understanding and pragmatism on the part of the international financial institutions and the creditor countries.
Maintenance of the recovery in Latin America will be critically dependent on adoption of appropriate and consistent macroeconomic policies by the countries of the region, but it will also be conditional upon an improvement in the global economic environment, particularly with respect to industrial country growth rates, net transfers of funds in the form of lending or investment flows, and international market interest rates. Moreover, it is important that exchange and trade policies foster trade that is equitable. This is closely bound up with a swift and successful conclusion of the Uruguay Round, within the context of the General Agreement on Tariffs and Trade (GATT). In this connection, an important requirement for improvement of the developing countries’ trade balance is the establishment of more favorable conditions for access by their exports to the developed economies, an area in which the trends observed have not been very satisfactory: commodity prices have been depressed for some considerable time, and sales to those markets are restricted by protectionism and instability.
In this situation, Paraguay, like many other Latin American countries, has made substantial efforts to increase its exports. However, the greater export volumes accomplished have been neutralized by a marked drop in the prices of its major export goods. Moreover, the prospects for a recovery in the international prices of primary products are not good for the years ahead.
Furthermore, the experiences of Paraguay and other Latin American countries in the area of adjustment clearly show that reforms cannot target only monetary and financial stability and ignore or underestimate the needs of economic growth and social progress. We must not forget that countries cannot be reduced to numbers or macroeconomic statistics but also embody feelings, aspirations, and human problems. A more human approach must therefore be taken to economic problems, so that policies do not continue to generate social traumas of the type experienced by countries in many regions and in the countries of my region. But neither is it possible to conduct economic policies in a way that fails to give adequate attention to the monetary and financial side, with the result that the economic program leads to an exaggerated expansion of credit, money, and prices. There will be no increase in investment or repatriation of capital until macroeconomic stability is re-established and consolidated.
These experiences also highlight the importance of assessing the effectiveness of adjustment policies. In this connection, the availability of additional net external resources is a key element for increasing utilization of the human resources rendered idle by the reduction and reorienting of aggregate demand entailed by stabilization and adjustment programs. The support of the international community, in the form of new lending and timely technical assistance, is essential here, since such support will enable more appropriate use to be made of available resources and will, in time, help to ensure that the transformation of the productive structure produces the desired effects.
World Economic Prospects
World economic prospects indicate that, following a small dip in world output in 1991, growth will rise to about 1 percent in 1992 and then gather momentum in 1993. Despite the fact that the moderate world recession of 1991 does not seem to have seriously affected raw materials production capacity (as occurred in the two previous recessions), it has had an unfavorable impact on the prices obtainable for them.
In this context, the question of external restrictions assumes greater importance for countries like Paraguay, since a less favorable international scenario means that additional external financing will be needed. To overcome circumstances of this kind, not only are appropriate, timely, and consistent domestic policies required, but it is also essential to be able to rely on support as and when needed from the international financial agencies, in particular the International Monetary Fund and the World Bank, that have the necessary experience and reaction capability to grant technical and financial assistance to their member countries. We accordingly support these institutions’ proposed increases in quotas, capital, and resources and urge the other countries to do the same.
The Paraguayan Government that took office in 1989 initiated the process of transition to democracy by means of major changes in the political and institutional order.
Paraguay’s present policy is based on certain basic parameters:
1. The Government’s determination to maintain a market economy open to the outside world. This parameter explains the dismantling of price controls, the rapid reduction of customs tariffs, and the manifest determination to participate actively in the re-establishment of regional integration systems, including the Southern Cone Common Market (Mercosur). Clear examples of this attitude on the part of the Government are its accession to MIGA, within the World Bank Group, and its efforts to join the GATT. Combined with the foregoing parameter is recognition of the need to introduce certain elements of regulation and compensation when circumstances so require.
2. A second parameter consists of emphasis on the importance of the basic macroeconomic equilibria, of stability, and of the need for gradual economic and social reforms. In this context, we need to remember the experiences of many Latin American countries that have adopted very ambitious growth and income redistribution policies. Such policies have rapidly generated “populist cycles”; in other words, the very severe adjustments have opened the doors to a new set of destructive reactions in the form of exaggeratedly expansionist policies. We therefore believe that the appropriate route is to implement policies that are decisive, clear cut, and persistent, but that avoid producing any traumatic shocks.
