Discussion of Fund Policy at Fifth Joint Session1

International Monetary Fund. Secretary's Department
Published Date:
October 1973
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Statement by the Governor of the Fund for the People’s Republic of the Congo2Saturnin Okabe

In accordance with practices established among our countries, it is the turn of my country, the People’s Republic of the Congo, to act as spokesman before this august assembly for its partners of the Central African monetary area.

It is, therefore, on behalf of the United Republic of Cameroon, the Central African Republic, the Gabonese Republic, and the Republic of Chad as well as on behalf of my own country that I express my sincere thanks and offer my warm congratulations to the people and Government of Kenya for the cordial hospitality they have extended to the Boards of Governors of the Fund and the Bank, and for the splendid success of their organizational efforts for our work.

I should like to offer congratulations also to Mr. Johannes Witteveen on his election to the high office of Managing Director and Chairman of the Executive Board of the International Monetary Fund. I am certain that his many human qualities, his good political sense, and his great intellectual capacities will enable him to assume to general satisfaction the mantle of Mr. Pierre-Paul Schweitzer, whose eminently positive performance in the service of the international financial community bears witness to his loyalty and devotion, qualities that are indispensable in carrying out a mission of this importance.

After the praises voiced on behalf of all of you by the Committee of Twenty last July and by the Chairman of the Board of Governors in the course of the present session, I would like to pay special tribute to him on the part of the countries whose spokesman I am here, for the eminent services he rendered during the ten years he headed the International Monetary Fund.

I do not doubt for a moment that Mr. Witteveen, in the differing circumstances of today, will be able to perform just as successfully the delicate mission recently entrusted to him.

The countries of my group, confronted with problems which present themselves to them in identical terms and fortified by the experience gained in this field since they achieved political independence, decided almost a year ago to pursue their monetary cooperation and strengthen it. In association with France, their partner within the franc area, they have just undertaken a profound transformation of the structures of their common institute of issue, which will henceforth play an active part in arranging the financing of our countries’ development. Breaking with orthodox practices, commendable but somewhat outdated, and harmonizing directly the law with a practice increasingly widespread in today’s world, our Central Bank can now intervene in sectors which used to be outside its traditional sphere of action. However, in its implementation this important innovation is applied according to rules which remain compatible with the need for sound monetary management.

This, in broad outline, is the philosophy of the Brazzaville monetary agreements which on November 23 last created the Bank of Central African States.

The rapidity with which these agreements were negotiated and the successful outcome are explained by the fact that our states have always been clearly aware of their mutual interests—an awareness based on their firm political will to pursue their fruitful cooperation. I for my part am convinced that if all countries represented here showed a like political will, the world would soon have a new international monetary order.

Certainly, the designation last September of a Committee of the Board of Governors on Reform of the International Monetary System and Related Issues, providing for equal representation of industrialized countries and developing countries, constitutes clear proof of the will of Fund member countries to find a way out from the monetary crisis which has affected the world economy for so many years.

The work done by the Committee over a one-year period, particularly at the Deputy level, on which the draft Outline of Reform submitted to us at the present session is based, bears witness to this will. I should like in this connection to express my thanks to Mr. Ali Wardhana, Chairman of the Committee, and to Mr. Morse, Chairman of the Deputies, for the progress that has been made thus far.

However, while some progress was indeed made, much still remains to be done to achieve the reform of the system which the entire world is waiting for. This is why we would be deluding ourselves to hope that the reform could be achieved during the present session.

The draft Outline submitted to us for examination is still far from representing what might be the future international monetary order. To enable the Committee to pursue its task, we should in the course of the present session give it clear and precise directives. A political stimulus is needed to emerge from the present situation, which is far from being stabilized.

For our part, we wholly approve the decision of the Committee of Twenty to set itself the date of July 31, 1974 for finishing its work, so as to present a coherent scheme of reform to the Annual Meeting of Governors in September 1974 in Washington.

While the disorder provoked by the monetary crises of 1971 has subsided, the effects of these crises are still in evidence, as was proved by the events of the winter and early spring of 1973, and the occasional upsets that still affect the exchange market. But, as always, it is the economies of the developing countries that have suffered most from this monetary instability.

It is true that the trade of the commodity producing countries has generally developed rather favorably. However, this favorable trend has in fact manifested itself unequally among these countries: the economically most developed ones being actually the principal beneficiaries of this development. Not only were they able to increase the volume of their exports of products for which external demand is very strong, they also benefited from the extraordinary rise in the prices of these products. At the same time, capital movements toward these countries have not slackened over past years.

On the other hand, the less developed commodity producing countries—apart from the oil producers—have not drawn any substantial gain from the growth in trade which has come about parallel with the monetary crisis; on the contrary, the fall in the prices for their main export products has resulted, for these countries together, in a total trading deficit of US$7 billion, while their global current account deficit stands at US$9 billion.

As prices for most of the products of these countries are quoted in dollars or sterling, currencies whose purchasing power is diminishing all the time, the terms of trade have become distinctly worse for them. And because of the difficulties inherent in any change or orientation in trade, it is clear that this situation will persist for some time yet.

The baneful effects of the monetary realignments have also made themselves felt in the level of the external indebtedness of the developing countries, which has been pushed up 5 per cent altogether as a result. However, for the African countries the increase has been even greater, namely, 6.5 per cent.

These are but some of the many specific examples which illustrate the grave consequences of the present monetary instability for the general situation of the developing countries, and which underscore the need to set up a new international monetary order at the earliest possible moment.

The draft Outline of Reform produced by the Committee of Twenty forms without doubt a decisive step along the path leading to achievement of this vital objective. Of all the points dealt with in this Outline, there are two which I find particularly noteworthy. These are:

  • —the promotion of net transfers of resources to developing countries, on the one hand, and

  • —the future role of the International Monetary Fund in an ever-widening economic world, on the other.

As everyone knows, promotion of net transfers or resources to the developing countries, as part of the reform of the international monetary system, was recognized as one of the fundamental aims of that reform.

To us, this promotion has become a vital necessity for our continued development effort. We think that the shrinking of external aid to the developing countries can be compensated in part by the channeling of new resources in this way through the international monetary system. By so doing, the international financial community will moreover be doing no more than applying in favor of the developing countries what the monetary authorities of the big countries have been able to do successfully in putting money at the service of their development.

Of all the forms of transfers of net resources in favor of the developing countries, there can be no question that the link to be established between special drawing rights and development financing has been the subject of the deepest and most advanced discussions, but it is also one of the points of the reform which still raises the most objections on the part of certain Fund member states.

For my part, the question of the link is the only one whose solution can be interpreted as the according of serious consideration to the interests of the developing countries by the rich countries, within the context of the current reform of the international monetary system.

As for the form which this link should take, it cannot but be direct, because it is the only means capable of meeting the requirements of our countries’ development plans. In this connection, the argument that the direct link could have an inflationary influence on the allocation of special drawing rights appears to me to be fundamentally incorrect.

For, when one considers the present volume of international liquidity, which is huge, the first thing to strike one is the small share accounted for by the developing countries. Now, whatever may be the criterion for distribution of SDRs to Fund member states, nobody really expects the lion’s share to be reserved for the developing countries. While the financing needs of these countries are virtually boundless, the allocation of SDRs will be based not on these needs, but on the requirements of international trade.

But above all, as the allocation of SDRs has to be effected in accordance with the current Fund rules, it is clear that it will never be imposed on the countries with the strongest positions in that institution. That, in my opinion, is a factor which should serve to reassure those of us who are dubious about the excesses which could result from the partial assignment of SDRs to development financing.

As regards the other forms of net transfers of resources, such as the creation of new facilities and improvement of the conditions for utilizing existing facilities, i.e., compensatory financing and the financing of buffer stocks, there can be no denying the interest they present for our countries. However, they should be studied further before specific proposals are formulated, as their introduction, or the strengthening of existing ones, cannot serve as substitutes for the link I have just referred to, but should be complementary to it.

To conclude these remarks on the net transfer of resources to the developing countries, allow me, Mr. Chairman, to comment regarding the second basic period for allocation of SDRs, which should have come into effect on January 1 of this year, but has been purely and simply rejected.

This decision, a highly regrettable one, is said to be justified by the present considerable volume of international liquidity, which, it is affirmed, exceeds the requirements of the international financial community. This explanation, which can hardly be viewed as satisfactory, is revealing in that it shows the true attitude of the rich countries toward the interests of the developing countries.

True, there has been an extraordinary growth of international liquidity since the creation in 1969 of special drawing rights; this liquidity had risen from US$78 billion to US$178 billion as of last May.

However, this expansion has benefited above all the bigger countries which have the largest flows of mutual trade. Moreover, not only are the countries benefiting from SDR allocations not required to make use of these supplementary facilities, but they are even allowed not to participate at all in these allocations: this already occurred during the experimental basic period. Under these circumstances, the negative attitude of the rich countries to this question can only be explained by their desire not to expand the facilities offered by the international monetary system except when this would be truly in their interest.

* * *

The second point of the draft Outline which drew my attention, and which has not, nufortunately, been discussed as it warranted by the Committee of Twenty, relates to the future role of the International Monetary Fund.

This point comprises, as I see it, two fundamental aspects:

  • —the role of the IMF proper, and

  • —the place of the new international monetary system in the world economy.

With regard to the future role of the Fund, all the countries represented here have recognized that this role must be strengthened. It is, after all, certain that if the present Fund had real powers, it would have been able to exercise a stabilizing and probably beneficial influence in the monetary crisis bedevilling the international financial community. We must therefore place at its disposal, in the new international monetary order, means of action that will enable it to link its efforts with those of the national authorities in order to prevent and combat fresh monetary crises. The idea that the effective action of the Fund should be directed by qualified representatives of a certain number of countries seems to me both dangerous and retrograde. Dangerous, because if it were put into effect it would result in a most undesirable politicization of our institution and would effectively exclude the greater majority of its member countries from the running of its affairs. Retrograde, too, because it would spell the end of the collective management which has enabled the smaller countries to take an active part in the operation of the Fund, while preserving the legitimate interests of the major partners in the institution.

For my part, the strengthening of the future role of the International Monetary Fund should consist in maintaining, at ministerial level, the Committee of Twenty formed last September. The present Board of Executive Directors should retain its powers, but it should be able to receive, in special circumstances, high-level representatives of member states who could come to it and explain the position of their countries during the discussion by the Board of the economic reports on their countries.

As regards the place of the future international monetary system in the world economy, it should be expanded in such a way as to remove the psychological obstacles which prevent all the members of the United Nations from joining our institutions.

At a time when international trade is tending to become liberalized and to develop, it would not be realistic to set up an international monetary order which did not include all the countries of the world.

We are glad that the Committee of Twenty retained expansion of the future international monetary order as one of the aims of the reform, but we think that it would have been possible, in an appropriate form, to bring into association those countries which are not (yet) members of our institutions, but which are on the way to becoming privileged trading partners of many of the countries represented here. . . .

Statement by the Governor of the Bank for Yugoslavia—Janko Smole

The international community has experienced another year of monetary instability and uncertainty which adversely affected most countries, particularly the smaller and developing countries. It is well known that these countries are more vulnerable to unsettled situations, because they have neither the available resources nor the mechanisms required to protect themselves against risks and losses connected with the frequent and considerable fluctuations in exchange rates. Much to my regret and in spite of the activity and efforts made by the Committee of Twenty, the necessary agreement for the reform of the international monetary system has not yet been reached on a number of substantive issues.

At the last Annual Meeting I expressed my satisfaction with the establishment of the Committee of Twenty as a step toward a more representative participation of member countries in the process of preparation of basic decisions in the Fund. Thus, a representative number of member countries were enabled to take an active part in the discussions and to present their views and proposals. May I be allowed to stress once more my conviction that a reformed international monetary system should emanate from the broad participation of member countries in the decision making and incorporate satisfactory solutions for problems of vital interest to developing countries and for the promotion of the transfer of real resources to developing countries in particular. Hence our insistence that new arrangements should improve the international monetary and financial environments for faster economic development and expanded international trade and financial flows.

At the recent conference in Algeria, the nonaligned countries expressed their intention to promote mutual economic relations, including those in the financial and monetary fields. However, they are fully aware that solutions to the major international issues, such as monetary and trade problems, should be sought within a universal system to be created through the cooperation of all countries—developed and developing alike—on the basis of respect for mutual interests. It has already been recognized that the application of the same monetary rules to all countries, regardless of their levels of development, results in an unbalanced distribution of benefits favoring the more developed countries and imposing undue burdens on the less developed. For this reason, a more equitable reformed system should respect the specific situations and needs of developing countries and should give them preferential treatment.

In order to give the developing countries more effective participation in the decision-making process and a more equitable share of the Fund’s resources, I urge the Executive Board to pursue the necessary preparations for the revision of Fund quotas with the aim of ensuring an increased share for the developing countries.

I wish to reiterate my strong support for the establishment of the link as an important instrument for contributing to the increased transfer of resources to the developing countries. Both the studies prepared and the discussions; held on this subject revealed that the establishment of such a scheme would contribute to the attainment of broader objectives of the reform, without impeding the basic functioning of the system and the monetary role of special drawing rights. In order to facilitate an early decision on the establishment of the link, I would propose that the concrete scheme, compatible with the working hypothesis for other segments of the system, be elaborated by the Fund, which would enable this issue to be resolved along with other issues of the monetary reform.

Over the past years of implementation of the Fund Articles of Agreement, it has been clear that the developing countries have been faced with specific difficulties in adjusting their balance of payments. This recognition has led to a marked interest in and wide support of the idea of establishing an extended Fund facility for developing countries, providing for higher amounts and longer periods of financing than are available under the present arrangements. Having this in mind, I suggest that the request be put before the Executive Board to speed up the elaboration of a detailed scheme to this effect, so that the decision on its implementation could be taken simultaneously with other important decisions to be taken by July next year.

It is of vital interest that the implementation of the new monetary arrangements should not shift an undue burden onto developing countries. This, in particular, relates to the implications which would result from:

  • —the new procedures designed to require prompter involvement of countries in the adjustment process, specifically, the interpretation of rules and application of procedures to developing countries, including a possibility for the Fund to exert guidance and influence;

  • —the incentives which the system will provide for the choice of the policy mix in undertaking adjustment, with respect to the international environment for expansion of developing countries’ exports and their financing, that is likely to emerge out of such a choice;

  • —the new balance of rights and obligations between the countries issuing reserve currencies and the countries which hold currencies in their reserves;

  • —the characteristics of the convertibility system and solutions for the existing reserve currency balances, particularly with respect to their effect on the possibility for collective control and management of global liquidity, thus enabling a more equitable distribution of the increased liquidity by strengthening recourse to the allocations of SDRs;

  • —the relative prices and rules for transactions of alternative reserve assets and their effect on the cost of building up and maintaining the real value of the adequate reserves in developing countries; and

  • —the general level of yields on keeping various assets in reserves, with their impact on the cost of financing balance of payments deficits and international financing in general.

I am fully aware that we are facing a difficult and challenging task: to find the way out of the present unsettled situation. Therefore, we should exert all our effort and political will to reach decisions on the major issues of the reform, which would restore confidence in the financial community and stability in the exchange markets. The spirit of international cooperation and solidarity should prevail and result in the creation of an international monetary system which will open the way to development and stability in international economic relations.

Fully conscious of the role which the Fund has to perform in the present situation, I wish to give assurance that my Government will continue to cooperate with the Fund as in the past, and that the new Managing Director, Mr. Witteveen, will receive our full support in performing his responsible and delicate task.

In my view, also reflected in the mandate of the Committee of Twenty, the reform of the international monetary system together with prospective arrangements for international trade, the flow of capital and investment and development assistance are to be considered parts of the future international economic order. It is necessary in each and every one of these fields that effective instruments be provided to ensure the acceleration of development in the developing countries through an adequate flow of real resources. Our tasks to achieve this are clearly stated in the latest communiqué of the Group of 24.

We should not, therefore, permit the preoccupation with problems of monetary reform to divert our attention from the pressing needs of development and the action necessary to provide increased financial resources on favorable terms. . . .

In conclusion, I should like to welcome the new members of our institutions—the Bahamas and Romania.

Needless to say, we appreciate the valuable work of the Fund and Bank staffs during the past period.

My special thanks go to the host country, Kenya, for the facilities provided and the warm hospitality rendered to us during our stay in this lovely and impressive country.

Statement by the Governor of the Bank for the Libyan Arab Republic—Mohammad Zarrough Ragab

The international community was never at any time in need of greater cooperation in facing one of its major problems than now, in its need to cooperate to find suitable solutions for the contemporary international monetary system.

