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Reports of the Joint Procedures Committee

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International Monetary Fund. Secretary's Department
Published Date:
November 1983
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Chairman……Spain
Vice-Chairmen……Bangladesh

Paraguay
Reporting Member……France

Other Members: Argentina, Belgium, Benin, China, Costa Rica, Federal Republic of Germany, Haiti, Japan, Malaysia, Niger, Pakistan, Saudi Arabia, Tunisia, Uganda, United Arab Emirates, United Kingdom, United States, Yugoslavia

Report II1

September 30, 1983

Mr. Chairman:

At the meeting of the Joint Procedures Committee held on September 29, 1983, the items of business on the agenda of the Board of Governors of the International Monetary Fund were considered.

The Committee submits the following report and recommendations:

1. 1983 Annual Report

The Committee noted that provision had been made for the annual discussion of the business of the Fund.

2. Report of the Chairman of the Interim Committee

The Committee noted the presentation made by the Chairman of the Interim Committee.2

The Committee recommends that the Board of Governors of the Fund thank the Interim Committee for its work.

3. Financial Statements, Report on Audit, and Administrative Budget

The Committee considered the Report on Audit for the financial year ended April 30, 1983, the Financial Statements contained therein (Fund Document No. 6 and Appendix VIII of the 1983 Annual Report), and the Administrative Budget for the financial year ending April 30, 1984 (Fund Document No. 8 and Appendix VI of the 1983 Annual Report).

The Committee recommends that the Board of Governors of the Fund adopt the draft resolution set forth in Fund Document No. 7.3

4. Amendments of the Rules and Regulations

The Committee has reviewed and noted the letter of the Managing Director and Chairman of the Executive Board to the Chairman of the Board of Governors, dated September 27, 1983, reproduced as Fund Document No. 9, regarding amendments of the Rules and Regulations set forth in Attachment 1 to that document [Annex].

The Committee recommends that the Board of Governors of the Fund adopt the draft resolution set forth in Attachment 2 of Fund Document No. 9.4

Approved:

/s/ Miguel Boyer

Spain—Chairman

/s/ Brunode Maulde

France—Reporting Member

Annex to Report II

September 27, 1983

Dear Mr. Chairman:

In accordance with Section 16 of the By-Laws, the attached amendments of the Rules and Regulations adopted since the 1982 regular meeting are submitted for review by the Board of Governors. A draft resolution for approval by Governors appears in Annex II.

On July 26, 1983, the Executive Board adopted two decisions with respect to the SDR. The first officially adopted the term “SDR” as standard usage in Fund documents and publications in place of the full expression “special drawing rights.” This was accomplished by the addition of a new Rule, Rule B-6.

When the SDR scheme was being developed in the late 1960s, one of the issues was the name to be given to the proposed new supplement to reserve assets. The term “special drawing right” was eventually accepted and incorporated in the First Amendment to the Articles of Agreement. Increasingly the term “SDR” came to be regarded as a name in its own right rather than merely as an abbreviation, and use of the full expression “special drawing right” tended to be restricted primarily to formal documents relating to or promulgated by the Fund. In view of this, it was decided that the term “SDR” itself be given official status and recognition. The texts of the other Rules in the fortieth issue of the Rules and Regulations have been changed as necessary to incorporate the new term.

The second decision, amending Rules 1-9, I-10, and T-l effective August 1, 1983, dealt with the frequency with which the rate of interest on the SDR and the rate of remuneration is changed, the frequency with which interest is paid, and with related technical matters.

The general purpose of these changes regarding the SDR interest rate is to further enhance the role of the SDR as an international reserve asset by bringing its yield closer in line with yields on other reserve assets included in the SDR basket. The changes will help improve the liquidity of the SDR and thereby improve the asset as a means of payment and as a store of value. In order to maintain the attractiveness of the SDR vis-à-vis other reserve assets, the Fund has adopted an approach that relates the effective yield on the SDR to the effective yield on currencies that members may hold in their reserves. The approach has been to value the SDR by reference to a basket of major currencies and to set its interest rate by reference to interest rates that could be earned on three-month investments in these currencies. Because the SDR interest rate was set only quarterly, however, it frequently diverged substantially from prevailing market rates on other investments, including those in the reference basket. Since most of the instruments in which countries hold their reserves are repriced daily in the money markets of the world, an analogous daily adjustment of the SDR interest rate was considered. It was found, however, that a weekly setting approximated fairly closely the result of a daily setting, while being a more moderate departure from the previous practice, and it was thus decided to fix the SDR interest rate weekly, using the daily combined market rate of the Friday of the preceding week.

Previously, charges on SDR allocations and interest on SDR holdings were settled annually as of the end of each financial year of the Fund (i.e., April 30) by debiting or crediting the SDR accounts of each holder. By contrast, interest income on the instruments in the interest-rate basket was received more frequently, typically every three months. As a result, because of the effect of compounding, the interest return on the SDR was actually lower than the return on successive investments in the instruments in the basket. It was determined that quarterly payment of interest at the rate as presently calculated would bring the effective return on the SDR much closer to the result of investing in the instruments in the basket, and quarterly payment of interest and charges was approved. In order to maintain comparability between SDRs and remunerated reserve tranche positions, it was decided that remuneration, like SDR interest, would also be payable quarterly.

A change in accounting procedures has also been adopted. Rule T-1(a) formerly stated that interest and charges in respect of SDRs shall be paid promptly as of the end of each financial year of the Fund. In order to do this, the accounts were held open to enable transfers of SDR interest and charges to be effected after the balances in each account resulting from other transfers were established and interest accrued thereon calculated. Since interest and charges do not begin to accrue on the newly credited and debited amounts until the first day of the following period in any case, Rule T-1(a) was revised to provide that transfers representing interest on SDR holdings and the charges in SDR allocations be made promptly as of the first day of the new accounting period. The same accounting method has also been applied to the payment of remuneration.

The Executive Board has made no other changes in the Rules and Regulations since the last Annual Meeting.

