Discussion of Fund Policy at Fifth Joint Session1
- International Monetary Fund. Secretary's Department
- Published Date:
- November 1983
Statement by the Governor of the Bank for Bhutan—Dawa Tsering
I have the honor to convey to you the greetings and good wishes of His Majesty King Jigme Singye Wangchuck for the success of these meetings. I consider it a great privilege to attend this annual gathering and to participate briefly in the general debate. Our membership in these premier international development and financial institutions represents the fulfillment of an important aspiration of the Bhutanese people. We greatly value this membership, and we are confident that these institutions will play an important role in Bhutan’s economic development.
I would like to take this opportunity to express our deepest thanks to the President of the United States for his inspiring inaugural statement. We were pleased to hear that the economic recovery in the United States is well under way. The President also had some words of wisdom on the factors that could promote faster development. He stressed in particular the greater efforts that could be made by governments and people. The process of development often entails centralization of functions and responsibilities, with the result that people become overdependent on government as the source of their welfare and the arbiter of their destiny. We, in Bhutan, have given a great deal of thought to this aspect, and, under the enlightened leadership of our King, we have made self-reliance, decentralization of responsibilities and powers, and participation by the people in developmental activities the basis of our development effort. We believe that development is, above all, a process of change and adaptation that should aim at reducing economic dependence as well as at raising per capita incomes.
We are of the view that the Bank and the Fund have a leading role to play in promoting lasting economic recovery and accelerating the pace of development in developing countries. Such a role for the Bank and the Fund is all the more important for a country like Bhutan, which relies heavily on external support for its development activities. It is our hope that, despite the stringency of financial resources at present, the least developed countries such as Bhutan will receive special consideration.
I would like to mention very briefly some of the activities of the Bank and the Fund in Bhutan. Since we became a member of the Bank and the Fund two years ago, we have developed close and fruitful relations with these two institutions, primarily as a result of their deep understanding of our special needs and problems….
The Fund has been equally active in providing assistance. One of the most important developments in this respect has been technical assistance to the Royal Monetary Authority of Bhutan, which was established a year ago. The Fund has also advised us on fiscal and budgetary matters, and, as a result of this advice, we plan to reform our tax and budget accounts system in the near future.
Before concluding, I would like to take this opportunity to express our appreciation for the exemplary leadership provided by Mr. Clausen and Mr. de Larosière to the Bank and Fund, respectively. Mr. Clausen has continued his efforts in making the Bank a trusted partner in economic development of the developing countries. We particularly appreciate the measures directed at alleviating poverty in developing countries and the priority being accorded to the low-income countries among them. Under Mr. de Larosière’s wise and dedicated stewardship, the Fund continues to maintain its important role in international financial and monetary affairs. We are particularly happy that his term has been extended by another five years, and we are confident that all of us will benefit from his extended tenure in office.
Statement by the Governor of the Fund and the Bank for Sri Lanka—Ronnie de Mel
I consider it a privilege to address this distinguished assembly for the seventh consecutive time. Across the world, the casualty rate of finance ministers is high. We belong to a high-risk profession, with the risks proportionately higher in developing countries. Those of us who have been able to maintain some continuity are somewhat fortunate because this implies a certain continuity of direction of national policies. Since most of the speakers have already discussed in detail the present world economic situation and the outlook for developing countries, I shall restrict my observations on the subject to the minimum. In the last few years, the world has witnessed the biggest recession since the 1930s. The entire picture has been one of gloom. We are glad that a faint glimmer of light has now begun to appear on the distant horizon. At the moment, it seems to be confined to a few of the developed countries. We hope that it will gradually spread to the developing world as well.
President Reagan, addressing the United Nations two days ago, said that we must try to keep faith with the dreams that created the United Nations. Here at our Annual Meetings, we too must endeavor to keep faith with the dreams of our founders at Bretton Woods and try to rekindle the spirit that inspired them for the benefit of all mankind. On behalf of Sri Lanka, I would like to thank the U.S. Government, Mr. Clausen, Mr. de Larosière, and the staff of the Bank and Fund for the excellent arrangements they have made. I also welcome the new members of the World Bank.
Material progress is not the sole purpose of human existence. But, at the same time, without material progress, all other possibilities of enriching human experience falter and fade away. Poverty is an affront to the dignity of man and to the conscience of the international community. The World Development Report has warned us that more than 600 million people will remain below the poverty line in the developing countries in the year 2000 unless appropriate corrective measures are taken, and taken now. Devising those measures and ensuring that they are followed through to final fulfillment is the responsibility of all of us gathered here today—the member countries, the Fund, and the Bank.
I hope that we will keep that fact uppermost in our minds as we deal with the technical intricacies of international finance.
As a rule, unfortunately, our recent Annual Meetings have been the occasion for exchanging views on economic gloom. We take time off for the pleasant diversions that are the traditional adjuncts of our deliberations but then return to the theme of gloom, or even doom.
There is something of a change this year. Some industrial countries have begun to see themselves emerging from the throes of recession. We share their satisfaction at what has been achieved. We would like to share their hope that the early signs of recovery will grow strong and will last, but it would be highly premature to assume that the world economy has finally returned to a course of self-sustained growth and development.
Undoubtedly, the restoration of growth in industrial countries is an important component of global recovery. It is only one component. The fact of interdependence in the world today dictates that, without positive international action to arrest the grave deterioration of economic conditions in the developing world, growth in industrial countries will itself be aborted. We will all then return to where we started.
American legislation to increase the resources of the International Monetary Fund was recently described from an American perspective as a “jobs bill.” Some 40 percent of U.S. exports go to developing country markets. International trade cannot flourish today unless potential markets are themselves strong and unless it is realized that exports have to be balanced by imports in a sustainable trading system.
These realities are not evident in the working of the international system; hence, the recurrence of inequalities, inadequacies, and insecurities in the world economy. Although almost every country in the world is committed in principle to the expansion of trade as a facet of international recovery, this principle has not been evident in practice. In 1982, for the first time in nearly four decades, the volume and value of world trade contracted by 2 percent and 6 percent, respectively. These cold statistics imply a potential for human disaster that can affect developed and developing countries alike.
In 1982, the combined imports of developing countries fell by 8 percent. The per capita income of many countries in Africa, Latin America, and several other areas fell for the second successive year. It has been estimated that more than 300,000 U.S. jobs have been lost as a result of declines in Latin American growth and imports. In developing countries, the consequences of curtailed imports meant less development, slower industrialization, higher unemployment, and, overall, greater poverty.
Even to maintain this reduced level of imports in the face of a falling real value of their export earnings, developing countries had no alternative but to borrow. In 1982, the external debt of non-oil developing countries rose by 10 percent, to $612 billion. Debt service payments now pre-empt one fifth of their gross export earnings. As a result of lowering their performance and expectations in response to external factors, these countries have become even more impoverished than before. While this process of poverty unfolds, the trade in armaments and death flourishes. The total foreign debt of non-oil developing countries, as I just noted, is $612 billion. Global expenditure on armaments, meanwhile, in a single year is $850 billion. This disconcerting comparison reinforces the need for a global and integrated approach to our problems and our tasks. There will surely be more world security and stability if a portion of the resources now spent on defense and destruction were to be diverted to development and the decline of poverty in the Third World.
The crucial role that the Bank and the Fund must play in restoring and maintaining global international growth is acknowledged. What is not acknowledged is the extent to which, and the manner in which, the resources of these institutions could be made appropriate to their current tasks.
It has now become clear that the Fund’s eighth quota increase is far short of the needs of the present and of the immediate future. There are grave doubts that even this modest increase will be achieved in full or in time. It is also evident that the resources of the enlarged General Arrangements to Borrow will not be immediately available. Must we wait until the world financial system goes into complete chaos, a situation out of which none of us will emerge unscathed, a situation which we must surely try our utmost to avert? Recent announcements by European central banks of their difficulties in matching Saudi Arabia in lending to the Fund have created an acute financial stringency which might push the Fund to curtail its crucial role, at the very time it is most expected to underpin the international financial system. At the same time, we see inadequately conceived and shortsighted efforts to reduce access of developing countries to Fund resources, thus transferring the massive burden of international adjustment to the very nations that can least afford to bear this burden. How can they bear this burden, when a large majority of their people live well below the poverty line, when recession has drastically reduced their export incomes, when inflation raises their import costs, when their access to world financial markets is diminishing, when their recent thrusts at export expansion and diversification come up against protectionist barriers, and when the traditional support by the World Bank and the IMF, already eroded by inflation, is going to be further reduced?…
Some of our Third World colleagues have been so disappointed with the outcome of the recent Interim Committee and Development Committee meetings that they have deemed our gathering this year as the beginning of a “parting of ways” between industrial and developing countries. I would not like to be so pessimistic, as realism, not pessimism, is the answer to our problems. We should reconfirm our commitments to the principles of Bretton Woods, remold and refashion our institutions and our procedures to suit present-day requirements, and try to rebuild the international financial and trading system on principles of freedom, equity, and justice. We must follow a practical and pragmatic approach in the present situation:
(1) We must adopt immediate short-term initiatives to strengthen the Fund and the Bank, including IDA.
(2) We must think in terms of longer-term action for a reform or improvement of the international monetary and financial system.
We should not, however, sacrifice our immediate objectives in the search for longer-term solutions to world problems; at the same time, we must keep our long-term perspectives clearly in mind.
With a view to longer-term reform or improvement of the system, the Finance Ministers of the Commonwealth, which includes a number of very poor developing countries, at their meeting held last year in London, commissioned a study. A report entitled Towards a New Bretton Woods was presented to our meeting held last week in Trinidad and Tobago. The Finance Ministers of the Commonwealth commend this report for very serious consideration by the international community.
We agree that a new Bretton Woods-type conference on international reform will not prove very constructive immediately. First, we need to study problems in greater depth and come up with solutions which are acceptable to the larger community of nations. Second, we should wait and see whether the current euphoria of world recovery, led by the resurgence of economic activity in certain industrial countries, will be borne out by reality and will spread to the developing world as well. We have serious reservations on the current forecasts, and we are inclined to believe that we are reading too much into the rather fragile recovery observed in a handful of industrial countries. Also, we have doubts whether such a recovery will spread its wings across the globe because of rigidities that have emerged in the international economic mechanism in the form of protectionism and the massive debt overhang.
We would, therefore, strongly recommend that we take short-term measures to sustain whatever signs of world recovery that are there, while undertaking fundamental long-term studies and evaluations which would hopefully lead us to a restructuring of the international financial system at a more appropriate time in the near future.
In the short run, we must preserve and protect the pivotal role of the Fund and the Bank in the world economy. These are the only institutions we have to engineer positive global economic adjustment.
The role of the Bank and the Fund has already diminished in terms of world trade and payments imbalances. The commercial banks, which filled the void and promoted world trade in recent times, have tended to recoil from the magnitude of the debt crisis. We do not think that the Bank and the Fund can fill this void. But they can critically underpin continued commercial bank exposure in developing countries by providing the minimum critical support to these countries, in support of adjustment policies, thereby restoring confidence in the international system. Reducing access of developing countries at a time like this is a most inappropriate signal to the international community. It is also a signal to developing countries that they will have to adjust more. What more can these poor countries, already battered mercilessly by years of world recession, do, other than condemn their people to starvation and abject poverty? This aspect should be paramount in short-term as well as long-term solutions to the world’s economic problems.
As specific short-term measures, we should bear in mind the need to preserve and enhance the role of the Bank and the Fund. After increasing Fund quotas, it is irrational to reduce access to Fund resources. We should endeavor to assist adequately those countries that are undertaking difficult adjustment measures. In an unequal world, good policies are not perceived by the poor as good when they impose serious hardships; hence, finance helps to soften the impact of difficult adjustment, thereby promoting the necessary political commitment to adjustment. Good policies must be backed by adequate finance, if structural adjustment the world over is to be achieved in an orderly manner. As the Managing Director, Mr. de Larosière, said the day before yesterday, the adjustment process in a number of countries “involves considerable hardship in the short run and is being realized at high social and political cost. Some countries are already approaching the limits of social and political tolerance of their adjustment efforts.” This is true, and we must be careful not to throw the baby away with the bath water.
More specifically, we must carefully review during 1984 the recent decisions to curtail access to Fund resources. We should not undermine the compensatory financing facility, which has shielded countries from both the vagaries of international trade and the vagaries of weather. We must support the Fund in its efforts to replenish resources to meet the growing commitments. We must protect the small and poorest economies, which are least able to make strong adjustment…. Internationally, we need an immediate standstill on protectionism in industrial countries and a commitment to roll back such measures when recovery progresses. We also need a commitment by industrial nations to harmonize their domestic policies, to reduce fiscal deficits, and to ease interest rates.
As for long-term measures, we should commission further studies which will examine the measures necessary for the reform of the international economic system, so that the rich and poor countries and the industrial and developing countries might be provided with a more harmonious and equitable environment to develop and grow in peace and cordiality. Initially, let us set up a permanent working group of people with a truly international outlook on world problems to undertake this preliminary work. And let us once again commit ourselves to the principles of international cooperation which our founding fathers enunciated 40 years ago at Bretton Woods.
We live in dangerous times. The search for international peace and harmony continues, but more and more it seems to be an elusive search. Perhaps this is because we have been approaching the wrong causes in our attempt to formulate solutions to these problems. The close relationship between development and peace has often been stated but not adequately explored or followed up. An impoverished population is potentially an unstable population. Suffering breeds bitterness, bitterness breeds anger, and anger leads to violence. Balanced world development, therefore, lies at the heart of international peace and security.