The state of anxiety and uncertainty which has been prevailing in the world has created a strong incentive among all of us to seek urgent solutions to the problems suffered by the world today relating to international monetary matters, world trade, unfavorable capital movements, and various restrictions often imposed from time to time.

However, since we are dealing with monetary reform and giving due attention to the problems of developing countries, it is worth stressing that the harm incurred by these countries which hold their reserves mainly in the form of the currencies of major industrial countries is attributed to selfishness of the big powers. It is obvious that the developed countries seek first of all to protect their own interests, and as a result there is a continuous reduction in the value of some currencies on one hand, and the floating of other currencies on the other, resulting in a great loss and financial disturbances to the developing countries.

The delegation of the Libyan Arab Republic believes that the efforts being made to seek successful solutions should be based on the following three basic principles:

(1) The spirit of international cooperation in putting an end to current problems should be coupled with the genuine will to surmount as many obstacles as member countries possibly can. This is essentially important right now while seeking an agreement on methods and means of monetary reform, and the principles agreed upon can be implemented.

(2) The International Monetary Fund should be provided with a favorable atmosphere in order to be able to play a greater role in the management of the international monetary system. That is because one of the main reasons leading to the collapse of the Bretton Woods system was that the Fund was neither empowered with adequate authority nor provided with the means to perform the proper role it was required to play. This situation requires, first and foremost, that both the Fund Agreement and its administrative system be improved, that the existing system of allocation be reviewed so as to give more consideration to countries as members of the international community, and that the vast gap existing between the quotas of developed countries and those of developing countries be narrowed.

(3) Major countries which, as a matter of fact, assume the major part of the responsibility of the management of international assets in monetary fields, trade, and assistance are called upon, by virtue of their moral obligation, to consider the adoption of new methods to assist in the creation of a reasonable equilibrium in development between countries that have taken great strides forward, and those that are still suffering from economic, social, and technological backwardness. Therefore, the view now given to the demands of the developing countries for expansion of the scope of opportunities for attainment of certain privileges and assistance should preferably be altered and linked to the requirements of promoting overall global productivity. It might be safely assumed that provision of a wider scope of opportunities for those underdeveloped countries would help to attain better overall results for developed countries in the process of managing their resources in the future.

Time may not allow us to comment on all issues under consideration. It is, however, sufficient to give some brief general observations concerning some important issues:

(1) It might be more appropriate to rely more on consultations between member countries and the Fund and not to resort to use of pressures and application of sanctions except within limits and in extreme cases, or even to abolish that completely.

(2) In adopting exchange rate policies, preference should be given to the maintenance of stability and the nonwidening of margins. The revision and adjustment of exchange rates as an exception should be carried out under the supervision of the Fund in order to avoid nullification, by frequent adjustment, of the stability principle which is essential for the achievement of the aspired stability in the international monetary order. Furthermore, greater attention should be given to the factors which may affect par values, and to using the utmost care in adopting the floating rates policy.

(3) Intensification of restrictions may not be the only solution to problems. Therefore, harmful short-term capital movements could be limited or at least minimized through cooperation rather than through imposition of further controls. These controls, in turn, may constitute new barriers for the promotion of trade or the beneficial capital flows so urgently required for development.

(4) As we are all aware, the movements of reserve assets of developing countries in general—and oil producing countries in particular—have so far had a relatively small effect on the development of world balances. It can also be assumed that such a relatively limited influence will continue for years to come. In view of this, the demands raised by these countries for certain exceptions from controls and indicators should not be understood as a kind of self-liberation from international responsibility. Rather, they should be viewed in the light of the actual economic position of these countries.

The Libyan Arab Republic, being one of the oil producing countries, firmly believes that it is morally obligated to make this vital product available to the international community, with due consideration to the needs of the country’s economic and social development needs, and within the rules of preserving its major national resource as well as the principle of the state’s sovereignty over its natural resources. Given the special circumstances of the Libyan Arab Republic as a producer of a diminishing asset, it would not accept any intervention in its freedom with regard to the level, composition, and management of its reserves.

(5) It is noticed that the supplies of financial resources available to developing countries have been remarkably contracting during recent years. If there was a unanimous will to increase the resources available to developing countries which sorely need them, the major proportion of the intended increase would be better made available to those countries through direct channels, in addition to the possible provision of finance through specialized international and regional institutions in accordance with the conditions agreed upon with the states concerned.

We in the Libyan Arab Republic make every effort to extend aid and to help in financing development projects in many developing countries, particularly in Africa. For this purpose, a special institution (the Libyan Arab Foreign Bank) was established, and its main activity is to finance development schemes outside the Libyan Arab Republic.

The Libyan Arab Republic had increased its subscription in the African Development Bank to such an extent that it became one of its major contributors. Moreover, the Libyan Arab Republic is one of the leading participants in the Arab Fund for Economic and Social Development.

In the past as well as in the future, the Libyan Arab Republic has made and will continue its efforts to aid and to participate in bilateral arrangements with various countries.

Believing in the role which could be played by the international institutions, the Libyan Arab Republic has floated a bond issue in favor of the World Bank and intends to increase its quota in the Fund.

Moreover, our country intends to participate in the new SDR arrangement and support this principal reserve asset in order to enable the SDR to play its prospective role in the reformed monetary system.

In concluding, my delegation wishes to join with the other delegations in extending our gratitude for the warm welcome which we have received from the Government and the people of Kenya.

Statement by the Governor of the Fund and Bank for Ireland—Richie Ryan

Having the utmost respect for all Governors, but reviewing the progress or lack of it in this debate and observing the long list of Governors who have not yet spoken, I venture humbly to suggest that organizations like these which endeavor to equitably and efficiently distribute billions of dollars ought to adopt and enforce rules of debate which would equitably, both in duration and sequence, distribute the time available to speakers at these sessions. I sow that seed in the hope that it may bear fruit before the next Annual Meetings.

This is not the time or the place, nor is it primarily the function of a small country such as my own, to express views about elements of detail in the proposed reform of the international monetary system. Rather it is our role to assist and encourage, toward early completion of their important assignments, both the Deputies of the Committee of Twenty, whose careful and patient work deserves to be commended, and more especially the Committee itself, from whom early, clear, and positive responses to the political and technical questions raised by the Deputies are vital.

No country, small or large, can wish to remain subject much longer to the upheavals which have rocked the monetary system in recent times. This most unwelcome instability is traceable directly to the universality and varying intensity of inflation. No longer is there any great land-mass or anchor of price stability in the free world, such as the United States was in the 1950s and the early 1960s. There is no effective discipline on the major deficit or surplus countries to adjust their imbalances. No international reserve asset exists which every country can hold as a sure store of value and use freely in acceptable settlement of its international debts. The price of gold reflects both speculation and apprehension. Central banks are not releasing any of their vast supply of gold to the market to allay the unprecedented demand. The U. S. dollar has, for the time being, lost, through domestic depreciation and international proliferation, its former preferred status as a store of value and international exchange medium. In this unstable world, massive amounts of liquid funds create havoc as they seek refuge in relatively stable currencies, in gold, or even in commodities in the absence of an asset certain to hold its own in value against even the strongest currencies. The whole sad story is recorded in the Fund’s excellent Annual Report.

There is clearly an urgent need to restore an orderly and disciplined system. Continued drift, under a widespread regime of floating, more or less managed, may temporarily be tolerable to some governments but must become increasingly irksome to traders and investors and give rise to serious risk of exchange rate manipulation for competitive advantage. No one who has lived through, or even studied, the grim experience of the years preceding the last World War, when competitive devaluations, multiple exchange rates, high tariffs and quotas, barter arrangements—every conceivable form of control, involving even exploitation—were in operation, could have any wish to return to a pre-Bretton Woods era.

It is most desirable that there should be a strong and sustained political will to restore an equitable and soundly based international monetary system; and we must all recognize that reform will remain a paper exercise unless concerted action is taken to control the basic evil of inflation. It is necessary to smooth out the international trends of prices and costs and lower the general level of interest rates. Otherwise, we may either slip back into the prewar chaos, or, by clinging again to some apparently strong, or recovered, national currency as a reserve asset, repeat the mistakes which have led us into the present disorder. The smaller countries know that it is they who will be hurt, and hurt badly, if reason and order, safeguarded by fair and effective international surveillance, do not prevail in the world’s monetary relationships.

In the reformed system, the International Monetary Fund will have a most important role to play. It is essential that the Fund, as watchdog of the monetary system, be fully and adequately equipped to carry out its duties and be in a position to take quick and effective action in times when the monetary system is showing signs of coming under strain. We must give the Fund the powers it needs to play its part whether in relation to corrective action by countries to remedy imbalances, the regulation of the supply of world liquidity, or otherwise.

Against the likely prospect of a demanding future I would like to take this opportunity to express good wishes to the new Managing Director, Dr. Johannes Witteveen. His task and that of the other Directors will, indeed, be a challenge. I wish them every success.

Although the spotlight on this occasion is on the Fund and the problem of reforming the international monetary system, it would be a great mistake if we were to lose sight of the fact that the Fund and the World Bank Group are complementary. The establishment of an efficient monetary system would not bring much comfort to the less developed countries if their continuing need for a massive transfer of resources were overlooked. . . .

We have in the last week enjoyed seeing how the cheerful hardworking people of Kenya, this exciting and beautiful country, have succeeded by pulling together in full cooperation. We will succeed if we do the same.

Statement by the Governor of the Fund for Egypt—Ahmed Zandou

In the first place, I wish to convey our thanks to His Excellency the President of Kenya, who has honored us by his presence to inaugurate this meeting. Being ourselves a member of the African family of countries, we have a special pride in having this Annual Meeting held in this beautiful African capital. Our thanks are also addressed to the Government and people of Kenya for the warm welcome and for the facilities extended to us. I am also pleased to join other speakers in welcoming Mr. Johannes Witteveen as Managing Director of the Fund, and, on behalf of my delegation, I wish him a very successful term of office. Our thanks are extended to you, Mr. Chairman, to Mr. Witteveen, and to Mr. McNamara for your illuminating and inspiring opening addresses, which have vividly illustrated the overwhelming importance of the issues before the Twenty-Eighth Joint Annual Meetings.

At the outset of our deliberations, we have to place on record that a lot of work has been carried out on the reform of the international monetary system. However, protracted discussions have helped to reveal the divergence of views and unraveled the key issues on which disagreement still persists. It is to be hoped that differences will soon be settled and that the stage of negotiating an effective reform of the international monetary system best suited to a vast changing and growing world economy will not be unduly delayed.

The events of the past year have left no doubt about the urgency of reform and the need to restore an internationally managed system with the Fund at its center. Some experts may be of the opinion that flotation in itself may have gone some way toward meeting the target of reform—at least in the short run. However, we still believe in the wisdom and necessity of a stable exchange rate mechanism with some degree of flexibility imparted to it. This is one of the basic principles which should be observed in working out a reformed system.

A strengthened Fund is also a necessity, and international cooperation between the surplus and the deficit countries is a prerequisite for the smooth functioning of the adjustment process. Moreover, it is of the utmost importance that the special interests of developing countries should be duly acknowledged and placed in their proper perspective as part and parcel of the contemplated reform.

Turning to the adjustment process, proposals for its improvement deserve some comments. It is to be pointed out that the criterion for establishing the need to adjust remains the main issue. Despite the usefulness of a reserve indicator in this connection, we are inclined to believe that the main reliance should not be placed on movements in reserves. The need to adjust ought to be established on the basis of a general assessment, which naturally would take into consideration all relevant factors, such as the movement in reserves, the position and prospects of the basic balance of payments of the country concerned, as well as other factors, including the state of global liquidity. Failure of a country to take action to correct an imbalance, after establishment of the need to adjust, could give rise to the application of graduated pressures to be approved by a committee of Fund Governors.

However, developing countries should be considered as a special case in this connection. With regard to their structural characteristics, stages of economic development, special patterns of imports and exports, and given price and demand inelasticities, developing countries in deficit can hardly be considered on the same footing as industrial countries. In actual fact, if pressure is exerted on deficit developing countries to adjust, this may jeopardize their economic growth without contributing to the correction of imbalances.

Similarly, mineral exporting developing countries in surplus should not be subject to evaluation on the basis of reserves as indicator. Monetary reform should take into consideration their legitimate interests, and should not affect their freedom in drawing up their investment policies or in the management of their reserves.

Owing to the importance of the exchange rate mechanism for the smooth functioning of the adjustment process, the par value system should be maintained. Countries should be allowed to make appropriate and timely changes in par values and, subject to Fund approval, adopt floating rates in particular and well-defined situations and for limited periods.

We come next to the crucial issues of resumption of general convertibility and the consolidation of the excess reserve currency balances. We are in agreement with the view that reserve currency countries should settle their imbalances fully in primary reserve assets in order to prevent further accumulation of foreign holdings of reserve currencies. However, in view of the large outstanding balances of reserve currencies, it may be desirable, at least during a transitional period, to limit settlement in reserve assets by reserve currency countries to the extent that other countries request them to do so. The consolidation of such balances could be affected by means either of bilateral funding through arrangements established between holders and issuers of reserve currencies, or of a centralized mechanism for their conversion into SDRs through a substitution facility to be created in the Fund. Whether one approach or the other is adopted it is evident that the conversion process should be carried out by stages. The point to be stressed, however, is that in devising consolidation schemes, large creditor countries should devote a part of the balances so consolidated to the financing of economic development in developing countries. Placing such funds at their disposal to acquire badly needed inputs of capital goods for development purposes from reserve currency countries would be a multilateral contribution to the consolidation problem.

As far as the role of SDRs in the future monetary system is concerned, it is now agreed that the SDR should become the principal reserve asset as well as the numeraire of the reformed system. This naturally entails the necessity of modifying the present rules governing their issue and use in order to fulfill their new role. Moreover, we subscribe to the view that the SDR should be made attractive enough to hold. For this purpose, preference should be given to the suggestion that the value of the SDR in transactions against currencies should be equal to an average group of currencies, and should carry an average market interest rate, with the possibility of excepting allocation under the link scheme.

Regarding the question of the link between the future allocations of SDRs and the additional flow of financial resources to developing countries, we are strongly of the view that reform of the international monetary system should offer the opportunity to achieve this objective. In our opinion, the interests of developing countries would be best served by direct distribution of a larger proportion of SDR allocations than they would receive on the basis of their shares in Fund quotas. In actual fact, the quota structure should also be revised in order to give developing countries a larger share which would ensure their effective participation in decision making and secure them a more equitable part in the use of Fund resources in view of their relatively greater need for international liquidity. Such use could be further fostered by the provision of balance of payments assistance in the form of extended Fund facilities in larger amounts and for longer periods than existing policies permit.

There is also further need and ample scope to introduce changes in the compensatory financing facility. Apart from the liberalization of the latter facility, as far as the drawing limits and repayment period are concerned, compensatory financing should be extended to cover other aspects which could qualify for similar financing, such as crop failures, exceptional rise in imports, and loss of invisible earnings, thus meeting the demands of developing countries in this respect. . . .

To conclude my statement I wish to emphasize once more the vital importance the developing countries attach to international monetary reform. However, without an increased flow of resources to developing countries, including the establishment of the link, and without taking into consideration issues of special interest to them, the contemplated reform would hardly contribute to the improvement of their economic conditions.

Finally, I wish to extend a word of welcome to the new members who have joined our institutions.

Statement by the Governor of the Bank for Equatorial Guinea—Andrés Nko Ivasa

It is an honor for me to convey my heartfelt thanks to the Government and people of Kenya for the magnificent welcome and cordial hospitality with which they have received us.

I should like now to comment briefly on the subjects of monetary reform and the activities of the World Bank Group. The Annual Reports of both our institutions, while describing the progress achieved in the past year, also point out the grave problems being faced by the developing countries in their struggle to achieve sustained growth.

In these circumstances, we have followed with great interest the course of the negotiations of the Committee of Twenty whose task it has been to draw up an outline of international monetary reform. The announcement after the Washington ministerial meeting in March of this year, in which the Committee of Twenty indicated its approval of promoting a transfer of real resources to developing countries as an integral part of monetary reform, is nothing less than the result of pressures by the underdeveloped countries, in defense of their economies, against the attitude of certain major countries whose intent is to use special drawing rights as an international reserve asset.

Need I say more than that, of the SDR 9.315 billion so far created, SDR 6.178 billion has been received by 14 of the most developed countries and only SDR 2.348 billion has gone to the 88 developing countries whose quotas in the Fund, understandably, are lower than those of the powerful countries.

