Discussion of Fund Policy at Closing Joint Session1

International Monetary Fund. Secretary's Department
Published Date:
October 1973
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Statement by the Governor of the Bank for Tanzania—W. K. Chagula

Let me begin by extending a warm welcome to our new members, the Bahamas and Romania, and to the new Managing Director of the Fund. Let me also congratulate our neighbor and partner in the East African Community, Kenya, for the warmth and efficiency with which they are hosting this year’s Annual Meetings.

Since we met last, the international economic scene has been characterized by instability and inflation. As the Chairman, the President of the World Bank, and the Managing Director of the Fund have already underlined, these conditions have proved especially damaging to small and poor economies such as that of Tanzania. If the present efforts of industrial economies to limit their internal inflation merely limit growth and slow the rise of industrial prices, the costs to us will be even greater. The fall in the prices of our commodity exports evident over the past few weeks will become a rout and—as in 1970–71—we will be importing inflation while suffering from falling commodity export prices.

The recurrent shocks which have bedeviled foreign exchange markets, and therefore foreign trade, external reserves and debt service costs, and internal prices over 1970–73, underline the absolute necessity that the Committee of Twenty meet its new deadline for presenting an agreed structure for a reformed international monetary system. In this connection, I cannot pretend not to feel alarm at the slow progress to date and not to feel that the real problem is that certain major industrial economies lack the political will to agree to the changes and compromises urgently necessary, if we are to avoid a repetition of the international economic turmoil of 40 years ago.

The four main elements essential to any lasting monetary reform are easily identified and command the support of a large majority of the international economic community.

First, the modified SDR must be made the central reserve unit and the source of controlled additions to international liquidity, and reserve currencies and gold should play steadily declining roles. The SDR has already proven its acceptability—indeed it is hard to see how it could possibly fail to be more acceptable than using an inconvertible currency as our basic international reserve asset as has been the case for over two years.

Second, convertibility of major currencies must be subject to effective international surveillance through the International Monetary Fund. Means must be created to identify economies whose persistent deficits or surpluses endanger international economic stability and to require them to take effective and prompt corrective action.

Third, SDRs must be issued regularly in amounts sufficient to meet genuine needs for additional international liquidity and be allocated in such a way as to provide a significant transfer of real resources to the poor countries. The absence of such a link would perpetuate the instability caused by the present paradox that serious development efforts normally lead to serious balance of payments deficits. We are disturbed at the surprising argument that credit creation should not be used to transfer real resources internationally. Since on the national level the use of credit creation for real resource transfer is one of the major roles of central banks, we do not understand how it can be inappropriate internationally. We reassert the general agreement reached by Commonwealth Finance Ministers in Dar es Salaam and by the African Governors at these meetings that the technical arguments against the link have been effectively refuted. What remains now is for the Committee of Twenty and its Deputies to agree on the form and mechanisms for its implementation.

However, monetary reform alone will never meet the developing economies’ foreign exchange needs. For that, we must have fair access to industrial economy markets, not only for our primary products but also for processed and manufactured goods made from them. Unless and until that is achieved, we shall remain by and large limited markets with poor payment records while industrial economy consumers will continue to shoulder heavy burdens resulting from subsidization of inefficient production at home.

I am happy to note Mr. McNamara’s continued attention to the need for such trade reform and its endorsement in the Tokyo GATT ministerial communiqué. However, what is needed are deeds and not words. Both during and since the Kennedy Round at GATT, relative discrimination against developing economy exports was raised and many new nontariff barriers created. The present world food crisis stems in no small part from the discouragement of expansion of production in poor countries resulting from the agricultural policies of industrial economies blocking off markets in favor of their own inefficient producers. Artificially low prices and nontariff barriers have discouraged the growth of our food production and now, with rising demand and natural disasters, rich and poor alike reap the whirlwind of rising food prices caused by agricultural protectionism of industrial economies. . . .

