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Discussion of Fund Policy at Sixth Joint Session1

Author(s):
International Monetary Fund. Secretary's Department
Published Date:
November 1980
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Statement by the Governor of the Bank for Afghanistan—Fazl Haq Khaliqyar

I deem it a great privilege to represent the Government of the Democratic Republic of Afghanistan at these distinguished Annual Meetings. Personally, it is a great opportunity for me to meet with my eminent colleagues and leaders in the financial and banking fields from the various countries and exchange views. Likewise, I am looking forward to more productive results from this meeting.

The year which has concluded proved to be another dismal one, perhaps more depressing than the previous year, especially for the least developing countries. Inflation continued to dominate the world economic scene during 1979-80; in fact, there was a worsening of the situation as the year progressed. Further escalation in oil prices in the first half of 1979 may have been a contributory factor to the accentuation of the inflationary pressures. Along with this, stagnation was also a continuing feature of the world economy. Declining output and growth rates, and further deterioration in employment marked the economies of several leading capitalist industrial countries. Protectionist policies of the developed countries compounded the problems of the developing countries.

The main features of the developments in the world economy, to which I have alluded above, have all been analyzed and discussed very competently in the reports of both the World Bank and the International Monetary Fund in the recent weeks. I will avail myself of this opportunity, if I may, to stress the unfortunate plight of the developing countries, especially the low-income developing countries. The growth in the volume of world trade in 1979 was around 6.5 per cent, which was only slightly higher than the 5.5 per cent growth in the preceding year. As against this, the growth of exports of non-oil developing countries was lower at 8.5 per cent in 1979 as compared with 10 per cent in 1978. The immediate prospects are also depressing; in 1980, the growth of exports of non-oil developing countries is estimated to decelerate further to only 6 per cent. Along with this unfavorable condition, the volume and terms of trade of these countries, especially the prices of their exported goods, were also lower than the prices which they paid for the imports. This deterioration is over and above the 4 per cent suffered by these countries in the preceding year, and the prospects for 1980 are for a further worsening of the situation in this regard. The impact of these depressing developments is reflected in their external payments situation. There was a sharp increase in the current account deficit of non-oil developing countries to $55 billion in 1979, from $36 billion in the preceding year, and the deficit is estimated to grow further to $68 billion in 1980.

All these facts evidently show the unjust characteristics of international economic relations, which meet only the selfish interests of the relatively small group of imperialist states and their monopolies….

We see that the reason for the difficulties and the economic uncertainties particularly for the developing countries, again, relates to the long domination of international imperialism. More than 100 countries were under domination or colonization for more than 100 years, and now this exploitative relation has led to irreconcilable antagonism between the interests of the majority of the developing countries and the imperialist monopolies. Now, the previous form of colonization has changed to new colonialism, by which the Western industrial countries keep the developing countries as a source of raw materials and these countries continue to be severely exploited by imperialist states and their monopolies.

It is clear that unless the main obstacles to economic growth of the developing countries, such as imperialism, colonialism and new colonialism, racism, apartheid including Zionism as well as foreign aggression and occupation, dependence, subjugation and all other types of discrimination, coercion, interference, domination, and exploitation are removed, the world economic order can not be steered on its proper and just course.

This leads me to the issue of the flow of aid to the developing countries. Here, too, the performance of the developed countries—as measured against the target (0.7 per cent of GNP) set by the United Nations for the Second Development Decade—has been most disappointing. Leaving aside the few countries which have already reached the UN target, the aid performance of most of the remaining 13 Development Assistance Committee members deteriorated from 1975 to 1979, and there is no assurance that the developed countries will respond to the continuation of aid, because imperialistic countries would like to solve their economic problems by augmenting exploitation of developing countries and passing on their crises to them. Likewise, during 1978-79, aid in its real sense has been lower than the level of 1975. It is against this backdrop that the role of multilateral financing institutions assumed crucial importance. The question of enlarging the role of these institutions in effectively promoting the development of the developing countries has been discussed in recent years in several international forums. Because of the current international situation, the majority of the developing countries has not only not achieved progress but their condition has further deteriorated, and the gap between developed and developing countries has widened. In this context the measures called for have been crystallized in the recommendations of the Group of Twenty-Four in the Outline for a Program of Action on International Monetary Reform, which was approved by the Ministerial Meeting of the Group of 77 held in Belgrade last September.

Specifically, the outline presented a Program of Immediate Action which encompassed some 13 measures to be adopted on a priority basis in the fields of money, trade, and transfer of real resources to developing countries, and in this connection necessary assistance will be required by the developing countries from international financial and monetary institutions….

We would also like to see an acceleration in the flow of concessional aid, linkage of the SDR allocation with additional development assistance, and establishment of a medium-term balance of payments facility to respond to the adjustment needs of the developing countries….

As you know, Afghanistan is a least developed and landlocked country having no access to the sea. We are isolated and far from international markets, and this situation causes a lot of difficulties and results in high costs of international transportation, which is a serious obstacle to our foreign trade and, thus, to our economic and social development. Because of the unsuitable condition of transit roads with no access to the ocean and also with the unfriendly behavior of some of the neighboring countries, our problems are compounded. Along with this, our country, like other developing countries, is under exploitation by unjustified international trade and monetary mechanisms.

After the Saur Revolution, especially after the new phase, some of the Western countries, topped by the United States, cut all their official assistance to Afghanistan, in violation of international obligations and economic and social cooperation. Imperialistic and reactionary circles have imposed an unannounced economic blockade and endeavored to strangulate the Revolution of Afghanistan under the influence of the policy of the United States, and that of other countries like the Federal Republic of Germany, the United Kingdom, and Japan. They carry out the same policy of economic pressures against Afghanistan. The EC cut its food assistance to Afghanistan because of political reasons which are unprecedented and inhuman.

However, all these anti-Afghan positions from these countries’ governing circles were taken at a time when the people of Afghanistan were faithfully struggling to abolish all the elements causing economic and social backwardness, which was the legacy of the previous nasty and exploitative regime. Please let me draw your attention to some developments which have occurred in our country.

The Saur Revolution, which took place in Afghanistan two years ago, was a national democratic uprising, which toppled the pro-imperialist, semifeudal regime. The aim of the Revolution was to carry out general democratic revolutionary changes, that is, elimination of all feudal and prefeudal remnants in social and national relationships, distribution of land among landless peasants and agricultural workers, the development of the national economy, raising the standards of living of the people, expansion of education, gradual abolition of illiteracy, democratic solution of national problems, democratization of the social and political life in the country, and elimination of the influence and all manifestations of colonization and imperialism.

The first and foremost task of the Government of the Democratic Republic of Afghanistan, which came into power with the new phase of the Saur Revolution last December, was to restore the confidence of the people in the Government which had been shattered by the misdeeds of Amin’s fascist regime. Almost the very first act of my Government was to release the thousands of our people who were put in prisons arbitrarily and unjustifiably by the previous regime. Action was also initiated to return to their owners the properties and assets which included houses, business premises, factories, machinery and equipment, and cash taken over by the previous Government, and to make payments toward the share of the private sector in the capital of banks nationalized by the previous Governments. It is the policy of the new Government that while the public sector will continue to play an important role in the economic development of the country, it will also assist and encourage the private sector to contribute to productive and nation-building activities. For the active and efficient participation and assurance of the private sector, a new internal and external investment law was enacted which encourages, guides, and protects investment in the private sector. In this context, new regulations on customs and tariffs are under preparation; also credit facilities through the commercial and specialized banks are provided to individuals and commercial and private enterprises.

I should add here that under the fundamental principles of the Democratic Republic of Afghanistan, framed and announced, the basic rights of people, including the right to own property, have been fully secured. It is the policy of the Government to associate all progressive and patriotic sections of the people to join hands in the task of developing the country, and with this objective in view, a paternal United National Democratic Front has been set up which will provide a forum for mobilizing the people’s cooperation. Associations of workers, teachers, and professionals, such as doctors and religious leaders, are also being organized which will serve as consultative machinery to the Government on the major policy issues affecting these sections of the people. Along with the mobilization and channeling of the people’s efforts, the Government is determined to put down and eliminate completely activities of reactionary elements associated with imperialism, regional reaction, and chauvinism within the country, so as to provide the conditions necessary for the progress of the development of the country. The Democratic Republic of Afghanistan has chosen a free and independent course of development and is desirous of complete cessation of imperialist, chauvinistic, and reactionary intervention in the internal affairs of the country so that the people of Afghanistan can continue the country’s peaceful reconstruction and economic advancement. As Barak Karmal, the General Secretary of the Central Committee of the People’s Democratic Party of Afghanistan, President of the Revolutionary Council, and Prime Minister of the Democratic Republic of Afghanistan, has stated: “The Democratic Republic of Afghanistan Government in full harmony with its decisive revolutionary domestic policy follows a principled peaceful path in its relations with all countries of the world; and Afghanistan is and will remain as a nonaligned nation. We will profoundly and actively support the principles of positive and active nonalignment, peaceful coexistence, the policy of detente and general disarmament.”

Toward the same objective, steps are being taken to rationalize government procedures and to do away with bureaucratic inefficient practices inherited from the previous regimes. Wasteful and unproductive government expenditures are being eliminated, and the Government has announced its intention to restrict its borrowings from the central bank—a factor which contributed most to the large monetary expansion in the economy witnessed in recent years. In fact, for the first time in recent history, the Government was able to prepare a balanced budget for the present fiscal year, and for the first six months has faithfully and successfully implemented it without resort to any borrowing.