The tasks of today are more complex, more compelling, and more demanding than the tasks of yesterday and yesteryear. If we do not fulfill the tasks of today, with single-minded dedication to human needs, who knows? Perhaps, then, we will not deserve a tomorrow.
Statement by the Governor of the Bank for Pakistan—Ghulam Ishaq Khan
Let me at the outset join my colleagues in extending a warm welcome to the new members of the World Bank. May I also take this opportunity to express our appreciation for President Reagan’s inaugural address, which was highly encouraging for its unambiguous commitment of support for our institutions, and for the remarkably candid and forceful opening statements of the President of the World Bank and the Managing Director of the Fund, which, as always, have helped in focusing attention on the central issues that must engage our attention.
Economic recovery is by now widely recognized as taking effect in a number of industrial countries, notably in the United States. It is a welcome development as it signifies a break in the gloomy economic climate which we have been lamenting in this forum in several previous meetings.
The recovery is, however, neither universal in character nor broad-based in its composition or assured of durability. As Mr. de Larosière has pointed out, it is still limited geographically, and fixed investment, which is the decisive element in determining long-term growth and productivity, remains weak. As to the crucial question of durability, I agree with Mr. Clausen that it will depend upon the actions of the leaders of both industrial and developing countries whether the recovery will be short-lived or sustained.
It also needs to be noted that the developing countries, carrying a disproportionate burden of the impact of world recession since 1976, find their position continuing to deteriorate even in this recovery phase:
—The growth of real output in the non-oil developing countries slowed down further in 1982 to about 1.5 percent for the group as a whole, signifying negative growth in per capita GNP. Even for 1983, there are no prospects that positive growth in per capita incomes would be attained. Thus, for three consecutive years, there will be zero or negative growth in per capita incomes in these countries.
—The flow of resources to developing countries has continued to decline. Private bank lending has virtually dried up in terms of net transfer of additional resources. In real terms, ODA flows to developing countries are estimated to have remained unchanged in 1983 at about the same level as in 1980. With only 30 percent of the bilateral concessional aid going to the low-income countries, the main reliance of these countries was on concessional assistance from multilateral agencies….
—The denial of trading opportunities to the developing countries, particularly in items where they have the greatest comparative advantage, not only persists but has grown in recent years. Despite the recovery, there are no signs of an early rollback in the tide of protectionism. Combination of high interest rates and reduced access to shrinking trade opportunities is making the already difficult debt problem almost intractable.
Looking at the global picture, it appears that the suffering of the various groups of developing countries has been in direct proportion to their exposure and their linkage to the world economy. The experience is likely to be a deterrent for developing countries seeking to orient their policies toward a more open and competitive system with close linkage to the outside world. Unless there are visible signs that positive leadership is likely to be exercised toward managing the world economy along a more stable and progressive path, I am afraid the tendency toward inward-looking approaches would grow, despite their high cost in terms of loss of competitive efficiency.
The task ahead for all of us is to sustain and strengthen the process of recovery and to extend its coverage both to the industrial nations, still suffering from a decline in their economic activity and unprecedented high levels of unemployment, and to the developing world, still reeling under the influence of an apparently interminable crisis. The mutually supporting role of the economies of the industrial nations and the Third World, which is by now well recognized, needs to be courageously harnessed in the present situation to set in motion a forceful and widely shared upswing in global economic activity.
This requires leadership and bold new initiatives. Those who wield leading influence on the world economy have the obligation to exercise this leadership in a positive manner. The economic power enjoyed by the industrial nations must be used boldly for the collective good of the world community, but not by resisting change and reducing all reforms to their lowest common denominator.
The major industrial nations have often given an impression in recent years of acting more as individual national entities, seeking solutions to their own problems, rather than collectively providing leadership in managing the world economic system for the common advantage of all its participants. Some of the policies, which apparently provide easy answers to the problems of one or two countries, may in the global context have negative consequences. The response to the prolonged recession in recent years took the form of curtailment of internal demand combined with growing protectionism. The result was a decline in world trade which in turn magnified the problem of adjustment. Similarly, persistent large fiscal deficits are exerting upward pressure on interest rates, thereby discouraging fixed investments. While the developing countries are being advised to rely on the market mechanism, the present high interest rates are creating special difficulties for them in meeting their requirements of investment finance from the market.
The situation calls for concerted action by both the developing countries and the industrial nations. There is no denying the need for internal adjustments to the new realities by developing countries. This is indeed well under way. They have been able to reduce their trade deficit in 1983 to a projected level of about $40 billion—a reduction to half of the level of two years ago. This reduction has largely been brought about by the curtailment of imports as export opportunities continued to decline and the terms of trade continued to worsen during this period.
The adjustment process in the developing countries must, however, be seen in the perspective of definite limits to social and political tolerance of the systems. These economies and societies are living organisms still developing to acquire cohesion and integration of diverse elements. Adjustment is not a mechanical process. It touches the very core of the social fabric. Beyond a certain level, it may prove counterproductive by causing a breakdown in the continuity of change. At times the limits set by the utter poverty of the masses in the low-income countries to the speed with which an adjustment program can be implemented appear to be ignored.
For an orderly adjustment process to be implemented within realistic limits of sociopolitical tolerance, it would be essential to improve the international economic climate and support the adjustment programs with adequate resource transfers. This will require forceful action for opening up greater trading opportunities and strengthening the institutional framework for the transfer of resources to developing countries.
The World Bank and its affiliates and the Fund constitute the core of the world financial system. These institutions have traditionally made major contributions in ameliorating the situation during crises. It is essential that we strengthen these institutions and enable them to effectively respond to the challenge which lies ahead. However, as things stand, both institutions are threatened by a resources constraint which may paralyze their effectiveness at the most critical juncture. Hamstrung by a paucity of funds, they may well be reduced to an advisory role and may not be able to support the orderly and expeditious implementation of domestic structural adjustment programs. Any institution which is long on advice and short on resources may get a respectful hearing but would hardly be in a position to have its advice acted upon in real earnest.
The position of the resources at the disposal of the International Monetary Fund is particularly discouraging:
—The Fund quota increase agreed upon earlier this year was manifestly inadequate to meet the full requirements of the necessary adjustment programs.
—Even the agreed increase in the resources of the Fund has yet to be made effective while the need for Fund resources in a growing number of countries is most urgent.
—There is still no decision on the fresh allocation of SDRs in the fourth basic period, which began on January 1, 1982. World liquidity has declined in absolute terms for the first time in two decades, placing a serious strain on the world trade and payments system. There perhaps never was as strong and clear a case for creation of international liquidity by the IMF as at present. Yet, the time which the reserve currency countries are taking ostensibly to further study the question is effectively denying the use of an important instrument for improving the pace of global economic recovery.
A situation has been reached where, instead of augmenting liquidity— without, if I may add, much risk of reviving inflationary pressures—the solution to the resources gap problem is being sought by limiting access to even the (by no means easily available) conditional liquidity provided by the Fund. According to the conclusions reached in the Interim Committee on limiting access to Fund resources, even after quota increases the access available to individual countries would remain roughly at the same level as it would have been without the quota increase. This would place a serious constraint on the flexibility of the Fund’s response to the requirements of individual situations, apart from adding to the difficulties of members facing a temporary balance of payments problem….
It would indeed be a great pity if the world community acts in a shortsighted manner and seeks to curtail the role and effectiveness of the Bank and the Fund at precisely the time when their assistance is most needed. While the major burden of adjustment should continue to be borne by the developing countries themselves, they must be assured of at least minimum support from the international institutions. Impediments in the way of such support could have highly disturbing consequences.
Statement by the Alternate Governor of the Fund and the Governor of the Bank for Venezuela—Maritza Izaguirre Porras
I am pleased to address these meetings of Governors of the World Bank and its affiliates, the International Development Association and the International Finance Corporation, and the International Monetary Fund on behalf of Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, the Dominican Republic, Ecuador, El Salvador, Guatemala, Haiti, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, the Philippines, Spain, Suriname, Uruguay, and my own country, Venezuela. Venezuela is honored to be making this statement this year, the bicentennial of the birth of the Liberator Simón Bolívar, a reflection of the tradition of liberty and unity of the Latin American countries. I should also like to note our pleasure at the appointment of Mr. Miguel Boyer, Minister of Economy and Finance of Spain, as Chairman of these meetings. We extend cordial greetings to Mr. A.W. Clausen, President of the World Bank, and to Mr. J. de Larosière, Managing Director of the International Monetary Fund. A warm welcome as well to all the Governors and delegations gathered here, as well as to Antigua and Barbuda and Malta, the new members of the Bank, and to Guinea and Maldives, the new members of the International Finance Corporation.
The countries I represent are attending these meetings in full awareness of the fact that there are three key issues before them for examination. The first is the need to take this opportunity to appraise the current economic situation of Latin America, not only in the context of its own regional characteristics but also in the framework of the discouraging world economic outlook in the short and medium term….
As regards the economic situation of Latin America, our countries are concerned by the fact that the prevailing recessionary tendencies became more pronounced in 1982 because, among other reasons, the crisis of the international economy had a severe impact on trade between the Latin American countries and the rest of the world, kept real interest rates at extremely high levels, and led to a pronounced decline in net capital inflows for the first time in many years. The confluence of these exogenous factors and the accumulation in Latin American countries of limitations or rigidities inherent to their own productive structures, as well as the vulnerability of a development model which called for considerable dependency on inflows of external resources to maintain the investment effort, provoked an unprecedented economic crisis which, while affecting different countries in different ways, is not only widespread but has also posed the greatest economic challenge to the region in this century.
We in Latin America believe that this state of affairs stems from actions or omissions at the global level, the effects and implications of which must be equitably shared among the developed countries and the developing countries alike. In other words, it is now evident that in the past three years our countries have been absorbing a disproportionate and excessive share of the international economy’s adjustment burden, as evidenced in the region by widespread economic stagnation, declining investment, accelerating inflationary tendencies, a deterioration in real wages, and increases in unemployment and underemployment.
The cost of adjustment has been exceedingly high. In many countries, maximum limits have already been reached as regards domestic tolerance for orthodox adjustment policies which offer no better prospects for national development in the medium term. Accordingly, we fully agree with the remarks to the Development Committee of Mr. Clausen, President of the World Bank, to the effect that domestic adjustment programs must be supported, in a complementary manner, by sizable inflows of external resources. It should be added that the responsibility of the multilateral institutions is even greater than in the past as a result of the dramatic contraction in international commercial bank financing and the even more discouraging prospects for official development assistance, which in real terms is expected to increase in the next few years by an average of only 2 to 3 percent a year. All in all, in the absence of more rapid recovery in the industrial world, and short of obtaining a suitable volume of external resources and increasing the autonomous dynamism of the regional economy, the situation in Latin America will continue to deteriorate over the next few years.
The adjustment programs associated with the external debt problem have so far been focused primarily on the settlement of that debt. In our opinion, it is essential that these programs take into account principally the national interest of the debtor countries, as expressed in their legitimate and urgent requirements to speed up economic growth, achieve better income distribution, and meet the basic needs of large segments of the population who are living in abject poverty and total destitution. This integral approach acknowledges the mutual nature of the interests involved and is based as well on the necessity for the international commercial banking community to assume its proper responsibility in overcoming the current international financial difficulties. For Latin America this question is fundamental in that resources from international commercial banks increased from 40 percent to 80 percent of the region’s total debt in just a few years. This should be a predominant consideration in the design and structuring of debt refinancing arrangements and of adjustment programs themselves. In addition, it will be essential that these programs be applied gradually, so that the economic system can gradually assimilate their effects and generate the anticipated results within the time frames and with the characteristics forecast. Attempting to make sudden adjustments in excessively short periods of time may not only provoke undesirable economic and social reactions which alter national life, but in many cases may, in the short and medium term, cause a deterioration and aggravation of the situation it was intended to eliminate or correct.
In using the approach I have just referred to, which in the final analysis constitutes an effort to reconcile dealing with the debt problem and promoting development, it will be necessary for all the parties involved— creditors, developed countries, debtors, and international organizations— to show renewed willingness to undertake a common effort, make sacrifices in common, and find a permanent solution. The developing countries know they will have to make this sacrifice; the industrial countries will, it is hoped, act with understanding and in a spirit of reciprocity so as to make this endeavor as successful and equitable as possible, in the conviction that overcoming the current world economic crisis and future prosperity are tasks which concern and must benefit all countries….
Coordination between the World Bank and the International Monetary Fund assumes particular importance for those countries which have entered into stabilization agreements with the Fund and at the same time wish to avail themselves of the opportunities under the Bank’s special assistance program, which in many cases is not possible because of the financial commitments entered into with the Fund. This is an area of cooperation between the two organizations which should be examined closely to prevent affecting investment programs any more than absolutely necessary….
I wish to emphasize that, although the countries I represent attach great importance to cooperation within the international financial community in these difficult economic times, they have not lost sight of the fact that it is only through their own efforts that they can ultimately overcome the problems facing them at this time. The countries I represent accordingly feel that, in addition to the adjustment process on which they have already embarked, intraregional cooperation and trade with other developing countries offer opportunities that must be utilized. The economic conference of Latin America and the Caribbean that is to be held in Quito, Ecuador, early next year will be particularly important in this context, as it will provide an opportunity to pursue major regional initiatives for financial and trade cooperation, as well as cooperation in the areas of food production, energy, and transportation.
