Joint Procedures Committee
- International Monetary Fund. Secretary's Department
- Published Date:
- November 1979
|Reporting Member||Sri Lanka|
Other Members: Algeria, France, Gabon, Federal Republic of Germany, Greece, Guatemala, India, Japan, Jordan, Mali, Peru, Philippines, Qatar, Sweden, United Kingdom, United States, Uruguay
First Meeting, October 1, 1979
In concluding the meeting, the Chairman of the Joint Procedures Committee issued the following statement:
Statement by the Chairman of the Joint Procedures Committee 1
The Joint Procedures Committee met on October 1, 1979 to consider the questions raised by the letter from the Chairman of the meeting of the Group of 77 and the accompanying resolution supporting the application of the Palestine Liberation Organization for observer status at the Annual Meetings [Annex I]. The Committee concluded that the Chairman should establish an informal working party of Governors to consider all aspects of the matter [Annex II]. The working party would report to the Chairman for next year’s Annual Meetings in approximately three months’ time. The Chairman would then make his decision taking into account this report and in accordance with the By-Laws.
September 29, 1979
Rt. Hon. R.D. Muldoon, C.H.
Chairman of the Annual Meetings
Dear Mr. Muldoon:
A meeting of the ministers of finance and/or economy of the Group of 77 was held today in Belgrade. I had the honor of chairing that Meeting.
The Meeting unanimously approved the enclosed Resolution supporting the application of the Palestinian Liberation Organization for observer status in the International Monetary Fund and the World Bank.
In my capacity as Chairman of the ministerial meeting of the Group of 77, I am bringing to your attention the enclosed Resolution with a request to communicate it to all the Governors of the International Monetary Fund and the World Bank.
Thanking you in advance for your kind cooperation, I remain,
With kindest regards,
Ing Petar Kostić
Chairman of the Meeting of the Ministers of Finance and/or Economy of the Group of 77
The Group of 77 resolves that:
1. The Group of 77 supports the application of the Palestinian Liberation Organization for observer status in the International Monetary Fund and the World Bank.
2. The Chairman of the Group of 77 communicates the support of this Group to:
(a) The Chairman of the Bank and Fund Annual Meeting, His Excellency the Right Honorable R.D. Muldoon,
(b) The President of the World Bank, and
(c) The Managing Director of the International Monetary Fund.
Beograd, September 29, 1979
Annex II. Working Party of Governors 3
1. The Chairman of the Boards of Governors of the Bank and the Fund, in pursuance of the statement made by him in concluding the meeting of the Joint Procedures Committee on Monday, October 1, 1979 [above], has appointed the following Governors to be members of an informal working party:
(1) The Governor for Belgium
(2) The Governor for France
(3) The Governor for the Federal Republic of Germany
(4) The Governor for Indonesia
(5) The Governor for New Zealand
(6) The Governor for Nigeria
(7) The Governor for Pakistan
(8) The Governor for Yugoslavia
2. The Chairman has appointed the Governor for New Zealand as Chairman of the working party.
3. The terms of reference of the working party have been outlined in the [above] statement of the Chairman.
4. The working party will be expected to report in approximately three months’ time to the then Chairman of the Boards of Governors.
5. The procedures for the working party will be decided by the Chairman of the working party. The party will be provided with secretariat assistance by the World Bank and the IMF and the staffs of the institutions will be available for service and advice.
Second Meeting, October 5, 1979. Report II1
At the meeting of the Joint Procedures Committee held on October 5, 1979, the items of business on the agenda of the Board of Governors of the International Monetary Fund were considered.
The Committee submits the following report and recommendations:
1. 1979 Annual Report
The Committee noted that provision had been made for the annual discussion of the business of the Fund.
2. Report of the Chairman of the Interim Committee
The Committee noted the presentation made by the Chairman of the Interim Committee. 2
The Committee recommends that the Board of Governors of the Fund thank the Interim Committee for its work.
3. Financial Statements, Report on Audit, and Administrative Budget
The Committee considered the Report on Audit for the financial year ended April 30, 1979, the Financial Statements contained therein (Fund Document No. 6 and Appendix VIII of the 1979 Annual Report), and the Administrative Budget for the financial year ending April 30, 1980 (Fund Document No. 8 and Appendix VI of the 1979 Annual Report).
The Committee recommends that the Board of Governors of the Fund adopt the draft resolution set forth in Fund Document No. 7.3
4. Amendments of Rules and Regulations
The Committee has reviewed and noted the letter of the Managing Director and Chairman of the Executive Board to the Chairman of the Board of Governors, dated October 2, 1979, reproduced as Fund Document No. 9, regarding amendments of the Rules and Regulations, set forth in Attachment 1 to that document [Annex I].
The Committee recommends that the Board of Governors of the Fund adopt the draft resolution set forth in Attachment 2 of Fund Document No. 9. 4
|/s/ R. D. Muldoon||/s/ Ronnie de Mel|
|New Zealand—Chairman||Sri Lanka—Reporting Member|
Annex I to Report II
October 2, 1979
Dear Mr. Chairman:
In accordance with Section 16 of the By-Laws, the attached amendments of the Rules and Regulations are submitted for review by the Board of Governors.
In the light of the conclusions reached by the Interim Committee at its meeting in September 1978, concerning certain aspects of the special drawing right (SDR), the Executive Board decided on October 25, 1978, with effect from January 1, 1979, the date of the first allocation of special drawing rights in the third basic period, to amend Rule T-l so as to increase the rate of interest on the SDR from 60 per cent to 80 per cent of the combined market interest rate for obligations of the five member countries with the largest quotas, and to amend Rule I-10 so as to set the rate of remuneration at 90 per cent of the SDR rate of interest, that is, 72 per cent of the market rate. The SDR rate of charges, in accordance with Article XX, Section 3, is equal to the SDR rate of interest. The amendment to Rule I-10 also provides that shortly before the end of each financial year the Fund shall consider whether the estimated net income of the Fund for that year was sufficiently large to permit raising the average annual rate of remuneration for that year to a level above 90 per cent but not over 100 per cent of the average annual rate of interest on the SDR. In considering whether to establish a higher rate of remuneration for a particular year, the Fund shall also consider the possibility of reducing the rate of charge applicable under Rule I-7(5) (b) (i) from the beginning of the subsequent financial year.
Rule I-7(5) (b)(i) was amended also with effect from January 1, 1979. Prior to its amendment the rule provided that if the margin of the rate of charge for the first twelve months (i.e., the initial rate) above the rate of remuneration was reduced to less than ¼ of 1 per cent or increased to more than 1 per cent because of changes in the rate of remuneration, the Executive Board would promptly review the Fund’s financial position, the rate of remuneration and the rate of charge and take such action as it considered necessary to safeguard the financial position of the Fund. If a new decision on the rate of charge or the rate of remuneration were not taken as a result of the review, the rate of charge would be changed so as to be ¼ of 1 per cent or 1 per cent above the rate of remuneration, as the case may be.
The amendment to this rule provides that if in any period of six successive months the Fund’s total expenses exceeded its income, the Executive Board will promptly review all aspects of the Fund’s financial position, including the rate of remuneration and the initial rate of charge, and take such action as it considers necessary to safeguard its position, and further if no decision is adopted as a result of this review within one month after the end of any such six-month period that a different rate of charge shall apply, the rate of charge for the first twelve months shall be ¼ of 1 per cent above the rate of remuneration.
On June 22, 1979, the Executive Board revised the “N” Rules dealing with staff regulations, which had not been revised during the comprehensive review of the Rules and Regulations in 1978 in connection with the entry into force of the Second Amendment of the Articles of Agreement.
The Executive Board has made no other changes in the Rules and Regulations since the last Annual Meeting.
Very truly yours,
J. de Larosière
Managing Director and Chairman of the Executive Board
Chairman of the Board of Governors
1979 Annual Meeting
International Monetary Fund
Attachment 1. Rules and Regulations Amended Since the 1978 Annual Meeting
1. Rule I-7(5)(b)(i). Text as amended October 25, 1978, effective January 1, 1979.
(5) The charge on a segment that is not subject to another schedule of charges and that is in excess of quota after the exclusion of any segments subject to (1), (2), (3), or (4) above, shall be, …
(b) if the segment includes holdings acquired on or after July 1, 1974:
(i) 4⅜ per cent per annum for the first twelve months, provided that if in any period of six successive months the Fund’s total expenses exceeded its income the Executive Board will promptly review all aspects of the Fund’s financial position, including the rate of remuneration pursuant to Rule I-10 and the rate of charge for the first twelve months, and take such action as it considers necessary to safeguard the financial position of the Fund, and provided further that the rate of charge for the first twelve months shall be ¼ of 1 per cent above the rate of remuneration, unless, as a result of this review, the Executive Board decides within one month after the end of any such six-month period that a different rate of charge shall apply.