Obviously, it will be some time before the impact of these and other steps taken by the Government is reflected in the performance of the economy. In the meantime, during the years 1979-80, the country passed through severe stresses and strains. There was destruction of property and infrastructure facilities indulged in by the antinational and reactionary factions which are actively supported by foreign powers. Productive capacity has been extensively damaged, let alone expansion of the productive potential through further investment. Nevertheless, output levels were not allowed to decline substantially and shortfalls, especially in essential consumer goods of mass consumption by the toiling people, were being made up by an increased flow of imports. We are particularly grateful to our friendly socialist countries, especially the U.S.S.R., for the timely and generous provision of such goods provided as grants, worth about $165 million this year alone.

Available data show that the gross national product declined during 1979-80 by about 4 per cent to Af 153.2 billion (at current prices) from Af 159.7 billion in the preceding year. The fall in gross national product appeared to have been largely in the industrial sector. With the significant exception of electric power and natural gas, output in most of the other major industries, such as coal, sugar, salt, cotton textiles, and cement, recorded declines. It is likely that overall output in the agricultural sector suffered no major decline.

It is notable that prices of essential articles of mass consumption, such as wheat flour, rice, sugar, kerosene, cloth, salt, and tea, recorded if at all, small increases, thanks to the policy of augmenting supplies through liberal imports and subsidies extended by the Government.

On the external front, the country’s foreign exchange reserves registered a further expansion of about $60 million (excluding revaluation of gold holdings effected during the year) in 1979-80. The continued accretion of foreign exchange reserves should, however, be attributed largely to fortuitous factors which included higher prices fetched by certain export commodities, such as natural gas, karakul, and raisins; a sharp increase in investment income reflecting the record levels of interest rates which prevailed in the leading countries abroad; and lower amortization payments, consequent upon rescheduling of certain foreign debts. Some of these factors are, naturally, transient and, in fact, the rate of growth in reserves has been decelerating in the past three years or so. Having regard for the fact that, being an agricultural country, output and exports are very much dependent upon the vagaries of the weather and the problems inherent in being a landlocked country, the present level of reserves, which represents about a year’s commercial imports, cannot be considered excessively high, especially since much of the increase has been clearing dollars with bilateral agreement countries. There has actually been a decline in our convertible currency reserves. Basically, the relatively high level of reserves is a reflection of the slow rate of development of the economy which has been hampered by destructive activities of reactionary and imperialist agents.

Agriculture is the mainstay of the country’s economy and my Government is according high priority to the development of this sector. Several measures have already been initiated which will lead to larger investments in this sector. New owners under the land reform programs are being given ownership documents expeditiously to encourage investment in the lands distributed to them. The new owners were the erstwhile landless peasants and small farmers with meager, uneconomic landholdings. Agricultural inputs, such as fertilizer and improved seeds and implements, are being made available to farmers at concessional terms and prices. With a view to encouraging larger output, growers of sugar beet and cotton are offered higher prices for their produce, the increase in prices ranging from 20 to 30 per cent.

The duty of our nation at this stage of development of the country is very sensitive, complex, and difficult, and the implementation of the development programs of the nation is being followed according to the principles suggested and accepted by the international organizations and the UN for the entire population. And for the fulfillment of this aim, we are in need of active and enlarged aid participation of the international organizations….

Statement by the Governor of the Fund and the Bank for the Solomon Islands—Benedict Kinika

On behalf of the Solomon Islands I extend a warm welcome to the representatives of the People’s Republic of China to this meeting and the Governors of the Fund and the Bank. The People’s Republic has been absent for so long from international forums of this kind, and we in Asia and the Pacific particularly have so long felt the unreality of discussing global affairs without their participation, that we are especially glad to see them here with us. I also extend a special welcome to the representatives of Zimbabwe, here at last as an independent nation to take their place with the rest of us. I welcome also the small island states of St. Lucia, and St. Vincent and the Grenadines.

Compared with last year’s meeting in Belgrade, I think I can see some improvements. Not in the economic or financial sense, because generally the positions of many countries are worse than last year and seem likely to worsen further. But improvement in the sense of a slowly growing recognition that we really do inhabit one world and depend mutually on each other. I think I can see fewer completely closed minds and more realization that the only possible solutions are slow and complex, requiring genuine collaboration, and may involve going back in order to go forward. Perhaps even the trouble about observer status will have that effect.

Now, among the many problems which exercise so many minds, and on which such distressingly slow progress is apparent, I want in this brief speech to pick out two issues—one in the Fund and one in the World Bank.

Taking the Fund first, I have noted the rigid adherence to the concept of the quota as the test of participation and influence in the Fund, and access to the Fund’s resources. This may have been highly appropriate in the earlier days of the Bretton Woods institutions, when the participating nations were allocated quotas that no doubt bore a sensible relationship to their exposure to possible balance of payments difficulties. For countries whose foreign trade constituted 20 to 25 per cent of national income a quota representing, say, 5 per cent of national income would cover a quarter or so of their exposure to balance of payments risk. That must have seemed very adequate. Compare that, however, with the case of my own country (and here, Mr. Chairman, if I may borrow your own words of Tuesday, my country is by no means unique) which has a very open economy and a high degree of vulnerability to balance of payments risk. After the current round of increases the Solomon Islands will have a quota of SDR 3.1 million. This will represent about 5 per cent of the value of our exports next year and about 3 per cent of the turnover in our current account. If the quota continues to be the main determinant of our access to the resources of the Fund, even using the new maximum multiples which have now been introduced and announced at this meeting, then I fear that the effective role of the Fund in easing our short- and medium-term balance of payments problems is unfairly restricted.

I understand the use of high multipliers raises worries in the Fund, and anyway may attract conditionality to a degree that would be counterproductive. It seems, therefore, that if we are to look realistically to the Fund for the kind of assistance which I believe is fully justified by countries in our position, it is essential to make substantial changes in the amount of quotas of the smallest countries and in the formula by which these quotas are fixed. I suggest that a one-shot selective increase in quota should be applied at the first possible opportunity, say in the Eighth Review, so as to give a minimum quota for any country in the Fund of, say, SDR 10 million. This would constitute a threshold from which each country would subsequently move by whatever periodic increases were determined. Such a move would at once give us and others in our position a quota that was realistic in terms of our foreign exchange exposure. I assure Governors that we do want to feel committed and cooperative within the framework of the International Monetary Fund. We see great potential for good in our association. But at present we are constrained, by the ridiculously small size of our quota, from having these positive attitudes and from seeking the nature and extent of assistance which we, and so many countries represented here, need from the Fund in order to achieve our medium-term goals.

Turning now to the World Bank, the subject I wish to raise is the relationship between public sector and private sector investment. I believe there is little understanding in many countries, including my own, of the complementarity of public sector investment and the investment of private capital. I know that the Fund and the Bank have received a report of a Task Force on Private Foreign Investment in developing countries. This is a welcome move. But I think much more direct action and assistance is needed to help developing countries, particularly those which lack a significant indigenous private sector and an experienced good bureaucracy, to enable us to formulate policies and make decisions. I have in mind the need to understand the nature of public sector investment, its strengths, weaknesses, and what can be done about them—and the same with private sector investment; the relationship, interaction, and interdependence which arises between investment activities in the two sectors; and the relative amounts of capital which should be made available, directed or encouraged into each sector and on what criteria. In summary, what is the proper role of public sector and private sector investment and how can the return to both of them be maximized, against our national objectives?

I stress the need for a clear and impartial examination of this subject, because it tends to be clouded by emotion and concepts that are of little use in solving the development problems that most of us are facing.

I believe that our failure to think clearly about this is handicapping our development efforts. It is not just a choice between big government or small government, between wicked transnational corporations or virtuous sons-of-the-soil smallholders; it is a problem of analyzing the capabilities of different kinds of input in the development process, and then assigning to those inputs (whether they be human, technological, or financial) that role in the national economy where they will fulfill themselves best, for the good of the state. Comparative advantage, if you like. I hope that those in the Bank and in the Fund who are looking at these problems will move quickly to produce results in a form that can be directly of use to us.

Let me emphasize that in raising these two specific points I am not dissenting from the general trend of thought among any developing country colleagues about the many other aspects of Fund and Bank questions that need attention, but I think these two points are worth highlighting….

Statement by the Governor of the Fund for Western Samoa—Vaovasamanaia R. P. Phillips

I wish to join other Governors in expressing a special welcome to all the new members of the Fund and Bank. The seating of the representatives of the People’s Republic of China is most appropriate as it allows direct representation of one billion people, one quarter of humankind.

In the past 12 months, the international economic situation has become considerably more difficult for most countries, particularly for non-oil producing developing countries. We are all faced with a situation of severe worldwide inflation, a general pattern of slow growth of output with a threat of general recession in the industrial countries, and a sharp slump in the growth of world trade volume reflecting slack demand in industrial countries and financial restraints in non-oil developing countries. There is also a significant worsening of the distribution of imbalances on external current account among major groups of countries. The adjustment of non-oil producing developing countries to the current situation is considerably more difficult than was the case during 1974-75. This is because their current account deficits are considerably larger than before, owing to the generally sluggish commodity prices and stagnating export levels, sharp increases in import prices, and significantly enhanced external debt burden concurrent with growing concern in the international banking community about the risks of overlending to the developing countries.

The alarming economic plight and prospects faced by many countries in the world today, to which I have briefly alluded, have been fully described, painstakingly analyzed, and sharply brought into focus by the Brandt Commission’s Report, the World Bank’s World Development Report, the Fund’s Annual Report, and the Development Committee’s Report. However, along with many other members, frankly, we remain disappointed with the concrete steps taken so far or actively contemplated by the major industrial countries and the international financial institutions for coping with today’s worldwide economic crisis.

