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Presentation of the Fortieth Annual Report1 by the Chairman of the Executive Board and Managing Director of the International Monetary Fund

Author(s):
International Monetary Fund. Secretary's Department
Published Date:
November 1985
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Author(s)
J. de Larosière

It is a pleasure to join previous speakers in welcoming all of you to the Annual Meetings. We have been honored by the presence here this morning of the President of the Republic of Korea, and I thank him for his thoughtful and stimulating address at the outset of these meetings. Let me extend a special welcome to the representatives of our newest member country, Tonga, who are with us for the first time this year.

Let me also join with the President of the World Bank in conveying to the Mexican representatives here today our heartfelt sympathy for the tragic loss of life and human suffering in the wake of the recent disaster. In this connection, as you know, the Executive Board of the Fund has just indicated its readiness to support Mexico in these trying circumstances.

The world economy in the past year has displayed a combination of notable progress in certain areas and growing uncertainties in others. On the positive side, inflation in industrial countries has receded further and economic recovery has continued. Heavily indebted countries have reduced their external deficits and a number of them have reversed the decline in their domestic output. Among the negative developments are the slowing of growth in the industrial world, which has been accompanied by a weakening of commodity prices, and the persistence of strong inflationary pressures in a number of indebted countries. The critical challenge now is to firm up the path of durable expansion in the world economy. This will be the principal theme of my remarks today.

I will deal first with the situation in the industrial countries: if expansion in the large countries cannot be consolidated, the other problems facing the world economy will become that much more difficult. Next, I will take up the question of indebtedness: a resolution of this issue can only be achieved on the basis of strong, sound, and sustainable growth in indebted countries and open international capital and trading markets. Finally, I will offer some thoughts on how to stabilize and strengthen the international monetary and trading system in the face of the pressures that act upon it.

I. Expansion in the Industrial Countries

1. Growth in 1984–85

Economic growth in the industrial countries has slowed down this year from the rapid pace of 1984. Last year, total output in industrial countries increased by almost 5 percent, the largest rise in eight years. In 1985, growth is likely to be in the vicinity of 3 percent. A moderation in the pace of growth was to be expected, as the exceptionally rapid expansion of demand that characterized the early stages of recovery in the United States tapered off. But the slowdown in the early part of 1985 was sharper than many had expected, leading some to fear that it might be prolonged.

In my view, the hesitancy of output growth in the early part of this year is not outside the range of short-term fluctuations normally experienced during periods of recovery. There are still important forces acting to sustain expansion in the industrial countries. Receding inflation has helped support the growth of real incomes. Interest rates have come down. And business profitability is better than it was two or three years ago. However, there are areas of concern. Business and consumer confidence is fragile, and a number of basic imbalances—about which I shall have more to say in a moment—could, if not corrected, undermine growth. In these circumstances, it is essential that economic policies in industrial countries have the right focus. By this I mean that they should lay the basis for durable, non-inflationary growth.

2. Monetary Policy

To this end, the preservation of confidence in financial stability is of prime importance. By now, the monetary authorities in a number of countries have demonstrated their commitment to reduce inflation. But confidence has been so hard and costly to rebuild that a relaxation of the anti-inflationary stance would be a grave mistake. Monetary policy must, of course, be sufficiently flexible to take account of economic conditions and institutional changes. But a shift in the primary focus of monetary policy in the industrial countries toward active stimulation of aggregate demand would inevitably lead to a resurgence of inflation.

3. Fiscal Policy

In the realm of fiscal policy, industrial countries have for some time been in agreement on the desirability of curbing government expenditures and reducing budget deficits. In general, however, the results have fallen short of intentions. Government spending in the seven largest industrial countries has continued to rise in real terms over the past five years, and is expected to exceed 45 percent of GNP on average in 1985. Fiscal deficits have also stayed high. Indeed, despite the recovery, government deficits in the seven largest industrial countries in 1985 are expected to show little improvement over the average of the past three years.