Very truly yours,

/s/

J. De Larosière

Managing Director

and

Chairman of the Executive Board

Chairman of the Board of Governors

1983 Annual Meeting

International Monetary Fund

Attachment 1. Rules and Regulations Amended Since the 1982 Annual Meeting

1. Rule B-6. Text as adopted July 26, 1983.

  • SDR refers to the special drawing right of the Fund. The term “SDR” (or “SDRs”, as appropriate) shall be adopted as standard usage in Fund documents, correspondence and publications where a reference to special drawing rights is intended, provided that if the text is in a language in which a different usage has become established, that usage may be retained.

2. Rule I-9. Text as amended July 26, 1983, effective August 1, 1983.

  • (a) Remuneration shall accrue daily. The amount that has accrued during each quarter of the financial year of the Fund shall be paid as of the beginning of the following quarter.

  • (b) A member that wishes to receive in its own currency the whole or a specified portion of the remuneration payable to it shall so notify the Fund.

3. Rule I-10. Text as amended July 26, 1983, effective August 1, 1983.

  • (a) The rate of remuneration shall be equal to 85 per cent of the rate of interest on holdings of SDRs under Rule T-1(b), rounded to the two nearest decimal places.

  • (b) The Fund shall review the rate of remuneration on the occasion of the annual review of the rate of interest on holdings of SDRs under Rule T-1(d).

4. Rule T-1. Text as amended July 26, 1983, effective August 1, 1983.

  • (a) Interest and charges in respect of SDRs shall accrue daily at the rate referred to in (b) below. The amount that has accrued during each quarter of the financial year of the Fund shall be paid promptly as of the beginning of the following quarter. The accounts of participants shall be credited with the excess of interest due over charges or debited with the excess of charges over the interest due. The accounts of holders that are not participants shall be credited with the interest due.

  • (b) The rate of interest on holdings of SDRs for each weekly period commencing each Monday shall be equal to the combined market interest rate as determined by the Fund at the beginning of the period in the manner described in (c) below.

  • (c) The combined market interest rate shall be the sum, rounded to the two nearest decimal places, of the products that result from multiplying each yield or rate listed below, expressed as an equivalent annual bond yield, for the preceding Friday by the value in terms of the SDR on that Friday of the amount of the corresponding currency specified in Rule O-1, as determined pursuant to Rule O-2(b). If a yield or rate is not available for a particular Friday, the calculation shall be made on the basis of the latest available yield or rate.

U.S. dollarMarket yield for three-month U.S. Treasury bills
Deutsche markThree-month interbank deposit rate in Germany
French francThree-month interbank money rate against private paper in France
Japanese yenDiscount rate on two-month (private) bills in Japan
Pound sterlingMarket yield for three-month U.K. Treasury bills
  • (d) The Fund will review the rate of interest on holdings of SDRs at the conclusion of each financial year.

Report III1

September 30, 1983

Mr. Chairman:

The Joint Procedures Committee met on September 29, 1983 and submits the following report:

1. Development Committee

The Committee noted that the Annual Report of the Joint Ministerial Committee of the Boards of Governors of the Bank and the Fund on the Transfer of Real Resources to Developing Countries (Development Committee) has been presented to the Boards of Governors of the Bank and the Fund pursuant to paragraph 5 of Resolutions Nos. 294 and 29-9 of the Bank and the Fund, respectively (Bank Document No. 3 and Fund Document No. 5) [Annex].

The Committee recommends that the Boards of Governors of the Bank and the Fund note the Report and thank the Development Committee for its work.

2. Officers and Joint Procedures Committee for 1983/84

The Committee recommends that the Governor for Japan be the Chairman, and the Governors for Ghana and the Netherlands be Vice-Chairmen, of the Boards of Governors of the Bank and its affiliates and of the Fund, to hold office until the close of the next Annual Meetings.

It is further recommended that a Joint Procedures Committee be established to be available, after the termination of these Meetings and until the close of the next Annual Meetings, for consultation at the discretion of the Chairman, normally by correspondence and, if the occasion requires, by convening, and that this Committee shall consist of the Governors for the following members: Australia, Brazil, Cyprus, Dominica, Egypt, France, Federal Republic of Germany, Ghana, Japan, Morocco, Netherlands, Peru, Saudi Arabia, Solomon Islands, Sudan, Sweden, Thailand, United Kingdom, United States, Venezuela, Zaïre, and Zimbabwe.

It is recommended that the Chairman of the Joint Procedures Committee shall be the Governor for Japan, and the Vice-Chairmen shall be the Governors for Ghana and the Netherlands, and that the Governor for Australia shall serve as the Reporting Member.

Approved:

/s/ Miguel Boyer

Spain—Chairman

/s/ Brunode Maulde

France—Reporting Member

Annex to Report III

September 26, 1983

Sir:

As Chairman of the Joint Ministerial Committee of the Boards of Governors of the Bank and the Fund on the Transfer of Real Resources to Developing Countries (Development Committee), I have the honor to present herewith to the Boards of Governors a report by the Committee on the progress of its work during the period July 1982-June 1983. The report is presented in compliance with Section 5(i) of the Bank Board of Governors Resolution No. 294 and the Fund Board of Governors Resolution No. 29-9, adopted on October 2, 1974.

Sincerely yours,

/s/

Ghulam Ishaq Khan

Chairman

Development Committee

Attachment

His Excellency

Miguel Boyer

Chairman of the Boards of Governors International Monetary Fund and the World Bank

Attachment: Report of the Joint Ministerial Committee of the Boards of Governors of the Bank and the Fund on the Transfer of Real Resources to Developing Countries

(July 1982-June 1983)

I. Introduction

1. This is the ninth annual report of the Joint Ministerial Committee of the Boards of Governors of the Bank and the Fund on the Transfer of Real Resources to Developing Countries (Development Committee). It covers the period from July 1982 to June 1983.