The efficacy of any agreement in the near future will be determined by two fundamental considerations. First, special drawing rights must contribute to narrowing the gap that separates us from the industrial world by substantially increasing the net volume of official aid to developing countries. Second, modification of the system for the distribution of special drawing rights is essential if there is the will to contribute to the development and industrialization of the poor countries.

The system based on a fixed percentage of the quota that each member has paid to the International Monetary Fund is not the most appropriate one. It might even be described as unjust at a time when the economic growth of the developing countries is a subject of universal concern. Humanity has no more promising task on its agenda. By the same token, it is essential that the quotas used as a basis for the prorating of this new reserve instrument be replaced by other, more equitable ones taking into account the special situation of the developing countries.

Likewise, in these joint Annual Meetings, it is essential that we come promptly to an agreement on international cooperation, so as to adopt the urgently needed monetary reform and thus dissipate uncertainty regarding the monetary system which, in the end, has provided the stimulus for speculative factors.

It is in this spirit that we express our full support for the draft Outline presented by the Committee of Twenty and hope the Committee will press on with its work on aspects of monetary reform—including the establishment of the link and proposals for amending the Fund Agreement—duly taking into account the aspirations and legitimate interests of the less developed nations. . . .

The flow of aid, in general, is still very limited and small in comparison with the mounting wealth of the high-income countries. The more prosperous nations must share this constant increase in their wealth with the developing countries, for this will ultimately be more to their advantage than living as islands of wealth in a sea of poverty.

In conclusion, I should like to express our appreciation to the International Monetary Fund for the technical assistance furnished to my country.

I trust that external aid will, in the immediate future, contribute to a greater extent and more positively to the self-sustained growth of the developing countries.

Statement by the Governor of the Bank for Guyana—Frank E. Hope

Allow me, first of all, to express my sincere appreciation to our host, the Government of Kenya, for the numerous courtesies and kind hospitality we have all experienced from the Government and people of Kenya during our stay in Nairobi.

I would wish also to congratulate the Government and the people of Kenya for their most impressive Conference Centre which must rank among the finest in the world today, for the excellent arrangements made, for the smooth conduct of these meetings, and, above all, for the obvious and remarkable progress that the country has made in the short time of years since independence.

Mr. Chairman, I would also wish to endorse the remark made by my colleague and Governor for Jamaica with respect to the able manner in which you, yourself, have conducted these meetings, and to reiterate our feelings of satisfaction that you, a Governor for a Commonwealth Caribbean country, have been selected for the high office of Chairman.

I also join my fellow Governors in welcoming the Governments of the Bahamas and of Romania as members of the International Monetary Fund and the World Bank.

In making my remarks, I shall confine myself to matters relating to the Fund. I shall also be speaking on behalf of the independent Commonwealth Caribbean countries who are members of the Fund. The countries for whom I have the honor to speak are the Bahamas, Barbados, Guyana (my own country), Jamaica, and Trinidad and Tobago.

As other Governors have already indicated, the most crucial problem which confronts the international community, and particularly the developing countries, is the monetary instability which has been with us in increasingly intense proportions since 1971. This instability in exchange rates has been reflected in the devaluation of the U. S. dollar in February this year, two revaluations of the deutsche mark, and a general float of all currencies since March.

The Governments of the Commonwealth Caribbean countries recognize that the Committee of Twenty has been active in its task of preparing the framework for a reformed international monetary system. At present, the progress anticipated at the outset of the reform has not been achieved. Notwithstanding this, the Committee of Twenty has made progress over a large area of the subject in assimilating views which, when their work started, appeared to be nearly irreconcilable. Even where the Committee has not succeeded in doing this, it has evidently been able to narrow differences of views to a manageable size, identifying their essential characteristics, and clarifying them for decision. The achievements of the Committee help to soothe my disappointment at our failure to put our international monetary house back into good order in spite of the serious disturbances of the past two crisis-ridden years.

However, the events of the past nine months—which saw the floating of all the major currencies of the world and continual pressures on one currency after another—dictate that the Committee ought to now redouble its efforts to produce its recommendations for a reformed system in the shortest possible time. We therefore welcome the announcement that the Committee of Twenty has set a deadline of July 31, 1974 as the date for the submission of its recommendations.

It is, however, still important that we should not lose sight of the fact that as a result of these changes and uncertainties, developing countries are encountering serious difficulties in their efforts to promote the development of their economies. High interest rates, which largely reflect the uncertainties and the instability in the exchange markets, make borrowing for development expensive and often impossible. Faced with the present exchange rate uncertainties, the cost of borrowing becomes difficult to assess because of the risk of having to repay in a currency that may have appreciated since the date of the loan.

Revaluations of the major currencies increase the cost of imports into developing countries, thus aggravating the rapid inflation which these countries continue to import from developed countries. Devaluations of the major currencies reduce the real value of the earnings of exports from developing countries; this reduction in the purchasing power of exports from developing countries is occurring simultaneously with price increases for imports caused by inflationary pressures in the developed countries. The net result is the falling terms of trade which most developing countries experience today.

It seems to me that what has essentially gone wrong with the Bretton Woods system is, first, that it rested too heavily on particular national currencies. Second, the system, though intended to provide stability of exchange rates and flexibility for change when appropriate, turned out, because of the particular behavioral patterns encountered, to be too rigid. Both the deficit and the surplus countries persisted in holding on to their imbalances long after it became evident to all that change in their exchange rates was inevitable. As a result, the speculators were enabled to take over and rock the system to its foundations.

These defects in the working of the system reflect much of what is wrong with it and call for reform, e.g., the improvement of the adjustment process, ways of accommodating disequilibrating capital flows, the need for an international reserve asset to replace national currencies and gold as the principal reserve asset, the re-establishment of convertibility provisions that will apply equally to all, and a reversal of the outflows of real resources from the developing countries to the developed countries, which the holding of international reserves in national currencies entails.

There can be no denial of the fact that if the system is to play its role efficiently in the future, there must be a better working of the adjustment process, both for surplus and deficit countries, and for reserve holders and reserve providers. The experience of the past few years, when the system collapsed, makes it clear that this system of stable but adjustable par values is only viable if adjustments of par values, when necessary, are prompt and effective.

However, we do not subscribe to the view that in order to set in motion the necessary adjustment process we should depend exclusively on any single objective indicator of the need for adjustment. While it is obviously desirable to introduce objectivity into deliberations of this kind, there must always be a careful assessment, not narrowly based on any one indicator, to ensure that all relevant factors are taken into account and get the right weight in reaching a conclusion.

On this question one can take the view that there should be a presumption in favor of the indications of the “objective indicators” subject to overriding by the decision-takers, or the alternative view that the judgment should be based on a more general assessment, in which objective indicators play only a part. In either case, I suspect that in practice, these approaches will not work all that differently. There must clearly be sufficient flexibility of judgment to enable special circumstances to be given their due weight. For instance, account must be taken (as the Committee realized) of the special difficulties which developing countries face in achieving prompt adjustments without seriously damaging their long-term development programs.

The system obviously cannot work if the required behavior on the part of its members is not maintained by adequate discipline. After the past and future performance of a country’s balance of payments is assessed and the Executive Board has recommended any necessary adjustment, there will be need, if the country fails to take adequate adjustment action promptly, for some form of graduated financial pressures similar to those suggested by the Outline of Reform. Such pressures should be applied after approval by a committee of the Board of Governors along the lines of the Committee of Twenty.

Insofar as controls are concerned, we agree that: “There will be a strong presumption against the use of controls on current account transactions for balance of payments purposes” and, further, that: “Wherever possible developing countries will be exempted from controls imposed by other countries, particularly from import controls and controls over outward long-term investment.” We are also of the view that, as far as possible: “The special circumstances of developing countries will be taken into account by the Fund in assessing controls which these countries feel it necessary to apply.”

We have all seen the consequences—exchange rate instability and world inflation—in recent years of the uncontrolled creation of international liquidity arising from the vagaries of the balance of payments of countries whose currencies now provide the greater part of this liquidity. Presumably, we could all agree that the supply of international liquidity in the future must be related to the actual global need. With the SDR as the primary reserve asset, this is feasible. We can also agree that there should certainly be full equality between members in the obligation to settle imbalances by the transfer of reserve assets—and not by their IOUs. But it is not clear to what extent this can be reconciled with the freedom of countries to hold their reserves in whatever form they please. There should certainly be the obligation of convertibility resting equally on all participants. But should reserve holders be free if they wish to hold the obligations of other countries? Certainly not in unlimited amount; but how much is compatible with controlled creation of liquidity?

We feel that the Committee of Twenty should make a detailed study of the whole question of convertibility, the proposed “substitution account,” management of international reserves, and facilities to enable developing countries to have access to the capital markets of developed countries under reasonable conditions.

If the system is not to continue to generate disequilibrating capital flows at the least provocation, and general convertibility is to be facilitated, provisions must be made for consolidation of outstanding reserve currency balances, including bilateral funding, on satisfactory terms at the outset of the reform.

The Committee of Twenty quite rightly recognizes the development aspect of the reform as one of the trio of aspects from which the reformed system would have to be viewed to judge its efficiency in achieving its purposes. Indeed, the SDR itself offers the link with development. It can provide a way for a desirable reversal of the flow of real resources from the developing to the developed countries, which the holding of reserve currencies entails. This must be an integral part of the reformed system. While the total issue of SDRs must obviously be determined solely by the global need for international liquidity, the distribution of SDRs between countries must favor the developing ones. There is no more reason for objecting to this than there is for objecting to the channeling of real resources, through the use of a national banking system, into economic development. If the fear of abuse of a process that is useful to humanity were allowed to prevail in respect of this use of national money, we should still be living in the barter age, eschewing the issue of money for the good of the community for fear of overdoing it.

The facilities available through the Fund to developing countries for accommodating the strains on their balance of payments arising from their efforts to accelerate economic development need to be developed further. The projected detailed examination of proposals for establishing a new facility in the Fund to provide long-term balance of payments finance for developing countries is most heartening.

We wish to place on record our appreciation of Mr. Schweitzer’s great contribution to the development of the Fund’s work during the last ten years. We wish him all success in the future.

Mr. Witteveen comes to the Fund at an important stage of its history, and we are sure that under his guidance the Fund will play a central role in the reformed international monetary system.

Statement by the Governor of the Bank for Ethiopia1Mammo Tadesse

First of all, I wish to join fellow Governors on behalf of my colleague the Governor for the Fund and myself in expressing sincere thanks and appreciation to our host and sister country, the Republic of Kenya. We are particularly grateful to His Excellency President Jomo Kenyatta for his address and inspiring words. As this is the first Annual Meeting of the World Bank and the International Monetary Fund to be held in Africa, this occasion will be of historic importance.

The experience of the recent years has underlined in a new and significant way the close connection between the objectives of our two institutions, that is between the pursuit of orderly arrangements in world monetary matters by the Fund and that of rapid development of the less developed countries by the Bank and its affiliates. We hope therefore that the very fact we are meeting in a developing country will help to ensure that the solutions eventually devised to lessen the current problems of instability and inflation on the world’s monetary fronts will be ones which will also recognize the needs of the developing countries.

During our last Annual Meeting many of us expressed the urgent need for building a viable and acceptable international monetary system that would take into account an equitable system of trade between the developed and developing countries as well as the transfer of real resources to developing countries. I wish to reiterate that these objectives must be an integral part of the reform.

Looking back over the past year, we note that while the economy of developing countries as a whole has grown by about 6 per cent, the share of the least developed has been nil. Furthermore, as noted in the Annual Reports of the two institutions the various currency upheavals have affected adversely the development efforts and the least developed countries have been vulnerable to such disruption.

Similarly the real volume of net flow of resources to developing countries in 1972 has actually fallen both in total and as a share of the gross national product of donor countries. Official development assistance as a share of gross national product also fell, representing less than half of the planned target for the Second Development Decade. The fall equally applies to the total net flow per capita in 1972.

To further compound the problems of developing countries, inflation and adverse effects of the terms of trade together with the disruption in the exchange rates of various currencies have eroded the small gains achieved as a result of the temporary rise in commodity prices. . . .

We would like to take this opportunity to urge all developed member countries and international financial institutions to implement the recommendations of UNCTAD III with respect to the problems of the least developed countries in the fields of trade, financial, and monetary matters.

In the area of private investment in developing countries, it is disheartening to note the shying away of international financial institutions from investment ventures. It therefore seems to us that some existing rigidities in policy must be removed to encourage investment in developing countries if such institutions have to serve their purposes effectively.

In the field of trade, one could say that if the present commodity prices could be maintained, curbing inflation and controlling the disruption of exchange rates, and sustaining at the same time an adequate flow of real resources, the future of developing countries could be improved. This of course implies the removal of all forms of trade barriers. But since the present commodity prices are likely to be short-lived, and as has been demonstrated in the last decades the flow of resources without the harmonization of trade and aid policies cannot achieve the goal of bridging the gap between the developed and developing countries.

Turning to the issues of the monetary reform which are being discussed in detail by the Committee of Twenty, we would like to make the following comments on the main issues.

It is quite clear that recent uncertainties due to monetary crises and floating of currencies have reinforced the urgent need for a monetary reform based on a stable and flexible par value system. While there seems to be a consensus on this principal issue, such a system could only be acceptable to us if it also took into account measures to remove obstacles that restrict trade with and the capital flows to developing countries.

As for the instruments to trigger the adjustment process, we feel that presumptive assessment, which may include the use of indicators wherever applicable, taking into account special circumstances of various countries seems to be reasonable. Countries must however reserve the right to choose the type of measures necessary for adjustment.

On the question of asset settlement and convertibility, it is our view that the existing dollar overhang has to be properly dealt with while steps are also taken at the same time to prevent future buildup of currency balances in the hands of major countries.

With regard to reserve asset, we support the use of the improved SDRs, or whatever name might be given to it, as a primary asset to replace gold and other reserve currencies gradually, as more experience is gained. However, we feel that the developing countries should be given a considerable degree of freedom to manage their reserves in order to accelerate the tempo of their development.

We fully support the transfer of real resources from the developed to developing countries through the link with direct allocation. In this connection priority should be given to the least developed countries, as adopted by the Group of 24.

I wish to state that in order to carry out the objectives of the reform in the light of the common understanding reached, it is imperative that the International Monetary Fund be strengthened to meet effectively the needs of the reformed system and the special interest of developing countries.

Finally, I would like to express the deep appreciation of the Government of Ethiopia for the outstanding efforts and dedication of the President of the World Bank Group, Mr. Robert S. McNamara, and the former Managing Director of the International Monetary Fund, Mr. Pierre-Paul Schweitzer.

May I also use this occasion to congratulate Mr. Hendrikus Johannes Witteveen on his election as the new Managing Director of the International Monetary Fund, and wish him all the best in carrying out the challenging, and, I believe, exciting task that awaits him.

Last, but not least, we would like to thank once again the Government of Kenya, and the Honorable Mr. Kibaki personally, for the excellent arrangements made for this pleasant meeting in Nairobi.

Statement by the Governor of the Fund for the Malagasy Republic—Albert Marie Ramaroson

For the first time, the International Monetary Fund and the World Bank Group are holding their Annual Meetings here, on African soil. We would view this as a symbol. Our sessions certainly crown the efforts on Africa’s behalf that the World Bank has consistently been making for some years now. In accordance with the promise made by its President, the World Bank Group’s lending to African countries was tripled between 1969 and 1973. But for all that, the problems the African continent is facing are far from having been resolved. Is it not symptomatic that most of the 25 countries classed as the poorest among the poor are in Africa? It is not surprising that these countries, poorly prepared to sustain the damage caused by the drought, suffered most from it. Handicapped in their development efforts, the African countries must in addition helplessly suffer the consequences of the world monetary disorder.

Far from being discouraged, however, we have come to Nairobi filled with hope. After several years of vacillation, it seems that the reform of the international monetary system is headed in the right direction now, even though we still have a long way to go. We can only be gratified at the decision of the Committee of Twenty to finish its work before July 31, 1974. . . .

Almost nothing is left of the system established at Bretton Woods. One may regret this, for in spite of everything that system worked to the general satisfaction for some 25 years, and contributed to no small extent to the exceptional development of world trade and the economic recovery of many countries. Now we—developed and developing countries together—must build a monetary system that will last, based on stability without excessive rigidity, able to respond more and better than in the past to the specific and legitimate needs of the least favored countries. After all, those countries were not at Bretton Woods.