2. Rule I-10. Text as amended October 25, 1978, effective January 1, 1979.
(a) The rate of remuneration shall be equal to 90 per cent of the rate of interest on the special drawing right under Rule T-1(b).
(b) The Fund shall review the rate of remuneration on the occasion of the quarterly review of the rate of interest paid by it on holdings of special drawing rights.
(c) Shortly before the end of each financial year the Fund shall consider whether the estimated net income of the Fund for that year was sufficiently large to permit the average annual rate of remuneration for that year to be raised to a level above 90 per cent but not above 100 per cent of the average annual rate of interest on the special drawing right. In considering whether to establish a higher rate of remuneration for a particular year, the Fund shall also consider the possibility of reducing the rates of charges applicable under Rule I-7(5)(b)(i) from the beginning of the subsequent financial year.
3. Rule T-l(b). Text as amended October 25, 1978, effective January 1, 1979.
(b) Unless the Executive Board decides otherwise, the rate of interest on holdings of special drawing rights for each calendar quarter shall be four fifths of the combined market interest rate as determined in (c) below, provided that the rate shall be rounded to the nearest ¼ of 1 per cent.
4. N Rules. Text adopted on June 22, 1979.
N-1.5 Persons on the staff of the Fund shall be nationals of members of the Fund unless the Executive Board authorizes exceptions in particular cases. In appointing the staff the Managing Director shall, subject to the paramount importance of securing the highest standards of efficiency and of technical competence, pay due regard to the importance of recruiting personnel on as wide a geographical basis as possible.
N-2.6 Subject to Rule N-1 above, the employment, classification, promotion and assignment of persons on the staff of the Fund shall be made without discriminating against any person because of sex, race, creed, or nationality.
N-3. Persons on the staff of the Fund, in the discharge of their functions, shall owe their duty entirely to the Fund and to no other authority, and shall neither seek nor accept instructions from any government or any authority external to the Fund.
N-4. Persons on the staff of the Fund shall maintain standards of conduct compatible with their position as international civil servants and shall avoid any action or pronouncement, either in their own country or elsewhere, that would not be in keeping with their position as international civil servants. They shall always bear in mind the reserve and tact incumbent upon them by reason of their international functions, and they shall exercise the utmost discretion in matters of official business.
N-5. Except with the express authorization of the Managing Director, persons on the staff of the Fund may not, during their term of service: (i) publish, cause to be published, or assist in the publication of any book, pamphlet, article, letter or other document relating to the policies or activities of the Fund or to any national political questions; or (ii) deliver any speech, lecture, or broadcast, or grant any press interview on such policies, activities, or questions.
N-6. 7 Persons on the staff of the Fund, and persons formerly on the staff of the Fund, shall not, at any time, without the express authorization of the Managing Director: (i) reveal any unpublished information known to them by reason of their service with the Fund to a person not authorized by the Fund to receive the information; or (ii) use, or allow the use of, unpublished information known to them by reason of their service with the Fund for private advantage, directly or indirectly, or for any interest contrary to that of the Fund as determined by the Managing Director.
N-7.8 Persons on the staff of the Fund, during their terms of service, including periods of leave with or without pay, shall not hold other public or private employment, engage in any occupation, business activity, or profession, that, in the opinion of the Managing Director, is incompatible with these Rules or the proper performance of their official duties or inconsistent with their position as international civil servants.
N-8. Persons on the staff of the Fund shall not engage in such political activity as, in the opinion of the Managing Director, is inconsistent with, or reflects adversely upon, the independence and impartiality required by their position as international civil servants. Any person on the staff of the Fund who accepts an office of a political character shall immediately offer to resign from the staff of the Fund.
N-9.9 Persons on the staff of the Fund may retain re-employment rights or pension rights acquired in the service of another public or a private organization.
*N-10.10 No person on the staff may accept any honor, decoration, favor, gift, or bonus from any government, or from any other authority or person external to the Fund, for services rendered during the period of his appointment or service with the Fund.
I solemnly affirm:
That, to the best of my ability, I will carry out my responsibilities in a manner that will further the purposes of the International Monetary Fund;
That I will refrain from communicating confidential information to persons outside the Fund;
That I will not use to private advantage information known to me by reason of my official position; and
That I will accept no instruction in regard to the performance of my duties from any government or authority external to the Fund.
N-12. 12 The Managing Director shall inform the Executive Board at least two weeks in advance of any action to appoint or dismiss any person at or above the rank of division chief or receiving a salary equal to or exceeding that of a division chief. Such information shall not be necessary for other appointments or dismissals by the Managing Director.
N-13.13 The Managing Director is authorized to issue General Administrative Orders concerning general personnel policies that have been approved by the Executive Board.
N-14. Persons on the staff of the Fund shall have the right to associate in order to present their views to the Managing Director and the Executive Board, through representatives, on matters pertaining to personnel policies and their conditions of service.
N-15. Appropriate procedures shall be established for the consideration of complaints and grievances of individual persons on the staff of the Fund on matters involving the consistency of actions taken in their individual cases with the regulations governing personnel and their conditions of service.
(a) Official travel shall be undertaken by persons on the staff of the Fund only with the approval of the Managing Director.
(b) The Managing Director shall inform the Executive Board of all such travel at least once a month and in such manner as indicates the purpose of the travel.
(i) Official travel by persons on the staff of the Fund to a member’s territory shall be undertaken only after consultation with the Executive Director appointed, elected, or designated by the member.
(ii) In addition, normally, meetings of persons on the staff of the Fund with officials of a member to discuss official business shall be held only after consultation with the Executive Director appointed, elected, or designated by the member.
(d) The advance approval of the Executive Board shall be necessary for technical services by persons on the staff of the Fund in response to requests by national or international agencies. In addition, such approval shall be necessary for participation by persons on the staff of the Fund in the deliberations of national or international agencies, or in conferences, in which the views of the Executive Board on the subject matter of the deliberations or conferences are to be presented.
(e) For the purpose of this Rule N-16, official travel shall be deemed not to include travel solely in accordance with the provisions of staff benefit policies.
The Joint Procedures Committee met on October 5, 1979 and submits the following report:
1. Development Committee
The Committee noted that the Annual Report of the Joint Ministerial Committee of the Boards of Governors of the Bank and the Fund on the Transfer of Real Resources to Developing Countries (Development Committee) has been presented to the Boards of Governors of the Bank and the Fund pursuant to paragraph 5 of Resolutions Nos. 294 and 29-9 of the Bank and the Fund, respectively (Bank Document No. 5 and Fund Document No. 5) [Annex I], which was supplemented by the communication dated October 1, 1979 from the Chairman of the Development Committee to the Chairman of the Boards of Governors of the Bank and the Fund and the accompanying draft resolutions (Bank Document No. 6 and Fund Document No. 10) [Annex II].
The Committee recommends that the Boards of Governors of the Bank and the Fund (i) note the report and thank the Development Committee for its work, and (ii) adopt the draft resolutions set forth in Bank Document No. 6 and Fund Document No. 10.2
2. Officers and Joint Procedures Committee for 1979/80
The Committee recommends that the Governor for Tanzania be Chairman, and the Governors for Australia and Brazil be Vice Chairmen, of the Boards of Governors of the Bank and its Affiliates and of the Fund to hold office until the close of the next Annual Meetings.
It is further recommended that a Joint Procedures Committee be established to be available, after the termination of these Meetings and until the close of the next Annual Meetings, for consultation at the discretion of the Chairmen normally by correspondence and, if the occasion required, by convening; and that this Committee shall consist of the Governors for the following members: Australia, Brazil, Burma, Cameroon, Ecuador, France, Germany, Italy, Japan, Kuwait, Lesotho, Netherlands, Oman, Saudi Arabia, Singapore, Spain, Tanzania, Thailand, United Kingdom, United States, and Venezuela.
It is recommended that the Chairman of the Joint Procedures Committee shall be the Governor for Tanzania, and the Vice Chairmen shall be the Governors for Australia and Brazil, and that the Governor for the United Kingdom shall serve as Reporting Member.
|/s/ R. D. Muldoon||/s/ Ronnie de Mel|
|New Zealand—Chairman||Sri Lanka—Reporting Member|
Annex I to Report III
September 30, 1979
As Chairman of the Joint Ministerial Committee of the Boards of Governors of the Bank and the Fund on the Transfer of Real Resources to Developing Countries (Development Committee), I have the honor to present herewith to the Boards of Governors a report by the Committee on the progress of its work during the period July 1978-June 1979. The report is presented in compliance with Section 5(i) of the Bank Board of Governors Resolution No. 294 and the Fund Board of Governors Resolution No. 29-9, adopted on October 2, 1974.