3. A third point connected with the Government’s role is the need for it to make a more significant contribution to the alleviation of poverty, by upgrading education and public health services to levels compatible with the constraints imposed by fiscal and monetary discipline. To this end, the Government has undertaken a large number of programs connected with low-cost housing construction and with improvements in health, education, and other basic social services.
In the context of these parameters, the Paraguayan public sector has been operating at a surplus since 1989, which has consequently been a key factor in the tightening of the money supply.
Furthermore, steps have been taken to initiate a process of financial liberalization, with a view to removing the climate of repression and improving conditions for a deepening of that market. This reform has been based on a significant reduction in both the selective and the quantitative restrictions on private bank credit and, as of 1990, on elimination of all types of controls on interest rates and on allowing market mechanisms to perform monetary regulation functions.
The exchange policy was also redefined in 1989 with liberalization of the exchange rate and introduction of a floating-rate system, with a view to achieving greater transparency in the public sector and external accounts and eliminating one of the principal sources of the quasi-fiscal deficit. Consequently, the exchange policy adopted made it possible for the exchange rate to fluctuate freely to reflect conditions on the exchange market. The Central Bank was also authorized to intervene on that market to neutralize transitory shocks and thereby offset any sharp fluctuations in the nominal exchange rate.
The broad thrust of the trade reforms has been to bring about a significant reduction in tariff protection. The present structure establishes new tariffs of 3 percent, 5 percent, 8 percent, and 10 percent for the majority of products. These reforms, combined with the process of integration into MERCOSUR, involve an appreciable opening up of the current account against the backdrop of a capital account that was itself opened up some time ago.
Furthermore, the external public debt as of July 31 was approximately $1.5 billion, equivalent to about 25 percent of GDP. It is important to note that Paraguay has started to clear the arrears on its external public debt left over from the previous government. Arrears to the commercial banks have nearly all been settled. As regards the official debt, agreements have been concluded with nearly all the principal official creditors, including provision for substantive payments, since the Government is committed to settling all arrears over the next few months.
In conclusion, allow me, on behalf of the Government of Paraguay, to call for a strengthening of international cooperation, for a joint effort to create improved conditions to allow the world economy to regain a significant level of expansion, and, in particular, for the future success of the International Monetary Fund and of the World Bank Group.
Statement by the Governor of the Fund for Kyrgyzstan—Kemelbek K. Nanaev
I have the pleasure to express my sincere gratitude on behalf of the delegation of the Republic of Kyrgyzstan for having made possible our participation at such a representative and authoritative forum as the Annual Meetings of the International Monetary Fund and the World Bank Group. Today, I have the honor to represent the Republic of Kyrgyzstan, which has become an independent sovereign state. We gained our independence exactly a year ago, following the collapse of the Soviet Union, and, at present, we follow a firm policy of democracy, democratic reforms, and transition to a market-oriented economy, with the goal of creating a modern law-abiding state, which will be able to defend its citizens and ensure their security and socioeconomic rights.
The achieved independence is for us, by all means, a major political event, but at the same time it involves a painful process in the economy, which was for a long time under a central system and, consequently, is sensitive to all the changes and reforms under way in the other countries of the Commonwealth of Independent States (CIS). In addition, as the republic still remains in the ruble area during the economic stabilization period, it faces the need for coordination of its pricing, money, and monetary policy with that of the other CIS countries.
The main economic problems of republics emerging out of the former U.S.S.R. are well-known and, of course are largely the same for us. They include
a continuing decline in production and a growth of inflation;
disruption, or even severance, of economic and trade relations;
large budget deficits;
a one-sidedness of economic development; and
lack of a proper tax and social legislation.