The qualitative and quantitative advances by the Bank are all the more welcome when we look at the much less reassuring picture in respect of bilateral aid. While some countries, notably the Nordic countries, Canada, the Netherlands, and the Federal Republic of Germany, have forged ahead in program levels and scope, the general position is one of stagnation. Absolute transfer levels, the attainment of the 0.7 per cent concessional transfer target, the support for regional development banks, the general untying of aid, and the partial untying of aid to allow third country procurement in other developing countries have all been identified as areas in which advances are urgently needed.

This program for action is one which has been endorsed by the Organization for Economic Cooperation and Development as much as by the developing countries. Yet, overall there is little progress. I can only underline the need for action: the absolute cost to the rich countries, as demonstrated by the figures cited by President McNamara, will be very low compared to their own growing national incomes and will, in any event, largely return to them through the resultant increase in world trade.

Finally, there is one matter which I would like to comment on, and that is the conspicuous absence from this body of the People’s Republic of China. We in Tanzania have noted with satisfaction the increasing diplomatic, trade, and economic contacts between both the big and economically stronger countries and the small developing countries who are members of the Bank and Fund with the People’s Republic of China. The People’s Republic of China has also emerged as one of the big aid donors contributing toward the development of a number of countries in Asia, Europe, Africa, and Latin America, on terms which are comparable and sometimes better than IDA. Because of these developments, Tanzania would like to urge that steps be taken by both the Bank and the Fund to implement the UN Resolution which was adopted two years ago calling on all UN member states and on its affiliate bodies to restore to the People’s Republic of China the sole representation of the Chinese people in these international bodies.

It is in our global as well as our individual national self-interests that the gap between the rich and the poor both on a worldwide basis and individual countries should be narrowed. Additional resources devoted to that end are not merely well spent but well invested.

Statement by the Governor of the Bank for Tunisia—Mansour Moalla

The meetings at Nairobi of the Bank and the Fund cannot fail to be of particular significance. The fact that they are being held for the first time in an African capital is illustration of the emergence of the continent and the importance that the international community accords to problems of the development of the Third World. Before going on to discuss some aspects of these problems, I have pleasure in expressing the great satisfaction of my delegation at visiting one of our most beautiful African capitals and our gratitude and thanks to the Government and people of Kenya for the welcome we have found here, which is worthy of the great tradition of African hospitality.

The discussions and studies in progress on the reform of the international monetary system and Mr. McNamara’s new and courageous ideas on development policies give us the opportunity, without repeating facts already widely known, of contributing to the examination of these problems as regards some specific aspects.

The present organization of our working methods being what it is—and I shall say more on this subject later on—I will restrict myself to a few general observations concerning the monetary reform, its relationship to underdevelopment, and the present stage of the world dialogue on the vital problem of the development of the Third World.

We all unanimously admit and deplore the fact that, despite the progress accomplished in recent years, which is substantial, the world community and international cooperation have not yet found appropriate solutions for the problems of underdevelopment.

The progress made, which is real, is not commensurate with the scale of these problems. This holds true as much for trade as it does for primary products or development aid. Unless there is real industrialization of the underdeveloped countries, “generalized” preferences will for the most part remain theoretical.

To achieve real industrialization, there must be on-the-spot processing of the developing countries’ natural resources, and in our opinion this processing is the only real solution for stabilization and regularization of prices of primary products. All other attempts at a solution have been almost fruitless and will continue to be so.

The quantitative and qualitative inadequacy of development aid is so well known that no further reference is needed. From this very platform, the President of the Bank has voiced his indignation at this state of affairs.

Today, we are confronted by the problem of the reform of the international monetary system. Will this reform suffer the same fate? Will it bypass the problems of underdevelopment and neglect the needs of the Third World? Is the universal community to find its hopes dashed again on this point also?

The work carried out so far on this question, in the Committee of Twenty and elsewhere, gives us the impression that there is a real danger of this. I do not feel that the work in progress has really succeeded in taking into consideration the fundamentals of the underdevelopment phenomenon so as to find appropriate solutions. In fact, the present structure of the international monetary system, dating from the postwar period, was essentially designed to meet the needs of the industrial world, and must be thoroughly overhauled to take into account the needs of the Third World.