Cesar E. A. Virata
Chairman Development Committee
Robert D. Muldoon
Chairman of the Boards of Governors
International Monetary Fund and the World Bank
Attachment. Report of the Joint Ministerial Committee of the Boards of Governors of the Bank and the Fund on the Transfer of Real Resources to Developing Countries
(July 1978–June 1979)
1. This is the fifth annual report of the Joint Ministerial Committee of the Boards of Governors of the Bank and the Fund on the Transfer of Real Resources to Developing Countries (Development Committee). It covers activities from July 1978 to June 1979.
2. The Development Committee was established as a ministerial forum representing industrial and developing countries to maintain a comprehensive overview of international activities in the development area and to consider all aspects of the broad question of the transfer of real resources to developing countries. During the year under review the Committee continued to focus on the long-range financial requirements of developing countries and explored ways and means to reach a consensus on a number of issues of mutual interest to developed and developing countries.
3. The Committee held two meetings during the year—in Washington on September 23 and 27, 1978 at the time of the Annual Meetings of the Boards of Governors of the Bank and Fund. Two meetings of Senior Officials were held in Washington on September 6-7, 1978 and September 27, 1978. At the technical level three meetings of Working Groups took place during the year. In addition, a seminar was held in Paris in October on the subject of access to the long-term bond markets. This was attended by representatives of a group of developing countries which are either already in the bond markets or which would appear to be potential bond issuers, and by representatives of important market operators and institutional investors.
4. The following subjects of high priority were selected to constitute the Committee’s work program for 1978-79 and beyond: (i) issues arising from the world development report; (ii) volume and terms of official development assistance (ODA) including the progress of the Conference on International Economic Cooperation (CIEC) special action program; (iii) stabilization of export earnings (Stabex); (iv) the role of multilateral development institutions (MDIs); (v) the role of private foreign investment; (vi) energy resources development; and (vii) non-concessional capital flows and a proposal by Mexico for a long-term financing facility.
II. Committee Consideration of Major Questions Affecting Resource Transfer
A. World Development Report
5. In the context of the growing interdependence of the economic well-being of developed and developing countries, the Committee recognized the need to provide a comprehensive and coherent framework for development reflecting the interplay of policies of the various groups of countries. There was consequently much appreciation expressed for the initiative taken by the World Bank in presenting the World Development Report, 1978—the first in a series of annual analytical reviews of major development issues. The report was welcomed as an authoritative evaluation of the development process, and it received worldwide press coverage.
6. The World Development Report projected in broad terms the economic situation and prospects of the developing countries through 1985. It highlighted the continued slow per capita growth of low-income countries and the intractable problem of meeting the basic human needs of hundreds of millions of people still living in absolute poverty. It stressed the vital need of these countries for increased concessional capital to accelerate their rate of growth; it also drew attention to the critical dependence of the middle-income countries on increasing flows of external capital on appropriate terms and the need for improved access for their exports to the markets of the industrial countries. The industrial countries in their turn still faced problems of inflation, unemployment and structural adjustment of their economies in order to be able to resume their traditional growth patterns. The protectionist pressures to which these problems give rise posed a serious threat to the maintenance of an open trading system and of world economic growth.
7. The report, while recognizing impressive achievements in the past 25 years, noted that some 800 million people still lived in absolute poverty and suggested that the future development effort should be directed toward the twin objectives of accelerating growth and alleviating poverty. It proceeded to identify major policy issues in three important areas:
—the framework of trade between industrialized and developing countries;
—the strengthening of the process of international financing through commercial banks and multilateral institutions;
—the supply of concessional capital especially to the poorest countries.
The report also attempted to clarify some of the linkages between the international economy and domestic strategies in the developing countries against the background of growing interdependence and a mutuality of interest among developed and developing countries. The report concluded that massive efforts were needed, both on the part of the international community and on the part of the developing countries, and it identified the areas in different groups of countries which required special attention.
8. The Committee had a comprehensive discussion of these problems. It covered areas of aid, other capital flows, the role of MDIs, improved access to capital and money markets, the necessity for increased exports from developing countries in an environment of a liberal trading system. The discussion also covered a whole range of economic policies by developing countries in such areas as mobilizing savings, efforts to accelerate agricultural growth, stimulating exports and specific programs to alleviate poverty.
9. The World Development Report was welcomed as a major contribution to the formulation of national and international policies on development issues. Some suggestions were made regarding areas that might be more deeply explored in subsequent World Development Reports which, apart from a common core of subjects which should be reviewed and updated every year, might usefully include a more detailed review of the development problems and prospects of the middle-income countries, and a policy-oriented analysis of the industrialization and urbanization processes.
B. Official Development Assistance
10. The question of official development assistance, which constitutes a hard core of the Committee’s work and remains under its constant review, was considered in the context of the material provided on this subject in the World Development Report, 1978 supplemented by a short paper prepared by the Secretariat.
11. It was noted that as a percentage of GNP, ODA flows from DAC countries, which are major contributors of this type of finance, continued to fall—from 0.36 in 1975 to 0.33 in 1976 and 0.31 in 1977, which was the second lowest ratio since statistics of aid flows were first collected in the mid-1950s.
12. The preceding figures showed that the assumptions in the World Development Report on ODA flows were not being realized and the Members agreed on the need to reverse this disappointing record of stagnation in the level of these flows which are of vital importance for the attainment of the modest growth projections for the low-income countries. The reversal of this trend largely depended on urgent implementation of recent statements of intention by certain large donors to substantially increase their aid program.
13. The Members also welcomed the declaration of the heads of governments at the Bonn summit meeting pledging support for the replenishment of IDA on a scale that would permit its lending to rise annually in real terms with a larger share of both bilateral and multilateral concessional aid going to the poorer countries.
C. Special Action Program
14. The Conference on International Economic Cooperation (CIEC) had requested that the Development Committee should monitor progress in implementing the $ 1 billion Special Action Program. The Committee noted that while true additionality was not easy to determine, the contributors planned to concentrate additional amounts of assistance upon countries with a 1975 GNP per capita of less than $265 and had expressed the hope that the total amount would be disbursed by 1980-81. The Committee, taking note of the progress already made, requested the Secretariat to prepare a further progress report in 1979.
15. The information collected showed that in the first year after CIEC 20 per cent of the total amount projected had been committed of which considerably less had been disbursed.
D. Multilateral Development Institutions
16. The Development Committee at its meeting of September 1977 decided to include “the role of multilateral development institutions” in its 1978-79 work program. A basic document was prepared by the Secretariat which contains analytical and statistical material on the activities of multilateral development institutions (MDIs) which between them provide one third of the total official flows to developing countries.
17. The document was extensively discussed by the Senior Officials and in one meeting of the Working Group, and a report by the Working Group on the subject is ready for presentation to the Development Committee at its next meeting in September 1979.
18. It is expected that the main direction of the Development Committee’s interest in the subject will be to highlight certain general policy issues designed to strengthen the institutional and financial basis of the MDIs as well as their operational effectiveness as instruments of transfer of resources.
19. The study reveals that the MDIs have special advantages as channels for development cooperation in view of their objectivity, their expertise and their experience. They have a very considerable potential in organizing increased flows through various mechanisms of cofinancing including arrangements with private sources which can lead to mobilizing additional resources and in some cases to improve the terms otherwise obtainable from the commercial banks. The MDIs have also been innovative in response to changing development priorities in many fields like agriculture, new style projects for the poorer segments of the population, educational reform, promotion of small-scale enterprises, energy and mineral resource exploration.
20. Against this background, the report considers it important and appropriate that the MDIs should continue to receive support so that they can play their vital role in the transfer of resources to developing countries on a scale which should reflect growth in real terms.
21. There was consensus that the growing requirements and assistance should preferably be met through existing MDIs and that any proliferation of new worldwide funds should be avoided, provided existing MDIs can be adapted to deal with new or special needs and circumstances. This would involve new orientation and flexibility in their policies and programs and possibly some structural changes besides replenishment of their special funds and increases in their capital stock at appropriate levels.
22. The question of coordination among MDIs and by MDIs and bilateral donors with the developing countries was considered in the context of the experience of consortia and consultative groups. These were widely acknowledged as an important part of the international machinery for assisting developing countries. However, these aid groups were in general not considered appropriate fora to review the requirements and possibilities of private flows to particular countries, although their meetings could be of value for the discussion of matters relating to cofinancing with the private sector.