2. The Development Committee was established in 1974 on the recommendation of the Committee on Reform of the International Monetary System and Related Issues (Committee of Twenty) to provide a focal point at a high political level in the structure of economic cooperation for the formation of a comprehensive overview of the development process, for efficient and prompt consideration of development issues, and for coordination of international efforts to deal with problems of financing development. According to the Resolutions establishing the Committee, the consideration of the question of the transfer of real resources to developing countries was to be undertaken in relation to existing or prospective arrangements among countries, including those involving international trade and payments, the flow of capital, investment, and official development assistance.

3. The members of the Development Committee were to be Governors of the Bank and the Fund, ministers, or others of comparable rank and were to be appointed in turn for successive periods of two years by the members of the Bank and the members of the Fund. Each member of the Committee was to be assisted by seven Associates and the Executive Directors of the two institutions representing his constituency on the Executive Boards.

4. Against the background of analyses and projections contained in the IBRD’s World Development Report and the IMF’s World Economic Outlook and other studies specially prepared, the Committee during the year under review considered a number of issues relating to promotion of development and to the improvement of capital flows and their effective utilization in the developing countries. The agendas were designed to focus the attention of the ministers, representing developed and developing countries, on vital development issues of interest and urgency and sought to promote international consensus to facilitate decisions in appropriate bodies at national and international levels.

5. The Committee held three meetings during the year. The first meeting was in Toronto on September 5, 1982, at the time of the Annual Meetings of the Boards of Governors of the Bank and the Fund. It was chaired by His Excellency Manuel Ulloa Elias, Prime Minister and Minister of Economy, Finance, and Commerce of Peru. This was followed by a short procedural meeting at Toronto on September 8 for the selection of a new chairman on the completion of Mr. Ulloa’s term following the election of the new Executive Directors of the Bank and the Fund. At this meeting, the Development Committee unanimously selected His Excellency Ghulam Ishaq Khan, Minister of Finance, Commerce, Planning, and Coordination of Pakistan, as its new Chairman. The other meeting during the year—the twenty-first in the series—was held at Washington, D.C., on April 28–29, 1983, under the chairmanship of Mr. Ghulam Ishaq Khan.

6. At the technical and preparatory level, the Task Force on Concessional Flows, which had been set up by the Committee in May 1982 to conduct an in-depth study of the problems affecting the volume and quality and effective use of concessional flows, held during the year three meetings under the chairmanship of Mr. John P. Lewis, Professor at Princeton University. The first status report on its work so far will be presented at the meeting of the Committee in September 1983.

7. The Committee is currently operating under the procedures established in April 1979 which placed the responsibility for the organization of its work on the Chairman, the President of the Bank, and the Managing Director of the Fund, assisted by the Executive Secretary. The other measures then adopted included greater and closer involvement of the staffs and Executive Boards of the two institutions in the work of the Committee. These changes in the organization and procedures have contributed to the effectiveness of the Committee but the search for the realization of the Committee’s full potential continues to receive the attention of all involved in its operations.

8. The main thrust of the Committee’s work in the year under review has been on the capital flows to developing countries—both concessional and nonconcessional—with particular emphasis on the increase in the level of lending by the multilateral development banks, including their capital base and the replenishment of their concessional funds, particularly IDA, to meet the serious challenge of the 1980s. The subjects of additional lending for energy and new mechanisms for increased cofinancing with the public and private sectors also received the Committee’s sustained attention. The important subjects which received fresh attention in the context of the serious world economic situation related to the external debt problems of the developing countries and the linkages between trade and the promotion of development.

II. Committee Consideration of Major Development Issues During the Year July 1982-June 1983

A. Economic Situation and Prospects Facing the Developing Countries in the 1980s—with the World Development Report 1982 and the World Economic Outlook as Background Documents

9. Both the IBRD’s World Development Report and the IMF’s World Economic Outlook served as valuable background documents for the Committee’s discussions on many current and prospective development issues. These documents showed that the world recession was now in its fourth consecutive year and had lasted longer and had proved more stubborn than had been expected earlier. It had hurt both rich and poor countries and had surpassed in its sweep anything experienced in the last 40 years. Its impact on non-oil developing countries had been particularly severe. Developing countries faced both deteriorating terms of trade, as commodity prices reached their lowest levels in 30 years, and a dramatic decline in world trade which affected them disproportionately. Many of these countries had large external current account imbalances, and the situation was further aggravated by declining ODA in real terms, a slowdown in private capital flows, and a mounting burden of debt. The level of unemployment remained unacceptably high with its social and political impacts and tended to strengthen protectionist trends. Growth rates declined in both industrial and non-oil developing countries and, in the latter group, the growth was in fact the lowest on record in several decades, signifying an exceptional situation of decline in real per capita income in many of them. There was little expectation that the large and serious imbalances would be corrected quickly, and therefore problems relating to external financing and debt were likely to persist.

10. The economic problems of the developing countries were particularly noted in the economic declaration of the nonaligned summit held in New Delhi and the fifth ministerial meeting of the Group of 77 held in Buenos Aires. These also came under review at the Williamsburg summit and constituted the major theme in the agenda for the Sixth Session of the United Nations Conference on Trade and Development.

11. The Committee noted, however, that lately there had been some welcome trends: inflation rates had come down, particularly in some of the larger industrial countries; interest rates had been on the decline although they still remained high in real terms; oil prices had fallen; and, at the same time, some commodity prices had started to rise. All these factors play an important role in the economies of all countries.

12. It is important to consolidate and improve upon these hard-won gains in order to sustain, strengthen, and enlarge the process of economic recovery now in evidence in some of the industrial countries. The Committee considered that, for the industrial countries, priorities would be the restoration of their own economic health and sustained noninflationary growth, maintenance of a liberal environment for trade and capital flows, and continuing and, it is to be hoped, increasing flows of aid to the poorest developing countries. For the developing countries, priorities would include increasing levels of domestic savings and investments, greater efficiency in the use of capital, strengthening of general economic management, greater emphasis on agriculture, and special attention to the poverty alleviation programs.

