Chapter

Discussion of Policy at Fifth Joint Session1

Author(s):
International Monetary Fund. Secretary's Department
Published Date:
November 1992
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Statement by the Governor of the Bank for El Salvador—Mirna Lievano de Marqués

I join the speakers who preceded me in welcoming the new members of the International Monetary Fund and the World Bank Group. On behalf of the Government of El Salvador, I welcome this new opportunity to briefly share with you some of the most significant advances we have made over the past year, the third year of our administration, and the challenges that still lie ahead of us.

Since the first day of President Cristiani’s administration, we have set for ourselves three broad objectives for dealing with the most profound political, economic, and social crisis in our history:

  • In the political sphere, to attain peace through a permanent, irreversible dialogue—adhering strictly to the nation’s institutions—and to strengthen the democratic process.

  • In the economic sphere, to put an end to the excessive intervention of the State, in order to establish a more competitive and more outwardly oriented economy and give back to the private sector its fundamental role as the driving force of the country’s economic development.

  • In the social sphere, to create conditions to enhance the well-being and quality of life of our people, especially those who live in extreme poverty and the most vulnerable groups, such as young mothers, children, the aged, and the population uprooted by the conflict.

One year ago, we spoke at this forum with the hope that peace would come to our country. Today, we share with you our deep satisfaction, because peace has come to El Salvador. This was possible thanks to the effort of our entire people, under the leadership and dedication of President Cristiani. Nine months have elapsed, without armed confrontations, since the signing of the peace agreements, and all sectors are contributing to ensure that October 31 will see the complete demobilization of the FMLN and a reduction of the armed forces pursuant to the agreements. In the meantime, we are working decisively to face the greatest challenge since the end of the conflict: the unification of the great Salvadoran family and the physical, moral, and civic reconstruction of the nation.

We have also witnessed substantial advances in the economic sphere. Our economy grew for the second consecutive year in 1991, by 3.5 percent, while inflation continued to abate, declining to below 10 percent, or less than half of the 1990 level. We expect economic activity to grow by some 4 percent in 1992, despite the drought that afflicted the country and the low prices of coffee on the world market, and inflation to remain at roughly 10 percent. These prospects show that the Salvadoran economy is entering a stage of growth with stability.

But macroeconomic growth has been slower than expected. On the one hand, the slackness of tax revenues, attributable in part to the decline in coffee prices, the rigidities in the structure of government spending, and the new demands stemming from the peace agreements have hindered fiscal adjustment. On the other hand, private capital inflows and household remittances have helped support increased economic activity and finance the domestic expenditure overhang. We are conscious that we must persevere in the adjustment process to ensure that the economic growth we are experiencing will be sustained over time.

The structural reforms are progressing according to schedule. The market has regained its predominance; price controls have been eliminated; and interest and exchange rates are now determined by the market. Virtually all barriers to foreign trade have been removed, and the economy has become more open. Banking is well on the way to privatization, and other financial institutions are heading in the same direction. All this has brought us closer to the goal of liberalizing the economy so that the market can assume its predominant role in resource allocation, the private sector can be the driving force of growth, and economic, legal, and financial conditions can be attractive to foreign investment.

In the social sphere, we have stressed the decentralization of state services and a stronger role for municipal governments, so that services can be delivered to users more effectively. The Social Investment Fund has opened a window to encourage private sector participation and to multiply and focus the activities of nongovernmental and community organizations. New educational programs have facilitated the participation of heads of households and brought pre-primary and primary schooling to several thousand formerly marginalized children in rural areas. The coverage of health services has been broadened, and targeted food programs at health posts, schools, and canteens for the aged have doubled in the past year. In the housing sector, land tenure is being legalized, and a direct subsidy program has been established to supplement the savings of the very poor and make it possible for them to purchase low-cost housing. All this, together with the recovery of the economy, has brought about the first signs of a reduction of poverty and extreme poverty, allowing us to look to the future with increased confidence.

Lastly, peace brings with it new commitments and new demands. The implementation of the National Reconstruction Program, aimed at reintegrating ex-combatants into productive civilian life and providing attention to the areas most affected by the conflict, is demanding an enormous effort from all institutions. The Government of El Salvador has steadfastly insisted that nothing must be allowed to force us off the economic path we have laid out, as the progress attained in the past three years of reforms could easily be lost, jeopardizing the very capacity of the nation to implement the National Reconstruction Program. Nevertheless, the post-conflict needs are great and pressing and the social backlog is large, while domestic resources are extremely limited.

We would like, on this occasion, to express our thanks to the World Bank for having organized a meeting of the Consultative Group for El Salvador a few weeks after the signing of the peace agreements, and to the friendly countries and international institutions that extended us their support through aid commitments totaling some $800 million for the first two years of implementation of the National Reconstruction Program. Unfortunately, we have to date received only a fraction of the amount promised, which places the entire pacification process in a difficult situation. In this context, we call upon our friends to turn the promised aid into a reality as quickly as possible, so that it can become the fundamental support of the reconstruction and reconciliation effort being made by our people. By doing so, they would truly be helping us to ensure the consolidation of peace in El Salvador within a framework of economic stability and strengthened democracy.

Statement by the Governor of the Fund for Estonia—SIIM Kallas

I am very glad to have the opportunity as the first representative from the Republic of Estonia, as well as the three Baltic states, now members of the international financial community, to address you. First of all, I would like to express our great appreciation to the IMF and the World Bank for the cooperation we have enjoyed with them during the first year of our independence. We expect much from our membership in the Bretton Woods institutions.

The Baltic states have only been fully independent for about a year following the dismantling of the former Soviet Union. However, our countries have already become deeply involved in a process of comprehensive political and economic reform aiming at a democratization of our societies and the transformation of our economies into full-fledged market economies.

On the economic side, we have established comprehensive stabilization and structural adjustment programs in cooperation with the Fund and the Bank. Very significant structural reforms have already been undertaken. In all three countries most prices have been fully liberalized. The few exceptions, in areas such as energy and transport, are intended to follow.

Privatization is also a central reform area where important progress has been made. In Lithuania, for example, which is most advanced in this area, the privatization process was already started a year ago, and in the last twelve months, 70 percent of dwellings and 20 percent of industry have been privatized.

Throughout the decades of occupation there was a strong desire, in all three countries, to return to the free world and a market economy. We have a strong willingness and readiness to implement radical capitalist reform, and there is a social consensus among our populations for that reform. It is therefore important to feel emotionally, and also very practically, that we are welcome in a world that is admired by us. Actually, we have felt that in many cases already.

The Baltic states are, due to their location and history, quite important for some political and military circles in the world. Due to our small size, we can be subjects of many kinds of speculation, particularly as regards questions about the rights of Russian minorities in the Baltic states.

On September 22, some politicians in the Russian Parliament demanded again the establishment of a full embargo on economic relations with Estonia. We hope that the successful collaboration started with the international community will not be damaged by such unjustified external actions.

We are pleased to note that, after long and complicated negotiations, with good understanding and support from the international community, Lithuania has recently signed important agreements with regard to the withdrawal of foreign troops from its territory by the end of August 1993. We believe that similar agreements should be concluded for Estonia and Latvia. We also expect that such agreements will be fully adhered to by the contracting parties, and urge the international community to monitor the implementation.

Today we are taking the first steps to enter into the free market world, starting with monetary and financial cooperation with the world community. But there are a lot of steps ahead. Today we do not have very much to offer on the world markets; and we have to make radical structural adjustments to create export potential and to include our products and services in the world economy. However, we have to mention that at the same time that we are establishing and fighting for an open economy in our countries, we realize that many restrictive regulations exist today in the rest of the world, including restrictions on the movement of goods, labor, and capital. These impediments can hinder our reform process in the near future. We hope to meet understanding in the market economies also on this issue in the future.

Our countries have been experiencing very serious disruptions in trade relations with Russia and some other CIS countries. It is urgent that all countries in the region take measures to avoid trade disruptions, which are harmful to all parties. Instead, an efficient foreign trade sector, based on market principles, must be established. The Bank and the Fund should—in their policy advice, technical assistance, and lending programs—strongly advocate nondiscriminatory trading practices between countries in transition. This is particularly important vis-à-vis the Russian Federal Republic, which carries a special responsibility.

In Estonia, in June we introduced our own currency, the first in the Baltic states and ahead of the states of the former Soviet Union. We chose the method of the currency board, backing our currency 100 percent with foreign reserves—considering the main task to be the establishment of trust and confidence in our monetary unit from the day of introduction. We also kept in mind that we have to introduce a system of monetary regulations, which can be handled by a not very sophisticated or developed central bank. There were a lot of suspicions and fears before our reform, but we decided not to delay it because we had strong support in our society to adopt this monetary innovation. Until today, our kroon has fared pretty well.

Latvia has also introduced a separate currency in preparation for the full adoption of the national currency, the lats. The introduction of the Latvian ruble was connected with the adoption of an economic program agreed with the IMF. The program will entail a drastic reduction in inflation and provide conditions for a stable national currency. Foreign investment legislation in Latvia is also attractive (taxes, investment security, profit repatriation, etc.).

Lithuania is following soon with the introduction of its own currency in compliance with the program agreed with the Fund. On October 1, the ruble will become a foreign currency. Just as in Estonia, there is very strong support among the people of Latvia and Lithuania for their own national currency, and firm sentiment that these currencies shall be strong currencies. The Governments will assure that this is achieved through the adoption and implementation of appropriate macroeconomic and structural policies in close collaboration with the IMF and the World Bank.

On behalf of the three Baltic states, I would like to express our greatest gratitude to the staff of the Fund and the World Bank, who spent some hundreds of man-years with us to advise and train our Governments’ and central banks’ staff.

We fully understand the basis for the Bank’s rehabilitation loans to our countries. However, as these loans will mean significant debt-service obligations, we will need to be careful not to borrow too much for consumption purposes. In the future, we will increasingly look to the Bank for investment finance.

We would also like to invite the IFC to play a major role in our countries, not least in the area of business advisory services. Perhaps cooperation with the Baltic Investment Program could be established.

This summer, some Baltic states have experienced the worst drought in over a hundred years. This has increased the already large assistance requirements caused by the severe fall in output and the difficult trade disruptions. We would ask donor countries to review their pledges in light of this additional burden on our economies.

Another important thing for us, as well as for all small nations, is how to maintain our identity in the large world community. We have emerged from a society where we were subordinated, where there was a centralized political and economic system. Now we are looking for our place in the world community. This raises one of the main problems of the contemporary world—how to solve contradictions between integration and national identity, national interests. This can be considered one of the most pressing social and political problems of development today. Maybe this is even more important than environmental problems because, as you know, in all societies, national conflicts can create a real disaster not only for one state, but for many nations and many areas. A lot of theoretical and physical effort has to be invested in solving these problems. I am absolutely sure that small states and small nations, including the now independent Baltic countries, can add their contribution to all the developments in the world and can enrich the earth with new ideas, with new features and colors.

Statement by the Governor of the Bank for Belarus—Stanislav A. Bogdankevich

I have the honor to greet you on behalf of one of the new members of the Fund the Bank, the Republic of Belarus. I would like, from this lofty tribune, to express my gratitude to those states that have promoted the entrance of Belarus into the Fund and the Bank. First of all, I would like to thank Belgium and Austria, and all those who greeted us as new members of these financial organizations, and especially I would like to thank Mr. de Groote.

The Republic of Belarus is only now emerging as a sovereign state and joining the great family of states. It is not as well known as it might be. We are located on the western border of Russia and the eastern border of Poland. There are 10 million of us.

At this crucial point in our history, Belarus is preserving its political and economic stability. We are proceeding on a civilized path toward prosperity and democracy, and we are optimistic about our future. Our republic has significant human, industrial, and scientific resources. We are a country of educated people; every tenth person has a higher or middle-technical education, and a high level of technical knowledge is also present.

Our people are self-reliant, and we are able to cope with our difficulties. This is something that history can testify to. During World War II, every fourth citizen of the republic perished, and our economy was destroyed. Our country has been re-established; we have rebuilt beautiful cities, and we have undertaken industrialization.

