Opening Address by the Chairman of the Boards of Governors, the Governor of the Fund and the Bank for Tanzania1:Amir H. Jamal
- International Monetary Fund. Secretary's Department
- Published Date:
- November 1980
I am deeply privileged to be Chairman of these Thirty-Fifth Annual Meetings of the International Monetary Fund and the World Bank and to welcome you all to Washington. I would like to extend a hearty welcome to the distinguished representatives of St. Vincent and the Grenadines, who have joined the Fund, and of St. Lucia and of Zimbabwe, who have joined both the Fund and the Bank, in the course of the year. Their presence in our midst is a demonstration of the continuing process of decolonization and a continuing reminder that international institutions need to change in response to the evolving political realities. If I extend a special welcome today to the Governors of the Fund and the World Bank for the People’s Republic of China, it is because it gives me particular pleasure to recall what I said at the 1971 Annual Meetings of Governors. I then said, “All the progressive forces in the world are looking forward to the entry of the People’s Republic of China as the only authentic voice representing the Chinese people. I would like to express a sincere hope that, in such an event and in those circumstances, it will be possible to see the People’s Republic of China becoming a full member of the IMF and the IBRD.”
At the outset, I would like to express my sincere appreciation that the question of observer status for the PLO and the legal issues surrounding it are being dealt with in the Joint Procedures Committee. I very much hope that these will be dealt with in a manner that will safeguard the fundamental interests of the two institutions and of the participating member states. I shall say no more about it until the Joint Procedures Committee has reported on the matter, and I hope I shall have the understanding of all Governors in this regard.
I am conscious of the fact that the world is saturated with words, words, and yet more words about the global economic situation. There is now a real danger that talking back and forth instead of doing something is breeding insensitivity toward the distress and despair afflicting a large part of humanity, thus threatening the destruction of many universal values which need a chance to become firmly rooted.
However, first of all let us look at one or two developments which, hopefully, may be potentially redeeming. The World Development Report, 1980, published by the World Bank, unequivocally places man at the center of economic purpose instead of the things which he consumes and which may or may not be relevant to his well-being. This is not just a milestone. It is a coming of age, and not a day too soon. The whole development process from the next quarter century will have to reflect the fundamental objectives of food, education, health, and shelter in actual programming. Production of goods and services will have to be channeled toward achieving these objectives. Schools, hospitals, water, and preventive health care will only be available and food will only be secured on a lasting basis if research and development will be geared to industrial production that meets these basic needs primarily instead of being expended on industrialization for its own sake. The latter course leads to mindless mass consumption of products which pollute, which are not central to man’s needs, and which mean diversion of resources to the few causing deprivation for the many.
While the developing societies take this central purpose to heart and begin to lay foundations for achieving it, the industrial and capital-surplus countries may want to take a serious look at the Brandt Commission Report. It is not that the Report contains any startlingly new information or wisdom. There are other more specialized efforts equally deserving attention. The Commonwealth Experts’ Report on the World Economic Crisis is one such serious endeavor. The central point about the Brandt Report is that a group of persons drawn from very different backgrounds and representing a spectrum of experiences found it worthwhile to spend time and effort on producing an agreed report which covers some of the burning issues of the day and which argues for an agenda for immediate as well as for longer-term action. If it is not heeded, particularly by those who have wealth and power, the scenario for the next quarter century and more is one of inward-looking, narrow nationalism, intensification of mutual distrust and mutual disrespect, and building up a legacy for which future generations will have neither pride nor practical value. The Report’s subtitle—A Programme for Survival—is not, I submit, a flight of rhetorical fancy but a candid statement about present reality.
What tasks await us, we who are the Governors of these two prestigious global institutions—the Fund and the World Bank? How do we help in resolving the global dilemma, illustrated time and again in failure after failure at formal international encounters between the North and the South?
We represent the political will of our respective governments. Why are the Ministries of the North dealing with finance and economic affairs giving the appearance of being the last bastion of an existing system unwilling to change, except most grudgingly, slowly, and marginally? Why is it being assumed that a reconstructed Fund will be so iconoclastic as to deprive the already industrialized countries of security and well-being? Why assume that the poorest of the world have no interest in world stability? Should not the North ask the South to draft a charter for a new Fund which would receive its constructive scrutiny and which could lead to the beginning of a deliberate process of change? Why not accept that the world is a vastly different place from the time of Bretton Woods, and that the most needed structural change today is in the Bretton Woods institutions themselves?