Without going into detail—which is materially impossible from this platform—I should like to focus my remarks on two general themes.

The present system organizes a redistribution of liquidity without taking development needs into account. As far as the Third World is concerned, it observes static parameters hampering the advancement of the developing countries. The liquidity needs of Third World countries must be evaluated, taking into account their potential and their prospective needs, as brought out by their medium-term and long-term development plans. In particular, they must be evaluated in such a way as to make it possible for investment programs to be rapidly implemented in the domain of the economic and social infrastructure of Third World countries, a domain in which they are immensely backward. And this implementation should not be too closely subordinated to fluctuations in their foreign exchange receipts, especially those derived from exports of raw materials, until this problem, in time, can be truly solved by the introduction of local processing and exploitation, i.e., by industrialization.

This expansion of liquidity to correspond to the Third World countries’ potentialities and long-term plans—and it will, of course, be necessary to study ways and means of effecting such an expansion and revise the actual structure of the present international monetary system accordingly—should also allow countries of the Third World to devise and put into practice a monetary and credit policy better adapted to their needs.

If monetary and credit policies in most Third World countries are still very timid, and contribute little or not enough toward harnessing those countries’ natural and human resources, it is because, in addition to want of experience and of organization, there is the reflex of fear at the prospect of insufficient or unstable foreign resources in exchange. This is why the problem known as the “local currency problem” has arisen in their relationships with the aid organizations, in particular at the present time. On-the-spot financing in “local currency” could in fact be effected on a wider scale and in a manner better suited to development if the volume of external liquidity placed at the Third World countries’ disposal by the new international monetary system could be tailored to their development plans and assured of a certain regularity.

The second idea that I would like to discuss is that the reform of the monetary system should lead to a reinforcement of the resources of the development finance agencies carrying out operations for the benefit of the Third World (IBRD, IDA, and regional development banks). The technical procedures for this reinforcement may vary, but the vital thing is that it could help to raise the level of international aid to reach the targets of the Second Development Decade. The development finance institutions should use these supplementary resources for two purposes.

In the first place, they should progressively contribute toward improving and regularizing the developing countries’ external resources so as better to shield their development efforts and the necessary continuity of these from external fluctuations. So, these supplementary resources should be channeled into projects likely to assure such improvement and such regularization of the developing countries’ external resources. The projects in question should be concerned first and foremost with the exploitation and on-the-spot processing of raw materials, thus reducing the acuity of the eternal problem of primary products and fluctuations in their prices. Second, the projects should put to good use other natural and human resources by which the countries’ external resources can be reinforced, either in the sphere of manufactured products—where the impact of “generalized” preferences will be rather more substantial—or in other sectors that generate foreign exchange resources, tourism, for example.

Second, the use of such supplementary resources should contribute to improving the organization of economic and social development in Third World countries.

It must be mentioned that very often Third World countries would have a more sympathetic hearing if the international community and the countries supplying aid had a firmer conviction that the will to develop really existed, that the country concerned was organized accordingly, and, in particular, that this will to develop sprang not from a minority, but from the vast majority of the nation. However, it cannot be denied that, here and there, the existence of a feudal system that seeks to monopolize the development effort or to perpetuate regressive social structures is for public opinion generally, and in the minds of the persons called upon to contribute to the financing of Third World aid, cause for reluctance and for a reduction of international aid.

It is then quite clear that it is the responsible, well-organized countries of the Third World, the ones that make an effort on their own initiative to modernize society and make it more progressive and that work out their development plans accordingly, which will undoubtedly be the most favored recipients of international assistance.

In any event, international aid cannot be indifferent to this aspect of the matter and must serve, directly or indirectly, to promote in Third World countries that willingness to plan social progress and to modernize society.