The present meetings are taking place at a time when many of our countries are experiencing an acute liquidity crisis which we are confident we can overcome. To achieve this, we must have the wholehearted cooperation of the multilateral financial agencies and ongoing studies of the impact of these adjustments on medium-term and long-term development prospects. Adjustment and development must proceed one alongside the other….
Statement by the Governor of the Bank for Bangladesh—A.M.A. Muhith
Let me begin by congratulating you, Mr. Chairman, and welcoming the new members of the Bank. I would also like to congratulate Mr. de Larosière on his reappointment. I join fellow Governors in congratulating the stewards of our two institutions for steering us through a very difficult year and giving us a lucid account of both performance and prospects. I would also record our gratitude to the President of the United States for sparing the time to address us here.
In his message to the inaugural plenary session of the Bretton Woods Conference, President Roosevelt reminded that gathering of economic statesmen that economic diseases are highly communicable. He also told them that their hopes for the future could be fully realized only through a soundly expanding world economy.
During the long years that have since rolled past, the Bretton Woods twins, the World Bank and the International Monetary Fund, in association with the truncated replica of the International Trade Organization, have endeavored to identify the shifting economic maladies of the times and to devise an ever-varying optimal mix of growth and stability for their remedy. A soundly expanding world economy has always remained the ideal—constantly sought, though never perfectly attained. The deliberations at the joint Annual Meetings of our institutions have guided this courageous quest.
This year, we are meeting at a time when we need more than our ordinary share of courage and faith in order to maintain a convincing continuity of this quest.
In describing the economic setting, I could almost quote from my statement of the previous year. Perhaps I can add only the following:
—Despite an encouraging resumption of output growth achieved in some major industrial economies, especially the heartland of the world economy in North America, there is no perceptible impulse toward the deepening of this recovery or its geographical dispersal. A renewed momentum of fixed investment in the industrial economies and a beneficial impact on growth in the developing countries and on world trade are not in sight.
—Despite a truly admirable disinflation achieved in the leading economies of the world, a combination of inflationary expectations and anticipation of competing private credit demands and budget deficits is sustaining high real interest rates and exchange rate volatility.
—The historically high levels of developing country debt continue to worry borrowers as well as lenders, inhibiting capital and trade flows and, therefore, growth and recovery.
—Decline in international reserves, an adverse shift in the availability of international liquidity for developing countries, and recession-induced neoprotectionist pressures in some industrial countries militate against the revival of healthy international trade.
—Finally, and most poignantly, a growing conservatism in many major donor countries about the nature and role of foreign aid, perhaps born out of recession-induced budgetary concerns, has gravely jeopardized present and prospective aid flows—nonconcessional as well as concessional, bilateral as well as multilateral. This is happening at a time when many of the developing countries have taken severe adjustment measures against tremendous odds—internal as well as external. They are therefore badly in need of accelerated capital flows of various kinds suited to their respective situations, both to support these adjustment measures and to make possible the resumption of a reasonable investment momentum, which has had to be severely depressed in pursuit of adjustment. Austerity in these countries is now threatening social stability.
The actions required to remedy the grave situation in which the world economy finds itself have been widely discussed at various international forums. As nearly all of these actions involve conscious departures from the current policies and practices of individual countries and economic alliances and also from current perceptions of the interests of nations, these discussions have almost always been marked by controversy. I believe that today our common peril has deteriorated to a stage where it is dangerous to allow the level of that controversy to rise.
Our experience of the last three years demonstrates that reduced capital transfer has been a very crucial factor in the resurgence of socioeconomic primitivism in the developing countries. Severe adjustment measures, too drastic to be repeated again and again, are being frustrated by continued slowdown in external financing. Like the concept of sustainable recovery, there seems also to be an equally real concept of sustainable adjustment. The point has been made with admirable candor and compassion by Mr. Clausen. And I am particularly touched because of a certain amount of personal and national experience. It bleeds your heart to find expected benefits of bold and imaginative measures being halted halfway by the absence of reasonably expected external financing.
For the low-income countries and the least developed among them, like my own, the options are very limited indeed. For us, even Fund facilities are unduly expensive, and commercial borrowing is out of the question. Flow of private capital is so low in our case that we have to fall back on concessional assistance. We stake our claims for soft funds like those of IDA. We are still hoping that decisions on redirection of aid and easing of modalities of resource transfer agreed in the UN Conference on the Least Developed Countries will soon be acted upon. Of course, patient waiting can only be for a certain period. Because otherwise chaos will sweep us away, and surely others of the same species cannot hope to weather the catastrophe without being hurt. Defense expenditure, the annual level of which is about the same as global debt, may not in the event provide any cushion for peace and stability….
…An interesting suggestion has been made by the Commonwealth experts on combining structural adjustment lending with use of the extended Fund facility and generally enlarging program lending on soft terms. This suggestion richly commends itself and should be considered in the context of a similar recommendation made earlier by the Brandt Commission.
We believe that the public sector has a very important and crucial role in countries like ours where infrastructure is so underdeveloped and poverty is so endemic. But we also acknowledge that individual initiative and enterprise must be allowed to blossom fully so as to participate in the onerous task of economic development….
Inadequacy of Fund resources despite the agreed quota increase of 47.5 percent remains a matter of grave concern. As of the end of August, 42 countries had either stand-by or extended Fund facility arrangements for SDR 24.2 billion, and we are aware of larger demands on Fund resources. A gap of SDR 6 billion is projected in borrowed resources for the end of 1983. This underscores the need for the following:
(a) The quota increase should be made effective immediately.
(b) The enlarged General Arrangements to Borrow should be activated simultaneously.
(c) The generous offer of a Saudi Arabian loan should be used with a matching contribution from industrial countries.
The preservation of the international monetary system is at stake, and the Fund did an admirable job in this respect last year. But the situation remains volatile, and the confidence in the world financial system should by no means be impaired.
The quota increase has really meant a decline in the overall share of non-oil developing countries by 1.5 percent. In this context as well as in the context of a continuing liquidity shortage, it looks strange that there should be a move to reduce access levels at all. The proposal is tantamount to taking away with one hand what is being given with the other. Thus, reduction in enlarged access will nullify the quota increase. Lack of Fund resources should not be a reason for reduction of enlarged access. The remedy really lies in advancement of the Ninth General Review of Quotas.
Lack of flexibility, neglect of external changes, and insensitivity to social and political conditions are often associated with Fund programs. It is a matter of concern that in the last 18 months the number of high-conditionality programs has increased. For the Fund to continue as a dynamic institution, relaxation of conditionality is as important as its capacity for surveillance of national economic policies. It has been suggested by the Commonwealth group of experts that the compensatory financing facility be delinked both from conditionality and from access on the basis of quotas. These winds of change must be recognized.
It seems to us that a number of practices now being followed may have unintended adverse effects. I have in mind front-loading of adjustment measures in various Fund programs. Equally disturbing is the suggestion to reduce Fund assistance to countries with a weak balance of payments position. These measures frustrate the very purpose of Fund programs and may harm the image of the Fund as well. It is indeed counterproductive to think of high conditionality at a time when the process of recovery is so unsteady.
Last but not least, there is the question of SDR allocations. The need for additional unconditional liquidity in the face of declining reserves has been established by almost all technical analyses. For the first time in a quarter of a century, non-gold reserves declined for two years in succession. It is also acknowledged that SDRs have to be strengthened as the centerpiece of reserve assets. The argument about the inflationary impact of SDR allocations is no longer valid. It is unfortunate that no agreement could yet be reached on the allocation of SDRs for the fourth basic period. There is a great deal of truth in what the Managing Director of the Fund said sometime ago, that the crisis is not one of debt but essentially of liquidity problems. There is no doubt that all requirements for an SDR allocation have been met at this point in time and the situation demands a substantial allocation. We are strongly of the view that such an allocation will greatly help the process of recovery.
Both the President of the World Bank and the Managing Director of the Fund have asked for growth with stability. They have called for close coordination of economic policies by nations emphasizing international cooperation.
—We are afraid of protectionism and the uncertainty of capital movements.
—We are worried about stagnation of output and underutilization of capacity.
—We notice that the payments disequilibrium is turning out to be essentially a long-term or medium-term phenomenon.
—We find that coordination of global policies on money, finance, and trade leaves much to be desired.
—We observe that surveillance of national economic policies and their harmonization are extremely tenuous.
This only reiterates the fact that many of the assumptions of the Bretton Woods system are no longer valid. To meet the challenges to the world trading and financial system, a new course should now be charted. And the Commonwealth Secretariat has provided a valuable experts’ report to help us in this endeavor. Towards a New Bretton Woods, as the report is entitled, calls for three sets of action.
—There are some immediate measures which existing institutions can implement under the existing rules of the game.
—A second set of measures demands technical preparatory work, perhaps in some existing coordinating forums.
—And finally there is the need for a new orientation and a renewed political will.
Perhaps we should start thinking about initiating a process, the culmination of which will be a new Bretton Woods. New ways and a new philosophy have to be found to contain the “highly communicable economic maladies” that are threatening to jeopardize the “soundly expanding world economy.” We need what John Maynard Keynes so earnestly wished—institutions “belonging to the whole world, owing allegiance to the general good, without fear or favour to any particular interest.” This I reckon is the choice of destiny that Mr. Clausen referred to that we must make in our continuing courageous quest for a soundly expanding world economy.
Statement by the Governor of the Fund for Western Samoa—Tofilau Eti Alesana
I wish to extend my tribute to the President of the World Bank, Mr. Clausen, and to the Managing Director of the Fund, Mr. de Larosière, for the excellent manner in which they continue to discharge their respective responsibilities.
For my own country, as for the other developing countries of the world, the recent few years have been extremely difficult. The sharp deterioration in the international terms of trade and the stagnation of overseas markets have caused much hardship for these nations. In this respect, it is most gratifying to note the emerging signs of economic recovery in areas of the industrial world.
Unfortunately, however, there are still some misgivings as to the durability of the recovery. It is to be sincerely hoped that policymakers in industrial countries will advocate and pursue policies that will serve to ensure that the recovery becomes more broadly based and sustainable in the longer term. For the developing world, the consequences of another recession would be most serious.
The recovery of commodity prices from the low levels of recent years is making an important contribution toward restoring the external viability of the less developed primary producing nations. However, for full advantage to be taken of this welcome development, it is vital that these nations should not be denied adequate and equitable access to the markets of the industrial world. In this context, the Fund itself has an important role to play in ensuring that barriers to trade are removed at the earliest opportunity.
Many of the developing world’s difficulties lie beyond the influence of domestic control. However, this does not remove responsibility from the governments of these countries to make timely and appropriate adjustments to accommodate to the reality of international economic circumstances. Almost inevitably this will involve reining in even the most modest economic and social aspirations of the population.
My own country is now undergoing such an adjustment program. Since taking office nine months ago, my Government has adopted and pursued a comprehensive package of policies designed to place our economy on a path which is consistent with the situation of a small, isolated, and resource-poor country making its way in a difficult world economic environment. The assistance of the Fund at this time has been invaluable, and I wish to express my Government’s sincere gratitude for the support that has been given to us. We particularly appreciate the realistic understanding shown by the Fund management and staff of our special problems and short-term and longer-term external financial needs by extending this timely assistance.
In the longer term, access to the financial and technical facilities of the World Bank and the Fund is going to be a vital factor in the continuing development efforts of the poorer countries. In this regard, I wish to congratulate the Fund on completing the Eighth General Review of Quotas and trust that members will quickly provide the necessary consent to enable the new quotas to be effective. At the same time, I must express my disappointment that the possibility for a further SDR allocation has not gained popular support. It is unnecessary for me to describe the valuable role that such an allocation would have played for many members of the developing world.
The financial demands of a small country such as Western Samoa are only nominal in the global scheme of things. Nevertheless, we are interested in ensuring that the resources of the Bank and the Fund are maintained at a level commensurate with their responsibilities. In this respect, it is most disturbing to note the liquidity constraints that the Fund is presently facing. The recent decision of the industrial countries not to provide immediate loan financing to the Fund is regrettable. It is to be hoped that these constraints will be quickly overcome and that they will not reduce the Fund’s capacity to meet the genuine needs of its member countries. These recent developments perhaps highlight the need for the Fund to have access to a broader spectrum of financing sources. No doubt this will now receive early attention.
I have followed with interest the recent discussions on the question of the scale of access to Fund resources. As these discussions continue, I trust that participants will remain mindful of the difficult situation of most developing countries. Certainly, it would be most unfortunate if the final decision on this matter reduced the absolute access of any individual member to the Fund’s facilities.
What seems desirable is a solution which enables those in the greatest need to have access to adequate amounts of assistance in a balanced mixture which ensures the pursuit of appropriate corrective policies in any situation in which the nature of the disequilibrium is fundamental rather than temporary. I would trust, in any event, that there is sufficient flexibility to accommodate the prospective needs of those countries already committed to longer-term adjustment programs.
The poorer developing countries are now experiencing even greater difficulty in gaining access to the international capital markets. In any event, the terms of commercial loans only serve to aggravate an already overwhelming debt service burden. In these circumstances, access to development finance on concessional terms is vital to preserve the development momentum of the poorer countries….
All this and myriad other problems faced by the Bank and the Fund in a very rapidly changing world economic situation make one seriously raise the question whether the time has not come for a fundamental and comprehensive review of the goals, the policies, and the working procedures of these two great institutions in a new world economic conference similar to Bretton Woods. We believe so, because the ad hoc solutions of the past two decades to the grave economic problems of all our nations do not appear to have produced sufficiently comprehensive and longer-lasting results.
