Discussion of Fund Policy at Sixth Joint Session1

International Monetary Fund. Secretary's Department
Published Date:
October 1976
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Statement by the Governor of the Fund and Bank for Fiji—C. A. Stinson

I would like to join colleagues who preceded me in this forum in thanking the Government of the Philippines for the very excellent arrangements under which we meet this year. The logistic problems associated with hosting a major international meeting such as this one, as we all know, are complex. But our host has coped with apparent ease and obvious efficiency. I also thank the Government and the people of this country for their warm hospitality making this week so comfortable and enjoyable for us all.

I warmly welcome Papua New Guinea and the Comoros who have recently joined us. I also welcome prospective member countries who are here with us as observers.

The world is beginning to emerge from an extremely difficult period. Over the last three years we have collectively been subjected to rampant inflation in the midst of a deep recession. In the same period, we also experienced a major redistribution of resources and liquidity unprecedented in history. As expected, the burden of adjustment of the astronomical deficits that resulted fell heavily on the non-oil producing countries—particularly the developing ones. The economically stronger industrialized countries were able, with relative ease, to offset their oil deficits and thus shifted the burden on to those least able to bear the economic shock.

But the economic history of these past three years has been very competently analyzed in great detail in the latest Annual Reports of both the IMF and the World Bank. The Managing Director of the Fund and the President of the Bank, together with colleagues who have spoken, have also elaborated on it. And so, mindful of your plea, Mr. Chairman, I shall not cover the same ground. I shall confine myself to the proposals, most of which have been aired in the numerous international forums, such as the Group of 77, the United Nations Conference on Trade and Development, the Conference on International Economic Cooperation, the Commonwealth Finance Ministers’ meeting, the Group of 24, the Development Committee of the World Bank and IMF, and others.

To put things in their proper perspective, it is worth reminding this august gathering that, in this day of sophisticated technology, we live in a rapidly shrinking world. No country, in the words of John Donne, “can any longer claim to be an island.” The economic or social problem of any one country, whether we like it or not, quickly becomes our common problem. The transmittal of inflation and recession with unbelievable rapidity from country to country during the last three years, if it has not done anything else, has taught us this important lesson. Again, whether we like it or not, we must accept that, in the sphere of economic and financial policies, we must function as a family of nations. And as in a family, policies and programs must be designed to avoid damage to others. Better still, they should be such as to involve some degree of individual sacrifice, especially by the stronger, to the common good of all.

The mounting debt burden of the non-oil Third World has been amply documented. The private banking system has undertaken a very commendable role in financing the bulk of these deficits in the face of limited resources of multilateral institutions such as the IMF. But, while their short-term financing has been assisted in the short term, the hardening terms of these commercial funds will add substantially to the medium-term burden of these non-oil developing countries. For them, the answer must be in the form of increased export receipts, increased inflow of resources—particularly aid and investments—and more access to enhanced resources of the IMF, the World Bank, the International Development Association, and the International Finance Corporation.

We are well aware of the barriers to trade that unfortunately still face the exports of the Third World in the industrialized markets. I have no doubt that the developed countries should accept a policy of shifting their industrial base to the sophisticated and relatively capital-intensive industries, allowing the Third World room for increased production and trade, if long-term balance of payments difficulties and unemployment problems of the economically weakest are to be alleviated. It is also to be hoped that the industrialized countries will resist the temptation to embark on the production of commodity substitutes, whether they be artificial or natural.

The IMF exists to assist the short-term liquidity problems of the member countries. The lending of this great institution is always conditional on the ability of the borrowing country to return quickly to a situation of external balance. But, as we all know, in a lot of cases, this situation is not readily achieved without fundamental readjustment in the structure of the borrowing economy. A prerequisite to this, of course, is the availability of long-term funds for the implementation of projects and programs aimed at generating or conserving foreign exchange. . . .

My country welcomes the Proposed Second Amendment to the IMF Articles of Agreement. The necessary legislation has now gone through our legislature and the new provisions have been enshrined in the laws of our country. We particularly welcome the increased flexibility allowed within the new system, which we believe more able to withstand the stresses and strains in the rapidly changing world of today. The move toward easier access to the resources of the Fund, as well as more regular review of quotas, is overdue. Listening to Secretary Simon, it is apparent that there is a difference in opinion on the optimum velocity with which we should move in this direction. Although caution is always wise counsel, I believe that the present and increasing deficits of the non-oil developing and some developed countries suggests that more could be done without detriment to the international monetary system.

We all know that the increases in oil prices over the last three years have contributed to the deficits of the non-oil producing countries. We know, too, that the stronger of the industrialized countries quickly succeeded in offsetting their oil-generated deficits. In fact, it has always been a matter of great surprise to me that important international forums such as this one never seem to devote time to this important subject.

As a representative of a primary producing country, I certainly believe in the equity of receiving value for one’s product. But the fact remains that the situation of the economically weakest, already saddled with heavy debts, will be exacerbated to desperation, if further increases are introduced. And so I make a plea for moderation on this important front.

It is true that the various schemes involving resource flows from the industrialized to the developing countries, while necessary for the enhancement of living standards in the Third World, are by no means sufficient. The introduction of enlightened policies—which in all probability are likely to be politically unpalatable in these countries—is an essential component of this exercise. And so, self-help, supplemented by increased assistance from the economically stronger, must for us in the Third World be the modus operandi.

Let me conclude on a more general note. The technical solutions to our collective economic problems were never the difficulty. In fact, this is a relatively easy part of the job ahead of us. We in this room all know what needs to be done.

When we examine all the measures that we have been discussing this week—whether it be the amendment to the IMF Articles, increased Bank capitalization, increased resource flow to the Third World, Fifth IDA Replenishment, commodity price indexation, oil prices, increased IMF liquidity—we note that they all involve a certain degree of sacrifice by some individual members toward the common good. As politicians, we are all aware that individual national sacrifice toward common betterment and progress is not an easy thing to sell to the electorate. But the success of our efforts must depend on the cultivation of political will within and among nations. We in this room are well aware of this. Let us set forth with resolve and sell it, back home in our various countries.

Statement by the Governor of the Fund for Viet Nam—Tran Duong

This is the first time that unified Viet Nam has participated in the Annual Meetings of the Boards of Governors of the International Monetary Fund and the World Bank. On this occasion, on behalf of the Government of the Socialist Republic of Viet Nam, our delegation extends its most cordial greetings to the delegates of the member countries, to the Government of the Philippines, to the Minister of Finance and the Governor of the Central Bank of the Philippines, and to all the participants in these meetings. We thank the staff of the International Monetary Fund and the World Bank for their assistance in setting up these meetings.

We deeply appreciate the objectivity and good will manifested by virtually all the Executive Directors in the recent decision of the International Monetary Fund and the World Bank recognizing the membership of the Socialist Republic of Viet Nam.

The Annual Reports have provided us with a summary of the efforts of the Fund and the Bank to stabilize international monetary relations and to expand sources of financing for the benefit of the developing countries. On the subject of Fund and Bank resources, we are pleased to note the rise in the quotas of a number of developing countries, which could help to strengthen opportunities for stimulating the positive activities of the Fund and the Bank. It is the hope of our delegation that these activities, especially those aimed at creating new facilities such as the Trust Fund and the Third Window, will be given effect more vigorously and speedily so as to provide more effective assistance to the developing countries.