Together with the badly needed monetary reform is the urgent need to restructure international trading arrangements. The industrial countries, foremost in singing the praise of free trade, of course never allowed agriculture to be anything but protected in their own national interests. Wherever they have been able to manipulate markets for industrial goods, they have continued to pay lip service to free trade. But even here as soon as a limit is reached—if for no better reason than that the poor make unreliable trade partners or produce too cheaply and too well—protectionism suddenly becomes a wholly defensible policy.
There is great advocacy for structural adjustment in recent times. Only the other day we were all rather excited by the objective of meeting basic needs. Ever since developing countries began to take the first conscious steps toward building up their own economic and social capacity in the course of the past quarter of a century, they have been doing nothing if not doing structural adjustment. They inherited structures which were functions of trade and communications developed to cater to the needs of metropolitan powers. Unless and until these were adjusted structurally, they remained economic dependencies despite their political independence. That process of all-too-slow and painful adjustment has now been seriously affected because of the unprecedented inflation in the industrial world, the recurrent global food shortages, and the impossibly high price of energy.
I would like to refer to what the Commonwealth Experts’ Group has to say in its study, The World Economic Crisis, about, and I quote, “the inability of the world economic structure—with its inequalities and asymmetries—to come into equilibrium with the changed political structure arising from the emergence of the colonial peoples into politically independent nations.” In other words, right from the very first day of achieving political independence, the burden of adjustment to the world structure has fallen on the poor developing countries.
So what does structural adjustment now imply for developing countries, particularly the least developed ones? Should they abandon the pursuit of basic needs? Are food and shelter, health and education, any less vital for their well-being? How do they achieve an equilibrium in external trade without accepting a feudal relationship with the capital-surplus countries? How does it meet their basic needs if they accept such a relationship? And have the wealthy and powerful the capacity to supervise such a relationship without investing their capital in enforcing domination, which in the final event means still greater expenditure on armaments and military personnel? If capital is available for this purpose, is it not infinitely more befitting to use it for development?
The Fund is engaged in meeting the immediate needs of economies of countries such as my own and has begun to show a little flexibility. As a sign of a beginning of a change that must be welcome, I do welcome it. My own country has just concluded a two-year stand-by arrangement which will, hopefully, enable us to import some critically needed inputs. But we are supposed to pay back in three to five years’ time, as well as repurchasing the earlier facilities falling due now, leaving relatively little for financing immediately needed critical imports. We have decided to make an effort to conclude an agreement, though quite candidly, as Finance Minister my fingers will remain crossed all the way, for the duration of the program or for the duration of my own job, whichever ends earlier!
Let us look at a typical developing country. I do not believe Tanzania’s plight is by any means unique, though each of us developing countries has our particular circumstances.
As a country slowly begins to develop its economy, it becomes clear that industrialization is the only way toward achieving a measure of self-reliance and capability for a degree of self-sustained development in pursuit of its social objectives in this increasingly interdependent world. At the best of times, this has been a costly and sometimes frustrating journey. But now, with the equilibrium between our import costs and export values having received such a body blow, what are the economic consequences, let alone the human implications? Even the most wisely chosen priority industries and services which are managed reasonably well need sustained inputs costing foreign exchange. If they are deprived of these, the unit cost of goods and services goes up, output falls, and, in extreme cases, ceases. Economists call it cost-push inflation. Reduced production aggravates excess demand which at the best of times cannot be met, especially if the economic policy is aimed at meeting basic needs. So, again in economic parlance, we have demand-pull inflation. These two become a formidable combination in fueling inflation internally, even if there were a moratorium on external inflation. But there is no such moratorium, and no prospect of one is in sight. So, the overall strain is now unbearable. Taking 1973 as the base year, the index of terms of trade for Tanzania now stands at less than 70, a situation which I do not believe is peculiar to my country alone. At the same time there are countries whose index has gone considerably above 100. Such is the outcome of the existing inequitable international trading arrangements and the punishment for the crime of being poor.
How does a Fund program, with its rigid emphasis on demand reduction and an incredibly short period for repurchasing, answer to the needs of an economy such as the one I have endeavored to describe, and which I reiterate is not uniquely Tanzanian?