E. Stabilization of Export Earnings
23. The question of adverse effects on developing countries of fluctuations in export earnings particularly from primary commodities and the need for some effective international action to offset these effects has been in the forefront of recent discussions in many international fora. In pursuance of a suggestion from the CIEC, the Development Committee invited the Fund and the Bank to prepare, on the basis of indicated terms of reference, a report on the subject in cooperation with the Executive Secretariat of the Development Committee and in consultation with international organizations such as UNCTAD, EEC, etc.
24. The joint Fund/Bank staff report was considered by the Committee at its meeting in September 1978. The Committee recognized the important role played by the IMF compensatory financing facility and Members were generally in favor of this facility playing an even larger role in the future. In that connection the meeting was broadly supportive of the changes for further liberalization suggested in the staff report. The Committee expressed the hope that the views put forth during their discussion would provide a useful contribution to the scheduled review of the compensatory financing facility by the Fund Board in March 1979.
25. The Committee reviewed the problem of medium-term shortfalls and the staff proposal to deal with it through coordinated use of existing facilities in the IMF and the World Bank. While recognizing that the problem of medium-term shortfalls is a complex one, the Committee felt that it should be examined further and that the Committee could periodically review the use made of the extended Fund facility in the Fund and the program loans made by the World Bank in connection with medium-term shortfalls.
26. There was a wide feeling that possible new approaches and/or additional measures for earnings stabilization, complementary to the compensatory financing facility, needed attention and study. Various measures had been suggested in this regard of which the most recent was put forward by the Federal Republic of Germany. Views were also expressed on the need to keep in mind the negotiations to be resumed on the Common Fund at UNCTAD.
27. It was accordingly agreed that further work on the stabilization question should be included in the future work of the Committee. For this purpose, the Committee requested that a second Fund/Bank staff report be prepared in time to be considered by the Boards in July/August in view of the discussion of this subject by the Committee at its meeting in September 1979. This further study should (i) analyze the adequacy of existing facilities for the stabilization of export earnings; (ii) take into account the report that will be prepared by the IMF staff in connection with the March 1979 review of the compensatory financing facility by the IMF Executive Board, and changes that the Board may desire to make as a result of its review; (iii) examine the proposal put forward by the Federal Republic of Germany and other related proposals or analyses put forward in other fora. The relevant technical aspects, financial implications and appropriate institutional arrangements should be thoroughly explored; and (iv) examine further the concept of medium-term shortfalls.
F. Access to Capital Markets
28. The Working Group on Access to Capital Markets had two meetings during the year covered by this report. Apart from consideration of papers prepared on the role of external borrowing in financing development and a progress report prepared by the IMF on removal of restrictions on the access of developing countries to capital markets, the major work in these meetings was concentrated on consideration of different aspects of the role of direct foreign investment in development and the problems which hinder progress on the optimum utilization of this potential source of providing finance and technology to developing countries.
29. The Working Group examined the policies and circumstances which would be likely to maximize the volume and value of foreign investment flows if the parties concerned wished to encourage this form of resource transfer. It was felt that discussion of the basic policy issues could serve to improve the understanding of the problems related to foreign investment and influence policies in this field in both developed and developing countries.
30. The Working Group report prepared for presentation to the Development Committee contains a number of policy recommendations which need consideration by developed and developing countries and by international organizations. The most important recommendations relate to the endorsement of the principle of nondiscrimination by developed countries against outward foreign investment in relation to domestic investment and the removal of impediments to such flows to developing countries. On the part of the developing countries it was emphasized that the essential element in attracting foreign investment is the nature of their overall economic policies. The initiation and preparation of pre-feasibility and feasibility studies, and the establishment of a sound system of project preparation were considered more important than the granting of costly incentives. It was also stressed that clear procedures on the part of the host countries for the admission and treatment of direct foreign investments were highly desirable. As far as the role of international organizations was concerned, the Working Group considered that special attention was necessary to the poorer countries in helping them to attract foreign investment by building up a project pipeline for foreign investors and by participating with the private sector and development finance corporations in the financing of such projects.
(i) Task Force on Private Foreign Investment
31. Further work on this subject will now be carried out by a Task Force in pursuance of a decision taken by the Development Committee in September 1978. The Task Force will comprise representatives from capitals who have important responsibilities at the policy-making level in the relevant subjects and who would be prepared to assume work responsibilities. It will examine problems of private foreign investment in the light of the work done on the subject by the Working Group on Access to Capital Markets. The object is to improve the understanding among home and host countries on specific aspects of direct investment on which there is need for better understanding with a view to reaching general consensus on policies most likely to maximize the international benefits of direct investment.
(ii) Seminar on Access to Capital Markets
32. On the recommendation of the Working Group on Access to Capital Markets, which felt that lack of experience on the part of the borrowing countries and insufficient information on the part of lenders regarding the economic situation of potential borrowers were significant obstacles in improving access by developing countries to long-term capital markets, a seminar was held in Paris in October 1978 which brought together potential borrowers and market operators to discuss some of the technical problems involved in offering and marketing developing countries’ bond issues.
33. The seminar was attended by representatives from 24 “threshold” countries besides a distinguished group of panelists drawn from important commercial banks, institutional investors, and representatives from regulatory agencies of capital market countries such as the Securities and Exchange Commission of the United States. The other participants were from the IFC, IMF, OECD, regional development banks and the World Bank.
34. The more important subjects covered in the seminar were:
—what is the market judgment of the type of measures required to improve developing country access?
—legal and administrative barriers in capital exporting countries;
—possible use of full or partial guarantees given by the World Bank and/or regional development banks;
—“education” of investors and market operators;
—prospects for cofinancing between the development banks and institutional investors through bond issues of borrowers, possibly as a means of introducing a borrower to the market;
—would the guarantee of the government of the borrower’s country be regarded as valuable/essential?
—does the size of the issue act as a constraint to developing countries’ borrowing?
—what are the principal factors considered by lenders and investors in assessing the creditworthiness of potential borrowers in different segments of the markets? Relevance of the rating system.
35. The in-depth exchange of views between the various participants on a wide variety of technical and practical aspects of bond marketing was considered on all sides to have been helpful in an effort to promote over time a significant increase in this form of external financial flows. The proceedings of the seminar have since been published.
(iii) Secretariat Publication on Committee’s Work on Developing Country Access to Capital Markets
36. The Secretariat had received many requests from both official and private institutions and from individuals for information about the activities of the Committee, particularly regarding its work on access to capital markets. A report on the subject, “Developing Country Access to Capital Markets,” was accordingly published by the Secretariat of the Committee in November 1978. It has received a wide circulation and has been generally welcomed.
37. In September 1978 the French and Canadian Governments presented proposals to the Committee for work to be carried out on Energy Resource Development. The subject was accordingly provisionally included in the Committee’s work program for 1978/79, subject to review in the light of the impending discussion in the Executive Board of the World Bank of a report on the same subject by the Bank staff. In January 1979 the Bank Board approved proposals in that report for a new program in the energy sector, with special emphasis on petroleum exploration and development. In these circumstances the Development Committee is not taking any further action on the subject for the time being but will keep the matter under review.
III. A Review of the Performance of the Development Committee
38. A two-year review required by the 1976 resolutions of the Boards of Governors of the Bank and the Fund was carried out in 1978. While recognizing the importance, the utility, and the potential of this forum there was, nevertheless, a sense of disappointment expressed on its achievements so far, in particular on its ability to produce concrete or significant results relating to the transfer of resources.
39. As a result of discussions in the Committee, the Boards of Governors of the Bank and the Fund resolved (i) that the Chairman of the Development Committee, the President of the Bank and the Managing Director of the Fund should consult together on ways to improve the effectiveness of the Committee and report to the Committee at its next meeting, (ii) that the Boards of Governors of the Bank and the Fund should review the performance of the Committee again in a further two years and take such action as they deem appropriate, taking into account (a) the views and recommendations of the Executive Boards of Directors of the Bank and the Fund expressed at an appropriate time but not later than June 30, 1980, and (b) the views and recommendations of the Development Committee.
40. In pursuance of (i) above, the Chairman of the Development Committee, the President of the Bank and the Managing Director of the Fund, after consultations with their Executive Directors, made a set of recommendations to enhance the effectiveness of the Committee through a reorganization of its work and a restructuring of the Secretariat functions. These recommendations were put into effect from April 1, 1979.
41. The main effect of the changes is a greater involvement of the staffs and the Boards of the two institutions in the work of the Committee and a concomitant reduction in the size of the Secretariat. The Chairman of the Development Committee, the Managing Director of the Fund, and the President of the Bank are jointly responsible for organizing the work of the Development Committee with a view to more effective performance. They are assisted by the Executive Secretary in ensuring the effectiveness of the Development Committee’s work.