There have been, in addition, striking differences in the thrust of fiscal policy among the major countries, differences that have continued into 1985. In Japan and the major European countries, taken as a group, budgetary policies have generally aimed—though not without significant slippage in some cases—at reducing deficits in relation to GNP. In the United States, by contrast, fiscal policy has imparted a significant stimulus to demand in the past four years. But the growth of the U.S. fiscal deficit has been one of the factors behind the mounting deficit in the current account of that country’s balance of payments and of the high interest rates, which, in turn, have contributed to the strength of the dollar in exchange markets. A durable reduction of interest rates is an essential condition for strong growth of capital formation in industrial countries, for an improved international allocation of capital, and for easing the burden of debt service on developing countries. It would, therefore, be hard to overstate the importance of the United States’ bringing down its structural budget deficit. At the same time, countries with strong external positions and good inflation records should take advantage of the scope for contributing to sustainable growth in world demand.

4. Structural Policies

Stable financial policies are important because they provide the environment in which private sector behavior can most effectively contribute to higher employment and more rapid growth. To achieve better economic performance, however, it is also necessary that the institutional characteristics of modern economies become more flexible. A number of structural rigidities are imposing costs on society as a whole that far outweigh the advantages to their beneficiaries. We only have to look to the appallingly high unemployment levels in Europe to see the human consequences of these deficiencies. Rigidities can take a variety of forms: subsidization of obsolete industries; a tax structure that discourages work, saving, and investment; regulations that hamper innovation; wage-setting procedures that inhibit needed changes in the level and structure of wage costs; impediments to geographical and occupational mobility; protectionist measures that permit out-of-date processes to remain in existence; and so on. Such rigidities are present, in some degree, in all industrial countries, although labor market rigidities are perhaps most evident in Europe. The measures needed to deal with them vary from case to case, depending on the nature of the particular problem and the surrounding social and institutional structure. And they will take time to implement. But, without a determined attack on structural rigidities, it will be hard to achieve vigorous growth and to bring down unemployment.

II. Adjustment, Growth, and Indebtedness in Developing Countries

1. Current Economic Situation

Developing countries have achieved a great deal in the past three years. Considerable progress has been made in restoring more viable external positions. Generally, growth rates have picked up, although living standards in many countries are still below the level of a few years ago. Efforts toward adjustment must continue if the gains on the external front are to be consolidated and sustained growth restored.

On the whole, 1984 was an encouraging year. Output in developing countries, other than the oil exporters, grew by 5¼ percent, the best performance in almost a decade. The combined current account deficit of these countries fell to $38 billion. This represents about 6 percent of exports of goods and services and is the lowest such ratio in two decades. At this level, the deficit was covered by inflows of official assistance and direct investment, so that commercial borrowing was broadly matched by increases in reserves. Fuel-exporting countries faced a difficult situation in view of the weakness in the market for their major export commodity; nevertheless, their combined GNP registered its strongest increase in five years.

Despite these encouraging developments, major challenges have to be met if the momentum of development is to be accelerated and sustained. The recent slowing of growth in the industrial world has been reflected in reduced growth of developing countries’ export volumes together with a weakening in primary commodity prices. As a result, the export earnings of developing countries are expected to shrink by 2½ percent (in dollar terms) in 1985, having risen by 8 percent in 1984. This is compounding the foreign exchange difficulties of many countries as they strive to meet their import bills and the heavy burden of external debt servicing. It is also likely to bring about a deceleration in the growth of output. For all developing countries taken together, growth is expected to slow to just over 3½ percent in 1985 from almost 4½ percent in 1984.

Another feature of the present situation is that certain important groups of countries still have a long way to go before the per capita income losses of recent years are recouped. In Latin America, for example, output in 1984 is estimated to have been no higher than it was four years earlier, while there has been considerable population growth in the intervening period. The situation in sub-Saharan Africa is of even greater concern. The decline in per capita incomes in this region, although smaller, must be seen in the context of much lower income levels. The African economies have been through a long period of stagnation associated, in part, with adverse weather. These developments have involved severe human suffering and distress.

A third aspect of the position of developing countries that is a source of concern is the persistence of inflation. This is not a universal problem, but in some countries where it has become serious it is complicating or undermining their adjustment efforts. Twelve out of 14 of the largest borrowers that have experienced difficulties in servicing commercial debt over the past three years currently have inflation rates in excess of 20 percent. Even more disturbing is the fact that in many of these countries the problem has become worse.