The unification of our country was achieved on July 2, 1976; the Vietnamese people now enter the most glorious period of their history, which already spans several thousand years. As is well known, a war of aggression and destruction was imposed upon us over the last decades, causing much devastation in our country from north to south, the consequences of which remain visible both in the cities and in the countryside. Our Government and people are firmly determined to overcome all difficulties in order to heal the wounds of war and to restore and develop our economy. The results achieved in the last year and a half in the north and south of the country have been particularly encouraging.

May we use this platform to draw your attention to the special situation of our country. As a developing country with a relatively low national income, and one severely devastated by war, Viet Nam deserves, on these dual grounds, the special concern of the International Monetary Fund and the World Bank as they pursue their objectives. We wish here to thank those delegates who have shown their understanding of our position.

Such concern on the part of the Fund and the Bank is all the more meaningful at this time in that the power which caused so much devastation in our country continues to evade its responsibility to contribute to the healing of those wounds. Furthermore, we demand an end to all discriminatory practices against Viet Nam, especially the freezing of accounts and assets of the Vietnamese Government and people which are deposited in American banks. In the same spirit of respect for the legitimate rights of peoples, we support the recent demand put forward by the President of the Central Bank of the People’s Republic of China.

Unified Viet Nam possesses great potential in human and physical resources, backed by the strength that springs from the unanimous resolve of its people. With 50 million inhabitants, including an active working population of 20 million and rich natural resources, Viet Nam has the prerequisites for assured success in its task of building a prosperous economy, combined with a sound basis and broad scope for effective economic cooperation with other countries.

As our Prime Minister, Pham Van Dong, stressed in his speech of September 2, 1976, while in the economic construction of the Socialist Republic of Viet Nam we are counting mainly on our own efforts, we are at the same time giving full attention to the need to develop economic relations with other countries. This is a policy “of major and lasting importance, with far-reaching scope and effects; and one that is essential and indispensable in the present international economic situation to the interests of all the countries concerned and to the cause of peace and friendship among the peoples of the world.”

In this spirit, the Socialist Republic of Viet Nam is working to diversify and develop its economic relations with all countries, on the basis of respect for independence, sovereignty and territorial integrity, and of equality and mutual interest. In this spirit also we shall strengthen our cooperation with the other member countries of the International Monetary Fund and the World Bank for the furtherance of peace, prosperity, and social progress.

Statement by the Governor of the Fund and Bank for Western Samoa—Vaovasamanaia R. P. Phillips

I first wish to say how deeply impressed and appreciative I and the members of my delegation have been with the excellence of organization and generosity of hospitality which has been accorded by the Republic of the Philippines. We wish to sincerely thank the Government and the people of the Philippines for all they have done to ensure the success of this meeting.

I wish to extend a welcome to the new members of the International Monetary Fund and World Bank and especially to our neighbor in the South Pacific, Papua New Guinea.

Over the past several years, international monetary instability and inflation have combined to tragically reduce the real impact of the development efforts of many developing countries. The seriousness of the situation is known to all present and has contributed to a situation of negative growth for some of the world’s poorest nations. Because of the reality of the mutual interdependence of all countries of this world and for the compelling reasons of humanity, justice, and equity, it is both vital and necessary for a dramatic increase to take place in the transfer of resources from developed to developing countries.

It is encouraging that the International Monetary Fund has already responded to this problem, although implementation of the new initiatives taken has to date only partially occurred. Western Samoa considers that, while the International Monetary Fund has undoubtedly partially responded to the dramatic changes that have occurred over the past several years, future initiatives taken must be bolder than has been the case in the past, and it is necessary for implementation of initiatives to be more flexible, responsive, and rapid than has previously been the case.

It is necessary for the International Monetary Fund to expand on initiatives already taken in order to assist more responsively developing countries with balance of payments problems and thus ensure that the momentum of their development efforts is not unduly affected by temporary balance of payments problems.

Western Samoa considers that the role of special drawing rights should be expanded and that SDRs should be considered as a means of providing development finance. We consider that, given the necessary political will, some formula could be worked out which would allow the issue of special drawing rights to the least developed and other developing countries to assist with balance of payments problems and to ensure that the momentum of development programs of these countries is not disrupted through temporary foreign exchange difficulties. I must stress how demoralizing it is for a developing country to have its development efforts frustrated by foreign exchange difficulties which usually arise from factors largely outside the control of the country concerned. Once the momentum of the development process has been started—and this is the hardest part of all—it is essential that the minimum of disruptions occur, so as not to inhibit or destroy this momentum. Members of the International Monetary Fund must not be satisfied or complacent with the progress already made, and must be prepared to consider initiatives to assist developing countries on a scale, and with a degree of responsiveness, that would really have the necessary relevancy and impact. . . .

Western Samoa trusts that developed countries will strive to achieve their agreed official development assistance targets before the end of this decade.

The inroads of international inflation have been particularly disruptive and harsh for the smaller developing countries and we see it as vital for the developed countries to work toward restoration of international price stability. We trust that every effort will be made by the industrialized countries to dismantle trade barriers, which in many cases are causing developing countries to place a limit on their exports and thus place a limit on their potential foreign exchange earnings.

It seems essential for some method to be worked out whereby producers of commodities can be assured a fair and stable return for their efforts. The substantial fluctuations in commodity prices in recent years have been a most disruptive influence on the economies of many developing countries and the smallest developing countries have been among those most seriously affected. In their disruption of development programs, fluctuations of commodity prices over the past several years have caused great problems. Western Samoa commends the start made in the direction of commodity stabilization by the European Economic Community and trusts that a comprehensive international commodity stabilization scheme will be seen as an essential prerequisite for the sustained development process in many countries.

Western Samoa is a small country, but we certainly do not escape the severe problems which have been caused by international monetary instability and inflation in recent years. Certain actions must be taken by the developed world in order to allow the developing countries to help themselves and we trust that the good will of the developed countries will be demonstrated in the implementation of a number of desperately needed actions that the Third World countries can only talk about.

We have deeply appreciated the demonstrated sincerity and dedication of the Managing Director of the International Monetary Fund and the President of the World Bank in their efforts toward improved international monetary stability and an increased transfer of resources from the developed to the developing countries. While we consider that certain further institutional reforms are necessary in the International Monetary Fund and the World Bank, we fully acknowledge the contribution that both organizations have already made to alleviating the situation of those living in the Third World.

As a small nation which is classified as a least developed country, Western Samoa notes with grave concern the gap that is widening between the rich and poor nations of our one world. The poor countries must and should do what they can to help themselves, but the rich must not and cannot be apathetic about the situation of the poor. As the President of the World Bank so dramatically described this situation in his opening address, we must look behind the greyness of statistics in order to see the human degradation caused by poverty.

To condemn a human being to poverty is to give a fellow man only a twilight life. Thus the matters we are dealing with in words relate to the most pressing and vital human situations of our time. Two thousand years ago, a carpenter put this golden rule in human relations in the simple phrase, “Thou shalt love thy neighbor as thyself.”