But fate brought us new trials. The Chernobyl tragedy forced us to spend 20 percent of our budget on eliminating the consequences of this contaminated zone. New jobs had to be created, and our expenses for Chernobyl are twice the amount of our budgetary deficit. If a miracle should happen, we could have a more stable financial situation in the region of the former Soviet Union; however, there are very few miracles on this earth.

The transfer to a market system is forcing us to ask for the assistance of the world community. The economy of the republic is deeply integrated with the economies of the other states of the former Soviet Union, and mainly with that of Russia. Its structure is such that more than 80 percent of our energy and raw materials are received from Russia, to which we export more than 80 percent of our production. We also have an energy crisis.

We are vitally interested in the macroeconomic stability of our great neighbor, the convertibility of the ruble, and a balanced fiscal and monetary policy. To reform the economy and find a way out of the crisis, we have to create the conditions necessary to utilize our potential. We are hoping for understanding of our difficulties on the part of the Fund and the Bank. The most-favored-nation status would be very important in achieving advantageous cooperation.

The Government of the republic is grateful to the Fund and the Bank for the assistance rendered in creating the legal and structural basis of the economy and in retraining our managers and our intelligentsia. We likewise appreciate the expertise provided by the consultants. We hope for an expansion of this technical assistance. However, we need not only technical support, but also financial support, primarily to eliminate the one-sided orientation toward the East. We need to develop exports to the West and to other markets, we need to obtain new forms of technology, we need to conduct a restructuring of the economy, and we need macroeconomic stability.

Belarus is about to undergo major economic reforms. We are firmly intent on proceeding on this path. We have the opportunities and a historical chance to accomplish this. We hope for support of these efforts from the rest of the world and from the international organizations, notably the International Monetary Fund and the World Bank. And your assistance, my dear colleagues and fellow Governors, will help us to achieve these goals.

Statement by the Governor of the Fund and the Bank for Georgia—Otar Kvilitaia

Quite recently, participation in international organizations as an independent country seemed impossible for Georgia. Today the Chairman of the State Council of Georgia, Mr. Eduard Shevardnadze, addresses a session of the United Nations as the leader of a member country of the UN, and here our delegation has the honor of extending greetings to this prestigious forum on a world scale. This greeting has especially great significance for us, since now we are a full-fledged member of such important organizations as the International Monetary Fund and the World Bank.

Our address was not planned in advance, but we did not have the right to refrain from speaking, if nothing else because we wish to express our enormous gratitude to the whole community and the leaders of the International Monetary Fund and the World Bank, who already in the initial stage have done much good for our republic. We have been surrounded with attention at every step, at every meeting.

Georgia, which has set out on the path of democratization, is exerting every effort to carry out in a timely manner all progressive transformations and not to retreat from the intended path. We will show everyone that the Georgian people and the Georgian Republic are worthy members of this fraternal house.

Today there is not complete stability in the republic, but the processes are gradually becoming normalized. I strongly feel that the forthcoming elections in my country, which will be held on October 11, will highly contribute to the process of political stabilization. It must also be noted that at the present time the destructive forces have already shifted from the center to the outlying regions, which is the first sign that the situation will stabilize soon.

Besides these still difficult circumstances, we face a very severe economic crisis. The Government of Georgia is fully committed to a path of economic reform and has already initiated a program of policy reform to transform our economy into a private, market-based system. For example, virtually all prices for commodities and services have been liberalized, we have initiated a significant program of transferring all housing into private ownership, and 55 to 60 percent of our agricultural land has already been distributed to farmers. With respect to trade, we have put into place a liberal imports regime and we have reformed the export tax system.

Clearly more legal changes and policy reform are required over the coming months and years if we are to create the appropriate environment in which the people of Georgia can prosper and the economy can develop. In the coming months we will thus introduce other reforms to help achieve transformation of the economy and ensure social protection, including expanding our program to privatize small and large industrial and commercial enterprises. We will also direct our attention toward reconstructing the large area of Georgia that was devastated by the 1991 earthquake and initiating investment programs to rehabilitate and establish the new infrastructure needed for long-term growth of Georgia and the region.

An essential aspect of our efforts will be to mobilize resources domestically. In the past few months we have begun to develop reforms to our tax system, and we are focusing on cost recovery and better expenditure targeting as well. However, we also recognize that, particularly in the near term, we very much need financial and technical resources from outside Georgia to address these critical issues.

One of the possible means of generating the needed technical and financial support will be to organize and convene a consultative group meeting for Georgia. In such a forum, the Government, the World Bank, the IMF, and other interested multilateral and bilateral agencies could review the Government’s economic reform policies, resource needs, and possible assistance programs to help us implement the reforms and make needed investments. While participants in such a meeting would represent official sources of assistance, we would hope that a successful outcome would help us mobilize support from nonofficial sources as well. We have therefore asked the World Bank to take the lead in organizing and chairing a consultative group meeting for Georgia.

We do understand that the best time for holding a consultative group meeting would be once our stabilization and structural stabilization and reform programs have been put into place. We, therefore, are working closely with the IMF in order to get the stabilization program in place. Given the economy’s need for foreign exchange resources to finance critically needed imports, we are also working with the World Bank to develop and implement a structural reform program that would provide the basis for financial assistance from the Bank.

Results of our reform efforts are already evident. In the spring, at the session of the Board of Governors of the International Monetary Fund, I said that this year the peasants are cultivating the land and carrying out their spring work as full-fledged owners, that is, under conditions of privatization. Today I can report to this very distinguished forum that this year the peasants are bringing in a harvest twice as large as they did last year in the socialized fields. We could cite many other examples of the first good results of privatizing plots of land, housing, factories, plants, stores, service enterprises, etc.

Yes! Today things are hard for us, at times very hard, because in addition to the tragic political events of the past years there have been a large number of natural disasters, which cost many human lives. We were on the brink of civil war and were in a blockade, but despite all this we have an optimistic outlook. We believe that our friends in the whole world, including in the International Monetary Fund and the World Bank, will be with us on our difficult path.

Along with this, by analyzing the path that has been traveled and especially the recent past, we can draw the conclusion that it is necessary to make every effort not to permit a repetition of such dramatic political events in the future. We see in this the shortest route to a rapid reunification with the civilized world community from which Georgia was unjustly excluded over many decades.

In conclusion I wish to express deep confidence that the time will come when no country in the world will need economic assistance, and our efforts will be mainly directed toward the solution of problems that affect all mankind.

Statement by the Alternate Governor of the Fund and Governor of the Bank for Switzerland—Otto Stick

On May 17, 1992 Swiss voters reached a milestone: they decided to bring to an end the more than forty-year absence of our country from the Bretton Woods institutions. It is unique in the history of the IMF and the World Bank Group that a country’s membership had to be expressly approved by its people. It is also a special recognition of the now worldwide Bretton Woods institutions.

With this decision the voters approved a policy of opening up to Europe and the world that the Swiss Government had been following for quite a long time. This policy is aimed at taking into account the far-reaching political and economic changes of recent years that have influenced our life in Switzerland as well. Taking into account implies, however, participation, participation in the most important multilateral decision-making institutions. There is no doubt that questions of currency stability are the province of the International Monetary Fund, while the World Bank Group plays the most significant role in fostering international solidarity in the advancement of the development process. Switzerland, as a country of direct democracy and active participation by its citizens, could not and did not want to remain apart from these important institutions.

For this reason, I am proud and happy to represent the Swiss Government here. Proud, because the road to membership we took required a substantial commitment in both domestic and foreign policy; happy, because I know that I represent a country that has for a long time felt itself committed to the goals and activities of the Bretton Woods institutions and that now belongs fully to them.

Our cooperation with these institutions goes back to the 1960s and, in the last few years, has become even more intensive. As a full member, we shall further strengthen this cooperation. In this we will allow ourselves to be led by the conviction that only a constant dialogue, the quest for broadly supported consensual decisions, can offer solutions to problems related to currency and economic and development policy.

Differences in the economic situation and in the setting of economic policy priorities in ever more integrated national economies have brought about a strained relationship that will have to be worked out for a long time to come. Thus, the most recent turbulence in the foreign exchange markets is solely a symptom of such deep-rooted economic imbalances. I am convinced that such imbalances can only be remedied through a systematic stabilization policy based on the free-market concept. This is true for the industrialized nations as well as for the developing countries and the countries of Central and Eastern Europe, which are in the process of a difficult transition to a free-market economy. Particularly in the matter of financial policy and above all in balancing the budget, we industrialized nations should set a good example.

The IMF has to play a leading role in macroeconomic stabilization, which is an essential prerequisite to lasting growth. The Fund and the World Bank must continue to advocate that countries with balance of payment imbalances take adjustment measures to remedy them, to correct the overvaluation of currency, bring under control expansion of the money supply, and reduce budget deficits. Countries that distinguish themselves through the principles of good governance should especially be supported. According to its statutes, the IMF also supports an open international trading system. Switzerland, as an economy open to the world, most emphatically supports this objective in the Uruguay Round of the GATT.

I am aware that the road to economic balance, and thus to sustainable economic growth, is not an easy one for any country. This is especially true for the countries of Central and Eastern Europe and the recently independent states of the former Soviet Union that are now facing free-market conditions. I am particularly thinking of the members of the Swiss voting group: on the one hand, Poland, with which we have had long, traditional ties; and on the other, Azerbaijan, Kyrgyzstan, Turkmenistan, Uzbekistan, and the observer member Tajikistan. I have expressly instructed my Executive Directors in the IMF and the World Bank to work intensively for the integration of these countries into the world economy. With the financial and advisory assistance of the IMF and the World Bank and the vast experience of these institutions, I am convinced that the already initiated recovery process can be carried out successfully.

This hope is also based on the fact that numerous countries of the southern hemisphere have already carried out for a long time, essential and far-reaching structural adjustment programs with the advice of the IMF and the World Bank. They have a long way to go to reach their goals, though the most recent results are encouraging in spite of the less than satisfactory economic situation in industrialized nations. These results show that a growing number of countries emerge from adjustment programs with strengthened economic structures.

But experience has also taught that adjustment programs can have serious social consequences. This is not in the long-term interest of either the adjusting countries or the institutions that prescribed the bitter medicine. For this reason, Switzerland will make every effort to see that social costs be taken into consideration when programs are developed. And, where necessary, it will speak out for substantial social safety nets that complement the adjustment measures and that protect the poorest segments of the population from intolerable consequences. It is not without good reason that the Swiss Parliament has legally obligated the Government to take into consideration the principles and objectives of Swiss development policies when it contributes to decisions in the Bretton Woods institutions that affect developing countries. These principles make the reduction of poverty, development of less privileged areas, advancement of labor-intensive projects, and protection and restoration of ecological and demographic balance the priority.

These principles also guide the activities of the International Development Agency (IDA). Before Switzerland was a member of the World Bank, cofinancing with IDA was already a very important instrument in the Swiss policy of development. As a full IDA member, Switzerland is prepared to take over an appropriate share of the Tenth Replenishment commensurate with the Swiss capital share in the World Bank. It is also considering participating in solidarity in the filling up of possible financing gaps. In the negotiations on the IDA Replenishment, it has expressed as a minimum objective the maintaining of the real value of the concessional resources that are available for the next three years.

The spot made for Switzerland in the Bretton Woods institutions for membership and the decision democratically reached by Swiss voters bring obligations: the spot and popular vote obligate the Government, which I represent, to strive with commitment for the noble objectives of the International Monetary Fund and the World Bank. Switzerland will make an effort to realize this to the best of its knowledge and belief.

Statement by the Governor of the Fund for Armenia—Hrant A. Bagratian

This is a historical occasion for us—our first attendance at the International Monetary Fund and World Bank Annual Meetings as a full member of the Bretton Woods institutions. I would like to take this opportunity to share with you our vision of our future as full responsible partners in the international community. Armenia is an independent country now, and the first pillar of our vision is a democratic, pluralistic society based on fundamental freedoms and the protection of human rights.