B. Concessional Flows

(i) ODA Flows

13. The Committee viewed with concern the global economic deterioration and, in particular, the bleak prospects for the low-income developing countries. The World Development Report 1982 had shown that between 1979 and 1982 the current account deficit of oil importing countries had grown by 88 percent, while ODA had increased by only 39 percent. A large part of the increase in ODA had been offset by higher debt-servicing charges, as interest payments had more than doubled. This required intensified adjustment efforts by the developing countries with respect to their domestic policies and programs and, at the same time, increased outside assistance through bilateral and multilateral channels to reduce economic and social strains in the economies of these countries, particularly when they are engaged in carrying out adjustment programs. The World Development Report projections indicated that to attain growth in the high-case scenario—an objective which is modest by previous standards—the ODA equivalent from DAC countries would amount to only 0.37 percent of their GNP.

(ii) IDA-VI and IDA-VII

14. The Committee, recognizing that the poorest countries had been most affected by the global recession, paid special attention to the problems surrounding IDA, which, since its establishment in 1960, had become a very important and effective multilateral instrument for promoting development in low-income countries. Delay in the availability of IDA-VI commitment authority, its subsequent stretching out to four years, and the resultant reduction in intended IDA commitment had a serious impact on the low-income developing countries, especially the poorest nations in sub-Saharan Africa and other regions. The Committee welcomed the commendable efforts made by the Bank management and also by the vast majority of the IDA donors whose response had resulted in the release of IDA-VI contributions on the original three-year schedule without insistence on pro rata contributions and the provision of additional resources for fiscal year 1984 through a Parallel Fund or through a Special Account of IDA for fiscal year 1984. The Committee, while acknowledging with satisfaction this helpful development, urged the U.S. to provide its full third payment of $945 million in fiscal year 1983 and to complete its IDA contribution in fiscal year 1984, recognizing that failure to do so would have serious consequences for safeguarding future levels of concessional assistance.

15. In this context, the Committee welcomed the donors’ agreement to commence formal discussions on ID A-VII. While recognizing the budgetary constraints of the industrial countries, the Committee strongly hoped that, in view of the extremely serious economic predicament of the poorest developing countries, the expanded IDA recipient community, and the desirability of reversing negative growth rates in IDA’s most distressed borrowing countries, it would be possible for the donors to agree on a level of replenishment appropriate to the situation. It was also important that IDA-VII negotiations be completed as early as possible to ensure that the Seventh Replenishment became effective no later than July 1, 1984, in order to prevent a further funding gap from arising.

(iii) Progress Report of the Task Force on Concessional Flows

16. The issue of concessional funds and their effective use is of critical importance to the low-income developing countries. In May 1982, the Committee established a Task Force on Concessional Flows in order to carry forward and widen the continuing study of the problems affecting the volume and quality and the effective use of concessional flows in the shorter and longer terms. The 18-member Task Force, representing industrial donor countries, oil producers, and non-oil developing countries, under the chairmanship of Mr. John P. Lewis, Professor at Princeton University and former Chairman of the Development Assistance Committee of the Organization for Economic Cooperation and Development, held its first meeting in Paris on October 19–20, 1982, and the last one in Helsinki on June 2–4, 1983. The Chairman will present a progress report at the September meeting of the Development Committee.

C. Nonconcessional Flows

Financial Flows from and Level of Lending by Multilateral Development Institutions (MDIs) and Implications for Their Capital Base

17. Those developing countries which rely heavily on private capital markets or nonconcessional flows from MDIs also face many uncertainties. The magnitude of their financial needs, in the context of the persistent large deficits, high cost of borrowing, increasing indebtedness, decline in growth of exports, and inability or unwillingness of private markets to bridge the gap, underlines the importance and urgency of providing the MDIs with additional resources to assist developing countries in their development efforts. The Task Force on Nonconcessional Flows, which had examined the whole subject in depth, had concluded that an essential condition for meeting the external financing needs of oil importing developing countries was that nonconcessional flows continue to be available to them in conjunction with private direct investments and concessional and part-concessional flows. Its recommendations, therefore, stressed examination of various possibilities of increasing the future lending capacity of the World Bank and other MDIs and the consequent implications for their capital requirements. This matter, therefore, received attention by the Executive Board of the World Bank and by the Development Committee in both of its substantive meetings held during the year.

18. Taking into account the great importance of maintaining and increasing external financial flows to the developing countries, the Committee noted with satisfaction the recent approval by the Bank’s Board of Directors of a special assistance program designed to be responsive to the current financial requirements of these countries. The Committee further invited the Bank to put forward proposals which would, with due regard to financial prudence, allow an expansion of the Bank’s lending program. In this connection, it noted the Bank management’s intention to propose an expansion of 5 percent per annum in real terms beginning in 1985. The Committee also urged the management of the Bank to present, in accordance with past policy and practice of the Bank, a specific proposal to the Board of Executive Directors for a selective capital increase following, and in line with, the Eighth General Review of Quotas in the Fund by the time of the next Committee meeting.

19. As regards the regional banks and the International Fund for Agricultural Development, the Committee took note of their resource needs and urged member governments to take steps to meet the pledges already made. The Committee felt that member governments should seek means of financing the requirements of both ordinary capital and the replenishment of concessional funds for these institutions to enable them to continue to play their important role in the development efforts of their member countries.

D. Cofinancing

20. The Committee noted the efforts of the World Bank to make cofinancing a more effective vehicle to attract additional nonconcessional flows to developing countries on longer maturities. The Committee noted with satisfaction that the cofinancing operations of the World Bank from various sources had expanded considerably in recent years. Thus, in 1982, its cofinancing operations amounted to $7.4 billion, of which $3.2 billion was from private sources, compared to an annual average of about $200 million from private sources in the second half of the 1970s. The Committee endorsed the efforts of the Bank and regional banks, where appropriate, to secure through new mechanisms of cofinancing additional resources on terms suitable for and acceptable to borrowing countries. However, cofinancing with private institutions was to be regarded as a supplement to, and not as a substitute for, increased lending by the MDIs, and these arrangements were not in any way to alter the development character of these institutions. The Bank has since introduced a set of new cofinancing instruments designed to increase the participation of commercial banks in World Bank projects. The new pattern of participation is intended to extend maturities and increase financial flows. The Committee also noted with satisfaction cofinancing arrangements entered into by the Bank with official lenders. This would be of special significance to low-income borrowing members of the Bank.