The reformed international monetary system will have to provide for greater symmetry. It is to be noted with satisfaction that this now seems to be admitted by all. Symmetry between deficit countries and surplus countries: the burden of adjustment must be shared between them. But symmetry also between the poorest and the richest countries: the discipline imposed by the system should not be invoked and applied more strictly in regard to the former than in regard to the latter.

It should also be understood that in this reformed system the international community will have a say on the need for a country in disequilibrium to take adjustment measures. Such an international mechanism should be neither automatic nor blind, but it should not be arbitrary either. In other words, account will have to be taken of objective indicators within the framework of a reasoned assessment by the international community.

However, the developing countries’ main interest in the new monetary system lies elsewhere. The final goal remains the one laid down in the present Fund Agreement: the international monetary system should encourage the growth of world trade, full employment, and economic development.

To this end it seems to us essential that the new system facilitate and expand the transfer of real resources to developing countries. We could not give our support to a system that does not provide for a link between development financing and the creation of special drawing rights. In our opinion, the most equitable and most effective way of establishing such a link would be a direct allocation to developing countries. In addition, it could be stipulated that the least developed among them would receive relatively more than the others.

We are aware that establishment of the link, necessary though it may be, does not provide a miracle solution to the problems of development. . . .

I could not conclude my statement without associating myself with the thanks addressed to the Government of Kenya for the hospitality shown to us, in the best African tradition, and expressing our satisfaction with the remarkable organization of this conference, which reflects credit on the entire continent.

Statement by the Alternate Governor of the Bank for Nicaragua—Juan José Martínez L.

It is my pleasure to convey at this meeting the message of warm friendship that the National Government Junta of Nicaragua and General Anastasio Somoza Debayle, President of the National Emergency Committee, are sending to the noble people and the Government of this flourishing country.

At the same time, my Government wishes His Excellency Mzee Jomo Kenyatta, President of the Republic of Kenya, good health, so that he may with renewed vigor continue to guide the high destiny of this sister country which nature in its wisdom has liberally endowed with precious gifts.

The Nicaraguan people, only just rising from the ruins of the earthquake of December 23, 1972 which destroyed the capital of Nicaragua and seriously upset the nation’s economy, knowing the terrible distress of losing everything in just a few seconds, facing with determination and a fine fighting spirit the tremendous task of rebuilding its economic system from rubble and desolation, greets the Kenyan people and expresses solidarity with its continued march toward progress on this tremendous, sun-drenched continent of Africa. . . .

Having voiced these heartfelt sentiments, Nicaragua wishes, on the occasion of this new Annual Meeting of Governors of the Bank and the Fund, to express its appreciation to the men who brought about the establishment of these two institutions, those who directed them in the past, those who are guiding them at present, and the team of officials, associates, and employees whose singular contributions have made possible the progress achieved thus far.

The Bank and the Fund have certainly performed a gigantic task. They have reconstructed one continent that has emerged as a colossus, and they have helped the others improve their economies. Both of them, the Bank and the Fund, have thus efficiently and positively accomplished what we might call their first great phase of work since they were created at Bretton Woods in 1945.

Now it has become necessary to overhaul the international monetary system, which occupies a predominant place in the field of current international relations. The Committee of Twenty and its Deputies have made an invaluable effort to lay the foundations for the reform. Though significant progress has been achieved, the Committee must continue to study ways to ensure that the new rules of the game will establish an equitable system which will, while permitting orderly growth of world trade, constitute a harmonious body that will effectively help uphold the rights of the developing countries. Within this context I wish to stress that the adoption of methods permitting a transfer of real resources to developing countries is an essential condition if we are to be able to speak of a fair international monetary system, regardless of the form which such a link may take. Mr. Antônio Delfim Netto and Mr. José López Portillo, Governors for Brazil and Mexico, have expressed on behalf of the Governors for Latin America and the Philippines our countries’ position with respect to this and other aspects of the reform, as well as in regard to the Bank, with which my Government associates itself.

Fellow Governors, we have ventured to take the rostrum today mainly in order to express once again the deep gratitude of my Government and the Nicaraguan people for the timely, valuable, and extraordinary cooperation that we have had and that we are still receiving from the friendly peoples of the world—an undeniable example of human brotherhood—and also to let you know about the assistance we have received, and how we have used it to improve the country’s economic situation since the earthquake.

We consider it our obligation to report on this to all brother peoples who hastened to offer us their fraternal cooperation at the time of greatest distress, and to the financial institutions such as the World Bank and the International Monetary Fund which, as members of the United Nations, responded by carrying out the world organization’s resolutions on the subject. We are also making public the efforts made by the Nicaraguan people and Government with a view to restructuring the country’s economy on sound and stable bases, in accordance with the renewed spirit of determination of the Nicaraguan nation which has confirmed its vocation to rebuild what was destroyed, taking into account the experience it has lived through and the conviction that greater efforts are required to achieve better results.

In this spirit . . . we are here today, in this world forum, to make public our gratitude to the Bank and the Fund for the valuable and timely economic cooperation given us since the earthquake. . . .

The International Monetary Fund approved an emergency loan in the amount of US$12 million to strengthen Nicaragua’s balance of payments. It should be emphasized that even though such financing cannot be regarded as a normal part of the Fund’s operations, it was discussed and promptly approved by the Fund’s Executive Board—a praiseworthy demonstration of international solidarity. In the whole of the Fund’s history only one other country, Yugoslavia, had been favored with a similar loan after a violent earthquake that destroyed the city of Skopje. . . .

To press on with our work at the fastest possible rate, we rely on the cooperation of the international financial community to permit us to continue the tremendous task we face in the years ahead. One billion dollars is a figure that would only help us put the country in the take-off position in which it was at daybreak on December 23, 1972—and we only have US$95 million at our disposal.

If we took into account the sustained growth which Nicaragua’s economy was showing, and the time we shall need to put it back where it was on that date, perhaps the figure we should mention would be more than US$1½ billion.

We would point out also that in order to repay the cost of reconstruction, for every dollar spent on reconstruction we shall need at least two more for production projects. . . .

The Nicaraguan delegation wishes particularly to record its gratitude to Mr. Pierre-Paul Schweitzer for his achievements as Managing Director of the Fund. His two terms of office which ended on August 31 last were outstanding, and his dedication and the qualities he placed at the service of the Fund deserve the highest praise.

We now welcome his successor, Dr. H. Johannes Witteveen of the Netherlands, whose experience as Minister of Finance of his country, as a parliamentarian, professor of economics, adviser to banks and commercial firms, and author of articles and studies on trade and financial matters, attests to his capacity to serve with distinction as Managing Director of the Fund and Chairman of its Executive Board.

Dr. Witteveen comes to office at a difficult time, when there is a virtual world crisis that has come to a head in the multilateral trade negotiations within the General Agreement on Tariffs and Trade and in the reform of the international monetary system. We are quite sure that with the cooperation of member countries he will find the right path toward an improvement of international trade and monetary relations that will facilitate the economic development of our peoples. . . .

Statement by the Governor of the Bank for Sierra Leone—C. A. Kamara-Taylor

We should like, first of all, to express our deepest gratitude for the generosity, warmth, and kindness that has been extended to us by the Government of Kenya under the wise leadership of President Mzee Jomo Kenyatta. We take particular pride in the fact that this is the first time in the history of the Fund and the World Bank Group that the Annual Meetings are being convened in Africa, and we feel gratified that it has afforded many of us an opportunity to see and enjoy the breathtaking and scenic beauty of this great and modern capital city of Kenya.

We are greatly saddened by the knowledge that Mr. Pierre-Paul Schweitzer, until recently Managing Director of the Fund and Chairman of its Executive Board, has retired. His charming and unruffled personality, his sparkling and refreshing brilliance of mind, his unquestioned and unquestionable dedication to the cause of ameliorating the social and economic lot of all mankind—these and other outstanding qualities have always provided an inspiration in circumstances of great despair and frustration in the smooth and efficient operation of the Fund, and especially in the creation of special drawing rights, a facility which has been effective and invaluable in aiding further development in the developing countries. In all, his human qualities, his unwavering concern for the human condition, and his unstinting efforts to better that condition were equaled only by his technical expertise, a blend which enabled him at all times to steer and manage the affairs of the Fund with a competence that invites admiration. In his retirement, we wish him and Mrs. Schweitzer that serenity of mind that is born of the realization that the international community as a whole appreciates his dedication to a most noble, worthy, and dignified cause.

While saying farewell to Mr. Schweitzer, we also extend our warm and sincere welcome to the new Managing Director, Dr. H. Johannes Witteveen. Indeed, Dr. Witteveen is faced with a most formidable task, in that his assumption of the office of Managing Director coincides with a period of turbulence and uncertainty in the operation of the international monetary system. It is heartening, however, that it is also a time when much optimism is being generated about possible solutions of these problems. His performance on the national level convinces us that he will approach his responsibility with equal brilliance and that it will not be too long before we find a lasting solution to the international monetary problems of today. We wish him every success in undertaking this challenging task.

This conference is charged with an urgent and onerous responsibility. Upon its deliberations and decisions depend the future sanity and stability of the world monetary system. It is being convened at a time when the international monetary system is characterized by bewilderment, confusion, monetary convulsions, near chaos, and recurrent crises. Such a situation is palatable neither to the developed nor to the developing countries. It clogs up the values of economic growth in the developed countries, it threatens economic development in the developing countries, and it paves the way for universal economic stagnation. Under such circumstances, what is required for a sane and stable international monetary system is not piecemeal and circumstantial monetary engineering, but a full-blown and well-rounded reassessment and restructuring which, while not resulting in ironclad solutions, will yet provide us with the tools to set the international monetary system right before it approaches the brink of crises such as have regrettably become, of late, an unwelcome norm in the operation of the international monetary system.

Fortunately, after the many and fruitful discussions which have thus far taken place on the question of what has gone wrong and what now needs to be done, the monetary landscape has been illumined enough to enable us to pinpoint the cardinal and major issues of monetary reform, namely, the adjustment process, convertibility, primary reserve assets, and a link between SDRs and development aid. This is in itself no mean achievement, because the ability to locate the source of a problem is as good as the suggestion of the solution. All that now seems to be required is a give-and-take process involving all member countries that would lead to solutions acceptable to all, developed and developing countries alike.

I would like, at this point, to indicate our position on these important issues of monetary reform. First of all, it seems to us that the disadvantages inherent in the now defunct Bretton Woods system have become too obvious. The old rules exerted tremendous pressure on deficit countries to devalue their currencies, without imposing as strong an obligation on surplus countries to revalue their own currencies. This asymmetry could be defended neither in logic nor in practice. There can only be deficit countries when there are surplus ones, and the surplus countries should bear the same responsibilities with respect to exchange rate adjustment as deficit countries.

It is for this reason that my Government supports the recently proposed adjustment mechanism, which suggests that a negative interest rate concept be written into the new international monetary rules in order to deter countries from running chronic balance of payments surpluses.

Another aspect of reform which my delegation considers of great importance is the creation and control of international liquidity. We believe that the International Monetary Fund should have absolute power for the creation and control of liquidity and that safeguards should be written into the new rules which will make it impossible for countries to issue their own currencies in settlement of their deficits. The important role this facility played in bringing about the demise of the Bretton Woods system is too obvious to warrant further comment.

The Fund should be given greater authority for the management of the adjustment mechanism. The decision as to whether or not a change in parity is necessary should not be left to individual countries. We have seen how various countries have deferred the decision to devalue or revalue until the last moment. Such procrastination has benefited only speculators and has imparted an element of confusion to a disturbed international monetary system. It would, therefore, be in the interests of all concerned if agreement can be reached on the adoption of objective indicators, which will signal the need for a parity adjustment. Further, the Fund should be given the necessary authority to initiate discussion for adjustment whenever the requisite indicators suggest the need. This suggestion is no doubt beset with political implications. But we must all remember that national and international interests do not always coincide. Indeed, the clash of national with international interests has contributed considerably to the present instability that plagues the international monetary system. It cannot be too strongly urged, therefore, especially on the more economically powerful amongst us, that we must do our best to subordinate national to international interests if we sincerely want a stable and workable international monetary system.

We consider, furthermore, that SDRs should occupy a key position in the reformed system. They should constitute the numeraire of the system and the major reserve currency. Gold should be gradually phased out of the international monetary system. We believe that international monetary sophistication has reached the stage when it should be able to free itself from the gold fetish. The value of SDRs should, therefore, be defined not in terms of gold but of a basket of currencies widely used in international transactions.

From our standpoint, we maintain that there should be a return to fixed and adjustable parities and that countries should play the rules of the game fairly, by not clinging to an overvalued currency in times of excessive unemployment, sluggish growth, and a balance of payments deficit, nor should they resist revaluation if an undervaluation threatens domestic inflation and throws prosperity elsewhere in jeopardy. It is a perfect truism that the present road to reforming the international monetary system is a long, arduous, and a tortuous one, but I am extremely heartened and hopeful that the first step in the long journey toward reform was recently taken in Washington by the Committee of Twenty, when they arrived at a compromise solution. I am gratefully encouraged by this, because for once the lion and the lamb are lying down together, if only for the common good of all mankind. This is the spirit of international cooperation and compromise that we now urgently need to bring about a revitalized international monetary system.

While my delegation fully endorses the compromise solution arrived at on the issue of the adjustment process I must, however, sound a note of caution that this mechanism will be meaningful only if the imbalances incurred are minimized and national inflations less virulent. Furthermore, the problem of adjustment entails sharing the burden between surplus and deficit countries, and this is where the concept of graduated pressures may become useful.

It is our great hope that whatever structure the reformed monetary system comes to assume, and whatever the principles on which it comes to be based, full and particular cognizance would be taken of the needs and interests of the developing countries. While the Fund and the World Bank have up to now operated in a manner and with an orientation calculated to increasingly take into account the special needs and interests of the developing countries, it is, at the same time, evident that they could do a lot more than they have done so far to accelerate the pace of development in the less developed countries. These two institutions are indeed the most appropriate organizations through which a global struggle can be waged to counteract those tendencies that make for a slow rate of growth and development in the developing world, and, concomitantly, for the ever-widening gap between the rich and the poor, the developed and developing countries. The new system should be designed in such a way that it not only takes into account these tendencies, but also devises ways and means of ensuring that they are effectively brought under control. I might add that the Fund’s and Bank’s role in aiding and speeding development in the less developed countries is not to be conceived as being incompatible with the continuance of bilateral and multilateral trade agreements.

With regard to the Fund’s role in furthering development in the developing countries, it is worth mentioning, as we have done in the past, the strategic role that could be performed by a policy of linking SDRs with development aid and finance. We are, by now, fully convinced that the creation and maintenance of such a link would enable the Fund, together with other international monetary and development organizations, to increase the resources from which the economies of the developing countries would greatly benefit.

I still maintain, as I did last year in Washington, that there should be a second basic allocation of SDRs. Further, I fully endorse the view that with caution and prudence exercised by the Fund, newly created SDRs distributed commensurately with reserve needs of less developed countries will not be inflationary, for they will only go to wipe out existing pockets of underliquidity.

Finally, it is our greatest hope that this conference will achieve its aims and that we shall depart with the knowledge that the monumental problems of the international monetary system have been solved or, at the very least, are going to be solved to the satisfaction of all member countries.

Statement by the Alternate Governor of the Bank for Uganda—Jino Geria

I would like first of all to express on behalf of the Ugandan delegation our sincere gratitude to the staff of the World Bank Group and the International Monetary Fund for their continued efforts in the service of these institutions. My special thanks go to the President of the World Bank Group, Mr. Robert McNamara, under whose leadership the Bank has continued to accommodate the numerous problems of the developing countries. My sincere thanks also go to Mr. Pierre-Paul Schweitzer, the retired Managing Director of the International Monetary Fund, for the services he rendered to the international community during a very difficult time. Mr. Schweitzer carried out his work with diligence and imagination during a period in which the international monetary system underwent, as it continues to undergo, the most difficult tests since the Bretton Woods Conference. I am sure we here are all agreed that the credit for the progress thus far made in the discussions on the reform of the international monetary system goes in a large measure to Mr. Schweitzer and the members of his dedicated staff. Allow me also to offer my congratulations to Mr. Johannes Witteveen on his appointment as the new Managing Director of the International Monetary Fund. I have no doubt that with all the experience and expertise he has he will, with cooperation from all of us, find solutions to our current problems. I also take this opportunity to thank our friends in Kenya for the hospitality extended to my delegation. Nairobi is, of course, not a new place to us. We are, however, proud that this year’s meetings of the Boards of Governors of the Bank and the Fund are being held here and in Africa for the first time. . . .