I would like here to elaborate on the second aspect of our vision of Armenia, namely, a country with a stable economy, mostly private, that relies on free markets to allocate resources, that efficiently manages public resources, and that cares for the disadvantaged and the poor. Let me briefly share with you our understanding of these objectives and actions.

Establishing a Private Economy

The republic’s privatization strategy includes the following directions:

  • privatization of rural land and distribution systems;

  • privatization of all government-held small and medium-sized industrial, commercial, service enterprises; and

  • ultimately, privatization of all major government-held enterprises.

The rural land reform began in early 1991 and was substantially completed within a year. The land reform grants all fundamental rights to the owners, such as security of ownership and the right to inherit, sell, rent, and pledge land for credit. To date, 95 percent of village families have received land and improvements, and 73 percent of rural land has been sold to farmers.

In parallel, farmgate prices were liberalized, and the private sector was encouraged to participate in distribution. Consequently, incremental farm output during the first year of land reform increased by 40 percent.

One of the most significant measures that followed land privatization was the law adopted by the parliament in July 1992 concerning privatization of state-owned enterprises.

Trade Reform

Government achievements in trade reform include price liberalization, removal of quotas, licenses, and all export tariffs, and removal of all import duties, except for a few luxury items.

Fiscal Policy

Good fiscal policy is an important instrument for macroeconomic stability. The Government intends to pursue a balanced budget policy. One of the instruments for achieving this goal is a stable revenue base for the state budget. Accordingly, the parliament has adopted a tax regime, which includes value-added, excise, and income taxes. Budget expenditures are now strictly prioritized on the basis of economic criteria. Defense expenditures have been kept to a minimum, and they account for only 7.5 percent of the budget.

Social Safety Net

During this period of economic transformations when all subsidies are being withdrawn, and living standards are declining sharply, it is critical to protect the most vulnerable groups. Accordingly, the Government has designed and is implementing a social safety net, which transforms the general subsidies into targeted subsidies aimed at protection of the most vulnerable groups, and allow some savings to help balance the budget.

We see ourselves as a nation at peace within itself and with all its neighbors, a nation at peace that is also a force for regional stability. We are firmly committed to do the utmost to achieve peace in the region. Peace in the region is also a critical condition for us to be able to emerge from the web of financial and economic problems that plague us and provide hope and a brighter future to our population and that of our neighbors in the region.

Armenia has undertaken major structural reforms and has succeeded in implementing such reforms on several fronts. These reforms have been carried out under the most difficult conditions and constraints, such as the burden of a major earthquake, severe refugee problems, the disruption of trade and transport routes, a severe energy crisis, and an acute foreign exchange shortage.

The people of Armenia have endured this hardship with the hope of a better tomorrow, when peace is restored in the region and the benefits of the reforms are realized for Armenia, as well as its neighbors. The absence of significant foreign economic assistance during this difficult period of structural reforms and transition will slow down and delay this process, to a point where the people will question the wisdom of the reforms and sincerity of the western economies in helping to improve human conditions in Armenia and the region in general. While we appreciate the substantial technical assistance we have received this year from the Fund and the Bank, it is imperative for the IMF and the Bank to review their assistance strategies with a view to helping to mobilize much greater technical and financial resources to complement local efforts.

Statement by the Governor of the Fund and the Bank for the Marshall Islands—Ruben Zackhras

It is my great privilege and pleasure to be able to speak before this distinguished assembly on behalf of President Amata Kabua, the Government, and the people of the Republic of the Marshall Islands. Since this is our first participation at the joint Annual Meetings of the Boards of Governors, I would like to thank all the Governors and the governments they represent, the Executive Directors, and all the officials concerned for the valuable support given for our membership as well as for their respective roles in our membership process.

It is also my great pleasure to take this opportunity to thank my fellow Governors who spoke before me and expressed their good wishes to our republic. In the same vein, I would like to extend my republic’s congratulations and best wishes to all the other nations who are new members of the Fund and the Bank.

May I take this opportunity to thank Mr. Nicholas F. Brady, the Governor for the United States, for the warm welcome given to us in his opening speech.

I would like to congratulate you, Mr. Chairman, on your inspiring address at the opening of this meeting. I also would like to congratulate the Managing Director of the Fund, Mr. Michel Camdessus, and the President of the Bank, Mr. Lewis Preston, on their excellent annual addresses.

On behalf of my Government, I would like to express my sincere appreciation for the quick response shown by the Fund and the Bank to our requests for technical assistance during the short period of our membership. Such assistance came at a time when these two institutions were called upon to play a key role in a massive restructuring of some of the major economies in the world.

In the case of our republic, we have our own kind of restructuring to do. Our greatest challenge is to turn our economy around from aid-dependence to self-reliance.

We have just started dealing with our many economic challenges. Our economy is heavily dependent on foreign economic assistance, mostly from the United States. For an overwhelming proportion of our intermediate and capital goods as well as consumer goods, we depend on imports. We are also heavily dependent on imported human resource skills. Our national product is largely the result of services type activities sustained by public sector spending. Contribution to the GDP from resources-based activities in the domestic sector is still very small.

Because of the undeveloped state of our natural resources and because of our small population of only 50,000 people, we may not be able to achieve complete self-reliance. However, with the available resources we want to develop our economy as much as possible.

The main potential for our economic development lies in the fisheries resources in our vast sea area of about 2.6 million square kilometers. There is also good potential for the development of a tourist industry, as well as for agriculture and agro-based industries.

Although we are endowed with significant quantities of seabed minerals such as high-grade cobalt, their immediate development is not possible because of the unavailability of a viable technology.

Development of our domestic resources is needed as a matter of urgency because of at least two compelling factors. First, our population is growing very fast at a rate of close to 4.0 percent a year. At the last census, taken in 1988, our total fertility rate was 7.1, and it is not much lower today. The population is very young: over 50 percent are under 15 years of age. The dependency ratio is quite high, about 115 at present. Over 500 young adults are entering the labor force each year. Already the rate of unemployment in the urban areas is over 20 percent. Second, our Government is facing severe financial constraints. Close to two thirds of our annual government budget is financed with grant assistance from the United States, but this assistance is gradually declining both in absolute terms and on a per capita basis. Furthermore, the agreement under which this assistance is provided, known as the Compact of Free Association, is due to end in another nine years.

In the development strategy we are following under the current second five-year plan, high priority has been accorded to the development of our human resources. This is compelled by the fact that scarcity of human resource skills is one of our greatest constraints to development. Our human resources development program has adopted a three-pronged approach:

  • vocational training for school dropouts;

  • managerial and technical training in the public service; and

  • educational reforms aimed at enhancing the quality of education.

At the same time, we are also implementing institution-building and policy reform programs aimed at enhancing our locally generated government revenue and achieving economy and efficiency in the public sector. We have no doubt that, with assistance from the Fund and the Bank, these reforms will continue more rapidly and effectively in the coming years. We also look forward to receiving IFC assistance for our private sector, so that it can start playing a more dynamic role in our development process.

In our development strategy, we have identified fisheries as the leading sector of economic growth. Tourism and agriculture are the other two sectors that we plan to develop.

However, progress in the development of the real sector is slow because of inadequate infrastructure services, such as power, water supply, communications, and transport. We are particularly disadvantaged by the inadequacy of transport services. Because of this inadequacy, it is difficult for us to reach the major world commercial centers, which are thousands of miles away. The same kind of problem affects us internally too. Because of the fragmentation of our country into many different islands scattered over a vast area of ocean, it is difficult for us to develop a commercially integrated domestic economy. Provision of an adequate domestic transport system is too expensive for us to accomplish without some outside assistance. In this connection, I would like to request the Bank to look into the possibility of assisting us in the development of the transport sector.

Economic growth in the world declined in 1991 particularly owing to the recession in many industrial countries. The performance in the developing countries was much better, and we note with satisfaction that in some countries reform and adjustment programs assisted by the Fund and the Bank contributed to such good performance. However, some of the small island countries in the Pacific did not do so well. A few of them even experienced negative growth rates owing to, among other things, the damaging effects of hurricanes and low export prices.

As for many other countries, especially developing small economies, production for export is crucial for our development. We cannot overemphasize the importance of prosperity in the developed economies and free trade in the world, in our own development process. In this connection, we hope that the Uruguay Round of trade negotiations will come to a successful conclusion.

The inflow of concessionary foreign capital is equally important for us because the inflow of private capital has been highly inadequate. We urge donor countries to assist in expediting the Tenth Replenishment of IDA. However, we would hasten to add that the criteria for the disbursement of such assistance should be broadened to take account of the needs of countries such as our own, where, because of heavy dependence on foreign grants, per capita income comes out to be higher than the threshold figure. If the grant element is taken out, our per capita income would be much lower and would truly reflect the need to develop and broaden the base of our economy.

Statement by the Governor of the Bank for Afghanistan—Hamidullah Rahimi

In the Name of Allah The Most Merciful

The Islamic State of Afghanistan is situated in the heartland of Asia. It is landlocked and one of the least-developed countries. Afghanistan has the minimum per capita income by world standards.

The area of cultivable land in this country is about 65 million hectares, of which only 6 percent is cultivated annually. The remaining land is dry and mountainous. In addition to the cultivable area of its land, which is of limited size, the country also has areas of pastureland. The area under annual cultivation is occasionally subjected to natural drought, heavy rainfall in some areas, and seasonal floods. All this leads to considerable losses. For example, during the year 1370 (1991–92), some 80,000 hectares of farmland in the provinces of Farah, Neemroz, and Ghor were devastated by floods, causing a loss equivalent to about 1.5 percent of net material product—a loss of Af 912 million to the farmers.

The absence of a campaign against desert grasshoppers, and the lack of insecticides, chemical fertilizers, and improved seeds add to the problem of bad weather, which has caused considerably reduced production.

Owing to the immigration of farmers to adjacent countries and migration of farmers from rural to urban areas, the country was forced to procure food grain through foreign aid. During the year 1370, when the country required some 860,000 tons of wheat for consumption, it was necessary to import some 650,000 tons of wheat from abroad because production within the country was insufficient.

Sugar production during the years before the civil war averaged 10,000 tons a year. Even at that time it was insufficient. Yet, in recent years, even that level of production has been seriously eroded, forcing us to import our country’s requirement of sugar each year from abroad. With this in mind, we concluded agreements with foreign countries to import 170,000 tons of sugar during 1370, and some portion of this was imported. Afghanistan’s requirements for petroleum products are outlined in the attached list (see Table 1). Of the total quantity required, some 75,280 tons were imported by the private sector, and 271,790 tons were imported in accordance with contracts concluded with the former U.S.S.R.

Table 1.Schedule of Our Requirements of Essential Commodities For the Year 1992–93
SI No.CommoditiesRequirementGovernment SectorPrivate Sector
(In thousands of tons)
1.Diesel oil600285315
2.Petrol22015565
3.Kerosene40436
4.T.C.I.170170
5.Wheat860643217
6.Vegetable oil1156847
7.Soap1349
8.Sugar21362151
9.Cement23514194
10.Coal270168102
11.Chemical fertilizer31023080

Regrettably, the former U.S.S.R. has abruptly stopped its aid to Afghanistan since 1991 and has ignored its agreements with our country; it has prevented the delivery of 160,000 tons of petroleum products to our country, thereby causing austerity and severe shortages of oil fuel supplies.

Finance

The government budget for the year 1370, which was prepared under conditions of national strife, was calculated at an anticipated sum of Af 159/107 billion. Of this total, the sum of Af 16/124 billion was forecast as development budgetary expenditures, and Af 142/983 billion was planned, as the ordinary budget amounted to about Af 9,639 million. Expenditures on education were forecast to amount to Af 5,228 million. Other social expenditures and subsidies were estimated at Af 61/361 billion.

Revenues in recent years have in no way sufficed to meet budgetary expenditures. The resulting budget deficit was balanced by loans received from internal sources such as banks. For the year 1370, total revenue for the country was forecast to be Af 62/636 billion, while the budgetary deficit was forecast to be Af 96,571 billion.

