Discussion of Fund Policy at Fifth Joint Session1
- International Monetary Fund. Secretary's Department
- Published Date:
- November 1979
Statement by the Governor of the Bank for El Salvador—José Eduardo Reyes
The delegation of El Salvador joins with the Governors who have preceded me in expressing our sincere thanks to the Government and people of Yugoslavia for their hospitality and kindness and to the staffs of the Fund and the Bank for the efficient organization of these Thirty-Fourth Annual Meetings.
To the distinguished Governors and representatives at these meetings I bring greetings from the people and Government of El Salvador, together with our best wishes for the success of the meetings in helping to achieve resolute, frank, and increasing international cooperation. We extend our congratulations and sincere thanks to Marshal Tito, and thank the Managing Director of the Fund, Mr. de Larosière, and the President of the Bank, Mr. McNamara, for their opening statements, which in our opinion present a clear and realistic evaluation of the world economic and financial situation and offer valuable suggestions for our discussions.
El Salvador, with gratitude and high hopes, takes advantage of this excellent opportunity to address the international community and give an overall view of the efforts that its people and its Government are making to achieve clearly defined goals of social and economic progress. At the same time, we would like to tell you of their most urgent needs and their aspirations.
At this moment in history our country is engaged in the creation of a new and just economic and social order, based on the principle of solidarity and without hegemony or pressures of any kind, in which the concept of the juridical equality of nations is upheld.
We specially acknowledge the unflagging efforts of the International Monetary Fund to maintain the equilibrium of the system, despite the increasingly difficult conditions that prevail, aggravated by world inflation with adverse effects that are multiplied in the poor nations.
In this regard, we are following step by step the instruments that the International Monetary Fund is implementing each year, especially those that most favor the developing countries. Noteworthy are the Seventh Review of Quotas, the supplementary financing facility, and the action taken toward the establishment of the substitution account. . . .
There is justifiable anxiety among the developing nations regarding a future that offers little encouragement and whose most conspicuous indicators are the rise in protectionism, the deterioration in the terms of trade of the nonindustrialized countries, the transfer of inflation from large to small countries, and the scarcity of financing. The most disturbing factor is that these problems continue to be debated in the various international forums without any effective solutions being found.
This situation profoundly affects the rights of the economically less favored nations; and this calls to mind a fact that I would like to point out to you: just as there are inviolable rights of the human person, in an international community such as that of our time there are also inviolable rights of States, foremost among which is the right to survive with a real and continuous improvement in the lives of their people.
Nonetheless, under present circumstances the gap between the rich and poor nations threatens to grow wider, thereby causing a greater spread of poverty, which beyond question is a continuing danger to the political stability and social peace of our peoples.
It is estimated that more than 700 million persons with per capita incomes of US$200 or less a year live in a state of absolute poverty. This represents approximately 40 per cent of the population of the developing countries. Furthermore, the problem is aggravated by the steady rise in the number of illiterate, underemployed, and malnourished human beings, whose advancement to acceptable standards of living entails a government effort that usually exceeds the domestic capabilities of the countries.
All of us bear responsibility for this state of affairs, for there is a growing awareness that the victories and mistakes of the past are in large measure collective and international. In our countries we cannot forget that we are still weighed down by the legacy of colonialism and neocolonialism.
Whatever may be the explanations for poverty, it is a crucial fact that poverty is today possibly greater than at any other time; and that in an interdependent world such as ours this situation is not, we repeat, solely the problem of those countries that remain on the fringes of a prosperous international society, but rather is a present reality that definitely affects the developed nations as well. We cannot look for the peaceful coexistence of rich and poor nations in an ever-shrinking world unless we are willing to accept social unrest and political agitation as part of our daily lives in the years to come.
Aid to the poor countries is never a handout. Paternalism is a thing of the past. The cooperation we seek is only a means of compensating to some extent for the benefits derived over the centuries by the powerful nations in their economic relations with the developing countries; for it is obvious that in a world whose prosperity is based on the international division of the factors of production, much of the wealth of the great is closely related to the poverty of the small.
Today El Salvador faces the challenge of carrying out a highly complex task that demands programs of assistance and urgent political, economic, and social reforms. The efforts we have made thus far respond to the Government’s firm intention to implement such programs and reforms, but the needs accumulated over many years are so great that our domestic resources are insufficient to meet them. For this reason we require external financial resources, both from international institutions and from private sources of capital.
The actions taken in international forums to design programs for the eradication of poverty are laudable; but until that happens the convergence of contradictory and explosive factors limits the task of economic and social development within a framework of peace and social justice.
It is easy to identify our country’s most pressing problems. They include the scarcity of natural resources; high population density; and the disadvantage of participating in an ever more restricted and unfavorable international trade, with few possibilities of increasing exports of nontraditional products.
The most urgent problem is the needs of a young and dissatisfied population which takes notice of its low level of welfare vis-à-vis the opulence of other societies. And when our youth demands more resources for food, education, health, and housing, its just aspirations are frustrated because the economic capacity of the State cannot meet all of the demand.
For several years, and with the support of some international agencies, our Government has been carrying out programs to guide and plan demographic growth, together with aggressive policies for the distribution of income and wealth.
At this time the Government is implementing an ambitious development program, which because of its far-reaching social and economic impact is called the National Welfare Plan for All, 1978-1982. Its objective is to give effective impetus to the progress of the poorest classes and to contribute to social justice in El Salvador. The plan and the measures taken by our Government were made known at a special three-day meeting held in Washington last April, within the Permanent Executive Committee of the Inter-American Economic and Social Council of the Organization of American States. The meeting was attended by representatives of the leading international financial and technical agencies, including the International Monetary Fund, the World Bank, and the Inter-American Development Bank, as well as friendly governments in the Western Hemisphere and the rest of the world. The conclusions of the meeting fully recognized the effort that the Government is making, and the fact that the National Welfare Plan for All is aimed at overcoming the problems of poverty and is at the same time ambitious and feasible.
The social reform being carried out by the Government of El Salvador aims at improving both the quality and coverage of rural education, with 40 per cent of the National Budget being appropriated for this purpose, one of the highest figures in Latin America. The other components of the social reform program are substantial increases in the income of both urban and rural workers; massive redistribution of the scarce arable land the country possesses, mainly among rural community associations; modernization of fiscal policies and increases in direct taxation; expansion of the social security system in qualitative as well as quantitative terms; integrated measures for improvement of national health and environmental sanitation programs; large-scale construction of housing for the low-income sectors; introduction of a national nutrition and food program; and creation of sources of employment through implementation of a dynamic public investment policy.
As an essential adjunct to the social welfare program referred to, the Government of El Salvador is promoting a wide-based political reform that will encourage greater participation in the work of government by all representative sectors of the country. As a first step, a national dialogue was set up among representatives of political, cultural, entrepreneurial, labor, and professional groups as a means of finding effective solutions to our problems.
This dialogue has produced important recommendations, many of which are already being implemented through specific measures designed to strengthen our democratic, republican, and representative system in an orderly and peaceful manner. In March of next year, elections to legislative and municipal bodies will be held, and the Government, in order to stimulate the widest possible participation by all political parties, has already invited such international agencies as the Organization of American States to observe their normal progress.
With regard to the external sector, El Salvador has achieved greater economic autonomy less tied to traditional external markets and products; in doing so, it has endeavored to surmount the adverse effects on its economy that result from the progressive increase in oil prices, inflation, and the economic recession affecting some of the developed nations.
El Salvador has kept its traditionally responsible attitude to its international obligations, and continues to follow rational monetary and fiscal policies in keeping with the principles this forum has always adhered to—facts which are reflected in more than four decades of external monetary stability. At present, El Salvador has one of the lowest external debt ratios in Latin America, a situation which enables it to appear with assurance and self-confidence in both public and private world capital markets.
Despite the efforts I have described, the dissatisfaction felt by minority groups that are radical though inconsistent in their aims are manifested violently through subversive or terrorist actions, which—and this is the case all over the world—constitute aggressions against those universal human rights the Government upholds. Such movements may be ascribed to a series of factors, among them frustrations accumulated over many years, the spread from abroad of an unjustifiable ideological fanaticism, and the impact of the present crisis in world values.
We share the concern of those who desire a better future for coming generations, but we are convinced that violence and terrorism are incapable of ever resolving any problem. In our view, peace and justice are complementary elements indispensable to progress, but accurate knowledge and fair understanding from the international community are equally necessary if our good intentions and the efforts we are engaged in are to be reinforced.
Outside El Salvador there is a move to obscure the Government’s achievements at home. This consists of an intensive campaign of disparagement in the different media, designed to confound public international opinion. We are aware of the adverse factors that retard our progress, but the real situation is distorted by irresponsible reporting that aims only at giving the world a very twisted image of the country.
I wish to state categorically before this honorable assembly that much of what is published by the foreign news media is biased, tendentious, and exaggerated, and therefore lacking in veracity.
It is frequently the case in international forums that the problems of the small developing countries pass unnoticed, no thought being given to the fact that when such problems are ignored and not paid the proper attention they sooner or later produce extreme situations that hinder even further the advance of those countries toward the peace and well-being they desire.
For that reason, I request the attention of the international community for the concerns of El Salvador, since we place our full trust in solidarity and cooperation among the nations as the essential principle of development and as the fundamental requirement for peaceful coexistence.
Again expressing the appreciation felt by the delegation which I head for the hospitality shown us by the people and Government of Yugoslavia, I wish to reiterate that El Salvador and its Government are now more than ever engaged in a determined effort to achieve social and economic progress within a setting of peace and social justice.
We desire peace for our own country and for all mankind, because we believe that the best of all possible worlds is that in which concord, understanding, respect, and mutual confidence are the rule and in which all nations join forces in the quest for the greatest possible good.
Statement by the Governor of the Fund for Western Samoa—Vaovasamanaia R. P. Phillips
I wish to express my appreciation to the Government of Yugoslavia for hosting this meeting in the beautiful and historic city of Belgrade and for all the generous facilities and courtesies extended. I also wish to join other Governors in extending a welcome to the Governors of Djibouti, Dominica, and Cape Verde, whose countries have joined since the last Annual Meetings.
We are reaching the end of the 1970s on a discouraging note, with lack of significant progress toward a new world economic order. One area of positive progress has been the agreement to establish the Common Fund, but the timetable for its implementation is vague. In other vital areas of concern to the developing world, such as trade liberalization and increased aid flows, we are actually losing ground.
What is so difficult for Third World countries to understand, is why, when it is really only political will that is needed on behalf of the developed countries in order to make considerable progress toward a more equitable international economic order, that will should be so fleeting.
It is particularly frustrating to hear many industrialized countries paying lip service to the concepts of trade liberalization and increased aid flows to developing countries, only to find that in actual practice, their individual trade policies continue to promote protectionism and internal commitments, and economic problems are cited as the rationale for inability to increase aid flows.
The specter of international inflation is again looming large, eroding, in real terms, much of the progress made by developing countries. The Fund’s Managing Director’s observations on this point are most apt. Third World countries have of necessity to effect discipline in their own internal wage and price movements. I consider that some of the same discipline shown by developed countries in controlling internal wages and prices would greatly assist in moderating international inflationary tendencies.
The quest for new renewable sources of energy has become a major problem for all countries. The sharing of experiences in our search for new forms of energy offers great opportunities. We trust that the Fund and Bank will play an important role in helping member countries share experiences in this field and place appropriate emphasis on financing development efforts to explore, adapt, and provide new energy sources.
The increases in the past year in the resources available to the International Monetary Fund, and the improvements in some of the Fund’s facilities, are welcome. It is hoped, however, that Fund facilities will be further enlarged and improved in order to provide adequate and rapid financial support to developing countries which face continuing balance of payments problems. I consider that the Fund should further review the conditionality associated with the use of its facilities, with the object of making them more flexible and responsive to the special socioeconomic situations prevailing in these countries.
We support an increase by 50 per cent in Fund quotas in the Seventh Quota Review. In view of the increasingly difficult payments situation faced by developing countries, we would urge the extension of the repayment period of the extended Fund facility to ten years from the date of each extended Fund facility drawing.
The introduction of a supplementary financing facility is greatly appreciated. Interest charges to developing countries for the use of this facility should be reduced or subsidized, and it would seem that Trust Fund resources could well be put to use for such subsidy purposes. . . .
Over the years Western Samoa has already enjoyed considerable benefits from membership in both the Fund and the Bank. These organizations have a most positive international role to play, but to do this effectively, their operations must be flexible in order to meet the requirements of a rapidly changing world social and economic order.
There is ample evidence that the management of both the Fund and the Bank are responsive to the dynamics of the situation. I would urge that this awareness be fully reflected in all their operations, especially in regard to their dealings in meeting the pressing requirements of small developing nations.
I wish the management and staff of both the Fund and the Bank well in their efforts to ensure that their organizations are responsive to the challenges of the 1980s.
Statement by the Governor of the Fund and the Bank for Grenada—Bernard Coard
It is my pleasure to speak on behalf of a group of Caribbean countries comprising middle-income developing states, namely, the Bahamas, Barbados, Guyana, and Jamaica; and low-income small island states, namely, Dominica, St. Lucia, and my own country, Grenada. Antigua, St. Kitts and St. Vincent are likely to join the Bank in the near future and will fall into the latter category.
The Caribbean extends a very warm and special welcome to Cape Verde, Djibouti, and our sister Caribbean state, Dominica.
Grenada, my own country, has a population of merely 110,000, and there are states with even less. Barbados, which has a population of one quarter of a million, shares some of the peculiarities and problems of small island states. Though economic differences exist between us, we have taken the collective decision to focus today on the problems of our latter category, that is, low-income small island states. These states pose definite development problems because of their size, but it is also true they have the capacity for effective and productive utilization of financial resources.
The world economy is once again in crisis. And our countries, because they are so critically and delicately integrated into the world economy, are confronted with the forceful impact of this crisis. Thus, our economies are characterized by alarming rates of unemployment, stagnating production, the noticeable absence of capital resources and skilled personnel, low levels of technology and infrastructural development, high rates of domestic inflation, and even higher rates of imported inflation. . . .
Our small island economies need longer and more sizable forward commitments by the donors of ODA. For us, it is quite clear, that in the field of external assistance, it is largely through low-cost financing that we can hope to find relief through the Bank for our faltering economies. Noting again the international economic and financial crisis, we reject the notion that the least developed and developing countries will have to bear the major brunt of this assault. . . .
Historically, Caribbean countries have given their full support to the New International Economic Order, particularly as a framework within which we can achieve just and equitable trade and other relations. Clearly, the recent trends toward increased protectionism by some industrial nations will not assist in the march toward just global transformation. Protectionism has, in effect, stifled the exportation of essential products from the Caribbean, and the threat for the continuation of this practice remains even now. . . .
In welcoming Dominica to the Bank we cannot but be mindful of the tragic situation in which this country finds itself following the almost total devastation of its small island economy by the recent Hurricane David, the worst in recent memory. The Caribbean countries sincerely hope the international community will respond positively and urgently to their desperate needs as well as to our other sister Caribbean state, the Dominican Republic.
Finally, on behalf of the people and Government of Grenada and the Caribbean, I would like to express our sincere and warm appreciation to the people and the Government of Yugoslavia for the courtesy and hospitality afforded us during our stay here.
Statement by the Governor of the Fund for Norway—Knut Getz Wold
Speaking on behalf of the five Nordic countries, I join the previous speakers in expressing appreciation to the Government of Yugoslavia. We are very grateful to our hosts for the excellent arrangements for this meeting and the generous hospitality extended to all of us.
The year since we last met has in many ways been an encouraging one in the field of economic cooperation. Through concerted action by the major industrial countries, real growth rates and capacity utilization in several countries have improved. Important steps were also taken in order to reduce inflation. This made possible the understanding of last November between the major monetary centers of the world about measures to stabilize foreign exchange markets. Since then, these markets have been more stable than for quite some years. All of us, and particularly the smaller countries with open economies, have every reason to welcome this situation.
This improved ability in the field of international cooperation will be greatly needed for coping with the challenges posed by more recent developments. The picture presented to us by the Managing Director is not promising, to say the least. The way in which member countries will react to the situation after the recent steep increase in oil prices is of the utmost importance. This applies not only to the short-term and medium-term prospects for the world economy, but also to the prosperity and welfare of our countries in the longer run.
The sharp increase in oil prices will unavoidably aggravate inflation. And we will also have to allow for a consequential increase in other energy prices. But any further effects—by way of demands for increased nominal incomes—should be prevented insofar as possible. This would be easier if countries which could afford it would be willing to take compensatory measures to reduce the consumers’ loss of real incomes, for example, by a reduction in indirect taxes. Thereby, both the inflationary effect of the increase in energy prices and the adverse impact upon output and employment could be reduced.
Compared with the situation in the period 1973-74, most of the major industrial countries are in a better position to take such compensatory measures. On the other hand, many of the smaller industrial countries still see their foreign debt accumulating, even though they have made progress in recent years in reducing their balance of payments deficits. In some of them the debt has now reached levels which severely restrict their freedom of action in future economic policies. These countries will not be in a position to counteract deflationary impulses by demand management policies entailing new balance of payments deficits. Therefore, other countries cannot expect to see a repetition of what happened five years ago, when increased demand from the smaller countries helped to mitigate the deflationary impact on some of the major economies in the industrialized world.
It is of crucial importance that we avoid the policy reactions we saw at that time, in particular, because unemployment is already at a level unprecedented in the postwar period. This puts a heavy responsibility upon countries in a strong position with respect to their balance of payments and price performance, and—one might even add—also upon those in a somewhat less favorable position.
In view of this, concerted action for sustainable growth is urgently called for. The failure to bring about a reduction in unemployment poses severe risks of protectionism, both with regard to trade practices and to more or less disguised forms of industrial support measures. Important as these factors are to development in industrial countries, inadequate growth rates and the threat of rising protectionism will affect the non-oil developing countries even more seriously. The specific development aspects for this group of countries have been commented upon by my Finnish colleague on behalf of the Nordic countries.