Likewise, the Third World countries, while having many grievances as to the inadequacy of international cooperation in the campaign against underdevelopment, must recognize that they themselves have not done everything they could do to solve the problem in the way of cooperation between developing countries. The “balkanization” of many Third World regions may sometimes in the past have been the doing of the old colonial nations, but can no longer constitute an excuse for the Third World countries to delay making real progress in regional cooperation.

There are tremendous obstacles to such cooperation. Each in his own country must make an all-out effort, to be sure, but at the same time, clearly, the present physical and economic size of many Third World countries is also a considerable handicap to the economic advancement of those regions. It is vital, therefore, that this second category of reserves be used to help progress in regional cooperation between developing countries and to set up less fragmentary economic units that can make international cooperation for development more effective.

Therefore, in certain aspects, the reform of the monetary system could contribute to solving the problems of underdevelopment: the work that remains for us to do to arrive at a reform of the present system should get to the root of things and enable us to find some real solutions. It would be a great pity if all the effort expended on arriving at this reform were to lead to nothing but misguided and illusory solutions. This reform, which we hope will see the light of day, has been carried out under the pressure of events and under the sway of necessity and urgency.

Is not aid for development as urgently needed? Even if we have to resign ourselves to seeing the gap growing wider between the rich and the poor countries, is not the struggle against absolute poverty—so dramatically described by Mr. McNamara himself—as urgent and necessary as the reform of the monetary system? So why cannot we prick the conscience of the world and spur it into action on as wide a scale as the problem itself? Why should not the Bank take the initiative for such action? . . .

Let us set up here, in the Bank, where a little more than elsewhere possibly we are accustomed to concrete and rational language, a real dialogue on this great problem and let us jointly examine a common cause on which our common future depends. A prior reform of our working methods will be essential if we are to be able to set up this dialogue.

From the concrete point of view, two sets of reasons have hitherto made this impossible. First of all, the fact that monetary questions—because they are always burningly topical and of particular concern to the industrial countries—have dominated the debates and relegated questions of development to the background. The governments of the industrial countries are generally very short with these matters, and those of the Third World countries talk to almost empty halls. In the second place, the manner in which our meetings are organized is hardly conducive to a real confrontation of ideas. A set of speeches, one after another, has never been an exchange of views. It is a long monologue, and in general people come here to frequent the lobbies.

Could we not return to an organization of a routine and traditional nature? I would like to make two suggestions in this connection: first, that the Bank hold separate annual meetings at least two years out of three; then we should have the Governors, especially those from the developed countries, coming to a meeting especially devoted to development. Government representatives could also attend these meetings—persons such as those who, in their own countries, are entrusted with the handling of development problems and are hardly ever seen here since they work neither for central banks nor for finance ministries. . . .

The foregoing are the various ideas that I wanted to put before you frankly and without elaboration, in the hope that they can make a positive contribution to our joint action. Thank you for allowing me to do so.

Statement by the Governor of the Bank for Algeria—Ismail Mahroug

This meeting of our institutions that is being held in Africa, thanks to the generous hospitality of the Government of Kenya, which has been appreciated by all of us, is well supplied with subjects for discussion concerning the future of the international financial institutions, whether it be the Fund and the international monetary order that will come, I trust, from the work of the Committee of Twenty, or the World Bank Group whose President, Mr. McNamara, is courageously and determinedly keeping the problems of development and social justice before the world in the interest of the international community. The same courage and determination characterized the work of the former Managing Director of the Fund, Mr. Pierre-Paul Schweitzer, and I am convinced that his successor, Mr. Witteveen, will show himself to be a great leader of the Fund thanks to ability and qualities we recognize in him.

A large number of distinguished Governors have voiced their concern about reform of the international monetary system and the problems of development.

I shall content myself, for my part, to recall here that those subjects and others directly concerning the Third World received special attention from the heads of state and governments of 80 countries during the fourth summit meeting of nonaligned countries held in Algiers barely ten weeks ago.