I would also like to address myself briefly to the subject of international monetary reform. I believe that many distinguished Governors agree that the Committee of Twenty has had some success in their important but difficult task. As a developing country which has to take the brunt of any disequilibrium in the system, we are anxious to see a solution to the problem. We are hopeful that at this meeting something useful to the international community will emerge. As a developing country, we wish to see an urgent reform of the present monetary system, which has failed to ensure economic stability in the world for reasons which are very well known to all of us.

One of the aspects of the monetary reform in which we have especial interest is the form which the exchange rate regime and the adjustment process will take. The Bretton Woods regime of fixed parities had its merits. It promoted confidence but it was based on the assumption that countries would cooperate and carry out the necessary adjustments in exchange rates when the situation demanded. The failure of various countries to make timely adjustments encouraged speculation and repeated crises. We are going through the experience of floating exchange rates. While it may be argued that this regime contributes to stability, its effectiveness depends on some form of international control. But even in the presence of international control, a regime of floating exchange rates has grave repercussions on the economies of developing countries. It is against this background that we as a developing country advocate that the new monetary order should incorporate stable but adjustable exchange rates.

A reformed monetary order must take into account the problems of reserve assets. As a developing country, we have a special interest in this subject since our traditional dependence on reserve centers calls for a serious consideration of the purchasing power of the reserves, especially in the event of a monetary crisis. At the moment, we are faced with a monetary system which has no firm basis of value for our currencies. Since the present system, based on a few reserve currencies which are national, has failed to control the growth of world reserves, I would urge member countries to accept a system based on SDRs, both as the principal asset and the numeraire of the system. This would, of course, mean that the rules governing the creation, holding, and the use of special drawing rights would have to be changed. In the interests of stability, a number of countries would perhaps be required to limit their holdings of other forms of reserves. However, as a developing country which has a greater need for reserves, we would prefer an agreement under which we are exempted from observing the limits on holdings of foreign exchange.

Another element that should form part of the reformed system is some mechanism to control disequilibrating capital flows. We must not forget that this phenomenon has contributed in a large measure to the instability which has characterized the international monetary system over the past few years. This is a problem which only the major countries can solve and I am confident that the countries which are directly responsible will fully cooperate in order to put a stop to this constant source of monetary instability.

I would like to address myself to the question of the link between special drawing rights and development finance. I am aware that there are reservations in some quarters about linking a monetary reserve asset with development finance. I see no fundamental objection to using this instrument as a means of increasing the flow of development aid. However, in addition to the rationale for having the link itself, there is also the question of what form such a link should take. A mechanism which would allocate special drawing rights to developing countries according to Fund quotas as they are at present would not have our support. We prefer a mechanism which would be based on a formula that takes into account the level of development and income levels, so as to ensure that the least developed nations receive relatively more development funds.

Let me say that the Ugandan delegation hopes very sincerely that this meeting will give positive and precise guidelines to the Committee of Twenty, so that it can quickly come up with a framework of a new international monetary order which would provide a compromise to our numerous conflicting, but perhaps soundly based, interests. . . .

Statement by the Governor of the Fund and Bank for Chile—Gen. Eduardo Cano

There is no doubt that this Annual Meeting of the Board of Governors of the International Monetary Fund is of more than ordinary importance, in view of the nature of the subjects under discussion. The monetary crisis that has disrupted trade in recent years has had particularly negative effects on countries which, like Chile, base the bulk of their exports on a very few primary or semifinished products but, on the other hand, have a sophisticated import structure comprising an infinite variety of items with widely differing characteristics and degrees of processing and, above all, shipped from almost all the regions of the world. Our country, like other sister countries in the region, has been compelled to suffer violent and continuous fluctuation in the costs of its imports, sometimes totally disproportionate to those of its exports. The process has also entailed for us a considerable increase in the cost of credit and difficulties in the conversion of our international reserves, especially at a time when, for internal reasons, we have substantially changed our import structure as regards both the composition of imports and their origin. The continuance and growing severity of the international monetary crisis means that in future it will doubtless tend to affect even more, and with increasingly negative results, the development of the Latin American countries and, in general, that of countries in other regions with features similar to our own.

It is for this reason that Chile feels particular concern about cooperating in matters pertaining to the establishment of a new international monetary order which, while providing an adequate and stable framework for world trade, will be an appropriate tool for producing effective aid for the development of the most backward countries. The general position of Chile in these matters is reflected in the statement made, on behalf of Latin America and the Philippines, by the Minister of Finance of Brazil and the Secretary of Finance and Public Credit of Mexico. My country concurs also with the views expressed by the Minister of Economy of the Argentine Republic. Until the international community devises measures that effectively aim at bridging the present gap between the two worlds, it is certain that there will not be peace or stability in our time. Chile has experienced and understands this situation to the full, and will therefore spare no effort in cooperating to overcome it utterly.

The best demonstration we can give of the importance we attach to the subjects under discussion here is our own active presence at this great meeting at a time when, as you all know, our country is going through a very difficult and most gravely important stage. The Chilean armed forces have for a while departed from their truly ancestral tradition of abstinence from political activity to take over the highly laborious task of governing our country, with the intention of deflecting it from the course of rapid economic, political, and social chaos it was pursuing—a situation upon which, to be sure, only Chileans are competent to pass valid judgment. But it is perhaps useful to give some points of reference on the Chilean economy for the international community and the monetary and financial agencies represented here. In truth, our economic state is such that one is constantly surprised to find vast intellectual sectors throughout the world bitterly and publicly lamenting the fact that our Government has put an end to what they euphemistically call the “Chilean experiment.” They do not seem to know that this “experiment,” so interesting and so convenient to analyze from the prosperous cities of so many flourishing countries in our world, imposed such a heavy material and spiritual cost on the Chilean people that they were not prepared to go on paying it, nor was it right that they should.

In the economic sphere, the process of destruction reached a point constituting such a situation of crisis as had never before been experienced in our history. After a period of stagnation, the national product started to diminish at a dizzy rate, and a reduction of 10 per cent has been estimated for this year. In the last 12 months industrial production has decreased by 8 per cent, mining by 28 per cent, and agriculture by 27 per cent, immersing the country in a desperate supply situation and in drastic reductions in the consumption of the public. The reduced availability of goods was aggravated by the proliferation of black markets, illegal speculation, unjustified gains and, in general, progressive moral degeneration. The inflationary phenomenon wreaked havoc among the nation and prices increased by 323 per cent in the last 12 months—a rate never before reached in our country. The distribution of income became increasingly regressive as the result of inflation and the fall in production, afflicting first and foremost the lowest-income groups, particularly wage-earners.

The government debt forecast for 1973 exceeded E° 150 billion, since income was forecast at E° 120 billion and expenditure at E° 270 billion.

Money increased by 314 per cent in the last 12 months. The balance of payments deficit amounted to US$389 million in 1971 and US$598 million in 1972, and an amount of US$400 million is expected for this year. Foreign currency holdings of the Central Bank decreased from US$310 million at the end of 1970 to a scant US$35 million last month.

Everyone is free to draw the lesson they wish and that may be of value to them from our experience, but in all objectivity we are obliged to point out that Chile, a country that was relatively prosperous a few years ago, now displays an economy which is not only stagnating but on the brink of bankruptcy. Our country possesses abundant natural resources and its people are perfectly capable of activating them and are anxious to do so. It is the certainty of this which gives us confidence that the present situation will be rapidly overcome and imparts full credibility to our Government’s announced intention to fulfill to the letter all our international credit commitments. However, this awareness of Chile’s potential must to some extent be set against a clear and full understanding of the present disastrous state of our economy which for the first time in our history has brought all of our people to the brink of starvation. Realization of this economic fact, not to mention the total political and social breakdown and the veritable armed invasion by international extremism, was a determining factor in the formation of our present Government which has put an end to the “experiment” which entertained and delighted so many throughout the world, but whose failure was paid for by the Chilean people alone.

The new Government, which recognizes no other purpose than the well-being and happiness of the Chilean people and no other commitment than the higher national interest, proposes to rapidly set the Chilean economy on the path to stability and order as part of its strategy for accelerated development. Our Government is preparing a package of economic and financial measures designed to stabilize the escudo by curbing the hyperinflation we are currently suffering, regularize our international trade which is presently enormously in deficit, and return to an adequate ratio between prices, salaries, wages, and other forms of income which will stimulate the efficiency of our production. However, together with this financial stabilization plan we are also preparing an all-round development strategy which, starting with the strengthening of our mining industry and the rebuilding of our agriculture, will be progressively extended to industrialization, energy and fuel, the exploitation of marine resources, and the entire range of potentials for efficient production of goods and services present in a country such as ours which is well endowed for the purpose.

The critical position of our country makes it more vital than ever for us to seek international cooperation in achieving our development objectives. The present crisis manifests itself in an acute balance of payments problem and foreign exchange shortage, and in serious supply difficulties regarding foodstuffs, medicines, raw materials, fuels, and parts. The abrupt drop in investment over recent years also makes an accelerated program of equipment replacement and expansion of productive capacity a matter of urgency. We can demonstrate the magnitude of our need and guarantee our people’s resolve to quickly overcome the present difficulties. The greater part of the sacrifice will be made by Chile, which will create the conditions that will form an environment in which external assistance can prove effective.

In the past Chile maintained close relations with both the International Monetary Fund and the World Bank, and now trusts that in both timeliness and amount these institutions will contribute toward the solving of the serious financial and economic problems affecting our country.

I do not wish to lose this opportunity of conveying on behalf of my Government to the Managing Director of the Fund, Mr. Johannes Witteveen, our best wishes for success in his important work, and assuring him of the cooperation of my country. At the same time, we are certain that the International Monetary Fund, under his direction, will continue to show the understanding of our problems which Mr. Schweitzer always displayed, and that the objective analysis of Chile’s problems which the Fund’s staff will make will help us to implement our policies designed to re-establish the financial equilibrium which Chile has so badly lost. From the World Bank, under the dynamic presidency of Mr. McNamara, we hope to receive swift and large-scale assistance for the development of those branches of our economy which will have the quickest and most lasting effect in improving Chile’s balance of payments.

Finally, I should like to express our gratitude to the people of Kenya and their President, Mzee Jomo Kenyatta, for the very kind hospitality they have extended us here in Nairobi.

Statement by the Governor of the Fund and Bank for Romania—Florea Dumitrescu

First of all, please allow me to extend, in the name of the Romanian delegation, cordial thanks to the Government and people of Kenya for the hospitality with which we are welcomed.

We greatly appreciate the fact that this session takes place on the African continent, where so many people who suffered as a consequence of the vicissitudes of history have taken their fate in their own hands and are organizing their life according to their own aspirations.

Taking part for the first time in a session of the Board of Governors of the World Bank and of the International Monetary Fund, specialized agencies of the United Nations, I would like to express thanks to the Governments which voted for Romania to become a member of these organs. At the same time, I express thanks to those who, from this rostrum, have welcomed my country to the World Bank and the International Monetary Fund.

Nowadays, when a new course toward detente and cooperation in order to settle problems of common interest is making its way in international life, I consider that the material and spiritual progress of every people can be better achieved under conditions of close cooperation with other peoples of the world. It is by these means that we can assure the optimum use of material and human resources, a rapid growth of each country’s economic potential, and a course of economic development freely chosen by each people.

In this respect, we appreciate that the Fund and the Bank could make an even greater contribution to the stability and the development of international economic and financial relations. This contribution could be better achieved if these bodies would ensure the conditions for all countries—big, little, or medium-sized, developed or developing—to participate effectively and fully in setting out and adopting decisions of common interest.

Romania’s membership in these two institutions, as well as in GATT and other international bodies, takes place in the general framework of the external policy which my country and the leaders of our state are constantly promoting, aiming at multilateral development of cooperation with all the states of the world, on the basis of the principles of national sovereignty, independence, noninterference in domestic affairs, equality in rights, and mutual advantage. In this respect, the President of the State Council of Romania, Nicolae Ceausescu, has recently mentioned that “activity directed toward the intensification of trade and of international cooperation with all countries, regardless of their social system, is a component part of the foreign policy of Romania intended to bring peoples together in order to establish peace on our planet and ensure the progress and civilization of every people.”

Romania, a socialist country, has been engaged for over a quarter of a century in a vast process of building up modern economic structures and is making a special effort to ensure a fast rate of development of the whole national economy. The society is managed on the basis of the country’s single national economic and social development plan approved by law. The natural resources are the property of the state. All industry and more than 90 per cent of the farmland are property of the state or of the members of large socialist production cooperatives. This made it possible to concentrate material and human resources in the most important directions for economic development and a higher standard of living for the population. The economic and social management is based on a broad political and economic democracy which ensures the participation of all the people in the solution of all problems. From enterprises, which enjoy a broad operational autonomy, up to the Grand National Assembly the collective organs of leadership have the right to take decisions.

During the period 1948–72, the annual industrial growth rate was 14.3 per cent, agricultural production grew 3.3 times, and the national income grew 8.8 times.

However, as a developing country, in which about 44 per cent of the population is still employed in agriculture and the level of production and of work productivity on the main industrial products is far behind that of the developed countries, we have still many things to do in order to reduce and eliminate the existing gap between those countries and ours in respect of the level of economic development. That is why we allocate and will go on allocating yearly, in the future, more than 30 per cent of the national income to economic development, so that all the citizens of the country may enjoy a more abundant life and that human dignity may be affirmed in all fields of activity.

One of the main tasks of the Bank and the Fund is still to increase the technical and financial assistance granted to developing countries. An increase in the funds allocated for development is the more necessary as the developing countries suffer most, as many speakers have rightly stressed, from the financial and monetary instability which is typical of present international relations. The Annual Reports of the Fund and the Bank show that, under the conditions of the present monetary and financial crisis, a number of developing countries scored only a tiny increase in their foreign trade. At the same time, their external debt and its service have increased and their foreign exchange reserves have declined. All this has had a damaging impact on the economic and social position of a large part of the population of these countries, thus increasing the gap between these countries and the developed ones.

Concomitantly, the data published by the Fund and the Bank show that in 1972 the net inflows of official aid and the credits granted to the developing countries remained almost at the same level, which obliged many countries to resort more to private capital, for which higher interest has to be paid.

That is why I consider that, parallel to the increased efforts of each country, it is necessary to find other ways and means to allow the developing countries, irrespective of their social and economic system or their geographical location, faster and more effective access to funds allocated for development financing, to grant them to a greater extent credits on conditions as advantageous as possible. . . .

In connection with the reform of the international monetary system, I would like to associate myself with those speakers who stressed the need for intensifying the efforts to find solutions as adequate as possible so that the disorder and uncertainty in the international monetary market may be ended sooner.

As the contemporary economic realities show that all the countries of the world are interested in finding unanimously acceptable solutions for the major problems of international monetary relations, we consider it necessary that the future international monetary system should be based on the principle of universality. It is our belief that the stability and efficiency of the system are conditioned on achievement of a general understanding taking in the interests of all states participating in the world economic circuit, irrespective of their social and economic system, or their level of economic development.

The deep economic and political changes which have occurred on the international stage have determined much closer interrelations between monetary and financial problems and commercial ones. That is why the effective functioning of the future international monetary system will depend to a great extent on the realization of the necessary premises for the normal development of world trade, by removing the customs barriers, restrictions, and discriminations in its way.

The possibilities outlined in this respect by the recent GATT meeting in Tokyo have to be welcomed with satisfaction. Such a course is essential for the economic growth of each country and especially for the developing countries which have suffered so much as a consequence of the present restrictions and discriminations.

It is also very important that economic, financial, and monetary measures, including the changes of par values and exchange rates intended to achieve balance of payments equilibrium, be taken by each country alone, taking into account its own interests, as well as those of the proper functioning of the international monetary system as a whole.

At the same time, in order to ensure a stable and equitable international system, we consider it necessary that the basis of this system should continue to be agreed principles to be respected by all countries.

In connection with the problem of foreign exchange reserves, we are of the opinion that these have to be based on economic realities, on material values, on criteria and rules, which have to ensure both the global liquidity necessary to the needs of trade and the stability of the purchasing power of the reserve instruments. It is necessary to establish to the best of our ability the conditions of issuing the means of distribution and utilization, and the decision-making system concerning the future reserve instruments.

I express my hope that further efforts required for the accomplishment of the reform will be made in a spirit of cooperation and be crowned with success, thus creating the conditions for the development of the productive resources of all countries as well as the balanced development of world trade.