IV. Re-Election of the Chairman
42. The Development Committee unanimously re-elected Mr. Cesar Virata, Minister of Finance of the Philippines, as Chairman of the Committee for the period to October 1980.
A. Members of the Committee
B. Organizational and Administrative Aspects
C. Text of Parallel IBRD and IMF Resolutions establishing the Development Committee (see Summary Proceedings, 1975, pages 278–82).
D. Agendas of the two Committee Meetings held in September 1978
Annex A. Members of the Committee
Abdlatif Y. Al-Hamad
Kuwait Fund for Arab Economic Development
|Bahrain, Egypt (Arab Republic of), Iraq, Jordan, Kuwait, Lebanon, Maldives, Pakistan, Qatar, Saudi Arabia, Syrian Arab Republic, United Arab Emirates, Yemen Arab Republic|
Minister of Finance
|Cyprus, Israel, Netherlands, Romania, Yugoslavia|
Valentín Arismendi E.
Minister of Economy and Finance
|Argentina, Bolivia, Chile, Paraguay, Uruguay|
W. Michael Blumenthal
Secretary of the Treasury
John C. Crosbie
Minister of Finance
|Bahamas, Barbados, Canada, Grenada, Guyana, Ireland, Jamaica|
Minister of Finance
|Austria, Belgium, Luxembourg, Turkey|
John W. Howard, M.P.
|Australia, Korea (Republic of), New Zealand, Papua New Guinea, Solomon Islands, Western Samoa|
|8.||The Right Honourable|
Sir Geoffrey Howe, Q.C., M.P.
Chancellor of the Exchequer
Investment Fund of Venezuela
|Costa Rica, El Salvador, Guatemala, Haiti, Honduras, Mexico, Panama, Peru, Spain, Suriname, Venezuela|
Minister of Finance
Minister of Economy, Finance and Planning
|Benin, Cameroon, Central African Empire, Chad, Comoros, Congo (People’s Republic of), Gabon, Guinea-Bissau, Ivory Coast, Madagascar, Mali, Mauritania, Mauritius, Niger, Rwanda, São Tomé and Principe, Senegal, Somalia, Togo, Upper Volta, Zaïre|
Minister of Economy
|13.||Honorable Major General|
Minister of National Planning
|Botswana, Burundi, Equatorial Guinea, Ethiopia, The Gambia, Guinea, Kenya, Lesotho, Liberia, Malawi, Nigeria, Sierra Leone, Sudan, Swaziland, Tanzania, Trinidad and Tobago, Uganda, Zambia|
Federal Minister for Economic Cooperation
Filippo Maria Pandolfi
Minister of the Treasury
|Greece, Italy, Portugal|
Tengku Razaleigh Hamzah
Minister of Finance
|Burma, Fiji, Indonesia, Lao People’s Democratic Republic, Malaysia, Nepal, Singapore, Thailand, Viet Nam|
Minister in the Ministry of Finance
|Denmark, Finland, Iceland, Norway, Sweden|
Deputy Prime Minister and Minister of Finance
|Bangladesh, India, Sri Lanka|
Cesar E. A. Virata3
Minister of Finance
|Brazil, Colombia, Dominican Republic, Ecuador, Philippines|
Minister of Planning
|Afghanistan (Dem. Rep. of), Algeria, Ghana, Iran, Socialist People’s Libyan Arab Jamahiriya, Morocco, Oman, Tunisia, Yemen (People’s Dem. Rep. of)|
Annex B. Organizational and Administrative Aspects
1. The Committee of Twenty, in its final report in June 1974, recommended that two committees be set up: an Interim Committee in the Fund to deal with monetary reform, and a joint ministerial committee of the Bank and the Fund (Development Committee) to continue the study of the broad question of the transfer of real resources to developing countries.
2. It was hoped that the Development Committee would be helpful in providing a focal point in the structure of economic cooperation for formation of a comprehensive overview of diverse international activities in the international area, for efficient and prompt consideration of development issues, and for coordination of international efforts to deal with problems of financing development. The Committee was expected to work in close association with the management and the boards of the two institutions.
3. The Development Committee was accordingly established pursuant to Bank Governors Resolution 294, October 2, 1974, and Fund Governors Resolution 29-9, October 2, 1974. The parallel resolution provided that the members of the Development Committee were to be governors of the Bank, governors of the Fund, ministers, or others of comparable rank. Each member government of the Bank or the Fund that appoints an executive director or group of members that elect an executive director was to appoint one member of the Committee (in all: 20 in the Bank and 21 now in the Fund) and up to seven associates. The members were to be appointed in turn for successive periods of two years by the members of the Bank and the members of the Fund.
4. At the inaugural meeting of the Committee held October 2-3, 1974, Mr. Henri Konan Bédié, Minister of Economy and Finance of the Ivory Coast, was selected as Chairman, and Mr. Henry J. Costanzo, Executive Vice President of the Inter-American Development Bank, was appointed Executive Secretary. At the seventh meeting of the Committee, held October 6, 1976, Mr. Cesar E. A. Virata, Secretary of Finance of the Philippines, was selected as Chairman and Sir Richard King, Permanent Secretary of the Ministry of Overseas Development of the United Kingdom, was appointed Executive Secretary. Mr. Virata was re-elected as Chairman on September 27, 1978 at the eleventh meeting of the Committee.
5. The organizations listed below were official observers to the Development Committee during 1978-79. In addition, the Government of Switzerland was represented by an observer.
African Development Bank
Arab Bank for Economic Development in Africa
Arab Fund for Economic and Social Development
Asian Development Bank
Commission of the European Communities
Development Assistance Committee
European Investment Bank
General Agreement on Tariffs and Trade
Inter-American Development Bank
International Fund for Agricultural Development
Islamic Development Bank
OPEC Special Fund
Organization for Economic Cooperation and Development
United Nations Development Programme
United Nations Conference on Trade and Development
The text of the parallel IBRD and IMF Resolutions establishing the Development Committee is reproduced in Summary Proceedings, 1975, pages 278–82.
Annex D. Agendas of Meetings Held During 1978 (administrative items omitted)
Meeting of September 23, 1978
1. World Development Report
2. Stabilization of Export Earnings
3. (for information)
Progress Report on Special Action Program
4. Annual Report and Review of Performance of the Development Committee
5. Concluding Items
(a) Other Business
(i) Future Work Program
(b) Chairman’s Summing Up
(c) Arrangements for the Next Meeting
Meeting of September 27,1978
1. Selection of Chairman
2. Press Announcement
Annex II to Report III
October 1, 1979
Further to my letter of September 30 transmitting the Annual Report of the Committee to the Boards of Governors, I have the honor to inform you that the Development Committee, at its meeting on September 30, 1979, recommended that the period for review of the performance of the Committee be extended. Resolution No. 327 of the Board of Governors of the Bank and Resolution No. 33-10 4 of the Board of Governors of the Fund adopted on September 27, 1978 require a review of the performance of the Committee by the Boards of Governors of the Bank and the Fund at the end of two years from that date. The review is to take into account the views and recommendations of the Executive Boards of the Bank and the Fund expressed not later than June 30, 1980, and also those of the Committee. The Committee decided to recommend in view of the new working arrangements introduced in April of this year that this review by the Boards of Governors should be deferred for one year until the 1981 Annual Meetings of the Boards of Governors. To give effect to this recommendation changes in the dates set forth in the two Resolutions cited above will be necessary. Accordingly, I attach draft Resolutions for the consideration of the respective Board of Governors.5
Cesar E. A. Virata
Chairman Development Committee
Robert D. Muldoon
Chairman of the Boards of Governors
International Monetary Fund and the World Bank
Joint Ministerial Committee of the Boards of Governors of the Bank and the Fund on the Transfer of Real Resources to Developing Countries (Development Committee)
September 30, 1979
1. The Development Committee held its 12th meeting in Belgrade, Yugoslavia, on September 30, 1979 under the Chairmanship of Mr. Cesar E. A. Virata, Minister of Finance of the Philippines, and with the participation of Mr. Robert S. McNamara, President of the World Bank, and Mr. J. de Larosière, Managing Director of the International Monetary Fund. Sir Richard King, Executive Secretary, took part in the meeting which was also attended by representatives from a number of international and regional organizations and Switzerland as observers.