In order not to prolong the discussion unduly, may I be allowed to report to you just the conclusions of that summit meeting which relate directly to the international financial institutions and which figure in the economic action program adopted by the Algiers Conference. I quote:

  • (1) The developing countries should participate fully and on an equal footing in the devising and establishment of an equitable and lasting international monetary system.

  • (2) The new international monetary system should take account of the interests of the international community as a whole, and derive from a new agreement which takes into account the major upheavals which have occurred since the Bretton Woods agreements.

  • The principle of preferential treatment in favor of the developing countries should be applied in the new monetary provisions.

  • (3) The new monetary system should ensure the effective participation of the developing countries in the decision-making process through the adoption of a quota voting system. It should ensure stable but flexible exchange rates in order to create the framework necessary for growth of the developing countries’ trade.

    Liquidity must be created in an appropriate and methodical way in order to meet the global requirements of trade through the supplementary allocation of special drawing rights.

So much for the principles to govern the international monetary system, regarding which I will summarize the essential concern of our countries by quoting a paragraph from the Economic Declaration of the Algiers Conference:

  • The new international monetary system, in the creation and functioning of which the developing countries must participate on a basis of equality, must be universal, guarantee the stability of the flows and terms of financing for international trade and recognize the specific circumstances and needs of the developing countries by according them preferential treatment.

I would take the liberty of stressing the universal character to be given our financial institutions so that they may be truly world-encompassing, de facto and de jure, and serve the common good of all peoples whatever their level of development or economic and social system.

In this connection, my Government welcomes and supports the initiative of the People’s Republic of China in officially requesting the Fund and the World Bank Group to conform, in their respective spheres, to the letter and the spirit of the Resolution of the Twenty-Sixth General Assembly of the United Nations regarding the representation of China in international bodies. I am convinced that the competent Fund and Bank authorities will give prompt satisfaction to the legitimate request of the People’s Republic of China.

I revert to the recommendations of the fourth summit meeting of nonaligned countries regarding international financial relations, and will now quote those relating to development financing:

  • (1) The international financial institutions should effectively play their role as development financing banks without any discrimination on political grounds between countries. Moreover, the resources freed by disarmament should prove a considerable source of funds for the advancement of the developing countries.

  • (2) The developed countries will have to accept a program setting a deadline for the implementation of aims concerning the net flow of financial resources to the developing countries. The share of public aid in the net transfer of financial resources to the developing countries should be increased.

  • (3) Appropriate international action should be taken to neutralize the unfavorable consequences on the present and future development of the developing countries of the burden represented by external indebtedness contracted on very onerous terms. The World Bank should, insofar as is possible, play an effective role in the settlement of the problems posed by external indebtedness within the context of a policy of general measures taking into account the economic position of the debtor countries and the origin of the external debt.

  • (4) Appropriate measures should be taken to ease the heavy burden represented by the servicing of the external debt, including the rescheduling method.

  • (5) The international financing institutions should increasingly orient their lending policy in such a way as to meet the new needs of the developing countries.

  • (6) The regional and subregional development banks will have to be provided with resources on a much greater scale so as to be able to strengthen their operations and institute closer cooperation between them.

I dare to hope that these recommendations addressed to the international financial institutions, hence to this gathering, will receive all the attention they merit since they come from 80 governments, and that they will inspire from now on the work of our Committee of Governors charged with reform of the international financial system and also the general policy for day-to-day action of the World Bank and its affiliates.

Statement by the Governor of the Fund for China—Kuo-Hwa Yu

I would like, first of all, to join my fellow Governors in expressing our sincerest appreciation, on behalf of my delegation, to our host country for its warm hospitality and cordial cooperation. It is indeed our privilege to hold this Annual Meeting in this lovely and picturesque city.

I wish also to express our sense of gratitude to the former Managing Director, Mr. Pierre-Paul Schweitzer, for the dedicated service he has rendered during a decade of great change in international monetary affairs. As his successor, the Fund is indeed fortunate in having selected Dr. H. J. Witteveen, whose unique background of high professional attainment and distinguished public service is widely admired. In the performance of his highly complicated and difficult task, we wish him every success and also assure him of our support.