Please allow me before leaving this rostrum to address to Mr. McNamara on the occasion of his second term and to the new Managing Director of the International Monetary Fund, Mr. Witteveen, the warmest congratulations and best wishes for success.

Statement by the Governor of the Bank for Afghanistan—Fazal Raque Khaliqyar

My delegation and I are very happy to participate in this meeting as the first mission of the young Republic of Afghanistan, which was established recently as a result of the prudent and devoted leadership of Mr. Mohammed Daud, turning a new page in our proud history.

I would like to take this opportunity to thank Mr. Pierre-Paul Schweitzer for his sustained efforts, as the Managing Director of the Fund for the last ten years, at strengthening international monetary cooperation, and to express our great appreciation for his keen interest in alleviating the difficulties of developing countries. I congratulate Mr. Witteveen on his appointment as the new Managing Director of the Fund and wish him every success in directing Fund activities toward fulfilling its objectives. Finally, I thank Mr. McNamara and his colleagues for the efficient management of the Bank. We are grateful to our hosts, the Government and the people of Kenya, for their warm hospitality and excellent arrangements.

In our world, there are various monetary systems, each one reflecting an individual country’s social and economic characteristics. Thus, there are different national monetary systems rather than an international one. In 1945, however, when the Fund and the Bank were established, major steps were taken toward such a coordinated world-wide system. The objectives of these organizations were to extend international financial transactions under common supervision, to promote trade and investment for the benefit of participating countries, and to provide continuous cooperation in the field of monetary and economic development with a view to improving the external payments position of the member countries over the years. Under the Fund organization, as expected, the world’s monetary system performed quite satisfactorily and achieved steady growth in world trade and payments facilities. For the last two years, however, the system has come under heavy pressure, raising many financial problems. The values of major currencies have, of late, fluctuated widely, resulting in instability and confusion in the exchange markets. In spite of the earnest efforts culminating in the Smithsonian Agreement and, later, joint or individual floating, we have not been able to restore order in the world monetary system.

Despite the World Bank’s endeavors to enhance the flow of international capital to developing countries, the general situation does not seem to be satisfactory. The long-term capital flow to the developing countries has declined in recent years and the functioning of the monetary system, at times, slowed down the transfer of resources to the developing countries. The capital flows, including official aid, have only filled the gap between export proceeds, which continued to fluctuate, and requirements of these countries for debt servicing and primarily essential imports. Sufficient resources were not made available for promoting productive investments. Uncertainties in exchange markets and wide fluctuations in prices of primary commodities adversely affected development programs of the developing countries and aggravated the difficulties in the repayment of foreign loans which has high priority in their external payments. It has created further problems in the balance of payments of these countries. As imports of these countries are generally restricted to essential items, a decrease in their foreign exchange receipts particularly reduces their capacity to import capital goods and raw materials which are essential for the execution of even their modest development programs.

The unemployment level in the world, and in the developing countries in particular where it had already been high, has increased further. The national incomes of developing countries continue to fluctuate due to the changes in demand for their goods in developed countries and limited domestic markets for their own products. Under such circumstances, the Fund, on its own and without the active cooperation of all the members, would be unable to reduce unemployment emanating from the lack of demand. If national incomes in aid-giving and aid-receiving countries fluctuate, the Bank would find it extremely difficult to maintain the flow of international capital at a high level. The success of both organizations, therefore, requires that economic and financial policies of the member countries, especially the large countries, be coordinated for the benefit of all member countries. For this, it is desirable that we reach agreement, as early as possible, on a better international monetary system which would promote not only trade and price stability but would also encourage and ensure a large increase in the flow of financial and economic resources to the developing countries.

The proposed monetary reform provides a good starting point for the improvement of economic and financial disorder in the world. This opportunity should be fully utilized for revival of order and continuity in the international monetary system. Peace and security should be maintained for the promotion of trade and investment. The aspirations, and solutions to the problems, of developing countries should be adequately reflected in the proposed reforms. Efforts should be made to increase assistance to these countries in order to minimize their burden of debt servicing and to strengthen their import capacity, and generally to develop the spirit of cooperation among the member countries. Under the new monetary system, the developing countries should be permitted to maintain or change customs tariffs, which are not only an important revenue item for them but also provide protection to their newly established industries. The developing countries should get all the facilities for their exports. The tariff and nontariff restrictions which are used by the developed countries to make the terms of trade favorable to them should be progressively eliminated. The international commodity agreements should cover more items and provide for price stability. The progressively rising flow of capital from the developed countries to the developing ones should be ensured. The new system should strive to minimize the burden of foreign debt through further liberalization of the terms and conditions of aid. The recent crises point out that the surplus countries should reduce their import tariffs, and capital should be allowed to flow freely from these countries to the developing countries. . . .

Before concluding this brief statement, I am glad to say that a Republic has been established in Afghanistan for the first time, under the leadership of Mr. Mohammed Daud, an enlightened, dedicated, and progressive person. We are confident that under our forceful and pragmatic President, basic reforms will be speedily introduced in the economic, social, and cultural areas of our life. I should mention that through the cooperation of friendly countries and international organizations some development projects have been implemented in the past, but so much remains to be achieved. A spoiled bureaucracy, which was the brainchild of the absolute monarchy, was not conducive to development. Today, we are very fortunate that under the Republic, the opportunity for development has come to us as desired. We hope that the friendly countries and international institutions will increase their assistance to our young Republic and encourage us in the implementation of our forthcoming reforms.

Statement by the Governor of the Fund and Bank for the Bahamas—Arthur D. Hanna

It is a great honor for me to represent the Commonwealth of the Bahamas for the first time at the joint Fund/Bank meetings. I wish to offer my warm thanks to you, Mr. Chairman, and to Mr. McNamara and Mr. Witteveen, and the many distinguished Governors for the kind words of welcome extended to us. We feel that it is a good omen that the Bahamas’ entry into the Fund coincides with the beginning of the term of office of the new Managing Director and the first meeting of the Fund and Bank on the continent of Africa.

I wish to pay tribute to Mr. Schweitzer for the able manner in which he conducted the affairs of the Fund and, as Governor from one of the newest members of the Fund, I am particularly grateful to Mr. Schweitzer for the assistance he afforded us even while we were a dependent territory. We regret the loss of the services of Mr. Schweitzer, but we certainly welcome our new Managing Director, Mr. Witteveen, and pledge our full cooperation to him in carrying out the duties that lie before him.

I would also wish to offer our sincere thanks to the Government of Kenya for its excellent facilities and warm hospitality, which have surpassed all our expectations.

Our detailed comments on Fund and Bank matters have already been made by our Caribbean colleagues, the distinguished Governors for Jamaica and Guyana, respectively. Therefore, I will limit myself to a few aspects of my country. It is indeed a great pleasure to be in this environment and see with our own eyes the progress made in this developing country, and we congratulate the President and Government of the Republic of Kenya. This progress has been achieved in part by the aid and assistance of the Fund and Bank. Our country has already experienced the valuable contribution of technical assistance of the Fund. We hope that we may count on a continuation of this form of aid. The Bahamas is one of the smallest countries in the world, as far as population is concerned. Nevertheless, my Government is facing the same problems as other developing countries. These problems are due, in fact, to the one-sidedness of our economy. Dependent as we are almost completely on tourism, we realize that our economy is very vulnerable. Therefore, we will need for a long time the advice and support of the Fund and Bank. It is our opinion that these institutions with their long and valuable experience in developing countries can be of great help to us in our efforts to diversify the Bahamian economy.

On the other hand, the Bahamas intends to play its full role in furthering the ideals of the Bank and the Fund; and it will, insofar as it can, contribute toward the fuller development of those less fortunate peoples of the world.

Although we were disturbed by the unsettled conditions of the world monetary situation over the past few years, we are happy to note the progress of the Committee of Twenty and the possibility of a solution by July of 1974.

The President of Kenya, His Excellency Mzee Jomo Kenyatta, commended to this meeting the motto of Kenya, “Harambee.” We accept this challenge, for our own motto that has guided us is not unlike it: “Forward, Upward, Onward Together.”

Statement by the Governor of the Fund and Bank for the Sudan—El Sheikh Hassan Belail

It gives me great pleasure to express our gratitude to His Excellency the President, the Government, and the people of Kenya for their warm welcome, and the hospitality they have accorded to us in their beautiful capital city, Nairobi. I also wish to thank the President of the Bank and the Managing Director of the Fund and their staffs for their excellent preparation of the Annual Reports. At the same time I would like to seize this opportunity to thank Mr. Pierre-Paul Schweitzer for his dedicated work and to welcome his successor, Dr. Johannes Witteveen.

Promoting exchange stability is a prime objective of the International Monetary Fund. This institution from its very inception relentlessly worked toward the realization of this noble goal. However, recurrent monetary crises, particularly during the last three years, impeded progress in this field. The frequent recurrence of disruptions and crises in the international monetary order have caused both official and unofficial financial and economic circles, all over the world, to look breathlessly forward to any moves toward reform. Many countries, particularly the less developed partners, have lost part of their power of resistance and many others have completely exhausted their shock-absorbing capacities through such ceaseless disruptions. Time will not allow me, however, to go into any details of actual losses arising from higher prices of imports of capital goods, higher burdens of debt servicing, higher cost of borrowing, and marked fluctuations in the prices of some primary commodities. The implication is, therefore, that the existing international monetary system as it stands is unable to stand up to its responsibility of flexibly accommodating and dealing with the multitude of problems facing its membership in the fields of trade, finance, and economics. It is no surprise to anybody that the reform of the system has taken a prominent place in the agenda of this distinguished gathering. I, along with many of those who are present, have great hopes that any proposed reform would work out a formula that takes account of the various, and often conflicting, interests of member countries. I am convinced that the good intentions are always there, but without surveying, studying, and carefully weighing the importance of the different aspects of the world monetary system, member countries’ interests will not be properly safeguarded. To be practical, representatives should set forth their proposals for reform.

In our turn, we would like to highlight what we feel is of great urgency as far as the less developed countries are concerned.

There are fairly strong indications that the special drawing rights facility will assume a growing importance in the intended reform of the international monetary system. It might presumably become the major reserve asset, gaining more importance through time in lieu of the U. S. dollar and gold. Considering the extremely short period since this facility came into being, it has already won the confidence of many official institutions. But the experience of the country which I represent shows that the system should undergo some basic changes to be more effective and balanced.

We do not wish to argue in terms of the size of global allocations and the relevance of that to the needs of global reserves, but in terms of the distribution of the allocations among member countries and the constraints in the use of SDRs. While it was understandable that at the early stages many safeguards were built into the operations involving the use of the new SDR facility, namely, the high ratio of minimum holdings to SDR allocations, now that the system is fairly established the continuing existence of the minimum holdings requirements severely restricts the use of this facility and may ultimately frustrate the objectives for which it was created. The use of SDRs, though classified as unconditional, still is too heavily loaded with restrictions to meet the type of development demands of less developed countries.

It is our sincere wish, therefore, that reform will take account of the special position of the less developed countries, and bring forth more liberalization in the use of the SDR facility.

The allocation of SDRs among member countries on a quota basis seems to us a very unsatisfactory criterion. A rise of allocations which agrees with global liquidity needs may not necessarily agree with the needs of the individual countries constituting the International Monetary Fund.

The link proposed by the less developed countries between the creation of new international liquidity and development needs is intended to increase the rate of transfer of real resources from more advanced, industrialized countries to the less developed countries. That is largely because it has been widely observed that the voluntary flow of official and unofficial aid is too meager to meet the bare minimum requirements of planning and development endeavors. Efforts and policies undertaken by industrialized countries to enhance aid flow to the less developed countries have not been active enough to serve that end. Nor were money markets ready enough to give access for borrowing by the less developed countries, while the international financial institutions have on certain occasions seemed slower in their assistance.

Hence, it is our view that aid flows should be institutionalized in the form of an aid link with SDR allocations.

As far as the less developed countries are concerned, an equitable allocation of aid funds within a scheme of an aid link can properly be based on the widely known principle of equal treatment of equals and unequal treatment of unequals so that a larger proportion should go to the least developed amongst the developing countries.

We are fully convinced that the World Bank as well as the Fund are both competent in handling conditional and unconditional world financial problems, each in its own realm. But we have built up the impression that unconditional allocation of funds (via the Fund) would allow a more responsive and flexible implementation of the scheme of the aid link. We are equally convinced that fears about allocations based on an aid link, along with the normal increase in funds resulting from quota increases, being inflationary are unjustified. This is because prior to such allocations the Fund would always carefully scrutinize the global liquidity needs and inject the amount which would cater for the demand of world productive capacity.

This brings me to a few words on some aspects of adjustment. As we may all know, there are two forms of imbalance involved in the trading and financial transactions amongst countries. However, a general tendency has developed through time for the less developed countries to be identified, though not exclusively, as being in a predominantly deficit situation. This is a symptom of those structural problems already mentioned. A deficit situation is usually undesirable in spite of the fact that both deficits and surpluses reflect degrees of divergence from the ideal path of countries’ economic interrelationships. Again, as we have already pointed out, the less developed countries are net users, as distinct from accumulators, of reserve assets. It appears now that the world is looking forward to a system capable of filling in the gap between the two areas of imbalance or at least narrowing deviations from the center point. Granted that the new mechanism of adjustment is so empowered, the need for supplementing liquidity would be tremendously reduced and the menace of inflation removed. But an automatic adjustment mechanism based on a single objective such as the reserve position may not be the most appropriate means of bringing about the required results. Rather, a more judicious treatment by the Fund of a deficit or a surplus situation, taking into account a wide base of indicators explaining the real underlying cause of imbalance, may prove more suitable. . . .

Statement by the Governor of the Fund for the Syrian Arab Republic—Muhamad Imady

I would like to start my statement by offering my congratulations to Mr. Witteveen on his appointment as Managing Director of the Fund, wishing him success in the years ahead specially in leading the Fund to perform the new tasks to be assigned to it in a reformed international monetary system. To Mr. Schweitzer, who for the last ten years served the Fund splendidly with dedication and vigor, we would like to offer our gratitude and best wishes. We are also appreciative to the Fund and the Bank for their comprehensive Annual Reports.

It is clear that the acceleration of economic development if not accompanied by advanced forms of social justice would not lead to national and international stability and real prosperity. It is heartening to note that the World Bank has been in recent years correctly emphasizing this fact. We also commend the success of this institution in increasing its contribution to the development of the less developed countries.

The Fund’s Report stresses that one of the urgent tasks facing national and international economic policies is the control of inflation, particularly in industrial countries. Such a phenomenon has tended in the long term to adversely affect the terms of trade of the less developed countries and therefore their development prospects. Experience has shown that in industrial countries fiscal and monetary tools cannot adequately succeed in dealing with this phenomenon. In our view incomes policies have to play a bigger role in the overall management of demand. And in order for an incomes policy to be acceptable, it must appear equitable as to its effect on various income groups.

As one would have expected, the Fund Report confirms on balance that the last two years of protracted floating created problems for the less developed countries in the management of their reserves and also in planning their foreign exchange budgets which complicated the overall task of economic planning in these countries. We have always believed that floating is a necessary evil and should only be legalized in particular situations to be defined in the Articles of Agreement of the Fund. We are pleased therefore that the starting point of the current reform negotiations is the maintenance of a stable but adjustable par value regime. Once this starting point has been accepted, agreement on other elements of reform such as rules for adjustment or convertibility becomes necessary.

Negotiations for reforming the international monetary system have been proceeding for a year now. The outcome of such negotiations thus far is before us in the form of a draft of a First Outline of Reform. Before I make my brief comments on the issues raised in the draft I would like to express our sincere gratitude to the Committee of Twenty and its Deputies for the remarkable efforts they made in tackling the arduous task of reform.

As is obvious from the draft Outline, agreement has been reached on certain principles of reform while most of the operational provisions specially in the fields of adjustment and convertibility remain to be settled. We are very disappointed that even agreement in principle has not been reached on the issue of introducing a link between SDR allocation and the provision of additional financial resources to the less developed countries. We have always believed that there is no technical argument against it, and that its introduction will promote the attainment of one of the objectives of reform, namely, the encouragement of world trade and employment and the acceleration of economic development.

Undoubtedly the improvement in the adjustment process among major industrial countries is a fundamental prerequisite for reform. This is accepted, though disagreement still persists on the operational provisions of adjustment and the related issue of pressures. We believe that the need for adjustment should be established by assessment in which reserve indicators would play an important role. On the question of pressures the decision to impose them should be the result of assessment and taken by an appropriate organ of the Fund.