2. The Committee considered papers prepared by the World Bank and IMF on the flow of financial resources to developing countries and the stabilization of export earnings. They also took note of the proposals contained in the Outline for a Program of Action approved by the Group of 24 and unanimously endorsed by the Group of 77.1
3. The Committee discussed current economic trends and agreed that many developing countries will face a particularly difficult situation over the next few years. The non-oil primary producers are likely to experience a slowdown in the growth of demand for their exports and adverse shifts in their terms of trade. The Committee expressed serious concern that in the context of high rates of inflation this would lead to relatively slow rates of economic growth, a further substantial deterioration in their aggregate current account deficit, and an increase in the number of developing countries encountering debt servicing problems.
4. Recognizing the increased interdependence of national economies and in particular the impact on developing countries of developments in industrialized countries, the Committee emphasized the importance of sound economic and financial policies in all countries; it reiterated the need to avoid protectionist trade measures that would adversely affect the exports of developing countries. The Committee also stressed the urgency of implementing effective policies for energy conservation and development.
5. The Committee recognized that there was a clear need for broad multilateral efforts, including an increasing role for the Bank and the Fund, to assist member countries in coping with the very difficult situation ahead. In this context the Program of Immediate Action outlined by the Group of 24 and endorsed by the Group of 77 would be kept in view. The Committee noted with satisfaction a number of recent developments that had enhanced the Fund’s capacity to assist its members, including: the Resolution of the Fund’s Board of Governors on the Seventh General Review of Quotas under which quotas in the Fund could be increased to SDR 58.6 billion; the coming into force of the supplementary financing facility; the adoption of new guidelines on conditionality; and the improvements in the compensatory financing facility, including the increase from 75 per cent to 100 per cent of quotas in the maximum amount that could be purchased under that facility. The Committee stressed the importance of an early implementation of the quota increases under the Resolution on the Seventh General Review of Quotas.
6. The Committee noted with satisfaction that over the past year agreement had been reached in the Executive Board of the World Bank to recommend to its Governors a $40 billion General Capital Increase; the Committee urged that all necessary steps be taken to make this increase effective as early as possible. The Committee welcomed the Fifth Replenishment of the Resources of the Inter-American Development Bank, the decision by the Governors of the African Development Bank for a substantial increase in the capital of that institution, and the decision of OPEC’s Ministerial Committee on Financial and Monetary Matters to approve the second replenishment of the resources of the OPEC Special Fund.
7. In considering the longer-term economic outlook, the Committee noted that low-income developing countries will continue to depend on official development assistance (ODA) for the bulk of their net capital inflows; in view of this, the Committee regretted that only a modest growth in total ODA flows is projected over the next few years. For many middle-income countries, which depend mostly on private sources for capital flows, as well as certain low-income countries, the anticipated increase in total debt and debt service over the medium term were matters for careful attention.
8. The Committee, while recognizing the difficulties facing some donor countries, stressed the importance of increasing the quantity of ODA flows, particularly from those countries which are now at relatively low levels in relation to gross national product. The Committee also called for improvements in the quality of ODA such as quick disbursing assistance, untying of aid, finance for local costs, and for greater concentration of ODA on the countries most in need. The Committee stressed the urgency of bringing the Sixth Replenishment of IDA to a prompt conclusion at a level which would enable a significant increase in commitments in real terms to continue.
9. In discussing longer-term structural adjustment problems, the Committee welcomed the willingness of the Bank to consider increasing substantially the relative importance of program lending in its overall operations. The Committee requested the Executive Directors of the Bank to explore the criteria which could govern program and sector loans in situations where external disequilibria had not yet become severe, and to consider whether in individual cases such lending should be additional to that now planned. The regional institutions were invited to review their policies and practices in light of the current prospects for developing countries. The Committee endorsed expanded collaboration between the Fund and the Bank in support of economic programs of developing countries facing severe balance of payments problems.
10. The Committee discussed the problem of medium-term financing for balance of payments adjustment. In this connection, the Committee noted that the Fund’s extended facility had proved a useful mechanism and that it had considerable potential in the future. Recognizing the difficult situation facing member countries, the Committee requested that the Executive Board of the Fund give further consideration to increasing the maximum repurchase period under the extended facility from eight to ten years.
11. In view of the heavy needs for balance of payments financing facing many countries in the years ahead, the Committee requested the Executive Board of the Fund to give attention to developing ways and means of lowering the interest costs of the supplementary financing facility.
12. The Committee recognized that in the difficult years ahead there would be a major need for recycling of funds to assist developing countries facing large balance of payments deficits and recognized that this need could not be met by official financial flows only. In this connection, the Committee stressed the important role of additional private capital flows in financing the increasing capital requirements of developing countries; such flows would be facilitated by the promotion of policies in these countries conducive to sustaining their creditworthiness. The Committee welcomed the expansion in cofinancing with the private banking sector that had been achieved by the World Bank and regional institutions to date, and suggested that capital-exporting countries should explore what actions could be taken to encourage greater use of this mechanism by their banks. The Committee also requested the World Bank and the regional institutions to explore steps that could be taken further to expand cofinancing.
13. In discussing possible new approaches relating to capital flows, the Committee reaffirmed that priority should be given to exploiting the full capacity of existing institutions, including possible acceleration in the use of their resources, to meet the urgent problems of the developing countries over the next few years. The Committee considered however that the matter should be kept actively under review.
14. The Committee reviewed the question of stabilization of export earnings on the basis of a staff study. The Committee emphasized the importance of appropriate mechanisms to mitigate the effects of fluctuations in export earnings of developing countries, in particular those countries heavily dependent upon primary commodity exports, and to assist them in diversifying their exports. It recognized that, through coordinated action, the Fund and Bank had developed the capacity to meet the needs of countries suffering from shortfalls and noted in particular the progress that the two institutions had made in providing finance for medium-term commodity shortfalls and in reducing dependence on primary commodities. It requested the Executive Boards of the two institutions to keep this matter under review.
15. The Committee welcomed the recent decision of the Executive Board of the Fund to liberalize the Fund’s compensatory financing facility, in particular the increase in the limit on the amount of drawings outstanding under the facility. The changes constitute a substantial improvement in the Fund’s compensatory financing facility, making it a more effective mechanism to assist members in dealing with problems of fluctuations of export earnings. The Committee noted that in the longer run vulnerability to fluctuating export earnings would be reduced by diversifying exports, for which purpose Bank and IDA resources should continue to be made available. The Committee also welcomed the new convention replacing the Lomé Convention and the new features of the Stabex incorporated in the new convention. They also noted with satisfaction the progress made in negotiations for the setting up of a Common Fund for commodities.
16. It was agreed that the subject of export earnings stabilization would be reviewed by the Committee in a year’s time in the light of experience in operation of the recently improved compensatory financing facility, the ongoing negotiations on the Common Fund, and the further study of the matter being undertaken in UNCTAD in cooperation with Fund staff.
17. The Committee will meet again on April 24 in Hamburg.
18. The Committee expressed their sincere appreciation to the Government of Yugoslavia for their hospitality and for the excellent arrangements provided for their meeting.
as of September 29, 1979
|Abdlatif Y. Al-Hamad||Kuwait|
|F. H. J. J. Andriessen||Netherlands|
|Valentín Arismendi E.||Uruguay|
|H. N. Bahuguna 1||India|
|John C. Crosbie||Canada|
|John W. Howard||Australia|
|Sir Geoffrey Howe||United Kingdom|
|Abdoulaye Koné||Ivory Coast|
|G. William Miller||United States|
|Rainer Offergeld||Germany, Federal Republic of|
|Filippo Maria Pandolfi||Italy|
|Tengku Razaleigh Hamzah||Malaysia|
|Cesar E. A. Virata (Chairman) 3||Philippines|
Attachment to Communiqué of the Joint Development Committee, September 30, 1979
Outline for a Program of Action on International Monetary Reform
Prepared by the Group of Twenty-Four and endorsed by the Group of Seventy-Seven. Belgrade, Yugoslavia, September 29, 1979.
I. Assessment of Initial Objectives and Developments in International Monetary Reform
Following the monetary crisis that began during the 1960s and became acute in 1971, the international community was confronted with the urgent need to reform the international monetary system. In this connection, the Group of 77 emphasized that unless there were an effective participation of the developing countries in designing the new system, particularly in view of the preponderant influence hitherto exercised by the developed countries, common objectives could not be achieved. Consequently, the Intergovernmental Group of Twenty-Four on International Monetary Affairs (Group of 24) was established for the purpose of coordinating and unifying the position of the developing countries in international monetary and financial matters. In particular, it was agreed that the Group of 24 was to:
(a) keep the international monetary situation under review;
(b) evaluate events in the monetary field, as well as any decisions which might be taken by a single country or group of countries within the framework of the International Monetary Fund, relating to the interests of the developing countries;
(c) recommend to the governments of the Group of 77 coordinated positions for use in various fora, and to consider any other action that might be necessary, including the convening of a world monetary conference within the framework of the United Nations.