While we strive for longer-term basic reforms, the Fund and the World Bank remain the two world institutions upon which falls a heavy responsibility for devising ways and means of responding to the immediate pressing needs of the developing countries. And of responding promptly. Even a week’s delay in critically needed resource flows leads to the aggravation of the formidably explosive mixture of cost-push and demand-pull inflation in societies where real standards of living, already low, have begun to decline still further. To ask these developing countries to set their house in order, before any significant help can be given, makes a kind of abstract sense, of course, but what kind of sense is it when the thatched roof of that house is catching fire and the floods or blizzards are deluging it at the same time?
The Fund has historically been geared to dealing with short-term deficits which are basically cyclical. And as representatives of developing countries, including myself, have been saying for years until our voices have become hoarse, the whole concept is rooted in the operation of economic structures of industrial societies which developed while others remained feudal or were colonized. The Fund was never geared to taking care of the slow, painful start of developing countries on the road to economic development through a process of structural adjustment which has been continuing at a different pace in differing circumstances and which suddenly lost its equilibrium. This was something that the United States, Canada, Australia, and New Zealand did not have to face in the nineteenth century and which the Fund, designed initially to guard against a recurrence of the European financial crisis of the 1930s, has never really faced up to.
The Fund has not been endowed with either the philosophy or the resources to deal with major external shocks such as drought, food grain prices, costs of energy, and rampant inflation in the industrial countries combined with worsening terms of trade for the peripheral economies.
The Fund procedures obviously reflect the concepts around which it has been built. An adversary position is almost instinctively assumed, and a cut in demand is an automatic first concern, no matter if the patient is subject to a combination of onslaughts which no preventive care within its limited competence would have been able to keep at bay and no matter whether increased output might be a more plausible way to adjust supply and demand. Indeed, concern for preventive care may well have left the patient hungry, and steps toward greater output may have contributed to his immediate malady.
No one disputes the imperative of conditionality. But is it right to expect an underdeveloped economy to provide commitment for a multitude of indicators which cannot be organically interrelated in a way that makes sense in such an economy, as it can make sense in an industrial economy? If in an industrial economy a boiler explodes, the results are of a purely micronature, and, anyhow, it can probably be replaced in 48 hours. With us it can be very different. If the boiler of a large, remote coffee-curing works explodes, it may take 48 weeks to obtain a replacement. And in the meantime, the effects on overall exports, government revenue, and bank borrowing, as well as storage capacity, are significant at a macro- as well as a microlevel. I very much doubt that indicators and targets related to cyclical demand management within industrial economies are the best yardsticks for measuring these realities, which are by no means unique to Tanzania. Added to this is a wholly unrealistic time frame quite unrelated to time for recovery from external battering or for achievement of real adjustment in production. These factors, plus the imponderables which make any single figure projections arbitrary, make of “conditionality” either a procrustean bed or a carte blanche for further Fund policy prescriptions.
A plea needs to be made for changes in procedures, including provision for a referee in cases of serious disagreement between the Fund and a member, for mobilization of significant additional low-conditionality facilities, for adjustment of the time frame to deal realistically with the character and magnitude of member needs, and for defining the scope of compensatory financing in terms of what the primary commodities produced can buy to meet development needs such as energy, transport equipment, education, medical and agricultural inputs, and intermediate products needed for steady industrialization, not simply in nominal terms whose true value sinks monthly.
In this connection, the concern expressed in the Interim Committee discussions about a link between injecting critically needed inputs into the economies of developing countries and inflation wholly misses the crucial point I have endeavored to make. It is that at the low-income levels of $300 per capita or so, the only outcome of starving these economies of necessary inputs is the accentuation of internal inflation.
The World Bank’s initiative in devising structural adjustment financing is timely and welcome. At the same time the needs of developing countries are so enormous that it does not seem at all possible to meet them if a maximum of 10 per cent of all Bank lending is to be allocated to this program. Further, it is not at all clear whether the World Bank is in substance proposing to cover the same ground as that covered by the Fund and, if so, to what purpose? Or does it propose to build up a specialized capability to deal with the complex issues underlying the process of structural adjustment in developing countries, issues made even more acute by the increasingly hostile international economic environment? Do the Fund and the Bank have an identical assessment of the critical quantum of import support needed for a given economy at a given time to be able to optimize its productive capacity? Have these two institutions an adequate appreciation of the vital significance of the level of production for fiscal stability, without which no government can deal effectively with the task of restoring the equilibrium in its external accounts?