It has been a very unusual year since we met last September. To express it mildly, all the world has been unhappy about the monetary developments since then. We have witnessed a high rate of inflation all over the world. We have also witnessed many currency crises, including another realignment of major currencies in Februarys-March this year, with consequences keenly felt by all countries. To those like us, who hold responsible positions in the international monetary field, it is a painful experience to find the essential features of the Bretton Woods system gradually disintegrating, while the formation of a new framework has been frustratingly slow.

In this connection, I am delighted to commend the groundwork that has been conscientiously done by the Committee on Reform of the International Monetary System and Related Issues, or the Committee of Twenty, being assisted in its work by the Deputies. At the last meeting of the Committee of Twenty held just before this Annual Meeting, an Outline of Reform has been formulated. It is now submitted to us for deliberation.

During the past year, the Committee of Twenty has diligently solicited the views of all countries, developed and developing, and tried to seek a workable consensus. Conceivably, as a result of compromise, the final outcome would be completely satisfactory to none, but with the potentiality of being acceptable by all. Considering the urgency of the situation, my delegation fervently hopes that we should devote our time and energy to achieving maximum agreement among ourselves, so that a program of reform based upon the recommendation of the Committee of Twenty will take shape in the near future.

In insisting upon the primacy and centrality of monetary reform as the theme of our meeting here, however, I wish also to invite the attention of my fellow Governors to some related issues on which the world is looking to this meeting for guidance.

Needless to say, any new system must provide prompt and effective payments adjustment among individual member countries and adequate international monetary reserves and liquidity. It is, therefore, essential that in the new structure the International Monetary Fund be given sufficient power to cope with problems that it is confronted with from time to time. We believe there is now general agreement that new rules and regulations to be adopted will have to provide for prompt adjustment which would apply to both surplus and deficit countries. While an indicator for the need of adjustment may be set up to permit automatic action, we are inclined to subscribe to the idea that special consideration be given to the specific conditions of individual members, if such is warranted. It would seem to be desirable to work out a formula whereby such special consideration be made into a part of the indicator for the particular country concerned. Automatic adjustment could then be carried out promptly.

My delegation endorses the suggestion that SDRs should be given a wider and more important role in the international monetary system, with the ultimate goal of becoming the principal reserve asset. But both the concept and function of SDRs are in need of further development before they can truly be considered as the numeraire and as the main reserve asset of the new monetary system.

Another issue is the vulnerable position of developing countries in facing frequent currency realignments. Not only are they exposed to increased risk associated with the uncertainties imposed upon their own currencies, but also they have to tackle new problems of adaptation in various fields, such as trade, reserve assets, external debt, government budgeting, economic planning, to mention but a few. All these can be legitimately regarded as additional burdens for many developing countries in their endeavor to increase their rate of economic development. I believe that, although as a group they constitute a majority of Fund members, they have not been contributors to the current exchange crises but are helplessly suffering all the adverse effects. It would be to the advantage of all developing countries that our efforts in adopting a reformed system be expedited.

The Republic of China, as a developing country, is vitally interested in the successful institution of such a reformed system, especially when we are being confronted with a new challenge to continue our satisfactory performance in an environment characterized by excessively rapid increase in money supply.

After two decades of steady growth, we have had another good year in 1972 with a growth of 11 per cent in gross national product in real terms. During the first half of 1973, we have achieved an 11.6 per cent increase compared with the corresponding period of last year. In the field of trade, both exports and imports advanced in 1972, aggregating US$5.5 billion, or 41.1 per cent over and above the total of the previous year. In the first half of this year, total volume of trade added up to US$3.4 billion, indicating an increase of 39 per cent in comparison with the first six months of 1972. However, we are much concerned about price rises. In 1972, we managed to keep such rises to less than 5 per cent, but they have become alarmingly steep so far this year. By the end of June consumer prices rose by 7.4 per cent and wholesale prices by 17 per cent over those of June 1972. Although this is a problem shared by all nations, we feel it is threatening our orderly development and we are trying our best to slow down the trend.

