Opening Address by the Chairman of the Boards of Governors, the Governor of the Fund and the Bank for Ireland1

International Monetary Fund. Secretary's Department
Published Date:
October 1977
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George Colley

Ireland is honored to take this chair at the Thirty-Second Annual Meetings of the World Bank and the International Monetary Fund.

As nations, we are joined through these institutions in a common effort to better the human condition by providing opportunity where there is need.

As Governors, we have come together in Washington to discuss the policies the Bank and the Fund are following, and must follow, to achieve this goal. Both institutions have been consistent in providing firm leadership. Each has shown the flexibility needed to meet changing circumstances with fresh approaches and new instruments.

The strength of our support—our financial support and our commitment to international cooperation—will determine their success in reaching the goals we have set for them.

It is in this spirit, then, that I welcome my fellow Governors and their Alternates, our Observers and Special Guests. I welcome also the newest members of our international community, Guinea-Bissau and Seychelles. I extend our greetings to the Observers from Surinam, whose membership the Governors have already approved, from Cape Verde, whose application is pending, and from São Tomé and Principe and Maldives, whose memberships are on our agenda. Governors will also be interested to know that the Solomon Islands has applied for membership.

Human needs are more than economic; the added dimensions of freedom, self-determination, and opportunity have long been recognized in this country, which is once again our host. They have been eloquently expressed by President Carter on a number of occasions and we look forward to the honor of hearing him address our joint session this afternoon.

My own country, Ireland, knows well the difficulties of the poorer countries. It has gladly accepted the responsibilities that go with self-determination. We know from experience that discipline is a necessary foundation for economic advancement. But we also know that economic advance is not the totality of man’s prosperity. Our own circumstances have bred in us a deep respect for the rich and diverse cultures of other lands, regardless of their economic condition.

For more than three decades the World Bank has been the prime channel for multilateral resource transfers for development. In that period it has built its own reputation; it has won the trust of donor and recipient members alike with a record of financial integrity and operational pragmatism. It has, thus, been able to focus increasingly on raising the productivity of the rural and urban poor, while retaining the complete confidence of the financial community.

Last year, for example, IDA channeled almost 90 per cent of its commitments to the poorer developing nations. The number of Bank projects attracting cofinancing also continued to increase, a trend which we hope will accelerate.

This trust in the Bank and its management has recently—and rightly—been demonstrated by Mr. Robert McNamara’s unanimous appointment to an unprecedented third five-year term as its President. On behalf of the Bank’s Governors, I congratulate Mr. McNamara—and the World Bank—on this excellent decision.

The Bank’s success is, without doubt, an expression of its members’ common political will. This success has rested on political decisions—by developed countries to commit themselves to the financing required for development; by developing countries to commit themselves to the discipline required for their development. The Bank, on the other hand, has always pursued—in accordance with its Articles—the policy of basing its lending on economic, rather than political, considerations. It has become a major source of the analysis of developing country needs. It has been among the first to recognize—and act on—the fact that simple additions to national product are not the whole of development. What once seemed a relatively simple task of transferring resources has been vastly complicated by the need to define the particular groups whose advancement will raise the opportunity level of whole societies, then devise effective means of reaching them. In city and countryside, the Bank has demonstrated that it has this ability to discover the roots of poverty and attack them with determination, care, and imagination.

Yet resource transfers remain the necessary foundation for the development effort. One of our goals at this Annual Meeting must be to affirm our nations’ commitment to respond adequately to the needs of our members. The agreed $7.6 billion replenishment of the International Development Association’s resources is a first, important step in this direction. But consideration must now be given to the longer-term capital needs of the Bank itself.

Here, I would remind my fellow Governors of the remarkable leverage for development created by our subscriptions to the Bank’s capital. The relatively small amount of capital actually transferred in our subscriptions is multiplied more than twentyfold through the Bank’s own capital market efforts and the local and cofinancing resources mobilized in connection with its projects.