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

I welcome this opportunity to respond to the warm expressions of welcome and good will extended to Papua New Guinea, a new member of both these world bodies, particularly those from our close neighbors, Australia and Indonesia.

Only last month we celebrated our first birthday as an independent country, and it is an honor for me to be here in Manila representing Papua New Guinea as Governor of the Fund and the World Bank. In other capacities I have visited this great and rapidly changing city before, and once again I join other Governors in sharing the warmth and hospitality of the Philippine people.

We are very happy that our smooth transition to political independence has been matched by the rapid but orderly establishment of a range of national financial institutions and a smooth transition to membership of the Bank and the Fund, and indeed other international organizations. We had a very fruitful relationship with the Bank long before independence but have come to know the Fund only recently.

Our association with the Bank and our new relationship with the Fund involve much more than simply borrowing and repaying loans. We have benefited greatly from and value highly the constructive advice and assistance from the Bank and the Fund which we have received in conjunction with project and survey missions and direct technical assistance. . . .

In the short time since we joined the Fund, we have hosted an acquaintance mission and have received direct technical assistance, as well as support from the oil facility and the compensatory financing facility. We decided to accept Article VIII status because we believe that our own interests are best served by the policies and discipline which this Article requires. Altogether, our relationship with the Fund has been a happy one and has contributed substantially to what we believe is successful management of our monetary system so far.

Although we are a new country, the themes raised in the speeches of Mr. Witteveen and Mr. McNamara are already very familiar to us. The first national government in Papua New Guinea, with almost uncanny timing, has had to manage the commodity boom, the international inflation and the recession of the mid-1970s. In many ways these problems are more severe in Papua New Guinea than in other countries, as our small domestic market and the nature of our resource base make it sensible for us to engage in a high level of foreign trade, and the structure of our economy is such that a very high inflow of financial resources is required for development.

From our experience of the past few years, we are happy to accept completely the challenges laid down by the Managing Director of the Fund and the President of the World Bank in their opening addresses.

We agree that the prime responsibility for good economic management lies with each country itself. We ourselves recognize the central importance of maintaining control over the national budget and the rate of monetary expansion to avoid problems in the balance of payments and inflation. We have implemented very firm domestic measures ourselves in recognition of these relationships. We have assessed the financial resources likely to be available to us in the medium term, and have asked the people of Papua New Guinea to accept adjustments in private and public consumption to levels that are consistent with this assessment. The nation has accepted this challenge, and as a result we are emerging from the recession in reasonable shape, well placed to take advantage of the international recovery which we hope is in progress.

In seeking to manage our affairs through the international trade cycle, we have placed considerable emphasis on explicit mechanisms to stabilize budget expenditures and rural incomes. Various funds are operated under rules established by law, and are designed to accumulate high cash balances in boom times to cushion the budget and rural incomes through times of low prices. These mechanisms have already been very useful in preventing the harsh adjustments to personal and public expenditure which would otherwise have been forced on us by the wild gyrations in the prices of our agricultural and mineral export commodities.

I am also able to draw from our own short experience in accepting President McNamara’s special challenge on income distribution. The fragmented and difficult geography of Papua New Guinea and the priorities of previous administrations, caused us to inherit enormous inequalities in access to social services and opportunities to earn reasonable incomes. The redress of this historical imbalance has been the major concern of Papua New Guinea’s first national government. We have endeavored to allocate the growth in our limited financial resources to rural improvement and to the least developed regions. Like the international community as a whole, we have learnt that there are many political and administrative obstacles to the implementation of such policies. And like the international community as a whole, we must be prepared to redouble our efforts in response to the biggest challenge of our times. Decentralization and redistribution toward those areas are real and urgent needs.

Papua New Guinea recognizes the challenges thrown down by Mr. Witteveen and Mr. McNamara. But they were challenges to the whole world. The best efforts of a developing country to put its house in order will end in disillusionment and bitterness unless they are accompanied by consistent policies in the developed countries. As Mr. Witteveen pointed out on Monday, cautious demand policies in the industrial countries, which we accept as being appropriate at this time, must be supplemented by measures to improve market access for the exports of developing countries and to increase the flow of official development assistance. As Mr. McNamara demonstrated, the minimum ambitions for development in the poor countries require the urgent recapitalization of the Bank and the urgent replenishment of the International Development Association at levels that allow an expansion in the real programs of these agencies. Any short-term dislocation in the activities of the World Bank due to a shortage of funds would fly in the face of the Fund’s call for all countries to adopt policies of cautious but steady expansion in activity.

In this context, I am pleased to say that our own efforts to stabilize our economy and to establish a basis for long-term progress toward our national goals have been complemented by a farsighted approach by our former administering power, Australia, to our bilateral relationship. In recognition of the needs of good economic management in Papua New Guinea, the Australian Government has committed itself to a five-year program of assistance in a form that can be integrated efficiently into our overall programs. Since independence, our financial relationship with Australia has matured and overall our friendship has strengthened.

Firm assurances from the rich countries on the amount of development assistance to be made available over a number of years is necessary if the developing countries are to be able to plan effectively. Such commitments also reduce the risk of excessive reactions to short-term developments in the donor countries. This is a very important matter, for while the negative and inward-looking responses of some rich countries to trade and aid opportunities for developing countries in the recent recession are very understandable, they are also disastrous for the efforts of developing countries to plot a steady course through the storms of the international economy.

Papua New Guinea accepts the view that the avoidance of balance of payments difficulties and inflation is primarily a responsibility of each individual government. It makes sense in terms of national objectives for each country to live within its means, counting as part of its means a reasonable assessment of the external financial resources that are likely to be available. We regard the various facilities of the Fund as an important part of the resources available to us in managing the balance of payments through the trade cycle. We have sought to live within our means, and expect to avoid the building up of excessive levels of debt and to avoid unmanageable balance of payments difficulties.

As a new country committed to fiscal and monetary policies designed to achieve stability through the trade cycle, we are concerned about any developments which might create an incentive for the accumulation of excessive domestic or foreign debt as a way out of short-term difficulties. If aid is provided more readily to countries with external debt or balance of payments problems, it is possible that the efforts of other poor countries to implement sensible policies will be undermined.

It is now widely believed that some other countries who have borrowed more heavily will be hard pressed or even unable to meet debt-servicing payments over the next few years. On the basis of past experience, we can expect the international lenders to mount rescue refinancing operations where necessary. If this does happen, the money used will be money which would otherwise have been spread throughout borrowing countries and the more responsible borrowers who are not in a crisis situation but nevertheless need foreign capital will suffer.

Before leaving this general topic, as I see it, all countries, both lenders and borrowers, must avoid shortsightedness in seeking solutions to our immediate problems. As well as getting through the next year, we must try to ensure that the same problems do not come back to haunt us in years to come. It is particularly important for the developing countries to do all they can to preserve and improve their credit ratings, and I hope that lenders will appreciate that being poor does not mean the same thing as being a bad credit risk. A poor country, living within its means and spending its money wisely should have a higher credit rating than a rich country living extravagantly and wastefully.