It would be fair to say that the response from the International Monetary Fund to this crisis has yet to be seen by the poorest of the developing countries. The Fund seems to us to be in a strategic position to assist these developing countries during this crisis. Unfortunately, its response to this challenge has been delayed, although there are recent indications of greater awareness by the Fund of the special problems of these countries.

The Program of Immediate Action of the Group of Twenty-Four is fully supported by Western Samoa. We endorse making SDRs the principal reserve asset and welcome the agreement by the Interim Committee to restudy the establishment of a link between SDR allocations and development assistance. Additional SDR allocations in significant amounts would seem necessary, particularly to the poorest developing countries. We also support continuation of the Trust Fund with augmented resources and longer term loans.

Western Samoa is particularly interested in the concept of the Fund playing a role in the recycling of funds from balance of payments surplus countries to developing countries with deficits. This may require the establishment of a separate Fund facility, with the Fund taking part of the risk in the recycling/lending of funds involved therein.

It appears to us that in the light of the present critical world economic situation and bleak prospects for the next several years, an overall review of the Fund’s existing facilities and the contemplated additional ones seems imperative in order to meet the problems which have resulted from the latest international economic developments. Such a review, however, would be of little use if it becomes a protracted exercise in technicalities and pedantics without dynamism and teleological objectives. It would be particularly distressing if the review did not focus properly on the Fund meeting more adequately the needs of the poorest developing countries striving at least to maintain their present living standards in the context of the deteriorating world economic situation.

The Fund’s role in financing the payment deficits of the member countries and in facilitating an orderly worldwide balance of payments adjustment process should be worked out on a comprehensive basis. This would involve, inter alia, the adoption of appropriate supply as well as demand policies to overcome structural inadequacies of various member countries. This latter aspect of the problem necessitates that, in order to appropriately finance the developing countries’ adjustment process, the Fund’s resources be made available for sound financial programs over longer periods and in larger amounts than hitherto….

Western Samoa is indeed grateful for the assistance it has received to date from the Fund and the Bank. But we would be less than frank if we did not voice our concern that the actual response by both these institutions to the problems of the poorest developing countries, which are confronted by the deterioration of the international economic situation over the past two years, has just not been rapid enough. In this respect, the problems faced by geographically disadvantaged small island economies are particularly acute. It is urgently necessary for the Fund and the Bank to examine their lending policies in the light of current conditions to facilitate increased adjustment process assistance to the poorest developing countries, for it is these countries which have the least room to take appropriate economic adjustment measures without reducing their already low living standards….

Statement by the Governor of the Fund for Dominica—Mary Eugenia Charles

Dominica has now been a member of the Fund for more than a year and of the Bank for almost as long. Thus, this is the second opportunity which we have had to address this distinguished assembly. Nevertheless, it is the first in which I, as Prime Minister, have had this privilege. Permit me, therefore, to express my great pleasure in joining you and the other Governors here this week….

I wish, also, to join with the other Governors who have spoken before me to welcome the new Governors for St. Lucia, and St. Vincent and the Grenadines—our close neighbors—and also the new Governors for Zimbabwe and the People’s Republic of China.

The development problems facing a small country like ours may be different in magnitude but, I can assure you, are no less real than those facing other developing countries represented here today. It is to the great credit of the Bank and Fund that Dominica has been able to be accommodated in their work programs. We look forward to increasingly active cooperation with both institutions and would welcome the greater flexibility that their increased assistance will give us in implementing our development program. In this regard, I was greatly impressed by the humane concern expressed in Mr. McNamara’s address, especially as regards those countries whose condition he so aptly described as absolute poverty. We ourselves are among the poorest nations of the world and such genuine concern as expressed by the President of the Bank means much to our outlook on the future. Within the past two years we have experienced a negative growth as a result of natural disasters and political unrest. Per capita income, already extremely low, fell by 12 per cent last year, and is expected to be reduced further as a result of further destruction in agriculture.

In these circumstances, the decline in external aid flows, the increasing and insupportable debt burden, the inexorable rise in inflation, and oil price increases make economic recovery extremely difficult. Without an increase in official aid flows for countries like Dominica, the prospect of recovery in the short term is extremely dim….

Both the Fund and Bank have crucial roles to play in the growing struggle to alleviate poverty in developing countries. The new initiative of both institutions must, therefore, be translated into action as a matter of urgency if growing poverty is to be stemmed and human dignity restored among the poorest nations of the world.

As you know, before last year’s Annual Meetings in Belgrade, Dominica was devastated by Hurricane David. This year, before we could even pronounce ourselves well on the way to recovery from that disaster, Dominica was hit by another hurricane in July. Our needs this year, therefore, have been doubly compounded by the third catastrophe to befall our island within 12 months. While we are entirely sincere in expressing our gratitude for the assistance already received, we must repeat our appeal for further efforts by those countries able to come to our aid. It is only by combining our resources with those from bilateral as well as multilateral sources that we shall be able to meet the difficult task of reconstruction and development which Dominica faces.

Statement by the Governor of the Bank for Bangladesh—Saifur Rahman

It is a matter of great privilege for me to address this meeting of the two great institutions—the World Bank and the International Monetary Fund—for the first time. Representing one of the least developed countries, we view these meetings with great hopes. I therefore welcome the most encouraging statement made by President Carter. I would also like to join others in extending a very hearty welcome to the new entrants to the Bank and the Fund. We are particularly happy to see the People’s Republic of China take its rightful place in the two Bretton Woods institutions.

I would like to start by extending our thanks to President McNamara and Managing Director de Larosière for their excellent and illuminating statements.

The Annual Reports of the Bank and the Fund, the World Development Report, and the documents prepared for the Development and Interim Committees all indicate a serious deterioration of the international economic situation and the worsening of the development environment. Not only has the environment deteriorated during the last 12 months since our meeting in Belgrade, but it is also a matter of grave concern for the developing countries that the entire decade ahead looks extremely difficult.

The most important features disturbing the international economic situation are continued inflation, slow growth of the industrial countries, deterioration in the terms of trade of the developing countries, a frightening increase in their balance of payments deficit, and a declining trend of resource transfers. Continued high inflation in the industrial countries with a slowdown in their growth and the rise in prices of internationally traded goods in general, oil in particular, have all cumulated to produce staggering current account deficits for oil importing developing countries. In concrete terms this means a sharp erosion in the ability of non-oil developing countries to sustain their current imports, not to speak of meeting their investment needs. It is not surprising that this has resulted in a steady decline in the growth rates of the developing countries. While the burden has been heavy for all developing countries it has been particularly acute for the low-income countries. Aggregate figures for all developing countries do not clearly reveal that for 38 low-income countries real growth of a little more than the 2 per cent in 1979 left no room for per capita income gains.

The Annual Reports of the International Monetary Fund and the World Bank, as well as the World Development Report, 1980, have brought up a common theme—that in the coming decade the developing countries must undertake programs for structural readjustments of their economies. And it is only toward the second half of the decade that there is a possibility of growth rates reversing the trends if adjustments could be carried out successfully. Such adjustments cover a wide range of policies aiming to reduce deficits by raising exports, increasing investment, using resources efficiently, mobilizing domestic resources, and reducing consumption of energy through conservation and greater domestic production of energy where possible. The reports also suggest that such adjustment programs by the developing countries require strong and enlarged support from the industrial countries and capital surplus oil exporters in stimulating demand for developing countries’ exports, in recycling oil surpluses, and in providing aid.

The success of this meeting will depend on the extent to which consensus and agreements can be reached toward concrete action for such international support. At the first Annual Meetings of the decade, we must not lose the opportunity of arriving at agreements as to how these two great institutions can reorder their policies, operations, and management to meet the challenges of the coming years. The reports circulated in this meeting have also pointed to one thing: the deteriorating economic and development prospects of the developing countries are almost entirely due to external shocks and are largely of external origin. Therefore, the remedies must be based primarily on external support and action.

The developing countries not only survived but achieved modest success in responding to the challenges of the 1970s through virtually enforced reduction in their standard of living, which is apparent in the total number of people living in absolute poverty at the end of the decade. To expect them to suffer continuous decline in their level of living and at the same time to expect them to achieve even modest development success in the face of much greater challenges in the 1980s, without stepping up external support, would not square with the harsh economic realities.

While international action will be needed for all developing countries in general, special attention will have to be given to the low-income countries. Adjustment measures must aim at increasing supplies—and not by restraining demands of those already at mere subsistence level—by expanding domestic production, and promoting exports. All these efforts essentially call for a massive flow of external capital on concessional terms. And yet the record here is lamentable, to say the least. Apart from a few worthy examples, the developed countries have levels of ODA which are not at all flattering to them. And in 1979 even that unflattering level suffered further decline. It was most unfortunate at a time when the need for greater aid flow was more compelling. Most disheartening yet is the fact that the low-income countries receive only about 37 per cent of total ODA and on a per capita basis much less than the middle- and upper-income developing countries. In this context we fully support the proposal of the Group of 77 that ODA to the least developed countries must be doubled by 1985 and quadrupled by the end of the decade in real terms in 1977 prices. In this context we strongly urge the developed countries to initiate steps to implement the Immediate and Substantial Action Program adopted unanimously at the UNCTAD V….

