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Concluding Remarks1

Author(s):
International Monetary Fund. Secretary's Department
Published Date:
November 1982
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Statement by the Governor of the Fund for Spain—Juan Antonio Garcia Diez

It is an honor for Spain to have been selected for, and to accept, the chairmanship of the Boards of Governors of the Fund and the Bank for the year ahead. I hope to be able to carry out these duties with the same skill as my predecessor, the Governor for Kuwait.

Our institutions do not have an easy year before them. As the distinguished Governors have pointed out in their statements, the international economy faces some of the greatest complexities it has experienced for years. The current difficulties compel the Fund and the Bank to undertake special efforts to strengthen the confidence of the international economic community in our financial mechanisms and institutions.

Before concluding I would like to congratulate Mr. de Larosière, Mr. Clausen, the Executive Directors, and the administration and staff of both institutions for their excellent work, initiative, and dedication to their important tasks.

Statement by the Chairman of the Executive Board and Managing Director of the International Monetary Fund—J. de Larosière

In my concluding remarks, Mr. Chairman, I will focus on two central topics that dominated our discussions: first, the economic policies that should be pursued by member countries against the backdrop of a troubled world economy; and second, the role of the International Monetary Fund in helping its members to deal with the manifold problems that confront them. On each of these topics, the statements by Governors showed a remarkable degree of consensus.

In commenting on the current situation, Governors expressed their acute concern about the difficulties being experienced by many countries facing recession, unemployment, and inflation on a widespread scale. However, they also noted several positive features of the current situation. Some of the industrial countries have achieved notable progress against inflation; included among them are four of the major countries—the United States, Japan, the Federal Republic of Germany, and the United Kingdom. Also, a number of non-oil developing countries have made impressive efforts to carry out programs of adjustment, with some hard-won progress now becoming clearly evident. Further, the sharp drop in interest rates that has occurred during recent weeks, especially in the United States and primarily at the short end of the market, was considered by Governors to be a welcome and hopeful development.

The critical issue, of course, concerns the policy requirements of this complex and difficult situation. It was recognized that policies will have to vary somewhat among countries in light of their particular circumstances and objectives. But despite some differences of emphasis, Governors have come to a preponderant view as to the appropriate thrust of national economic policies in the current circumstances. In brief, they agree on the need to maintain the general strategy of policy previously adopted—a strategy that calls in the main for exercising monetary restraint, improving the balance between fiscal and monetary policies by means of greater fiscal discipline, and tackling rigidities and structural imbalances. Only such a strategy could lead to a lasting reduction of interest rates, a moderation of wage growth, a restoration of business profitability, and a recovery in productive investments. A point of key significance is that Governors have reaffirmed the view that restoring economic growth and bringing down unemployment cannot be achieved without a sustained reduction in inflation and inflationary expectations on a wider scale, and to a greater extent, than we have as yet witnessed.

This policy approach recognizes that current problems are deep-seated, that fundamental policies of adjustment are called for, and that the process of adjustment cannot be cut short through resort to reflation of demand or to protectionism. As I observed in my opening statement last Monday, the world economy is in a process of disinflation that involves various types of transition. This process entails considerable hardships and strains inasmuch as the problems being addressed have built up over a period of many years and the eventual benefits have not yet been felt. But the transition to a noninflationary environment is now under way, and the basis is being laid for a restoration of confidence and a revitalization of national economies.

Successful completion of the transition to a noninflationary economy will require (among other things) a high degree of international cooperation. One extremely important form of international cooperation cited by many Governors is the maintenance of open trade policies and the outright rejection of protectionist measures, which are destructive of domestic and international adjustment. I have noted the suggestions by a number of Governors urging the Fund to become more actively involved in this critical area of policy in close collaboration with the GATT. Another form of international cooperation stressed by Governors is the provision of an enlarged flow of aid and concessional loans to developing countries, especially to those in the low-income group.

Another essential form of international cooperation is to ensure that the Fund is equipped to handle its responsibilities in this difficult period of transitional adjustment and financial uncertainties. As Alternate Governor Lahnstein of the Federal Republic of Germany put it, echoing the views of many Governors, “Commitment to the cause of international cooperation implies commitment to a strong and effective Fund.” This brings me to the second topic I mentioned at the outset: the role of the Fund.

The unanimous support for the Fund displayed by Governors during the Interim Committee Meeting last Saturday and during this Annual Meeting has been one of the most striking features of these sessions. Governors have made many statements regarding the central importance of the Fund, and they have also manifested their backing of the Fund in several specific ways.

First, the Governors have stressed the importance of the Fund’s role in balance of payments adjustment and financing. Promotion of adjustment is indeed at the heart of the Fund’s work. Only decisive action toward adjustment in individual countries is likely to ensure availability of the necessary financing. The Fund has a vital role to play in helping member countries to design and implement adjustment programs. As our experience demonstrates, and as many Governors have pointed out, programs with members are most successful when the adjustment is brought about through the timely adoption of corrective measures—that is, when adjustment programs are undertaken at an early stage of a country’s emerging payments difficulties. To carry out its adjustment function effectively, the Fund needs to have adequate resources to support the adjustment efforts of its member countries and to exert a catalytic effect in unlocking financial flows from other sources.

Second, widespread support has been expressed on the urgent need for a substantial increase in quotas under the current Eighth General Review.

Third, the Executive Board has been urged to accelerate its work on the quota review as a matter of high priority, so that the remaining issues concerning the size and distribution of the quota increase can be settled by the time of the Interim Committee’s next meeting in April 1983. I regard this as a step of major significance; it underlines the urgency that the Governors attach to the quota exercise.