I believe a general moratorium on debt servicing, as has been suggested in some quarters, would be shortsighted and, in the long run, harmful to the standing of the developing countries. I would expect all lenders to be sympathetic to the case of the borrower who needs more time to pay his debts, provided it is due to circumstances beyond his control.

However, a general moratorium on repayments could divert attention from the adjustments which must be made in some countries and would only amount to a postponement rather than a solution to the problem.

Papua New Guinea is still a poor country with an immense task of national development ahead. Despite this, we are determined to avoid the shortsighted responses to our development problems that would give rise to major debt service, balance of payments, and inflation problems. If we are successful in avoiding short-term problems of these kinds, and if we succeed in maintaining the internal value of our new currency and in raising its external value in times of international inflation, it will be a sign only that we have succeeded in living within our limited means. If such success in our fiscal and monetary policies was interpreted by the rest of the world as a sign that we needed less aid, it would undermine the whole basis of sensible economic management in Papua New Guinea. . . .

Finally, Papua New Guinea sees both benefits and obligations in our new membership. We recognize that there will be many obstacles along the path of progress. We realize that every step we take is a new one, every turn is a challenge. We know that the successful implementation of our policies will require prompt and appropriate responses to external changes, and many fine judgments. To this end we are prepared to devote all our efforts and energies to do all we can toward building the better world to which we all aspire.

Statement by the Governor of the Bank for Egypt—Mohamed Zaki Shafei

At the outset I wish to associate myself with the distinguished Governors in conveying our sincere thanks and gratitude to the President of the Republic, the Government, and the people of the Philippines for their cordial reception and gracious hospitality extended to all delegates, and our appreciation of the excellent facilities for making our joint Annual Meetings in this beautiful city, Manila, successful. Indeed our meeting here today is particularly significant, not only because it is symbolic of the struggle of developing countries in pursuit of their economic development and progress, but because of the fact that the name of this capital has been associated with the issue of an important document, namely the Manila Declaration and Program of Action to which they subscribed last February.

Next I wish to congratulate you, Mr. Chairman, the Managing Director of the Fund, and the President of the World Bank, for the penetrating opening addresses which dealt with recent economic and monetary development, throwing ample light on the issues of immediate concern to our meetings and tracing the possible lines of action. Our appreciation is also extended to the Executive Directors for the excellent Annual Reports of the Fund and the World Bank submitted to the Boards of Governors.

Turning to our business today, the year since we last met in Washington has witnessed many important developments of which mention may be made first of the recovery of the world economy from its most severe recession in four decades, with production expanding in the industrial countries at a satisfactory pace and with relatively lower rates of inflation, although—as the Fund’s Annual Report points out—both unemployment and inflation remain exceptionally high for the early phase of a cyclical upswing. In the meantime, international payments underwent important shifts in 1975, the surplus of oil exporting countries being greatly reduced concomitant with a sharp swing in the current account balance of the industrial countries from a deficit to a surplus, whilst the large current account deficit of the developing countries has persisted, despite a small reduction.

On the monetary front, the year was an eventful one both for the Fund and for the evolution of the international monetary system, with the approval of the Proposed Second Amendment to the Articles of Agreement as well as the increase of quotas under the Sixth General Review by the Board of Governors. In addition to the enhanced activity of the Fund with a substantial expansion in the use of its resources, the year saw the application of a number of important measures, including the establishment of the Trust Fund, the liberalization of the compensatory financing facility, the temporary enlargement of credit tranches to increase members’ access to the Fund’s resources, the enlargement and extension of the oil facility through February 1976, and, last but not least, the agreement to dispose of one third of the Fund’s gold holdings. Some of the major issues here involved, together with the problems of developing countries, deserve a few comments to which I now turn.

As far as the world economic situation is concerned, it is gratifying that recovery in the industrial countries is now under way, to the benefit of the world economy at large. But as the Fund’s Annual Report warns us, there is need for cautious management of aggregate demand to bring down the rate of inflation and eliminate inflationary expectations in industrial countries. Moreover, as the medium-term outlook for world growth and trade is less buoyant than it would have been a few years ago, the Report remarks that this may have particular impact on the prospects for many of the non-oil developing countries and rightly stresses the need for the industrial countries to improve access to their markets and to increase the real levels of their official development assistance. I shall deal with the problems of developing countries later.

As regards international monetary reform, the accord reached by the Interim Committee in Jamaica last January had finally paved the way for the Executive Directors, after years of laborious work and negotiations, to accomplish the drafting of the Proposed Second Amendment.

When the amended Articles become effective—after the necessary constitutional measures have been taken by member countries—they will go a long way toward adapting the Fund to present-day conditions, and should prove to be an important stage in the evolution of a reformed international system. We in Egypt support the second amendment.

A few remarks, however, may be pertinent here. In the first place, the comprehensive changes in the provisions of the Articles of Agreement do not usher in a new full-fledged international monetary order, but they herald the first stage in the evolution of that order. Moreover, the amendment does not include several important features of the detailed blueprint for reform drawn up by the Committee of Twenty, such as convertibility or asset settlement, arrangements for the control of reserve creation and composition, or rules for ensuring symmetry in the adjustment process. On the other hand, objection may be raised regarding the uniformity of application of the amended Articles to all members on the grounds that they are not recognized as a special case, that is, without enjoying the benefit of exemption from certain obligations, from the strict conditionality applying to drawings in the upper credit tranches, or from the usability of currencies of all members. In the latter case, it is our understanding that their balance of payments position or development of their reserves would be duly taken into consideration. Moreover, no reference to the link between future allocations of special drawing rights and the provision of additional development finance by the developed countries is made in the amended Articles of Agreement, to the disappointment of the developing countries.

Coming back to more specific issues in the proposed amendment, the exchange arrangements provided for in the new Article IV are of profound importance. By giving member countries the freedom to choose their own exchange regimes—even if a widespread system based on stable but adjustable par values is finally resorted to—greater flexibility is imparted to the exchange rate system. It is to be observed, however, that whilst floating of currencies will predominate for some time to come, a return to more settled conditions in the foreign exchange markets through a system of stable but adjustable par values is, in our view, a most desirable objective for the world economy at large. In fact, the Fund’s Annual Report gives an interesting survey of the developments in exchange rates during the past year, but makes the point that frequent exchange rate variations for floating currencies have been a major form of balance of payments adjustment, a view which may not be entirely shared by some circles. Moreover, the greater diversity in exchange rate practices among members and the frequent variations in exchange rates, as well as the difficulties encountered by countries whose currencies were pegged to some major currency or currencies, are all indications of flexibility with instability in foreign exchange markets. Further progress is thus needed to achieve a stable monetary system.