Expansionary measures should as far as possible be taken in such a way that they can meet the imperative need for development of alternative sources of energy and further reduce the ratio between energy consumption and economic growth. At the same time, unemployment will be reduced. We must avoid the near neglect of the whole energy problem, which we observed the last time after the world had become accustomed to a new level of oil prices. Large investments as well as continued research will be required. Although resources may not easily be shifted into such new directions, the situation calls for better utilization of our productive capacity. If unemployment nevertheless goes on rising, as appears to be the most likely development in the short run, we will have little reason for complacency with respect to our economic performance.
Turning now to the specific Fund matters, I think it is worth emphasizing that the potentially most valuable contribution the Fund can make toward international monetary stability lies in pointing to appropriate and internationally compatible economic policies. If such policies do not come about, the relative stability in the exchange markets achieved in 1979 may prove to be short-lived, as recent developments have indicated. This risk underlines the importance of the Fund’s surveillance policies, particularly with respect to the currencies which play a central role for the functioning of the international monetary system.
Another element, which in the longer term could contribute to monetary stability, is the introduction of the substitution account now under consideration in the Fund. This could also be a step forward in promoting the SDR as the principal reserve asset, although to enhance the role of the SDR is a realistic ambition only if it can be effected in a way that is perceived as being of genuine interest to both holders and issuers of reserve currencies.
With respect to the Fund’s financing role, the Nordic countries consider it important that the Fund’s role continue to revolve around balance of payments adjustment. This means that it should be concentrated in areas where the financing needs are of a temporary nature, even though such temporary needs can become somewhat protracted. In our view, it is of great importance that the Fund’s ability and potential in this field are not reduced. Its activities should not be diverted into areas where the transfer of resources can more appropriately be achieved in other ways.
Recent events clearly show the type of needs to which we must respond. We must continue to be prepared for large imbalances in international payments, and a number of substantial deficits must be expected to persist or to emerge. It is therefore gratifying to see the implementation of agreements which were finalized in connection with our previous Annual Meetings and which will serve to strengthen the ability of the Fund to meet members’ growing financing needs: the Seventh Quota increase is under ratification, the supplementary financing facility has been activated, and the compensatory financing facility has been liberalized further. All in all, the Fund is now in a reasonably good position to operate with the necessary flexibility. It is our common responsibility to see to it that the Fund will succeed in its endeavors in the future as well.
Statement by the Governor of the Fund and the Bank for Sri Lanka—Ronnie de Mel
Yugoslavia has been in the forefront of the nonaligned movement. It has given leadership to the Third World. It is, therefore, befitting that the premier financial and monetary meeting should take place in Belgrade, the capital city of Yugoslavia. We from Sri Lanka are privileged to be here, and we thank the people and the Government of the Socialist Federal Republic of Yugoslavia for the warmth of their hospitality and the meticulous efficiency of their arrangements for this conference.
We have already discussed at some length the current world economic situation and outlook in the meetings of the Development and Interim Committees. The economic outlook for 1980 is characterized by a slowdown in economic growth in the individual countries, acceleration of inflation almost throughout the world, and a sharp change in the pattern of external balances on current account. The prospects for the future seem to be equally gloomy.
As it happens all too often in this era of interdependence among nations, the impact of unsatisfactory developments in industrial countries will have disastrous consequences for developing countries, especially the non-oil producing countries such as my own country, Sri Lanka. Their combined deficit on current account after increasing from $21 billion in 1977 to $32 billion in 1978 is projected to increase to $45 billion this year and to $53 billion next year. Given the already heavy debt burden of these countries, their ability to finance a substantial part of this deficit through recourse to banking credits is doubtful. Hence the importance of an adequate response from the Fund and the Bank—a subject to which I will presently return.
It is becoming increasingly clear that unless policies change radically and soon enough, we would be overcome by another set of events. The world economy will find itself trapped in a vicious circle of slow growth, unemployment, inflation, and instability in monetary and financial fields. In particular, developing countries will find themselves unable to sustain even the inadequate growth levels of recent years with the possibility of stagnation in real per capita growth. The international community must therefore accept the need for structural adjustments in both developed and developing countries.
The deteriorating world economic situation has had serious consequences for Sri Lanka just at the moment when we are on the road to recovery. In my statements to this distinguished gathering during the previous two years, I gave an insight into the radical new measures adopted by Sri Lanka to rehabilitate our run-down economy and place it on a path of self-sustaining growth. Through drastic action on consumer subsidies dating back to the 1940s and aggressive monetary policies, a substantial volume of domestic savings was mobilized for investment and development. Effective demand management policies, realistic prices and appropriate incentives were adopted to strengthen the balance of payments. As a result, our growth rate last year leaped to 8.2 per cent—over double the average for the previous five years. Investment as a percentage of GNP rose from 15 per cent in 1977 to 20 per cent in 1978 and domestic savings reached 15 per cent.
I need not dwell on the difficulties caused in our effort to pull ourselves up by the boot straps. No government in Sri Lanka has had the political courage to take these bold decisions. We took them. But having taken them we are helpless spectators to recent international developments which will reduce our savings ratio by half, with all its implications for our balance of payments, our domestic investment, and our growth. It is frustrating to feel one’s efforts negated in this fashion by world events completely outside our control. The difficulties for countries like Sri Lanka are therefore immense, but whatever our difficulties, we in Sri Lanka strongly believe in cooperation rather than confrontation in an interdependent world—a pragmatic and practical approach to world economic problems. The road may be long and arduous, but we feel we are on the correct road.
In each of the past several years, we were primarily concerned with balance of payments adjustments. The amended Articles of the Fund now seek to redress the previous inequity by spreading the burden of adjustment over both deficit and surplus countries. To have the desired effect, however, it should be implemented in a manner that reflects the true spirit and intent of the Articles. Action which results in a redistribution of the surplus among industrial countries can scarcely contribute to adjustment. Rather, we would expect such action to improve the balance of payments of developing countries.
The time is also opportune for the Fund to act more firmly in its surveillance of exchange rates. In spite of significant changes that have occurred in exchange rates and relative prices, current account imbalances have been slow to adjust themselves. Exchange rate instability among industrial countries has meant that developing countries have encountered serious problems in reaching and maintaining appropriate exchange rate levels. In addition, reserve management policies have been rendered difficult. The erratic behavior of exchange rates has also caused sharp declines in the value of reserve assets held by them.
It is evident that the deficits of non-oil developing countries largely reflect external forces for which the deficit countries are not responsible. Increasing prices for imports of manufactured goods and oil have worsened our terms of trade. Slow growth and rising protectionism in developed countries have also undermined exports from developing countries. Great emphasis has been placed on exchange rate policies as a means of correcting external imbalances. But protectionist measures continually erode the efficacy of these policies by preventing the price mechanism from functioning.
The policies of multilateral financial institutions should now take account of these factors if a meaningful solution to balance of payments adjustments is to be found. I note that the Development Committee and the Interim Committee have asked the Executive Board of the Fund to give further consideration to increasing the maximum repurchase period from eight to ten years and to give attention to developing ways and means of lowering the interest costs of the supplementary financing facility. While these are welcome steps forward, I think that they will be inadequate to cope with the emerging situation facing the non-oil developing countries. I think it would be necessary to have a third oil facility of a medium-term character on concessionary terms. This is a matter that needs immediate consideration.
The Fund guidelines on conditionality provide that the Fund will pay due regard to the economic and social priorities and circumstances of members including the causes of their balance of payments problems. We expect that as a result, programs for assistance will contain identifiable action to reflect this concern. We welcome the recent decision of the Fund to increase to 100 per cent of quota the amount which a member could draw in a single year under the compensatory financing facility for export fluctuations. But under this facility, financing is limited to export shortfalls. I would, therefore, urge that access to this facility be liberalized to compensate for import fluctuations and the deterioration in the terms of trade of developing countries. . . .
These matters that I mentioned are of course extensions of facilities and arrangements already accepted and adopted. But as most adjustments require structural changes, new facilities should be conceived within the Bank and the Fund. In this connection, attention should be given to a long-term facility for financing purchases of capital goods by the poorest developing countries. This facility could promote high levels of activity in the industrial countries and thus assist the international adjustment process by stimulating the external demand for their capital goods.
Notwithstanding the financial facilities of the Fund and support from the Bank group, it is inconceivable that deficits of $53 billion for non-oil developing countries can last for any length of time, without compensating movements of long-term capital. The situation will surely lead to tremendous financial burdens. Lasting solutions will require a redirection of capital movements rather than mere refinancing.
The current level of ODA assistance of 0.3 per cent of GNP is clearly insufficient. While the countries that have reached or exceeded the target of 0.7 per cent should be congratulated, there is an urgent need for those falling behind to establish their assistance program on a firm basis and make binding commitments for at least the next three years. This is particularly necessary in the current international situation.
On the role of long-term capital, I have heard with much interest the stress placed on the need for developing countries to follow appropriate policies to encourage private foreign investment. We in Sri Lanka have already done so with fairly good results. At the same time, however, let us also place in perspective the realities of the situation from the point of view of a small economy at a low level of development. We have left behind the era where a pool of private savings seeks a profitable investment outlet overseas. Today, investable savings are concentrated in corporate hands. These funds are available for investment elsewhere only in lines of activity similar to those in which they are already engaged in the home country. Not all the incentives in the world would move them into a high priority area of a developing country if their interests do not coincide. This is by no means to detract from the catalytic role direct investment has played in the economic development of many a nation, rather, to draw attention to its limitations in particular though not infrequent situations. . . .
I also wish to draw the attention of this meeting to the Program of Immediate Action outlined by the Group of 24 and endorsed by the Group of 77. That document provides a wide spectrum of action on many fronts designed to arrest the deteriorating world economic situation and assist the efforts of developing countries to provide for their people a satisfactory quality of life. We commend to the Fund and Bank immediate consideration and early action on these lines.
Mr. McNamara in his illuminating address posed a particular question. Can we afford to go on temporizing on these issues? The answer is certainly No. We need action and quick action, not mere words and studies and committees. Economic development and growth—increase in GNP—is important. Social welfare and social justice and the quality of life of our people are equally important. How to achieve both within the context of our scarce resources? This is the dilemma of all developing countries like Sri Lanka. We are happy that the Bank and the Fund have been alive to the changing situation in the world economy and have played a full part in accordance with our new needs and new aspirations. Our thanks go to the President of the Bank, Mr. McNamara, and the Managing Director of the Fund, Mr. de Larosière, and to their staff.
We are entering a new decade in 1980. Let this decade be the Decade of Interdependence when we, the developed and the developing, will better understand and appreciate our mutual needs and mutual aspirations and when we will have the political courage and political will to take the correct decisions in a growing interdependent world.
Statement by the Governor of the Fund and the Bank for Jamaica—Eric O. Bell
Mr. Chairman, Governors and distinguished guests, I would like to express on behalf of the Governments of Bahamas, Barbados, Dominica, Grenada, Guyana, and Jamaica, on whose behalf I speak on Fund matters, our appreciation for the hospitality which we have received from the people of Yugoslavia and for the part that Yugoslavia has played in the conference arrangements which have been so satisfactory.
I would also like to express our appreciation to the staff of both the Fund and the Bank for the excellent arrangements and very helpful papers which have been prepared for this meeting.
The Governments of the Bahamas, Barbados, Dominica, Grenada, Guyana, and Jamaica are concerned with and critically affected by the problems of the world economy which continue to be characterized by high rates of inflation, excessive rates of unemployment, and persistent slow rates of growth. Many suggestions have been made as to how we can address these problems. We welcome these suggestions. The need for adequate solutions becomes more urgent each year as the failure of the global economic system to serve all of its constituents adequately becomes more and more apparent.
Indeed the reports of the IMF and the World Bank, as well as those of other international institutions such as UNCTAD, indicate that the problems of inflation, unemployment, and slow growth have become more critical this year than they were a year ago. What is even more alarming is that the prognosis for the near future is for a worsening condition globally and that non-oil producing developing countries in particular—and the Caribbean countries for which I speak are in this group—will as a result face gloomy and difficult prospects which will be reflected in the widening of their current account deficits and deterioration in their debt servicing capacity.
As so many speakers before have indicated, the prescriptions are indeed inadequate and there is no magic formula for curing the disease. And in the absence of a magic formula—some new economic wonder drug—we suggest that immediate remedies should be sought through existing institutions by way of intelligent modifications and extensions.
In the case of the major economies, some speakers have made the point that the major contribution that they can make is through putting their own houses in order, since the size of their domestic economies is large relative to the effect that external supportive arrangements can have. There is a great deal of force in this argument. But in the case of the smaller developing economies the need for external support is inevitable and increasing. This is why we are encouraged by those voices of the developed world, for example, the United Kingdom, the Netherlands, and others who have pledged support for strengthening the role of the IBRD, IDA, and the IMF. The less developed countries will not be able to cope with the problems of the 1980s unless these institutions are properly structured, both in terms of policies and of resources, to play a more dynamic role.
I am speaking on behalf of a group of countries who have had varied experiences with the Bank and the Fund. My colleague from Grenada has dealt with Bank matters. I would like to make some comments—by no means exhaustive—on the role of the Fund.
Our collective Caribbean experiences with the Fund range from those fortunate enough never to have called on the Fund other than for technical assistance in various financial and monetary fields to those unfortunate enough to have had economies in severe states of disequilibrium who have had to request the Fund to provide the financial resources to enable them to survive.
One of these unfortunately is Jamaica, the country for which I have been Finance Minister during the past 18 months. I have asked my Caribbean colleagues if I might very briefly describe some of our experiences with the Fund during this period for you, and they have agreed. I am aware that in so doing I run the risk of over-particularization, but in the first place the general aspects of the world situation have been so well covered in the World Development Report, as well as in the speeches of the Managing Director and Mr. McNamara and other speakers, that there is no need to repeat them in detail. And in the second place, the Jamaican experience, though it is unique in its way, may nonetheless serve as an illustration of ways in which Fund relations with LDCs can be made even more useful.
Two years ago, the Jamaican economy was in a serious state of disequilibrium. The oil price increases of 1973, the attempts by the Government at social and economic change in a period of world inflation, low domestic production, and increased domestic consumption were some of the factors which resulted in this situation. We had sustained four successive years of negative growth, the value of our exports was not increasing, we had experienced substantial deficits each year on our fiscal current account, and we had exhausted our foreign exchange reserve. Inflation had been running at over 20 per cent annually for a number of years. If ever a country’s economy required the application of the adjustment process, Jamaica’s did!
After consultation with the Fund, the adjustment process was commenced in May 1978. There was an initial devaluation followed by successive monthly minidevaluations for a period of 12 months. A prices and incomes policy was put in place with the objective, on the one hand, of allowing productive enterprises to generate adequate invest-able surpluses while, on the other hand, adjusting effective demand to acceptable levels. The end result of the measures adopted was to improve the competitiveness of our exports so as to stimulate expansion through export-led growth. It was a classic IMF prescription for recovery!
Drawings to which we were entitled under the IMF facility were the equivalent of some US$80 million. As balance of payments support, this was inadequate. Approaches were therefore made for additional assistance. The World Bank provided two program loans of US$30 million each in 1978 and 1979, and through its organization of the Caribbean Development Facility assisted in the mobilizing of an additional US$100 million in bilateral commitments. Unfortunately the funds provided by some countries have not been as easily disbursable as those provided by the Fund and the Bank, but are nevertheless highly appreciated. So far support from private capital has been disappointing.
The economic program has been accepted as technically sound, but the broad masses of the people, upon whom the immediate effects of the adjustment fell, were only persuaded to accept them without violent protests upon the promise and in the hope that recovery would be felt in terms of an expansion in employment opportunities, particularly through growth in the export sector.
The rapid adjustment had the effect of “shocking” the productive sector as well as the man in the street. Few countries, authoritarian or democratic, could have survived the period without violence. Jamaica did, and when by the end of 1978 the community recovered from the initial shock of the adjustment, it became clear that there was insufficient foreign exchange to provide the capital goods and raw materials required for recovery and expansion.
In the second year—this year—the IMF has attempted, through one facility or another, to ensure adequate balance of payments support and our drawings from the Fund have more than doubled. But a gap—which has been made worse by successive oil price increases—remains unfilled. If the additional balance of payments support available this year had been available in the first year, the requirements for this year would have been less.
Before listing some of the lessons which can be learned from the Jamaican experience, permit me to interpose a comment on oil and energy prices.
The question of oil and energy prices has become critical to the oil importing LDCs. But we should state that we do not agree with the view that sees high oil prices as the fundamental, or even a major, cause of the present world economic crisis. The evidence shows clearly that other structural factors are to blame. Nor do we disagree with the sovereign right of oil exporters to charge realistic prices for their oil—prices which properly compensate for the loss of their patrimony in the form of nonreplaceable energy resources. Realistic oil prices may also serve to drive home the need for serious energy conservation. But we must nonetheless be realistic about the lack of symmetry in the effect of oil prices on developed countries and LDCs. The developed countries not only have greater capability to absorb higher prices, but, in any event, the fact is that the surplus generated by oil prices tends to get back to their economies. For the LDCs, not only do they have limited capability to adjust, there is also little access to the resulting accumulation of capital. We hope that this critical issue can and will be addressed.
To return to my theme, what lessons can be learned from the Jamaican experience of adjustment under a program with the Fund?
First, let me state the obvious: a Fund program can indeed be helpful to LDCs which get into severe balance of payments difficulties by providing resources to assist in getting through the adjustment period. Clearly an intelligently designed adjustment program with Fund support can assist a country to survive and even to lay the technical foundations for economic recovery. Fund support can be meaningful and useful.
Secondly, there are a number of ways in which Fund support can be made even more meaningful and useful. These are:
(1) The adjustment is often too sharp. Conditionality should give greater weight to the social and political conditions existing in the country. This seems to have been accepted in the new guidelines on conditionality and we applaud this reform.