Actual expenditures for the year 1370, on the basis of appraisal, amount to Af 265,770 billion. The shares of education, public health, other social expenditures, and subsidies amount to Af 5,228 million, Af 9,630 million, and Af 68,696 billion, respectively. Estimated revenue for the year 1370 amounted to Af 70,819 billion. To finance the resulting budgetary deficit, some loans were obtained from internal sources such as banks in the amount of Af 194/955 billion. The share of financing from foreign sources for the above amounted to Af 8/450 billion.

Budget for the Year 1371 (1992–93)

Usually formal budget procedures should be completed at the end of the previous financial year and the beginning of the new financial year. Unfortunately, because of the serious discrepancy between the amounts of revenue and expenditure and because of the failure of efforts to obtain adequate financial resources, the necessary budgetary procedures have not been completed during the first two months of the year. The previous Government’s preliminary projection for the budget was estimated as a sum of Af 573,183 billion with the understanding that the increase in inflation caused every socioeconomic sector to deteriorate.

After the Islamic State was established, the budget for the year 1371 was reappraised. The revised sum of Af 152/856 billion has been allocated for ordinary expenditures in the government sector and Af 247/091 billion for balancing the figures. For the development sector, the sum of Af 25 billion from internal sources and Af 7/432 billion from external sources is forecast. The total budget for the ordinary and development budgets for the Islamic State of Afghanistan is forecast to be Af 432/38 billion.

Revenue from internal sources, together with the cash and in-kind assistance from abroad, is calculated at Af 78/399 billion. In connection with foreign aid, it should be mentioned immediately that we have received assistance from the Islamic Republic of Pakistan for the sum of PRs 250 million, equivalent to Af 1/7 billion. No other source of foreign aid has been ascertained as yet.

Of the cash and in-kind assistance presented as gratis aid, the total amount is Af 31/20 billion—equivalent to $390 million. From this sum, $150 million represents cash aid and $240 million represents aid in the form of essential commodities.

The project loans planned for in the budget for the year 1371 are expected to be Af 7/430 billion. On this basis, the budgetary deficit forecast for the current year is estimated at Af 34/549 billion. This figure, however, may be increased considerably.

The share of expenditure on education in the budget for the same year is forecast at Af 5,564 billion; the share for public health, at Af 9,832 billion; and the share for other social expenditures and services, at Af 222 billion.

Now that the political wish of the people of Afghanistan has been realized and the Islamic State has been established, we hope that the international financial institutions and the friendly countries—especially those many friends of our country who defend Afghanistan during the 14 years of Jihad—will not hesitate to cooperate with our country immediately.

If we assess profoundly the events immediately subsequent to the 7th of Saur, we see that when the Communists, by the direct coordination of the former U.S.S.R., took power in April 1978, a 14-year savage war was imposed on our people.

War caused a dramatic decline in productivity in the agricultural sector. It inflicted reduction in domestic production, and destroyed more than 200,000 hectares of agricultural cultivated land, and 200,000 hectares of forestry. More than 43,000 hectares of orchards and vineyards and 5.5 million units of livestock were destroyed, and 8,000 water canals in agricultural projects in Hillman, Nangahar, Ghazni, and Parwan were damaged. Two thousand seven hundred kilometers of asphalt highway and 6,000 kilometers of paved road were devastated. Two thousand primary and secondary schools, 120 units of medical centers, and 20 hospitals were seriously damaged. Two million inhabitants were displaced, and 1.5 million people were killed. My country is facing a human tragedy of orphans and widows.

Owing to the suspension of socioeconomic assistance from international financial institutions and Western countries, the expenditure of the budget dramatically increased. Data indicate that 80 percent of the budget deficit is financed by the banking system. Continuing drastic budget deficits and high inflationary pressure caused the economy to collapse. While the deficit in 1978 was Af 1.8 billion, it exceeded Af 200 billion in 1991–92. The money in circulation in 1991–92 was Af 33 billion, but it is estimated at Af 668 billion in 1992–93. During the period of war in mid-1991–92, $1 was equivalent to Af 1,500.

Laborers have been forced to desert their farms and places of work and have gone into exile either to adjacent countries and elsewhere or to the main cities. As a result, the rate of economic growth in the country has declined from 1 percent to 2 percent to the final stage of stagnation.

Furthermore, because of cuts in international assistance, our country was heavily dependent on loans from the former U.S.S.R., as a result of which a substantial part of our national budget was geared to loan repayments to that country. For instance, we were including the sum of $452 million a year in loan repayments against consumer and government loan repayments itemized in our budget.

Now that the revolution for the Islamic State of Afghanistan has been successful, the state has the dangerous responsibility of reconstructing the devastated country and revitalizing its economy.

As was mentioned, our country needs assistance in every socioeconomic sector. At this time, we feel urgent assistance is needed to procure essential commodities, such as wheat, sugar, tea, vegetable oil, and petroleum products; help millions and millions of refugees; re-establish public entities and public financial institutions; readjust the monetary system; restore peace and security; revitalize normal life in the entire country; repatriate Afghan scholar cadres and skilled manpower; increase productivity in the agricultural sector; revitalize farms; extend veterinary and husbandry services; rehabilitate Jin-o-Press, textiles, cement plants, sugar refineries, and electricity, now available to 6 percent of the population; and re-establish telecommunication and channel systems. None of these will be possible unless active assistance is extended by international institutions and friendly countries. On the basis of preliminary estimates, we should say that upward of $20 billion is immediately required; otherwise, how can the Islamic State repair all the scattered, fragmented devastation that has thus far occurred?

Concerning our session in Jeddah, Saudi Arabia, on July 4, 1992, and our talks with World Bank and IMF officials on July 9 and 10, 1992, I had described our war-stricken country of Afghanistan and its urgent and immediate needs. I also brought it to your attention, and I was hopeful that peace-loving countries would come to the rescue and take practical steps to stop the bloodshed and start urgent humanitarian assistance to our ruined and miserable country. Unfortunately, our cry for help did not reach man-loving people. Once again, I would like to bring to your attention the groans and cries of 4 million wandering people, 1.5 million martyrs, and hundreds of thousands of injured, crippled widows, and orphans. These miserable people need mercy.

The defeat of communism and socialism, the collapse of the Soviet system, and the bringing down of the Berlin Wall, etc., are all part of the Afghan struggle. I strongly believe we should get some credit for this. After all, we defeated the Red Army. Is this our fault?

Today, this proud and brave people with their empty stomachs and bare feet are extending their hands in all directions to beg, and still the world is watching them.

The people of the world should know that Afghanistan is not an aggressive and warmongering country and will never be until its soil and territory are violated.

We are very grateful to Pakistan and the Islamic Republic of Iran for their help. They did not hesitate to give any kind of assistance and cooperation during our 14 years of Jihad. I am also deeply grateful to the countries of Saudi Arabia and the United States of America, which took on the heavy burden of our struggle and assisted us. I also extend my thanks to the other peace-loving countries of the world and international institutions.

I would like to mention that today many foreign hands are involved in Afghanistan’s internal affairs. We ask that these interventions be stopped. Afghanistan is a free and independent country. No power or force can occupy and split it. I repeat, Afghanistan is inseparable. Lack of stability and unrest in Afghanistan will also affect the peace and stability of neighboring countries. We have and will continue to have good relations with our neighbors. We preserve our old relationship with India, and we do our best to strengthen that relationship. And it is our great wish to strengthen our relations with the countries of Tajikistan, Uzbekistan, and Azerbaijan. The Kashmir problem is an internal affair between India and Pakistan. We have enough problems of our own.

Afghanistan consists of many tribes and nationalities. Under the present conditions, no single tribe or nationality alone can govern Afghanistan. All tribes and nationalities, whether Tajik or Pushton, Uzbek or Hazara, or other races or groups, must know this feeling. I must say this to the world—especially to our neighbors—the domestic war will not stop unless there is a government representing all the people and all the tribes in Afghanistan.

The best way to stop the bloodshed and establish a stable government is for the people to come together as one voice and respect the rights of individuals in forming the future of Afghanistan.

Today, in order to split independent Afghanistan, a number of countries, are, with their filthy hands, fanning the flame of war between ethnic groups. Hostile groups fired hundreds of rockets every night and day on Kabul. Those who gave weapons during the 14 years of war are more responsible than the Afghan people.

These days our beautiful Kabul bleeds. During the recent war, which was caused by foreign involvement, Kabul was turned to ruins. According to the information that I received from war-stricken areas in Kabul and its suburbs, about 50,000 homes and government establishments were destroyed or damaged, about 6,000 people either were killed or are missing, about 15,000 people were injured, and approximately 500,000 people have left the city of Kabul.

The city of Kabul has been destroyed street by street. Shops and bazaars are closed, a shortage of food is felt everywhere, and hundreds of people have left their ancestral homes and their birthplace with empty hands after many years of hard work. Also, owing to the recent flooding in the northern region, about 50 percent of residential homes have been destroyed, and approximately 5,000 people have either been killed or are missing.

I once again, with all these difficulties and shortcomings, request the good office of the United Nations, all the countries of the world, and international organizations, such as the World Bank, the International Monetary Fund, the Islamic Development Bank, and the Asian Development Bank, to assist this miserable Afghanistan as soon as possible in order to save these innocent and helpless people from the grip of death. In the next two months, when the cold season comes, if the Afghan people do not get any urgent help, they will die from starvation and the severe winter cold.

Statement by the Governor of the Fund and the Bank for Vanuatu—Willie Jimmy

I speak here as head of the Vanuatu delegation and on behalf of the Governors for Kiribati, Solomon Islands, and Western Samoa. It gives me great pleasure to address these Annual Meetings of the Boards of Governors.

The countries I speak for today are small islands in the Central and South Pacific region. We share the main problems arising from the vast distances between us and our collective geographic isolation from the main trading partners. Our economies are highly vulnerable to what happens elsewhere in the world. Of particular importance to our economies are developments and decisions taken in the international arena that often have an impact on the demand for our exports and the flow of development assistance.

Owing to the current weakness in world economic growth, world trade volumes have been adversely affected. The current account deficits of many industrial countries have narrowed, and there has been an overall increase in aggregate debt despite the successes of a number of developing countries in reducing their debt levels.

The short-term prospect for 1992–93 suggests that there is some hope. The world economy is projected to grow by about 1 percent in 1992 and about 3 percent in 1993. Inflation is expected to decline further, and world trade is projected to grow by almost 7 percent in 1993, a welcome increase from the modest 2.3 percent recorded in 1991.

The small island countries in the Pacific have a very limited land area. We have, however, vast oceans within our exclusive economic zones. For the purpose of developing our marine resources on a commercial basis within these zones, we need to overcome the problems of scarce capital and skilled manpower resources, limited markets, and long distances which result in high costs of administration, transport, and communications. The same constraints apply to other economic sectors, as well as to the provision of essential social services, such as health and education. The potential to expand our production base, beyond the small range of agricultural products that we presently produce, is extremely limited. The flow of financial assistance from the Bank for the development of our economies has, in my view, been inadequate. Both the Bank and the Fund need to adopt a more positive approach to development in this region. We would urge their involvement in the formulation of an appropriate Pacific strategy—elements of which would include increased technical assistance, the development of our human resources, enhanced capital flows, and suitable technology transfers that are relevant to our current development status.

We welcome a direct and more intimate involvement of the World Bank in the development of the South Pacific island economies. We value our access to IDA resources, but would, at the same time, suggest that we would greatly benefit from the Bank’s supplementing its lending operations with technical assistance programs. We urge the Bank to take a closer look at the individual circumstances and the level of development of each island country and then design lending and technical assistance packages that will address the specific problems of each country.

We would very much welcome the creation of a special quick-disbursing facility within the Bank to address the emergency financial needs arising from natural disasters that visit and devastate the economies of the island countries frequently and so unpredictably. A prompt response to our needs in times of disaster would greatly assist in the early restoration of essential services.

The activities of the International Finance Corporation (IFC) in the region need to be continually reviewed to ensure that IFC responds effectively to the diverse needs of the island economies. IFC has to be more aggressive in forging links between the business communities in the islands and their counterparts in the more developed countries. In doing this, we strongly recommend that IFC adjust its policies and programs to take into account culturally sensitive issues such as the ownership of land and the environment in which the private sector operates in the region.