The other salient feature of the amended Articles relates to the numerous changes introduced in the provisions concerning the special drawing right to strengthen it by improving its characteristics and substantially enlarging its possible uses in order for it to become the principal reserve asset of the international monetary system. However, a few points need to be raised in this connection. The first is whether the outstanding amount of special drawing rights is adequate to allow the SDR to assume its future role or whether a second allocation is actually overdue. This leads us to another and closely related point, namely, the adequacy of reserves in general and their composition. While total official reserves continued to grow from SDR 146.5 billion at the end of 1972 (after the completion of the first allocation of SDRs) to some SDR 203 billion at the end of April last, recording an increase of 38 per cent, the ratio of SDRs to global reserves has actually declined from about 6 per cent to only 4.4 per cent. In a recent statement, the Managing Director, declared that it would be advantageous if the proportion of reserves held in the form of special drawing rights were increased, but added that holdings of SDRs could well play a pivotal role in a system of international liquidity control, even if they were not the main reserve asset in terms of quantity. We believe, however, that this low ratio can hardly give adequate support to the position of the SDR as the future reserve asset, and serious thought should be given to the question of a second allocation of SDRs.

As far as the non-oil primary producing countries are concerned, the ratios of their reserves to imports are substantially lower than those of the early 1970s. This may represent a greater degree of reserve stringency, since this group includes for the most part countries with pegged exchange rates—thus subject to the consequences of abrupt fluctuations in the major currencies serving as a peg—and countries with limited access to international capital markets. Increasing resort of these countries to short-term borrowing in the past few years is another indication of the emerging reserve stringency.

Closely related to the question of reserve adequacy is the supply of conditional liquidity by the Fund. It will be seen from the Fund’s report that the ratio of aggregate Fund quotas to imports has declined to 4½ per cent in the past two years—perhaps with even a lower figure for the developing countries—as against a ratio of between 8 per cent and 12 per cent throughout the 1950s and 1960s; the forthcoming increase in quotas may halt the declining trend in this ratio, but only for the year that it becomes effective. While the increase in members’ quotas by 33.6 per cent—under the Sixth General Review Resolution—will raise aggregate quotas from SDR 29.2 billion to SDR 39 billion, thus raising simultaneously the supply of conditional liquidity available to members, the share of non-oil developing countries remains virtually unchanged at 20.92 per cent. This situation should be reviewed to meet the demands of developing countries for additional liquidity commensurate with their increasing weight and their need for reserves.

Looking at the Fund’s activity during the past fiscal year, the substantial expansion in the financial assistance to members bears witness to the role played by the Fund in financing international imbalances. The liberalization of the compensatory financing facility, the establishment of the Trust Fund, and the temporary enlargement of the size of the Fund’s credit tranches pending the increase in quotas are all indications of a reorientation of the Fund’s policies in response to the demands of its members.

The liberalization of the compensatory financing facility should go a long way toward meeting members’ demands for advance compensation of shortfalls in export earnings, but there is still scope to extend its coverage to fluctuations in some other balance of payments items on current account, as well as to increase the amount of compensation in real terms. The extension of balance of payments assistance to members on concessional terms through the newly established Trust Fund is another welcome development. Since the Trust Fund will be fed mainly through profits from agreed gold sales, it is feared that eventual resources will fall short of expectations due to the recent fall in gold market prices, to say nothing of the depressing effect of that fall on the value of members’ reserves. Disposal of gold holdings in the future—after the planned disposal of the first 50 million ounces has been completed—should also take the interests of developing countries into consideration with a view to allowing them a much larger share in the profits arising therefrom.

Reverting to the problems of developing countries, the difficulties encountered were amply demonstrated in the Fund and Bank Annual Reports, as well as in the various remarks made in the course of this meeting. Suffice it to mention here that the combined current account deficit of the non-oil primary producing countries has deteriorated from $9 billion in 1973 to $43 billion in 1974 and further to $51 billion in 1975, with the bulk of the deterioration affecting the less developed among them. And while some improvement is expected this year as a result of world economic recovery, the projected current deficit is no less than $42 billion of which $32 billion is accounted for by the less developed. The financing required on such a scale is cause for serious concern, the more so because many countries among them are in a difficult and vulnerable external financial position.

As far as the transfer of resources to developing countries is concerned, the net flow of financial resources from the member countries of the Development Assistance Committee (DAC) showed a welcome expansion in 1975 to reach 1.02 per cent of the combined gross national product (GNP) of DAC members, while the members of the Organization of Petroleum Exporting Countries continued to lend their support to the Third World. However, concessional official development assistance, to which the less developed countries attach importance, did not exceed 0.36 per cent of the GNP of DAC members, which is far short of the target of 0.70 per cent. Moreover, net capital inflow of the non-oil producing developing countries in recent years has also involved borrowing on terms much harder than those of official development assistance. As a result, the burden of servicing their external debt is growing heavier, with service payments absorbing an ever-increasing slice of their export earnings.

Developing countries have persistently called for an increased flow of real resources, the stabilization of commodity markets, increased access to the markets of the developed countries, and the attenuation of the mounting burden of their external debt. These demands were often repeated by the Group of 24 and the Development Committee, as well as by the Manila Declaration and Program of Action. At UNCTAD IV emphasis was placed on an integrated commodity program and on the solution of their external debt problem. The discussion of the integrated program at the conference undoubtedly revealed major differences of view between the developed and developing countries over a number of controversial issues, but a compromise resolution was adopted. It is to be hoped that the preparatory measures to be taken for the implementation of the resolution would bear fruit in the near future, thus bringing about an equitable solution to the commodities problem, to the mutual advantage of both the producers and the consumers. In the field of money and finance, the resolution adopted unfortunately did not embrace all the proposals made by developing countries in the Manila Declaration in respect of debt-relief measures or the transfer of resources, and some draft resolutions have been referred to the Trade and Development Board for consideration.

If a major step on the road to international monetary reform has already been taken by the amendment of the Articles of Agreement, further action is still required in the fields of trade, development finance, and aid for which international cooperation, and not confrontation between rich and poor countries, will be needed if the contemplated objective of restructuring world economic order is to be achieved. . . .

Turning now to my own country, I wish to reiterate our firm determination to pursue appropriate policies to bring our economy back to equilibrium. We believe that economic reform should begin at home. However, under present international circumstances this is not an easy task. As the Bank’s Annual Report rightly points out, the task of moving from an economy in which distortions exist, to one in which there is flexibility and room for maneuver is rarely simple.

In this connection, it should be emphasized that it is the declared policy of the Government that this reform should be undertaken in the framework of an open-door economic policy. The essentials of this policy may be summarized in the encouragement of foreign investment through the extension of numerous immunities, privileges, and exemptions to foreign investments undertaken under the terms of Law 43 of 1974, which is administered by the General Authority for Arab and Foreign Investment. This policy aims further at the revival of the activities of the private sector and the dismantling of a multitude of regulations and restrictions that used to guide economic activity in the various sectors of the economy. In fact, many steps have already been taken in the monetary, banking, exchange, and trade fields with a view to achieving further liberalization, and further measures are still to be taken, but substantial external financial assistance from various sources—particularly from international financial institutions and oil exporting countries—will be needed to overcome the difficulties in the external sector.

To conclude my statement, I would like to place on record the growing close relations of the Arab Republic of Egypt with both the Fund and the World Bank and the substantial assistance so far received from these institutions. Finally, I wish to refer to the reopening of the Suez Canal in June 1975 alluded to in last year’s statement; the record for the first year of operation was an outstanding success in the service of world navigation and trade.