We cannot let this opportunity pass without referring to the excellent record set by the OPEC countries in the field of development assistance. Though the average level of assistance by the capital surplus OPEC countries over the last seven years has been on the order of 4 per cent of their GNP, the record of few individual countries in percentage terms has been ever greater in some years. A noteworthy feature of OPEC assistance is its untied character. Another qualitative edge of OPEC aid is that, unlike the aid from industrial countries, the funds that the OPEC countries provide do not flow back to them in the form of purchase orders, as happens in the case of aid from developed countries. We welcome the measures taken by Iraq, Mexico, and Venezuela to help developing countries with special measures relating to the import of oil. We hope the OPEC group as a whole will adopt similar measures for all developing countries without further delay. We also strongly welcome the decision by OPEC to convert the OPEC Special Fund into an international development agency. We have no doubt that in keeping with their past laudable record this Special Fund will adopt special measures to help the low-income countries….

The deterioration in the terms of trade of the developing countries has also eroded the resources that would otherwise be available for imports and investments. It has been estimated that had the terms of trade of non-oil developing countries been the same in 1979 as they were in 1970, their external purchasing power in 1979 would have been $36 billion greater than it actually was. This only shows the devastating impact that terms of trade can have on investible resources. The consequent reduction in the purchasing power of national income has, in turn, exerted downward pressure on national savings, investment, and growth. The rising trend of protectionism has further aggravated this situation. In spite of exhortations in all international forums, it is indeed a regrettable fact that protectionism has been persistently resorted to by the developed countries instead of undertaking the structural adjustments in their economies that they patronizingly propagate for low-income countries as apocalyptic remedies irrespective of their social and political background. My question to developed countries is why they betray reluctance to adopt adjustment measures which they so generously advise to us.

While on the subject of concessionary assistance and resources, reference must be made to the serious dimensions which the debt problem is beginning to assume for many developing countries, particularly the low-income countries. We would urge all donors to implement the 1978 UNCTAD resolution particularly for the low-income countries.

While the Bank’s Annual Report and the World Development Report, 1980 highlight the need for undertaking structural adjustment programs by the developing countries, the Fund’s Annual Report indicates that this institution is also preparing to play a larger role in financing members’ imbalances as was suggested by the Interim Committee at its Hamburg meeting in April 1980. We hope that the full potential of the Fund will be exploited in this direction. For many developing countries, and the low-income countries in particular, adjustments will need longer periods and hence Fund assistance should be made available over longer time spans and in larger amounts.

We are happy to note that during the past year the Fund took some concrete steps extending the maximum repurchase period under the extended Fund facility from 8 to 10 years and that access to the compensatory financing facility has also been liberalized in some respects. We understand that the Fund is currently examining in depth the Program of Immediate Action prepared by the Group of Twenty-Four which covers, inter alia, proposals relating to the Fund facilities, quotas, SDRs, conditionality, appropriate measures for recycling, the substitution account, and adjustment policies with due regard to structural and supply aspects of the program. However, it will not be wide off the mark to suggest that very little concrete action has been taken by the Fund during the year to meet the new requirements of the developing countries and of the low-income countries in particular. Although Fund liquidity is currently adequate, the size of drawings by the developing countries has not so far been encouraging, obviously due to present conditionality, particularly that which betrays very little or no regard or sensitivity to the country’s sociopolitical imperatives. The size of the projected recycling program would make large demands for utilization of existing resources over a longer period. It is regrettable that the Seventh General Review of Quotas has not yet come into effect. The resources of the Fund would in any case need to be enhanced through other measures. Recognizing this fact the Interim Committee gave clearance to the Managing Director to go for larger borrowing with which a new facility could be set up to meet the present payment crisis as was done through the oil facility in the earlier part of the decade. We note that the Executive Board is continuing discussions on the future of the Trust Fund. We would strongly urge that the Trust Fund be continued beyond 1980 with substantial augmentation of its resources. We are also disappointed to note that no decision has yet been reached on the subject of a subsidy account for the supplementary financing facility and for using other Fund resources by the low-income countries. We hope action will be taken by the Executive Board on this subject as early as possible. In this context, we strongly disagree with suggestions to use the Trust Fund refund for the proposed subsidy account.

Simplification of the SDR basket is highly welcome. We hope further action will be taken by the Executive Board on the subject of SDRs on the basis of the Program for Immediate Action of the Group of Twenty-Four, particularly action to increase allocation of SDRs and to review the criteria for distribution. The subject of a link has been discussed too long and will assume new importance in the context of the proposed subsidy to low-income countries on Fund drawings. As regards the possibility of the Fund’s assistance to members adversely affected by high food import costs, we welcome the discussions by the Executive Directors, but would like to add that such a facility must be based on additionality of resources.

While the two Bretton Woods institutions have served the developing countries well for a long period, the need for restructuring these institutions has now been felt by all, including the Brandt Commission. As far as the Fund is concerned, we cannot altogether ignore the voice coming out of the recent Arusha conference. We hope the Executive Board will consider carefully the suggestions made in that conference, particularly regarding conditionality and measures needed to deal with imbalances resulting from externally induced factors, such as high international inflation, fluctuating export prices, low demand for the exports of developing countries and deterioration of their terms of trade, and high interest rates. The recommendations of the Group of Twenty-Four’s Program for Immediate Action on conditionality deserve to be given full consideration.

Governments securing Fund assistance are fully aware of the measures that financial discipline dictates when adjustment measures are taken, but we seriously resent attempts to impose conditionality without due regard to a time frame and to their sociopolitical implications, heedless of the cultural and democratic social values of the people. Such an approach is more often than not likely to end in social convulsions threatening the very fabric of the social equilibrium, thereby destabilizing the society which it is seeking to assist. Economic policies of the nations, particularly the developing ones, cannot be considered in isolation from their social and political programs, policies and institutions. In this context it is heartening to listen to the statements made by the Managing Director regarding flexibility in assisting members.

The World Development Report vividly describes the likely scenario and the grim prospects for the developing countries in general and low-income countries in particular in the next decade. It is quite clear that in the absence of meaningful action by the international community, declining growth, massive unemployment, and lack of resources for sustaining the minimum needs for imports and investments are likely to lead to social unrest in many developing countries, thus ultimately affecting the prospects for peace and security. It will not be an exaggeration to say that there is a sense of desperation in many developing countries, particularly the low-income countries. The failure of the two development decades to achieve targets, the failure of the international community to muster concrete support in favor of the declaration for a New International Economic Order, more recent failures to reach agreements at UNCTAD V, UNIDO III, and finally the disappointing outcome of the UN Special Session have all contributed to this sense of desperation and frustration. The recommendations of the Brandt Commission, aptly described as a Program for Survival, have therefore raised some hopes and in our view provide another opportunity for exhibition of statesmanship and political will by the leaders of the industrial countries. The need for political will has assumed renewed importance in view of the Brandt Commission Report. It has clearly brought out that most economic problems today are interlinked, and global interdependence dictates that there can be no piecemeal solutions to these problems. There are compelling arguments in favor of global cooperation as has been forcefully brought out in the Report of the Brandt Commission. We commend Mr. Brandt and the members of his Commission for their understanding of the global problems and their constructive proposals for collective action for overcoming these problems. The recommendations of the Brandt Commission are comprehensive, balanced, and realistic. The Report has rightly asserted that it is in the best interest even of the developed world to sustain and support the development of the developing world through a massive transfer of real resources and a restructuring of the international economy which would ensure expansion of global trade, investment, and growth. While discussions and negotiations should be speedily organized following the expected summit meeting in Mexico City, our two institutions must also promptly deal with the recommendations relating to them and finalize proposals for early action by the Governors.

While on the subject of the two institutions, we would like to draw particular attention to the recommendations relating to their management. The specific recommendations are (a) a greater role for borrowing countries in decision making and management of international monetary and financial institutions; (b) greater participation for the developing countries in the staffing, management, and decision making of the Fund and the World Bank; and (c) greater decentralization of the management of the Bank’s operations.

The need for increasing representation of the developing countries, particularly at appropriate management levels, has been highlighted in the earlier meetings and we have noted some progress in that direction in the Bank’s Annual Reports. At a time when the two institutions have to deal increasingly with the developing countries in fields having important bearing on social and political sensitivities, direct experience with the socioeconomic process in the developing countries will be highly relevant and desirable for those who are responsible for their day-to-day operations. We hope the management of the Bank and the Fund will give serious thought to the subject.

You will bear with me if I say a few words about my own country, Bangladesh, which accounts for one third of the population of the least developed countries. With 55,000 square miles of land, 90 million people, and approximately 1,500 persons per square mile, Bangladesh today has one of the lowest per capita incomes in the world. We have been doubly hit by the world economic situation. On the one hand, we have to pay increasingly more for importing oil; on the other, for imported capital goods and industrial raw materials. The cost of our import bill for oil and petroleum products will be over two thirds of our total export earnings this year. This has put extremely severe pressure on our balance of payments. We are determined, however, to raise the level of living of our people and not only to achieve self-sufficiency in food production but also to generate surplus for exports as early as possible. Our objective is to cut down the population growth rate, to build more schools and more hospitals, and to ensure that no man, woman, or child goes without food, shelter, or clothing. It is with these hopes and objectives that we have launched our Second Five-Year Plan from July this year. Our priorities are agriculture and rural development, development of our energy resources, and universal primary education. To attain these objectives we have progressively undertaken radical transformation of our administrative and political institutions so as to allow a fuller participation of the people in the developmental process. But we need strong and generous support from the international community to reinforce our national efforts….