2. Conditions for Medium- Term Growth

Our assessment of the medium-term prospects of developing countries suggests that as a group they should be able to achieve domestic output growth of 4½ to 5 percent annually while reducing significantly their external debt ratios. Needless to say, this overall picture obscures a wide variation in prospects as between different regions and countries, with some countries facing limited, if any, per capita income growth. What is more, it is an outcome which, though feasible, will not be achieved easily. It depends upon a favorable world economic environment, adequate flows of finance, and, of course, effective policies on the part of developing countries themselves.

a. First, as far as the world economic environment is concerned, a major requirement for an acceleration of growth in developing countries is that the pace of expansion in the industrial countries is maintained, on average, at around the estimated growth of their productive potential of 3 percent. In addition, it is essential that developing countries’ exports have access to industrial country markets and that financing conditions are satisfactory. This underlines the critical importance for the world economy of the quality of macroeconomic policies in industrial countries as well as of firm resistance to protectionist pressures. I shall have more to say on this latter point in a moment.

b. Adequate financing is a second key requirement if adjustment is to be combined with growth. Commercial banks, official lenders, and multilateral institutions all have an important role to play in this connection.

As to the commercial banks, the recent multiyear rescheduling arrangements in certain countries have been of considerable benefit in consolidating financial relationships between debtors and creditors. The task now is to build on these innovations and to restore greater and more sustained access to normal commercial financing.

While the banks are putting the emphasis on trade- and project-related lending to developing countries, we must remember that the system still requires some balance of payments financing by the banks, including concerted financing packages where appropriate. Our experience in recent months, however, has been that some new lending packages have been difficult to put together, even where strong programs of adjustment had been launched. More generally, net new lending by the banks to developing countries has fallen very sharply over the past two years and is now very limited. Although it was desirable that the banks reduce their exposure relative to capital from the unsustainable levels recorded in 1981, the extent to which their lending has now slowed has itself become a source of concern.

It is essential that banks facilitate the efforts of developing countries to pursue sound adjustment policies, not only by rolling over maturing loans but by making new money available in appropriate circumstances. Such financing has major implications for the growth and import prospects of adjusting countries and ultimately, therefore, for the quality and security of banks’ existing investments in the developing world. To reverse the recent trend toward a too rapid disengagement, imagination and a measure of flexibility on the part of the banks are required. It is important, too, that banking regulations designed to strengthen institutions should not inhibit a resumption of credit flows to countries making progress toward adjustment.

Aside from commercial financing, we must also work to strengthen sources of capital flow that make borrowing countries less vulnerable to changes in the international economic climate or in the level of international interest rates. Direct and portfolio investment have an important role to play in this regard, though it will take time—and confidence—for such flows to become a major vehicle for additional development finance.

Given the limits to market financing and the extent of need, official development assistance will continue to play a crucial role for many countries. It is in my view imperative that it be increased. I am thinking especially of low-income countries that have limited capacity for mobilizing domestic resources and that sometimes face severe natural and climatic obstacles as well. These countries are critically dependent on official sources of development assistance. Not only do they need sound domestic policies—that goes without saying—they also need continued inflows of concessional financing from abroad if they are to prosper.

In this connection, the multilateral development institutions have an essential part in financing growth in their member countries. We have just heard the President of the Bank outline the central role the World Bank group will have to play as a provider of longer-term resources for development. Today, with the necessity in so many countries for major structural adjustments and sectoral reforms, the role of the World Bank has never been more important. We all have a responsibility to see to it that the finances of the Bank are reinforced so that the institution is equipped to carry out its crucial mandate. Vigorous support of the World Bank’s activities by all members is an integral part of any durable solution to the economic difficulties of recent years.

c. The ultimate responsibility for combining external viability with domestic growth falls, of course, on developing countries themselves. So many countries have been pursuing adjustment policies with considerable firmness and courage. These efforts must be continued if the gains of recent years are to be consolidated and transformed into rising living standards.

But let us face up to the fact that policies over the past two years have been far from perfect. In many countries, budget deficits are still much too high and continue to crowd out private investment. Too often when it comes to making choices, capital outlays are sacrificed in favor of less productive current expenditures. At the same time, the improvements in current account positions, spurred by external constraints, have in many cases involved severe import compression, a weakening of domestic economic activity, and increased unemployment. Thus, while external positions have sometimes improved dramatically, underlying weaknesses and imbalances remain to be addressed if economic growth is to be restored and social tension reduced.

Clearly, the only workable approach to alleviating the debt service burden is one in which output and exports of indebted countries grow rapidly. In short, the debtor countries must grow out of debt. How is this to be achieved? Fundamentally, it involves encouraging productive investment. This, in turn, involves action in a number of policy areas.