In closing, may I simply express my sincere hope that discussions at these meetings will play a constructive role in ensuring increased economic well-being for all. The possibility of a sustained economic recovery perhaps gives us greater grounds for optimism this year than we have had for several years. It is to be hoped that when we meet again next year we are able to say that this optimism was well-founded.
Statement by the Alternate Governor of the Fund and the Bank for Vanuatu—John A. Howard
I bring with me the sincere regrets of the Governor for Vanuatu of the Fund and the Bank for being unable to attend this year’s Annual Meetings. He was very much looking forward to being here, but, due to the dissolution of Parliament and impending elections, he felt obliged to remain behind. Next, I should like to extend congratulations—first, to the management and staffs of the Bank and the Fund for their excellent organization of these meetings and, second, to Mr. de Larosière on his appointment as Managing Director of the Fund for a second five-year term. It is substantially due to his personal effort and commitment, and to the changes in the Fund’s role under his leadership, that some of the problems which we have addressed in this forum in recent years now appear to be a little less threatening or daunting.
But it is now the time to occupy ourselves with the present and the future, rather than to hark back to the past. Prospects are, in several respects, rather more promising than at any time over the last decade or more. The path which we follow over the next 12 months will determine whether or not the opportunities which exist for a lasting, noninflationary recovery are firmly grasped, or whether they are frittered away.
Let us not concern ourselves too much if that recovery is only moderate and gradual. Temptations, indeed demands, to force the pace will doubtless arise. But to succumb to those temptations or to those demands would risk not only aborting the take-off but would risk pitching us back into the protracted syndrome from which we are only just emerging. The challenge, therefore, is to ensure that the recent improvement is durable and that it is one in which all countries, both developed and developing, will be able to share and participate. Let this be our collective central goal, and let us not be diverted from it.
Thus far, the more encouraging outlook has been based on the strong gains made by two or three leading industrial countries, and, if the recovery is to proceed smoothly, it is appropriate that the economic revival should be led by the major economies which have been successful in controlling inflation and which are relatively free of external constraints. This then raises the question of the means by which the revival in these countries can or should be achieved. Certainly, external demand cannot, and should not, be relied upon because of the adjustment policies—most of them involving substantial reductions in imports— which many developing countries are being obliged to undertake. In our view, therefore, the engine for revival must be gradually rising domestic demand. This, in turn, would provide an impetus to developing countries’ exports, assist their adjustment process, and contribute to a wider recovery.
Such a solution is not, of course, quite so simple. First, there is a major risk that sustained expansion in the industrial countries will be restricted by a high level of real interest rates, which will not only inhibit domestic spending but will also exacerbate the debt service burden of the large debtor countries. We believe that the main factor contributing to keeping interest rates high is prospectively large and rising structural public sector deficits. Noninflationary and sustained recovery may not be possible, therefore, unless these deficits are substantially reduced and apparent contradictions between monetary and fiscal policies are eliminated.
Second, we must raise the question as to whether sufficient external financing flows will be available to enable the developing countries not only to bridge their external financing gaps in the short term but also to support their adjustment programs, so that they may take their rightful place in the emerging recovery process. The outlook here is not at all promising. As we all know, the liquidity position of the Fund is under considerable strain, and sovereign lending by the commercial banks is being scaled down.
Aside from the short-term financing problems is the task of ensuring that developing countries receive the capital resources required to finance their development efforts. Official flows seem unlikely to rise significantly: indeed, they may well fall. Yet in the absence of higher flows, especially of concessionary aid, the adjustment burden for some developing countries will barely be manageable. Simply to suggest that available resources should be allocated and employed as effectively and as efficiently as possible is hardly a recipe for an improvement in their lot.
Against this background, we naturally hope that the increase in Fund quotas approved in March and the enlarged GAB can be put into place quickly so as to enable the Fund to continue to meet requests for assistance, both under consideration and in prospect. With regard to SDR allocations, we would wish to place on record our deep disappointment that support in the Executive Board was apparently insufficient to enable the Managing Director to make a positive proposal to the Interim Committee for an allocation in the current basic period. We believe that developments in the relevant variables strongly supported the case for an allocation. We appreciate the position of those who are either opposed or who remain unconvinced. Taking just one of the relevant variables, reference was made in the debate on this question to the fact that inflation had been overcome in only a relatively limited number of countries. That we accept. But where is the benchmark? Will inflation need to fall to single figures in all member countries before a tick can be placed against this particular variable? It is true that an allocation would have incurred risks. But in our view these would have been risks worth taking under current circumstances. We had hoped that some consensus view, perhaps along the lines of the concept of what is known as “conditional SDRs,” might have been possible. But it was not to be—and many countries will have to attempt to repay their debts in a period of even scarcer resources than previously….
In conclusion, we had hoped that this week would have provided an occasion not only for welcoming the improvement in some areas—to which reference has consistently been made over the past few days—but also for grasping the opportunity to transmit to those whom we represent and for whose livelihoods we are responsible some rather more positive signals. It is regrettable that we have been unable to do so. The initial liquidity position of the Fund, the lack of support for an SDR allocation, and the slow progress on IDA-VII could well give to many, and certainly to the most needy, the opposite message—that things could get worse before they get better. If so, I fear we may have wasted an opportunity.
Statement by the Governor of the Fund and the Bank for Dominica—Mary Eugenia Charles
I am very happy to be afforded the opportunity to address this distinguished gathering of Governors of the Bank and the Fund on the occasion of our Annual Meetings. As is customary, my remarks, which are focused on the activities of the Bank, are made on behalf of all of the Commonwealth Caribbean countries—Dominica, Barbados, Belize, Bahamas, Guyana, Jamaica, Grenada, St. Lucia, St. Vincent and the Grenadines, Trinidad and Tobago, and Antigua and Barbuda. I wish, also, to join my fellow Governors in extending a warm welcome to the Government of Malta on its admission to membership in the Bank. I also take pleasure in recognizing the presence of our sister Caribbean country Antigua and Barbuda, which is with us today as the newest member of the Bank.
The major theme of this meeting is the process of incipient recovery in the world economy and the efforts which must be made by both developed and developing countries to nurture that recovery so that mutual benefits may be derived. When we met last year, the world economy was in the fourth consecutive year of a recession that had lasted longer, and had proved more intractable, than any other experienced over the previous 40 years.
Now, one year later, there is a mood of cautious optimism. The major industrial countries now appear likely to experience modest rates of growth in 1983, compared with the declines recorded in 1982, and their demand for developing country exports can be expected to show some improvement, but there is still no assurance that the recovery will be sustained or can lead to major improvement in the position of the developing countries. Interest rates, which have exacerbated the burden of developing countries’ debt, have declined since mid-1982 although current levels are still unacceptably high in relation to inflation. Exchange rates are still very volatile and continue to have a deleterious effect on the export earnings and terms of trade of developing countries. Because of the changed balance of payments, prospects for aid programs from oil producing and exporting countries have dwindled. Aid flows from other sources have also been significantly reduced in real terms. This has created severe liquidity constraints, particularly for the smallest developing countries, which depend heavily on concessional flows.
It is our belief that the policies of domestic adjustment to the continuing economic crisis which have been pressed on the developing countries have seriously diminished our prospects for growth and economic development. We have seen rising unemployment accompanying falling output, with a consequent decline in the standards of living and quality of life in our countries. Major projects for the stimulation of social and economic development have had to be delayed because of an insufficiency in both domestic and foreign financing. Indeed, many of us who have followed the prescription to base our development on strategies of export promotion now find that export revenues have been contracting in light of diminished external demand for our products. It is not unreasonable for us to believe that, in this situation, those who have urged us to adopt an open trading system will themselves adhere to the principles of such a system by eliminating protectionism, which we have seen intensifying in recent years, and by the provision of generous amounts of external financing. We hope, therefore, that we have misread those ominous signals which appear to suggest that some of the major industrial countries have become so preoccupied with domestic adjustment considerations that they are unable to contemplate a more liberal response to our needs for development assistance, even though their economies are now more able to provide it….
Statement by the Governor of the Bank for Nepal—Prakash Chandra Lohani
I deem it an honor and pleasure to address this distinguished assembly.
I have listened with great interest to the inaugural speech of His Excellency the President of the United States of America, Mr. Ronald Reagan. We applaud him for the support of his Administration for these international institutions and also for his forthright support for the cause of development, especially that of the least developed countries.
I also thank you, Mr. Chairman, and the President of the Bank, Mr. Clausen, and the Managing Director of the Fund, Mr. de Larosière, for the opening statements, which have brought into focus many important issues in the current international economic situation that need to be addressed to eliminate the present malaise and ensure better prospects for the future.
The world economy has gone through a prolonged recession, high inflation and interest rates, unstable exchange rates, a reduced level of international trade and finance, a sharply declining flow of capital to the developing countries, and the mounting balance of payments deficits and debt service burdens of these countries. This has all caused much trouble and human suffering even in the developed countries, but the developing countries have been affected all the more seriously. The development efforts of the developing countries have been negated, and the economic progress has been stifled. The growth rate has been continuously falling for the last four years in succession, resulting in declined average per capita income in the developing countries in 1981 and 1982—more so in the low-income countries.
Against this depressing situation, it is heartening to note that the recovery is now under way in the industrial economies. However, to achieve improvement and expansion in the world economy, the recovery in the industrial countries must be transmitted in adequate measures to the developing countries also. Even though signs of recovery are clearly visible in industrial economies, there can be no cause for complacency in pursuing a determined and concerted plan of action on the part of the international community. In this respect, I may stress that new initiatives are needed on the part of both developed and developing countries to achieve sustained recovery and noninflationary growth. Such initiatives must address the problems faced by the developing countries, particularly by the low-income countries, and reverse the negative trend that these countries have suffered. This calls for an increased flow of development capital to supplement domestic investments and to enable them to participate fully in the expansion of world output and trade. In this context, official development assistance has a crucial role to play in the economic growth of the low-income developing countries. Official development assistance has remained an important subject in the agenda of many distinguished international gatherings. The Group of 77, at its meeting in Buenos Aires, and the nonaligned countries, at their recent summit meeting, have urged that the internationally agreed level of official development assistance of 0.7 percent of GNP should be reached as soon as possible by those developed countries which have not yet met the target. We note with profound concern that no tangible progress has so far been achieved in implementing the substantial new program of action adopted by the UN Conference on the Least Developed Countries held in Paris in 1981….
In view of the magnitude of the adjustments that are under way in many developing countries, we consider that the Fund has to play an increasingly greater role to ensure adequate financing for facilitating the adjustment process. In this context, the strained liquidity position of the Fund is a matter of serious concern to us. However, in an attempt to economize the use of the Fund’s resources, we believe that the access to the Fund, especially to the compensatory financing facility, should not be reduced. Such a reduction or squeeze would penalize the low-income developing countries at a time when they need to resort to Fund resources most. We would strongly support Fund borrowings from official sources supplemented by market borrowings under the prevailing circumstances. We would also urge the Fund to resolve the issue underlying the SDR allocation under the fourth basic period at an early date.
At this point, I may share with the distinguished participants experience of the Nepalese economy in 1982/83. Due to serious drought, Nepal suffered serious reduction in the output of the agricultural sector, which is the backbone of the economy. Concurrently, foreign exchange earnings dwindled mainly because of the decline in the prices of exportable commodities and the considerable increase in the imports of consumer and development goods. Consequently, the economy in general suffered a serious setback in 1982/83, which manifested itself in stagnant growth, relatively high inflation, depleted foreign exchange reserves, and the reversal in the overall balance of payments from surplus to deficit.
The Government has now undertaken adjustment measures as a part of economic recovery and development strategy. This strategy consists of a number of policy measures designed to promote and sustain a liberal economic environment conducive to growth and stability, in which the private sector will be encouraged to play a vigorous role. The strategy also underscores the priority of expanding and strengthening irrigation facilities to raise productivity of the agriculture sector. In this respect, more resources are needed to implement new irrigation projects with better water-management practices.
Water resources constitute the most important natural resource of Nepal. It is well documented in many studies undertaken in the past that, if properly harnessed, the rivers of Nepal could provide benefits not only to Nepal but also to our neighbors. As a matter of fact, we have already initiated mutual consultations on some important water resources development projects….
With regard to institution building, we believe that the distance we have covered in the past three decades of our development effort is satisfactory. Furthermore, we are confident that Nepal is ready to make headway in bringing a structural change under the dynamic leadership of His Majesty King Birendra. Conscious of the need to balance the cost of government to the economy, His Majesty’s Government has taken initiatives to curtail the bureaucratic process, to make all public enterprises performance oriented, and to encourage small investors’ participation in profitably run public enterprises. In short, the Government is determined to create an atmosphere in which it is profitable to save, invest, and produce.
We live in a world that is increasingly being characterized by interdependence. This trend is bound to continue in the future. This is why the role and effectiveness of international institutions become a concern to all of us. International institutions like the World Bank and its affiliates and the Fund have the great responsibility of transforming this increasing global interdependence into an economic relationship capable of improving the material conditions of not just a few nations, but of people all over the world. Precisely for this reason, we believe that international economic institutions, with the help and support of the developed countries, must provide increasing focus and attention toward the problems of the developing and least developed countries. I think we would do well at this juncture to remind ourselves of the fact that these institutions played an important role in the reconstruction of the developed countries after World War II. In large measure it was a success, and naturally we feel that the focus should shift to other parts of the world, namely Asia, Africa, and Latin America, where the need for development is an imperative for peace and stability in the world. I believe that this change in focus is needed, and it is this new reality that should be reflected in the actual plans and programs of these institutions.