The initial basic discussions and negotiations with the developed countries on the reform of the monetary system were undertaken in the forum of the Committee of the Board of Governors on Reform of the International Monetary System and Related Issues (Committee of Twenty). It was agreed that this reform had to be of a tripartite nature requiring mutually supporting arrangements in the fields of money, trade and the transfer of resources to developing countries.
Major structural changes in the world economy towards the end of 1973 and the absence of political will on the part of developed countries made it impossible to agree on an overall package of monetary reform. Agreement was, however, reached by the Committee of Twenty on the need to alter some aspects of the monetary system, particularly the exchange rate regime. Measures were proposed to deal with the most urgent aspects of monetary relations among developed countries. However, they did not deal with those aspects of the system that were of particular interest to developing countries.
Although overall reform was not considered possible, it was felt that an evolutionary process of reform, with a gradual adaptation of the legal structure, was called for. Towards this objective, two bodies were established. These were: the Interim Committee of the Board of Governors on the International Monetary System; and the Joint Ministerial Committee of the Boards of Governors of the Bank and the Fund on the Transfer of Real Resources to Developing Countries.
The Interim Committee was to advise on the adaptation of the system, while the Development Committee was to pursue the means for promoting and improving the transfer of real resources to developing countries. Work within these two bodies along with the ongoing negotiations in UNCTAD and the multilateral trade negotiations under the auspices of GATT were expected to bring about the desired changes in the fields of money, finance and trade. However, the results so far have not met the requirements of developing countries.
In practice, no comprehensive and coherent program was agreed for bringing about a deliberate process of evolution in the system. The Jamaica Agreement and the subsequent amendment of the Articles of Agreement eliminated some features of the Bretton Woods system, and left open a future range of options, but failed to convey a sense of direction and did not incorporate certain features of basic interest to developing countries, such as: measures to control, in an effective manner, the creation of international liquidity; dispositions on asset settlement; rules to ensure symmetry in the adjustment process and promote a stable system of exchange rates; the financing by the IMF of short-term capital movements; and, particularly, arrangements to promote the transfer of real resources.
In the absence of a firm collective commitment to comprehensive reform, reliance was placed in the new Articles of Agreement on the collaboration of members with the International Monetary Fund and on IMF surveillance in the effort to ensure the proper functioning of the system, with particular emphasis on achieving orderly exchange arrangements and promoting a stable system of exchange rates. The nature of the collaboration with the Fund to be undertaken by members was, however, not precisely defined. So far as exchange rates were concerned, the Fund was not in a position to exercise significant influence except where members sought access to its resources. The effectiveness of exchange rate policies was overestimated, and it was in any case undermined by the excessive volatility of rates which itself became a powerful force adding to instability and uncertainty.
The creation of international liquidity continued to be determined largely by national policies, and inadequate progress was made towards collective management of international reserve creation or towards establishing the SDR as the principal international reserve asset, despite previous agreement on the desirability of both these objectives.
Failure to establish a new basis for the international monetary system was accompanied by a deterioration in the climate of world trade. Expectations that the introduction of flexibility into the exchange rate system would make it possible to move towards more open trading relationships failed to materialize. Indeed, in the face of business recession and inadequate industrial adjustment in the developed countries, international trade was further impaired by increasing recourse to protectionist measures.
The discussions in the Committee of Twenty resulted in a wide measure of agreement that a properly functioning international monetary system would require a considerable expansion in the transfer of resources to developing countries. However, the subsequent shelving of comprehensive reform efforts was accompanied by a decline in such transfers in real terms.
Thus the international community has failed to achieve its goals in the fields of money, trade and transfer of real resources to developing countries.
II. The Changing World Economic Environment and the Reform Process
Expectations for improvements in the world economy and in the working of the international monetary system following the Jamaica Agreement seem to have rested in the main on the following assumptions:
—the low growth rates and inflation in developed countries, as well as the payments imbalances among them, would be temporary and of a cyclical nature;
—flexibility in exchange rates would ensure that they reflect underlying economic conditions and would enable countries to manage with smaller reserves, thus providing greater freedom to countries in the pursuit of their own objectives, while at the same time permitting the achievement of equilibrium;
—deficits would be financed largely from capital markets and through the IMF oil facility, although the temporarily expanded credit tranches in the regular IMF facilities, the new extended facility and the liberalization of the compensatory financing facility, would be expected to play a complementary role;
—concessional flows to the countries with limited access to capital markets would increase substantially;
—repayments would be effected through the expansion of export earnings that would accompany the recovery of the world economy and further liberalization of international trade.
The above-mentioned assumptions were invalidated by events. In the first place, the problem of stagflation in developed countries proved to be much more intractable than anticipated. The policy responses of major industrial countries to stagflation varied widely. Some of them persisted in following growth policies below their potential and experienced low inflation rates and sizable current account surpluses, while others continued expansionary domestic policies that resulted in significant deficits on current account and higher inflation rates. In particular, the main reserve center followed expansionary policies and achieved higher growth rates than most other industrial countries, but this was accompanied by increasing inflation and widening deficits on current account.
The above-mentioned differential economic performance of industrial countries and the lack of economic policy coordination among them gave rise to serious problems in several areas and limited the effectiveness of exchange rate changes. Firstly, sizable speculative capital movements, as well as violent swings in exchange rates, created worldwide conditions of uncertainty, discouraged investment, and complicated the implementation of economic policies. Secondly, pressures upon the main reserve currency center to defend the value of the dollar eventually induced the U.S. Government to pursue more restrictive economic policies. Furthermore, the reluctance of the surplus developed countries to reflate their economies sufficiently may well have deepened the deflationary trends in the world economy, fostered protectionism, and inhibited more basic adjustment.
Continuation of recession and inflation in developed countries resulted in a slower growth of exports of developing countries and a further deterioration in the terms of trade. In addition, the rising wave of protectionism in developed countries severely affected the export volume of developing countries and denied them a more efficient use of resources.
The effective functioning of the financial system requires the maintenance of an open and dynamic trading system. Developing countries, however, cannot—and should not—continue to bear the costs of inadequate adjustments in developed countries. Continuation of the development process requires that full employment and growth conditions be restored in the world economy; that world markets be open to the exports of developing countries; and that, in the long run, a greater proportion of the import requirements of these countries be financed through export earnings.
The current account deficits that developing countries have been experiencing and are likely to face in future are not sustainable in the light of the existing trade framework or of the terms and conditions of current financial flows.
In the case of some developing countries private capital markets did provide the necessary volume of finance to sustain activity while effecting the required structural adjustments. However, inadequacy of the terms relating to maturities and interest rates would give rise to later problems.
Contrary to expectations and, indeed, accepted objectives, the volume of ODA declined in real terms in the period 1975-78. Flows from multilateral sources through the soft loan windows of the development finance institutions, the IMF compensatory financing facility, the oil facility and the Trust Fund, made valuable contributions to the financing of deficits of the poorer developing countries, but fell far short of requirements. In the face of inadequate external financing, these countries had no choice but to cut back their development process.
Recent analyses carried out by multilateral institutions regarding the economic outlook for the coming years suggest that the international environment has deteriorated substantially for developing countries and that in many respects they will face more critical situations than after the 1974/75 crisis. The reduced growth prospects of industrialized countries will exert a further deflationary impact on economic activity in developing countries; there are prospects for an even slower growth of world trade and deteriorating terms of trade, as well as a substantial widening of current account deficits for most developing countries. The external debt situation will become more strained, and the debt service payments from accumulating debt will significantly reduce the transfer of real resources.
For developing countries that have access to private capital markets, notwithstanding certain trends in the direction of larger resources within the international commercial banking system, there is the possibility that commercial bank financing may not be forthcoming in the needed quantities or on suitable terms, so that the recycling mechanism will not operate as efficiently as in the past. For those countries that do not have effective access to capital markets, the highly inadequate flows of ODA, which have been well below the internationally agreed targets, have already meant that there is not sufficient finance to cover essential import requirements.
Consequently, developing countries are faced by a further reduction of the already highly unsatisfactory growth rates, with serious social and political effects.
It is clear from the above that, unless policies change, the world economy will continue to find itself trapped in a vicious circle of slow growth, unemployment, protectionism and instability in monetary and financial fields. In order to break this vicious circle, the international community must address itself to the question of structural adjustments in order to accommodate the growing productive potential of developing countries in the context of a growing world economy. Such adjustments are, however, difficult to implement under conditions of stagnation in developed countries and of inadequate resources for developing countries. The resumption of vigorous economic activity, investment, and trade would therefore contribute significantly towards achieving such adjustments.