(2) Balance of payments support has to be adequate and prompt, that is, the amount must be sufficient and the timing must be right. This question of timing has two aspects. One is that once a program is entered into with the Fund it is better to have the resources disbursed “up front” early, rather than too late. Another aspect which is perhaps even more important is that countries that are getting into difficulties should enter into discussions, and if necessary programs, with the Fund before the difficulties become intense. If the adjustment is started early, then not only is the adjustment less severe but also the benefits from recovery are reaped much earlier.
(3) Developing countries may not have the productive mechanisms in place to ensure that the recovery is as rapid as that of developed countries. One therefore agrees with the conclusion that a facility is needed which can be employed where a more gradual adjustment and a longer recovery period appears more appropriate to the country’s particular conditions.
Finally, I should point out that the proposals which I have made for improving the operations of the Fund are consistent with the Plan of Action put forward by the Group of 77 and portions of both are consistent with reforms now being pursued by the Fund itself.
We wish to offer our congratulations to Mr. McNamara and Mr. de Larosière on their management during the past year. Their innovative and capable leadership is needed more than ever at this time.
Statement by the Governor of the Bank for Egypt—Hamed El Sayeh
I join the previous speakers in expressing my deep appreciation and gratitude to the Yugoslav Government and people for the cordial hospitality extended to us in this beautiful and friendly country.
Mr. Chairman, we listened with great interest to your opening speech. Please accept my appreciation for your comprehensiveness with which you dealt with a wide range of important issues facing the world economy. Allow me also to join my distinguished colleagues in welcoming new members participating in these meetings for the first time.
We also convey our compliments to the Executive Directors for the excellent and comprehensive Annual Reports of the IBRD and the IMF. The reports reflect clearly the state of the international economy. We are happy to see the second issue of the World Development Report by the World Bank. This is a valuable document indeed, which provides an excellent analysis of major development issues.
We meet at a time when world economic conditions are clouded with uncertainty, characterized by persistent and mounting inflation, increasing unemployment, and international payments imbalances.
I share with my fellow Governors of developing countries their concerns, especially as growth in industrial countries has been disappointing. This is reflected in the slower expansion of the world trade and serious deterioration in the growth prospects of the developing countries.
Even more disturbing is the fact that world economic prospects are far from encouraging. The past three years may be considered a period of moderate economic growth for non-oil developing countries. Given the high rates of population growth, the growth of GNP does not offer scope for satisfactory improvement in real income. The cumulative deterioration in the terms of trade of these countries since 1974 has eroded real income benefits.
More than half of the countries with lowest per capita income are in Africa. In 1978 the average rate of growth of these countries was the lowest for any major region, for it deteriorated to 2.5 per cent, coupled with an annual population growth of almost the same rate. Hence, real income per capita was stagnant.
The deterioration in current account deficits of non-oil developing countries is a cause for great concern. The 1978 deficit is estimated at US$32 billion, compared with US$21 billion in 1977. According to IMF estimates, the combined current account deficit for all non-oil developing countries would reach US$42 billion in 1979, and would rise to more than US$50 billion in 1980. This would imply that the external position could assume the proportion of a crisis, unless effective measures are taken.
The estimated rise in the deficit of developing countries is attributed to two factors, namely, the deterioration in terms of trade, as export prices are not expected to keep pace with import prices and the expected increases in net payment of debt service and other forms of investment income. Such deficits were largely financed through external borrowing, which in most cases was not available at all or available at high rates of interest, which cannot fail to aggravate further the external debt situation.
It is difficult to envisage any substantial improvement of the world economy as long as the advanced industrial countries do not adopt the necessary measures to stimulate a vigorous and noninflationary recovery of their economies.
The recent surge of protectionism in the industrial countries has become a major concern, and a deterrent to the policy of export diversification of the developing countries. Such a policy will have an unfavorable impact on our earnings, growth, and development prospects. As a representative of a developing country, I feel we are burdened by the increasing cost of imports, restrictive and protectionist measures which hamper our export potential, and by the instability in the international monetary system. The elimination of protectionist measures would make a significant contribution not only to the growth and development of developing countries, but also for the solution of major economic problems facing the industrial countries themselves.
I should reiterate that the diversification of the export base of developing countries has allowed them to compete successfully in an increasingly wide range of manufactured goods. Growth in our economies and the strengthening of our export capacity mean a growth in our import capacity from the industrial countries.
The agreement reached by the Group of 24 and adopted by the Group of 77 regarding reform of the world monetary system is a most welcome development. This reform includes certain important principles:
1. That the adjustment process should be just, fair, effective and in harmony with high rates of growth, employment, and international trade. This requires sufficient financial flows at terms that would consider the nature of balance of payments deficits.
2. That an exchange rate regime be characterized by flexibility and a sufficient degree of stability.
3. That the Fund should be impartial and fair in dealing with both deficit and surplus countries, so that surplus countries bear their fair share of the burden of the adjustment process.
4. That the creation of international liquidity is carried out by a collective international action, and that SDRs should be the principal monetary reserve for the world monetary system.
5. That the support of financial flows to developing countries be considered as an indivisible part of the world monetary system. Therefore, a relationship should be established between distribution of SDRs and development assistance.
6. Increasing the role of developing countries in decision making with regard to all aspects of the world monetary system. In this connection we support the Group of 24 and Group of 77’s recommendation made to the Fund to undertake further studies to explore the interest of developing countries with respect to establishing the substitution account.
It should be recalled here that one of the aims of the Tokyo Round of Multilateral Trade Negotiations was to improve conditions for the increasingly diversified range of export products of the developing countries. The objective included an improved framework for the conduct of international trade, taking into account the development, financial and trade needs of these countries. Yet, as the Annual Report shows, we cannot appraise at this stage the outcome of the MTN since much will depend on the implementation of the various codes that formed an integral part of the MTN.
Referring to the problem of financing current account deficits, we find that the two years following the 1975 world recession were a period of intensive balance of payments adjustment.
The sharp reduction of the developing countries’ combined current account deficit in 1976 and 1977 permitted additions to reserves totaling about US$12 billion in each of those years. In many cases, however, this was made possible by increased borrowing. In 1978, net borrowing rose sharply, estimated at about US$32 billion.
It is quite clear that present efforts are insufficient to cope with a problem of that magnitude. Economic interdependence between nations makes international cooperation necessary and urgent under conditions commensurate with the needs of development. Official aid should be brought as quickly as possible to the target of 0.7 per cent of GNP and the aid conditions should be improved by increasing the grant element and the untying of aid.
Looking at the Fund’s activity during the past year, we are pleased to note that the IMF is not only trying to solve the short-term problem, but is making commendable efforts to meet the medium-term needs of member countries.
The Fund’s potential to assist countries has been strengthened by the entry into force of the improved supplementary financing facility. Yet, it is to be emphasized that the conditionality attached to drawings should be more flexible.
Concerning the use of the Fund’s resources, severe conditionality has made it difficult to use the upper tranches. Under the circumstances, some countries resort to commercial financing at a time of substantial balance of payments problems. Therefore, every effort should be directed toward creating an appropriate balance between protecting the Fund’s resources and assistance to members experiencing balance of payments difficulties.
Another vital issue is the promotion of SDRs as the main reserve asset of the international monetary system. The possibility of further expanding the uses of SDRs should be considered by the Board. More important is the need to make regular and substantial allocations of SDRs.
No doubt increased oil prices are a burden on developing countries, but other factors should be considered. Developing countries do not suffer only from oil price increases but also from the continuous increases in the price of imports from industrial countries.
With regard to the proposal for establishing a substitution account, we are of the view that such an account should provide for a more stable international payments arrangement. Furthermore, the account should be structured within a framework of a balanced program of immediate action for the reform of the international monetary system. The Program of Action on International Monetary Reform adopted by the Group of 77 provides important guidelines in this respect. Features of the substitution account should take into consideration issues of interest to developing countries. . . .
In Egypt we have opted for peace—a just and comprehensive peace in our troubled part of the world. Following this course has enabled us to devote more time and resources to economic development. Our efforts in this respect have been supplemented by a much appreciated flow of resources from the international community, including these great institutions, the World Bank and the IMF. The results are gratifying and we have been achieving fairly high rates of economic growth.
Thus the course of peace has proved to be the way to provide our people with better living conditions and progress.
Statement by the Governor of the Fund and the Bank for Trinidad and Tobago—Mervyn de Souza
Mr. Chairman, it is my pleasure to endorse the many statements of confidence and satisfaction on your election to the Chairmanship of this important meeting. I, too, on behalf of my delegation, offer our congratulations. I would also wish through you, sir, to thank the Government and people of Yugoslavia for hosting what is by any standard a very large meeting in so competent and efficient a fashion. We are meeting in a structure which is not only functional, but also aesthetically pleasing. It serves as a magnificent testimony to the courage and resourcefulness of the people of this country.
I would like to take this opportunity to welcome the new members, one of which, Dominica, is a member with us of the Caribbean Integration Movement.
It has been correctly said that before solutions can be advanced, one must be fully aware of the nature, extent, and structure of the problems. I do not believe that anyone in this assembly is unaware of the critical problems that confront the international economy as we stand poised on the threshold of the decade of the 1980s. The well-prepared documents circulated by the World Bank, the International Monetary Fund, and other international institutions all project a picture of pessimism and gloom. Indeed this assessment has been reinforced by both the President of the World Bank and the Managing Director of the International Monetary Fund in their eloquent and comprehensive statements at the opening session of this meeting.
The difficulties confronting us relate more to agreement and the attainment of meaningful consensus on solutions to these problems, which, as I have already stated, have been clearly articulated. It is the view of my delegation—and we claim no originality for this—that the approach to solutions is two-pronged. First, there is the institutional approach through the World Bank, the International Monetary Fund, and other international organizations. Secondly, and of fundamental importance, are the economic policy decisions and strategies of both the developed, and the developing countries working in concert with these institutions—institutions which we ourselves have created, and which we support both financially and otherwise. . . .
A great deal has been said about energy and the impact of the recent oil price increases on the international economy. It would appear that the developed countries are better placed on this occasion than they were in the period 1973-74 to make the necessary adjustments. However, for the developing countries, the situation cannot be viewed with such optimism. The oil facility, for example, which proved so valuable as an insulator in the earlier period, no longer exists. . . .
My delegation wishes to register its support for the proposal relating to the establishment of a long-term facility in the Bank to finance the purchase of capital goods. This proposal is contained in the “Outline for a Program of Action on International Monetary Reform” which was unanimously endorsed by the Group of 77. In a period of inflation, developing countries seeking to expand their industrial base are often confronted with rapid escalation in the prices of capital goods. Very often this situation is exacerbated by factors outside their control—for example, long delivery dates—all of which result in substantial cost overruns. A facility such as the one referred to could serve to reduce the impact of such price increases and thus ease the path to the creation of viable industrial sectors.
Let me now turn to the Fund. In this connection, Trinidad and Tobago wishes to endorse the Outline for a Program of Action, and to recommend that it be used as the basis for continuing work in the critical area of international reform.
It is perhaps ironical that at a time when substantial resources are available within the Fund, conditionality inhibits their use. Trinidad and Tobago supports the view that conditionality is an essential element in the use of the Fund’s resources, but we nevertheless wish to emphasize that there could be circumstances under which exogenous factors make conditionality onerous. The recent, if not belated, revision of the guidelines has satisfied some of our concerns regarding this issue. It is our sincere hope that in the implementation of its policies, the Fund will adhere to the spirit and intent of the new guidelines.
It is also gratifying to note the statement by the Managing Director of the International Monetary Fund that the Fund is ready to play an active role in the provision of assistance to countries in formulating programs of adjustment, and in the financing of balance of payments deficits. In this connection, the liberalization of the compensatory financing facility, the introduction of the supplementary financing facility, the recent SDR allocations and increase in quotas are indicative of the Fund’s new thinking. But we are not convinced that this is enough. We, therefore, strongly support the determination of the Managing Director to seek to lengthen the maturities and reduce the cost of borrowing under the supplementary financing facility and the extended Fund facility. In addition, we support the proposal in the Outline for a Program of Action that access to the first credit tranche be increased to 50 per cent as an immediate form of assistance, while consideration be given to other forms of liberalization. We also call for an immediate increase in the present SDR allocation, as well as regular annual allocations.
One of the important items of discussion at this meeting is the concept of a substitution account. This has been discussed in the context of making the SDR the principal reserve asset of the international monetary system, and ultimately in reducing instability in foreign exchange markets. We recognize that many of the technical details still remain to be resolved. However, most of the concerns expressed, which indeed we share, relate to the interests of potential depositors in the account. I would like to emphasize that developing countries are essentially borrowers, and access to international capital markets is therefore their overriding consideration. For this reason, we will be unable to support the establishment of such an account if the net result would be a shrinkage of the quantum of loanable funds, a hardening of terms and conditions on such loans, or further restrictions in access to capital markets. My delegation therefore supports the approach taken in the Outline for a Program of Action.
But the Fund and the Bank, important as they are, can only be effective if the policies pursued by their member countries are supportive of the action which I have already detailed. There was an element of reassurance in the strong statements made at the Interim Committee by a number of the representatives of the industrialized countries on the critical questions of inflation and protectionism. We sincerely hope that they are not flattering to deceive. There has been a great deal of emphasis on structural change and adjustment, and the impression has been created—except in a few isolated cases—that the political will exists, and that the necessary action will be taken with regard to these issues.
Nevertheless, protectionism and protectionist tendencies are being intensified. In the words of the Director General of the General Agreement on Tariffs and Trade, these sentiments are still “insistent, obstinate and virulent.” This is bad news for the developing countries, many of whose representatives expressed disappointment at the recently concluded Multilateral Trade Negotiations. It remains to be seen, therefore, whether in furtherance of the declarations at the inauguration of the Tokyo Round in 1973, the developed countries will implement the MTN Agreements from January 1, 1980, when they are to come into effect; and if they will, in the interest of trade expansion, resist the protectionist tendencies in their countries which have been described in such a poignant manner at so many international forums.
The analysis of future prospects for developing countries suggests an increasing reliance on the transfer of real resources from developed to developing countries. For the middle-income developing countries, an important source of these transfers has been the private international capital market. But increasing concern is being expressed about the ability or willingness of the market to perform the recycling function in the future on the same scale as was done in the past, due either to the experiences of some commercial banks, or to the introduction of official measures to control the market. For the low-income developing countries, ODA flows have been especially important and have permitted these countries to finance their developmental efforts. In this connection, the secular decline in real terms of these resource transfers is particularly disturbing.
It is refreshing to note that with regard to ODA, some of the industrialized countries and the OPEC countries, in particular, have exceeded the UN target. We sincerely hope that this example will be emulated by other developed countries. The Government of Trinidad and Tobago has not been oblivious to the problems created for developing countries by the developments in the international economy. For instance, Trinidad and Tobago provided resources for the oil facility. It has permitted regional institutions such as the Caribbean Development Bank and the Inter-American Development Bank to borrow on its domestic capital market for on-lending to regional countries. Recently, the Government has established an aid mechanism designed to provide assistance to Caribbean countries, the main thrust of which is the widening and deepening of the regional integration movement.
In addition, because of my Government’s concern for the impact of the increase in oil prices on the development efforts of the member countries of the Caribbean community, Trinidad and Tobago is in the process of streamlining its aid mechanism to help members of the community meet the increased costs of petroleum, fertilizer, and asphalt imported from Trinidad and Tobago. It is our objective that purchases in a calendar year would be converted into loans on concessionary terms.
The 1970s have been a period of turbulence resulting in some disillusionment with the existing international monetary system. Indeed, not since the Second World War has the international community been confronted with such a plethora of protracted economic problems. We are satisfied that the Bank and the Fund, within the context of their existing charters and policies, have been instrumental in alleviating the effects of these problems on the international community. But all institutions must ensure that their policies are adapted to a constantly changing environment. In this regard, we are confident that the Fund and the Bank will live up to our expectations.
Statement by the Governor of the Bank for Bangladesh—Atuaddin Khan
It is a matter of great privilege for me to address this meeting of the two august bodies, the World Bank and the IMF, for the first time. The meeting is of particular significance, being held in this magnificent center in the beautiful country of Yugoslavia, a developing country, which under the dynamic leadership of President Tito, in the course of one generation has attained a remarkable improvement in the standard of living for its people. We are grateful to the Government and the people of Yugoslavia for the excellent arrangements made for the meetings and for the hospitality extended to us.
At the very outset let me thank President Tito for his inspiring address. I would also like to congratulate you, Mr. Chairman, for your forthright statement on the global situation. I would like to join others in extending a very hearty welcome to the new entrants to the Fund and the World Bank Group. I thank Mr. de Larosière and Mr. McNamara for their very illuminating statements.
In the last Annual Meetings a broad consensus had emerged on a number of fundamental issues, particularly on the widespread acceptance of the twin goals of development—the acceleration of economic growth and the attack on absolute poverty. Many Governors stressed the importance of moving away from the trend toward protectionism, and in addition called for an expansion of capital flows to the developing world, and more concessional assistance to the poorer countries.
It is a matter of great concern that the Annual Reports of the International Monetary Fund and the World Bank, the World Development Report, 1979, and documents of the Development and Interim Committees all point toward a deterioration of the international economic situation and a worsening of the development environment.
On fundamental problems, little visible progress has been made in the period since the last Annual Meetings. Inflation and unemployment continued to remain high in most member countries, and a renewal of upward momentum in the rates of inflation was apparent during the first half of 1979, raising further the price of capital goods and food-grains. Developments regarding oil prices in midyear have put further pressure on prices. Sluggish economic growth, underutilization of resources, periodic instability of foreign exchange markets and the spread of protectionist trade measures continue to vitiate the international economic environment. During the year there has been a sharp resurgence of the combined current account deficits of the non-oil developing countries. This has come at a time when they cannot expect much expansion in their exports owing to contraction of demand in the industrialized countries. Further, rapidly rising import cost has made it difficult for many developing countries, particularly the poorer ones, to maintain desirable minimum growth rates.