Before I conclude I would like to thank the President of the Bank, Mr. Clausen, the Managing Director of the Fund, Mr. de Larosière, the Executive Directors, and the management and the staffs of these institutions for their thoughtful and innovative actions in a difficult international economic environment.
Statement by the Governor of the Bank for Solomon Islands—Bartholomew Ulufa’ Alu
Let me take a few moments of your time to describe a custom of my country. In our Melanesian society we attribute power and influence to certain “big men.” These “big men” do not have this authority by inheritance. It accumulates to them by a subtle process of respect and recognition of their capabilities. With this political power, there also accumulates economic power. But there is no legal title to these assets. To keep their pre-eminence and remain leaders, they must perform to the satisfaction of their communities. We are traditionally democratic, individualistic, and socially responsible. President Reagan, please note.
One of the things we expect our “big men” to do is to help the younger male members of the family to acquire wives. The “big man” will contribute to the price of the bride to be paid by his young male relatives. In this way, he secures their continuing allegiance and enables them to acquire healthy, desirable brides, capable of bearing many children. Statistics tell us that 52 percent of these children will be girls. In due course, they will be married, and the family will receive a “bride price” for them. A substantial share of this incoming transfer of assets will find its way to the “big man” who, for sound reasons of enlightened self-interest, started the process off.
The first moral of my story is plain to see. The investment by the “big man” in helping his junior kinsmen to get started in life is repaid many times over. But there is also a second lesson. If you want to go on being a leader, you have to behave like one. If you do not measure up to the reasonable expectations of your supporters, do not be surprised to wake up one morning and find they have transferred their allegiance elsewhere.
I believe this is highly pertinent to our current problems in both the Bank and the Fund. We have extremely grave difficulties in both institutions, which have been explained and exposed with admirable clarity and feeling by the President of the Bank, the Managing Director of the Fund, and by my fellow Governors here and in other forums. The problem is not lack of data or the need of further analysis. Nor is there much room for disagreement about how to remedy matters. Indeed, among practical men concerned with international economic affairs, there is far more agreement on what needs to be done than you would think from listening to government spokesmen putting out the party line.
For example, the Eighth General Review of Quotas in the Fund has resulted in wholly inadequate increases in the quotas of most countries, falling well short of what is needed to restore quotas to a reasonable level of usefulness as a source of short-term financing in relation to international trade. This is well understood by the developed countries, but not admitted in public.
Linked to this, the decision of the Interim Committee (to which we and most members were opposed, of course) to cut the access multiplier from 150-450-600 to 102-306-408 percent of quota effectively wipes out even the apparent increase in quotas, leaving many of us worse off than we now are.
Access to the Fund’s special facilities is also in the shadow of the guillotine: although a decision has been postponed, the signs are not good for us poorer countries, for whom these facilities have meant a great deal. I am glad to see that the Interim Committee has drawn attention to the very difficult circumstances of the small-quota, low-income countries. We are going to be clutching rather strongly to that straw floating on the icy water when we come to discuss the question of a further issue of SDRs, an event we very much want to see take place.
Here again, the economic arguments against a substantial issue of SDRs are extremely weak. In a world of gross underutilization of manpower and fixed capital, additional liquidity will lead to increases in real output, rather than renewed inflation. Just as a proper increase in quotas would not have reignited inflationary prices and maintaining the access multiplier of 150-450-600 percent of quota would not have weakened our adjustment efforts, continued full compensatory financing facility access and buffer stock financing facility access would not have overstrained the Fund’s lending power. Just as Fund borrowing would not bid up interest rates or drain capital from markets which annually fund such requirements a hundred times over, in the same way, an adequate replenishment of IDA and a solid capital increase for the Bank would not overburden the developed economies. On all these points, I believe the economic arguments are overwhelmingly on our side. In private, our friends in the industrial countries will concede this.
Why do they not do so in public? Because, as has been so well put by Mr. Clausen and Mr. de Larosière, the political will is lacking. That is no excuse and it is a cop-out. There is a challenge to any responsible government to take all steps necessary to create the political will. And, of course, we have to help to create this missing political will. How? By rhetoric, of which this speech is a tiny part? By calling on the “magic of the marketplace”? I wish someone would explain to me the magic of the marketplace. In the marketplaces I know, it is the big guys and the fast talkers who do well, and the little guys who get taken for a ride, even though they do not realize it until too late.
We do need good publicity. We need to perform well, work hard, and be honest with ourselves. We need the developed countries to understand how totally our destinies are interwoven and that we are not sitting around waiting for handouts. We are working. We are building nations and communities. We want to be part of that beautiful world President Reagan described so eloquently here on Tuesday. But if any of us, rich or poor, is going to get there, we all have to get there together. And, to go back to my opening remarks, if the “big men” do not behave more like responsible leaders of the community, their support will melt away and they will be alone in this glittering palace—until the roof falls in and the bats take over. We shall be elsewhere.
Statement by the Governor of the Fund and the Bank for Afghanistan: Mehrabuddin Paktiawal
It is my pleasure and privilege to represent the Democratic Republic of Afghanistan at these Annual Meetings of the Boards of Governors of the Bank and the Fund.
At the outset, let me congratulate the management of the Bank and the Fund for the excellent arrangements made for the conduct of these meetings. The staffs of both institutions deserve compliments for the good analyses of the world economic situation and prospects presented in the two important documents placed before us, namely, the World Development Report 1983 and the World Economic Outlook for 1983.
It is clear from these documents that the world economy today is in the grip of a prolonged crisis, dominated by stagflation, rising unemployment, intensification of protectionist pressures in capitalist industrial countries, weakness in international trade, and widespread and substantial imbalances in external current account transactions. While the crisis has affected adversely all groups of countries, its impact has been most severe on the non-oil developing countries. Indications are that the setback suffered by the non-oil developing countries is not simply a temporary one. There seems to be real danger of their facing continued difficulties that will seriously retard their growth and development for several years to come.
The rate of growth of output of non-oil developing countries decelerated sharply for the second year in succession during 1982. These countries also experienced a sharp fall in their foreign exchange earnings. Under the impact of the recession, world demand for the commodities on which most of these countries depend for the bulk of their export earnings has become sluggish, and their prices collapsed between 1980 and 1982. At the same time, their manufactured exports to developed countries suffered from the rising tide of protectionism. On the other hand, the high interest rates pushed up the servicing costs of their external debt. As a result of these adverse developments, the deficit in the external current account of these countries had increased to a staggering total of $108 billion in 1981. The deficit was lower at $87 billion in 1982, not because of any favorable developments, but as a result largely of the drastic pruning of import demand with its adverse impact on development programs and, therefore, on the growth rate. With the net inflows of capital declining sharply during 1982, the non-oil developing countries had to draw heavily on their own reserves and reserve-related credit from the Fund, for financing the current account deficits. By the close of the year, their aggregate foreign exchange reserves were only about $80 billion, barely sufficient for financing two and one-half months’ imports, while their external debt stood at $612 billion, which was more than one third of their gross domestic product. Their debt service payments exceeded $100 billion per annum, the debt service ratio being more than 20 percent. Indeed, the non-oil developing countries are facing an extremely difficult and grim economic situation. Needless to add, the plight of the low-income least developed countries among them is much worse, especially in the context of the decline in real terms of official development assistance flows in recent years.
The principal component of any policy package for solving the problems of developing countries would need to be specific and urgent action directed to ease the balance of payments difficulties and strengthen the availability of foreign exchange for undertaking sound development programs. The resources requirements for this would be, indeed, very substantial.
The international and regional financial institutions and other official agencies should have an important role in implementing such a policy package. However, the financial institutions appear hamstrung by serious resources constraints. The Fund has, no doubt, initiated certain measures for augmenting its resources, but, given the uncertainties of the current situation, these appear to have fallen far short of the requirements. The Bank has yet to finalize its action plan in this regard, while the tardy progress made in the mobilization of resources for IDA-VI from some of the developed countries seems to be typical of the experience of attempts at augmenting the resources of other financial institutions. The record of official agencies in providing development assistance is not very encouraging either. The net disbursements during 1981 by Development Assistance Committee members as a whole amounted to only 0.35 percent of their gross national output, compared with 0.51 percent in 1960. Thus, when the need for concessional assistance is most pressing, there is a decline in the flow of such assistance. The achievement of 1981 is much below the target of 0.7 percent of gross national product of developed countries fixed by the United Nations. Again, very little progress has been made on the implementation of the substantial new program of action for the 1980s, for which some commitments were made at the United Nations Conference on the Least Developed Countries, held in Paris in 1981. The case is similar with regard to the UNCTAD integrated program for commodities. Discussions, resolutions, and commitments at international conferences notwithstanding, international economic cooperation for assisting developing countries appears to be weakening rather than strengthening. We believe that this is a reflection of the many weaknesses—structural and other—of the existing international economic system and would, therefore, strongly support the early establishment of the new international economic order, which has been on the international agenda for over a decade now.
The year that has gone by was again one of major difficulties for us in the Democratic Republic of Afghanistan. Besides absorbing the shocks transmitted by the adverse developments in the global economic environment, we had to contend with the disruption in our economic activity caused by counterrevolutionaries, assisted by international reaction and imperialism. Addressing the Twelfth Plenary Meeting of the Central Committee of the People’s Democratic Party of Afghanistan, Babrak Karmal, General Secretary of the Central Committee of the People’s Democratic Party of Afghanistan and President of the Revolutionary Council of the Democratic Republic of Afghanistan, stated that the damage to productive assets and infrastructure facilities caused by the undeclared war of the imperialists and reactionary forces amounted to 24 billion Afghanis, which was equal to half the total capital investment made during the 20 years prior to the Revolution.
Despite the setbacks, thanks to the hard work of the toiling masses and the assistance given by friendly countries, especially the Soviet Union, real gross domestic product increased by 1.5 percent during the year 1361 (April 1982 to March 1983). Production of principal crops reached the previous year’s level or exceeded it in most cases. In the industrial sector, production is reported to have recorded an increase over the previous year in certain key industries.
Our external finances were, however, under very considerable strain during the year. We had been facing substantial deficits in the current account of external transactions for some time in the recent past, but these deficits used to be more than offset by net capital inflows, chiefly by way of development assistance from official sources and project loans from international and regional financial institutions. With the unilateral suspension of development assistance flows by Western countries and of project loan disbursements by financial institutions in 1980–81, overall deficits of large magnitude started emerging, posing acute financing problems. Like many other non-oil developing countries, we had to draw heavily on our reserves to finance the deficits. The net draft on the convertible foreign exchange reserves amounted to as much as $100 million during 1981. The depletion in these reserves continued during 1982 and 1983, and as of this year, at the end of June, they were only a little over $190 million. The bilateral balances which had peaked at $310 million in March 1982 have also been drawn down to $165 million in the period since then. And that is not all; there was a net addition of $370 million to our external debt burden during the period since 1980–81.
As you are aware, for centuries our country remained under the oppressive yoke of feudalism with the vast masses of our people steeped in illiteracy and poverty. The main objective of the April Revolution was, and still is, to free our people from the shackles of feudalism and develop the national economy with a view to raising their standard of living. Within the short period since the Revolution, we have, through land reforms, debt relief, and other progressive measures, set the stage for growth with equity and have started on the path of planned development for ensuring optimum growth and diversification of our predominantly agrarian economy.
The public sector, especially in industry and transportation, has been strengthened and expanded. Government has all along followed a policy of encouraging private sector investment. Several trading companies have already been established with the participation of the Chamber of Commerce and the private sector. Further strengthening of this policy was underlined by Babrak Karmal, General Secretary of the Central Committee of the People’s Democratic Party of Afghanistan and President of the Revolutionary Council of the Democratic Republic of Afghanistan, in his Report to the General Conference of the People’s Democratic Party of Afghanistan held in February 1982, in the following terms: “The Democratic Republic of Afghanistan will create the necessary economic and legal foundation for the long-term effective and sound cooperation of private sector entrepreneurs with the State.”
On the basis of subsequent discussions on implementation of economic policy, held in the Eleventh Plenum of the People’s Democratic Party of Afghanistan, the Executive Committee of the Council of Ministers has called for the advice of the Economic Advisory Committee and the concerned ministries on the modification of the statutes governing the relation between the public and private sectors, for promoting growth of both sectors on the basis of mutual advantage. In pursuit of this decision, the private investment promotion law, the income tax law, customs tariffs, and banking regulations and practices are now under review.
As explained earlier, our external finances are under tremendous pressure. The demand for our export products in the markets of the Western countries has been stagnating or declining for quite some time now, depressing our foreign exchange earnings in real terms. The crash in prices of some of these products during 1981 and 1982 has made a further severe dent on our export earnings. We do not see any prospects for an immediate improvement in the situation. The debt service obligations which have increased in the meantime are cutting drastically into the current foreign exchange receipts, correspondingly depressing our import capacity for undertaking developmental activities. Against this background and in the context of our foreign exchange reserves being at a very low level, we are in dire need of external assistance for implementing our development plans.