First, creation and maintenance of a price structure that promotes efficiency in resource allocation is indispensable. This includes an exchange rate that reflects economic realities. It also includes interest rates that are sufficiently attractive to mobilize domestic savings and to optimize the use of scarce investment funds. And, finally, it includes other government-controlled prices that must be kept in line with movements in costs. In practice, however, governments are often tempted to delay exchange rate and price adjustments in an effort to protect consumers and some businesses or dampen the trend of inflation. But such delays provide illusory, superficial, or short-term benefits, while the costs of price distortions are real, profound, and lasting. Distortions quickly become embedded, aggravating budgetary problems, weakening investment, and causing savings to flow out of the country in search of a higher return abroad. In these circumstances, how can we expect foreign savings to fill the gap?

A second essential element of a growth-oriented policy, and one that complements a realistic price structure, is a liberal trade policy. Resort to import restrictions is often a first response to external financing problems. This is not a durable solution. Such policies can only protect particular sectors and in doing so undermine efficiency, competitiveness, and growth prospects of the entire economy. Trade liberalization in countries faced with debt problems is an important component of the effort to restore growth, economic efficiency, and external stability. And here I want to underline the fact—which does not always get the prominence it deserves—that a number of developing countries have been taking strides toward liberalizing their foreign trade in spite of the balance of payments constraints they have been facing. They need and deserve the support of more open policies in their trading partners.

Third, I want to stress the importance of promoting domestic savings as an element of a growth-oriented adjustment policy. Let us not forget that in virtually all countries, it is domestic rather than foreign savings that finance the bulk of investment. I have already mentioned the importance of interest rate policy in mobilizing savings. It is also crucial to reduce the absorption of savings by unproductive government expenditures and public enterprises—which are often inefficient and unprofitable—so as to maximize the volume of resources to finance investment in the productive sector. If the productive base of an economy is to be enlarged, it is also necessary that producer prices, the tax structure, budget priorities, and so on, provide adequate incentives for investment. In formulating policy recommendations in these areas, the Fund relies heavily on the expertise of the World Bank.

A final aspect of a growth policy I want to stress concerns the importance of price stability. When inflation accelerates to exorbitant rates, as has occurred in several countries, how can severe disruption in the domestic economy be avoided? Confidence disappears while government deficits, swollen by the burden of escalating domestic debt, keep on absorbing a rising share of domestic savings. In such circumstances, the only solution is to bring down rates of monetary growth. Invariably, this involves deep cuts in budget deficits if an intolerable squeeze on private investment is to be avoided. But if inflation is to be stopped without a serious downturn in domestic economic activity, structural measures are also needed. These should be aimed at reducing the automaticity of indexation and at adjusting relative prices. Once such a package is firmly in place, more direct methods, such as a wage-price freeze, can be effective as a transitional device. And here I want to pay a special tribute to the courage and determination of the Argentine authorities in launching a bold and far-reaching economic reform encompassing all the major elements I have just described.

The policies I have been describing are at the heart of the programs the Fund is supporting. They are not antigrowth as is sometimes contended. Far from it. They are the pillars of sustainable growth. There are no alternatives. An economy beset with price distortions, rampant inflation, import restrictions, and capital flight simply cannot grow. Nor can such conditions benefit the lower-income groups. In practice, the rural poor frequently need more remunerative producer prices, and urban workers are themselves very much dependent upon the vitality of the private sector.

Sound adjustment policies—backed by a strong commitment on the part of the authorities—can and do produce good results. As of now, the Fund is supporting 33 adjustment programs, most of which are working successfully. But there is one case that I would like to single out: it is that of our host country. Korea’s experience in coping with the crisis it faced in 1980 provides a classic case of an economy that responded with a positive adjustment strategy to a succession of domestic and external shocks. While drastically reducing the fiscal deficit and monetary expansion, Korea has maintained realistic interest rates and exchange rates, and has liberalized imports. And look at what has been achieved over the last four years. Price stability has been established. While imports of capital goods have doubled, the external position has been greatly strengthened. At the same time, the economy has expanded at an enviable rate of 7 percent a year, to the benefit of all sections of the community. The success of its adjustment policies now puts Korea in a much better position to cope with the recent slowdown in its export markets.

The Fund has backed Korea’s adjustment with financing under a number of successive programs. It is an instructive case of how wise economic management, even in a country with a relatively meager resource endowment, is the key to good performance. It also provides a good illustration of the structural or supply-side orientation that the Fund emphasizes in the programs it supports, contrary to the assertion of those who seek to portray the Fund as leading countries into recession.