The World Development Report, 1979 has been of great interest to us. Though the emphasis of the Report is different from that of the first one, it points to the extreme seriousness of the current situation and indicates grim prospects for future development. We note with great concern the downward revision of the growth rate for developing countries. These point to a worsening of the projections for per capita income growth and the widening of the gap between the income levels of low-income and middle-income countries. The most discouraging conclusion of the Report is the extent to which prospects for reduction of poverty fall short of earlier expectations.
The trading environment as discussed in the Report has worsened considerably so as to retard the growth process still further. Protectionism is spreading, despite voices raised against it in all international forums and by all possible authorities.
The picture about official development assistance as presented in the Report as well as in the Annual Report of the Bank is also most discouraging. The supply of such funds has not kept pace with the need to compensate for the adverse developments in the field of trade. In addition, ODA too has remained below half of the internationally accepted target of 0.7 per cent. The World Development Report would have done well to indicate an alternative scenario in which targets of resource transfer are fully realized. For the low-income countries, the Report presents a picture of unmitigated difficulties that is unacceptable.
Turning to Fund matters, we note with satisfaction a number of significant developments that have taken place last year. The Fund deserves our congratulations. At the same time we note with great concern that for the second consecutive year there was a reduction in the net amount of balance of payments assistance provided by the Fund through the General Resources Account. It only shows that the LDCs have not been able to derive adequate benefits from the growing Fund resources, which is mostly due to the conditionality attached to such assistance. The supplementary financing facility lacks the low conditionalities considered necessary to correct externally induced balance of payments deficits, which was perhaps the one positive feature of the oil facility. The UNCTAD proposal for a medium-term financing facility to cope with the need to deal with externally induced balance of payments deficits will need serious consideration, unless the Fund can exhibit greater flexibility in the operation of its existing facilities. We also support the proposal for setting up a special food import facility to deal with the crisis created by natural calamities and rapid increase in food-grains prices. We strongly urge an increase in the maximum repurchase period under the extended Fund facility to ten years. We also want the establishment of subsidy accounts for the extended Fund facility and the supplementary financing facility through special contributions, as in the case of the oil facility. Further adjustments in the compensatory financing facility are required to cope with the seriousness of payment deficits of the developing countries and to help stabilize their export earnings. While these measures will partially help to meet the projected situation, we reiterate our stand for a thorough revision of Fund facilities in the light of the changing circumstances and needs. The Trust Fund facilities should also be renewed immediately through the sale of gold. Without sufficient flexibility and imagination, it will be well-nigh impossible to cope with the balance of payments difficulties of the developing countries.
It is in the context of the need for an international monetary reform that we support the proposal before the IMF Executive Board for a substitution account as an evolutionary step. In view of the fact that the system would serve the cause of exchange rate stability and promote the role of the SDR in the international monetary system, the proposed substitution account should at this stage only be accepted in principle. Further studies should be carried out about its impact on the developing countries. A substitution account, however, will only be meaningful in the context of substantial additional allocations of SDRs.
At this stage I would like to digress a little and speak about the domestic situation in my own country, which is one of the poorest among developing countries. During the year, we have suffered from one of the most serious droughts in our history, resulting in a drastic shortfall in our food production. The resultant food imports strained our already critical payments position and this has been further aggravated by price increases for all our imports. This is a frightening development for many countries in our situation. Its impact on millions of people living below the poverty line is serious indeed. Should the situation be allowed to deteriorate at the risk of widening disparities in the levels of the standard of living of the rich and the poor?
During the last seven years we have been able to make only marginal changes in the level of living of our people, struggling through international inflation, recession, and repeated external shocks. We are in the final stage of formulating our Second Five-Year Plan to be launched next year. Our efforts will be to a very large extent dependent on external assistance, international economic changes, and the international trading environment. . . .
We are encouraged by the statement that the Bank is prepared to go for additional program lending in appropriate cases. It is most damaging to the international development environment that ODA is sliding back and that many DAC countries are drifting away from the internationally committed targets. We urge that, like the general capital increase of the multilateral financial institution, ODA should be doubled in the next five years. The OPEC countries, whose total assistance remained over 2 per cent of their GNP in 1978 have set exemplary standards and the major OPEC donors like Saudi Arabia, the United Arab Emirates, and Kuwait deserve our unqualified praise for the high levels of aid ranging from 5.5 per cent to 11 per cent of their GNP. . . .
Before concluding I would like to summarize and underscore the following measures:
(1) Doubling of ODA over the next five years through the achievement of the internationally accepted target for resource transfer.
(2) Prompt completion of legislative measures to bring into effect the General Capital Increase of the World Bank.
(3) Immediate fulfillment of commitments for IDA V and prompt completion of IDA VI negotiations to at least double its resources.
(4) Making qualitative improvements in ODA by increasing the grant element, untying its use, and easing conditionality.
(5) Increased allocation of program assistance, sector assistance, and local cost financing by both bilateral donors and multilateral institutions.
(6) Change in the extended Fund facility by extending the repayment period to ten years.
(7) Flexibility in applying conditions of access to the supplementary financing facility, unlinking of the quantum of facility from quotas, and modification of the repayment periods.
(8) The establishment of the supplementary financing facility as a permanent facility. Alternatively, the establishment of a new medium-term balance of payments facility with low conditionality.
(9) Renewal of the Trust Fund through further sale of gold.
(10) Steps to ensure that the new guidelines on conditionality take into account social and political conditions and economic priorities of countries in need in such a way as to attract them to make extensive use of the Fund’s resources.
(11) Establishment of a subsidy account through special contributions for use of the extended Fund facility and the supplementary financing facility by the non-oil low-income developing countries.
Mr. Chairman, I do not wish to make further demands on your time and patience. Permit me to conclude with an appeal to the affluent societies of the world and to the various development institutions to come forward in a compassionate manner to bridge the gap between the rich and the poor or face the painful picture of over 600 million people living in absolute poverty by the end of the century. This is a grim prospect and we must jointly endeavor to reverse the trend. Before resuming my seat I would like to add my voice to the clarion call made by President Tito to create an economic order free from inequality, subordination, and privileges.
Statement by the Governor of the Fund for Dominica—Michael A. Douglas
Dominica achieved political independence on November 3rd last year and is now pleased to have been accepted as a member of the Fund and to take its place on the Board of Governors as a fully sovereign State. The legislation enabling my Government to join the World Bank and its associate institutions has already been passed in Parliament and we expect that the necessary formalities for membership will soon be completed. We have been very impressed by the generosity and warm welcome of the Government and people of Yugoslavia and the inspiring opening address of President Tito. We note the lessons in economic and financial development delivered by Messrs. McNamara and de Larosière. We thank the Chairman for the efficient manner in which he has conducted these meetings and crave his indulgence to bring to the attention of this meeting the plight of my country.
In anticipating this meeting, I had intended to convey in this short address an assurance of my Government’s intention to pursue a policy of dynamic development and of firm determination to establish a viable economy and a realistic, balanced budget, backed by sound financial management. These are still my Government’s aims but this objective has been sharply frustrated by the ravaging effects of Hurricane David which swept the country on Wednesday, August 29.
The center of the hurricane passed close to the capital and main center of population, Roseau. Its maximum impact extended to a radius of 50 miles and the whole country was engulfed in this area. Sustained winds of 140 miles per hour continued throughout the five hours of the storm and gusts of 190 miles per hour were recorded at the airport. The damage done was almost total. The banana crop was completely destroyed and it will be a year before there is any significant banana production. Bananas were Dominica’s main export and worth over «£6 million. Citrus trees suffered marginally less damage than the bananas, but the wind destroyed the entire crop. Coconuts, most of which were processed locally, were 90 per cent destroyed and it will be four or five years before production to pre-hurricane levels is restored. The effect of these losses has been to deprive the majority of the working population of their livelihood.
The infrastructure also suffered. It will cost $24 million to repair the damage to the roads. Over $2 million is needed to carry out reconstruction of the battered ports. Over $3 million is needed to rebuild 19 primary schools and carry out repairs of a major character to 16 others. Few schools will reopen in this academic year. Electricity generating installations also suffered and the distribution network was completely destroyed as were the telephone cables throughout the island. Business houses, shops, warehouses, and farm buildings were seriously damaged and in many places completely destroyed. Major damage was caused to 75 per cent of the dwellings in the country. Repairs are being carried out, but the repair to damage on this scale will take a long time even if materials were available. This means that for the foreseeable future some 60,000 people out of a population of 80,000 will be in substandard shelter.
The hurricane has effectively stopped all production. Extensive and total devastation is coupled with a lack of mains power which cannot be restored generally before the end of the year. Preliminary figures show that the Government’s income has been effectively reduced by at least 80 per cent and cannot significantly improve before the first banana crop is due in 12 months’ time. This banana crop will only materialize if 1,000 tons of compound fertilizer, the money for which is not available, can be immediately supplied to the farmers.
The prime generator in the rebuilding of the country’s economy must be the earliest return to normalcy. This involves the restoration of the administration, the preservation of law and order, the provision of the basic social services, and the restoration of the communications network to an acceptable level. Let me conclude by saying that Dominica’s immediate and most urgent problem is to ensure a monthly income to the Government of not less than $1 million, so as to maintain the basic fabric of existence, and assistance in the order of $80 million for specific projects to repair the damages done. The Nonaligned Movement Meeting in Havana recently responded generously and we had a most sympathetic hearing at last week’s meeting of Commonwealth Finance Ministers in Malta. Talks with the Fund are ongoing. My hope is that some members who have not yet offered assistance would now wish to do so.
This would be a meaningful way of enabling a small island developing state to overcome the effects of the most tragic natural disaster in its history, and to face the already difficult future with a degree of confidence.
My people have the will and the spirit to rebuild their society. What we need is material and financial assistance. I hope that all nations gathered here for these meetings will respond generously to our appeal.
Statement by the Governor of the Bank for Pakistan—Ghulam Ishaq Khan
I would like to join the distinguished Governors who have preceded me in expressing our deep gratitude to the Government of the Socialist Federal Republic of Yugoslavia for its warm welcome and generous hospitality. We have also been greatly impressed by the inspiring address of President Tito.
The Annual Reports of the World Bank and the International Monetary Fund offer a remarkably frank and objective assessment of the main trends during fiscal 1979 in the economic, monetary, and development fields. The initiatives taken and the contributions made by the two organizations constitute solid achievements. . . .
The 1978 World Development Report had projected that as far away as the end of the century the number of people living in absolute poverty would be as high as 600 million. President McNamara in his address last year had described this as a shocking result. Much more shocking are the findings of the 1979 World Development Report which projects that the number of people living in absolute poverty will increase to 700 million by the year 2000. It also draws the dismal conclusion that under the most optimistic assumptions “average income per person in these countries would be less than a twelfth of that in industrialized countries; in low-income countries the proportion would be less than a fortieth.”
The question needs to be answered as to what accounts for this outcome after decades of efforts for the development of the economies of these countries with the advice and active participation of the international financing institutions. Quite obviously the fault does not lie in the stars of these countries, in that, lacking in natural resource endowments they are destined to stay poor. Indeed, a substantial proportion of the world’s natural wealth is concentrated in these countries, and the glittering affluence of today that we see elsewhere in the world can directly be traced to have been built on the ruthless and unjust exploitation in the past of this very wealth. Some of these countries may have been politically mismanaged for a while, but in the economic field they have been largely following the strategy and policies designed with the assistance of international financing institutions and the bilateral donors as part of the conditionality of the aid availability. Can it then be that the real fault lies, firstly, with the international economic environment in which the low-income countries are compelled to pursue their development effort and, secondly, in the policies and procedures that we have devised for the functioning of the international financing institutions.
As to the New International Economic Order, year after year it becomes distressingly obvious that despite the eloquent concern expressed at the various international forums, and there has been no dearth of them in recent years, the already yawning gap between the rich and the poor inexorably widens and the pleas made for mitigating global economic inequalities and eradicating mass poverty in poor lands of the world evoke by and large indifference if not an altogether negative response. Positive and effective action is much more in evidence whenever the privileges of the rich appear to be threatened, when uncertainties arise about maintaining “super affluence” for the fortunate few but seldom and less so with the same degree of effectiveness when it comes to dealing with the reality of macabre poverty and the consequential degradation of the vast majority of mankind.
It is not the uncertainties, low growth and persistent high inflation in the industrialized countries so elaborately documented in the Bank and the Fund reports which are the root cause of the current crisis. These are only the symptoms of a much deeper malaise, namely, the malfunctioning of the international economic order. It is a crisis of structures, of institutions, of attitudes and of political will. It is a crisis of perception and inertia in international action. The crisis can only be resolved through an enlightened policy of international cooperation based not only on the recognition of interdependence of nations but on a vision of the long-term converging interest that will transcend the interplay of immediate interests.
Such a vision is no doubt widely subscribed to but what has been the practical response of the industrialized countries to it?
First, the industrialized countries have taken increased recourse to protectionism, which has emerged as the single most disrupting element in international economic relations in recent years, notwithstanding the gospel of free trade that has been preached for years and the fact, as various studies including the findings of the World Development Reports have shown, that the number of jobs lost as a result of export penetration is very small indeed compared to those lost because of technological changes and other factors. All conceivable measures from “multilateral arrangements,” “import quotas,” “voluntary export restraints,” “orderly marketing arrangements,” “price floors” and “countervailing duties” to administrative obstacles to exports and subsidies to domestic industries have been adopted to shut out the exports of developing countries, whose fate we nevertheless ritually bemoan at these annual meetings.
Second, the outcome of multilateral trade negotiations has been similarly disappointing for the developing countries. They have failed to provide “the special treatment” or “additional benefit” to developing countries or to lay the groundwork for a substantial increase in foreign exchange earnings or the acceleration of the rate of growth of their trade or again a substantial improvement in conditions of access to markets for their products, which were among the professed objectives of these negotiations. The greatest disappointment has been their complete failure to deal with the existing quantitative restrictions, including in particular the highly restrictive and discriminatory regime of trade in textiles, and the vast area of other nontariff barriers against exports of developing countries.
Third, the overall situation in regard to international resource transfers has worsened. In respect of official development assistance, developments have been particularly disappointing; not only are there no prospects any longer that the ODA target of 0.7 per cent established by the international development strategy would be met by the end of the decade but there has been a decline in the ratio of ODA to GNP since 1971 when it stood at 0.34 per cent. In addition, the future of the largest multilateral channel for ODA to the poor countries, IDA, is currently being threatened by conditionality of contribution which goes against the spirit and principle of multilateral assistance. And this at a time when substantial increases in ODA over present levels are required if the internationally accepted goals for the growth of the developing countries are to be achieved. The only redeeming feature in this otherwise gloomy picture is the encouraging contribution of OPEC countries which have made available 1.5 per cent of their GNP on concessional terms despite the fact that their present affluence is based on a depleting and finite resource.
Fourth, although an agreement on retroactive adjustment of official debts of the poorer developing countries, which could serve as the most effective instrument for net resource transfer, was reached in March 1978 under the auspices of UNCTAD, some of the major creditor countries, and this a matter of serious concern, have either failed so far to fulfill their commitments under the agreement or have taken decisions which fall far short of the scope and intent of that agreement. In fact the actual debt relief given under this agreement so far is only one third of the total amount which was eligible for rescheduling.
Last, the basic tasks of international monetary reform which, considering the objectives with which the exercise was first undertaken, would have helped accelerate the development of developing countries have yet to be accomplished.
In short, at the global level the international community, whatever its professions, has in practice failed to achieve any of the goals in the fields of money, trade, and transfer of real resources to the developing countries that it had set for itself at the beginning of the decade. What is even more disconcerting, policies have been adopted which if not reversed will seriously impede the development effort of the developing countries and may even possibly negate the meager progress they have made so far. The Group of 77 has already suggested a comprehensive package of immediate and long-term action programs in these areas of international concern. It needs to be emphasized that unless these issues are tackled in real earnest and with a sense of urgency, the world economy will continue to find itself trapped in a vicious circle of slow growth, unemployment, protectionism and instability in the monetary and financial fields with particularly disastrous consequences for the well-being and progress of developing countries.
Multilateral financial institutions have acquired a special and prominent position in the quest for development, and one would wish to see their role enhanced. Just as a change in the international economic environment is essential to remove mass poverty, a goal that we cherish in common, so also there is a pressing need for a shift in the policies and procedures of these institutions. Along with the need for a marked improvement in ODA flows, a change in quality and forms of assistance is also urgently called for. When aid is tied, as it so often is, to purchases from specific countries, to foreign exchange components of outlays or to specific projects, developing countries pay a heavy price not only in higher costs but in a loss of flexibility and freedom of action. . . .
There is a widespread dissatisfaction in the developing countries with the current functioning of the international monetary system. The Bretton Woods Agreement which led to establishment of the IMF was designed to create a machinery for promoting international monetary cooperation for the common good of all member countries. However, the way in which the system functioned over the years gave little satisfaction to the developing countries as their specific problems relating to economic growth, trade and payments remained virtually unattended. The need for revamping the world monetary system was also acutely felt by the developed countries after the suspension of convertibility of the dollar in 1971. This provided an excellent opportunity to reappraise the entire situation and to make the system more responsive to the needs of both the developed and developing countries. Unfortunately, the Committee of Twenty, which was entrusted with the task of suggesting a blueprint for international monetary reform, was wound up rather hastily in 1974. The idea of a reform in a single package was abandoned, and it was decided that priority should be given to certain aspects of reform with a view to their early implementation while deliberations on other aspects of reform could be dealt with later as part of an evolutionary process.