Fourth, the Executive Board has been requested to assess the adequacy of existing arrangements for dealing with major strains in the international financial system. This assessment, which I consider important in the present difficult circumstances, will cover the suggestion by Governor Regan of the United States regarding the establishment of an additional permanent borrowing arrangement, which would be available to the Fund on a contingency basis for use in extraordinary circumstances.

Fifth, the governments that participated in the economic summit conference in Versailles last June have undertaken to strengthen their cooperation with the Fund in its surveillance activity and to develop this cooperation on a multilateral basis. The process of enhanced economic and monetary cooperation that was agreed upon at Versailles has already begun. Like the Governors of the countries immediately involved, as well as the Governors of other countries who spoke on the subject, I also am hopeful that this collaborative effort under the Fund’s surveillance function will make an important contribution to greater convergence and stability in the policies of the major industrial countries, and thereby to greater exchange market stability. This effort should, by the same token, lead to a more evenhanded sharing of the burden of adjustment.

Let me now touch on an issue that was the object of considerable attention in our discussions. Many Governors referred to the uncertain conditions in international financial markets and emphasized the importance of a stable international financial system for the smooth functioning of the world economy. In this connection, they pointed to the key role played by commercial banks in the financing of balance of payments deficits and to the need for banks to conform to their wider responsibilities and pursue policies that are consistent with an orderly adjustment process.

In closing, Mr. Chairman, I should like first to express my appreciation for your stimulating address that launched our Meeting and for the effective manner in which you have conducted our proceedings. At the same time, I congratulate the Governor for Spain, who will succeed you in the year ahead. Also, let me express my warmest gratitude to the Government of Canada, the Province of Ontario, and the city of Toronto for their generous hospitality and for the quality and efficiency of the arrangements provided.

Statement by the Chairman of the Boards of Governors, the Governor of the Fund and the Bank for Kuwait—Abdlatif Y. Al-Hamad

As it was my privilege, three days ago, to open these Thirty-Seventh Annual Meetings of our Boards of Governors, so it is now my duty to bring them to a close. These Meetings provide a unique opportunity for all of us to share with each other our perceptions and concerns on economic problems and policies in an interdependent world. I would like to take this occasion to thank my fellow Governors, the Managing Director of the Fund, and the President of the World Bank for their thoughtful contributions to these deliberations. I am also especially grateful to my colleagues from Ireland and Korea who took the chair at the plenary sessions when I was unable to be present.

The world economy is now in the third year of the most severe and painful recession of the postwar period and, not surprisingly, all the speeches that we heard this week were addressed to the search for policies to reverse its course. Several of the major industrial countries have made significant progress in bringing inflation under control. Others have expressed their determination to do the same. There is a consensus among all of them that a sound and sustained economic recovery can only be based on a victory over inflation. Hence, while anxious for a resumption of the growth of output and employment, they are nevertheless resolved to be vigilant on the anti-inflation front. I hope that this approach is correct and that this policy will result in a lasting economic recovery.

Without such a recovery, the situation of the developing countries will remain extraordinarily difficult. As several of their Governors have pointed out, in the presence of an external environment of such grim adversity as at the present time, even the most rigorous domestic adjustment measures would not suffice to solve their external adjustment problems. There is an asymmetry in international interdependence in this respect because the external environment of the developing countries is largely shaped not by them but by the success of the industrial countries in overcoming the current recession. In this context, it is important to bear in mind that the industrial countries have also a stake in the growth and prosperity of developing countries.

The Fund has an important role to play under the present circumstances. In carrying out its surveillance responsibilities, it needs to take into account the differing circumstances of its members as well as the growing importance of developing countries for the health of the world economy. The Fund also has the primary responsibility for promoting adjustment and must have financial resources commensurate with this task. It is encouraging that there was widespread support at this Meeting for an early implementation of a substantial increase in the total quotas in the Fund. I would like to express to Mr. de Larosière my best wishes for success in carrying out the challenging tasks that await him.

During our deliberations, Governors have once again acknowledged the effectiveness of the World Bank and of IDA as instruments for channeling multilateral assistance to the world’s disadvantaged countries. These institutions must be given the resources and the flexibility they need to translate their lofty goals into action. In the case of the Bank, its innovative borrowing techniques should be given a chance to prove their viability, but should be used with utmost care and attention to the needs of its beneficiaries so as not to compromise the organization’s character as the premier development agency of the world.

As for IDA, Mr. Clausen in his opening remarks referred to the amputation of its resources. I am happy to report that agreement has been reached on special arrangements through which donors would provide additional resources up to the end of fiscal year 1984, thus helping to maintain IDA’s operations at a reasonable level. I am also gratified that donors have now reiterated their commitment to beginning negotiations for IDA-VII later this year.

If we are to weather the crisis that confronts the world’s financial and economic system, we must find a way to revive the spirit of Bretton Woods and apply it to solving the difficult and controversial issues identified by the Brandt Commission.

Before concluding, I would like to express my appreciation for the excellent arrangements that have resulted in such smooth functioning of these Annual Meetings. On my personal behalf and for all of you, I would like to convey to the Government and people of Canada, to the authorities of the Province of Ontario and of the city of Toronto, sincere thanks for the excellent facilities and warm hospitality which they have extended to us. I extend my congratulations and best wishes to the Governor for Spain who succeeds me as Chairman of the Boards of Governors. Finally, to all of you, let me wish you a safe journey home.

Delivered at the Closing Joint Session, September 9, 1982.

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