III. International Economic and Monetary Cooperation

I have had occasion to stress several times so far the linkages that bind together the economic destinies of the member countries of the Bretton Woods institutions. The international economic system is more than the sum of the economies of member countries. It is also a network of institutions, markets, and instruments of cooperation that give effect and meaning to the purposes enshrined in the Fund’s Articles.

A central objective of the Fund is to ensure that the international financial and economic system is operating as smoothly and effectively as possible. Several recent developments, however, give cause for concern. I am thinking of the instability of exchange rates, the financing difficulties facing the indebted countries, and the proliferation of restrictions on international trade. Dealing with these strains is essential if the progress made by a number of countries in strengthening their economic performance is to be maintained.

1. Exchange Rate Management and Surveillance

The large imbalances in the external payments positions of the industrial countries and the instability in the functioning of foreign exchange markets are serious destabilizing forces in the world economy.

At the root of these imbalances are underlying differences between economies and divergences in the conduct of economic policy. Although considerable progress has been made toward convergence of anti-inflationary policies in the industrial countries in recent years, there is still some way to go. I mentioned at the outset what, in my opinion, are the requirements for a better convergence of economic policies in these countries, and I will not go over that ground again. But I want to stress that if exchange rate instability is first and foremost the result of policy, it can also be the cause of very serious problems. The magnitude of exchange rate fluctuations is a source of uncertainty for investors, producers, and traders. Even more serious, when exchange rates move out of line with the fundamentals, they can have profound economic consequences. Wide swings in exchange rates lead to costly shifts in industrial structure and exacerbate protectionist pressures. And here, I would note with great interest that the major industrial countries, at their meeting in New York just two weeks ago, have publicly expressed their concern and their determination to act in the face of such a situation. In particular, they have stressed the importance of ensuring that exchange rates better reflect fundamental conditions, and they have decided to strengthen their cooperation to this end. The immediate results in the exchange markets are already evident. Recent developments show that, with a flexible exchange rate system, and in a world of large and mobile capital, discipline and cooperation in economic and financial matters continue to be essential.

This brings me to the role of Fund surveillance. An integral part of our surveillance responsibilities is in bringing together member countries to discuss frankly with one another the mutual interaction of policies and developments. The Fund has gained considerable experience in this role through its regular Article IV consultations with all member countries and its periodic reviews of the world economic outlook. We stand ready to intensify our surveillance action, and we count on the support of our member countries to make it more effective.

The reports of the Group of Ten and Group of Twenty-Four, together with the comments we will be hearing during the course of this week, will be particularly helpful in guiding the work of the Executive Board and the staff. The various suggestions contained in these reports toward a more stable monetary system are now going to be thoroughly examined by the Executive Board, as agreed in the Interim Committee.

2. Problems of International Financing and the Role of the Fund

A stable monetary system also involves a satisfactory and secure system of financial relationships. I have already spoken of the need for adequate and continuing flows of finance from the capital-surplus countries to capital-scarce developing countries and the role of the commercial banks, official assistance, and the World Bank. Now I want to say a word about the Fund.

From what I have just said about the state of the world economy, it is clear that today, more than ever, the international monetary system needs a mechanism to assist countries to regain medium-term viability in their external positions. This is the area in which the Fund has played, and will continue to play, a key role. In fact, the Fund has the absolutely crucial function of ensuring that a proper mix of adjustment and financing is employed and geared to the particular circumstances of each country. To this end it must be able to provide adequate resources of its own when necessary to give credibility to its judgments and to serve as a financial catalyst.

In recent years, the Fund has been providing considerable financial support to its members. But, even though the temporary and revolving character of its lending means that the Fund will not be able to go on providing as much financing on a net basis as in recent years, in the years to come the institution will continue to make its resources available to countries pursuing effective adjustment programs. As you know, the Interim Committee has agreed that the enlarged access policy should be continued for 1986, with only modest adjustments. Thus, the Fund will retain the necessary flexibility in this area. In this connection, I want to emphasize that the Fund continues to be very prudent in its lending policies and exercises great care in the management of its financial position. As you know, the Fund’s liquidity position is at present strong, and the institution is determined to preserve its financial integrity and its monetary character. This is evidenced by the clear and decisive measures adopted by the Executive Board to deal with the few, yet regrettable, cases where members have fallen into arrears in their payments to the Fund.