The so-called Jamaica Accord of 1976 is said to represent the first step in the evolutionary process but it has failed to take care of the concerns of the developing countries. At the time of the constitution of the Committee of Twenty it was recognized that among other things the promotion of the net flow of real resources to developing countries should be one of the main features of the international monetary reform. A link between SDR allocations and development finance could be an important step in this direction but this was not accepted. Under the exchange arrangements legalized by the Jamaica Accord, currencies of member countries can float indefinitely, and this has given rise to serious problems for the developing countries. International liquidity continues to be created by the national decisions of the richest industrialized nations whose currencies are held as reserves by other countries. This does not allow the adjustment of world reserve creation to the noninflationary requirements of potential growth in world trade and production. The uncontrolled growth of international liquidity in the form of reserve currencies has been an important factor in the persistence of worldwide inflation which has hit the poorer countries particularly severely. Similarly, the balance of payments adjustment process continues to remain asymmetrical with the pressure to adjust concentrated more on non-reserve deficit countries than on surplus or reserve currency countries. Persistence of high rates of inflation along with sizable underutilization of productive capacity in several industrialized countries and volatile exchange rates are symptoms of a deep-seated malaise whose reflex is also to be found in the sharply rising gold prices. The causes of most of these ills are to be found in the malfunctioning of the international monetary system.
It is time that the unfinished task of international monetary reform is resumed in earnest. Just before the commencement of our Annual Meeting, the Group of 24 deliberated on the question and it has come forth with an “Outline for a Program of Action on International Monetary Reform.” This has also been endorsed by the Group of 77 and enjoys the unanimous support of the developing world.
I have noted with interest that the setting up of a substitution account for facilitating replacement of reserve currencies by SDR-denominated assets is currently under the active consideration of the IMF. Several aspects of the scheme are yet to be firmed up but it is clear that even if it gains acceptance it will not make much of a contribution toward an effective control on international liquidity. The scheme will bring about only a limited change in the composition of reserves, but the capacity of reserve centers to continue adding to international liquidity will remain largely unaffected. I hope that in the period ahead it will be possible to arrive at an agreement for the settlement of current deficits and surpluses of member countries in SDRs, to help regulate the generation of international liquidity in accordance with the collective decisions of the international community and to promote greater symmetry in the adjustment process.
In the context of international monetary reform, I would also urge a basic change in the attitude of the IMF to the adjustment problems of the developing countries. The use of Fund resources by developing countries is being seriously inhibited because the conditions set are not easy to fulfill in the context of the socioeconomic conditions prevailing in these countries. It is disconcerting indeed that while the non-oil developing countries are faced with gigantic deficits in balance of payments, the net use of Fund resources is showing a decline. The Fund should, therefore, endeavor to align its policies with the realities of the situation in developing countries and adopt, without engendering irresponsibility, realistic and flexible policies in dealing with their problems of adjustment. I am aware that recently the IMF has adopted a new set of guidelines on conditionality. However, experience of some of the developing countries shows that the policies of the Fund in actual practice have not undergone much of a change. I would, therefore, urge the Fund management to give earnest consideration to this matter and to reorient the conduct of Fund policies so that these prove of real help to the developing countries.
Let me conclude by expressing the hope that the international community in general, and those in it with large influence in particular, will not shy away from the bold initiatives that are required over a wide front so that the many and growing millions living in abject poverty do not lose faith in the human community and human destiny.
Statement by the Governor of the Bank for Algeria—M’Hamed Hadj Yala
First of all, I have pleasure in expressing our gratitude to His Excellency Marshal Tito for his lucid analysis and accurate evaluation of the international economic situation and the constructive proposals contained in his inaugural speech.
I should also like to add my voice to those of the distinguished delegates who have preceded me on this platform to express the cordial thanks of the Algerian delegation to Marshal Tito and the Government and peoples of this friendly country for the unparalleled hospitality accorded to us—a hospitality which is quite naturally the distinctive characteristic of proud, valiant, and generous peoples. I should like also very sincerely to thank the staff of the World Bank, the International Monetary Fund, and the authorities of this beautiful city for the efforts they have made to assure a successful outcome to the discussions at these great meetings.
These discussions, which normally used to focus only on the Annual Meetings agenda, extend over a longer period whereby exchanges of views of greater scope and depth can be held, and this can lead to a more effective dialogue within our two agencies and thus facilitate the same type of talks in other institutions.
We are forced to note, however, that this increased time devoted to our two institutions and to the environment in which they are developing has not resulted in any fundamental reforms in the sphere of their competence, nor has it advanced concertation in other forums. Quite the reverse: it has often been used as a pretext for the suppression of numerous initiatives with the assistance of a highly questionable organization of the decision-making powers within the two institutions—despite the good intentions of their leaders, which are justly appreciated.
This has delayed the arrival, in its full measure, of the needed reform of the international monetary system, which continues to be the prerequisite for the emergence of a new international economic order. Furthermore, it seems impossible to put into action the transfer of resources, recognized as being the indispensable complement of the monetary system, in the way that the developing countries have had the right to expect. Here is, manifestly, a deliberate refusal on the part of the industrial world to adopt as its own the objectives—although modest—fixed by the international community for North-South cooperation.
The bitterness prompted by the vain attempts to reform the international monetary system is compounded by disappointment arising from the mediocre results of the UNCTAD V Conference at Manila and the similar results of the Multilateral Trade Negotiations in Tokyo.
Thus, in spite of the powerful voices raised against protectionism, with each day that passes the climate of international trade is liable to become more unfavorable for the developing countries. This situation is the more to be censured in that discriminatory restrictions are frequently levied on the output of small industrial units, often produced for and with the aid of the industrial countries. In these circumstances, and unreservedly assuming its obligations with regard to solidarity, Algeria did not fail in 1978, or this year, to make an extra effort to absorb numerous products from developing countries, notably textiles that could not be placed on European markets in spite of the intergovernmental agreements in effect. In another field indissolubly related to the ties between the industrial world and developing countries, that of the transfer of technology, at the last conference, in Vienna, representatives of the wealthy nations confined themselves to declarations of principle and timid commitments with reference to promises of credits to be awarded for prospecting activities that could to some slight degree benefit the developing countries. This, under the heading of “appropriate technology,” is in fact cut-price technology that is part and parcel of an immutable plan to conserve the supremacy of the North over the South in this domain as in all others.
All that remains, then, of the universal movement that brought about the Sixth Extraordinary Session of the UN General Assembly and the Paris Conference are the disorders that are seriously affecting the world economy, characterized by inflation that has become a permanent feature, unsettled exchange markets, and a stiffening of national egoisms in trade matters. This grave and complex situation has been reduced to the mere dimensions of a problem of an increase in oil prices which the developed countries are trying to represent as the origin of all the evils afflicting the world economy.
It is not my intention to dwell at length on the drastic effects of this situation on the developing countries, described time and again in various forums and referred to in the course of our present discussions. I merely wish to state here with respect to the OPEC countries, that despite the difficulties some of them are experiencing they have constantly supported all efforts to correct this situation, and the more than 2 per cent of GNP used in their programs of government assistance to developing countries is eloquent in this connection at a time when half of the government assistance of the developed countries remains below the target of 0.7 per cent.
The various documents prepared by the Bank and Fund staff, with their projections, indicate that the future gives yet more cause for concern since the situation of the developing countries is liable to deteriorate in conditions of feeble rates of growth in developed countries and in the inability of the international monetary and financing system to settle liquidity problems and to provide more substantial flows of government assistance to meet, in particular, the needs of the poorest countries.
It is truly grievous to note that just as we are preparing to establish the objectives of the United Nations Third Development Decade the same system prevails, which is to say, a system which will necessitate almost a century to bridge the dire gap still evident between the incomes of the developing and of the developed countries even if the former can double their per capita rates of growth and the latter do not increase theirs.
In this connection, I cannot refrain from saying a few words about a certain very particular kind of attitude which in recent years has been brought to bear on relationships between prosperous nations and developing countries. It is related to the so-called “regard for human rights,” a criterion which, if applied to our countries, would make it necessary for us to submit to interference in the domestic affairs of our States. Among other things, the industrial countries might have the choice of directing their foreign aid to one type of government rather than another.
Aspiring to find remedies for all these problems, the nonaligned nations have proposed the opening of continuous worldwide negotiations on the subject of international development assistance, as part of a program dealing with all the major questions, which will be discussed on a global scale. It is evident, however, that while our more prosperous partners may sometimes agree on principle, they unfortunately sometimes have views opposing our own as to the procedures for mounting a comprehensive effort, avoiding friction, and assuring balanced growth for the international community as a whole by responding to the imperative need, applicable to all, for a redistribution of the world’s wealth from the richest countries toward the less advantaged.
To be sure, here and there we can discern a few gestures of good will which some rich countries try to present as a new policy, and which, they claim, would bring about a new world economic order.
It must be pointed out that on all these questions the positions of the Third World have been clearly set forth in other forums and that the just demands of the developing world are known. Thus, quite recently at Arusha, at Manila, then at Monrovia and finally at Havana, voices have been raised yet once more to express a genuine grief vis-à-vis a situation whose fatal consequences are arresting the development of our countries and seriously impairing the interests of our peoples. The same applies to the meeting—for the first time—of the Ministers of Finance of the Group of 77, following that of the Group of 24, the essential aim of both meetings being to bring to the notice of all the extent and the gravity of the circumstances the world is experiencing, as a consequence of the breakdown of the international monetary system with all that has entailed.
To take the interests of the developing countries into account, a monetary reform must necessarily include the elements set forth in the document of the Group of 77 which, in succession to the communiqués of Jamaica and Arusha, constitute concrete proposals deserving of consideration by the international community.
Consideration of these elements of reform might also provide the opportunity of securing the real participation of the developing countries in the adoption of international decisions affecting us all. This participation is not only a question of equity but also, and chiefly, a question of efficacy.
The International Monetary Fund has outlined a progressive reform that has been evidenced in certain adjustment activities rendered unavoidable by a difficult economic situation. However, these measures—although positive and not inconsiderable—are hardly likely to change the situation to any significant degree. . . .
Thus, after long years devoted to often sterile discussion in various forums the rich industrial North must in the end unequivocally decide to accept a new set of rules for the game, rules that represent nothing more than justice, in observance of which the rich nations will consent to contribute their know-how and their financing to the developing countries on advantageous terms, at the same time opening wide their markets to products from the disadvantaged South. Needless to say, the counterpart of such a policy for the North would be an equitable remuneration for its services and all kinds of direct or indirect advantages that it would most certainly reap from a healthy cooperation, as well as the removal of all barriers to international trade and an expansion of its economic relations with the developing countries.
This we believe to be the best course and the only one capable of bringing about the new economic order which is still the surest guarantee of the advent of a new era of justice and greater well-being for all.
Statement by the Governor of the Bank for Equatorial Guinea—Salvador Ela Nseng
It is a signal honor and a very special occasion for me to address this great annual gathering of the Governors of the International Bank for Reconstruction and Development and the International Monetary Fund, in order to convey to you the gratitude and the cordial greetings of the Supreme Military Council of the Republic of Equatorial Guinea and its President, His Excellency Lieutenant Colonel Obiang Nguema Mbasogo, at this crucial moment in the history of our country and our people.
First of all, we offer our warm affection and congratulations to His Excellency Josip Broz Tito, President of the Socialist Federal Republic of Yugoslavia, and to his people for the hospitality and the cordial welcome that our delegation has received since our arrival in this beautiful capital, and for their magnificent efforts in preparing for our meetings.
The Republic of Equatorial Guinea is one of the smallest countries of Africa and the world, both in area and in population; but its situation is similar to those of other larger and more populous nations. Nonetheless, we can say that all of the adversities that have afflicted Africa in recent decades have been felt particularly in our country, having drastic consequences and affecting us much more severely than our sister nations.
When our country achieved its independence, the happiness and yearnings of our people for harmonious development were great as we strove to bring about a sound and better future; but it was to be Equatorial Guinea’s misfortune to fall under a personal and savage dictatorship which became more inhuman with the passage of the years.
The unchecked power of ex-President Macias Nguema has shattered the political, economic, and social and cultural life of our country and our people. Because of these ruinous conditions, many of our citizens, fleeing from his attacks, sought refuge without protection in foreign lands. Others remained, against all odds, so that they might do as much as possible to lessen the harmful effects that the country was suffering, which led to the formation of the Supreme Military Council. The Council succeeded in putting an end, once and for all, to the Macias Nguema dictatorship on August 3. The Supreme Military Council, authentic interpreter of the will of the Guinean people, has been dedicated since that historic date to establishing a system of true democracy in our country, guaranteeing the greatest respect for the dignity of the individual in order to build a new society and to ensure total reconstruction of the nation and a prosperous future. In this task we rely on the following elements:
(1) The ability of our people to erase forever all the effects of the disastrous past and to build a new nation;
(2) The intention of the Supreme Military Council to thwart any attempted resurgence of antidemocratic forces that might disturb and hinder the development we seek; and finally,
(3) The solidarity and the sincere and open cooperation that we expect to enjoy with Africa in the world and in the field of international finance, for since last August 3 our country has been opened to the world after a total isolation of five years.
This solidarity has been shown to us since the outset in an effective and unprecedented way by the Government of the Gabonese Republic, which came with open hands to assist us in a humane and brotherly spirit, responding as a brother and good neighbor. The Kingdom of Morocco, as well as Cameroon, has likewise been aiding us. And we should also call attention to the valuable and noteworthy assistance that we have received from Spain. The European Economic Community as a whole has provided medication, food, and everything required to meet our basic needs. To all of the countries that have given Equatorial Guinea their unconditional assistance, we offer our sincere thanks and our warmest good feelings. We have learned that we are not alone and that we can count on a sympathetic worldwide response during these times.
Equatorial Guinea stands ready to open itself to the rest of the world and to be a full participant in all systems of international cooperation, since the dictatorship had completely destroyed the economic structure of our country. But we believe that by relying earnestly on the World Bank and the IMF on the one hand, and promoting public and private foreign capital investment on the other, we can carry out the projects that will build up our national economy with dynamism and efficiency.
Equatorial Guinea is known to have vast natural resources of all kinds but urgently needs technology to ensure its own development. Nonetheless, we are aware that these factors in themselves are not sufficient to attract foreign investment. Cognizant of this situation, the Supreme Military Council that now governs our country assured the diplomatic corps and the international organizations present in Malabo last August 4, through the President, that the Government offers all guarantees with priority for the entry of foreign capital of individuals, corporations or international financial institutions, public or private, wishing to invest in Equatorial Guinea. To them we state that anyone who brings his capital to our country will enjoy full rights and adequate guarantees of its repatriation under law.
Since the moment it assumed power, the Supreme Military Council has made it clear to the international community that it will base its policies on the principles of international law and on the Charters of the United Nations and the Organization of African Unity.
The Republic of Equatorial Guinea today calls for the unfreezing of all credits in its favor in the World Bank, the International Monetary Fund, and other financial institutions of which we are members, in order to take the first steps to overcome the difficult situation in which the previous regime has placed us. At the same time, Equatorial Guinea declares its complete willingness to enter into bilateral and multilateral agreements with the governments of friendly countries in order to study and implement forms of technical, financial, and economic cooperation and assistance, so that we may progress and realize the just aspirations of our people, so long tormented, under conditions that are spiritually and materially more humane. We are fully aware that the Bank and the Fund can do this, for experience has shown us that they have so acted in other countries.
In order to achieve these objectives, we ask for the cooperation of all our friends, which we have no doubt we will receive.
Statement by the Governor of the Fund for the Republic of China—Kuo-Hwa Yu
On behalf of my delegation, I would like to join my fellow Governors in expressing our sincere appreciation to our host country for its kind hospitality and cordial cooperation. We feel it is a rare privilege that the Fund-Bank Annual Meetings this year take place in this beautiful and historical city of Belgrade, which is indeed a change of scenery to many of us.
I would like also to extend warm thanks to Mr. Jacques de Larosière, Managing Director of the International Monetary Fund, Mr. Robert S. McNamara, President of the World Bank, and the Executive Directors and the staffs of the two organizations as well as their affiliates for their accomplishments and high sense of dedication in carrying out their heavy responsibilities in the past year.
We may recall that, in order to achieve noninflationary growth of the world economy and to generate more employment opportunities, a coordinated strategy was endorsed and accepted during the last Annual Meetings. Unfortunately, the intervention of extraneous factors has nullified much of our effort. Both inflation rates and unemployment remain unacceptably high in most member countries. The rate of expansion in international trade, as a whole, is much too slow. The upsurge of protectionism has become a matter of serious concern, especially to those countries in the course of development.
The progressive reduction in the disequilibrium between oil importing and exporting countries conscientiously achieved in the past several years was abruptly disrupted this year by the interruption of Iranian oil exports, and repeated and substantial increases in oil prices. It is estimated that the current surplus of the major oil exporting countries will be raised to an estimated $43 billion this year from about $6 billion one year ago. A disequilibrium of this magnitude cannot fail to cause serious disruption to the international adjustment process.
Major industrial countries are probably better equipped to absorb the sudden increased oil cost, because of their basic strength and the sophistication of their economies. The blow falls hardest on the non-oil developing countries, whose payments and external indebtedness problems become almost insurmountable.
As if to exacerbate the already weak position of these countries, their efforts to promote exports—a necessary measure to reduce their current account deficits—are painfully frustrated by the ongoing slowdown of economic activity in the industrial countries, the principal markets for their products.
The low-income developing countries contain more than two fifths of the population of all Fund and Bank members. Thus the seriousness of the situation should not be underestimated.
My delegation would suggest that maximum coordinated efforts on the part of member countries are called for. Each country, of course, should tailor and implement its economic policies in the light of its particular circumstances. Major industrial countries are earnestly urged to take into account the plight of the developing countries and, for their long-term self-interest, to make their markets more accessible to the exports of the developing countries. It is also hoped that the flow of official development assistance will be expanded—and expanded soon—to the low-income countries. . . .
Another recommendation we have taken seriously into consideration is that for the expansion of trade and lowering of the tariff barrier. Continuous efforts have been made to reduce our import tariff on raw materials and intermediates. The latest adjustment made in July exempted 21 items from tariff, lowered the tariff on 432 items, and changed another 215 items from ad valorem to specific duty rates. By authority granted under the Customs Law, the Government also cut in half the import duties on 180 items of machinery and equipment as an incentive for capital investment.