In conclusion, I would like to associate myself with other Governors in welcoming the new members, and I look forward to an early finalization of the membership of the other countries.

Statement by the Governor of the Fund and the Bank for Azerbaijan—Badir J. Karaev

On behalf of the Government of Azerbaijan, I would like to express my gratitude for the acceptance of Azerbaijan into this lofty forum of financial organizations, into the International Monetary Fund and the World Bank. Azerbaijan likewise expresses its gratitude to the Government of the United States for its hospitality and for the good organization of this excellent forum.

I will speak briefly about the economy of Azerbaijan. Azerbaijan’s economy is quite strong. It has enormous national resources, such as oil, energy resources, and nonferrous metals. We grow cotton, produce wine, grapes, and other agricultural commodities. We are conducting measures to stabilize the economy. With the breakdown of the former Soviet Union, the Azerbaijani economy suffered a decline in the last year. Over the last eight months, our decline was on the order of 20–22 percent. However, we are undertaking steps to stabilize the economy. Beginning in July, there has been a stabilization program in place. We have conducted measures to liberalize prices; we have freed prices, with the exception of energy, and soon we will be looking at the question of energy as well. We are likewise taking measures to stabilize the economy in accordance with parliamentary legislation. We have passed a number of laws on taxation, on land ownership, on banking activities, measures to protect foreign investment, and so forth. These measures will permit us to stabilize the economy of Azerbaijan, and we need foreign investment for this. With this goal, the Government has prepared a number of projects to encourage foreign investment. We have more than 35 joint ventures at the current time. I am confident that soon there will be a stable political situation established in the Republic.

Now I would like to speak a little bit about the budget. Our expenditures are conducted in such a fashion that we do not have any deficits, in spite of the fact that we have more than 500,000 refugees and considerable expenses to take care of these people. At the same time, we are conducting measures to provide a social safety net for out own people, and we have appropriate subsides being paid out. I am confident that the situation will soon be stabilized in a political sense after the war which has taken place in our territory, and our economy will develop more quickly, considering the large resources which we have, both natural resources and our climate. With this goal, we of course need enormous assistance from the World Bank. We need hundreds of millions of dollars to develop the economy and to restructure our economic situation.

I am grateful that Azerbaijan has been accepted into such a representative forum of financial organizations, and I am grateful to the Governors that they have agreed to accept us as members. I am confident that in the future, the Fund and the Republic will maintain close contacts.

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

It is an exceptionally great honor to accept the chairmanship of the Boards of Governors of the Fund and the World Bank Group for the coming year. The honor is one shared by our entire region, which is in the midst of monumental political and economic change. Let me take this opportunity to thank the Chairman of the current meetings, my fellow Governor for Morocco, for the smooth and efficient conduct of the 1992 Annual Meetings. I hope I can do as well as he did.

In a very short while we are going to close these historical Annual Meetings. I say “historical” because this is the first time our meetings have become truly global. But as our two institutions become global, they must be prepared to take on the global challenges and responsibilities that go along with that word.

A new world order has overtaken us almost unexpectedly, and we are still learning to understand its real meaning and consequences. The Fund and the Bank have to adapt to this new situation—this much we know. But finding solutions to the problems still lies ahead of us. The remainder of this decade will provide us with the opportunity to meet the challenges head-on and to ensure that we enter the twenty-first century with renewed hope for improving the living standards of people everywhere on our globe.

I assure you that I shall do my best to carry out my duties as Chairman. I look forward to working with the managements and staffs of the Fund and the World Bank Group, and with Mr. Camdessus and Mr. Preston in this endeavor.

Statement by the Governor of the Bank for Fiji—Paul F. Manueli

It is an honor to attend the Forty-Seventh joint Annual Meetings of the International Monetary Fund and the World Bank, and I should like to take this opportunity on behalf of the delegation from the Republic of Fiji to sincerely thank the Fund and the Bank staffs and, indeed, the people of Washington, D.C., for their warm reception and the excellent arrangements for hosting this meeting. I should also like to welcome all new members, including the Marshall Islands and the states of the former Soviet Union, to the Bretton Woods fold.

The past year’s events continue to highlight the rapid and significant changes taking place in the world economy. The President of the World Bank and the Managing Director of the Fund have again stressed the roles of their respective institutions in seeking solutions. Such solutions, even with their vision and leadership, are, however, not easily attained without the cooperation of all concerned. We are encouraged to see so many developing countries undertaking stabilization and reform programs in a bid to lift themselves onto a sustainable growth path. These countries, as well as the states of the former Soviet Union and Eastern Europe, which are currently undergoing transition to market-oriented economies, cannot go it alone. Such countries will continue to require enormous financial support, and it is essential that we have a favorable international economic environment in order to support the adjustment efforts being undertaken. Continued progress toward viable economies and alleviation of their debt problems will only be feasible against a background of stable economic growth in industrial countries and a subsequent willingness to open up their markets. The industrial countries, hopefully, will adopt a long-term outlook, providing decisive support to the developing countries, both directly and through their contributions to multilateral institutions like the Bank and the Fund.

The return to world economic growth in 1992 and economic recovery in general is crucial for developing countries, particularly for those undertaking adjustment measures. Without sustained export growth, further instability may arise. Fiji, along with a growing number of other developing countries, has undertaken a fundamental change of direction toward greater openness. We see, however, that the developed countries, by contrast, are having difficulties dismantling nontariff barriers that affect imports from developing countries. Policies of internal subsidies and selective access to their markets could emerge, given what appears to be their increased interest in strengthening existing regional trading groups or in setting up new ones. In order that we may pursue our outward-oriented development strategies successfully, significant improvements in market access are needed for our products. Maintaining protectionist policies in sectors where developing countries have or could gain a competitive edge will have a discouraging effect on our exports. Indeed, the rapid conclusion of the Uruguay Round of the GATT negotiations is crucial not only to the future pattern of world trade but also to the economic prospects of developing countries, including those in transition to market economies, and thus to the solution to their external debt problems.

As premier institutions, it is essential that the World Bank and the Fund, as well as other regional financial organizations, take the lead role in addressing the problems of the poorer and transition economies. It is imperative, therefore, that the Ninth General Review of Quotas of the Fund be implemented without further delay, for without more funding there will be a question mark over just how effective this institution can be. Even with the successful implementation of the Ninth Review, the rising financial requirements of the expanded Fund membership will still place a severe strain on its resources. Given this scenario, a moderate allocation of SDRs to developing countries should be considered. The longer the delay in moving on this front, the greater the risk that the Fund will have to ration its resources and the greater the unfavorable impact on developing countries, which, already in the middle of their adjustment programs, still require sufficient and timely financial support. We note that the level of World Bank lending has declined in real terms in the past two years of operations. At this historical and unprecedented juncture of higher global demand for development finance, this trend in World Bank lending must be of concern. We therefore urge the Bank to urgently implement procedures, including a review of its conditionalities, and to raise its level of lending but, at the same time, to maintain the quality of its assistance. A worrying factor for most of these countries has been that the recently enlarged membership and consequent demand for Fund and Bank resources would mean a squeeze on satisfying their requirements. We hope this will not be the case.

We are happy to note that much progress has been made in overcoming the debt problems of developing countries in recent years and that further assistance for the lowest-income countries has come through enhanced concessions adopted by the Paris Club. However, we would also like to see additional concessions for the lower- and middle-income countries to assist their structural adjustments.

The enhanced structural adjustment facility (ESAF) has proved useful in supporting adjustment in many low-income countries with high debt burdens. We are therefore pleased to note the extension of the cut-off date for the commitment period under ESAF to November 1993. While we are aware of the danger of “addiction” to concessionary financing, it must be acknowledged that lower-income developing countries will continue to require financing on concessionary terms during their adjustment phase, and the Fund should thus examine options for a successor facility to the ESAF, including ways to finance such a facility.

With regard to my own country’s recent economic development, I can say that Fiji has been committed to developing a framework conducive to sustained economic growth by fully pursuing an outward-oriented strategy. This overall strategy is in line with the adjustments being made by other developing market-based economies whose policy and structural reforms are aimed at providing incentives to the private sector, encouraging efficiency and competition, and further reducing the Government’s role in the economy to one of providing only infrastructure and essential services.

In spite of a downturn in 1991 owing to recessions in the economies of our nearby major industrial countries, Fiji still recorded an average real growth rate of about 5 percent over the last three years. With our first elected Parliament since 1987 now in place, a level of foreign resources currently equivalent to more than five months of imports and sufficient liquidity available in the banking system, we are confident of a further buildup in investor confidence and in economic growth in the coming year. The economic turnaround of our neighboring industrial countries will also be an added stimulus to our growth.

In concluding, I should like to record my country’s appreciation to the Fund and the Bank for their continued support, both technical and financial. We particularly welcome the recent Bank review of its operations in the South Pacific. While islands in this region share many common features, it is not often appreciated that there is, at the same time, wide diversity among the group of countries. We therefore fully endorse that the Bank adopt a more direct and country-specific role in the region.

When we last met in Washington two years ago, few of us could have forecast the immense international changes that have occurred since then. These developments present enormous new challenges, which are already being met by the Fund and the Bank in addition to their very full work load. Both institutions are to be congratulated on the way they have responded to the new challenges, and we will continue to support the various initiatives being developed and pursued by the Bretton Woods institutions as we proceed along the path toward a truly open global economy.

Statement by the Governor of the Bank for Iraq—Tank T. M. Al-Tukmachi

Allow me to begin my brief statement by congratulating you on your election as Chairman of the 1992 joint Annual Meetings of the Boards of Governors of the International Monetary Fund and the World Bank Group. I would also like to avail myself of this opportunity to express my heartfelt congratulations to the states of the former Soviet Union, Switzerland, and San Marino for joining the two global institutions and wish these countries success and progress.

One of the most important objectives of the IMF, as set forth in Section 4 (1) of its Articles of Agreement, is to eliminate barriers to trade and international settlements. Since the historic Bretton Woods meeting, the Fund has always emphasized the importance of free world trade to economic stability and prosperity.

However, the continued economic blockade and freezing of the foreign assets of Iraq, which is a founding member of the Fund, conflicts with its Articles of Agreement and runs counter to its philosophy as therein expressed. As a member of the Fund and one of its founding members who signed the Bretton Woods Agreement in 1945, Iraq demands that the Fund raise its voice in opposition to the continued economic blockade imposed on Iraq and the freezing of its foreign assets, based on the fact that both actions conflict with the Fund’s objectives.

The continued economic blockade and freezing of Iraq’s assets for more than two years have caused severe and unprecedented suffering for Iraqi citizens. Death rates among the elderly and children rose in the last two years because of the lack of medical supplies and materials. All international and humanitarian organizations have recognized the serious situation that the Iraqi people face unless urgent measures are taken to redress the deteriorating situation. Hospitals and health centers lack many of the basic supplies required for medical care, so much so that in some cases, surgery is undertaken without the use of anesthesia.

Along with this serious scarcity of medical supplies, there is a steadily growing food shortage. Despite the ration system adopted by the Government, Iraqi individuals suffer from a growing shortage of basic foodstuffs essential for their survival.

Freezing Iraq’s assets, limiting its external transactions, and banning the export of its oil prevent it from purchasing its food and medical needs. Even developing its domestic agriculture to provide food for its people has become difficult because of its inability to import agricultural inputs, machinery, equipment, pesticides, insecticides, and spare parts.

The economic blockade has adversely affected all other economic sectors, notably industry, services, transport, and telecommunications. Food, textiles, fertilizers, paper, and other industries are about to come to a standstill because of the inability to import raw materials and spare parts. In addition, life has become increasingly difficult in light of the disruption of the transport and telecommunications sectors owing to the deteriorating situation brought about by the lack of spare parts and a ban on the import of vehicles and on flights to and from Iraq.