The World Bank’s catalytic action extends to the private sector, as well as the public, notably through the International Finance Corporation (IFC), an institution now on the threshold of becoming a much more important development force.

IFC’s pending capital increase gives members the opportunity to provide it with the resources needed to pass this threshold. The task it has set for itself of extending its operations into the smallest and least developed of our member countries is most welcome.

The Corporation is consciously entering a field which involves new risks. The potential rewards of providing opportunities to mobilize the entrepreneurial spirit far outweigh this risk, however, and the Corporation deserves our full support.

The World Bank has chosen to move forward, to evolve, in a bold attempt to get close to the needs of ultimate beneficiaries in paddy fields, on mountain plains, in urban slums.

Change often implies risk, a concept not traditionally popular with many. The alternative, however, is acceptance of the status quo; our very presence here demonstrates a shared conviction that the status quo is not good enough.

Under the careful leadership of Mr. McNamara and the Executive Directors, we can be assured that the World Bank’s boldness will always be tempered by caution and prudence, that the competence which has been demonstrated over three decades will continue. Our support for these institutions must also be continued.

Prospects for development, however, are vitally linked to a prosperous and expanding world economy. It is encouraging, therefore, to note from the latest Annual Report of the Fund that there are grounds for cautious optimism. Economic and financial conditions in many parts of the world have clearly improved in the past year or two, and this improvement is continuing, albeit slowly. The recovery has, however, been marred by the persistence of high levels of unemployment. The value of a recovery whose benefits are scarcely felt by many of those who have suffered most from the recession is, of course, limited. At the same time, rates of inflation remain very high by historical standards.

Faced with this situation, policymakers are attempting to pursue a difficult course of promoting expansion without aggravating existing inflationary pressures and with emphasis on medium-term policies. Policymakers will need to give special attention to the possibilities of supplementing overall demand management policies through specific measures to reduce unemployment, particularly among the young whose ideals and hopes can be crushed by failure to find any work. And it is to be stressed also that prospects for improvement of the world economy depend crucially on the success of the larger economies in pursuing expansionary policies consistent with the basic objective of reducing inflation.

Understandably, widespread unemployment, together with persistent and severe imbalance in international payments, has produced insistent calls from sectional interests for the adoption of protectionist measures. In general, governments have resisted the temptation to resort to short-sighted—and, in the longer run, self-defeating—measures. But, while large numbers of our active men and women are out of work, calls for protectionism are unlikely to abate. For many countries, including Ireland, economic growth depends largely on maintaining exports at high levels. Indeed, for many newly established manufacturing industries in developing countries, the widespread growth of trade barriers could be a disaster and a cruel dashing of their hopes for industrial advancement.

For many countries, weakness on external account has been a complicating factor, bringing restrictive demand management policies, or inhibiting the adoption of policies of expansion. The problem of persistent external deficits of many countries—the counterpart of the large surpluses of a few—will be with us for some years. During the interim, substantial balance of payments financing will be required. For this the private financial markets have continued, by and large, to work satisfactorily, providing an efficient conduit for channeling funds from countries in balance of payments surplus to those in deficit. Yet, as I look ahead, I feel that the Fund must continue to play a key role.

The Fund’s role, however, is not only to finance deficits; it has a central part to play in promoting the international adjustment process, both from the point of view of individual members and from that of the world economy as a whole. At the Annual Meetings last year, held in Manila, the Fund’s Managing Director reminded us that the time had come to lay more stress on adjustment of external positions. In the past year, the Fund has approved a record amount of financing under standby arrangements in support of stabilization arrangements.

The demands made on the Fund’s resources in recent years have been extensive. In the past three fiscal years, members’ drawings from the Fund have totaled SDR 16.6 billion, which represents almost a four-fold increase on the drawings in the previous three years. Even after unprecedented levels of borrowing from OPEC and industrial countries, this has caused a sharp reduction in the Fund’s liquidity. Last year the volume of usable currencies held by the Fund declined by about one third, despite numerous additions to the list of usable currencies and the replenishment of its currency holdings by means of gold sales.