The activities of the Fund during the past year have been fruitful. Immediately after the quota increases proposed under the Sixth General Review came into effect last September, the Seventh General Review was completed in December. The total quota is now expected to reach SDR 58.6 billion. The supplementary financing facility also became operational in February of this year, so that an additional amount of SDR 7.784 billion is being made available to assist those member countries that require balance of payments financing in larger amounts, and for a longer period, than they could obtain from the Fund’s regular credit tranches.
My delegation is pleased to note that, in March of this year, a new set of guidelines on conditionality on the use of the Fund’s general resources was adopted by the Executive Board, after taking into account the comments and wishes expressed at the previous Annual Meetings. I would like to suggest that these guidelines should be subject to review from time to time, on the basis of the experience obtained from their application, as well as in the light of changing circumstances of the world economy.
The administration by the Fund of the Trust Fund loans has been satisfactory. In the first period, a total of SDR 841 million was provided to 43 of the 61 qualified member countries. For the second period, 59 member countries will be eligible to receive such assistance, beginning not later than May 1, 1980. Since the grant content of these concessional loans is very substantial, they will assist many developing member countries in carrying out their programs of balance of payments adjustments.
Permit me to make a brief presentation of the economic performance of my country during the past 18 months. For reasons both domestic and worldwide, we found it necessary to revise our six-year plan after three years of successful implementation. The main features of the revision are as follows: (1) to raise the average GNP growth rate to 8.5 per cent per annum, 1 per cent over the original goal, for the remaining three years; (2) to revise the average increase rates of imports and exports for the remaining three years to 19.6 per cent and 15.4 per cent, respectively; (3) to promote the machinery and electronic industries as the prime movers of industrialization and to reduce past reliance on labor-intensive industries; and (4) to start the new Twelve Major Infra-structural and Industrial Projects in order to continue the momentum of economic activities which had been effectively maintained by the Ten Major Projects now completed.
The year 1978 was one of our best years in the recent history of our economic development. An unprecedented growth rate of 12.8 per cent was recorded. Our GNP per capita reached US$1,304. For the first half of 1979, we managed to achieve a growth rate of 9.2 per cent, notwithstanding the adverse effects of oil price increases. It is expected, however, that the growth rate for the second half of 1979 will be lowered.
The expanding volume of trade continued to provide our national economy with the necessary dynamism to grow. Imports and exports increased by 26.1 per cent and 31.9 per cent, respectively, in 1978, exceeding considerably the planned goals. For the first half of this year, the totals of imports and exports reached US$6.63 billion and US$7.37 billion, respectively, representing increases of 34.7 per cent and 31.9 per cent, respectively, over the same period one year ago.
The price situation, however, is a source of serious concern. Although wholesale prices increased at an annual rate of 3.53 per cent and urban consumer prices at 5.77 per cent last year, both have risen rapidly since then. For the first half of this year, they increased by 7.42 per cent and 3.78 per cent, respectively, as compared with the second half of 1978. If compared with the first half of last year, the rates of increase are as high as 11.10 per cent and 7.42 per cent, respectively. In order to maintain price stability, my Government is taking all possible measures to keep inflationary pressures under control.
As of February 1 this year, we introduced marked innovations in our foreign exchange regulations, with the intention of establishing a free foreign exchange market; the innovations have been working smoothly. It is our hope that in the future the market mechanism will help adjust the exchange rate of our currency with more frequent but smaller rate movements.
In concluding my statement, I would like to pledge, on behalf of my delegation, our full cooperation with the Fund and the Bank in promoting the economic welfare of the people of all member countries. We sincerely believe that the Fund and the Bank will continue to play their important role effectively in the coming year.
Statement by the Governor of the Fund and the Bank for Fiji—S. Siwatibau
I would first like to show my appreciation to our host Government for the excellent arrangements under which we meet this year. I thank the President for his words of welcome and the peoples of this country for the warm hospitality accorded us this week.
I shall not expatiate upon the current international economic scene and prospects, as these have been comprehensively covered in the Annual Reports and other documents issued by the Fund and the Bank. Governors who took the floor before me have also covered them amply. Suffice it for me to say that I share the collective concern for the upward trend in world inflation, persistent high unemployment levels, the looming recession and the mounting deficits of the non-oil developing countries.
On the current economic scene and immediate prospects, there is general agreement. But on their causes and prescriptions that need to be applied, I believe there exists a diversity of views.
Inflation has become endemic. It has over the last few years brought about a significant erosion in confidence. We see a persistent inflation psychology. What we now experience could almost be called a crisis in confidence in the economic policies and management, particularly of the largest economies.
The current situation could perhaps be viewed in its historical perspective. Over the last few decades our various governments, nudged along by their elected parliaments, have embarked aggressively into the provision of social services of all kinds. Indexed pensions, generous medical provisions, indexed and minimum wages, free or subsidized education, generous unemployment benefits have all become familiar features of government policy formulation in recent years. These are of course laudable objectives but it would appear that their impact on the widening fiscal deficits, negative incentive for and attitude to work, static growth in productivity and the consequent accelerated growth in money supply have contributed to the inflationary psychology of today.
I would agree with those who advocate the eradication of inflation in the industrialized countries as deserving of the highest priority. It would be the condition precedent to the revival of public confidence which must in turn precede the growth in savings and investments in the industrial world. Only then can we expect steady growth in the medium and long term. I would therefore concur with the Managing Director when he observed that industrial countries should, in the months ahead, espouse cautious monetary and fiscal policies while strenuously applying their energies upon the breaking up of supply bottlenecks in the medium term. So it may not be inconceivable that the world economic situation may further decline before we begin to traverse a more lasting and upward trend.
Although oil prices have contributed to the upward trend in world prices, we must not fall into the temptation of attributing all economic ills to them. I believe that the fundamental problem of the so-called stagflation in the United States and other industrial countries is largely self-inflicted and stems from the policy perspective which I have already mentioned.
Under the gold standard, the monetary system had an externally imposed discipline upon the policy formulation of our countries. Under the Bretton Woods system, we had a de facto supranational banker but with external discipline superimposed through the conversion of the U.S. dollar into gold. Since the Second Amendment, however, the member countries now have relatively unfettered maneuverability with regard to domestic policy formulation. True, the IMF is now armed with surveillance powers. But the fact remains that each and every one of our countries now has a heavy responsibility to adopt policies within a framework of self-restraint and without detriment to the interests of others.
In the months ahead I believe that the IMF would have to take an active role beyond its traditional interest of monetary, fiscal, and exchange rate policies. Increasingly it should pursue active discussion in fields relating to supply, and embracing energy, production and incomes policies. Almost by definition, involvement in such policies will mean that the Fund must increasingly take a relatively longer-term view of economic developments within the member countries. I hasten to add that this does not mean that the Fund must assume a developmental role such as that of the Bank. But it would mean a much closer cooperation and coordination by both institutions in their future programming within the member countries.
We are told that current deficits of the non-oil developing countries will rise from an expected $43 billion this year to more than $50 billion in 1980. These additional burdens will be added to the weight of the cumulative deficits of the last five years. Deficits have of course to be financed. Already a good many of these countries are living with the unsatisfactory situation where capital inflows have been absorbed by deteriorating terms of trade and rising debt service burden—and not for developmental purposes.
In the months ahead we shall again have to rely upon the private international banks for the financing of the massive deficits accruing to developing countries. But the difficulty of the poorest developing countries which do not have ready access to the Eurocurrency markets deserves special consideration. These countries will have to look more toward the Fund and Bank for the satisfaction of their foreign exchange needs. It is in response to such needs that I believe the Fund must exercise a degree of flexibility, particularly with respect to the amounts of drawings under the supplementary and extended facilities. I understand that the Fund may already be bent upon the strategy, and I would like to lend support to that course of action.
In tackling the difficulties of the developing countries we must not underestimate the important role of domestic policies. Although appropriate domestic policies, under the current world economic climate, may not in themselves be sufficient conditions for avoiding disruptions, they are certainly necessary. So domestic policies must be supplemented by a world economic climate which is not hostile to the efforts of the developing countries.
In this connection I support those who have argued eloquently for the removal of trade barriers. I would hope, in spite of the constraints itemized by some of the economically powerful nations, that the downward trend in ODA would be reversed in the years ahead. Relaxation of controls against capital outflow such as adopted by the United Kingdom recently is certainly welcome. . . .
Turning to matters relating to the Fund, I begin by making an appeal to members for an early enactment of legislations necessary for the implementation of the Seventh Review of Quotas. The enhanced financial strength of the Fund flowing from this exercise will certainly help it perform the growing role which we all expect of it in the difficult and uncertain months to come.
Since the breakdown of the Bretton Woods system in the early 1970s, we have moved away from a single reserve currency system with externally imposed discipline, toward a multireserve currency system. Divergence of economic performances of the reserve centers has been associated with exchange instabilities. The Second Amendment to the Articles of Agreement contains our collective resolve to make the SDR the principal reserve asset. Yet the share of SDRs in total world reserves, even including the allocations under the current period, does not show any increase. And if we believe that making the SDR the principal reserve asset contains an element of imposed external discipline with an inherent stability lacking in a multireserve currency system, ought we not to give more thought to further allocations of SDRs?
Also, in the pursuit of making the SDR the principal reserve asset, it would appear logical that we seriously consider the establishment of the substitution account. Such an account should evolve in an organic way. Participation in it must be voluntary. As such, it must have features, particularly with regard to yield, liquidity, and stability that would be attractive to the central banks. I need not remind this august gathering that central bankers tend to be hard-nosed practitioners who would wish to have their substitution account and eat it as well. This brings me to an important point. There will need to be an equitable allocation of costs, particularly with regard to exchange loss that might accrue to the substitution account. A satisfactory formula would do much to enhance the attractiveness of the account to would-be participants.
I would like to express support for the proposal to increase the repurchase period under the extended Fund facility from eight to ten years. I do not agree with those who argue that such a change converts this facility into a source of development finance. Purchases under the Fund facilities have underlying early repurchase obligations. This would ensure that only those countries which find themselves in persistent balance of payments and reserve difficulties will benefit under a stretched-out repurchase period. Such a move would be consistent with the special concern for the weakest developing countries; a concern I believe we all share.
Finally, I would counsel against a hasty decision on the sale of gold and the application of the proceeds of such sale toward reducing the cost of drawings under the supplementary financing facility. It would appear desirable that a policy regarding the future of the Fund’s gold must first of all be formulated and that we avoid an ad hoc approach to this important subject. I do not of course oppose the laudable objective of reducing the cost of drawings under the supplementary financing facility by deserving countries. But I feel that alternative mechanics for achieving the same objective outside of gold sales should be pursued.
Statement by the Governor of the Fund and the Bank for the Lao People’s Democratic Republic—Bousbong Souvannavong
On behalf of the delegation of the Lao People’s Democratic Republic, I associate myself with previous speakers in congratulating the management and staff of the Bank and the Fund on the excellent preparations they have made for our Annual Meetings. And once again my delegation would like to thank the Government and people of Yugoslavia for the kind and hospitable reception accorded to us. My delegation welcomes the new members joining our institutions this year: Cape Verde, Djibouti, and Dominica.
A few days ago an “Outline for a Program of Action on International Monetary Reform” was adopted at the first meeting of Ministers for Finance of the Group of 77. I should here like to reiterate the approval of my delegation on the evaluation of the present world economic situation contained in this work and its program of action on international monetary reform which is of crucial importance at this time. The Program of Action has defined in general terms different measures that should be taken. It needs to be developed through the formulation of appropriate mechanisms, which can be done within our institutions.
Rather than discussing in detail the other matters to be deliberated by our Annual Meetings, my delegation would like to refer here to some aspects of official development assistance to the least developed countries and the most seriously affected countries, particularly the island or landlocked developing countries. As an instance, I should like to describe the situation of my country, the Lao People’s Democratic Republic.
From the economic point of view, since its foundation a little less than four years ago the Lao People’s Democratic Republic has concentrated all its efforts on reconstructing an economy destroyed and disrupted by a devastating war of aggression. The Lao Government and people have devoted themselves first and foremost to the development of agriculture so that they can become self-sufficient in food resources as soon as possible. To this end agricultural cooperatives have been formed and the arable land area extended; irrigation works have been carried out, new seed and new cultivation techniques introduced, and so on. At the same time, efforts have been made to increase exports of our main products: timber, coffee, and tin. All this has been undertaken by our own efforts and also with the aid of socialist countries, UN specialized agencies, our own two institutions—the World Bank and the International Monetary Fund—the Asian Development Bank, the OPEC Special Fund, the European Economic Community, certain private institutions, friendly countries such as Sweden, and yet others. This assistance has been most precious in difficult circumstances, and the Lao People’s Democratic Republic is deeply grateful for it. Approaches are being made with a view to gaining from other institutions and friendly countries material support for the efforts of our Lao people, who aspire to rise as soon as possible from their state of poverty. But despite all this hard work, which has gone some way toward improving the life of our people, we are still facing some economic difficulties following the 1977 drought, the 1978 flood, and plagues of insects, which are affecting some of our crops this year. As in the past, with our own resources and the assistance of friendly institutions and countries we should certainly be able to surmount the difficulties caused by natural calamities. We would mention that we are having difficulties of another kind, created by hostile activities on the part of the present Peking regime. These activities range all the way from subversion and provocations to infringement of our territory in border areas. All of these tactics can be explained only by the expansionist and hegemonic policy of their originators vis-à-vis a small country like the Lao People’s Democratic Republic whose only aspiration is to live in peace—as is borne out by the good relations it maintains with all the other countries in the region.
I have mentioned these matters in passing; however, apart from its efforts to achieve self-sufficiency in food resources and to stimulate exports, the Lao People’s Democratic Republic needs resources in order to develop certain basic sectors such as the production of building materials and the improvement of access routes to the sea. Unfortunately, donors do not seem interested in these sectors, despite their priority importance. A similar situation might be found in a number of other countries. Therefore, for the least developed and most seriously affected countries, and for those developing countries that are landlocked or islands, the volume and the appropriation of ODA to be assigned to them merit special attention.
Another aspect of ODA that my delegation would like to mention is the desire of certain countries’ institutions to attach political conditions to this assistance. In this connection we firmly support the position of the managements of the Bank and the Fund opposing such conditionality as contrary to the spirit of our institutions, and we think all assistance should be based on the principle of respect for the independence and sovereignty of the receiving country and for the mutual interest of the parties.
The same problem arises in the case of cancellation or rescheduling of debt for developing countries. It is encouraging to note that several countries have converted loans that they had accorded developing countries into unconditional grants; others, however, attach political conditions to such a concession. My delegation hopes the latter group of countries will re-examine this question in the general spirit of official development assistance.
These were some considerations that my delegation has wished to contribute to the discussions, in the hope that with the good will of all the members and the energetic efforts of the managements of the Fund and the Bank, substantial progress will be made in our two institutions.
Statement by the Governor of the Bank for Mauritius—Rabindrah Ghurburrun
I should first like to express the appreciation and thanks of my delegation to the Government and people of the Socialist Federal Republic of Yugoslavia for the excellent arrangements they have made for our meetings and for their warm hospitality.
I should like also to associate myself with the other speakers who have preceded me in extending a warm welcome to the newly affiliated members of the World Bank and the International Monetary Fund.
Since our last Annual Meeting there has been a further deterioration in the world economic climate. The slowdown in world trade, the high rates of inflation, the recent increases in oil prices, and the instability in the exchange rates of major currencies have caused major problems to many countries. The developing countries and in particular the small non-oil developing countries have had to bear the full impact of these events. As a result, they have not been able to achieve the social and economic objectives set for the Second United Nations Development Decade. In the present uncertain world economic situation, the prospects of the non-oil developing countries are indeed very bleak.
The smaller economies, the least developed countries, and the middle-income countries with their very limited natural resources are in a more vulnerable position. These countries, like my own country, are experiencing severe problems of unemployment, slow growth, deterioration in the terms of trade, and persistent balance of payments deficits. Although some of the problems are peculiar to small economies, many of them have resulted from the shortsighted policies pursued by the industrialized countries. The rise in protectionism, especially the restrictive measures applied to such products as clothing, textiles, sugar, and other agricultural produce, has inhibited the structural adjustment process in many countries. This has been harmful to both developing and developed countries. The decline in official development assistance has hampered further the adjustment process.
The priorities of a country are determined by the problems confronting the country. Mauritius is densely populated and has very limited agricultural land. We are making efforts to diversify the economy to provide employment opportunities to the growing number of new entrants into the labor force. This requires substantial investment in development of the infrastructure such as road, water, and power development and housing. Such programs cannot be implemented without external assistance. . . .
… The projected sluggishness in the growth rates of developed countries, the sharply rising trend in the price of oil, and the deterioration in the terms of trade of developing countries provide justification for a substantial increase in program lending and for extending it to needy countries. Such loans, complemented with short-term and medium-term assistance from the IMF will assist countries in their longer-term structural adjustment process and in mitigating severe balance of payments difficulties.
… I would now like to deal with the assistance provided by the International Monetary Fund to needy countries. The drawings of member countries on the Fund’s resources have been far below the full potential level in relation to their balance of payments needs. This is a disturbing development which reflects the inappropriateness of the Fund’s conditionality guidelines in the context of current world economic problems. We therefore strongly welcome the positive suggestions made by the Managing Director of the Fund for enhancing the role of the IMF. In particular we are gratified to note the increase in resources available for longer-term loans and the new set of guidelines which allow for greater flexibility on conditionality.
To conclude, the international community is aware of the diseases that afflict the world: inflation, instability in exchange rates of major currencies, slow growth, unemployment, and poverty. The big question is how to remedy the situation. We believe that the cures for these diseases exist, provided that the conscience of the international community is stirred and the world accepts the remedy.