In concluding my statement, I would once again emphasize that, due to the increasing interdependence of national economies, a stable international monetary structure becomes a prerequisite to global progress and prosperity. To fulfill this purpose, it is imperative for the Fund to enlist the wholehearted cooperation from all member nations, since there is simply no other alternative. It is my sincere hope that such cooperation will be forthcoming so that the current Annual Meeting will be remembered in the years ahead as one of the most fruitful in the history of the Fund.

Statement by the Governor of the Bank for Morocco—Bensalem Guessous

By providing the opportunity for monetary authorities of the member countries to meet one another and exchange views on the major economic, financial, and monetary problems of the day, the Annual Meetings of the World Bank and the International Monetary Fund are always an event of prime importance.

This year they have been even more eagerly awaited on account of the new developments that have taken place during the past year on the monetary front. So, by way of preamble, the Moroccan delegation most warmly expresses the hope that this plenary meeting will not disappoint the expectations we have of it and that our discussions will enable us to make progress in our search for the best solutions to the problems facing the world community. . . .

Monetary problems

Now, if you will allow me, I should like to speak on the subject of the more specifically monetary matters. Two years ago, speaking to this same assembly, the chairman of the Moroccan delegation expressed our concern on this subject and mentioned the problems which he, together with all the African countries, thought it vital to resolve.

Monetary developments in the past year have only confirmed the fears to which we were prey. International monetary equilibrium, temporarily restored in December 1971 and maintained with great difficulty throughout 1972, has experienced new and grave vicissitudes from the first quarter of this year.

These new eruptions of monetary crisis would occasion in February, as you know, a new devaluation of the U. S. dollar—the second in 14 months—and in March a revaluation of the deutsche mark and the implementation of a system of floating exchange rates between the main European currencies, a decision that in fact was tantamount to hallowing the abandonment of the former rules established at Bretton Woods and still in force.

For all this, we do not seem to have returned to lasting stability, as witness the new revaluation of the German currency that took place last June, and the more recent revaluation of the guilder. Anyway, we should have been surprised if things had turned out otherwise, for we are convinced, despite our profoundly liberal options, that a regime of complete liberty in the realm of exchange rates only leads to giving free rein to speculative movements of capital.

When these are predominant, the determination of exchange rates is no longer governed by an objective evaluation of the situation of the economies under survey, their real competitiveness, or the true value of the currencies concerned.

And unless we are careful, there would then be a great risk of the world’s economy paying in terms of growth, and consequently of employment, for the machinations of speculators.

So, as the Executive Directors’ Report shows, these various events and the decisions they have caused member countries to make in the area of exchange rates have surely profoundly modified the economic context in which the developing countries are evolving. On the one hand, the wide fluctuations in the exchange rates for the currencies of their main suppliers and customers have introduced a great deal of uncertainty into their commercial relationships. Furthermore, their exchange reserves and their international financial commitments have been impaired to a considerable extent.

The developing countries are therefore particularly justified in praying for the rapid introduction of a new monetary system that will allow them best to continue building up their economies by assuring them a relative stability in exchange rates and an improvement in their international liquidity. In this connection I should like to state once more how very important it is that this nascent reform should be the occasion of increasing a transfer of real resources to the least prosperous countries. And it is eminently desirable that this will be manifested particularly in a future allocation of special drawing rights on the basis of a distribution grid favoring the developing countries to a substantially greater extent than the industrial countries.

Unfortunately, despite the diligent labors of the Committee of Twenty, and their Deputies in particular, work on the formulation of a new international monetary system is still progressing only gradually.

This, of course, is not to underestimate the work we have to do, bearing in mind the complexity and the many implications of the monetary problems. However, and in conclusion, I hope I may be allowed to express the hope that, if each of us displays the necessary spirit of conciliation, our discussions will enable us to hasten the advent of a new monetary order that will guarantee both economic progress in the world and more justice among nations.

September 28, 1973.

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