The Fund also has a role in providing liquidity to the system through the SDR mechanism. The contraction of financial markets, which I referred to earlier, is an important additional consideration to be taken into account when assessing the case for an allocation of SDRs at this time. This important question—on which a consensus has not yet been reached within the institution—will be re-examined in the light of the in-depth review of the role of the SDR which the Interim Committee has urged the Executive Board to undertake.

We have also had fruitful discussions in the Executive Board recently and in the Interim Committee over the weekend on the use of the resources that will become available following repayment of Trust Fund loans. Though the details remain to be worked out, there is agreement that these resources should be used to assist the low-income countries eligible for IDA resources that are facing protracted balance of payments problems. I join in welcoming the statements at the Interim Committee by the representatives of China and India that those countries would not avail themselves of the facility in the period through 1991. The assistance would be made available to countries implementing economic programs designed to promote structural adjustment and growth in a medium-term framework. In view of this orientation, close collaboration between the Fund and the Bank will be important.

On a more general plane, collaboration between the Fund and the World Bank is a matter that has assumed increased importance in the recent past as the problems facing our member countries have proved to be more acute and more prolonged. We are conscious of the fact that the Fund and the Bank have and must retain distinct mandates. But they share a common purpose and there is an important degree of complementarity in many of their activities. In view of what I have said today on the importance of growth-oriented structural actions, it will come as no surprise when I say that I have never been more convinced of the need for close collaboration between our two institutions.

3. Protectionism

Of all the potential threats to the international economic system, perhaps none is as disturbing as that of protectionism. Protectionism addresses the symptom of a problem, not the cause. By dealing only with the symptom, it makes the underlying problem worse. Trade imbalances in the world essentially reflect imbalances in savings and investment between major countries. These divergences show up in current account surpluses and deficits. But protection is not the answer to increased import penetration. Placing restrictions on particular imports does little or nothing to change the underlying imbalance between savings and investment. It simply protects certain specific industries from foreign competition to the detriment of the whole economy. Moreover, by appearing to ease the difficulties of the affected sectors, it relieves the pressure for correcting the underlying imbalances and thus holds up structural change. In addition, the reduction in incomes of producers in supplying countries due to protectionist measures is reflected, almost one-for-one, in cutbacks in their own imports. If protectionism were to intensify, a cumulative contraction in demand, reinforced by the competitive use of restrictions and subsidies, could result. And the consequences would not be limited to these direct effects on merchandise trade flows. Declining world trade would undermine the external position of those countries with large debt service obligations and that have no alternative but to export. It would also jeopardize the efforts of countries that are reducing their own import restrictions. In the end, the international financial system could only suffer as a result.

The industrial countries have a special responsibility in this area. In the interests of all countries, they must take the lead in defusing trade tensions and in strengthening the multilateral system based on the GATT.

* * * * *

Since we last met a year ago, we have seen both progress and emerging uncertainties.

Among the industrial countries there has been a closer convergence to-ward lower rates of inflation with continuing growth. Developing countries that have been able to take advantage of the revival of world trade in 1984 have achieved a marked improvement in their external payments positions.

But we are faced with a number of questions. Will the industrial countries be able to reduce the imbalances in their economies without weakening growth? Can they resist protectionist pressures? Will the indebted countries have the tenacity to press on with their adjustment efforts and be able to direct them more effectively toward restoring sustainable growth? Will the international financial system show the necessary flexibility to cope with recent developments and match up to the demands of the present situation?

What is at stake is not only the stability of an international system which brought thirty years of prosperity to the world but also, and more fundamentally, the future of people everywhere. The stakes, therefore, are overwhelming. We must respond to the challenges now confronting us not with more deliberation, but with swift and decisive action. We can no longer put off the political decisions needed to give effect to the economic imperatives.

The international economic system has reached the point of no return. There is no alternative to closer cooperation and leadership. If each country, to the best of its ability, tackles its own problems and makes its contribution, in a spirit of shared responsibility, to a resolution of the problems facing the world economy, then the hard-won progress of recent years will be preserved and economic growth will be consolidated and extended for the benefit of all countries. The multilateral institutions are at hand to help coordinate these efforts. The challenge is one we cannot fail to meet. We know what has to be done. It is now up to the international community to act, and to act together.

October 8, 1985.

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