E. External Debt Problems of Developing Countries

21. The external debt problem of the developing countries had assumed new importance and urgency in the current economic situation. The Committee was presented with a paper prepared by the Fund which described the growth of developing countries’ debt and debt servicing over the period since 1974, outlined the dimensions of the debt-servicing difficulties faced by many countries in 1982, and commented on the near-term outlook with regard to financial flows and debt servicing.

22. The Committee expressed its concern about the severity of the debt-servicing problem faced by many developing countries. While noting the substantial contribution of commercial banks in meeting the severe debt problems faced by some medium-income developing countries over the past several months, the Committee stressed the importance of avoiding an abrupt reduction in the level of international bank lending to developing countries. In this connection, it welcomed the efforts of the Fund and institutions in the main creditor countries to ensure that a reduction in availability of private bank credit does not impede a smooth and orderly adjustment of the domestic economies of the debtor countries. While noting with satisfaction the prompt response by bilateral and multilateral agencies to recent critical situations, the Committee emphasized the necessity of maintaining and increasing financial flows to developing countries from official sources. It further noted the importance for borrowing countries of monitoring their external indebtedness carefully and maintaining sound economic and debt management policies. The Committee also welcomed the joint efforts of the Bank and the Fund to increase their assistance provided to member countries in the areas of external debt statistics and debt management. The Committee encouraged the Bank and the Fund to keep the important matter of the net capital flows to developing countries under review.

F. Linkages Between Trade and Development

23. Another subject of increasing importance which attracted the Committee’s attention during the year under review related to the linkages between trade and development. The Committee recognized the interdependence of the world economies and found that global economic recovery was critically important for increasing the foreign exchange earnings of developing countries. A paper jointly prepared by the Fund and the World Bank pointed out that the expansion of world trade was a vital ingredient in economic development and had made and could continue to make an important contribution to economic growth and development of both industrial and developing countries. This was evident from the experience of the 1963–73 decade when the growth of international trade provided an environment in which the developing countries recorded impressive growth rates. The Committee, therefore, welcomed the intensified efforts of the Bank and the Fund to encourage an expanding and open world trading system while remaining sensitive to the special needs of the developing countries. The Committee urged both institutions to collaborate with the General Agreement on Tariffs and Trade in keeping under careful review, in the areas of their competence, the progress made, including inter alia the dismantling of trade barriers. It also called upon governments to resist protectionist pressures and to step up their efforts, both at the national level and in the relevant international forums, to liberalize trade, urging in particular that governments of industrialized countries refrain from introducing restrictions or negotiating agreements which would limit their imports from developing countries. The Committee urged the Bank and the Fund, in continued collaboration with other agencies, to pursue their examination further in the areas of their competence on the linkages between capital flows, trade, and development, and to keep the Committee informed of the results of those examinations.

G. Additional Lending for Energy

24. The important subject of lending for energy development was last substantially discussed by the Committee at its Helsinki meeting. The search continues to identify new approaches or financing mechanisms which attract broad support from those members expected to contribute the bulk of the capital. A full consideration of this subject was, however, deferred until receipt of a comprehensive study under preparation by the Bank which would take into account the recent developments and future prospects in this area.

H. Status of Group of 24’s Program of Immediate Action and Brandt Commission Report

25. The Committee, at its earlier meetings, had considered reports prepared by the Bank and the Fund staffs reviewing actions taken by the two institutions in pursuing those measures to enhance the flow of resources to developing countries raised by the Group of 24’s Program of Immediate Action and the Brandt Commission Report. In further consideration of this matter at its Toronto meeting, the Committee noted that both the Bank and the Fund had already implemented some of the recommendations applicable to them and were continuing their consideration of other issues relevant to the Committee’s work.

III. FUTURE TASKS

26. The Annual Report, largely based on the communiqués following the Committee’s meetings in September 1982 and April 1983, describes the serious and urgent economic problems which currently confront both the developed and developing countries. These will continue to receive the Committee’s primary attention in the period ahead. There is growing recognition that no single approach or action by a single country or even a group of them can provide a durable solution. It has to be a joint and sustained effort of all, within their respective capabilities and responsibilities, which will produce the desired results in this increasingly interdependent world. The domestic policies of the developing countries, the external support and appropriate policies of the industrialized countries, and the programs of the multilateral development institutions have to be harnessed together in an environment of free and growing world trade unimpeded by protectionist policies to produce the right results.

Annexes

A. Members of the Committee

B. Organizational and Administrative Aspects

C. Text of Parallel IBRD and IMF Resolutions Establishing the Development Committee (see Summary Proceedings, 1975, pages 278–82)

D. Agendas and Press Communiqués of Meetings Held in September 1982 and April 1983

Annex A: Members of the Committee

MemberCountries
1.His Excellency

D. José Ramón Alvarez Rendueles

Governor

Bank of Spain

Spain
Costa Rica, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Spain, Suriname, Venezuela
2.His Excellency

Willy De Clercq

Minister of Finance

Belgium
Austria, Belgium, Hungary, Luxembourg, Turkey
3.His Excellency

Jacques Delors

Minister of Economy and Finance

France
France
4.His Excellency

Kjell-Olof Feldt

Minister for Economic Affairs and the Budget

Sweden
Denmark, Finland, Iceland, Norway, Sweden
5.The Honorable

Giovanni Goria

Minister of the Treasury

Italy
Greece, Italy, Portugal
6.His Excellency

Ghulam Ishaq Khan2

Minister for Finance, Commerce and Economic Coordination

Pakistan
Bahrain, Egypt, Iraq, Jordan, Kuwait, Lebanon, Maldives, Oman, Pakistan, Qatar, Saudi Arabia, Syrian Arab Republic, United Arab Emirates, Yemen Arab Republic
7.His Excellency