Statement by the Governor of the Fund and Bank for Grenada—George F. Hosten

It is my privilege today to speak on behalf of my Commonwealth Caribbean colleagues from the Bahamas, Barbados, Guyana, Jamaica, and Trinidad and Tobago, as well as my own country, Grenada. Yesterday, Mr. Coore of Jamaica spoke about the Bank on our behalf. We are especially delighted to attend this Annual Meeting of the International Monetary Fund and the World Bank here in Manila. The lush tropical vegetation and the proximity of the ocean remind us of our island homes on the other side of the globe. We are full of admiration for the splendid arrangements provided by our hosts for this conference, and we are deeply touched by the sincere expressions of friendship and hospitality extended to us everywhere. We welcome Papua New Guinea and the Comoros to the family of international financial institutions.

While my remarks will be restricted to the activities of the Fund, I wish to take this opportunity to congratulate Mr. McNamara, the President of the Bank, on his most stimulating address. Equally, I congratulate Mr. Witteveen for his penetrating analysis of the world economic situation. There is no doubt that under his leadership the Fund has responded in an innovative manner to the recent crises in the international financial system. The institution of the oil facility, the modifications of the compensatory financing facility, and the liberalization of the buffer stock facility are evidence of the Fund’s flexible response to the problems which confronted the international economy over the last two years.

However, we feel that we must use this occasion to bring forcibly to the attention of the Fund’s management that the small, developing, island economies, such as those I represent, are still suffering from the effects of the recent world recession. Indeed, the Managing Director indicated as much in his most eloquent address. He observed that, whereas the balance of payments position of the industrial countries had improved considerably through 1974 and 1975, the non-oil primary producing countries had suffered from a weakening of demand in their principal markets, a sharp deterioration in their terms of trade, and a consequent rise in their combined deficits to more than $50 billion. This applied, however, to all but one Commonwealth Caribbean country.

I should like to comment briefly on some of the difficulties which still remain for the developing countries, the Commonwealth Caribbean in particular, and to focus on those areas where modification of the Fund’s policy might be of greatest assistance.

We have noted that previous speakers have emphasized the importance of the adjustment process through the use of appropriate domestic economic policies. But an important lesson of recent years is that developing countries cannot adjust to major disruptions in the world economy with the same ease as the industrial nations. This is because they lack the sophisticated financial and real markets which have provided the advanced countries with ready access to private international capital and money markets, and have enabled them to shift their resources rapidly to the external sector. In consequence, they have benefited from the increased demand for industrial goods by the surplus oil exporting countries. As we have heard, the industrial nations have been able, in a remarkably short time, to resume industrial expansion after their most severe recession in 40 years and to reduce inflation.

However, the economic recovery in the developed world has not alleviated the repercussions of their recent recession upon the primary producing non-oil exporting countries of the developing world. The developing countries of the Commonwealth Caribbean are still faced with severe balance of payments difficulties, widening fiscal deficits, and widespread unemployment.

A predominant characteristic of the Commonwealth Caribbean is the dependence of its members on foreign trade. Although commodity prices have risen as a consequence of economic recovery in the industrial countries, the prices of our main visible exports, bauxite, alumina, and sugar, have not followed the general pattern. In the case of sugar, prices have plummeted from the levels of 1974 and early 1975. Indeed the sugar price negotiated under the Lomé Convention hardly covers the costs of our production, while it appears that with the depressed levels of world sugar prices, our sales on the world market will be made at a substantial loss. Our tourist sector, which is of crucial importance in the Caribbean, has stagnated, as employment levels in our North American markets lag behind industrial recovery.

The fiscal performance of the Commonwealth Caribbean is intimately tied up with the levels of foreign trade, a situation which poses most difficult problems for me and my fellow Finance Ministers in the Caribbean. Our levels of corporate and personal incomes depend on the volume of exports, visible and invisible; a fall in foreign exchange earnings therefore leads to a reduction in tax revenues. At the same time, reduced incomes lead eventually to a reduced demand for imports, and to a corresponding decline in custom receipts. It is not surprising then that, in spite of strenuous efforts to restrain expenditure, the Commonwealth Caribbean is generally plagued by severe balance of payments or budgetary problems. The close relationship between export earnings and the level of national income also makes it extremely difficult to pursue classical demand management strategies. In some Commonwealth Caribbean countries the foreign sector accounts for as much as three quarters of the gross domestic product. For this reason, our governments do not have the same scope as advanced countries for the transfer of resources from the domestic to the foreign sector.

We in the Commonwealth Caribbean have recognized the need to help ourselves. A facility for mutual balance of payments support has been established by member countries and assistance extended so far to our most seriously affected member country. In addition, Trinidad and Tobago, our single oil exporter, has extended balance of payments support to other member countries in the region, as well as aid on concessional terms to the least developed islands in the region. But our resources are insufficient to meet our needs, and we must continue to look toward the Fund for assistance in the solution of our pressing economic problems.

We are therefore most concerned that the liquidity of the Fund should not be strained by its need to meet the demands of both the developed and the developing countries, especially since there is a severe constraint on the availability of funds from sources such as the World Bank and the International Development Association. We therefore hope that developed countries will pursue such policies as would reduce their calls on the Fund, thus releasing its resources for use by the developing nations, whose heavy debt burdens limit their access to the private international capital markets and inhibit their development. Unless this is done, the objectives of the transfer of real resources from developed to developing countries in the context of the New International Economic Order will not be attained.

Furthermore, we heartily support Mr. Witteveen’s call for member countries of the Fund to ratify, as soon as possible, the amendments necessary for the implementation of the Sixth General Review of Quotas, and we welcome the announcement of his intention to take immediate steps to get the Seventh General Review of Quotas under way. We regret that the Sixth Review did not give adequate consideration to the liquidity needs of the developing countries, and we hope that serious consideration will be given to a more equitable distribution of special drawing rights during the Seventh Review.

Once again we must repeat our annual reminder that the Fund staff needs to show greater sensitivity to the particular problems of developing countries and, in particular, of small, developing, poor and middle-income island economies. For example, in such countries, where capital and money markets are imperfectly developed, the classical monetary tools cannot be expected to produce the desired results. A change in interest rates in a developing country will not generate ripple effects throughout the economy as does similar action in an advanced industrial economy. Nor will a currency depreciation necessarily lead to swift adjustment in the balance of payments in countries such as ours, since the supply of domestic foodstuffs, and even of manufactured goods, in most developing countries is notoriously inelastic. The Fund staff should therefore adopt a more tolerant attitude to nonconventional techniques for the restraint of nonessential imports to which some developing countries may have to resort in order to achieve equilibrium in their balance of payments.

The Fund is urged to review the criteria used for determining a shortfall in exports under the compensatory financing facility. The main purpose of such a review should be to include the decline in earnings on invisibles—tourism in particular—in the calculation of an export shortfall. It is our opinion that when the foreign exchange earnings of our economy are threatened, it is not valid, when considering a compensatory scheme, to maintain the distinction between exports of goods and exports of services. After all, the effect on income and unemployment from a reduction in tourist earnings is the same as for a reduction in the export of goods.