Being aware of these difficulties and the responsibility for the economic situation, our Government intends to implement a comprehensive program of economic and structural reforms, which comprise privatization, reforms of state enterprises and landownership, demonopolization of foreign trade, reforms of the banking system, creation of a favorable environment for investments, and a social safety net for the most vulnerable groups. We admit openly that we have neither a developed market economy, sound management, nor appropriate social and banking institutions, so far. But, the first steps have been taken in this direction. A number of laws on privatization and investment have already been adopted. A new constitution and several more laws are being prepared, which should lay the foundation for our reform efforts. Our nearest aim is to accelerate the process of structural changes, to stabilize the macroeconomic situation, and to contain the decline in production using market management methods as much as possible.
However, we realize that success in economic reforms and normalization of economic life cannot be achieved alone, without support from the international community, including the major international economic institutions, and without a smooth integration into the world economic, financial, and trading systems.
Although we join the Fund and the Bank at the time when our own economy is unstable, all prerequisites exist for Kyrgyzstan to become, in the future, a reliable political and economic partner and to fill its proper place in the international community. Kyrgyzstan, owing to its advantageous geographical position in Central Asia, being situated at the intersection of a transport network, has every reason and opportunity to become a center of peacemaking activity, political stability, national reconciliation, and trust, not only in its own region, but in Central Asia as a whole. Our country can serve as a connecting link for the international collaboration between the East and the West. The republic has a great hydropower potential, abundant raw material resources, rich reserves of ores, nonferrous metals, gold, uranium, etc. It has a developed base for manufacturing industries and considerable skilled manpower resources. Natural and climatic factors provide excellent conditions for the agrarian sector and contribute to the development of international tourism.
In order to take advantage of its regional potential, and to impart more dynamism into its economic reforms using the existing worldwide experience, Kyrgyzstan made the responsible and important decision to apply for membership in the Bretton Woods institutions. We are prepared to fulfill all the duties and assume all the rights set forth in the Articles of Agreement of the International Monetary Fund and the World Bank Group. From the very beginning, the Fund and the Bank have been promoting economic development in various countries of the world—extending loans, financing projects, and supporting reforms. Your experience gathered and success achieved in numerous countries in stabilization and economic growth allow us to be optimistic about the’ implementation of our reforms.
Finally, I would like to express our thanks to our hosts for the warm and cordial hospitality shown us and the excellent arrangements that made our stay in the United States pleasant and fruitful. We wish welfare and prosperity to the Fund and the Bank in their pursuit of their goals.
Statement by the Governor of the Fund for San Marino—Clelio Galassi
It is for me a great honor to speak for the first time in such a prestigious forum, which unites world leaders in finance and economy.
For my country, which is small in terms of territory, population, and economic size, but rich in history and centuries-old traditions—of which it is proud and for which it has earned the appellation “the smallest and oldest republic in the world”—entry into the global body of the International Monetary Fund assumes a particular significance that I dare define as historic. It is for this reason that I feel it my foremost duty to express my Government’s full satisfaction with the completion of the membership process. Membership in the Fund is the culmination of San Marino’s foreign policy, whose evolution in recent decades has fostered my country’s progressive opening toward the rest of the world, its emergence from its traditional isolation, and its participation, with increasing involvement on all levels, in the efforts undertaken by the international community to promote peace, cooperation, and growth, with full respect for the fundamental rights of the individual and of nations.
Given the short time available, I will limit myself today to expressing the hope or, rather, the conviction that, thanks to the ever more influential contributions of the IMF, as well as eventually the World Bank, in which my country is envisaging membership, the current imbalances and points of crisis will be removed as soon as possible.
All countries on the globe, large or small, have equal rights and duties, but not necessarily the same possibilities and responsibilities in the face of the problems that afflict—regrettably, still today—the world in which we live. No country, however, can consider itself exempt from being responsible for the world’s problems or from being involved in what occurs beyond its own boundaries.
This is why I firmly believe that in a context of international cooperation and solidarity, such as that of the great community of the IMF, it will be possible to find the key to overcome the difficulties of the moment, to defeat poverty, and to favor a more harmonious and peaceful development of all peoples.
It is, in any event, a precise commitment by my country to apply itself in this direction, even within the limits of its potential.
September 23, 1992.