Abdellatif Jouahri

Minister of Finance

Morocco
Afghanistan, Algeria, Ghana, Islamic Republic of Iran, Libya, Morocco, Tunisia, People’s Democratic Republic of Yemen
8.The Honorable

P.J. Keating

Treasurer

Australia
Australia, Korea, New Zealand, Papua New Guinea, Solomon Islands, Vanuatu, Western Samoa
9.His Excellency

Abdoulaye Koné

Minister of Economy and Finance

Ivory Coast
Benin, Cameroon, Cape Verde, Central African Republic, Chad, Comoros, Congo, Djibouti, Equatorial Guinea, Gabon, Guinea-Bissau, Ivory Coast, Madagascar, Mali, Mauritania, Mauritius, Niger, Rwanda, Sâo Tomé and Principe, Senegal, Somalia, Togo, Upper Volta, Zaïre
10.The Honorable

Marc Lalonde

Minister of Finance

Canada
Bahamas, Barbados, Belize, Canada, Dominica, Grenada, Guyana, Ireland, Jamaica, St. Lucia, St. Vincent and the Grenadines
11.The Right Honorable

Nigel Lawson, M.P.

Chancellor of the Exchequer

United Kingdom
United Kingdom
12.The Honorable

K.A. Malima

Minister for Planning and Economic Affairs

Tanzania
Botswana, Burundi, Ethiopia, The Gambia, Guinea, Kenya, Lesotho, Liberia, Malawi, Nigeria, Seychelles, Sierra Leone, Sudan, Swaziland, Tanzania, Trinidad and Tobago, Uganda, Zambia, Zimbabwe
13.The Honorable

Pranab Kumar Mukherjee

Minister of Finance

India
Bangladesh, Bhutan, India, Sri Lanka
14.His Excellency

Tengku Razaleigh Hamzah

Minister of Finance

Malaysia
Burma, Fiji, Indonesia, Lao People’s Democratic Republic, Malaysia, Nepal, Singapore, Thailand, Viet Nam
15.The Honorable

Donald Regan

Secretary of the Treasury

United States
United States
16.His Excellency

Carlos Rodríguez Pastor

Minister of Economy, Finance and Trade

Peru
Argentina, Bolivia, Chile, Paraguay, Peru, Uruguay
17.His Excellency

H.O. Ruding

Minister of Finance

Netherlands
Cyprus, Israel, Netherlands, Romania, Yugoslavia
18.His Excellency

Noboru Takeshita

Minister of Finance

Japan
Japan
19.The Honorable

Bernardo Vega

Governor

Central Bank

Dominican Republic
Brazil, Colombia, Dominican Republic, Ecuador, Haiti, Philippines
20.His Excellency

Wang Bingqian

Minister of Finance

China
China
21.His Excellency

Jürgen Warnke

Federal Minister for Economic Cooperation

Germany
Federal Republic of Germany

Annex B: Organizational and Administrative Aspects

1. The Committee on Reform of the International Monetary System and Related Issues (Committee of Twenty) in 1974 agreed that one of the important objectives of the Reform of the World Monetary and Economic Order should be the promotion of economic development and to this end the net flow of real resources to developing countries should be given positive encouragement. The Committee of Twenty, in its final report in June 1974, therefore recommended that two committees be set up: an Interim Committee in the Fund to deal with monetary reform and a joint ministerial committee of the Bank and the Fund (Development Committee) to continue the study of the broad question of the transfer of real resources to developing countries.

2. It was hoped that the Development Committee would be helpful in providing a focal point in the structure of economic cooperation for formation of a comprehensive overview of diverse international activities in the international area, for efficient and prompt consideration of development issues, and for coordination of international efforts to deal with problems of financing development. The Committee was expected to work in close association with the managements and the boards of the two institutions.

3. The Development Committee was accordingly established pursuant to Bank Governors Resolution 294, October 2, 1974, and Fund Governors Resolution 29-9, October 2, 1974. The parallel resolutions provided that the members of the Development Committee were to be governors of the Bank, governors of the Fund, ministers, or others of comparable rank. Each member government of the Bank or the Fund that appoints an executive director or group of members that elect an executive director was to appoint one member of the Committee (in all: 21 in the Bank and 22 now in the Fund) and up to seven associates. The members were to be appointed in turn for successive periods of two years by the members of the Bank and the members of the Fund.

4. At the inaugural meeting of the Committee held October 2-3, 1974, Mr. Henri Konan Bédié, Minister of Economy and Finance of the Ivory Coast, was selected as Chairman, and Mr. Henry J. Costanzo, Executive Vice-President of the Inter-American Development Bank, was appointed Executive Secretary. At the seventh meeting of the Committee, held October 6, 1976, Mr. Cesar E.A. Virata, Secretary of Finance of the Philippines, was selected as Chairman, and Sir Richard King, Permanent Secretary of the Ministry of Overseas Development of the United Kingdom, was appointed Executive Secretary. Mr. Virata was re-elected as Chairman on September 27, 1978, at the eleventh meeting of the Committee. On expiry of Mr. Virata’s term, the Committee, at its fifteenth meeting held on October 2, 1980, in Washington, D.C., unanimously selected Mr. David Ibarra Muñoz, Secretary of Finance and Public Credit of Mexico, as Chairman, and appointed Mr. Hans E. Kastoft as Executive Secretary. Mr. Ibarra resigned from the post of Chairman in March 1982, and the Development Committee at its eighteenth meeting in Helsinki in May 1982 selected Mr. Manuel Ulloa Elias, Prime Minister and Minister of Economy, Finance, and Commerce of Peru, as the new Chairman of the Committee. Mr. Ulloa completed his term in September 1982 when, following the elections of the Executive Directors of the Bank and the Fund at the Annual Meetings in Toronto, the Committee unanimously selected Mr. Ghulam Ishaq Khan, Minister of Finance, Commerce, Planning, and Coordination of Pakistan, as the new Chairman of the Committee.