The suffering of the Iraqi people calls upon the world community, out of purely humanitarian considerations, to speak up in order to redress a deteriorating situation that could continue unless urgent and swift measures are taken. We believe that the first steps should be lifting the economic blockade and releasing our frozen assets.

From this international forum, I emphasize once again that, in accordance with their Articles of Agreement, the World Bank and the International Monetary Fund should call for an end to the resolutions imposing the freeze on Iraq’s assets in order to put an end to the suffering of an entire people.

Statement by the Governor of the Bank for Lao People’s Democratic Republic—Khamsay Souphanouvong

It is indeed a great pleasure and honor for the delegation of the Lao People’s Democratic Republic to participate in the Forty-Seventh Annual Meetings of the Boards of Governors of the International Monetary Fund and the World Bank. We would like to extend our warm welcome to the new member countries participating in these meetings.

The 1992 Annual Meetings have taken place at a time when the current global situation has undergone rapid changes, and there are new issues to be addressed in terms of cooperation and development. Generally, despite many conflicts, global economies are continuing to expand, although not always on a concrete basis. Humanity has experienced dynamic growth in science and technology, which was rapidly accelerated by modernization and economic growth. Developing countries have made great contributions to this development process, especially in terms of natural resources. Out of this process, the gap between rich and poor countries has widened, and the effects upon the world have been environmental degradation and increased external debt for developing countries. At the same time, many developed countries continue to implement protectionist trade and economic policies, which could result in regional disharmony. Such a situation may arise from the implementation of unfair and inequitable mechanisms that affect the relationships and international economic order of all countries of the world.

That is why our Annual Meetings should focus on problems relating to progress on trade relations and services among countries involved in the Uruguay Round, as well as on external debt, environmental issues, the development of human resources, and the reduction of human poverty in certain regions of the world. Following consultations on these matters, a general strategy may be defined, lending policies be adjusted, and the provision of appropriate technical assistance and technology transfer to developing countries be defined accordingly.

On behalf of the Government of the Lao People’s Democratic Republic, I would like to express our sincere congratulations to the Chairman for working out the agenda and selected topics for our discussion, and to extend our support for the review of global strategies and policies of the World Bank and the International Monetary Fund, which are aimed at removing obstacles to development in the new epoch.

I would also like to express our full support of the increasing level of real resources available to developing countries, even in the face of continuing change throughout the world. Furthermore, we support the increasing number of member countries in both the Bank and the Fund. These meetings especially call for the remobilization of financial support and speedy replenishment of IDA-10 with the overall aim of granting concessional assistance to the least developed countries of the world.

The activities of the Fund and the Bank play a very important role in fostering the growth of world economies and directly impact the economic development of developing countries, including the development and structural adjustment programs of the Lao People’s Democratic Republic.

On this occasion, we would like to express our deep appreciation to the Fund and the Bank for their continuing support through both financial and technical assistance to our country.

At this point, I would like to brief you on the economic situation in our country. Over the past few years, the Lao People’s Democratic Republic has implemented reform policies considered necessary to meet the requirements and demands of the prevailing situation. The basic principle underlying our reform policies is to ensure effectiveness in economic, political, and social spheres.

Based on this principle, our Government has made economic reform a first priority, in conjunction with ongoing reform in political and social fields. Consequently, our country enjoys political stability and social cohesion and order, which are necessary to ensure positive conditions for national development.

There have been initial successes. In the past three years:

  • economic growth in our country has increased from 6.5 percent to 7 percent a year on average;

  • inflation has been reduced from 76 percent at the end of 1989 to 11 percent at the end of 1991, and has continued to decrease to about 10 percent in mid-1992;

  • exchange rates remained stable during the years 1990–92;

  • capital investment was increased to improve and develop national infrastructure;

  • privatization continues to be encouraged in order to expand the role of the private sector in production, manufacturing, business, and services; and

  • foreign cooperation and investment in all sectors have been expanded even further to achieve greater promotion and growth, on the basis of principles of equality and mutual benefit.

These successes constitute a strong encouragement for us and a confirmation of our Government’s correct reform policies, which will continue to be actively implemented.

However, economic reform and economic development in the Lao People’s Democratic Republic continue to face numerous problems and difficulties as a result of an underdeveloped economic and social infrastructure. Foreign assistance, both bilateral and multilateral, continues to be an important and unavoidable factor in our national development.

The assistance and cooperation given by the Fund and the Bank have made an active contribution to the development of national infrastructure, especially in the fields of agriculture, industry, communications and telecommunications, electricity, and education. This has been demonstrated further by their assistance in the implementation of the structural adjustment program in the Lao People’s Democratic Republic. In the future, our Government hopes that it will receive increasing assistance and cooperation from the Bank and the Fund. Within this context, there may be more concentration on integrated rural development projects, including projects on protection and utilization of tropical forest resources; development of telecommunications facilities, industrial credit, and human resources; and improvement of education and public health.

In order to ensure the efficiency of these projects, my Government believes that long-term plans for cooperation should be worked out. At the same time, we should continue to review plans for the medium-term structural adjustment program, the main goals of which are to guarantee the successful increase of real economic growth, reduce inflation to a reasonable level, and control the national balance of payments deficit.

In coordination with the efforts outlined above, we feel confident that all member countries will continue to increase the level of assistance and cooperation in the forms of grant aid, soft loans, and technical assistance; and continue to support and encourage foreign investment and private sector growth in the Lao People’s Democratic Republic, thus creating favorable conditions to enhance trade and economic relations with our country.

My delegation wishes to express its confidence in the Chairman of these Annual Meetings, the Managing Director of the IMF, and the President of the World Bank in their efforts to achieve the goals of our meetings, which aim at building general strategies for better global economic development in this new chapter in the history of international relations.

Statement by the Governor of the Bank for Malta—John Dalli

It is a privilege for me to address these Forty-Seventh Annual Meetings of the International Monetary Fund and the World Bank. I wish to begin by joining other speakers in welcoming the many new members that have joined the Bretton Woods institutions over the past year. I refer of course to the many states of the former Soviet Union, Switzerland, the Marshall Islands, and the Federated States of Micronesia. A wider membership not only contributes to economic cooperation among nations but also strengthens the role of the Bank and the Fund in promoting global economic development and a stable financial system.

Since last year’s meetings in Bangkok, the much awaited economic recovery in the industrial world has still not materialized. Slow economic growth has persisted throughout the first nine months of this year, and although there is some optimism about an upturn later this year, there is still some uncertainty as to the durability of any eventual recovery. There is no doubt that subdued demand in the major industrial countries is having a spillover effect on the economies of the developing world at a time when many of them, in Eastern Europe, Africa, and Latin America, are implementing far-reaching structural adjustment policies in line with IMF programs. This is also the case with other developing countries that are not benefiting from World Bank assistance or are not making use of Fund facilities. This is particularly so for Malta, which has a very open economy and is thus adversely affected by the weakness of world economic growth which remains well below potential output.

It may therefore be appropriate that the drive for sustained growth in the leading industrial countries be stepped up, particularly in the light of current indications that the rate of inflation in a number of major countries has moderated substantially. This of course does not imply that there should be any let off in the progress toward the longer-term objective of fiscal consolidation. On the contrary, policies aimed at reducing excessive public deficits and promoting savings should be encouraged. However, it may be opportune during a period of decelerating world economic growth to allow fiscal and monetary policies to respond more positively to cyclical factors. Thus some relaxation of the tight conditions that were brought into effect during the period of overheating is called for. This may then lead to a much desired decline in the current level of international interest rates, which in turn may stimulate enough private investment to sustain an adequate level of economic activity. In this regard, perhaps the major industrial countries could consider more seriously the alternate policy stances advocated by the Fund in its World Economic Outlook.

On their part, the less developed countries should seek to continue to undertake the necessary structural reforms involving deregulation, privatization, and other outward-looking economic policies. Such policies are already beginning to yield results, as evidenced by the relatively high growth rates registered by developing countries in Asia and Africa, which have embarked on market-oriented reform programs.

I am glad to say that my country has continued to follow an economic strategy that promotes the participation of the private sector while seeking to create a market-oriented environment. Our strategy also emphasizes long-term economic development, and in pursuit of this goal, the Government has directed substantial resources to capital projects over the past five years, in order to upgrade and extend the infrastructure, particularly in the field of energy, water supply, and telecommunications. At the same time, the Government recognized the importance of economic liberalization policies and took steps to liberalize the trade regime and reform the tax system. Administrative reforms in the public sector to improve the efficiency of services offered to the public have also been introduced.

In the financial sector we have strengthened the institutional framework by establishing a more comprehensive and better supervised banking system providing a wider range of short-term and long-term financial instruments. I am glad to say that the financial market development in Malta has been enhanced this year by the trading operations of a stock exchange that commenced its activities early last January as planned. In coming months we hope to take our liberalization policies a step further by implementing a more flexible interest rate structure. At the same time, we are also actively considering deregulation reforms in the insurance sector as well as encouraging the provision of new financial services. We are firmly convinced of the need to broaden our market-based policies but we feel that these should be introduced gradually and in the appropriate circumstances.

As a small country highly dependent on investment flows from overseas, we follow with special interest developments related to the provision of financial flows to developing countries. We are therefore pleased to observe that net financial flows to the developing countries are projected to increase notably over the next two years. In this regard, it is relevant to mention that a positive feature of the current economic scenario is that many former heavily indebted countries outside Europe are now in a better position to meet their external debt obligations. Without doubt this will help restore investor confidence in these countries, leading to a possible resumption of credit flows from private lending institutions.

Another encouraging development is that in some countries of Eastern Europe, the sharp fall in output may be reversed in the foreseeable future, as economic conditions improve and the volume of exports picks up. It has, however, become increasingly clear that the transformation of centrally planned economies to market-oriented systems is not an easy task, and is bound to cause some social and economic hardship as systemic reforms that lay the basis for a sound market economy are implemented. A positive step forward in this regard, is certainly the accord reached by the IMF and the Russian Federation on the appropriate economic policies that have to be pursued to sustain the reform program before IMF financial support is forthcoming. It is obvious that to sustain the reform process Eastern European countries need further financial and technical assistance from the major industrial countries. I am glad to say that my country, to the extent that its limited resources permit, is contributing modestly to the development of Eastern European countries through its participation in the European Bank for Reconstruction and Development.

Preoccupation with the problems of Eastern Europe should not, however, divert the attention of the international community from the plight of the least developed countries, particularly those of sub-Saharan Africa, where the economic situation remains serious despite some progress in economic performance. We therefore continue to support international initiatives to alleviate the debt burden of the developing countries. We also welcome the Fund’s decision to extend use of the enhanced structural adjustment facility (ESAF) for a further year.

At a time when there are increasing pressures on the international financial institutions to provide additional funds, it is important that all member countries make an effort to fulfill their obligations by providing these institutions with the necessary amount of resources to enable them to meet their commitments. One notes that a number of countries have still not completed their legal procedures to bring the quota increase under the Fund’s Ninth General Review of Quotas into effect, and one hopes that they will soon do so. I am pleased to say that Malta completed all the necessary procedures in connection with the quota increase and the Third Amendment of the Articles of Agreement within the stipulated period.

Another important issue that is of great interest to the international community is trade liberalization. Unfortunately, the GATT Uruguay Round has still not delivered a final agreement. Progress has certainly been made and the narrowing of differences between the European Community (EC) and the United States on the subject of agricultural subsidies has strengthened the chances of a successful outcome. In the absence of such an agreement, the threat of renewed protectionism could become stronger, especially if multilateral trade practices are replaced by inward-looking and exclusive regional trading blocs.

My country favors broad regional relationships that include all countries within a homogeneous area but which are also outward-looking and are a positive factor in promoting international trade and economic integration. Our application to join the European Community testifies to our commitment to achieve such an objective, as do our efforts to liberalize our economy and update our legislation in line with EC requirements. We support the momentum for greater integration in Europe as reflected in the Single Market initiative and the moves to monetary union. We believe that despite some concern in EC member countries about the pace of political integration as proposed in the Maastricht Treaty, the Community, enhanced by the accession of other European states, will continue to emerge as a potent force in the global economy. Malta is eager to participate in this process and is therefore looking forward to having its application for EC membership considered favorably.