We, however, find ourselves in the unenviable position of being denied access to their resources by some international and regional development finance institutions. We had the unfortunate experience of these institutions withholding release of loans for which agreements had been signed after due appraisal of technical feasibility and economic viability of the projects concerned. Much worse, we had to face the denial of withdrawals on firmly committed assistance, that is to say, assistance for ongoing projects on which considerable progress had been made, some of which, in the absence of further inputs, would remain unproductive, locking up millions of dollars of scarce capital without any return. These include agriculture and livestock development projects, projects for infrastructure development, as well as projects for human resources development. We are not sure that the decisions taken by these institutions to cancel the assistance agreed upon are based exclusively on pragmatic economics. It appears that they reflect a change in attitudes influenced by politics. This is not consistent with development objectives, and we earnestly hope that these institutions will review their policy, keeping in mind the spirit of the provisions of the Articles of Agreement, the Resolutions of the UN General Assembly, and UNCTAD, specifically calling upon the international institutions to implement special measures for solving the problems of the least developed countries, especially the landlocked countries, and the substantial new program of action for the 1980s for the least developed countries. In this connection, it may be recalled that early this year a staff mission of the Fund visited Afghanistan for Article IV consultations, and this mission’s report on the country’s economic situation could be of assistance to the financial institutions in undertaking their reviews.
Let me now conclude, as I look forward to the most sympathetic consideration of our case.
Statement by the Governor of the Fund for Fiji—Allan Gee
I join colleagues in thanking the President of the United States for his warm words of welcome. I also thank the Bank and Fund for the usual efficient arrangements and fine surroundings for our meetings this week.
Developments in the world economy and future prospects have been comprehensively covered in the Annual Reports of the Bank and the Fund and the World Economic Outlook of the Fund. I shall not cover the same ground but will focus only upon a number of issues that are of major concern to us.
World economic recession persisted in the past year. Sluggish aggregate demand continues to cause stagnation in world trade. Unemployment remains at a socially unacceptably high level. The policies put in place to overcome inflation in some of the industrial countries have been vindicated by the steady deceleration in price increases. In the wake of this welcome trend, restrictive monetary policies have been generally relaxed and nominal interest rates have fallen noticeably, although, in real terms, they still remain at historically high levels. It is hoped that these encouraging developments will provide the desired framework for the revival of investment, improvement of business and consumer confidence, and the promotion of long-term economic growth.
Signs of economic recovery have begun to emerge in the industrial countries. By all accounts, however, the emerging recovery remains fragile. It is critically important to recognize that economic growth will be sustained only if inflationary expectations are neutralized and structural budget deficits in industrial countries are brought under control. From that point of view, the world economy has registered a significant improvement during the last 12 months.
Developing nations have undoubtedly felt the brunt of the ill effects of the world economic recession. Growth in non-oil developing countries has been slowing down since 1978. The external balances of this group of countries have been most severely affected by the economic downturn. While the prices of their exports have plummeted owing to weak demand, export volume has also declined as industrial countries protected their domestic producers by taking measures to keep out imports. The ability of developing countries to finance their widening imbalances on external account and to service their escalating indebtedness has been seriously eroded.
Short-term adjustments to cope with the recessionary conditions have been put in place by many developing countries. These efforts have not been made easier by high interest rates and the continuing instability in the international financial and exchange markets. Private lending institutions, which had successfully recycled the surpluses of OPEC countries earlier, are now adopting a cautious attitude toward further lending to developing nations. It is also unfortunate that the relatively richer nations have demonstrated a general reluctance to increase the flow of development aid in real terms to developing countries at a time when it is most needed.
The problems of the developing countries are obviously complex. Understandably, the solution is not a simple one. Without a concerted economic recovery in the industrial countries, the struggle for improved economic livelihood in the developing countries will be a drawn out one. Given the low level of inflation and the downward movement in interest rates, a better mix of monetary and financial policies in selected industrial countries should now be actively pursued.
In the face of increased volatility in the external payments situation and the need to strengthen the economic base of developing countries, the role of the Bank and the Fund in providing financial and technical assistance to the affected members has never been more critical. The demands by developing countries upon the resources of the Bank and the Fund are expected to impose greater strains on these institutions. Two approaches, not mutually exclusive of course, are possible. Either the flow of resources to LDCs should be reduced or the liquidity position of the Fund improved and the resources of the Bank increased. Adopting the first course will mean a deepening of the recession not only in LDCs but also in industrial countries. Given present and expected commitments, Fund resources will prove to be grossly inadequate unless urgent action is taken. We should, I believe, put our minds together and devise measures to further boost the supply of Fund resources.
SDR allocation for the fourth basic period has not been made. In the past, inflationary pressures have been the overriding argument against further allocations. However, with the present low level of inflation, the allocation of SDRs should not pose difficulties. SDR allocation as a proportion of world imports has been declining. If we are to consciously facilitate the attainment of our long-term objective of making the SDR the principal reserve asset, as stated in the Articles of Agreement, then an increase in SDR allocation is long overdue. An annual rate of allocation of SDR 10 billion appears reasonable.
I welcome the conclusion of the Eighth General Review of Quotas. I support the members’ wish to have the preparatory work for the Ninth General Review of Quotas carried out expeditiously. Given global economic prospects, the consideration and implementation of the ninth review should be brought forward.
The policy on enlarged access to Fund resources was put in place pending the completion of the Eighth General Review of Quotas. The projected need for Fund resources together with the decline of the role of commercial banks in providing balance of payments financing justifies the maintenance of the current percentage limits of access after the implementation of the Eighth General Review of Quotas. In view of the outcome of the last Interim Committee meeting, we would hope that the Executive Board could agree on an access limit of 125 percent of quota annually and a three-year limit of 375 percent. The arguments for reducing the percentage limits of access result from the expected strain upon the liquidity of the Fund if it were to attempt to satisfy the bulk of the expected needs during the period up to 1986. This is largely a reflection of the inadequacy of the quota increases under the Eighth General Review of Quotas. We should therefore address the liquidity problem by expediting the ninth review and by increasing Fund borrowings. If the Fund’s needs for borrowed funds cannot be satisfied through official sources, then it would be appropriate for our institution to tap the private markets….
I join my colleagues in making a plea for increased official development assistance especially to the poorest developing countries. At present, ODA constitutes about 0.3 percent of the GNP of industrial countries. It would be reassuring if, in the interest of global cooperation, the ODA target of 0.7 percent of GNP were once again vigorously pursued.
Given the economic interdependence among nations, the importance of coordinating economic policies for the social and economic betterment of the people of this globe cannot be overemphasized. The development efforts of developing countries have to be encouraged. While the need for conditionality of lending is appreciated, the Fund should continue to develop and adopt a flexible approach, tailoring programs to the special circumstances of members concerned.
The basic purpose behind the compensatory financing facility and the buffer stock financing facility should not be lost sight of. Both these facilities were introduced to help solve the special problems of primary producing member countries which emanate from factors beyond their control. Given the continuing fluidity in the world economy, we feel that the present terms under which access to these facilities may be secured and the percentage limits of access should not be varied after the Eighth General Review is put in place.
The responses to IMF policy recommendations of countries which are not indebted to the Fund have not always been positive. As a result, the burden of adjustment has been asymmetrical, in that almost all of the burden of adjustment has had to be borne by countries that adopt Fund programs. The weight of Fund recommendations may be enhanced if they were to come from the Council of the IMF. The IMF Council, as colleagues are aware, is an organ proposed under Article XII, Section 1 and Schedule D of the Articles of Agreement. Council members are to be persons holding the rank of minister in member governments. I recommend that consideration be given to the establishment of this Council, as recommendations on national economic policies proposed by such a body may be given the weight they deserve by the stronger members.
Statement by the Alternate Governor of the Fund and the Bank for the Lao People’s Democratic Republic—Kikham Vongsay
On behalf of the Lao People’s Democratic Republic, I have the honor and the pleasure to address my warm congratulations to His Excellency Miguel Boyer, of Spain, on his important function as Chairman of these Thirty-Eighth Annual Meetings of the Boards of Governors of the World Bank and of the International Monetary Fund. My delegation is convinced that his extensive experience and competence are a guarantee that the work of these meetings will produce the desired results.
My delegation would also like to take this opportunity to offer a sincere welcome to the delegations of the friendly countries that have become full members of our two institutions. Finally, I would like to express my sincere thanks to the Government and people of the host country, who have given my delegation a warm welcome and satisfactory facilities and who have organized these meetings in such an excellent fashion.
My appreciation is also extended to the President of the World Bank and to the Managing Director of the International Monetary Fund and to their respective staffs for their tireless efforts to ensure the success of these meetings and for the high sense of responsibility they have constantly displayed in the performance of their duties.
As the World Development Report and the Annual Reports of the World Bank and of the International Monetary Fund note, for both the industrial and the developing countries this has been a year marked by serious economic problems: chronic unemployment, prolonged recession, high interest rates, and trade imbalances. In certain countries, unemployment has already reached levels unprecedented since World War II and is currently averaging 10 percent of the work force in the main industrial countries. This situation has become a matter of growing economic and political concern in many countries and is causing harmful consequences for the economies of the small developing countries, especially those of the least developed and landlocked countries.
The combination of low demand and high unemployment in the industrial countries is bringing about a resurgence of protectionist threats. These threats are surfacing in the context of a slowing down of world trade, whereas it was the growth of this trade that for many years was a significant factor in spurring on the world economy.
The industrial countries’ imports have shrunk by about 2 percent in volume in each of the past two years, and no more than a slight recovery is expected this year. The high level and variability of interest rates together with the instability of exchange rates in the main industrial countries over the past two years have created difficult problems for those countries and for the rest of the world, especially the developing countries.
As regards the situation in my country, the Lao People’s Democratic Republic, the multinational Lao people have concentrated all their efforts on healing the wounds left by the long war of aggression and on rebuilding a new life. Despite the many difficulties left behind by years of devastating warfare and constant efforts by our enemies to undermine our endeavors, we have achieved significant results in several areas, notably in consolidating our country and laying new economic, social, and cultural foundations for our people. These significant successes have been achieved through the resolute action of our people themselves and with the aid of fraternal socialist countries, friendly countries, and international organizations such as the World Bank and the International Monetary Fund. I should like to take this opportunity to express, on behalf of the people and Government of the Lao People’s Democratic Republic, our sincere thanks and our profound gratitude for their effective assistance.
The year 1983 was the third year of our five-year plan, the first results of which have been encouraging. In agriculture, the average area cultivated with rice has increased by more than 6 percent a year, with the result that our rice-growing capacity has increased from 700,000 tons in 1976 to 1,154,000 tons in 1981. To achieve self-sufficiency in food, we plan to establish at least a six-month reserve supply of rice starting in 1985.
In forestry, which constitutes one of the main riches of our country, production capacity in 1981 was twice that of 1977, and wood exports have risen by 103 percent.
With regard to industrial output, energy production increased by a factor of 3.57 in 1981, compared with 1976.
These significant achievements have, admittedly, permitted only a slight improvement in the standards of living of our people. We are confident that, thanks to the firm determination of our people and with growing assistance from fraternal socialist countries, friendly countries, and international organizations, we shall fully succeed in carrying out the tasks laid down in our five-year plan.
As regards the policies of the two institutions, our delegation fully shares the points of view expressed by a large number of delegations from developing countries. We accordingly wish to make the following points:
We see the necessity for a speedy increase in the resources available to the World Bank and the International Monetary Fund, to enable them to meet international needs.
To improve the economic situation in the industrial countries, these countries ought to take account of common interests as the fundamental basis of action and contribute in an appropriate manner in accordance with their obligations and without any hesitation….
Another question worthy of special attention is that our two institutions ought to reconsider the issue of granting loans to a certain member country to which lending has at present been temporarily suspended for political reasons. We feel that a member state that has properly conformed to the rules and regulations of the institution ought to have unconditional access to credit.
We also wish to put forward the following remarks concerning the future role of the International Monetary Fund:
It should continue its role of monitoring exchange rates and certain policies pertaining to improving and amending facilities based on studies of the economic situation and domestic policies of member countries.
Our institution ought to create new resources and make these available to member countries, particularly as regards stand-by arrangements and extended facilities.
We have no problem in supporting the suggestion calling for a re-establishment of trust funds that would enable the IMF to sell gold, as it did in the past, to raise financial resources for developing countries unable to obtain them elsewhere.
The Fund ought to extend its cooperation with private banks to provide increased resources in support of economic development.
With regard to the Eighth General Review of Quotas, calling for an increase of 47.5 percent to approximately SDR 90 billion, we urge the IMF to speed up implementation by the end of 1983, as scheduled.
In conclusion, my delegation feels that the points just expressed would help to strengthen the role and effectiveness of our two institutions worldwide, and I assure you of my full cooperation in working toward the success of these Thirty-Eighth Annual Meetings.
Statement by the Governor of the Fund and the Bank for Malaysia—Tengku Razaleigh Hamzah
When we last met in Toronto, the state of the world economy was dismal. Many nations, especially the developing countries, were reeling from the hardship of the most severe and prolonged global recession since the Great Depression of the 1930s. The industrial countries experienced low and even negative growth since 1980, while the developing countries faced a marked slowdown in growth and exports, a significant deterioration in commodity export prices and their terms of trade, and a severe external debt burden which still overhangs the world financial system today. This year we are meeting in a slightly better environment, although there continues to be uncertainty. Firmer signs of economic recovery have now emerged in the major industrial countries. The question is whether this emergent recovery can be strong enough and sustainable in the medium term to pull us out of the global economic malaise we have been suffering in the last three years. The evidence of declining inflation and interest rates in most major industrial countries this year has given us some hope that the recovery is now firmly on the way.
The developing countries are very much dependent on a sustained noninflationary recovery in the major industrial countries in the next few years to generate the required growth in world trade and in their export earnings. Only then will they be able to promote domestic growth and obtain the needed foreign exchange to service their external debt. Yet the volume of world trade in 1983 is expected to increase by only 1 percent after the virtual stagnation in the past three years. This means that the volume of world trade in 1983 will be no higher than that of 1982.