5. The Boards of the Bank and the Fund are used as preparatory bodies for the work of the Development Committee. The mechanism of task forces, with a specific limited task and duration, is used by the Committee whenever a need is felt for an in-depth study of a particular subject. A task force on the problems of nonconcessional flows was established in 1980 and concluded its comprehensive work by presenting its Final Report to the Committee at its Helsinki meeting in May 1982. The Committee also approved the establishment of a new 18-member Task Force on Concessional Flows to carry forward and widen the continuing study of the problems affecting the volume and quality and effective use of concessional flows in the shorter and longer terms.

6. The organizations listed below were official observers to the Development Committee during 1982–83. In addition, the Government of Switzerland was represented by an observer.

African Development Bank

Arab Bank for Economic Development in Africa

Arab Fund for Economic and Social Development

Asian Development Bank

Commission of the European Communities

Commonwealth Secretariat

Development Assistance Committee

European Investment Bank

General Agreement on Tariffs and Trade

Inter-American Development Bank

International Fund for Agricultural Development

Islamic Development Bank

OPEC Fund for International Development

Organization for Economic Cooperation and Development

United Nations

United Nations Development Program

United Nations Conference on Trade and Development

Annex C

The text of the parallel IBRD and IMF Resolutions establishing the Development Committee is reproduced in Summary Proceedings, 1975, pages 278–82.

Annex D: Agendas and Press Communiqués of Meetings Held in September 1982 and April 1983

Meeting of September 5, 1982

A. Agenda

  • 1. Transfer of Real Resources—Review and Prospects

    • a. Status of IDA

    • b. Cofinancing

    • c. Other Concessional and Nonconcessional Flows, Including Lending by Multilateral Development Banks

  • 2. Lending for Energy

  • 3. Status of the Group of Twenty-Four and Brandt Commission Recommendations

  • 4. Annual Report to the Boards of Governors

  • 5. Other Business

B. Press Communiqué (text published in Summary Proceedings, 1982, pages 296–99)

Meeting of September 8, 1982

A. Provisional Agenda

  • 1. Adoption of Provisional Agenda

  • 2. Selection of Chairman

  • 3. Press Announcement

  • 4. Other Business

B. Press Announcement (text published in Summary Proceedings, 1982, page 300)

Meeting of April 28–29, 1983

A. Agenda

  • 1. Elements of Global Economic Recovery Efforts

    • (i) Financial flows from and level of lending by multilateral institutions and implications for their capital base

    • (ii) Status and funding of IDA

    • (iii) External debt problems of developing countries

    • (iv) Linkages between trade and the promotion of development

  • 2. Future Work of the Committee

  • 3. Status/Progress Reports

    • (i) Cofinancing

    • (ii) Energy lending

  • 4. Other Business

B. Press Communiqué

1. The Development Committee held its twenty-first meeting in Washington, D.C., on April 28–29, 1983, under the chairmanship of H.E. Ghulam Ishaq Khan, Minister for Finance, Commerce, and Economic Coordination of Pakistan. Mr. A. W. Clausen, President of the World Bank, Mr. J. de Larosière, Managing Director of the International Monetary Fund, and Mr. Hans E. Kastoft, Executive Secretary, participated in the meeting. Representatives from a number of international and regional organizations and Switzerland also attended the meeting.

2. The Committee was provided with a brief updated version of the World Economic Outlook circulated at the February meeting of the Interim Committee; this updated version constituted a general background document for its deliberations.

3. The Committee noted with deep concern that the world economic situation had remained very difficult since it had last met in September in Toronto, Canada. The protracted world recession now in its fourth consecutive year has exacted its toll from both rich and poor countries, but its impact has been particularly harsh on non-oil developing countries whose short- and medium-term prospects remain uncertain. World trade declined dramatically in 1982; in this decline the developing countries accounted for a disproportionate share; in 1982 non-oil commodity prices reached their lowest levels in 30 years; and export earnings of developing countries are not yet showing much sign of growth. The situation is further aggravated by declining ODA in real terms, a slowdown in private capital flows, and the mounting burden of debt. The level of unemployment is unacceptably high and, apart from its social and political impacts, tends to strengthen trends and pressures in favor of protectionist policies and practices. The growth rates have declined in both industrial and non-oil developing countries and in the latter group are now the lowest on record in several decades, with declining real per capita income in many of them.

4. The economic problems of the developing countries were noted in the economic declaration of the nonaligned summit held in New Delhi and the fifth ministerial meeting of the Group of 77 held in Buenos Aires, and will receive further attention at the OECD meeting in Paris, at the forthcoming Williamsburg summit, and at the Sixth Session of the United Nations Conference on Trade and Development.

5. There have, however, in the recent past been some welcome trends: inflation rates have come down, particularly in some of the larger industrial economies; interest rates have been on the decline, although they remain high in real terms; also oil prices have fallen; at the same time, some commodity prices have started to rise. All these factors play an important role in the economies of all countries. Furthermore, the beginning of economic recovery in some of the industrial countries will, if sustained and strengthened, be of great significance. The Committee emphasized the need for industrial countries to pursue policies to promote sustainable and noninflationary growth.

6. It was against this background that the Committee deliberated at some length on a few selected topics and measures which, if adopted, will help contribute to a resolution of the difficulties which economies of the industrial and developing countries face at present.