Implementation of the Sixth General Review of Quotas will provide only temporary relief. If all members consent to the quota increases proposed for them, total quotas in the Fund will rise by almost SDR 10 billion, to SDR 39 billion. At this level, however, the “size” of the Fund in comparison with the total trade of its members will be less than one half its size a decade ago. Fortunately, the Seventh General Review of Quotas has begun and is to be completed early in 1978.

Even if the seventh general review is completed in good time, however, the increase in quotas will not be implemented for some time to come because of the legislative and other procedures required to make the new quotas effective. Some Fund members, however, are expected over the coming period to experience payments imbalances that are large in relation to their quotas. It was in the light of these considerations that the Managing Director proposed, and the Interim Committee at its meeting last April approved, the concept of a supplementary financing facility.

Thanks largely to the vigorous efforts of Mr. Witteveen and to a heartening response from those countries in a position to lend to the Fund—OPEC and industrial countries alike—the Executive Directors were able to take a decision last month to bring the new facility into existence. On completion of the ratification procedures required by some of the lenders, the new facility will start with well over SDR 8 billion in borrowed resources.

The development of this new financing facility comes after four years of intense activity and adaptation by the Fund under the farsighted and purposeful leadership of its Managing Director, Mr. Witteveen. We have always been fortunate in having outstanding Managing Directors with the special blend of personal, technical, and international attributes required by an organization as unique as the Fund. These attributes Mr. Witteveen possesses in full measure. We all very much regret that he has announced that, for personal reasons, he does not wish to make himself available for a second term in the position of Managing Director. Mr. Witteveen can already look back with immense pride and satisfaction at his accomplishments. He came to the Fund at a particularly difficult and crucial moment, and steered it brilliantly through a period that has been one of the most innovative and productive in the Fund’s history. We are grateful for his inspiration. We wish him well in the future.

The second amendment of the Articles of Agreement gives the Fund new responsibilities and provides for an extensive revision of its policies and practices. The Executive Directors have already made considerable progress in preparing for the implementation of the amended Articles, including agreement on the principles for the guidance of members with respect to their exchange rate policies and on procedures for Fund surveillance over those policies.

Implementation of the new provisions awaits acceptance of the second amendment by the necessary majority of members. Up to now only 55 members, having about 58 per cent of the total voting power, have accepted the amendment, well short of the required three fifths of members having four fifths of the total voting power. I should therefore like to take this opportunity to appeal to my fellow Governors to do all that they can to hasten the ratification procedures.

Of course the second amendment will not close the book on reform of the international monetary system. There remains much which can be done, and while this is not the place to go into details, I would mention, for example, that the promotion of the SDR as the main reserve asset of the system is an objective to which Ireland remains firmly committed. It will be recalled that last April the Interim Committee requested the Executive Directors to give further consideration to all aspects of the question of the advisability of a future allocation of SDRs, and to report on this matter at the first meeting of the Committee in 1978. The Committee also requested the Executive Directors to review the characteristics and uses of the SDR so as to promote the purposes of the Fund including the objective of making it the principal reserve asset. We look forward to the results of this consideration and review.

Finally, I think we as Governors should express our thanks to the Executive Boards—of the World Bank and the Fund—for their performance of duty. Their responsibilities are exacting and are likely to continue so. We rely on them for the detailed formulation and execution of the guidelines we lay down. Their loyalty and active cooperation are essential to the realization of international monetary cooperation and international aid to the high degree necessary to make a real impression across the world on the deep-seated problems that beset our rather troubled times.

Both our institutions face great opportunities. They require your continuing and growing support if they are to fulfill the role which the international community has entrusted to them.

Delivered at the Opening Joint Session, September 26, 1977.

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