We are concerned that only two countries have so far obtained approval for drawings from the extended Fund facility. So far, only SDR 7.7 million of the total allocation of SDR 2 billion have been drawn. We are therefore very disturbed about the Executive Board’s recent decision to delay review of the facility until after arrangements have been concluded to the extent of the total allocation of SDR 2 billion. In the meantime, the developing countries would continue to suffer balance of payments problems, as well as problems arising from their structural underdevelopment, while resources remain idle in a Fund facility.

Although the conditionality now attached to drawings under the extended Fund facility is stringent, this is not the only problem for developing countries. Countries seem to find access to the extended Fund facility difficult because of the vast amount of data required by the Fund staff in the preparation of supporting programs. Such data are generally not readily available in small developing nations. We strongly suggest that, in the case of small developing countries, reasonable programs can be prepared without some of the data available in advanced countries. The development of the kind of data now required by the Fund staff would consume a large proportion of the technical and administrative resources of small islands and diminish their prospects of economic growth.

I should now like to deal with a matter of specific interest to Grenada, and that is our exclusion from the list of eligible countries for assistance from the Subsidy Account. The fact that we have been able to draw approximately 60 per cent of our maximum entitlement under the oil facility clearly demonstrates the degree of difficulty which confronted us on account of the oil crisis. It appears that the force of mere logic would have argued in favor of Grenada’s inclusion in the list of countries deserving of subsidized assistance in servicing their obligations under the loan. Again, on the grounds of economic logic, we were persuaded that our eligibility for Trust Fund assistance gave us sympathetic, if not automatic, consideration for access to the Subsidy Account in servicing our oil facility indebtedness. But, it appears that the Board was not concerned with such consideration in its selection of eligible countries. Thus, its decision has gone against my people. We therefore ask that this matter be reviewed.

Finally, we of the Commonwealth Caribbean would like to urge that serious consideration be given by the Fund management to the observations and recommendations contained in this address. We are confident that, if put into effect, they will contribute significantly to the advancement of the New International Economic Order which we, both developed and developing countries, are earnestly striving to achieve.

Statement by the Governor of the Bank for Afghanistan—Abdullah Malikyar

I have the honor to represent the Government of the Republic of Afghanistan at the 1976 Annual Meetings of the Boards of Governors of the World Bank and the Fund. I wish to record the profound appreciation and gratitude of our delegation to the Government of the Republic of the Philippines for the hospitality and excellent arrangements made for the meeting. I also wish to thank the Managing Director of the Fund, the President of the Bank, and the Executive Directors, and staff of both institutions for their dedicated efforts on our behalf during the past year. Afghanistan joins with the other members in welcoming the new members and prospective members.

We meet this year with a world economic situation rather brighter than that which prevailed at the time of our last Annual Meeting. The severe world recession is giving way to recovery in the industrialized countries. Confidence has been revived and demand has picked up. However, the recovery now under way in the industrial world is still accompanied by high rates of inflation and unemployment. In these circumstances there is need for particular caution in managing the course of the recovery.

The recession was severe and its aftereffects are still with us. Although the recovery has started, we feel that our sense of security has not yet been restored. We are not yet sure how to prepare for the future. In the industrialized societies there are social demands for a rapid return to full employment. In the developing world, there are continuing and growing needs and demands for higher standards of living as well as for a more equitable economic order. In both groups of countries the governments are under pressure to find solutions to these problems. Besides our internal actions, we pledge our wholehearted cooperation with any international effort to fulfill the legitimate aspirations of our people. . . .

As a result of both the inflation and the recession generated by forces outside the control of the developing countries, they have been confronted with serious payments imbalances. As stated in the Fund’s Annual Report, the combined deficit on the current account of the balance of payments of the non-oil developing countries rose from about $10 billion in 1973 to $37 billion in 1975, and indications are that 1976 will be another year of large current account deficits for these countries as a group. This has necessitated heavy external borrowing and a drawdown of reserves to critical levels in many of these countries, thus exacerbating their vulnerable external financial positions. Consequently, the minimum 6 per cent growth target of the second development decade has become merely a dream for these countries; indeed, substantial amounts of additional external capital are still required even if this modest growth target is further lowered.

The world community has been engaged in an intensive dialogue to create a new and more just world economic order for nearly three decades. We hope that this dialogue will soon be followed by some concrete and fruitful actions which will alleviate the hardship being experienced by many developing countries.

Afghanistan has perhaps a special position in speaking of these matters as it is landlocked and one of the most seriously affected countries, and has many problems in its international trade and transit. Following the inception of the Republic of Afghanistan in 1973, the efforts of the country under the leadership of President Daoud have been directed toward raising the standard of living of a poor and neglected people. The Republic was established in circumstances of a stagnant economy. During the following three years great strides have been made in vitalizing the society and stimulating the economy. A series of fundamental reforms have been introduced.

The banking system, which had failed to fulfill its appropriate role in the economic development of the country, has been reorganized by enacting a new Money and Banking Law in June 1975, providing for more effective mobilization and utilization of financial resources. In July 1975 the Land Reform Law was enacted to redress the social inequity of wealth maldistribution. Moreover, a new graduated land tax system has been instituted, and agricultural cooperatives are being established. All these measures are directed to benefit small farmers who constitute the absolute majority of our population and to raise the productivity of the agricultural sector. The Government’s efforts toward administrative reforms have resulted in increased absorptive capacity of development assistance. This is cleary reflected in the recently increased level of World Bank assistance to Afghanistan.

In 1975 our first Seven-Year Socioeconomic Plan, which envisages an investment of Af 174.4 billion (equivalent to $3.8 billion) was formulated. The plan will absorb available and potential development assistance and will make possible increased utilization of all factors of production. It is anticipated that our national income will grow by an average of 7 to 8 per cent per annum during the plan period, compared with about 2 per cent achieved during the past seven years. The plan commences in circumstances of temporary financial stability. We hope that with our own efforts and with a continued inflow of assistance from friendly nations and international organizations, relative stability will be maintained during the implementation of our development plan. Our present favorable balance of payments position and relatively comfortable reserve situation will help us in this direction. But as we mentioned, we consider this situation to be temporary and our need for capital inflows on generous terms will remain unchanged. One of the major factors that has brought about this favorable condition has been the postponement of substantial amounts of debt repayments, which has temporarily reduced our debt service burden. Moreover, although our reserve position seems stronger than three years ago, our need to maintain higher reserves to cope with our increased import requirements justifies this policy. Our present reserves are about six months’ import needs, which can hardly be more than adequate for a country which is subjected to a variety of natural calamities. What we want to emphasize is that we have tried to utilize our own resources to the maximum extent possible, but our needs cannot be met merely from our own resources.

We hope that international institutions and donor countries will look at our problems from a broad perspective and continue their generous cooperation. The Seven-Year Plan is more realistic than the previous development programs, taking into account the improved administration and increased absorptive capacity of the economy. However, increasing external assistance on the most generous terms will be needed in the form of both financial and technical assistance. . . .

Finally, I wish to note our appreciation for continuous efforts aimed at improving the international financial system. The past year has been one of considerable work and effort by our Fund Executive Board. The work on the amendment of the Articles of Agreement has been completed, the compensatory financing facility has been liberalized, the program of Fund gold sales has been instituted, and the increase in Fund quotas has been agreed upon. We hope that a greater degree of consensus on the world exchange rate regime will emerge in the near future to replace the present rather varied exchange rate arrangements. In this context, we look forward to the establishment by the Fund of effective procedures and rules relating to surveillance over exchange rate policies.