Before concluding, I would like to highlight the need for taking the following measures:

  • (1) all ODA to the low-income countries must be channeled in the form of grants;

  • (2) ODA to the low-income countries should be doubled in 1985 and quadrupled by 1990 at 1977 prices;

  • (3) a substantial portion of the proposed OPEC Fund for International Development should be earmarked for the low-income countries;

  • (4) the share of the low-income countries in ODA should be raised to at least 50 per cent by 1981 and gradually increased thereafter;

  • (5) making qualitative improvements in ODA by untying its use and conditionality;

  • (6) increased allocation to program assistance, sector assistance, and local cost financing by both bilateral donors and multilateral institutions;

  • (7) speedy action by the donors to make ID A-VI Replenishment effective and to complete the bridging arrangement;

  • (8) completion of legislative measures for making the General Capital Increase of the World Bank effective;

  • (9) the World Bank and the Fund should devise new mechanisms to provide intermediation and thus help recycling of the international surplus, keeping in view the recommendations of the Brandt Commission and the Group of Twenty-Four’s Program of Immediate Action;

  • (10) the Bank should expedite the setting up of an interest subsidy fund to help the low-income countries to take greater advantage of the resources of the World Bank, of commercial sources, and of resources mobilized through cofinancing; use should be made of World Bank net income, and special contributions should be sought from both OECD and OPEC countries for this purpose;

  • (11) speedy action to increase the resource base and lending capacity of the World Bank based on the Brandt Commission recommendations and Mr. McNamara’s suggestions;

  • (12) action to make the Seventh General Quota Review of the Fund effective;

  • (13) establishment of a new facility like the oil facility in the Fund;

  • (14) continuation of the Trust Fund beyond 1980;

  • (15) interest subsidy by the Fund on drawings under the supplementary financing facility and the extended Fund facility to help the low-income countries; and

  • (16) speedy action in increasing SDR allocations and their possible use to subsidize interest rates so that developing countries could take advantage of borrowing from the commercial sector and larger resources from the Bank and the Fund.

Statement by the Governor of the Bank for Seychelles—J. D. M. Ferrari

I would initially like to thank the Board of Governors for accepting Seychelles as a member of the Bank at the last meeting in Belgrade. Although Seychelles has been a member of the Fund for the past three years, it is only earlier this week that we officially became a member of the Bank. My country, as a very recently independent republic, is honored to be represented here today. We are especially enthusiastic in joining the Bank at a time when its role is increasing and at a time when recognition of the need for fundamental changes in both the Bank and the Fund is gaining momentum.

I would also like to congratulate the other new members, namely, Zimbabwe, St. Vincent and the Grenadines, and St. Lucia, as well as the People’s Republic of China, which is attending these Meetings for the first time. However, we note with some concern the absence of the PLO as an observer, and we wish to associate ourselves with the remarks of the Governor for Saudi Arabia speaking on behalf of the Arab countries and of the Governor of the Bank for the Socialist Federal Republic of Yugoslavia….

Seychelles shares the view of the Chairman that the Bank and the Fund must review their charters to enable our two institutions to be capable of meeting the economic and financial challenges that the world will face until the year 2000 and beyond. We sincerely hope that the Fund will show itself capable of continued change and vitality in the face of new economic realities. It is becoming more and more evident that the nature of the world’s economic and financial problems is quite different from what existed when these two institutions were born at Bretton Woods.

Rather than elaborate on what I consider to be the obvious, I would like to draw your attention to the increasing number of small island states which are joining the World Bank and the Fund as more and more of us take our place among the community of nations and testify to the continued process of decolonization.

We are located in the middle of the Indian Ocean, about 1,500 kilometers from anywhere. We have a small population of only 63,000 people, but we have over 100 islands in our archipelago. Like many other small islands, such as those in the Caribbean or the Pacific, we suffer many economic problems from the nature of our country. The terrain is rugged, with poor soil. This makes agriculture difficult and expensive, and causes construction costs to be very high. Further, we are poorly endowed with natural resources, having no minerals or metals to exploit and precious few building materials. The other major economic problem we have is transport. We are over 1,500 kilometers from the continent of Africa, and many thousands of kilometers from the main world markets. This significantly affects import costs, and mitigates against the establishment of successful export industries. And, with over 100 islands in our archipelago, the farthest one being 800 kilometers from our main island of Mahe, our internal transport problems are very serious. Moreover, with only 63,000 people, the prospects for viable import substituting industries are limited.

It was because of these constraints that my country opted for tourism as a means of creating more employment and of earning more foreign exchange to enable us to improve the living standards of our people.

During the 1970s, this approach worked well, but the world recession is now making itself felt in Seychelles.

So far in 1980, we have suffered from an 11 per cent decline in the number of visitors coming to Seychelles. You can imagine the impact of such a decline on an economy entirely dependent on tourism. It is in recognition of this problem of dependency that my Government, like governments of other small island states, is struggling to diversify its economy into sectors, such as fishing, agriculture, and small industries. This task is made more difficult when we have to raise loans on the international money markets at the present high interest rates.

I do not say all this as a message of despair for the future. On the contrary, in Seychelles you will find an optimistic people, with great hopes for the future. I say this, so that perhaps you will remember that although we are small, although we have many advantages, such as a healthy climate and food for our people, although we have tourism, we suffer, like other small island states, from severe economic problems and constraints. If you consider the economic and human problems of the large countries of Africa and South Asia, it is easy to forget the small fry like Seychelles. And it is easy for a large institution like the World Bank to forget us—not that anyone who visits Seychelles ever forgets it—but I ask you to remember what I have told you today of our economic problems and not to discount them.

This brings me to another matter that I wish to touch upon briefly. One of the items we are very concerned with at these Meetings is the recent report of the Brandt Commission. There are just two aspects of this important report I would wish to comment upon. First, in Seychelles we have often disliked the posture that has been forced upon us in the context of economic cooperation of having to be the grateful recipient accepting the great magnanimity of the aid donor. In this respect we regard the proposal of the Brandt Commission to transform economic cooperation into a contractual relationship between the rich and the poor. I say this, not from self-interest, but from a firm belief in one of the basic tenets of the Brandt Commission, and that is that the improvement in the material conditions of the Third World is an absolute prerequisite to the solution of so many other problems facing the world today. We know that the Western industrial countries are suffering an economic recession, for we in the developing countries feel it at least as severely as they do, but it seems to me to be simple economics that a prosperous Third World can only be good for the prosperity of the industrial world. The present climate of increasing protectionism and reduced flows of economic assistance to developing countries, while I can see its short-term attractiveness to Western voters, can only be harmful to the future of the world economy. Therefore, I would urge you to give serious thought to the Brandt Commission proposals on the future of economic cooperation and its financing….

With these remarks I will close my address. It was a pleasure for me as Governor for one of your smallest members to address you here today. Sometimes, “small is beautiful,” and sometimes small is impossible. Seychelles is small, it is beautiful, and we are working to make the best of our possibilities.

Statement by the Governor of the Bank for El Salvador—Guillermo Díaz S.

On behalf of the Republic of El Salvador, I would like to congratulate the countries which have become new members. I would also like to congratulate the new Executive Directors now joining those who have so skillfully directed the course of these two institutions which play such an important role in the present-day world. We are confident that their talents, knowledge, and abilities will be of value in dealing with the present critical period in international economic cooperation.

As clearly delineated in the World Development Report, 1980, the fundamental challenge for the countries of the Third World consists in surmounting and overcoming both external and domestic factors which stand in the way of economic and social progress.

My country, El Salvador, has already begun a process of structural change with the firm intention of creating the objective and subjective conditions which will enable it successfully to combat those domestic factors which have prevented it from achieving the sustained economic growth required to ensure levels of employment and income commensurate with the needs of its people. This process has started with the implementation of three major structural reforms which together make up an ambitious plan for modernization and democratization: the Agrarian Reform, the Reform of the Financial Sector, and the Foreign Trade Reform.

The implementation of the far-reaching Agrarian Reform, which will directly benefit more than a quarter of a million farmers in its initial phase, is intended to guarantee, in the medium term, increases in productivity per worker which should bring about substantial improvements both in total volumes and in the composition of agricultural production, while ensuring a redistribution of income which will improve the outlook for industrialization. The Agrarian Reform also has clear-cut advantages on the social level: it reduces the tremendous inequalities which have prevailed and makes it easier for those actually working the land to purchase it.

The Reform of the Financial System is designed to ensure social effectiveness and efficiency in the allocation of financial resources. At the same time, the measure democratizes the ownership of banks without in any way threatening the flexibility and operational capacity of our banking system.

The objective of the Foreign Trade Reform, on the other hand, is to ensure that revenues stemming from exports of the primary products most important to the Salvadoran economy are promptly channeled back into the economic system, imparting to it the dynamism required for its expansion.

In this way El Salvador has initiated a serious and vigorous effort to make far-reaching corrections of the domestic structural maladjustments which have held it back for so long and to promote effective action to achieve democratically the economic and social development desired.

To guarantee the success of this monumental undertaking in El Salvador, the cooperation of the international community and of the development finance institutions is absolutely necessary; for this reason, the people and Government of El Salvador, through me, wish to invite you to take part in giving your backing and support to a nation which, with great dedication and sacrifice, is endeavoring to break away from anachronistic socioeconomic structures which have prevented it from integrating itself dynamically into the world economy within a framework entailing genuine reciprocal benefits.

If the developing countries wish to obtain positive results in their efforts to modernize their economies, government action must not be confined to short-term economic measures aimed simply at reducing current account deficits and adjusting to ever more expensive energy imports; instead, government action must simultaneously be oriented toward the foundations of the system, readapting them to the urgent need to increase and diversify production and expand the domestic market.

We share the view expressed in the World Development Report that the adjustment of the international economic system to the difficult realities of the early 1980s will not only determine the system’s growth during the period but will also increase the chances of accelerating growth during the second part of the decade.