A high and sustained noninflationary growth in the industrial countries as well as an expansion in world trade will be crucial to the developing countries in the next few years. I believe this situation can only materialize if the major industrial countries coordinate and implement fiscal and monetary policies that will reduce interest rates and keep inflation at a low level and, at the same time, ensure that protectionist trends are substantially reduced. The major industrial countries have a responsibility to assist in the process of world recovery. Perhaps it is now timely for them to embark on prudent programs of expansion and reduce protectionist trade measures so that the world economy can be more firmly established on the path of recovery and growth.
The industrial countries must realize that protectionism needs to be effectively dismantled if the world economy is not to be engulfed in self-strangulation. Yet, despite the many voices of dismay on the evils of protectionism from both the North and the South, protectionist trade measures that are disruptive to growing world trade have increased in recent years. There must be true meaning to the slogans of “interdependence” and “cooperation” if the world as a whole is to move to greater prosperity. The lessons from the recent world recession indicate that demand from the developing countries is an important factor, either in accentuating a downturn in the world business cycle or in minimizing its impact. But demand for capital and other manufactured goods by the developing countries can only be sustained if these countries are able to readily find growing markets for their own exports. Hence, protectionism which hampers the growth of developing country exports will only hurt the industrial countries in the long run. It is in the self-interest of the industrial countries to ensure that the developing countries can achieve more rapid growth with an open world trading system.
Equally important, investment and growth in the developing economies should not be strangled by continuing high interest rates. Given the continuing huge fiscal deficits in many industrial countries, we fear that interest rates in real terms will continue to remain high. One important priority which the industrial world could establish is to make a strong effort in the area of structural adjustment so that fiscal deficits can be reduced to restore the confidence of the financial markets. In this regard, perhaps the major industrial country, the United States, has a special responsibility in the pursuit of the underlying economic and financial stability required to reduce world interest rates. The World Economic Outlook tells us that a 1 percent reduction in the Eurodollar interest rate can help to reduce about $4 billion in the debt service of developing countries. Thus, the world is looking to the United States to restore fiscal balance, so that the other industrial countries need not maintain high interest rates to protect the exchange rates of their currencies, a move that is more consistent with the current need to stimulate growth and reduce unemployment. In this manner, the debt burden of the developing countries can be reduced and the viability of the world financial system ensured.
The efforts of the world community in the areas I have outlined are important to all developing countries including Malaysia. Although our economy has been well diversified, we could not be fully protected from the adverse impact of the recent global recession and high interest rates. Like all other developing countries, we have to make some painful adjustments in our development programs in order to protect our long-term economic prospects. This shows that even a successful and prudent developing country like Malaysia has been adversely affected by the policies of the industrial countries and their increasingly protectionist attitude. We only ask that the world economic environment be made more stable so that developing countries can participate equally in world trade, which will then enable them to promote growth and create employment opportunities.
The multilateral financial institutions have important roles to play in this respect. These institutions must be strengthened in order to play a more vital role. Unfortunately, in the past few years, there has been a hardening of attitudes on the part of the developed countries, especially the foot-dragging Congress of the United States, which, for some reasons of its own, does not wish to see an expansion in the role of the Bank and the IMF. How could the developing countries undertake adjustment programs if there is no strong support for these institutions in the next few years?…
Support for the International Monetary Fund would also enable the continuation of its efforts to assist the adjustment efforts of member countries by providing adequate financing. This must be on a scale commensurate with the needs of member countries now that the international capital markets have become more restrictive. If need be, the resources of the Fund should be borrowed from the private capital markets and surplus countries, so that the Fund will not become increasingly restrictive in determining access to its facilities. Like many others, we are disappointed that the Fund has been imposing greater conditionality recently in order to preserve its liquidity position. The issue here is surely one of how the Fund can best help the member countries facing economic difficulties in an adjustment that is not too disruptive to economic growth, domestic political stability, and national development. This must be the most important consideration, rather than how the Fund can best preserve its liquidity. The test of the Fund’s ability to help member countries to adjust, and maintain the viability of, the international financial system is not its financing capability in normal times when resources are plentiful, but in times of crisis such as we are now experiencing when resources are scarce.
In this connection, we are also disappointed that the long-debated issue of SDR allocations in the fourth basic period has not yet been settled. The fear of some major industrial countries that such allocations will lead to higher world inflation are not well-founded, especially when world inflation is moderating and many countries are adopting prudent policies in the face of prolonged recession. We feel that there should be at least moderate allocations, since this would benefit the international economic and financial system more than it can possibly hurt. This is especially so when most developing countries are short of reserves, which, at this time, can only be borrowed at high interest rates. Allocations in the present circumstances will be critical in the much-needed bolstering of reserves, thus helping to alleviate the international debt problem. Eventually, it will also improve the effective functioning of the international monetary system.
In conclusion, I would like to congratulate the Bank and the IMF, particularly the Bank’s President, Mr. Clausen, and the IMF’s Managing Director, Mr. de Larosière, and their staffs for another year of successful operations. I hope the World Bank and the IMF will continue their good work in helping development in the developing countries.
Statement by the Governor of the Fund and the Bank for Malta—Wistin Abela
It is a great pleasure for me to address these meetings for the first time as Governor of the Fund—and now also of the Bank—for Malta. On behalf of my Government and the people of Malta, I wish to begin by expressing my gratitude for the cordial welcome extended to Malta as a new member of the Bank and to thank all concerned for the help we have received in becoming members. I would also like to say, at this point, that my Government notes with satisfaction the initiative taken earlier this year by the Bank to broaden its cofinancing program with a view to increasing the participation of commercial banks in the Bank’s projects in developing countries. Such measures, it is hoped, should boost the flow of private capital to the developing nations and help those countries maintain the momentum of development in the face of the current international economic difficulties.
At the same time, however, I would like to state, for the record, that Malta’s joining the Bank does not indicate a change of stance on the part of my Government with respect to certain policies and attitudes of either the Bank or the Fund. I refer, in particular, to the two institutions’ tendency, for all practical purposes, to classify countries simply into “rich” and “poor,” “developed” and “developing,” according to the simple criterion of GNP per capita, without taking into account such factors as resource endowment, lack of technological know-how, size, vulnerability, and openness of the economy to external shocks. Yet such factors constitute major structural constraints on the development process, particularly in small island economies, often frustrating their efforts to restructure their industrial base away from declining sectors toward more stable sectors with a higher technological content. Such countries are inherently unable to effect the structural transformation necessary to attain self-sustaining growth and consequently must, to a certain extent, remain permanently underdeveloped. Yet, if by the simple GNP per capita standard they cannot be considered among the poorest, they find themselves treated by the Fund on a par with the largest and most advanced industrial countries, while the only type of World Bank aid to which they are entitled is in the sphere of technical assistance.
Having made this point, which I trust will be well taken, I shall turn to the evolving world situation.
Since our meetings in Toronto last year, the outlook for the world economy seems to have improved somewhat. While the level of industrial activity in most countries remains generally depressed, prospects for 1983 and 1984 are for a modest but significant improvement in the international economic climate. Moreover, firmer evidence of recovery in the industrial world, especially in the United States, suggests that a cyclical upswing is under way. All this is welcome news, of course. But the inevitable question which comes to mind is: Will it last long enough to eliminate the high levels of unemployment still prevailing in the industrialized—and industrializing—countries and long enough for its effects to sink through to the developing countries, which have borne so large and disproportionate a part of the burden of global adjustment? If it does not, there is a danger that the capital base of many developing countries, painstakingly built over the years in the most adverse circumstances, will be completely eroded with disastrous consequences for employment and future growth prospects in these countries.
Unfortunately, evidence has become available in recent months that the pace of recovery in a number of major economies is already faltering. No doubt, a major factor frustrating this economic reactivation has been the renewed firming of interest rates, notwithstanding the consensus reached in Williamsburg on the importance of lower real interest rates. The consequences to the developing countries of such unbearably high interest rates are too well known. Not only have they stretched the debt service burden of a number of countries to intolerable limits, but they are also choking off the stream of direct foreign investment and resulting employment and export opportunities.
Various international organizations and industrial countries have been hammering on the assertion that the key to recovery is through anti-inflationary measures. Unfortunately, the experience of recent years does not give us much ground for optimism. Even though some success has been achieved in the fight against inflation, it must be remembered that this, in itself, will not guarantee smooth and lasting growth of the world economy. The Fund staff itself has pointed out, for instance, how, in each recent cyclical downswing, unemployment rates in the industrial countries have reached new postwar highs, while, in the ensuing upswing, they have receded less than in previous recovery periods. The result has been a secular rise in the unemployment rate in these countries, with consequent slower growth of output all around. Indeed, it is now widely recognized, both in the Fund and elsewhere, that, apart from cyclical factors, other “systemic” factors were to blame for the depth and duration of the recession from which the world economy now seems to be emerging. Consequently, unless these factors—these “structural imbalances”—in the world economy are dealt with, our respite from recessionary conditions will be, at best, only temporary and incomplete. For we shall have treated only the symptoms, without getting at the underlying causes, of the stagflationary disease that has been sapping the strength of the world economy for so many years. We, in Malta, have never had any illusions about this.
In 1976, as the world began to emerge from what, till then, seemed to be the worst recession since World War II, one of my predecessors, as Governor of the Fund for Malta, warned against the dangers of letting a cyclical recovery in world output and trade divert our attention from the fundamental imbalances of the world economic system and from the urgent need to pursue the objectives of the new international economic order. Unfortunately, however, the spirit of international cooperation, which is so necessary if we are ever to get a grip on these problems, seems to have fallen victim to the stagflationary years. Witness the meager results of the recent Sixth Session of UNCTAD, the stalemate over the global negotiations on international economic issues at the UN, and the apparent cessation of the North-South dialogue. Witness also the drying up of development aid to the low-income developing countries. What we have today, instead of more cooperation, is a burgeoning of protectionist measures, some more and some less obvious, many of them initiated by the industrial countries, but spreading inevitably to the weaker, hard-pressed developing countries, many of which, on account of their small domestic markets, cannot sustain their industries in the absence of export orders. And yet, no international economic conference goes by without everyone expressing dismay at the growth of protectionism. All this illustrates the great division which separates the expression of noble ideals from their active pursuit.
Yet, if the spirit of cooperation has been weakened, the need for it has never been greater. The experience of the past decade has demonstrated that the economic interdependence of nations is not merely a fine idea: it is a fact of life. Currently, this interdependence is being highlighted by the worrisome world debt situation, with its many ramifications. And this brings me to the role of the Fund. We all know that the Fund has played a major part in preventing a financial collapse that could have engulfed all our countries. For this, the Managing Director deserves our commendation, but the Fund will not be able to act promptly and efficiently in the current, still precarious situation without adequate resources. Indeed, the Fund’s liquidity position has already deteriorated to such an extent that it is no longer in a position to enter into new commitments under its “enlarged access” policy, and this at a time when the financing needs of many countries are still increasing. Thus, while we agree with the view expressed by the Group of Twenty-Four last February, that members’ overall access to Fund resources in terms of multiples of quota should remain at present levels after the Eighth General Review of Quotas becomes effective, we can only stress the importance that members should expedite proceedings to ratify the quota review and that the Fund, perhaps, should consider advancing the Ninth General Review.
In this connection, may I point out that Malta was one of the first few member countries to ratify the quota increase. Furthermore, because my Government recognizes the importance of adequate liquidity in the international financial system, Malta, relative to its size and resources, contributes very substantially to the Fund’s operational budgets. Indeed, in relation to its admittedly modest quota, Malta is one of the countries which contributes most heavily to the recycling process. While adequate resources are essential, however, particularly at this crucial stage, we feel it is also essential that members refrain from pressuring the Fund to introduce political considerations into its lending policies or from subjecting the Fund to conditions which undermine its autonomy. Indeed, rather than yield to such pressures, it would be preferable for the Fund to borrow from the private markets, as the World Bank has been doing since its foundation.
With respect to SDRs, we can only concur with the regret expressed by the Group of Twenty-Four last February that no allocations have been made so far in the fourth basic period. As the Ministers of the Group of Twenty-Four pointed out, an annual allocation of SDR 12 billion would be required merely to restore the proportion of SDRs to global reserves to the 1972 level of 8 percent. We do not believe that allocations of this magnitude would reignite inflationary fires, particularly if, as has often been argued, they were linked to development finance. On the other hand, if no allocations were made, the “wrong signals” will have been given regarding the commitment to make SDRs the principal reserve asset, as the Ministers of the Group of Twenty-Four pointed out in their communiqué last February.
In conclusion, it is up to us—even if we feel that, in the long run, other more drastic measures will be needed to ensure the smooth functioning and growth of the world economy—to maintain our support for the Bank and the Fund. This we must do not only with words, but also with deeds, if the two institutions are to be able to play fully the role for which they were created.
Statement by the Governor of the Bank for Papua New Guinea—Noreo Beangke
I wish first of all to thank the U.S. authorities and the city of Washington for their warm hospitality and for the excellent organization of our meetings. I also wish to welcome Malta and Antigua and Barbuda, which have become members of the World Bank during the past year.
We in Papua New Guinea are heartened by the indications of a modest economic recovery in the industrial world. However, we are cautiously optimistic about these early signals.
The Government of Papua New Guinea as a small open economy will continue to adhere to its policies to stabilize the effects of fluctuating commodity and metal prices. Like all developing countries, we were affected by the downward swing in commodity prices and by the shock of oil price increases. To cope with this situation, with the prospects of static government revenue and with the need to safely meet forward loan estimates and to be assured of the capacity in later years to repay our debts, the Government has undertaken a fiscal adjustment program.