Statement by the Governor of the Bank for Morocco—Abdelkamel Rerhaye
First of all I should like to associate myself with preceding speakers in thanking the Yugoslav Government and people for the warm welcome and hospitality they have lavished upon us and for the great care that has been taken in organizing our meetings.
I should also like to convey to you the good wishes of the Kingdom of Morocco for the greatest success in our discussions.
Furthermore, on behalf of my delegation, I want to welcome the new members who are participating for the first time in our two institutions’ meetings.
Yet again we find ourselves in the presence of an economic situation characterized by the aggravation of a crisis hugely growing both in proportions and in gravity, the perpetuation of which is a menace to peace and security in the world.
In fact, we find that since our last meetings the trend in the world economic situation has been only downward.
In the industrial countries, domestic demand has been inadequate to stimulate sustained economic growth, and the low growth rate shown in the first half of 1979 has been deflected in a downward direction for the rest of the year.
The resulting underutilization of resources and productive capacities has been reflected in high unemployment rates, although these have had no constricting effect on inflation.
Unfortunately the policies implemented by the industrial countries to cope with the situation have not given due priority to the necessary structural reforms or to concertation between developed and developing partners. On the contrary—these policies have often taken the easy but dangerous course of protectionism and exchange rate manipulations, thus helping to aggravate the situation of the developing countries whose export growth rate has diminished and whose terms of trade have deteriorated.
In token of this, economic activity in those countries—mainly oriented to exports—has slowed down with all the drastic consequences that result for countries whose demographic increases continue undiminished. One of the more evident and scandalous consequences is a dire poverty which annually increases to affect ever-widening sectors of the population.
Another no less perturbing consequence is seen at the level of investment in the form of lack of confidence, laissez-faire, and even the use of resources in nonproductive activities that are unprofitable for the national community and may later render these countries’ productive structure unfit to respond to a recovery in world demand.
All this signifies that interdependence between countries is a reality which is making itself forcefully felt and which States may no longer ignore in their domestic policies or their international commitments.
In the latter respect, it is also clear to us that the progress made by the international community in resolving the problems of its least developed members and those most affected by the economic crisis are inadequate and perhaps not suited to the present situation.
In spite of everything, however, I am still convinced that the sentiment of solidarity among men, and their awareness of the interdependence that exists between them in a world where economic activities are no longer restricted by frontiers, will enable us to find adequate solutions to these problems.
Therefore, we would call upon the developed countries to increase their development assistance in real terms and invite those of them who have not yet reached the objective of 0.7 per cent of GNP fixed by the United Nations to do so without delay. This increase in the volume of assistance should be coupled with an improvement in the terms attached thereto.
To this end, we would hope the developed and developing oil exporting countries can realize that it is no longer possible to meet the important financing needs of developing countries chiefly by onerous loans from commercial banks without quite soon burdening their foreign debt to an excessive extent and thus limiting their capacity to borrow.
Official development assistance and loans from multilateral development institutions should therefore constitute the bulk of the financing resources placed at the disposal of the developing countries.
With this in view, the Group of 77 has prepared and adopted an overall Program of Action aimed both at the economic problems associated with development and at those relating to the reform of the international monetary system. This program, which is devised to attain the objectives sought by the developing countries, has been submitted to the Interim Committee and to the Development Committee.
We support this program and ask that it be studied with special attention so that positive results may be achieved as soon as possible. . . .
Another cause of satisfaction to us is the general increase in the capital of the African Development Bank and the opening up of its share capital to non-African countries. The increase will enable this important regional institution to contribute more substantially to the financing of development in Africa, while still preserving its African character.
As regards the specific development problems of the African continent, I share the views expressed by the spokesman of the African Group and on which memoranda have been addressed to the President of the World Bank and the Managing Director of the International Monetary Fund. I remain convinced that the solution to these problems calls for a greater effort of international solidarity to ensure that real resources can be transferred on a large scale to those countries, to assist them in promoting their economic and social development.
Turning now to the question of the international monetary system and the work of the International Monetary Fund, I should like to remark that the results we had hoped for from the Second Amendment—greater exchange rate stability, making the SDR the main reserve asset, and facilitating the functioning of the adjustment process—have not yet become the positive and dynamic reality that the international situation calls for.
The main reserve currencies continue to show markedly divergent fluctuations in their exchange rates, which shows that we are still far from achieving even relative stability. Such exchange rate fluctuations have prejudicial effects on the economies of the developing countries inasmuch as they disrupt their import and capital programs, complicate the management of their exchange reserves, and increase the burden of their indebtedness.
We therefore urge the IMF not to relax in its surveillance over members’ exchange rate practices and policies and to make greater use of the means at its disposal under the Second Amendment to promote orderly exchange rate practices.
As regards the assistance that the IMF gives its members, we still believe this to be essential in supporting the adjustment efforts of countries which have to cope with increased balance of payments deficits, particularly developing countries.
We note in this connection that the Fund’s potential facilities have been strengthened following the Seventh General Review of Quotas and the entry into effect of the supplementary financing facility. The result should be a wider use of the Fund’s resources, if the rules on conditionality are made more flexible. In this connection we are happy to note that the new guidelines recently adopted by the Executive Directors on conditionality are a notable effort toward greater understanding of the developing countries’ stance vis-à-vis this problem. One way to widen use of the Fund’s resources would be to increase the first credit tranche to 50 per cent of quota. This measure has become necessary by reason of the aggravation of members’ deficits on current account. And lastly, equally important progress is represented by the increased flexibility of the compensatory financing facility represented by the increase in the ceiling for purchases to 100 per cent of quota and by the fact that members can now include receipts from certain invisibles in the computation of their shortfall.
Regarding the deterioration in the developing countries’ deficits on current account, due to a decrease in their export receipts, we continue to advocate a continuous review of this facility so that these countries can be afforded adequate compensation.
Likewise, we urge the IMF to examine in depth the proposals for a supplementary financing facility for shortfalls in exports of primary products.
There is one aspect of the reform of the international monetary system which continues to engage our attention: this is the promotion of the SDR as the leading asset in the international monetary system through the creation of a substitution account. Our conclusions, reached after studying the matter in the Interim Committee, encourage us to continue the deliberations on a substitution mechanism which, while contributing to the attainment of the goals sought, will offer all guarantees of success.
In conclusion I should like to say that the work of the International Monetary Fund and the World Bank, as a whole, needs to form part of a plan to trigger a cumulative and lasting process of advancement in income and employment in both developing and industrial countries, within a stable and pacific environment. The aim of their activities above all, should be, to lighten the burden of adjustment for the developing countries and to support their development efforts.
It is by such endeavors, which often necessitate much tenacity and much courage, that the lot of the great majority of mankind can eventually be improved.
Morocco has never ceased to work, under the enlightened direction of His Majesty the King, for the attainment of these noble objectives and will continue to make its contribution to all efforts of good will for the advancement of man in a finer international society.
Statement by the Governor of the Bank for Nepal—Harihar Prasad Yadav
It is a great pleasure for me to attend, for the first time, the joint Annual Meetings of the International Monetary Fund and the World Bank Group here in Belgrade, the historical capital city of Yugoslavia. At the outset, I wish to join other delegations in recording our appreciation to His Excellency President Josip Broz Tito for his thoughtful and inspiring address which, I believe, has provided us a correct and positive setting for our meeting.
As we review the overall development of the year gone by, I find it more a record of disappointments than of achievements. The economic indicators such as growth rates, inflation, and balance of payments, to name a few, in which we measure our performance are far from satisfactory for the majority of the member countries that are represented here. What baffles us more is that the prospect that has been projected for the years to come is not promising either, given the postures of stalemate in the dialogue between the nations that have means to help ameliorate the situation and those that have not. Notwithstanding the fact that interdependence underlies the healthy economic growth of developed and developing countries alike, international trade has continued to be stifled under the regime of protectionism, giving rise to the further deterioration of structural imbalances. As a consequence, the trade that is pregnant with resources to stimulate growth has not been allowed to play its due role.
The world economy, buffeted, as it were, with the impact and dislocation caused by the monetary instability and energy crisis of this decade, has been projected to dip into further recession with the consequential repercussions on the economies of the Third World. We have noted with concern that the deficit in the current account of the non-oil developing countries which was worsening in 1978 is forecast to widen substantially in 1980, exceeding $40 billion. The mounting burden of debt servicing which will be further aggravated is another area of concern.
While Nepal fully realizes the difficulties that the developed countries themselves are facing in the midst of the ensuing economic crisis, we cannot and will not accept the thesis that any improvement in the North’s concessional policy toward the South must await resurgence of full economic vitality in the former. That official development assistance by many developed countries has never approached the targeted figure, even while those countries were enjoying significant rates of economic growth, is now a matter of history. If current world economic difficulties present problems to the industrialized world, need I mention the magnitude of the burden that a least developed country like Nepal has been forced to shoulder.
Having noted the grim realities facing the developing countries in general and the least developed countries in particular with deep concern, my delegation reiterates the need to implement the Program of Immediate Action endorsed by the Group of 77 as expeditiously as possible. In this context, I find it appropriate to recall the plea made by my sovereign, His Majesty King Birendra, at the Nonaligned Summit in Havana in these words:
As a developing country of the Third World, Nepal is painfully aware of the twofold reality of international economic order—the aggravating problems of development and the failure hitherto of finding a just and effective solution. A situation in which more than half the population of the world exists in absolute poverty can under no circumstances be considered conducive to peace. While the industrialized world is reluctant to fulfill its moral obligation for the development of a new international economic order, the imbalance within the fold of resource-rich and resource-poor developing countries calls for greater attention. It is the reason why we continue to urge that any restructuring of the existing economic order must sufficiently take into account the special problems of the least developed countries.
Indeed, the role of concessional financial resources in least developed countries can hardly be emphasized. Representing one of these countries in this assembly, I urge fellow Governors, especially of those countries whose contributions to the official development assistance in recent years have dropped to unacceptably low levels of their GNP, to take necessary actions to make up the shortfall to the internationally agreed target of 0.7 per cent. . . .
In the field of monetary reform and the financing of the balance of payments needs, there is room for some satisfaction with the gradual improvements in the existing facilities under the aegis of the Fund. With the new guidelines on the conditionality applicable to the use of the Fund’s general resources in the upper credit tranches, existing facilities have become more accessible to developing countries. The supplementary financing facility has become operational, enabling member countries with difficult adjustment problems to avail themselves of larger amounts for a longer period of time than could be possible under the regular credit tranche drawings.
It is also encouraging to note the recommendations made by the Interim Committee and the Development Committee to the Fund’s Executive Board to look into ways and means of lowering interest costs of this facility. With regard to the medium-term financing for balance of payments through the extended Fund facility, it is appropriate that it be made more flexible and practicable in terms of programming requirements so that developing member countries are encouraged to seek recourse to the facility at an early stage of emerging needs rather than taking it as a means of last resort at a late stage. . . .
To conclude, I would like to avail myself of this opportunity to express our admiration for the excellent arrangements for this meeting. My delegation is grateful to the Government and the people of Yugoslavia for their kind courtesies extended to us during our sojourn.
Statement by the Governor of the Fund for Papua New Guinea—Barry Holloway
Other Governors have commented on the very congenial setting for this year’s meetings. This is my first visit to Belgrade, and I wish to express my appreciation to the Yugoslav authorities for their efforts to make us all feel welcome. These efforts have undoubtedly contributed to a very worthwhile meeting.
It is however a sobering fact that, notwithstanding the new and interesting environment for these meetings, the issues and concerns which face us are all too familiar. To the extent that this reflects a lack of progress in dealing with the fundamental problems of the world economy, this must surely be a matter of concern for all of us.
For my own part, this attitude of concern can be balanced to some extent by the fact that the year which has passed has been another year of progress and consolidation for the Papua New Guinea economy. But this sense of satisfaction is substantially clouded by the knowledge that, as a small developing country, Papua New Guinea is susceptible to external shocks which are almost entirely beyond its control, and which could at any time create serious impediments to further progress.
It is a common technique for finance ministers to blame events beyond their control if things do not turn out as planned. But for many of us, this is a continual threat. We have to shape our budgets, our development planning, and our growth and development aspirations according to our perceptions of such factors as the degree of stability which will prevail in the world economy, the likely movements in commodity prices, the degree of inflation we will be forced to import, and the likely constraints on export diversification resulting from the trading policies of others.
Yet, for the smaller countries, there is usually little we can do to adequately anticipate such developments. In the language of politics, we are largely disenfranchised members of the international economic community. One constructive role we can play is to lend our support to the efforts of the major countries to develop positive approaches to the problems of economic and monetary instability. There is nothing altruistic about this—it is an exercise in self-interest. We recognize that the more successful these efforts are, the more we will benefit. The smaller countries have just as much interest in a stable international economy as the major countries. Indeed, perhaps they have a greater interest because of this limited ability to insulate themselves against the consequences of instability and uncertainty.
What we would ask in return is that the major countries continue to be mindful of our interests as they explore possible strategies and as they consider policies which might appear appropriate to their own circumstances. In saying this, I do not mean to absolve countries like my own from the responsibility of developing and implementing sound and realistic policies. Indeed, Papua New Guinea’s record in this respect is quite clear. What I would suggest, however, is that there be some understanding that against a background of uncertainty and with limited policy options it can be extremely difficult to behave responsibly and to give the appearance of behaving responsibly. Finance ministers have perhaps a better appreciation of this problem than our other ministerial colleagues whose preoccupations are with other aspects of government. We need to understand the growing economic interdependence in the world community and recognize the positive contribution that international cooperation makes to stability. It has never been demonstrated that individual countries can better withstand difficult external economic circumstances by retreating into themselves. All the evidence—and it is formidable evidence—is to the contrary.
In this context, the particular responsibility of developing countries is to ensure that their economic and financial policies are consistent with the inescapable constraints in the state of the world economy: flexible to respond to changes in circumstances and geared to produce domestic stability. And it follows necessarily from this that no country—be it developed or developing—can expect others to do for it what it can do for itself. That would not be a correct or proper view of the role of international economic cooperation.
If the events of recent years and the prospects for the period ahead can be taken as a guide, there is at least one clear conclusion which we can take from these meetings. That conclusion is that we have a long way to go in solving the problems of inflation, recession, and unemployment. That is not intended as a facetious comment—none of us finds anything humorous or trivial in these issues. For many countries a situation of fundamental disequilibrium persists, the effects of which are widespread and debilitating. The path to adjustment is protracted and painful.
Many countries—and not just developing countries—are struggling with fiscal and balance of payments deficits and at the same time are endeavoring to cope with seemingly intractable inflation and burgeoning unemployment. There seems to be a very real danger that we are losing our capacity to live within our means. If this is so, it is time to reaffirm our commitment to economic responsibility. The so-called soft options are not options at all.
In Papua New Guinea, we have consciously pursued policies designed to bring stability to an economy traditionally dominated by the vagaries of commodity prices. We have become acutely aware that these fluctuations do not allow us to establish the framework needed for sustained growth—they produce a situation of uncertainty and instability which mitigates against forward planning and which cuts across the framework which the Government requires to be established to sustain the momentum of development.
For this reason, we are pursuing policies designed to bring a degree of stability which we could not reasonably expect to occur naturally. We have established funds to stabilize primary product incomes. We have similarly established a mechanism to stabilize highly volatile sources of funds flowing to the government budget. And we have been forceful in our pursuit of a sound currency strategy to stabilize incomes and prices and to avoid distortions between economic sectors.
There is nothing remarkable about these policies in themselves. The concepts are basic and the mechanisms are simple. But our experience so far is that firmly pursued policies can and do work.
The emphasis on stabilization is particularly pertinent. Domestic stabilization is fundamentally important because it is an indispensable prerequisite for progress. Economic development can proceed along an orderly path only when policymakers are not required to stop and start in rapid succession as the economy is bounced around by the current of events.
Greater stability has, for example, enabled us to proceed with more effective forward planning. We are now better able to bring government spending into line with the priorities established by the Government rather than have these priorities determined for us by the crisis of the moment. Our planning mechanisms would not be meaningful if we were constantly having to adjust our patterns of expenditures against a background of externally generated instability. The ability to plan more effectively has also reinforced for us the important principle of living within our means.
But if I may return to my earlier point, the specter of adverse external developments which could overwhelm our efforts is a very unsatisfactory framework for planning a sensible and comprehensive strategy for sustainable growth over the longer term.
The particular issue which seems likely to precipitate such detrimental developments is the matter of energy. The present oil and energy situation poses acute problems for the developing countries, both through its direct impact on their economies and also indirectly through its more general global impact. We are all faced with prospects of reduced growth potential, exacerbation of price pressures, and consequent employment and balance of payments pressures. For those of us from developing countries, these problems would be difficult enough to deal with if we could continue to rely on the traditional levels of support from the richer countries.
But I fear the situation is more gloomy than this. It seems to me that the developed countries will find it increasingly difficult to sustain their levels of assistance to developing countries in the face of a deterioration in their own economic situations. Their capacity to assist is likely to be impacted adversely by the present global energy situation.
This is a most unhappy prospect. Those of us in developing countries have been pressing for greater, not lesser, assistance; for more open world markets, not increasing protectionism; and for a greater political will to work toward reducing the income gap between rich and poor. The present backdrop of international events does not give great encouragement that these objectives can be achieved, nor even that we will move in the desired direction.
It is from this perspective that we approach these meetings, and in particular evaluate the role and performance of the Bank and the Fund. . . .
This is a question we have been asking ourselves in Papua New Guinea as we review the achievements of our own National Public Expenditure Plan. On close inspection it has become apparent that our own planning efforts are not fully achieving the desired results. To the extent that this is due to inexperience in the various areas of Government with the planning processes, the passage of time will improve matters. But my feeling is that this is only part of the answer. It has become clear to us that to achieve certain objectives over the longer term, it may be necessary in the short term to devote more resources to aspects of Government which, in the broad scope of things, have lesser priority; because without these we cannot mount the higher priority projects and activities. . . .