Statement by the Governor of the Fund for the Lao People’s Democratic Republic—Bousbong Souvannavong

It is a great honor for me to represent the Lao People’s Democratic Republic for the first time at this joint Annual Meeting of the International Monetary Fund and the World Bank and its affiliates.

I should first of all like to discuss some aspects of my country’s economic and financial relations with other countries and with international financial institutions. As you are probably aware, after more than 30 years of determined struggle for their national liberation the Lao people were able to regain their independence and sovereignty, and through a democratic process established a new regime by founding the Lao People’s Democratic Republic on December 2, 1975. Since its inception, our Republic has been confronted with numerous economic and financial problems, some of them arising from the war that was waged against my country and others inherited from the previous regime. In healing the wounds inflicted by the war and laying the foundations for economic development, my country intends to rely primarily on its own resources—both human and natural—with which we are fortunately well endowed, but which have been barely tapped so far. In addition, my country would also seek assistance from and cooperation with friendly nations throughout the world as well as the international organizations, provided that such assistance and cooperation are not subject to political conditions. My country thus intends to establish and maintain good relations in all spheres with its neighbors and with all other countries, regardless of their political or social regime, based on the mutual respect of national sovereignty and the interests of all parties concerned.

My country maintains permanent relations with international financial institutions such as the IMF, the World Bank, the International Development Association, and others of which it is a member. We should like to further strengthen these relations and hope that these institutions will continue to give special attention to our particular circumstances.

I should now like to comment briefly on the activities of the Fund and the Bank.

I wish to join previous speakers in praising the Managing Director of the Fund and the President of the Bank and the staffs of these organizations for their efficient and fruitful work over the past year. I also wish to congratulate our new member, the Comoros. We cannot but express our pleasure at the presence in our midst of the delegation of the Socialist Republic of Viet Nam. The admission of that country as a de jure member of the Fund and of the Bank is entirely legitimate. We also consider perfectly legitimate the demand of the People’s Republic of China with respect to representation of that country in our institutions.

Since our last Annual Meetings, protracted discussions within the Fund have resulted in agreement being reached on several issues, notably exchange arrangements, the role of gold, the role of SDRs, liberalization of the compensatory financing facility, and changes in the organization of the Fund.

The decisions taken in Kingston, Jamaica, have resulted in the establishment of the Trust Fund, in which the developing countries, and particularly countries like mine that are in the ranks of the most seriously affected, place great hopes. We hope that the discussions among the Executive Directors to settle outstanding issues relating to the operations of the Trust Fund will result in conditions that are as favorable as possible for the countries using this new facility. This is very necessary, as the countries that are most in need of assistance are already bearing a heavy external debt-service burden.

Another subject of concern is the volume of capital and technology to be transferred to the developing countries. The countries that have the greatest need are often unable to obtain such assistance because of overly strict rules for the allocation of these resources. In this area, too, we should like to see a simplification and liberalization of procedures.

This concludes the few comments my delegation wished to make. But before I leave this platform, I should like to join previous speakers in thanking our hosts for the outstanding hospitality they have extended to us, which has certainly contributed to the success of this Annual Meeting.

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

On behalf of the delegation of the Republic of China, I wish to join my fellow Governors in expressing our sincerest appreciation to our host country for its hospitality and cooperation. It is indeed our privilege and pleasure to hold our annual discussion in this lovely and dynamic city of Manila, which testifies eloquently to the economic achievement of the Philippine people in recent years.

I wish also to express our thanks to Mr. H. Johannes Witteveen, Managing Director of the International Monetary Fund, Mr. Robert S. McNamara, President of the International Bank for Reconstruction and Development, and the Executive Directors and the staffs of the Fund and Bank for their dedicated efforts which have made the year since we met last time a year of success. Our sense of accomplishment is enhanced when we take into consideration the difficulties we have experienced in seeking solutions to seemingly insurmountable problems in connection with establishing an orderly monetary system and at the same time satisfying the universal desire for further development, in an environment of continuous world-wide crises.

May I also point out, in this regard, that we should express our appreciation for the valuable guidance given to Fund and Bank operations by the Interim Committee on the International Monetary System as well as by the Joint Ministerial Committee on the Transfer of Real Resources to Developing Countries.

The approval of the second amendment of the Articles of Agreement is an important milestone in the history of the Fund. It is the crystalization of many years of conscientious effort and study, and, upon entering into force, will enable the Fund and its operations to be better adjusted to present-day requirements. We genuinely believe that the flexibility accorded to members’ choice of exchange rate arrangements and the official recognition of a generalized system of floating rates are inevitable and desirable. However, as representatives from a developing country, we still hope for the day when international economic and financial conditions will permit the reinstallation of a system based on stable but adjustable par values. Our experience has shown that such a system best served our unsophisticated purposes, provided a climate of financial stability, promoted trade, and sustained economic development and prosperity.

The process of demonetization of gold has been accelerated and its role in the international monetary system has been smoothly reduced during the past year. Ever since the special drawing rights mechanism was first set up to meet the need of creating additional reserves in an internationally controlled manner, it has been the goal of the Fund’s efforts to make the SDR the principal reserve unit for the system. As a result of the second amendment, the characteristics of the SDR are substantially changed, and its possible uses are increased and expanded.

My delegation notes with satisfaction that the Fund’s resources have been made increasingly available to member countries in meeting their financing requirements associated with the widening of current account deficits. Members’ borrowings from the Fund amounted to a record SDR 4.7 billion during the calendar year 1975, and came to more than SDR 4.9 billion in the first half of 1976 alone. Indications are that most non-oil producing less developed countries would rely relatively more on the Fund than on private banks to bridge over their balance of payments gaps this year. . . .

. . . Until 1974, our country had enjoyed one of the highest and most consistent growth rates in the world. From 1952 to 1973, the average annual increase in real gross national product (GNP) was 8.3 per cent and, during that period, it never fell below 5.3 per cent. In 1974, under the impact of the world-wide recession, the growth rate fell to only 0.6 per cent, but recovered to 2.8 per cent in 1975. Those rates were very low; but, considering the tempo of the world economic situation during those critical years, the result could be deemed satisfactory.

As to economic development in 1976, although the target rate of growth has been set at 6.4 per cent in terms of real GNP, the economic growth rate rose at an annual rate of 13 per cent for the first half of this year. Two-way trade will reach $14.65 billion. Exports of goods and services will reach $7 billion, up by 11.3 per cent, and imports $7.65 billion, up by 11.7 per cent.

In the light of the drastically changing economic situation, the Government is finalizing a new Six-Year Plan for the years 1976–81. The plan would be devoted to completing ongoing projects, especially the ten major projects, and to implementing several new programs. The target growth rate is 7.5 per cent per annum and the per capita income is scheduled to grow by 5.8 per cent per annum to $1,344 in 1981.

On behalf of my delegation, I would like to conclude by saying that my country will, as it has always done, endeavor to cooperate fully with the Fund and the Bank.

October 7, 1976.

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