This program, which began with the 1983 budget, featured no growth in public expenditure and a reduction in recurrent government expenditure. It emphasized improvement in the efficiency of internal revenue collection and reduction of commercial borrowing for general budget purposes. To date these aims are being met with expenditure and revenue targets on track and cost-cutting programs on line.
This adjustment is to continue in 1984 with a further reduction in real terms in public expenditure and a further scaling down of overseas commercial borrowing.
At the same time, the Government is aware of the pitfalls of reducing its investment plans. Efforts continue to be made to make modest provision for new development expenditure in our National Public Expenditure Plan. The Government is continuing to provide the funding necessary to ensure timely and planned implementation of ongoing projects.
The efforts of World Bank and IMF staff over the past year in Papua New Guinea are appreciated….
The Government, in addition, welcomed the productive and healthy exchange of views with this year’s IMF mission and looks forward to continuing this dialogue.
We in Papua New Guinea are conscious of the pressures on our international economic institutions. It is our belief that the needs of the developing world will continue to be served by the World Bank and the Fund and that the innovations required will be the common goal of all member countries.
Statement by the Governor of the Fund for Paraguay—César Barrientos
On behalf of the Government of the Republic of Paraguay, I have the high honor to convey our amicable and cordial greetings to the Chairman of these joint meetings, to the authorities and people of the United States, to the President of the World Bank, to the Managing Director of the International Monetary Fund, to the Governors and representatives of the countries taking part, and to all the staff who give of themselves so unstintingly in the work of the Bank and of the Fund.
It is a source of satisfaction to participate in these meetings with such distinguished personalities from the economic and financial circles of the member countries and to share in the great expectations we all have as to the decisions that may be taken here for resolving the problems currently besetting all our countries.
None can deny that, in the economic and financial sphere, we have reached an extremely difficult moment that calls for appropriate and positive solutions; in addition to the domestic effort required of each country, the invaluable assistance of the institutions under whose aegis we are meeting will be indispensable.
The level of development achieved by our countries, through the collective efforts of our peoples and the most helpful guidance provided by the International Monetary Fund, has been affected in recent years by the negative impact of generalized inflation and by the natural phenomena and problems of all sorts that have plagued our countries in one way or another. As a direct consequence, the level of unemployment has risen to the extent that it is all the more serious a problem because of its social aspect. For this reason, a decision by the International Monetary Fund on the technical assistance and cooperation to be provided would be a valued contribution to the efforts of our countries since, if adopted with due responsibility, it would help us to surmount the difficulties we are facing.
During the 1970s, Paraguay posted rapid economic growth, running at an average annual rate of 9 percent for GDP; this was the fruit of careful management and the coordinated effort of people and government.
I should note that a number of factors contributed to the pronounced economic expansion of that period, especially the rapid capitalization of the economic system with its multiplier effects in the different sectors derived especially from investments for the construction of the Itaipú huge binational hydroelectric project undertaken jointly with Brazil.
Other significant factors behind that growth were the stable sociopolitical climate, the fiscal incentives for production, the trouble-free execution of the agrarian reform program, and the application of timely economic policy measures by the Government.
However, since the beginning of the present decade, Paraguay has been adversely affected by conditions prevailing in the world economy, which have obliged the system to undertake major adjustment and austerity measures.
This situation has forced us to reformulate all the traditional economic policy instruments, abandoning medium-term plans for the time being and drawing up and applying instead short-term plans which offer greater flexibility and can more readily be put into effect.
To illustrate this better, let me mention some economic indicators.
The agriculture and industry sectors, which through 1977–81 grew at rates ranging from 7 percent to 13 percent, displayed a marked drop as of 1982. In that year, the value added of primary production posted a fall of 3.0 percent, after growth of 6.7 percent in 1981. The secondary sector, made up of mining, industry, and construction, fell from a 10.5 percent growth rate in 1981 to a negative rate of 4.8 percent in 1982.
Basic services, however, achieved an appreciable improvement, with a growth rate increasing from 3.9 percent in 1981 to 9.5 percent in 1982.
As regards foreign trade, it can be stated that, owing to specific, gradually implemented tariff policy measures, a substantial improvement was attained. This was evidenced not just in the overall figure—that is, 11.6 percent growth in 1982, compared with 6.0 percent over 1977–81— but also by an appreciable improvement in structure, with a marked trend toward lower exports of primary products coupled with increases in those incorporating a higher degree of processing.
Imports increased by 4.9 percent compared with 1981. The items featuring largest continued to be petroleum and petroleum products, which accounted for 26 percent of our total imports.
As a result, Paraguay’s 1982 trade balance deficit was of the order of $251.6 million.
Foreign exchange reserves declined by some 10.9 percent between 1981 and 1982, from $780 million to $635.9 million. In spite of the above, our balance of payments had a deficit of $71.5 million.
Paraguay’s external debt totaled $1,203.5 million at December 31, 1982, for a cumulative annual growth of 18 percent from 1977 to 1982.
We are aware of the fact that, in order to have access to external credit, it is necessary to have not only an adequate payment capacity but also detailed analyses of decisive factors, such as the degree of political stability, the generation of foreign exchange, future exports, the possible performance of the balance of payments, and, finally, the external reserve position.
Paraguay has complied with its external commitments on time and without exception and is very well regarded among its creditors.
The country’s principal sources of financing are the World Bank and the Inter-American Development Bank, but the share of these two international financial institutions in total financing received has fallen in the last two years, from 41.7 percent to 38 percent in 1982. Significantly, in 1977 this share was 48 percent.
Government finances are being managed with extreme caution, taking into account our present economic difficulties and the high share of the state in the national economy. The draft budget for next year, now in consideration in the National Congress, envisages a series of measures designed to rationalize public expenditure even further by establishing a strict order of priorities for both current and capital expenditure.
Central government budgetary allocations for 1984 are projected to increase slightly, by some 6.9 percent over this year’s total.
The increase in allocations to decentralized entities is of the order of 15.8 percent, a figure we deemed appropriate in view of prospects for the budget year.
As noted above, the draft budget for fiscal year 1984 is based on strict austerity measures to reduce nonpriority items. This policy enables the Government of Paraguay to go ahead with projected investment in projects closely linked to the country’s development.
At the same time, the tax structure also received special attention from the Government, which took into account basic aspects, such as control of commercial and financial transactions and the realism of existing tax rules, and the reinforcement of certain tax systems, such as the general sales tax, thus broadening the universe of taxpayers.
Finally, the Government believes that, in addition to the domestic measures implemented, the contribution of international financial institutions will be of great significance in helping us to overcome rapidly and effectively the difficult conditions we face.
However, the experience of having participated in these financial organizations from their beginnings allows us to recommend that the conditionality on any type of financial cooperation that may be furnished be considered with our reality in mind. Assistance should not envisage strict or very rigorous conditions, so that each country, through effective administrative management, can minimize the impact of the economic recessions that afflict us all.
To conclude, I would like to express my personal pleasure for the attention shown to my delegation and for the warm welcome given us by this great nation and by the Government of the United States of America.
Statement by the Governor of the Bank for Viet Nam—Nguyen Duy Gia
Since our last Annual Meetings in Toronto, the world has witnessed, though not on a firm optimistic ground, some sign of fragile recovery, especially in certain industrial countries. World inflation is in a declining trend; output and consumption in some fields are on the rise. Economic recovery in the least developed countries has occurred at a slower rate; trade and primary commodity and main export prices showed a gradual improvement, but their levels are still below those of a decade ago. External debt and debt service of developing countries are still a major concern, because their debt service ratio has increased to more than 20 percent while their capital market is still limited.
The new emergence of world economic recovery is threatened by the huge fiscal deficit of the United States and the return to a policy of high interest rates. The results become evident in interest rate competition among industrial countries, which attracts investment funds, whereas developing countries’ access to capital market contracts is limited because of the high cost of borrowing. It surprises no one that funds start flowing back to the United States and stagnation appears in many countries.
The result of the Sixth Session of UNCTAD held in Belgrade last June showed that developed countries have not given up their intention to place their burden of economic crisis on developing countries. Economic interdependence and development call for a review of economic policy on the part of rich nations toward poor countries, should the rich nations wish to escape an economic crisis which they initiated.
The present economic difficulties require the Fund and the Bank to play more active roles as international monetary and fiscal centers and respond positively to the requests of member countries for funds. The Fund must seek all means to mobilize resources, including an early allocation of SDRs for the fourth basic period and prompt discussion of the Ninth General Review of Quotas, in order to increase their assistance rather than to tighten conditionality and reduce the special facilities such as the compensatory financing facility….
Now, allow me to say a few words about my country. Viet Nam, with its own efforts and the assistance from friendly countries and international and regional organizations, has step by step overcome the difficulties caused by a long war and the economic sabotage and isolation by international reactionaries and successive natural calamities. Our economy is gradually becoming stable and is achieving new development. In recent years, a series of economic policy measures has improved domestic output and the living conditions of our people. However, Viet Nam, like other developing countries, has suffered the aftermath of the recent economic recession; its access to capital markets has contracted and foreign resources for economic development have become scarce.
Up to now, our two institutions—the Fund and the Bank—have not fulfilled their obligations to Viet Nam and many other member countries. The Bank should seriously review its policy of political interference in the normal operation of a poor member country devastated by war and eligible for assistance. The Fund should devise appropriate policies to facilitate flexible access to various Fund facilities for member countries with payments problems. These practical policies will contribute to a prompt economic recovery and development of member countries.
Statement by the Governor of the Bank for Yugoslavia—Joze Florjancić
Since our last meeting in Toronto, the world economy has experienced two contradictory tendencies. On the one hand, the recession in a number of industrial countries is showing signs of easing, while on the other, the economic situation of a large number of developing countries is dramatically deteriorating. It is hard to expect that optimistic forecasts on the economic recovery of the developed countries will automatically lead to higher economic growth of the developing countries and to the alleviation of the adverse external financial position of all the other countries, owing primarily to a high level of unemployment in the developed world. In addition, the duration and intensity of economic recovery in the developed countries are still uncertain, as is its positive impact on the alleviation of the economic and external financial positions of developing countries.
The 1983 World Development Report of the World Bank is a very useful document, indicating a number of problems which the developing countries are facing in their economic development. The Report brings into direct focus the issue of the dependence of economic development of developing countries on the speed of economic growth in the developed countries, international trade, and foreign capital inflows. Generally speaking, however, the Report is insufficiently flexible in relation to the government policies of developing countries, because it starts from the a priori assumption of the advantages of market mechanisms and open economies and disregards the fact that such policies are not pursued by the most developed countries….
With regard to the International Monetary Fund, the tendency to tighten conditionality in making funds available, together with the deterioration of its liquidity position, is unacceptable. Because the balance of payments problems of developing countries result partly from structural adjustment difficulties and external factors, we consider that the assistance programs to member countries should, in addition to demand regulation, take into account more the need for increased production and exports. This is the only way for a lasting solution to critical balance of payments situations.
Interruptions in the development process of developing countries may be prevented only by paying due respect to the political, social, and economic priorities of these countries and full respect to external factors causing their balance of payments problems.
With regard to the sources of IMF funds, the dominant role and importance of quotas should be maintained. The increase within the Eighth General Review of Quotas was not adequate, as is manifested by the current difficulties related to liquidity coefficient maintenance. It is indispensable, therefore, to initiate, as urgently as possible, preparations for the Ninth Review of Quotas. The funds within the General Arrangements to Borrow should be put at the more flexible disposal of the IMF. In this way, member countries could more reliably count on their use in exceptional circumstances, instead of having such decisions taken by a small group of countries.
The problem of access to IMF resources should be considered from the point of view of the actual needs of member countries. Therefore, the best solution would be maintenance of the existing annual limit of 150 percent of quota. The decline in the relative access of developing countries to the Fund’s resources under the Eighth General Review of Quotas, as well as the erosion due to inflation, points to this specific problem.
The allocation of SDRs in the fourth basic period represents a so-called “classic case” for taking a positive decision, as all necessary conditions have been met for this allocation. Such a continuation of the allocation of SDRs would arrest the decline of this reserve asset’s share in total reserves. It would also, in the present circumstances, represent a counterweight to the decrease of growth rates, world liquidity stagnation, seriously impaired international payments, and considerably diminished inflation rates in the developed countries. The foreign exchange reserves of developing countries have hardly increased in nominal terms since 1980, so their present level is below that considered desirable.
An appropriate role in the recovery process in the low-income developing countries should be played by financial flows under concessional terms. It is essential to provide a continuous and foreseeable growth of these funds without introducing any form of conditionality. It would not be permissible for contributing countries to take upon themselves the prerogatives of multilateral development institutions in their policy of making funds available.
Our institutions have a very delicate and important role and represent an example of cooperation among countries at different development levels and with different economic systems. Furthermore, creativity and flexibility in solving the problems they are facing are essential in the present economic situation. Mr. de Larosière, Managing Director of the International Monetary Fund, and Mr. Clausen, President of the World Bank, deserve our praise for their efforts.
However, these institutions need an adequate level of funds in order to play their roles in encouraging the recovery process of the world economy and, in particular, inclusion of the developing countries in the expected expansion of production and international trade. Only on this basis will the recovery process acquire its lasting character.
Let me finally express, on behalf of my Government, appreciation to the management and staffs of the World Bank and the International Monetary Fund for the successful cooperation my country has had with them. We wish other developing countries the same cooperation in their relations with these two institutions.
September 29, 1983.