Regional and global cooperation cannot be restricted solely to financial and economic matters. We are pleased to note that increasing importance is being devoted to environmental issues. This year’s World Development Report clearly underlines how environmental problems can undermine the process of development. It is therefore essential that specific funds are also allocated to middle-income countries to enable them to address global environmental problems and to undertake capital projects in conformity with international agreements on the environment. As the Report emphasizes, these transfers should not be regarded as development assistance, and should be allocated in ways that offset the unequal distribution of gains and costs across countries.

The UN Conference on Environment and Development held earlier this year in Rio de Janeiro has provided world leaders with an opportunity to discuss a strategy for environmentally responsible development in the next century. It was encouraging to see that there was almost universal support for the two conventions on biodiversity and climate change. I am proud to say that climate change was a matter actively pursued by my country at UN forums. It is therefore satisfying to note that this initiative has culminated in a global convention on the subject. Malta is currently supporting a proposal to draw up a European charter and convention on the environment. At a national level, the Government is making greater efforts to promote conservation and, with this in mind, legislation was enacted to bring into effect a structure plan for local land development, designed to make more efficient use of scarce land resources.

I would like to conclude by putting on record our appreciation of the technical assistance provided by the Fund in recent years, which has contributed to the success of our reforms, particularly in the field of taxation and in the financial sector. We are grateful to the Fund for this support and we hope that it will be possible for the Fund to continue to augment its resources so that it will be in a position to extend valuable assistance to all members that may need it. I would also like to express my country’s appreciation of the outstanding work carried out by the management and staff of the Bank and the Fund over the past year in the face of tremendous challenges. We feel confident that they will be able to continue offering inspiring leadership in the years ahead.

Statement by the Governor of the Fund for New Zealand—Ruth Richardson

I applaud the call by the Managing Director, Mr. Camdessus, in his Opening Address to these Annual Meetings for governments to pursue more vigorously the principles of a sound medium-term economic strategy.

The prospects for the world economy will strengthen if industrial countries pursue low inflation, budget balance, and structural policies that enhance the growth of employment and productivity. Retribution for governments straying from this course can come swiftly from financial markets—as last week’s events show.

Financial and policy credibility once lost is hard to regain. New Zealand is a classic case study—a country that abandoned prudent financial policies and has spent the last ten years working to win credibility back again.

When our Government took office nearly two years ago, we faced an economy part way through a reform process. Controls had been removed on prices, wages, rents, and foreign exchange. Marginal tax rates had been reduced and a new value-added tax had been implemented. A full program of corporatization and privatization meant a raft of state industries had been turned into productive, efficiency-oriented corporations. And the central bank had been given independence and the single objective of price stability.

Yet our economic recovery was held up because economic and social policies were interacting in a quite destructive way. While the open markets told firms to be competitive, rigid employment laws often prevented them from becoming so. Government spending was out of control, putting enormous pressure on monetary policy, and driving up interest rates. These policy imbalances had to be urgently addressed.

Our biggest early achievements have been in attaining price stability, firm control of government spending, and a new productivity-enhancing employment framework. Thanks to a sound framework for monetary policy, our annual inflation is 1 percent—the lowest in the Organization for Economic Cooperation and Development. We are the first postwar government in New Zealand to have been able to restrain government expenditure: forecast when we took office to be 44 percent of GDP and rising, state spending is now under 40 percent of GDP and falling.

Moreover, recent financial reform to core government activities, culminating in the preparation of our first Government Balance Sheet and Operating Statement this year, has provided an added discipline to ensure more efficient and effective government spending over the long term. Thanks partly to a better balance domestically between monetary and fiscal policy, interest rates are comparable to low-inflation OECD countries.

Our new employment law has removed all special privileges for trade unions. Its effect has been quite dramatic. The new law has fixed the attention of both employers and employees on one of the central facts of company life: productivity. It has also played, and will continue to play, a major role in breaking New Zealand’s inflation psychology. With the liberation of the labor market, productivity in New Zealand has soared.

Exports are booming. Volume increases have been impressive. Over the last year our export volumes have risen by 11.5 percent. More significantly, nontraditional exports have grown rapidly in recent years. For example, exports of nonfood manufactured products are up 13.1 percent in the last year. Our current account is in virtual balance for the first time in two decades. This has been achieved despite subdued growth in the world economy.

These are the early rewards of ten years of economic restructuring. I believe that the positive outlook for New Zealand will endure, in spite of the sluggish international economy, because we have a coherent and credible policy framework.

New Zealand’s strategy for growth now combines four main elements. First, macroeconomic policies that will keep inflation low and encourage investment through stable and predictable tax and spending policies. Second, strengthening international linkages by opening up the domestic economy to the forces of international competition and by actively promoting better rules for the conduct of international trade, in particular through the GATT Uruguay Round. Third, investing effectively in the work force to achieve high levels of skills and employment. Fourth, ensuring a competitive enterprise economy through policies that lead to a competitive cost structure, innovation, and quality management.

Even by themselves, these policies will significantly lift New Zealand’s growth rate in a sustainable way. International trade reform would improve the New Zealand economy’s prospects still further.

New Zealand would not be the only country to benefit from the liberalization of international trade. The successful completion of the Uruguay Round is the world’s best hope for enhancing growth into the next century. By ensuring that countries reap the rewards for what each does best, it will deliver greater prosperity and improved livelihoods to all our people.

Statement by the Governor of the Bank for Papua New Guinea—Julius Chan

It is now 16 years since I first attended the joint Annual Meetings of the International Monetary Fund and the World Bank as Governor representing the then newly independent nation of Papua New Guinea. We have enjoyed every moment of that relationship, and I am pleased to say the years have been both responsible and productive. I thank all those who have been associated with the making of a strong democracy.

To the newest members of the International Monetary Fund and the World Bank, I am confident that you will establish a relationship with both institutions that will be fruitful.

It has become a routine for both the Fund and the Bank to have done a fine job of organizing the meetings and for the host country to provide wonderful hospitality, and I would simply add to the many other compliments.

Over the years, I have learned to appreciate and to reflect back on the deliberations and outcomes of the meetings. While our expectations must be realistic, honest reflection would reveal that past meetings have frequently generated a lot of debate, but agreement on substantive action has usually been far more difficult to achieve. This has been especially so for the small states of the Pacific. Looking positively ahead, I hope this meeting will give credence to the underlying issues that have been haunting us all in the developing world.

In many respects, the international environment has worsened over the period, and, partly as a result, the Fund and the Bank have not lived up to the expectations held out for them 20 years ago, especially in relation to the needs of the developing world.

We are proud to report that democracy remains very alive and well in Papua New Guinea, and I commend the new members from those parts of the world that are undergoing dramatic changes toward democratic forms of government. Our general elections were held earlier this year on the normal cycle. The elections were held in an atmosphere of tranquility, and the resultant change in government has been peaceful.

Recent changes to Papua New Guinea’s constitution ensure that there cannot be votes of no confidence against an incoming government for at least 18 months. The Government has a comfortable working majority, and we are now confident of a lengthy period of political stability, which should greatly assist with promotion of economic development.

I would like to outline the new Government’s broad framework for economic development, which has already been announced in general terms and which will be presented in more detail in November, when the 1993 budget and the five-year planning framework are tabled in Parliament.

The broad objectives of the Government are

  • employment creation (both formal and informal);

  • increased rural production;

  • improved delivery of rural services;

  • increased industrialization;

  • increased economic opportunities for Papua New Guinea nationals; and

  • sound macroeconomic performance and stability (solid growth, price stability, and a stable and freely convertible currency).

It is clear that Papua New Guinea is rapidly emerging as a major world producer and exporter of resources, such as copper, gold, silver, and oil. Significant gas fields have been discovered and are being assessed for development.

A central objective of government strategy is to ensure that opportunities provided by the resources sector are not wasted but lead to enhanced opportunities and performance in the commerce and industry and renewable resources sectors of the economy, particularly in rural areas.

The Government’s macroeconomic policies are responsible and aggressive in managing opportunities that are now opening up. They include

  • moving toward considerably lower direct taxes as an incentive for both domestic and foreign investment (to be matched in part by the introduction of more broadly based taxes);

  • maintaining consistent and responsible levels of expenditure growth over the medium term, with many of the Government’s objectives to be pursued by significant expenditure redirection, especially toward improved physical and social services at the village level;

  • pursuing a somewhat more activist monetary policy, which has already seen significant downward movements in interest rates compatible with international trends;

  • further liberalizing the accommodative foreign exchange control system;

  • deliberate actions to improve our capital markets and to open a stock exchange;

  • a wage policy that is likely to become far more flexible following a recent determination of the Minimum Wages Board in the direction of considerable deregulation of the wage system. This determination has redirected emphasis away from the highly centralized and regulated system inherited at independence. The Government is studying these closely; and

  • keeping our exchange rate policy consistent and appropriate in relation to our broad macroeconomic performance.

A responsible and deliberate macroeconomic policy will be matched by pursuit of new sectoral policies and approaches. Important elements will be

  • encouragement of an efficient private sector to take the leading role in productive areas of the economy;

  • rationalization of existing implementation agencies to provide improved village life;

  • the raising of agricultural productivity, especially through improved research, extension, transport, infrastructure, and capital availability;

  • a considerable boost in expenditures on, and programs in, education, training, and health;

  • enhanced development of physical infrastructure, especially land transport;

  • firm attention to law and order problems to provide a peaceful environment for business and the whole community;

  • a continued stable investment regime for large investors in mining, petroleum, and gas; and

  • a rapid movement toward privatization of public enterprises.

One particular area where sectoral policies concentrate is on gradual development of our manufacturing and industrial base, especially in processing our bountiful resources and on lowering our current high import dependence, often on the most basic commodities.

We realize that the manufacturing sector has to be internationally competitive in order to grow. However, this will not be possible without appropriate and very active forms of government encouragement in the first instance.

Over the years, I have heard many slogans and antiprotectionist sentiments coming from Europe and America, and I am convinced on that point. The industrial nations tend to say one thing and then do another.

We are learning from the rapid industrial growth of our close neighbors in Southeast Asia. Although they have achieved international competitiveness, they have also benefited from very activist government policies encouraging and promoting industrialization. We are rapidly approaching the stage where we will have the capital resources, increasingly educated population, and appropriate macroeconomic framework, including flexible interest rates, low taxes, flexible wages, and a free foreign exchange regime to aggressively follow the success stories of those to our near north.

Pursuit of our objectives and strategies would be enhanced by improvements in the world economic climate. The continued protracted recession in many of the industrial countries, including our neighbor Australia, has been adverse for demand and prices of most of our agricultural commodities and metals.

Fundamental imbalances in world trade, currencies, and interest rates remain. The failure of the United States, Germany, and Japan to achieve appropriate alignment in their policies is of very fundamental concern to small nations such as Papua New Guinea. We sometimes wonder if those in Europe and America are aware of the instability and policy difficulties they actually create for small nations endeavoring to pursue open and responsible economic policies.

Furthermore, we remain fundamentally dismayed at progress with the Uruguay Round of the General Agreement on Tariffs and Trade. I recall when I was here some six years ago that I expressed optimism for a less protectionist world emerging from the Uruguay Round. We remain bitterly disappointed with the results achieved to date and quite pessimistic that nations wishing to protect their inefficient sectors will be moved without development of effective retaliatory measures. This will be difficult given the strength of the combatants.

Our relations with the Fund and the Bank have continued to remain cordial and productive over the past year. However, problems of access and coordination remain. Papua New Guinea has very much appreciated the financial and technical assistance provided by both institutions following the severe shock to our economy after the unexpected closure of the Bougainville Copper Mine in 1989 and the low commodity prices. Structural adjustment and stand-by assistance provided undoubtedly were of significant importance in stabilizing the economy and re-establishing a sound macro environment in the difficult years following 1989. It is interesting to note that this facility was never activated. In other words, we have managed to wend our way out of the swamps through stringent fiscal discipline. We have largely adjusted to the shock of 1989 and now greatly look forward to returning to complete independence in the management of our economic affairs.