In this line of thought, it is evident that every country’s efforts to effect structural changes in order to overcome the domestic factors blocking the path to development must be encouraged and supported by those institutions which, like the World Bank and the International Monetary Fund, seek to promote the development of all nations of the globe. For those institutions, supporting the processes of change undertaken by countries like El Salvador becomes a historic duty.

As regards the external problems, such as international trade, energy, and capital flows, my country supports the just demands of the Third World countries for the establishment of a New International Economic Order through joint negotiations between the North and South carried out in a spirit of solidarity. It is extremely important to note that the need to introduce fundamental changes in the relationships between the countries in the international economic system is vital to solving the profound crisis through which the system is now passing.

The steps taken by nations in order to solve domestic problems must be complemented by unified international action answering the call for the establishment of new and improved objective conditions in the framework of international economic relations, conditions which will make it possible to overcome the external problems standing in the way of sustained economic development. For the system as a whole to overcome the crisis, its individual parts must also overcome the domestic factors which keep them from adapting to the new operational requirements of the system.

Consequently, they must be adapted to a new economic reality, the major focus of which is on an even greater interdependence between the developed countries and the developing nations, an interdependence gradually coming to mean mutual advantage and not, as it has to date, advantages for the strongest. In this connection, my country supports the Arusha initiative supporting the far-reaching proposal to restructure the international financial institutions and to adapt them to the new demands of economic realities in the 1980s.

We all know that economic realities are changing realities, and that unless the framework of an institution is periodically restructured to deal with new and different problems, that institution isolates itself and runs the risk of losing its effectiveness and legitimacy. On these grounds, we think it fair to say that a restructuring of the international monetary system, and of international economic relations in general, is in the mutual interest of all countries in the system.

To conclude by recapitulating my short statement, I would like to emphasize the need for supporting innovative processes in the developing countries and accompanying short-term economic measures—against inflation, protectionist tendencies, competitive deflationary policies, the instability of exchange markets, the unpredictable nature of Eurocurrency transactions, the growing and recurrent disequilibrium in the balance of payments, and the remaining problems constituting the symptoms of the international economic crisis—by genuine reforms in the institutional framework of international economic relations and, more specifically, by a restructuring of the international financial institutions and by a revision in the criteria governing credit and financial soundness.

Finally, I would like to express to this meeting my country’s hopes that my proposals will serve to promote at these Thirty-Fifth Annual Meetings of Governors the major decisions which the nations need in order to begin dealing energetically and seriously with the problems facing them today. If we are truly prepared to cope with the changes and all their consequences, this first meeting of the 1980s is destined to be a historic one.

Statement by the Governor of the Fund and the Bank for Australia—John W. Howard

Australia welcomes the new members of the Fund and the Bank, St. Lucia, St. Vincent and the Grenadines, Seychelles, and Zimbabwe, and the participation of the People’s Republic of China….

In my statement at the Annual Meetings last year, I pointed to some encouraging signs for world economic conditions in the 1980s. There were signs of wider understanding of the basic causes of the current economic problems, particularly of the dangers of allowing high rates of inflation to continue unchecked. Most important, there was increasing recognition that stamping out inflation is a necessary precondition for sustained improvement in economic growth and lasting reductions in the level of unemployment. This was being reflected in a much needed redirection of policy priorities toward overcoming inflation.

The beneficial effects of that change have not yet emerged. Since last year’s Meetings, inflation has accelerated partly as a result of the continuing effects of stimulatory measures taken in 1978 in some major economies and partly in response to the further substantial oil price rises. Economic activity has slowed appreciably, and large external imbalances have re-emerged requiring both a further major recycling of funds in the short run and further adjustment of the economies of oil importing countries, developed and developing alike.

Notwithstanding the effects of the further oil price rises, a few encouraging signs have been emerging. Rates of increase of money wages in some major economies have been moderating. There are also signs that energy pricing policies in oil importing countries are working to moderate demand for oil more effectively than was previously feared would be likely—a development which will, if maintained, improve the outlook both for inflation control and payments imbalances. This is one important confirmation that application of economically responsible policies will bring desired results.

The shock given to the system by the further oil price increases has, however, served to intensify the need for policies directed toward reducing the rate of inflation and encouraging conservation of oil and development of alternative energy sources.

In these circumstances, any relaxation of the stance of policy would have serious consequences for world economic conditions over the years ahead. Unfortunately, there is cause for concern on this score. This makes more relevant the point underlined in the Annual Report of the Fund, that, having achieved a shift of opinion to a situation where top priority has been accorded to an anti-inflationary policy, the basic challenge is to sustain that priority. That policy stance should not be interrupted if the level of economic activity tends to weaken while we continue to face debilitatingly high inflation rates. What is required is a decisive reduction in inflationary expectations and in the inflation rate. Australia therefore welcomes the Interim Committee’s expressed conviction that “the top priority being given in many countries to the fight against inflation must not be relaxed.” That requires, in particular, the implementation of responsible fiscal and monetary policies.

Recent oil price increases have, of course, given rise to serious adjustment and finance recycling problems. Much of the recent attention of the Executive Board of the Fund and the Interim Committee has been focused on the recycling problem. In this context, subject to the further examinations required, Australia supports the proposals that Fund members who are making strong efforts to correct their balance of payments problems over a reasonable period should be able to obtain considerably larger amounts of assistance from the Fund than have been available in the past, and that, to this end, the Fund should supplement its resources by further borrowing.

In regard to the Interim Committee’s request that members who have not already done so make every effort to consent to the Fund’s quota increase as soon as possible, I am pleased to announce that the required legislation has recently been passed by the Australian Parliament, and Australia will shortly be consenting to the increase.

Of course, concern about assisting with the recycling process should not be allowed to obscure necessary responses to the adjustment problem. Australia endorses the views expressed by the President of the Bank concerning the urgent need for, and appropriate forms of, adjustment.

In this context, the support of the Interim Committee for establishment of an interest subsidy account for the supplementary financing facility can be viewed as a measure which should increase use of Fund finance and encourage adjustment.

Australia also supports structural lending by the World Bank as long as amounts provided under this program are clearly applied to structural adjustment which will contribute to longer-run balance of payments viability.

While the economic progress of the developing nations is principally dependent on their own domestic policies, aid flows do have an important role to play. In this regard, Australia’s official development assistance is estimated in the World Development Report to be 0.51 per cent of GNP, considerably higher than the average for developed economies. In the allocation of its development assistance funds, Australia has naturally felt a particular obligation to assist the countries in its region. At the same time, we are doing as much as we can to increase our bilateral support for the least developed and other poorer countries. Thus between 1972 and 1979 Australian bilateral aid to the least developed countries quadrupled, and over the same period their share of total Australian aid doubled. Moreover, all Australian aid to least developed countries has always had a 100 per cent grant element….

Perhaps the largest contribution the developed nations can make to the welfare of the less developed nations is to ensure that trade and capital flows are kept as open as possible. While difficult domestic circumstances are bound to arise, developed nations should strive to avoid the extension of protectionist measures and, over time, should seek to reduce trade barriers wherever this is possible. In the long run, as the developing countries have rightly insisted all along, trade with developing countries offers much greater potential benefits to them than does aid.

In the foreseeable future, private capital flows will continue to be the main means of financing the resource flows reflected in current account deficits of developing countries. As noted by the Interim Committee, this underlines the importance, inter alia, of developing countries making every effort to follow policies which will bolster confidence in their economic prospects.

Finally, I want to say a few words about the future role and the direction of development of the Fund and the Bank. First, I hope that Governors, whatever their political persuasions, will join with me in decrying the increased politicization of the deliberations of the Fund and the Bank. The tasks facing these institutions are difficult enough without such unhelpful distractions.

Second, while there have been developments which in some ways brought the Fund and Bank closer together, it does seem to me to be advisable to maintain the distinctive roles of the Fund and the Bank. The role of the Fund essentially is to provide temporary balance of payments assistance while countries undertake the often difficult but always necessary task of adjusting their economies. The role of the Bank, on the other hand, is to provide long-term finance on concessionary terms for development purposes. Blurring of these roles could be counterproductive to achievement of their underlying objectives and ultimately damaging to the interests of developing countries.

We must continue to be able to look to the Bank to hammer out sensible development programs and projects in consultation with member countries. And we must continue to be able to look to the Fund to work away at safeguarding and improving the international monetary system. The two institutions, while developing new activities in response to changing circumstances, must not be diverted from the fundamental purposes for which they were originally established. I believe it is most important that, responding to the views of member governments, the Fund and the Bank alone remain responsible for decisions which will govern their activities. I trust that all concerned will bear these considerations firmly in mind when considering suggestions for further changes in operations of the Fund and the Bank.

Statement by the Governor of the Fund for Equatorial Guinea—Patricio Eka Nguema Obono

In the past year the Republic of Equatorial Guinea set a new course in its history, entering a new phase in full awareness of the difficulties facing it. This awareness stems from simple observation of the conditions existing as the new phase began.

We are not starting from ground zero, but instead from a still more difficult point, a situation characterized by total economic neglect which inevitably resulted in a profound crisis in our entire productive and administrative apparatus and our society as a whole.

Given the lack in recent years of any rational control over economic activity and the resulting absence of statistics of any kind, it is difficult to provide a quantitative evaluation of the initial indicators; however, I can provide some meaningful data in this connection, data which speak with eloquence enough.

Our production of cocoa, for example, our principal export product and one of the foundations of our economy, fluctuated over the last two years to give an average annual yield of about 8,000 tons. This figure, when compared with the nearly 30,000 tons of the 1970 crop year, gives us some idea of the neglect into which this important sector has fallen.