We note in the Outline that in assessing the need of the less developed countries to take adjustment measures: “Account would be taken of [their] special characteristics . . . that make it difficult for them to achieve prompt adjustment without seriously damaging their long-term development programs.” This recognition of the special difficulties the less developed countries face in the adjustment process is to be welcomed. It follows from such recognition, including the fact that structural rigidities make it difficult for these countries to correct their deficits promptly, that there is a need to provide them with a new long-term facility to be established in the Fund. We hope that the detailed examination envisaged on this issue in paragraph 35 will be positive in outcome.

On the question of convertibility, we agree that all countries should finance deficits mainly by reserves and not by increasing their liabilities. This is necessary in order to bring the growth of international reserves under international control and thus to contribute to international monetary stability. In our view the most practical way of ensuring convertibility is to establish in the Fund a substitution facility along the lines proposed by the Italian delegation, and which could be used to combine convertibility of current imbalances as well as consolidation of part of the dollar overhang. Moreover, we also envisage that some consolidation should take the form of funding. Such substitution facility will ensure full asset settlement, and will be compatible with the wishes of many member countries, including mine, to retain maximum freedom over the composition of their reserves. In order for such a tight convertibility system not to break down we support the need to introduce elements of elasticity in it, mainly in the form of an additional supply of liquidity under Fund surveillance and control.

It is a logical outcome of the introduction of convertibility and the consequent maximization of the control by the international community over the growth of international reserves, that the role of SDRs will increase as a component of reserves. This necessitates the improvement of its quality and here we are in agreement with the measures suggested in paragraph 29 of the Outline. As regards interest rates on SDRs we feel that the present rate of charges on its net use should not be increased. And if it is felt necessary to increase the interest rate paid by the Fund to net holders of SDRs in order to enhance its attractiveness, this should not be accompanied by a rise in the rate of charges since this will on balance adversely affect the interests of the less developed countries and intensify their external debt burden which needs effective amelioration. The increase in SDRs resulting from the difference in interest rates and charges could be offset by assessment on member countries according to their quotas or their cumulative allocations of SDRs.

Finally, I would like to say a few words on the question of gold. It would be inferred from what I have already said that we don’t believe that an increase in the official price of gold constitutes a rational method to increase international reserves for well-known reasons not the least important of which is that such a measure is highly inequitable vis-à-vis the less developed countries. There is no doubt that the present disparity between the official price of gold and its market price and the associated uncertainties create problems for the international monetary system and make countries hesitant to borrow gold-guaranteed assets. In order to reduce this disparity we believe that the March 1968 Agreement should be amended to allow official institutions to sell—but not to buy—gold in the free market at market prices, while dealing with one another at the official price. Such a step would reflect the determination of the international community not to increase the official price of gold and would therefore contribute to a reduction in the market price.

I would like to conclude by saying that reform will not be universal in character and therefore contribute as much as possible to world development and peace based on justice, unless efforts are made to bring into its fold all countries of the world.

Finally, I would like to express my deep thanks and admiration to the Kenyan President, the Government, and the people for their welcome and charms and hospitality.

Statement by the Governor of the Fund for Afghanistan—Sarzamin Kaimur

On behalf of the world’s youngest republic, the Republic of Afghanistan, established under the dynamic and progressive leadership of President Mohammad Daud, I am taking this opportunity to express our view on some of the important issues facing our institutions.

Since the Fund’s meeting in Washington a year ago, we have witnessed many disturbing and unsettling developments on the world economic scene. While it was hoped that the second devaluation of the U. S. dollar last February and the accompanying new exchange rate realignment would restore some order and confidence in international markets, we have instead been experiencing increased instability and substantial fluctuations in the value of major exchange rates which, in large measure, have not reflected the underlying economic realities but rather have been the result of speculative and destabilizing movements of funds. It is also being recognized increasingly that the rising rate of world-wide inflation has contributed to the uncertainties and is continuing to pose a serious threat to world monetary stability. The disadvantages of the present situation, not least for the developing countries, underscore the urgent needs to restore an agreed international monetary system at an early date and to take coordinated action to combat inflation in industrialized societies and “stagflation” in developing countries.

With respect to progress in solving the problem of the developing countries, the general picture is very discouraging indeed. The growth in development aid in real terms has been negligible over the past few years and may even have declined recently, and it is evident that we are very far from achieving even the modest targets for aid flows of the Second Development Decade. Moreover, partly because of the decline in official development aid on concessionary terms, the average terms of total aid have hardened in recent years and virtually no progress has been made in the untying of aid. With respect to the trade problems of developing countries, progress has also been very modest. For instance, over the last two decades the world trade share of developing countries has declined tremendously, dropping from approximately 33 per cent to 17 per cent; as a consequence, the terms of trade have worked to the disadvantage of developing countries. Partly as a result of these factors, the external debt burden of developing countries is rising rapidly, and the situation has been further aggravated in many cases by the exchange rate changes over the past two years. In fact, the debt service burden of some developing countries, including the Republic of Afghanistan, is now rising to such proportions that it threatens to act as a decisive brake on our development aspirations unless some relief is given. The debt service of some developing countries will rise from 7 per cent to 22 per cent in 1975, and in the case of the Republic of Afghanistan to 40 per cent of export earnings in 1976. I believe this matter calls for increased and urgent attention by the donor countries, both on bilateral and on multilateral bases.

Thus, despite some isolated bright spots—notably the increased lending of the World Bank Group—the situation has generally deteriorated further in the recent past. Despite the urgent need to eliminate poverty, reduce unemployment, and improve living conditions on a world-wide basis, the gap between the rich and the poor countries has, on the average, widened. The rich get richer and the poor get children. Looking at the overall situation, it is tempting to go beyond the statement in the recent report of the Committee for Development Planning that “the cause of development has lost momentum” and say that the cause of development is lost. The conclusion is inescapable that while the developing countries themselves share the responsibility for improving the situation, their very best efforts will not be sufficient and nothing less than a massive international effort can succeed in reversing the present unfavorable trends.

This makes it abundantly clear that new approaches to development and the transfer of real resources to the developing countries are urgently needed. Fortunately, the work on the new international monetary system provides an excellent opportunity for some such new approaches. In view of the desperate situation of many developing countries, the tremendous magnitude of the task, and the apparently insurmountable problems of substantially increasing development aid in traditional forms, it would be a calamity if this opportunity were lost. While some reservations have been expressed on this matter, I continue to believe that the requirements of an overall reform, providing for the sound working of the international monetary system, can be fully reconciled with the special interests of the developing countries. In fact, only if their interests are taken into account can we hope to achieve a fully integrated world monetary and economic system.

Of foremost importance from our point of view is the question of the link between international liquidity creation and development financing. While we agree that the total allocations of SDRs should be based primarily on global international liquidity requirements, we strongly feel that this principle could be combined with the employment of the new liquidity in development financing. For the purpose of combating the present imbalance between international liquidity and world trade, we strongly urge that future increases in international liquidity should primarily be based on world trade growth and internationally created and regulated assets. With respect to the particular type of link arrangement, we strongly favor the direct allocation to developing countries of a larger share of SDRs than corresponds to their share in Fund quotas, i.e., a “scheme B” type of link. This solution is preferable to the distribution of SDRs to development agencies, as the link should be used as a complement and an addition to aid from these institutions rather than as a new means of financing such aid. Moreover, it would constitute a major step forward in solving the problems of untying aid. This solution of the link arrangement would also be preferable from the point of view of equity among developing countries, particularly as some countries may not have the capacity to prepare a sufficient number of new projects qualifying for assistance from development agencies. From the point of view of equity and fairness, I would also strongly urge that particular attention be given to the least developed countries, in which the Republic of Afghanistan is included, in the distribution of SDRs under the link arrangement, e.g., by giving a heavy weight to any appropriate measurements of the relative level of economic underdevelopment. Finally, I believe that special consideration should be given to developing countries facing special development obstacles beyond their control, e.g., those being in a landlocked position like the Republic of Afghanistan.

Another matter deserving urgent attention is a revision of Fund quotas to increase the relative share of developing countries. This would be very important not only from the point of view of increasing the access of developing countries to Fund resources, but also from the point of view of giving them a larger voice in the decision-making process in the Fund. While I feel that this revision should be guided by the same principles as discussed under the link arrangement, it should be seen as an issue completely separate from and independent of the link.

While the link and the revision of the quota structure of the Fund are, in my opinion, the two most important issues from the point of view of the developing countries, it is to be hoped that their interests will be taken into account also in other respects in the reform work. The adjustment process of developing countries could be helped through the expansion of the Fund’s buffer stock and compensatory financing facilities. Moreover, careful consideration should be given to the proposed extension of Fund facilities to cases of structural balance of payments problems. With respect to the rules governing the adjustment process, some concessions should also be given to the developing countries because of their more vulnerable position.

While focusing so far on the aspects of the reform which I feel are of crucial importance to the developing countries, I have not intended to give the impression that the other major issues in the reform work are unimportant. I would like to invite your attention to some observations on one issue of crucial importance for the successful operation of the new system.

It is by now clear that the adjustment process in the new system will have to be based on increased international cooperation and coordination of policies. We want to see that the new system makes adequate allowance for the special problems and needs of the developing countries and that all countries, regardless of their relative importance, are treated equally not only on the map but also in fact. Giving the developing countries a larger voice in the decision-making process through an increase in their relative share of Fund quotas would go a long way toward ensuring that the rules will not, in fact, be enforced more strictly on the smaller and weaker member countries. I would like to express the hope that the new system would, as far as possible, avoid obligations on the part of the smaller developing countries that would involve undue complexity of operations and that would unduly tax their administrative machinery. I feel that the solution to this problem may be found partly in an improved reporting system and partly in focusing the frequent examinations on particular cases of imbalance which individually, but not collectively, have significant international repercussions.

I have in my remarks emphasized the problems and interests of the developing countries in the present reform work. I have done this because of the very difficult situation of many developing countries and the deep sense of frustration felt by many of us in seeing virtually all avenues blocked in improving the woefully low standards of living of our peoples. The measures I have discussed above will not be sufficient to solve the problems of the developing countries. The urgent needs to increase development assistance in traditional forms, to ease the heavy debt service burdens of many developing countries, to provide increased access to markets for their exports, etc., will remain. However, I feel this is a unique opportunity to take some important steps forward. I hope and trust that the developed world will listen to our voices and will show their willingness to take this opportunity. I also hope that the other difficult problems in the reform of the system that still need to be solved will be worked out in a spirit of cooperation and accommodation by all countries in the months ahead.

Before I conclude my brief statement, I would like to draw your kind attention to events of major importance in our country. Now we have the dynamic and progressive leadership of President Mohammad Daud in our country. Among the various tasks that the Republic of Afghanistan is determined to do is the one to achieve speedier economic growth which would benefit the masses through a planned and well-coordinated effort based on modern technology. The Republic of Afghanistan attaches great importance to industrialization of the country. The new dynamic regime will shoulder much of the burden of heavy industry which will be established to utilize the available physical resources in a more efficient way, while the private enterprises will be encouraged in light and medium industries. The industrialization concept will be based on the following scientific criteria: (a) labor-intensive industrialization; (b) natural-resources-intensive industrialization; (c) export promotion industrialization; (d) import-substitution industrialization; and (e) social justice oriented industrialization.

Mobilization of financial resources will be promoted through a modern banking system by various measures, including deposit insurance. Land reform is one of the major steps in the fundamental reforms the new Republic has undertaken to introduce. Reclamation of land and construction of irrigation facilities are of great importance, too. The communications networks and urbanization process will be developed and expanded so as to link cities and major areas of economic importance. We are conscious that all this requires a great deal of effort on our own, and we are determined to do our part. At the same time, we do hope that every assistance will be forthcoming to us from friendly countries and international institutions.

In concluding, I would like to express our appreciation for the assistance to the Republic of Afghanistan generously continued by the Fund and the Bank during the past year and hope that the peace-loving countries continue their unconditional assistance toward the development of less developed countries, including our young Republic of Afghanistan.

Statement by the Governor of the Fund and Bank for Fiji—C. A. Stinson

I join fellow Governors in thanking the Government of Kenya and its people for the warm hospitality we have received. This week we meet in this modern, impressive Kenyatta Conference Centre which, like a number of other huge structures in this beautiful city of Nairobi, is symbolic of the rapid pace of development achieved by this young nation in recent years. I congratulate and thank our host, the Kenyan Government, for the efficient arrangement and excellent surroundings in which we meet at this year’s joint Annual Meetings of the Bank and Fund.

I also extend a warm welcome to our newest members, the Governments of the Bahamas and Romania, and to their Governors who are here with us this week for the first time.

Warm tributes have been paid by fellow Governors to our recently retired Managing Director of the Fund, Pierre-Paul Schweitzer. I, too, would like to place on record my Government’s appreciation for the services rendered by this outstanding civil servant. He showed outstanding leadership and led the Fund through a very difficult period. His dedication and vision is well known to all of us, and it is an open secret that we owe a great deal to this dedicated man for the birth and development of the SDR as a reserve asset. His understanding and sympathy for the special problems of the Third World endeared him, to many, including numerous people outside the narrow field of international finance.

The Fund is very fortunate in having as its new leader, Dr. Johannes Witteveen. Dr. Witteveen brings with him wide experience in the fields of politics and administration. He is also an outstanding economist of international repute. I join those who have spoken before me in congratulating him on his appointment and wish him well in the difficult task that lies ahead. . . .

It has been emphasized by Mr. McNamara and Governors that the target of official aid flow to developing countries of 0.7 per cent of the gross national product of the industrialized countries is unlikely to be achieved by the end of this development decade. As Ministers of Finance responsible for the economic development of our various countries, I need not remind anyone that if the two billion people of the developing nations, and particularly the 800 million “absolute poor” which Mr. McNamara talked about, are to begin to close the ever-widening income gap between themselves and those in the developed world, the flow of real resources to the Third World should see an upturn during the coming years. Meanwhile, in order to substantially enhance the value of bilateral aid to the recipient developing countries, I make a special plea for further moves toward untying such aid. I invite bilateral aid donors to vet the development plans of developing countries, pick up projects and programs which they could finance and support with expertise for implementation. Such a procedure, I know, will involve the donors in meeting a larger proportion of local costs of projects. But it is, I have no doubt, the only way of avoiding distortion through bilateral aid of the established priorities of social and economic development within the countries of the Third World.

Many previous speakers have touched on the present extremely worrying levels of world inflation. Numerous countries, developed and developing, are for the first time now experiencing rates of inflation in excess of 10 per cent per annum. In this modern day of extreme intercountry economic dependence, no country can any longer claim to be an “island.” Inflation in any country is now automatically transmitted to all countries with which it trades. What is true within a country, namely, that inflation severely erodes the standard of living of the poor while working to the advantage of the economically strong, is unfortunately also true nomic disease.

It is therefore imperative—and I appeal particularly to the industrialized world—that we all move within our various countries toward the immediate introduction and/or strengthening of measures for combating this most devastating social and economic disease.

Unlike the distinguished Governors from Germany and the United States, I believe that the Managing Director of the Fund is right when he suggests that prices and incomes policy could be a powerful weapon which could be employed together with fiscal, monetary, and production policies for combating inflation. It is true that the history of prices and incomes policies in a number of countries has only had limited success, but I would like to suggest that part of the reason lies in the fact that lack of policy support was evident in most of these cases.

I have noticed a tendency to rely heavily on monetary and exchange rate policies against inflation in most industrialized countries during 1973. This trend has made capital extremely expensive and has added immensely to the overseas debt burden of the developing countries. While it is true that countries have sovereignty over the package of policies they may introduce, I hope, in the spirit of joining hand in hand and proceeding together toward one world, which was brilliantly advocated and recommended to this august body by the Governor from Japan, that more and more consideration would be given to the impact of such policies on the economically weak of this world.

I read with interest and some satisfaction the First Outline of Reform presented to us by the Chairman of the Committee of Twenty earlier this week. I join fellow Governors in supporting this broad Outline.

I would, however, wish to underscore the extreme urgency of meeting the deadline for completing a blueprint of reform by the end of July 1974. In this connection, I think the Governor for the United Kingdom is right, and I shall rephrase slightly what he said when he said that, if necessary, members of the Committee of Twenty should be locked in a room and not given access to food until they agree on a system of reform.

The Governor for Kenya has amply described the reform which we are striving for as a means to an end. An international monetary system which works and can stand the changing circumstances of today is the essential oil and grease for ensuring the growth of international trade, development, employment, and the standard of living of all. Without a rapid agreement on reform it is not difficult to predict that the bulk of our collective efforts for world development will be seriously frustrated in the immediate years ahead.