As for the recent proposal to establish a new financing institution to deal with the needs of developing countries to build up energy resources, I, for one, welcome this initiative on the part of the World Bank. Energy is, after all and above all, resource plus capital plus technology. All groups of countries have an interest in the successful operation of such an institution. The oil surplus countries want to slow down production for the sake of their posterity. The industrial countries need time to make technological adjustment, a critical period that may stretch over decades. For the oil importing developing countries the issue is survival itself. They face collapse if their minimal needs are not met urgently. Of these needs the cost of energy is now of decisive significance. The hour is rather late. But better late than never. If there is a question to be asked, it is this. Will this new institution remain at the mercy of political comings and goings within the body politic of a “donor” country? Will the less endowed and the little endowed of the world continue to be buffeted by the winds from the North, the South, the East, and the West? Or is the international community now going to see the wisdom of making a new beginning founded on joint participation of all societies and an equitable sharing of decision-making power?
These are initial steps which are needed today and tomorrow. For many Third World economies they are very literally a program for survival. They must be begun now within the existing institutional framework. But we all know that the Bretton Woods arrangements have been overtaken by events. More basic changes are needed. These cannot be within the existing institutional framework because the decision-making processes, basic institutional attitudes, and distribution of power within the Fund and the Bank are among the structures which need to be changed, in particular by entrenching effective participation and protection of the weaker economies while they are enabled to develop. I firmly believe that it is not beyond man’s ingenuity to reconcile the political fact of 141 soverign states with the attainment of the technically sound foundation on which a major reform of the world structures must be built to be of practical value.
If I have taken the valuable time of distinguished Governors by raising so many questions, it is because I represent one of the least developed countries in the world, Tanzania, which shares both the sense of despair and the fleeting gleams of hope characterizing most developing countries today. Time is not our ally; we can only make it work for us instead of against us if we succeed in persuading the rich and the powerful that they cannot have a future if we perish and that they are ready to use in the immediate time frame the international institutions, such as the Fund and the World Bank, imaginatively and with courage to bring about a reversal of the present process of the destabilization of our only world.
Before concluding, I want to express my deep satisfaction at the insight and understanding with which Mr. de Larosière has been addressing himself to the stormy financial seas at the helm of the Fund during these trying times. His timely guidance of the Fund and his recent statements indicating his appreciation of the task facing the Fund are of positive significance. It is very much in the interest of the international community at a time of deepening crisis that continuity be maintained in the sphere of the management of financial resources in the enlightened and imaginative person of Mr. de Larosière, particularly when we are forced to accept, with sadness, the impending retirement of Mr. McNamara from the seat of World Bank leadership.
These are the last Annual Meetings of Governors to be attended by Mr. McNamara as World Bank President.
I take this opportunity to pay a very special tribute to him on behalf of all colleagues. Without intending any reflection whatsoever on his worthy predecessors, and without in any way prejudging his successor-to-be, I believe it is true to say that the World Bank and its affiliates have been all the richer on account of his determined, sympathetic, and enlightened leadership ever since he arrived on the scene, 13 years ago.
It is not just that the magnitude of the Bank’s lending increased impressively during his term of office. This is gratifying enough, even though the need for development resources continues to outpace their availability. It is the legacy of lending programs whose quality and character have become increasingly responsive to the fundamental needs of developing societies that he leaves behind him. Above all Robert McNamara has been a voice of compassion, of conscience, and of competence. He has persevered with tenacity in the struggle to persuade both rich and poor to make sustained efforts to mobilize resources for development and to utilize them efficiently. Even at the best of times, it would be difficult to achieve more. But these have been very far from the best of times and the institutions over which he presided are the offspring of industrial societies, reflecting their political, economic, and social values, and interests. A man of Mr. McNamara’s understanding and competence was needed to give an orientation in favor of the less franchised societies.
I hope I am expressing the sentiments of all Governors in wishing Mr. and Mrs. McNamara sound health and many more creative years in service of humanity.
Delivered at the Opening Joint Session, September 30, 1980.