Similarly, the production of coffee and timber, basic products in our export sector, declined to minimum levels in recent years. There is virtually no coffee production, while 6,000 tons were produced a decade ago. Timber yields amounted to about 20,000 cubic meters, compared with the nearly 400,000 cubic meters attained in the early 1960s.

While sectors such as fisheries and livestock had nearly disappeared, the trade sector was monopolized by the State, which imported goods in a chaotic manner without adequate domestic distribution. The volume of imports in 1978 and 1979 was about $20 million, a figure below that of ten years before.

The absence of economic control is seen clearly by the observation that no general government budget had been prepared and no central bank balance sheet drawn up for six years. Obviously, this all had profound and serious social repercussions. Sectors such as education and health suffered lamentable setbacks.

I think these scant data give an adequate picture of our starting point. While the picture is doubtless a gloomy one, it has not made us give up; to the contrary, the Government and people of Equatorial Guinea have moved into this new stage of economic and social reconstruction with vision and confidence, and today, a year after charting our new course, we can look toward the horizon with high hopes for the exciting challenge of getting our country moving again.

After the initial months, during which a few urgent measures were adopted in priority sectors, such as health, education, and other urgently needed public services, and following the efficient start-up of our administration and organizations with the help of technical assistance from Spain, other friendly countries, and international organizations, the Government drew up an overall Development and Stabilization Plan for the period from April 1980 to June 1981.

This program, which includes among its key points the achievement of productive development, especially of the agricultural sector, is in the form of a group of actions and regulations relating to trade policy, such as the liberalization of trade and the preparation of the new customs tariff; to fiscal policy, such as establishing a balanced budget; to employment policy, offering incentives to agricultural workers; and to monetary policy, so as to provide adequate resources to the private sector. The Government also proposes limiting its own activities to public services, and has therefore been liquidating the existing inventories of government-owned commercial enterprises, with the twofold objective of supplying the domestic market and contributing to the financing of the present budget.

In recent months, the accounts at the central bank have been subjected to a clearing and settlement procedure. This is intended to make them sufficiently accurate to yield reliable quantitative data for purposes of monetary forecasting. A large number of Public Treasury accounts have also been restructured, thereby providing the necessary accounting insights to permit daily monitoring by the Ministry of Finance, with a view to ensuring proper operation of budgetary control mechanisms.

The Studies Department of the Bank of Equatorial Guinea has also initiated efforts, in this takeoff phase, aimed at providing the country with precise statistical data with which to prepare the macroeconomic studies and forecasts required for our planning activities. This is indisputably a difficult task in a country where, as I said earlier, economic neglect has been paramount in recent years. Despite this, the first series of data have already been prepared with a view to providing our Government with sufficient information as it works with the Spanish Government to prepare a broad-based and detailed development plan for the future.

The banking system has been reorganized, and consolidated balance sheets for the banking system are being prepared each month. Currency issued as at July 31, 1980 amounted to 1,792 million ekueles, compared with EK 1,560 million last December. October of this year will see the introduction of a new series of banknotes, which will permit more precise control over currency in circulation.

Checking and savings accounts held by the public in banks amounted to EK 1,961 million as at June 30, 1980, representing an increase of 117 per cent over the figure of EK 900 million as at December 31, 1979, six months earlier.

Total control has been achieved over our external positions. As you know, on June 21 of this year, the ekuele was devalued by 50 per cent. As at July 31, 1980, our net external assets amounted to $12 million, including our rights and obligations on account of export and import credits through December 31. Assets held by correspondents, and in the form of gold and foreign portfolio holdings, amounted to $29 million, while our current liabilities were $5.6 million.

Since August 1979 a number of credit agreements have been signed with Spain to finance imports of capital goods and services for infrastructure works and the fisheries sector, in an aggregate amount of $33 million, of which $11 million remains to be disbursed. We have also received substantial assistance from the International Monetary Fund under the stand-by arrangement approved in June of this year, on which some $18,579,000 has already been paid.

Exports in 1979 amounted to $31 million, with cocoa accounting for 95 per cent of the total, while imports totaled $24 million. Our payments surplus will disappear in the current year, due mainly to two factors: first, the marked drop in world cocoa prices, and, second, the significant but necessary increase in our imports. As a result we anticipate an overall deficit of some $23 million in 1980 and some $33 million for the period covered by the program, namely, April 1980 through June 1981. These figures do not include use of Fund resources.

All of these proposed measures are being accompanied by a far-reaching and indispensable process of readjustment and organization of our administrative machinery. While the way in which this machinery is currently functioning cannot by any means be described as sophisticated or perfect, it is now operating in a responsible and reliable manner, appropriate for the proper monitoring of accounts, the basic requirement for proper budgetary controls. We are, however, aware of the need to increase the level of training of our staff, and this is a source of concern to us; in solving this problem, we hope to rely on the assistance and advice of friendly countries.

The foundations have been laid for effective monitoring of customs receipts, particularly following the recent publication of the new Customs Law and the new customs tariffs. Given the current situation and the nature of our economy, customs duties will form the basis of our tax system, and for this reason we have devoted our main efforts to this task. Through July of this year, a total of EK 540 million was collected by way of taxes, duties, and sales of inventories of state enterprises. Of this total, taxes on external trade accounted for close to 70 per cent.

Import licenses are now approved by the Ministry of Finance and Commerce under a liberal trade system, and foreign exchange receipts are channeled, under total supervision, through the central bank. Import licenses have been authorized against lines of credit in the amount of $22 million.

The Government also proposes to devote maximum attention to efforts already under way in such basic sectors as health, education, and public services, without disregarding such other sectors as livestock and mining, which can be of great potential benefit for the country.

But every measure of this type, reflecting the Government’s firm intention to promote private enterprise and rationalize public expenditures, will have to be supplemented by financial assistance from outside. This support is essential in two fields: investment in sectors with a high export potential, such as the timber industry, which offers very sizable possibilities, and external credits to cover needed imports of basic consumer staples and the capital goods that are so essential for the equipping of our productive sectors.

In this regard, the Government published a Foreign Capital Investment Law in November 1979 which, we feel, offers attractive incentives for foreign investment, while at the same time holding out the firm prospect of controlling and rationalizing public expenditure with a view to achieving the priority objectives set forth in our economic program.

We are confident that the sense of solidarity among peoples, assistance from the international organizations, and the facilities offered to foreign investors by sectors with a high potential rate of return that are waiting just for the necessary economic and technical stimulus, together with the efforts of the entire people of Equatorial Guinea, will prove to be factors capable of bringing about harmonious and stable development in our country in accordance with our resources and possibilities, while at the same time contributing to achievement of a more just and balanced economic and social order for the entire world.

Statement by the Governor of the Fund and the Bank for Malaysia—Tengku Razaleigh Hamzah

It is a great honor and privilege for me to address distinguished fellow Governors at these Thirty-Fifth Annual Meetings of the Boards of Governors of the World Bank and the International Monetary Fund. Before proceeding further I would like first of all to welcome St. Lucia, St. Vincent and the Grenadines, and Zimbabwe who have joined the Fund and the World Bank this year and also the participation of the People’s Republic of China for the first time at this meeting.

It appears that we have now reached a critical juncture in international economic cooperation. The last decade saw a number of initiatives taken to make the international economic environment more conducive for our economic pursuit. We saw the start of the North-South dialogue, greater activity in UNCTAD, which has resulted in agreement to set up the Common Fund, and major changes in the scope and scale of operations of the International Monetary Fund and the World Bank to cope with the changed international economic environment. Recently, we have seen the completion of the Brandt Commission Report on world development issues, particularly problems facing the developing countries.

In the meantime the world economic situation and prospects continue to deteriorate, with inflation being the major problem facing the developed as well as the developing countries. With the surge in oil prices and sluggish growth in world trade, the balance of payments deficits of the developing countries are expected to be much larger this year and could continue to pose severe problems to these countries in the years ahead, given the present unfavorable economic situation and prospects.

With the unfavorable international environment looming over our heads, it is easy for a country to be overly preoccupied with its own problems. But the fact is that we are now living in an increasingly interdependent world. The problems of today can no longer be resolved by nations acting on their own, but require the bold international action involving the whole international community.

In the present economic circumstances, the major countries have a special responsibility to steer the world economy back to an even keel and recovery. This calls for greater willingness of the countries which dominate the world economy to coordinate their policies and adopt measures to promote stable economic growth and an environment that is more conducive to international economic transactions, particularly for developing countries.

As for the International Monetary Fund and World Bank, there are a number of specific measures which they could adopt to assist member countries over this difficult period and to build up a more stable and prosperous world for all. While both these institutions have built up their capacity, their ability to fulfill such a role depends largely on member countries which hold the purse strings and command the votes. I would like to seek the cooperation of member countries to enable the Fund and the Bank to be more effective in fulfilling their role in financing international adjustment and development….

As for the International Monetary Fund, there is pressing need for it to play a bigger financing role in international adjustment because of the prospect of large balance of payments imbalances and the difficulty of financing such deficits from private sources. The urgency of the problem would call for immediate steps to accelerate the recycling of funds from surplus countries and to improve existing Fund facilities by enlarging the access of member countries, especially that of the developing countries which have small quotas, as well as liberalizing the conditions for drawing on Fund facilities and repayment. The rigid adherence to a multiplicity of performance criteria without due regard to the domestic social and political objectives, to the economic priorities, and to the circumstances of members has proven to be most onerous for the borrower. Moreover, because of the size and structural character of the current and prospective global imbalances, it is doubtful whether strict temporary balance of payments financing will be adequate. While I agree that financing and adjustment should go hand in hand, there must be sufficient flexibility to take into account special circumstances. For the benefit of the low-income developing countries, there should also be consideration to provide subsidies on interest charges for drawing on the facilities of the Fund. I would therefore welcome the transfer of resources from the repayment of Trust Fund loans and contributions from surplus countries to be used to subsidize interest charges for drawing on the supplementary financing facility.