A lot of technical work still has to be undertaken. I am convinced, however, that the bottleneck to reform does not lie in this area. What is needed most at this critical time is political goodwill—the will to compromise on individual narrow interests and the realization that in the international monetary system what is good for all will prove, over time, to be to the interest of each of us.

I wish the Committee of Twenty and the Deputies well in their work and deliberations over the next few months.

Statement by the Governor of the Fund for Malta—Joseph Abela

I should first of all like to join my colleagues in expressing my thanks to the Government and people of Kenya for hosting this meeting and for providing us with such excellent facilities. As for some other participants in this meeting, this is a new part of the world for me in that I have never had the pleasure of being here before. One may, in fact, say that this is indeed a new world where nations are passing through their early tests of fire, often against very heavy odds, and where the problems of development can be seen at first hand. Such problems are many and real. Some cannot be helped. Others surely can. Indeed, some problems are essentially man-made and can and should be solved.

Mr. McNamara, in his most excellent speech on Monday, gave a vivid description of the problems presented by the scourge of absolute poverty and by the inadequate efforts being made to attack these problems by those who are best able to do so, namely, the richer nations.

For his part Mr. Witteveen, whom we have great pleasure in welcoming as the new Managing Director of the International Monetary Fund and who, I feel sure, will be a very worthy successor to his distinguished predecessor, gave us a sharp exposition of the problems created by the current unstable monetary order.

The fact is that as we hold this Annual Meeting of ours, many of us must be filled with a strong feeling of disappointment at the lack of sufficient real progress being made to solve natural and man-made problems.

As my country is as yet only a member of the Fund, I shall limit my comments to the world monetary system.

Progress toward the reform of the international monetary order has been much too slow, in particular taking into account the urgent need for such progress arising from the inherently unstable situation of the last couple of years, a situation which has benefited no one, but which has been potentially most harmful to the developing and smaller nations. All assert agreement on the need to reform, but when it comes to how to do it, it seems at best to be a question of two steps forward and two backwards.

The Committee of Twenty, who together with their Deputies and Advisers must be thanked for the work they are carrying out on our behalf, have now produced an Outline of Reform and have stated their intention to settle the issues of reform by July 31, 1974. While one notes that this statement of intent lacks specifics, perhaps not unintentionally, the setting of a target date will at least act as a spur to firmer action at the political level, and is therefore welcome. Also, while the Outline contains various grey areas, it is, as I see it, an adequate basis for final decisions to be reached.

The discussion in this forum this week can perhaps serve to indicate how some of the grey areas can be given more substance. To try to assist in the achievement of this end, I should like to offer a few specific suggestions while commenting briefly on the Outline.

It is now clear that we require a quicker, smoother, and a much more symmetrical adjustment process than we have had since Bretton Woods. For this purpose, I agree that explicit indicators will be required. I do not feel, however, that the main indicator should be the movement of reserves. Both for the special meetings of the consultative body proposed in the Outline, and for the regular annual consultations of the Fund with member countries, the basic balance of payments position of a country, adjusted for any special factors, would, in my opinion, be a better principal indicator. Earnings from depletable resources—and one may point out that it is not only mineral resources that fall in this category—should be duly allowed for in assessing the basic balance.

I also fully subscribe to the idea that the new monetary system which we must fashion ought to be based on stable but adjustable par values, with international cooperation and consultations at its roots. Floating has proved too hazardous an experience, though admittedly it could be a useful temporary expedient for individual countries in certain circumstances.

On the issue of convertibility, I feel that reserve assets settlement must become a central feature of the new order and that, moreover, the primary reserve asset and numeraire of the system should be the SDR, suitably modified. As for the valuation of the new SDR, while recognizing that it should not be so strong as to make holders reluctant to part with it for settlement purposes, I tend to hold that the new asset should be slightly stronger than is being suggested by the United Kingdom. While I see the attractions of a representative average valuation, I feel that the stronger currencies should be given a somewhat higher weighting to ensure that the value of the SDR is not pulled down by the weaker elements which go into the basket of currencies on which it would be based.

Two other outstanding issues are the amount of SDRs to be created annually and the distribution of this amount, in particular whether it should be linked to aid. I am of the opinion that these two issues could be tackled simultaneously and that the Committee of Twenty in their further deliberations might consider the following suggestion.

While the allocation of the new SDRs should be determined on the basis of global monetary requirements, their distribution should not be made on the basis of Fund quotas as in 1970–72. Rather, the distribution should be made largely in relation to the inverse per capita gross national product of each Fund member, perhaps through an index which could also be weighted by the proportional distribution of existing quotas.

I do not propose to go into the technical details of this suggestion. I can say that its effect, if applied, would be to reduce the share of SDRs which would go to the industrialized countries if the quota yardstick were used, and to increase that going to the poorer nations.

This fundamental change in the distribution of new global liquidity will, in my view, do away with the problem of the form that the aid link should take. At the same time, since modified SDRs would be going largely to those countries who are most likely to spend them, world economic activity would be stimulated and the industrial countries, who may be expected to supply the bulk of the development purchases of the poorer nations, would also benefit.

To ensure that SDRs are in fact used to lubricate the international economy, I further suggest that, following the first allocation of the new asset, countries who have not utilized their full share should have the unspent balance deducted from the next allocation and placed in a special fund as a noninterest-bearing deposit which the owner countries could draw upon once their expenditure accelerates. This special fund would be used to make short-term credit available to deficit countries on soft terms for current payments.

In this manner the new SDR could serve to meet world liquidity requirements as well as development needs.

I also suggest that to facilitate the growth of SDRs as a store of value and to reduce the possibility of a resurgence of reserve currency centers, the Fund should offer a means whereby countries who hold “surplus” SDRs earned in trade transactions (within the provisions of the new adjustment process) could hold these assets in the Fund and earn interest on them at a rate related to that currently payable on other short-term assets and to the valuation of the SDR, while Fund members should be able to draw SDRs from this pool up to their Fund quota to offset temporary and reversible payments outflows which cannot be financed through the special fund I proposed earlier. This improved credit line would be available at a commercial rate of interest.

Finally, I would refer to the problem of the overhang of dollar and sterling balances. This problem must also be tackled if overall reform is to be really meaningful and effective.

In this context, and in line with the belief that SDRs should become the primary, perhaps eventually the sole, reserve asset of the system, I favor the voluntary substitution of such balances into SDRs, whereby the liabilities of the traditional reserve currency countries would be transferred to the Fund.

However, to compensate somewhat for the fall in the real purchasing power of the dollar and sterling, I would also suggest that holders of such balances who are not members of the industrial countries group (as defined by the Fund) and who choose to convert their balances through the substitution facility, should be given a preferential rate of conversion, say, the basic rate plus 10 per cent.

In conclusion, let us hope that by this time next year we shall be able not only to record real progress toward international monetary reform, but also to herald the early implementation of such reform.

Statement by the Governor of the Fund for Nepal—Kul Sekhar Sharma

I associate myself with my fellow Governors in expressing my sincere thanks for the warm hospitality and unfailing courtesy that the people and the Government of Kenya have extended to us in this beautiful city of Nairobi. I would also like to welcome the new members, Romania and the Bahamas, in our fraternity. Before I begin my remarks, I would like to record my appreciation of the sincerity and dedication with which Mr. Pierre-Paul Schweitzer steered the course of the Fund for a decade and of the unrelenting efforts he made toward ushering in a new era in the international monetary system. I also extend a cordial welcome to Mr. Witteveen who has inherited a difficult task at a difficult time, but who is eminently qualified to fulfill it.

We are meeting at a most crucial time in the history of the international monetary system. We are now passing through a period of transition, when the old monetary order has broken down under the strain of events which it was not possible to foresee 30 years ago, but when the new order capable of meeting the objectives of achieving a sound world economy has not yet been devised. The result is a set of complex and sometimes confusing arrangements adopted by different countries in defense and furtherance of their own economic interests—a phenomenon which, however, is quite natural under the circumstances. As is now clear, these arrangements which lack “firm foundation in an internationally agreed set of rules or code of conduct,” have not always been consistent with the avowed goals of international cooperation and the general economic well-being of the nations of the world. A reconstruction of the monetary system is now clearly overdue. In this connection, my delegation commends the Committee of Twenty for their perseverance in the search for a new monetary framework capable of satisfying the present needs of economic stability as well as the aspirations of the developing countries. It is heartening to note from the report of the Chairman of the Committee, Mr. Ali Wardhana, that the general shape of the reformed system has now been defined and that significant progress has been achieved on some of the important issues. Many other important issues, however, still remain to be solved. It is, nevertheless, gratifying that the Committee has set a deadline of July 1974, by which time it intends to settle all the issues of reform. There is every reason to believe that this deadline can be met if there is political will to do so. It is my fervent hope that it will be possible for the nations to subordinate their short-term national interests to that of the larger goals of a sound and stable international economic order and arrive at a solution which accommodates the interests of all member countries.

It is the developing countries who are the worse sufferers from the present-day monetary disorder and the spreading inflation which is now gaining epidemic proportions. As observed in the Annual Report, recent “fluctuations of exchange rates for major currencies . . . affect developing countries in ways generally unrelated to their own adjustment needs.” Inflation, which has been one of the major causes of monetary instability, has also been its effect—the one reinforcing the other. It has now been accepted that the rise in prices has benefited the developed countries more than the developing ones. Although some of the developing countries have recently experienced an increase in their export earnings, there has been a corresponding increase in import expenditures also, thus largely offsetting the advantages of increased export earnings, which can at best be only a temporary phenomenon. The mounting efforts of the developed countries to contain inflation are certain to result in a slackening of demand in these countries, causing a shrinkage in the exports of the developing countries, and making it still harder for them to make imports which are essential for their economic development. Add to this the increasing burden of debt servicing and it will not be difficult to imagine the grave situation that the developing countries may have to face in the near future. It is therefore imperative that there should be a greater flow of resources to the developing countries—much greater than is recognized, if the goal of “one world” professed by so many of the developed countries is to be even partially realized. I would strongly urge that in the new reformed system there should be a provision for the adequate flow of resources to the developing nations on the basis of their needs. In this connection, I would also like to draw your attention to the fact that while the gap between the developed and the developing countries is assuming gigantic proportions, the gap among the developing nations themselves is increasing steadily. This trend, if not corrected now, will further aggravate the situation and will lead to still greater disparities in our world. Steps should therefore be taken without delay to ensure the greater flow of resources to the least developed among the developing countries.

In this connection I would like to draw your attention to the observation in the Fund Annual Report that there is a reserve ease at present. The Fund has based its calculation on the total reserves held by the member countries and the reserve need for world trade and payments. The Report seems to have missed the significance of the reserve distribution—excess reserves being concentrated in the hands of only a few countries. If the reserve needs of the developing countries are to be given due consideration because of the need for a more equitable distribution of resources, a change in the method of allocating SDRs and their actual allocation for a second basic period has become already overdue. This in no way should affect its acceptability. The Fund quota allocated also seems to be anachronistic, as the present-day distribution neither reflects the true economic position of member countries nor is it based on principles of equity. It has become necessary that more weight should be given to the developing countries for further allocations of the quota. The minimum number of votes to which a member is entitled also needs revision.

On the issue of adjustment, my delegation believes that while assessing the reserves of the developing countries, their long-term needs should be considered as distinguished from the short-term reserve accumulations or deficits.

The Fund should be the agency under the surveillance of which all monetary reforms should be implemented. As such, the role of the Fund in enforcing monetary equilibrium and stability should be further strengthened. In order to do this, all the countries should be prepared to subordinate a small portion of their monetary sovereignty to the larger goals of international monetary stability and cooperation. To assist the Fund in the fulfillment of this new responsibility, there should be a permanent committee of well-chosen and well-recognized experts from both the developed and the developing countries.

I would also like to quote here the observation made by the Managing Director, Mr. Witteveen, in his opening statement that the richer countries as a group “have so far fallen short of their expressed intention to liberalize their trading arrangements and to increase the flow of development capital.” I hope that this fact will be kept in mind by the Committee of Twenty when they formulate their proposals of reform. Adequate monetary arrangements for promoting trade, however, will not be effective unless accompanied by other arrangements ensuring the free flow of trade among nations, including the full and unrestricted access of the land-locked countries to sea.

My delegation appreciates the steps being taken by the Fund to expand the compensatory financing and buffer stock financing facilities and strongly urges that the Fund should continue to take a liberal attitude in this regard. I would also like to express my appreciation for the technical and other assistance extended to us by the Fund and I hope that this cooperation will be further strengthened in future.

Statement by the Governor of the Fund for Western Samoa—F. P. S. Saili

We meet at a time when currency fluctuations and rampant international inflation are affecting all countries of the world but the effects of these two forces are particularly serious for smaller developing countries. The need for monetary reform is indeed urgent as is the need for some method to be evolved whereby the serious effects of imported inflation can be in some way mitigated. Fluctuating exchange rates and imported inflation are seriously affecting the development efforts of many countries at a time when world concern is being increasingly focused on the plight of the poorer nations.

With regard to monetary reform, Western Samoa considers that any “package” finally agreed on should provide for (a) stable but adjustable exchange rates; (b) some control over increases in official reserves; (c) a strong and valuable SDR which would take its place as a first-grade international reserve asset; and (d) some method of link between SDRs and development finance, perhaps by allowing the World Bank and regional finance institutions to allocate “development” SDRs in a manner compatible with international liquidity.

The need for urgency in resolving these problems must be stressed. While inaction in this matter takes place the developing world suffers and invaluable time is lost. In this regard I welcome the latest report of the Committee of Twenty which was tabled on September 24, in which the Committee noted that they intend to endeavor to settle the issues of monetary reform by July 31, 1974. Western Samoa is convinced that with international goodwill reflected in international cooperation, a bold new monetary system should evolve that is better able to meet the present needs of our world.

A desperate situation is presently being created for developing countries by inflation imported from industrial countries. Such imported inflation, of course, often develops into a serious “cost push” internal inflationary situation which is of particular concern to the smaller developing countries who rely heavily on imports and for whom international trade constitutes a large proportion of their gross national product.

The terms of trade have over the past several years turned seriously against many developing countries which is quite clearly an intolerable situation and one which must cause concern to developed and developing countries alike. The International Monetary Fund can surely play a role in mitigating the effects of imported inflation and should give the study of this question a very high priority over the next two years. An answer to this problem may involve ensuring that the developing countries agree as a highest priority to exercise some control over their internal policies in order to reduce their own internal inflation.

I suggest that the International Monetary Fund should also examine itself, its relevance and methods in relation to the present dynamic international monetary situation. Such an internal analysis should study whether the present organization is flexible enough to cope with the present rapidly changing international situation—whether the organization is sufficiently cost conscious and whether it should be giving increased emphasis to certain areas of its work. In this respect, I was most gratified to hear the remarks of the new distinguished Managing Director, Mr. Witteveen, and it would seem that the relevance of the International Monetary Fund to the current situation will be kept closely in mind under his able direction.

I am somewhat concerned with the method in which Annual Meetings have come to be conducted and perhaps some changes here might be worthy of consideration for the future. Certainly all delegates are vitally concerned to listen to the statements from the Managing Director of the International Monetary Fund and the President of the World Bank Group but perhaps there need only be a further 10–12 read statements from Governors of other countries, and this should take only the first two mornings. All other Governors wishing to do so could “table” their statements. On each of the final three mornings of the Annual Governors’ Meeting a matter of current international monetary concern could well be discussed. Perhaps the discussion could be started off by brief comments (which support a previously circulated paper) by a world authority in the field. All Governors could be invited to comment on this paper and generally discuss it, comments from any one Governor being restricted to a maximum time limit. All afternoons would be left free for smaller meetings to take place. Finally, future meetings could perhaps place some limitation on the size of delegations and the number of special guests attending.

These thoughts are put forward as a suggestion for your consideration in an endeavor to ensure that this Annual Governors’ Meeting, which is surely one of the most important international meetings in the world, continues to remain as fruitful and profitable as possible for all attending.

In conclusion, I would express my deep appreciation of the fine facilities provided for this meeting by the Government of Kenya and the generous hospitality that has been accorded to all delegates.

September 27, 1973.

Delivered by Bernard Banza-Bouiti, Governor of the Bank for the People’s Republic of the Congo, on behalf of Mr. Okabe.

Joint statement on behalf of the Governor of the Bank for Ethiopia, Mammo Tadesse, and the Governor of the Fund for Ethiopia, Menasse Lemma.

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