While “structural adjustment” has been the buzz concept in both the Fund and the Bank in recent years, it has only been of limited relevance to Papua New Guinea. Our fiscal and monetary policies have a long and proud record of responsibility and sustainability. They have not needed significant adjustment. There has been much post discussion of our exchange rate and wage linkages. As I have already stated, a considerable window of opportunity opened for adjusting our wage policy.

Much of our development efforts in future need to be focused at the sectoral level. The long, hard struggle familiar to many member countries in education, training, infrastructure, health, and so on, must continue. These are often difficult, lengthy, and complex areas of social and sectoral policy that are not easily amenable to simple macroeconomic restructuring.

At my initial instigation following the 1986 joint Annual Meetings, Papua New Guinea has, in recent years, been involved in an annual Consultative Group meeting that is chaired by the World Bank. This group proved particularly effective in mobilizing budget and balance of payments support following severe shocks to the economy in 1989. We are ever grateful to the contributors. My Government is anxious that the work of the group should now be focused on significantly improving the implementation of productive projects to support our sectoral priorities. Repeated Consultative Group meetings have indicated the goodwill on the part of donors who consistently pledge generous amounts. However, the record of actual implementation has been quite disappointing. There are problems on all sides, involving planning capacities, conflicting priorities, and extreme conditionally and documentation constraints imposed by external agencies, including the Bank.

I am very anxious to ensure that aid projects are made to dovetail very closely with our planning systems and priorities. We simply lack the resources to be running one administrative system for donors and another for Papua New Guinea. I would like to see the Bank and the Consultative Group explore the issues of improving integration of aid into our planning and budgetary systems. Of course, this will involve our continuing to improve our own systems and performance along the way.

If we cannot integrate aid flows quickly and efficiently, including those from the Bank, then we will very soon be forced to move back toward more commercial forms of financing where, in many cases, interest rates are competitive and many of the current inflexibilities and problems can be dispensed with.

I would like to conclude on a theme I have been pushing here for almost as long as I have been coming. This relates to a need for closer representation by the Bank within the South Pacific. I have long believed that a representative office is warranted within the South Pacific and that Papua New Guinea would be an ideal place for its establishment. The establishment of this office would not only ensure better understanding by the Bank of the real problems and issues in the Pacific island nations but would also ensure that a mechanism is in place that secures a share of the rapidly declining total global resources in the face of developments in Eastern Europe and the former Soviet Union.

Only by closer presence and contact can we overcome current misunderstandings and problems of coordination where, ultimately, the impact is to the detriment of our people, who get lower access to flows of capital and skills.

On that note, let me reiterate that Papua New Guinea is fully committed to the continued development of its relationship with the World Bank, and I hope that it can one day be a significant player in this world distributive organization to help poorer countries develop themselves.

My congratulations again to the organizers of the meeting and for the effective presentation by Governors. I hope that by our individual and joint efforts we will convert the good words expressed in this meeting into action that eventually provides tangible benefits for all peoples of the world.

Statement by the Governor of the Bank for Tonga—James Cecil Cocker

It is a pleasure for me to have this opportunity to address the Forty-Seventh Annual Meetings of the International Monetary Fund and the World Bank Group. I join other Governors in expressing thanks to the Chairman, Mr. Berrada; to President Preston; to Managing Director Camdessus; and to the managements and staffs of the Fund and the Bank for the excellent arrangements under which we meet.

I also join other Governors in welcoming Armenia, Azerbaijan, Belarus, Estonia, Georgia, Kazakhstan, Kyrgyzstan, Latvia, Lithuania, the Marshall Islands, Moldova, the Russian Federation, Switzerland, Turkmenistan, Ukraine, and Uzbekistan as new members of the World Bank Group and the International Monetary Fund.

Since the Bangkok meeting there have been many changes in many parts of the world. In these uncertain times the importance of greater coordination of economic policies has assumed high priority. While the outlook for global economic growth appears to have improved from last year, much downside risk still remains.

Economic growth remains sluggish in many industrial countries. While these countries seek ways to stimulate growth through fiscal consolidation, it is important that policies be coordinated to ensure stable exchange rate and interest rate developments.

Tonga, like many developing countries, needs a conducive external environment to pursue noninflationary growth policies. The environment comprises stable growth in industrial countries, stable interest rates and exchange rates, stable terms of trade, adequate and open markets for exports, external capital inflows, and the successful conclusion of the Uruguay Round.

In the decade of the 1990s Tonga has embarked on a strategy of promoting growth through export diversification and private sector development. The 1992–93 budget continues to build on earlier policies directed toward the liberalization of the private sector, export growth, and the promotion of tourism to achieve our objectives of increasing employment, incomes, and the equitable distribution of employment opportunities.

At the same time the Government continues to place importance on its social development policies through the improvement of physical and social infrastructure facilities. Great emphasis is also placed on equitable regional development given the wide dispersion of the islands of the kingdom.

Given the open nature of our economy and in view of our adjustment efforts, we share the concern that industrial countries ought to seek ways of stimulating economic growth through appropriate measures while pursuing the medium-term objective of price stability.

Turning to Fund matters, we share the view that many developing countries will continue to need concessional assistance for some time to come. It would therefore be appropriate for early consideration of concessional assistance after the expiry of the enhanced structural adjustment facility (ESAF).

In view of the large number of new members of the Fund, it is necessary to augment the Fund’s resources as early as possible. In this respect it is disappointing that the Ninth General Review of Quotas is still not in effect, and we hope that early implementation of the review will be effected. We also urge that early consideration be given to the Tenth General Review.

Turning to Bank matters, we fully support the development priorities for the 1990s of poverty reduction and the achievement of sustainable growth. Tonga firmly supports the Bank’s conclusions on human resource development, and we look forward to closer coordination with donors on this issue.

The emphasis placed on the Bank’s programs of environmental protection is of great interest to small island countries. The economies of the Pacific Ocean are particularly dependent on a healthy environment, which is essential for sustainable development.

Tonga is very conscious of the value of being a member of the Fund and the Bank. We consider regular consultations with both institutions to be very beneficial, and we hope that the technical assistance we receive will be sustained into the future to support our adjustment efforts.

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

Statement by the Governor of the Fund for Turkey—Tansu Ciller

It is a great honor for me to have this chance to address the Joint Meetings of the International Monetary Fund and the World Bank Group. I would like to express my appreciation to the management and staffs of the two institutions, both for the excellent meeting arrangements and for their valuable contributions to the meetings’ content. I also wish to welcome the new members of the Bretton Woods institutions, and greet the representatives of these countries who are attending these meetings for the first time.

In our view, the membership of these newly independent countries in the International Monetary Fund and the World Bank heralds the opening of a new era in the interdependency of the world community, underscoring the challenges and opportunities we are about to find on the brink of the twenty-first century. The extraordinary intensity of the political events we have seen since the end of the last decade and their global repercussions create new responsibilities for all national and international actors and add new obligations to those that exist already.

The decision to refuse the credentials of the Yugoslav delegation for this meeting and the decision to open up the question of Yugoslavia’s status to discussion by all the members of our institutions have demonstrated the high degree of sensitivity and concern shared by all our members on this subject.

Concerns have also been expressed about the speed of adjustment of the former U.S.S.R. and the other centrally planned economies. A balance must be struck between the urgency of replacing the rigidities of central planning with mobility of labor and capital, as part of the extremely complex task of transforming their centrally planned economies into market-based systems.

The enthusiasm of the present administration of the former U.S.S.R. should be strongly supported by the international community. There are several ways this can be done:

  • It is expected that some of the budgetary priorities of the industrial countries will soon change: agricultural subsidies will be reduced, and military spending will be cut. Some of the resources saved in this manner could be used to increase the flow of funds to the former U.S.S.R. and Eastern Europe.

  • The multilateral institutions, including the International Monetary Fund and the World Bank, should make a special review of the utilization conditions of their existing facilities and create new channels for technical assistance. The Ninth General Review should also make it possible to increase immediate flows to the former U.S.S.R.

  • At the bilateral level, the industrial countries should increase the volume of funds they are directing toward this region and should also explore ways of increasing the volume of trade.

Unless these measures can be taken to help the former U.S.S.R., the sustainability of the reforms will be threatened by the risk of political and social instability throughout the region.

  • The stability of the international economic and financial system is more important than ever. Inflationary policies create obstacles for national economies wishing to integrate themselves into the world economy. Noninflationary policies, on the other hand, reduce budget deficits, lower interest rates, and eliminate disincentives to private savings, which can help generate the funds crucially needed for investment and growth.

  • The pursuit of prudent fiscal and monetary policies by the industrial countries in order to permit higher growth rates in the world economy is also important for preserving the progress with structural adjustment made by many of the developing countries.

  • Another important point in this connection is to eliminate protectionist tendencies and demolish trade barriers. For this, a successful conclusion of the Uruguay Round is essential.

  • The problematic relationships between development and the environment call urgently for constructive solutions. Protection of the environment should be considered simultaneously with questions of development for the less industrial countries.

  • There is a great need to mobilize resources to alleviate the severe effects of drought on the economies of sub-Saharan Africa. The donor community must make a maximum effort to ensure that these countries can recover from the drought and protect the gains they have won through adjustment programs.

  • Faced with these unprecedented challenges, we, the members of the Development Committee, must make sure that all these issues are promptly addressed by the parties most concerned. The result will be to enhance the agenda of the Committee, whose more effective concentration on these issues can lead to their solution. A more active approach will also help slow the tendency of these meetings to become excessively routine despite our extraordinary times.

Let me turn now to the Turkish economy, which is currently experiencing a rapid recovery and a renewal of activity in the aftermath of 1991, which was a year heavily laden with both external and internal political and economic events. We owe a great deal to the solidity of Turkey’s economic structure, which got Turkey through this turbulent year without serious damage.

The outlook for 1992 is promising: the growth rate has climbed back up to its pre-Gulf crisis levels; and inflation has been halted and turned around, and is expected to decline sharply. No setbacks are foreseen in the balance of payments area, and foreign exchange resources are accumulating in line with the target. Our Government attaches particular importance to increasing the momentum of the structural reforms. Implementation of the privatization program has a high priority on the Government’s agenda, and a new institutional framework has been designed to accelerate the process. New instruments have been introduced that will bring greater diversification to the markets and result in a more efficient use of resources. Ultimately, Turkey aims to become fully integrated into the international markets.

In its own region, Turkey has taken significant steps to realize growth prospects by multilateral cooperation. The Black Sea Regional Economic Cooperative has been formed to foster commercial and financial ties throughout the region, with the goal of improving the prosperity of all the member states of the group.

Turkey also places the highest importance on improving and strengthening its economic and commercial relationship with Europe and has become a member of the European Free Trade Association. Over the long term, these regional initiatives aim at full integration with the industrial world, including the European Community.

Turkey’s historical ties with central Asia have created special challenges. Turkey intends to help the new republics of this region rehabilitate their distorted economic structures. We feel strongly that Turkey has a major role to play in creating the conditions for the countries of this region to achieve sustained growth in a market economy context. While they are in transition, these economies should be assisted in a multilateral manner, by which we mean to imply that Turkey’s concern for these countries and the new challenges of helping them should be shared by the rest of the world as well. As I mentioned earlier in my speech, although we are grateful for the level of international assistance presently being provided, we nonetheless feel that more can and should be done to alleviate the burden of these economies.

In conclusion, today’s increasingly globalized world makes the 1990s a decade of opportunities. As no country can thrive while remaining isolated in a globalized world, it offers both an opportunity and an imperative reason for seeking multilateral solutions for the shared problems stemming from short- and medium-term constraints. I feel confident that the IMF and the World Bank Group will continue to fulfill their roles by catalyzing resources, by channeling funds to support the growth and development prospects of our countries, and by directly addressing the problem of maintaining the momentum of the structural adjustment process, in the countries in transition as well as worldwide, and thus contribute to the creation of a stable and prosperous world.

September 24, 1992.

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