In addition, the proposals of the Group of Twenty-Four in its Program of Immediate Action should merit our close consideration. While it is noted that active consideration is now being given by both the Bank and the Fund on some of these proposals, I would, however, like to comment on the issue relating to the share of quotas and SDR allocations for the developing countries. This is important in view of the fact that the existing quotas of developing countries, which form the basis for the assistance that they are eligible to receive from the Fund and for allocating SDRs, are grossly inadequate compared with their needs. While there are theoretical arguments for and against providing a greater share of the quotas and SDRs for the developing countries, the ultimate decision must be a pragmatic one. I am sure that if we address ourselves squarely to the problem and request our resourceful Executive Directors to examine the issues, the needs of both the developed and developing countries can be happily matched and a workable solution found.

As in all forms of international cooperation, strong will and determination are essential. Given the present unsatisfactory economic conditions and political uncertainties in several parts of the world, there is the grave danger that the will and determination to act will be lacking. Instead, there is a dangerous trend toward allowing narrow interests to subvert international cooperation, and in the process to weaken the confidence in the functioning of international institutions. We must stop this trend in the interest of stable and orderly world economic progress.

Before concluding, I would like to thank Mr. de Larosière and his staff for the achievements that the Fund has made during the course of the year….

Statement by the Alternate Governor of the Bank for Romania—Gheorge Popescu

I should like to begin by congratulating the Governor for Tanzania warmly on his election as Chairman of our Meetings.

I am also pleased to associate myself with other delegates and to express satisfaction at the fact that the legitimate rights of the People’s Republic of China in the World Bank and in the International Monetary Fund have been re-established, and I likewise welcome the Governors for St. Lucia, St. Vincent and the Grenadines, and Zimbabwe, who are taking part in our Meetings for the first time.

The Government and the people of Romania are following developments on the international scene with deep concern, in particular, the growing trend toward shifts in spheres of influence, increased dominance by certain countries in different parts of the world, and proliferation of areas of tension and conflict.

The economic crisis, the energy crisis, and the monetary and financial crisis are assuming ever larger proportions and are having an adverse impact on every country, especially the developing countries. These are crises that call into question the very structure of the world economy set up by the former social order—characterized by a division of the world into rich countries exporting manufactured goods and poor countries producing and supplying raw materials, and by an inequitable system of relations between nations, under which the rich become richer and the poor become poorer.

If we add to this the dizzying rise in inflation, currency depreciations for speculative ends, the prohibitive cost of imported technology, and the extremely high interest rates demanded on the capital market, which impose a growing and crushing burden on the non-oil developing countries, we have an even more complete picture of the factors that are widening the gap between the developing and the industrial countries.

It is altogether abnormal that, at a time when hundreds of millions of people live in absolute poverty and abject misery, mankind should be recklessly spending $500 billion a year on an accelerated arms race and the production of new weaponry, including nuclear arms.

In perceptively analyzing these realities from a worldwide point of view, the President of Romania has on many occasions emphasized the vital necessity of intensifying and linking the efforts of every nation to overcome the difficulties imposed by the current world economic crisis and by the system of international economic relations, in order to develop economic cooperation and trade between nations. As President Nicolae Ceauşescu recently said, “Romania is firmly attached to the establishment of a new international economic order that will be more just, better, and more equitable, that will put an end to exploitation and inequality, and that will institute relations of full equality among all the nations of the world.”

I should like to focus on the parlous situation of the non-oil developing countries, obliged as they are to sink ever deeper into debt to commercial banks and transnational corporations which are profiting to the maximum from the absence of energy policies capable of ensuring economic and monetary stability, without which there can be no favorable climate for the harmonious development of international trade.

The fact that the recent Special Session of the General Assembly of the United Nations devoted to the New International Economic Order did not produce the hoped-for results serves to underscore one of the most serious problems facing the international community at this juncture—the perpetuation of conditions of underdevelopment under which a large part of mankind is living at present.

As regards economic development in Romania, I wish to report that the current year will mark the successful completion of the 1976-80 Five-Year Plan.

We are currently drawing up the next five-year plan, which will cover the period 1981-85, during which we propose to develop our national economy at a rapid rate by allocating a larger proportion of our national income to development.

We have an energy program that calls for the use of all our energy resources, together with a reduction in our consumption of oil and natural gas for fuel purposes, application of drastic conservation measures in every field of activity, imposition of strict economic and financial discipline, and more effective utilization of public moneys. This last objective is reflected in recent measures for a reduction in administrative outlays and other public expenses amounting to almost Lei 4 billion, together with a reduction of approximately Lei 2 billion in military outlays.

In the period 1981-85, Romania will steadily expand its foreign trade, as well as other forms of economic collaboration and cooperation with all countries. We will take steps to achieve balance of payments equilibrium and systematically reduce Romania’s external debt.

As indicated in the reports presented and in the statements of Governors who have preceded me on this platform, our efforts to find solutions to the problems facing the world economy must be continued. Romania believes that the constructive proposals formulated by the developing countries in the Program of Immediate Action provide a broad enough framework for reaching the general agreement required. In this connection, permit me to indicate certain major policies which, in Romania’s view, should be the basis for action taken by the international community as a whole.

We also wish at this juncture to reaffirm our belief that the elimination of underdevelopment implies first of all a special effort on the part of the developing countries themselves, as well as greater cooperation and mutual assistance, in order to create powerful productive bases. We likewise reiterate the position we have always held on the need to take concrete steps in the area of disarmament in order to free new resources for use in accelerating the growth of the developing countries.

At the same time, we feel that the demands of balanced economic growth require the establishment of new mechanisms to ensure economically justified relationships among the prices of major commodity categories, such as raw materials, energy, agricultural products, and manufactures.

It is also advisable to eliminate those factors which give rise to excessive price fluctuations on international markets, as well as to protect the purchasing power of the developing countries against the monetary erosion caused by inflation.

We are cognizant of the fact that firm steps must also be taken to improve the terms of the developing countries’ access to international credit markets and to lower interest rates, including those charged by the Bank and the Fund, from their recent levels. At present rates of interest, credit not only fails to promote economic development but hampers the realization of domestic projects in the developing countries. We believe it necessary to adopt measures to keep interest rates within reasonable limits, thus—we hope—facilitating the access of developing countries to financial markets. In this connection, while we look with favor on the activities undertaken by the Fund and the World Bank, we believe that these specialized agencies of the UN must play a greater role in eliminating the factors which give rise to a now chronic instability and must contribute more actively to the battle against inflation and against all manner of obstacles to the expansion of trade.

The Fund and the Bank must also play a more active role in international economic cooperation with respect to reorienting the process of recycling the financial resources of surplus countries and more fully adapting it to the financing needs of developing countries….

In concluding I would like to express my gratification at the fruitful collaboration between our country and the Fund and World Bank, and to pay homage to Mr. Jacques de Larosière, the Managing Director of the International Monetary Fund, and to Mr. Robert McNamara, the President of the World Bank, for their tireless efforts and their remarkable leadership of the two institutions….

Statement by the Governor of the Fund and the Bank for St. Lucia—Allan Louisy

As this is the first Annual Meeting of the World Bank at which the sovereign state of St. Lucia is being represented as a member, it gives me great pleasure as Prime Minister to address this distinguished assembly.

I must, however, say that I do not feel myself a total stranger either to the Fund or the Bank because we, in my country, have already experienced beneficial effects of their operations through our indirect association by way of the Caribbean Development Bank and our former status of Associated Statehood with Britain.

We also came into close operational contact with both institutions through their contribution in the sponsorship and nurturing of the Caribbean Group for Cooperation in Economic Development.

We do have, therefore, some experience to guide us in our expectations of these institutions. Their performance and the quality of their effort, even speaking from my limited experience, lead me to feel that, given the necessary instruments, they can, in time, develop the necessary programs to meet what now appears as overwhelming needs of member countries. I need not go into details about such needs and such programs since the two speakers on behalf of the Caribbean countries have outlined these details very thoroughly and competently….

The assistance of the Bank and the Fund is crucial to the successful integration into the international economy of a small nation such as ours. St. Lucia has been following prudent economic policies and indeed we were well on the way to establishing a sound economic base for our further development when we experienced the devastation created by Hurricane Allen this past summer. The scale of such a natural disaster is difficult to appreciate by larger countries where even the dislocation of war does not often destroy the total resource base of a country as a hurricane can to that of a small country in the matter of a few short hours. The problem we face thus is a far more acute version of the classic one of how to allocate scarce resources between short- and longer-term use.

In our case, the short term means the day-to-day necessities needed to ensure our ability to survive, and this leaves us with very little to invest and regenerate. We are, therefore, left with little opportunity to expand the income flow which we earlier enjoyed. Even recourse to the Fund’s compensatory financing facility is not a true answer, given the relatively short-term nature of the financing which it can make available, when compared with the longer gestation period required to reconstruct an economy totally. Therefore, we fervently endorse the statement of the Honorable Mervyn de Souza of Trinidad and Tobago and his conclusion that a new Fund “disaster facility” is required with a repayment period of seven to ten years.

For these reasons, St. Lucia looks forward to an early initiation of discussions with the Fund and the Bank on how our particular needs can be accommodated in the work programs of these institutions. I invite both the Fund and the Bank to send missions to visit our island at their earliest convenience in order that they can more readily appreciate the special nature of our situation.

October 3, 1980.

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