7. In this context, the Committee, taking into account changes in the global demand and supply for external capital, first addressed itself to the need for reviewing the lending programs of multilateral development institutions (MDIs) in the period ahead and examining the consequent implications for their capital requirements. This review was in pursuance of the Committee’s earlier exhortations at the two previous meetings urging the World Bank and other MDIs to continue their study of the scope for expansion in real terms of their lending to developing countries. Taking into account the great importance of maintaining and increasing external financial flows to the developing countries, the Committee noted with satisfaction the recent approval by the Bank’s Board of Executive Directors of a special assistance program designed to be responsive to the current financial requirements of these countries. The Committee invited the Bank to put forward proposals which would, with due regard to financial prudence, allow an expansion of the Bank’s lending program. The Committee noted the Bank management’s intention to propose an expansion by 5 percent per annum in real terms beginning in 1985. In accordance with past policy and practice of the Bank, the Committee also urged the management of the Bank to present a specific proposal to the Board of Executive Directors for a selective capital increase following and in line with the Eighth General Review of Quotas in the Fund by the time of the next Committee meeting.

8. On the basis of material provided by the regional banks and IFAD, the Committee took note of their resource needs and urged member governments to take steps to meet the pledges already made. The Committee felt that member governments should seek a means of financing the requirements of both ordinary capital and the replenishment of concessional funds for these institutions in order to enable them to continue to play their important role in the development efforts of their member countries.

9. Recognizing that the poorest countries had been most affected by the global recession, the Committee reiterated its concerns about the crucial importance of IDA in financing the development programs of low-income developing countries. Delays in the availability of IDA-VI commitment authority, its subsequent stretching out to four years, and the resultant reduction in intended annual IDA commitments, particularly during the present prolonged global recession, have already had a serious impact on the low-income developing countries, especially in the poorest nations in sub-Saharan Africa and other regions; coupled with reductions in overall ODA flows in real terms, this requires the maintenance of concessional assistance at reasonable levels in the face of expanded needs. The Committee therefore urged the United States to provide its full third payment of $945 million in fiscal year 1983 and to complete its IDA-VI contribution in fiscal year 1984, recognizing that failure to do so would have serious consequences for safeguarding future levels of concessional assistance.

10. In a related view, the Committee noted that the extremely serious economic predicament of the poorest developing countries required a major effort on the part of donor governments to ensure that the Seventh Replenishment of the Association’s resources (IDA-VII) takes account of the need to accommodate an expanded recipient community and the desirability of reversing negative growth rates in IDA’s most distressed borrowing countries. The Committee urged, therefore, that IDA-VII negotiations be completed as early as possible to ensure that the Seventh Replenishment became effective no later than July 1, 1984, and thus avoid another funding gap from arising.

11. The Committee reviewed the growth of developing country debt and expressed its concern about the severity of the debt-servicing problem faced by many of them. While noting the substantial contribution of commercial banks in meeting the severe debt problems faced by some medium-income developing countries over the past several months, the Committee stressed the importance of avoiding an abrupt reduction in the level of international bank lending to developing countries. It welcomed the efforts of the Fund and institutions in the main creditor countries to ensure that a reduction in availability of private bank credit does not impede a smooth and orderly adjustment of the domestic economies of the debtor countries. While noting with satisfaction the prompt response by bilateral and multilateral sources to recent critical situations, the Committee emphasized the necessity of maintaining and increasing financial flows to developing countries from official sources. It also noted the importance for borrowing countries of monitoring their external indebtedness carefully and maintaining sound economic and debt management policies and also welcomed the joint efforts of the Bank and the Fund to increase their assistance provided to member countries in the areas of external debt statistics and debt management. The Committee encouraged the Bank and the Fund to keep the important matter of the net capital flows to developing countries under review.

12. A subject of increasing importance which attracted the Committee’s attention related to the linkages between trade and development. The Committee recognized the interdependence of the world economies and found that global economic recovery was critically important for increasing the foreign exchange earnings of developing countries. The expansion of world trade has made and can continue to make an important contribution to the economic growth and development of both industrial and developing countries. In this connection, the Committee welcomed the intensified efforts of the Bank and the Fund to encourage an expanding and open world trading system while remaining sensitive to the special needs of the developing countries. The Committee urged both institutions to collaborate with the GATT in keeping under careful review, in the areas of their competence, the progress made, including inter alia the dismantling of barriers. It also called upon governments to resist protectionist pressures and to step up their efforts, both at the national level and in the relevant international forums, to liberalize trade, urging in particular that governments of industrial countries refrain from introducing restrictions or negotiating agreements which would limit their imports from developing countries. The Committee urged the Bank and the Fund, in continued collaboration with other agencies, to pursue their examination further in the areas of their competence on the linkages between capital flows, trade and development, and to keep the Committee informed of the results of these examinations.

13. The Committee noted that since its Toronto meeting the Bank has introduced a set of new cofinancing instruments designed to increase the participation of commercial banks in World Bank projects. The new pattern of participation is intended to provide developing country borrowers with new benefits like longer maturities and increased financial flows. The Committee also noted with satisfaction cofinancing arrangements entered into by the Bank with official lenders. This will be of special significance to low-income borrowing members of the Bank.

14. The Committee briefly discussed the subject of lending for energy development. A full consideration of the subject was, however, deferred until receipt of a comprehensive study under preparation by the Bank which will take into account the recent developments and future prospects in this area. A report on this subject will be submitted to the next meeting of the Committee.

15. The Committee agreed to hold its next meeting in Washington, D.C., on September 26, 1983, at the time of the Annual Meetings of the Bank and the Fund.

Report I dealt with the business of the Boards of Governors of the Bank, IFC, and IDA. Report II and the Resolutions recommended therein were adopted by the Board of Governors of the Fund, in Joint Session with the Boards of Governors of the Bank, IFC, and IDA, on September 30, 1983.

See pages 32–36.

Resolution No. 38-5; see page 274.

Resolution No. 38-6; see page 274.

Report III and the recommendations contained therein were adopted by the Boards of Governors of the Bank, IFC, and IDA and of the Fund, in Joint Session, on September 30, 1983.

Mr. Usama Faquih, Assistant Deputy Minister, Ministry of Finance and National Economy of Saudi Arabia, served as Alternate Member to permit His Excellency Ghulam Ishaq Khan to serve as Chairman.

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