I am aware that there is a certain circularity in my remarks. In summary, what I have said is that the domestic policies of individual countries and the policies of relevant international institutions have inescapable effects for the international community generally, and for the various members of that community. As I see it, however, the point is that stability and sustainable growth will depend on each of us getting our policies right, so that we provide for mutual support. For some countries this may require greater realism as to what can and should be done—others may need encouragement to view policies from a different perspective. For international institutions such as the Bank and the Fund, I am content to repeat my concluding remarks from last year:
These institutions are uniquely placed to offer valuable insights into the state of the world economy and the prospects for the future. They can identify the international implications of national policies, and they can highlight the issues that demand attention. They have our support to perform these tasks, and we hope they can have the assurance that their counsel will continue to be sought and heard in the international community.
Statement by the Governor of the Fund for Paraguay—General Cesar Barrientos
The delegation of the Republic of Paraguay to the Thirty-Fourth Annual Meetings of the Governors of the International Monetary Fund and the International Bank for Reconstruction and Development has the high honor of conveying the cordial greetings of the Government and people of our country to the national authorities of Yugoslavia, the Chairman of the meetings, the Managing Director of the International Monetary Fund, the President of the International Bank for Reconstruction and Development, the Executive Directors and staff of these international agencies, and the Governors and delegates of the participating countries.
We regard as outstanding the achievements of the International Monetary Fund in international financial and economic spheres. There is no doubt it will help improve the conditions of life for the peoples of its member countries, but we must nevertheless keep in mind that the results of many good intentions have been offset by a world economic imbalance which affects all countries equally.
At present, the economies of our nations are adversely affected by the problems arising from monetary instability and the oil crisis.
Although Paraguay’s monetary system functions with comparative stability, we are not immune from concern at the critical international monetary situation, reflected primarily in foreign exchange instability and its impact on the imported inflation that we, the developing nations, must endure to a particular degree.
This is an opportune moment for restating the need to seek and adopt measures that will minimize the ever-growing impact of the gap between the highly industrialized countries and those in the process of development, whose economies are much more vulnerable to world economic disequilibrium.
In this regard, the role that should be played by the international agencies, whose actions and policies are aimed at strengthening economic and monetary structures within a framework of regional and international cooperation, should be systematically reviewed and adapted in order to find ways of minimizing the imbalances that have arisen in the recent past.
We place particular hope in the development and results of the work assigned to special committees, whose recommendations should be carefully evaluated with a view to the adoption of those which are best suited to the interests of the seriously affected countries and are most likely to help them achieve their development policy objectives.
Paraguay firmly supports the increases in the capital of the international financing agencies, believing that this action will reinforce their operating capacity. We would also like to see their regulations reviewed and modified and thus better oriented toward fulfillment of the purposes set forth in them.
Internally, through the implementation of a consistent and balanced policy of economic and social development, Paraguay is devoting special attention to the development of its agriculture and industry, the two sectors of the economy which employ the greatest part of its population. We are thus emphasizing our objective of a gradual transformation from the stage of producer and exporter of raw materials to the stage of industrialization, taking advantage of our vast natural resources.
With this purpose in mind, the Government is using technical and credit assistance to create the conditions that will best enable the Paraguayan people to carry on their economic activities. We encourage the investment of both domestic and foreign capital in appropriate programs and projects prepared in accordance with the guidelines laid down in our national development policy.
Of far-reaching importance are the decisions reached with neighboring countries for the implementation of two large-scale hydroelectric projects: the Itaipú project with Brazil and the Yacyretá project with Argentina, which will have a combined production capacity of approximately 18 million kilowatts.
The construction of the Itaipú dam has contributed greatly to the growth of various economic sectors, among them construction, which expanded at an average annual rate of 20 per cent between 1973 and 1978.
Other industrial sectors have also grown more rapidly because of a demand for industrial products associated with higher incomes, which have risen by an annual average of 7 per cent during the 1970s.
The result has been a massive inflow of foreign capital, coupled with a greater volume of investment in infrastructure. Other gains have taken the form of higher savings and a significant strengthening of international monetary reserves.
As eloquent testimony of Paraguay’s efforts to achieve the goals we have set, within a framework of national security and economic development, I should like to refer in brief to the most relevant economic indicators.
The real annual growth rate of gross domestic product was 7.5 per cent in 1976, 11.8 per cent in 1977, and 10.3 per cent in 1978. The increase for 1979 may be more than 10 per cent, based on forecasts for excellent harvests of major agricultural products such as cotton, soybeans, tobacco, and others, which will stimulate industrial activity and exports.
—Per capita product rose by 5.2 per cent a year from 1972 to 1978.
—The rise in the consumer price index was 4.5 per cent in 1976, 9.4 per cent in 1977, and 10.6 per cent in 1978.
—Total export earnings were US$181.8 million in 1976, US$278.9 million in 1977, and US$257 million in 1978.
—Imports totaled US$180.2 million in 1976, US$255.4 million in 1977, and US$317.7 million in 1978.
—International monetary reserves reached US$439 million in 1978, a gain of 70 per cent over the 1977 figure of US$259.6 million. This year reserves have so far risen to about US$600 million, 37 per cent higher than in 1978.
The Government of Paraguay attaches special interest to the increasingly effective integration of the country’s various regions. Accordingly, major agricultural development and infrastructure programs have been carried out in the eastern and western regions (the Paraguayan Chaco). The Chaco offers immeasurable economic potential which should be efficiently exploited and which today, thanks to domestic efforts and international cooperation, already has the essential foundation of roads, bridges, and agricultural experimental centers.
The participation of all its people in the national economic task and the channeling of a high proportion of its own resources, as well as those obtained through international financial assistance, into road-building programs forming part of a well-defined policy for highway construction, maintenance, and improvement have had a highly favorable impact on the strengthening of the capital stock. We may note the following:
There were 1,215 kilometers of highways in 1954, 2,165.5 kilometers in 1960, 5,456 kilometers in 1966, 6,472.3 kilometers in 1972, and 9,709.3 kilometers in May 1979. This does not include 4,600 kilometers of local roads.
Education is accorded high priority by the Government of Paraguay, not only through the construction of schools but also through their equipping and provision with the necessary facilities. The statistics are eloquent: we had 2,911 schools in 1962, 3,925 in 1972, and in 1979 we have an estimated 4,766. As for the number of students in these educational centers, the figures are: 355,621 in 1962, 514,408 in 1972, and 621,626 in 1979.
Health is another crucial area of the Government’s programs. The construction and equipping of hospitals and health centers have demanded a great effort and extend throughout the national territory. We had 117 health care facilities in 1954, 251 in 1973, and 313 in 1978.
The government housing policy is aimed at a progressive reduction of the deficit due to Paraguay’s population growth and rate of urban expansion. Through the implementation of government programs, 5,523 dwellings had been built as of December 1978.
In the sphere of communications, the Government has issued guidelines intended to upgrade telecommunications and postal services, paying heed to their key role in integral development.
An exceptional event, marking a milestone in Paraguay’s history, took place on May 4, 1978, with the inauguration of a satellite communications earth station at Aregua.
Another project having significance for national progress was completed in November 1978, namely a national and international microwave system (eastern and southern regions). In order to expand both domestic and international telephone, telegraph, and telex traffic capacity and to bring additional areas into the national development process, a microwave network has been installed. This, combined with existing facilities, places Paraguay’s telecommunications system at the world technological level.
With regard to fiscal policy, framed within the objectives we have set forth, Paraguay has been able in recent years to maintain an excess of actual over projected current revenues, amounting to US$2.4 million in 1976, US$37 million in 1977, and US$63.7 million in 1978.
The favorable results achieved in obtaining current income have made it possible to finance current and capital expenditures easily and to meet commitments on previously contracted foreign loans, complying with the terms and conditions agreed upon in each case.
Budgetary surpluses for the last three years, in the current and capital budgets, have been as follows: US$8 million in 1976, US$29.3 million in 1977, and US$56.8 million in 1978.
The measures introduced in recent years to ensure wider and stricter compliance with tax obligations have had highly positive results. This action was effected through correction, adjustment, and simplification of tax collection systems and procedures, measures which will be continuously strengthened and refined in the future. Slight modifications are also expected in national tax policy, to the extent that circumstances require.
It was most encouraging to receive an extensive account of the positive views expressed at the last meeting of the Executive Board of the International Monetary Fund, following presentation of the report of a technical mission that had visited Paraguay to evaluate the country’s economic and monetary status. I would like to express the deep gratitude of the Paraguayan authorities and most especially that of His Excellency General Alfredo Stroessner, President of the Republic.
I also wish to convey our thanks for the cooperation we have received from the international agencies in general, but particularly from the International Monetary Fund, which has established a permanent field office in Paraguay as a means of achieving better coordination and greater cooperation.
We express our special satisfaction with the valuable technical cooperation provided by the Fund in the area of taxation and in training Paraguayan personnel, assistance which has made it possible to strengthen taxation, administration, and auditing methods. The ground work is now being laid for technical cooperation arrangements to improve both the banking system and the operations of insurance companies and financial institutions.
The highly effective work done by the International Monetary Fund in 1978-79 gives us evidence once more of the great spirit of cooperation and dedication shown by the management and staff of that institution in the search for solutions to the many problems now evident in the complex fields of the world economy, finance, and the international monetary system. I wish to convey the sincere congratulations of the Paraguayan delegation to the Managing Director of the Fund, Mr. Jacques de Larosière.
In expressing the feelings of friendship shared by the Government and people of my country, who are united in the single-minded quest for economic and social welfare in a climate of peace and work founded upon national democratic and historical ideals, I reiterate my cordial greetings to the authorities of Yugoslavia, to the Chairman of these meetings, to the Managing Director of the International Monetary Fund, to the President of the International Bank for Reconstruction and Development, to the Governors and delegates of the countries represented here, and to all those whose work has splendidly and effectively culminated in our discussions here.
Statement by the Governor of the Fund and the Bank for Solomon Islands—Benedict Kinika
It will be a bitter irony if the developed countries lose their nerve, and their understanding of the world economy, just when these two great institutions, the Fund and the Bank, have been brought to new levels of potential technical effectiveness. But that is what I believe may be happening.
From behind protectionist doors comes the stale smell of industrial decay, the fumes of inflationary fires, and the ragged but noisy chorus of voices deriding international economic cooperation and assistance to the poorer nations. Yet the fate of the industrialized countries is going to be decided just as much by what happens in the undeveloped nations as by any incestuous reshuffling of the pieces in the developed economies.
I speak here for all developing countries, and especially the tropical, ex-colonial primary producing countries, with poor or nonexistent public health, education and administrative services, little or no opportunity for hundreds of millions of people to make a decent living, and political systems which themselves are subject to violent change.
We have been told repeatedly here, and last week in Malta, that we must not look for increased aid from the developed countries. They are intent, we are told, on putting their own houses in order.
I am delighted to hear it. Decades of excessive consumption and misallocated investment, made possible by the low prices they paid for fuel, minerals, and agricultural products, have led to inflation, unmanageable and inward-looking economic structures, and work forces with unrealistic welfare expectations.
I entirely agree with those distinguished ministers from developed countries who have said, over and over again, that they face the need for substantial and painful restructuring of their own economies. They are no longer in a position to exploit the rest of the world so completely to their own advantage, and the historic weaknesses in their economies can no longer be papered over so easily by political or economic imperialism.
However, this new-found self-awareness of the developed countries has brought into the open a new danger. The initial and unobjectionable proposition that a country must get its domestic economic affairs sorted out, if it is to be able to act effectively in the world, is being turned into the quite different and totally false thesis that in order to put its domestic economic affairs in order a country must reduce the real level, and in some cases even the nominal level, of its assistance to the developing world.
This is obviously nonsense. Most developed countries allocate less than ½ of 1 per cent of their income to official development assistance. The nature of the domestic, economic, and political problems they are facing, and which they keep telling us about, will be affected not one little bit by tinkering around with levels of aid to developing countries. I suspect that the new concern for “putting one’s own house in order” is being used as a cover for an attack on the whole concept of a steadily increasing transfer of real resources to the developing countries.
The arguments for increased official development assistance have been fully and cogently argued by the Bank and the Fund and I will not go into detail here. Without a sustained, across-the-board, well-orchestrated, and increased transfer of real resources, the bitter and tragic saga of the poor people of the Third World will continue to unfold on a vaster and more inhuman scale. I sometimes wonder how well this reality is understood by the people who gather here at our Annual Meetings and who populate the international and national bureaucracies.
I do not believe, and the Solomon Islands does not believe, that the levels of assistance being sought by the Third World countries are in any way impractical or unreasonable when seen against the industrial, technological, and financial wealth of the developed world. The amount of assistance given to the poorer countries will have to be increased through bilateral and multilateral channels. The quality and nature of assistance will have to be improved along the lines we have so often analyzed and spelled out. And because what is sauce for the goose is sauce for the gander we ourselves must face up to our own difficult domestic policy choices, the need for honesty and hard work, and the forgoing of many of the imagined delights of high-income living in low-income countries.
We do not accept the proposition that reducing real levels of aid to the developing world will in any way whatsoever improve the chances of the developed countries getting their own economies on to the growth track they say they want to get on. The truth is the exact opposite. Talk of lack of political will is a smoke screen. Ministers of finance are well placed to create political will. Simply to decry its absence is to deny responsibility.
To us in the Third World “interdependence” is not just a new piece of jargon. It is the way our society is and the way the world is going to be. In the long run we will realize and fulfill the destiny of mankind. In the process untold numbers of our people will have died from neglect, warfare, cruelty, and absolute inadequacy of the means to sustain life. The question we want our developed brethren to wake up to is this—will we make the inevitable changes sooner and with less waste of lives and agony of readjustment? Or will we, as the so-called decision makers of the world, close our eyes to the long-run results of comparative economic advantage and sheer weight of human resources, until matters are taken out of our hands by forces not under our control?
From the speeches I have heard this week I think the ostrich habit is spreading, and the anti-aid lobbies have moved closer to the seats of power in the developed countries. I say to my friends in developed countries, do not be so blind and foolish. You need us now just as much as we need you. We are used to hardship, unemployment, people dying for lack of the services you take for granted. You are not used to it. You have forgotten what these things are like. But do not imagine that it cannot happen to you again.
There is no need for mankind to suffer endlessly this degradation and misery. If you are brave and generous and consistent you can substantially improve the chances of all of us, in all countries of the shrinking globe, coming through the next few decades with dignity and self-respect.
Statement by the Alternate Governor of the Bank for Viet Nam—Le Hoang
In the present world situation, there are some international economic meetings where, in the evaluation of the current world situation and the formulation of measures necessary to redress it, one notes a reduction of points of convergence and greater disparity in positions adopted.
We fervently hope that from this year’s meetings a broad consensus will emerge, leading to concrete actions which meet the present needs of all member countries. To this end, among the many problems before us, it is necessary that the growing difficulties the developing countries face in the current economic and monetary context be tackled head-on and adequate solutions found in good time.
We would recall first of all that last year, upon assuming the high office of Managing Director of the Fund, Mr. de Larosière gave a telling analysis of the situation of the developing countries and stressed the need to assist in strengthening their economies. . . .
Unfortunately, we must note that the situation is far from encouraging, if not worse than before.
The gap between the average per capita income of the industrial and developing countries has widened. In many of the latter, the food problem still exists, sometimes aggravated by the forces of nature. The present disturbing fluctuations in prices and exchange rates entail increasingly harmful consequences for the weak economies. The terms of trade are still deteriorating. The transfer of resources to developing countries is decreasing in real terms, while balance of payments disequilibria are growing. But I hardly need to take more time here to depict a situation well known to all.
The point is to remedy the situation as quickly as possible. It is Viet Nam’s view that, in light of the basic objectives the Fund and the Bank have set for themselves, the two institutions can and must make an effective contribution to that effort. We are speaking of interdependence in the world economy; measures that effectively help to strengthen the economies and trade potential of the developing countries are bound to have a positive effect on the overall economic situation.
The new factors that have appeared in the world economy and monetary system in the 1970s have caused the Fund to make radical changes, which we hope will prove helpful in promoting greater monetary and economic stability, particularly in the developed countries.
In this same uncertain and inflationary environment, the low-income developing countries have watched the difficulties inherent in their weak economies become progressively worse. Growth in production and exports is achieved only with longer and more laborious effort; investments are more costly, and their profitability is increasingly subject to the uncertainties of price fluctuations. In these circumstances, the effectiveness of Fund assistance in the traditional forms and of the assistance provided by IDA—favorable though its terms are—might well be diminished.
In any case, would it not be desirable also to consider a new approach to the problem in this forum? If the basic objectives of the Fund and the Bank are to be attained in a situation marked by wholly new factors, their criteria, rules and conditions, procedures and methods should be resolutely overhauled, and consideration given to measures more in keeping with current circumstances.
Under the present rules of the Fund, the developing countries whose quotas are modest can draw only limited amounts, likely to be no more than a temporary palliative for the recipient country, which would have wished for larger-scale help in overcoming its difficulties. A modification of the existing rules in favor of the developing countries would, in fact, be just and desirable. . . .
In short, we feel that greater flexibility is necessary and would be useful.
In studying such measures, as in the operations carried on within the framework of the Fund and the Bank, it is necessary to refrain from discriminatory measures or pressure contrary to the spirit of our institutions and particularly harmful to any developing country. May I be allowed to stress this need? Viet Nam is living in a period of economic uncertainty, an uncertainty which, incidentally, some would wish to try to aggravate artificially. There are those, for example, who by their aggression and provocations have caused and are still causing immense material, human, and social damage to our country, and are engaged—together with certain others, who more or less follow their lead—in a campaign of slander and pressure against us. We do not think it necessary to say more on the subject in this forum. We wish to reiterate that the rehabilitation and building-up of our economy is a basic goal we have set ourselves; to attain it, we advocate open, just, and fruitful international cooperation. In this connection, we wish to express our appreciation of the understanding cooperation of the Fund, the Bank, and their staffs. We trust that this will always be so.
October 4, 1979.