The foregoing analysis underlines the vital need to take fully into account the interrelationship that exists between trade, development finance, and monetary arrangements, and the need to establish a mutually supporting action program in these three areas.
III. Towards a Fundamental International Monetary Reform
1. It will be apparent from the foregoing considerations that the basic tasks of international monetary reform have yet to be accomplished. Developing and developed countries alike have a common interest in a viable international monetary system. Such a system should foster development, employment and trade, and, in particular, support the development of developing countries in the overall context of the establishment of the New International Economic Order.
2. The principal features of a viable system should include:
(a) An effective, symmetrical and equitable adjustment process that would be consistent with the maintenance of high levels of employment and rates of growth and the dynamic expansion of world trade. This would require access to official credit facilities on terms and conditions responsive to the nature of balance of payments problems, as well as to the level of development of the countries concerned. It would also require the maintenance of free and secure access for developing countries to the goods and financial markets of developed nations.
(b) An exchange rate regime which, while flexible, is capable of promoting adequate stability.
(c) In exercising its surveillance over exchange rate and balance of payments policies, the IMF should give equitable and symmetrical treatment to surplus and deficit countries with a view to ensuring that surplus developed countries and reserve currency countries accept an equitable share of the burden of adjustment at high levels of economic growth.
(d) Arrangements should be made for the creation of international liquidity through truly collective international action in line with the requirements of an expanding world economy, and the special needs of developing countries, and with such safeguards as would ensure that the total supply and distribution of international liquidity is not unduly influenced by the balance of payments position of any country or group of countries. The SDR should become the principal reserve asset of the system.
(e) The promotion of the net flow of real resources to developing countries should be viewed as an integral element of an effectively functioning system. In this context, a link should be established between the allocation of SDRs and development assistance.
(f) Developing countries should have a greater role than presently in the decision-making process, including all phases of the studies, consultations and negotiations linked to decisions on the international monetary system.
3. Specific or interim proposals for improvements in current international monetary arrangements should be carefully examined from the standpoint of their consistency with the framework for a reformed system set forth above.
4. The Intergovernmental Group on International Monetary Affairs will continue to study and initiate the measures required in moving towards a fundamental reform of the international monetary and financial system.
5. The Group of 24 should continuously develop and strengthen its work in order to be of maximum assistance to developing countries, coordinating their positions on international monetary and financial matters in all relevant fora.
IV. The Program of Immediate Action
The developing countries require the formulation of a program of action with specific items in which solutions may be found within the framework of a general program of reform. The Ministers of the Group of 77 at the meeting in Arusha, Tanzania, decided upon a substantial number of proposals. These give a sense of direction to our efforts to achieve a New International Economic Order.
The Group of 24 has reassessed and elaborated upon these proposals within the context of the reform of the international monetary and financial system, and considers that the following should be given priority for immediate action.
A. Measures Related to the Transfer of Real Resources
1. There is an urgent need to accelerate the flow of concessional aid to developing countries. Each developed donor country, particularly those falling behind in meeting the internationally agreed target, should establish its program and make binding commitments for the annual growth rate of ODA disbursement for each of the next three years. This should result in a general increase in real terms and an improvement in the quality of ODA flows to the developing countries; in the context of this general increase, the quantum in real terms of ODA flows to least developed countries, most seriously affected countries, and landlocked and island developing countries, should double.
2. The Group of 24 urges the early establishment of a link between SDR allocation and additional development assistance. The creation of such a link is long overdue and a positive decision to establish it should be arrived at without further delay.
3. The Group of 24 calls for an increase in program lending of the multilateral financial institutions to make it equal to at least 25 per cent of total loans, and stresses in this context that the lending programs of the multilateral financial institutions should become increasingly responsive to the overall priorities, and in particular to sectoral priorities, of the recipient developing countries. It also calls for the provision of adequate local cost financing.
4. There is a need for an effective strategy to deal with the official external indebtedness of some developing countries, designed to avert debt servicing difficulties and sustain the development process of these countries. The Group urges early conclusion of the negotiations regarding internationally agreed guidelines for debt reorganization of interested developing countries, in the light of the general principles adopted in UNCTAD Resolution 165 (S-IX). The Group also stresses the need for immediate and full implementation of part A of the same resolution regarding the retroactive adjustment of terms on past ODA in favor of the low-income countries, particularly of the least developed and the most seriously affected countries.
5. The Sixth Replenishment of IDA should be effected without delay so as to result in a significant increase in real terms. The contributions to IDA should come from a wider group of countries, provided that the additional contributions from new donors do not prejudice the increase in real terms of the contributions of the traditional donors.
6. All member countries should provide a substantial and effective increase in the capital base of the multilateral financial institutions so as to ensure that their commitments in favor of developing countries increase in real terms at a satisfactory rate consistent with the needs of these countries. In this connection, the Group of 24 urges early approval and acceptance by all member countries of the capital increase of the World Bank of the equivalent of $40 billion and the prompt payment of subscriptions when due.
B. Measures Related to the Increase in Total Resources
7. Taking into account the long-term global liquidity needs, the Group supports:
(a) an increase in the present agreed SDR allocations to meet the current difficult economic conditions;
(b) regular annual allocations of SDRs, in amounts adequate to members’ needs for reserve increases.
8. The Group urges early completion of legislative action by the member countries concerned, to make effective the Seventh General Review of Quotas. It also urges the revision of the criteria, both in terms of the variables used and the weights attached to them, for determining the quotas of the membership in the International Monetary Fund, and the advancement of the date for the Eighth General Review of Quotas. In this review, the quota share of no developing country should be reduced. Due regard should be paid to increasing the representation of developing countries in the Executive Boards of both the Fund and the World Bank. In any event, the present geographical representation by developing country regions should be preserved.
C. Measures Related to Balance of Payments Support
9. The Group of 24 attaches importance to the establishment of a medium-term balance of payments facility to respond to the adjustment needs of the developing countries. The new balance of payments financing facility should add a substantial level of additional resources and must be able to provide support that is significant in relation to present levels of deficits, should carry minimum conditionality, since it is responding to an externally induced balance of payments deficit, and should provide support on longer-term maturity. This facility should have as one of its basic characteristics an interest subsidy account for the low-income developing countries.
10. The existing IMF facilities should be reviewed to enable them to cope more adequately with the deteriorating world economic environment.
In particular, it is necessary to consider:
(a) lengthening repayment periods;
(b) modifying the quantitative restrictions on the availability of such facilities;
(c) setting conditionality with due regard to causes of deficits;
(d) reviewing the Fund’s compensatory financing facility, including a significant increase and the liberalization of access in order to compensate adequately for shortfalls in export earnings, import fluctuations and deterioration in the terms of trade of developing countries.
11. The support of the developing countries for the proposed substitution account will be considered in the light of the studies that are being carried out to analyze fully its impact and effect on the developing countries, as well as of the discussions in the IMF Board. Furthermore, the implementation of a substitution account would have to be seen within the framework of a balanced package for immediate action.
D. Measures Related to Trade
12. The establishment in the World Bank of a long-term facility to finance purchases of capital goods should be considered as quickly as possible with a view to taking a positive decision at the earliest possible date, provided it ensures additionality of resources for all developing countries and incorporates provision for a Subsidy Account to ensure broadest access by low-income developing countries. All relevant aspects of the proposal would be studied with the support of multilateral institutions.
13. The Group of 24 calls for full and strict adherence to the standstill provisions pledged by developed countries, in particular concerning imports from developing countries. Moreover, the developed countries should facilitate the development of new policies and strengthen existing policies that would encourage domestic factors of production to move progressively from the lines of production that are less competitive internationally, especially where the long-term comparative advantage favors the developing countries. Additionally, there is a need for full implementation of the commitment of developed countries undertaken in the Tokyo Declaration, which provides for special, differential and more favorable treatment for developing countries in removing protectionist barriers against the exports of these countries.
The developing countries regard the adoption of these proposals as an important step towards the reform of international monetary and financial relations. All other initiatives for changes in the system will be assessed in the light of progress towards the achievement of the above-mentioned objectives and the implementation of facilities of special interest to developing countries.
V. Some Elements of the Future Work Program of the Group of Twenty-Four
1. The Group of 24 will at its subsequent meetings review the progress made in the implementation of the action program adopted by the Ministers of the Group of 24.
2. The Group of 24 will elaborate a plan of analytical work to be requested from the IMF, IBRD, UNDP/UNCTAD, and other international organizations on fundamental reform of the international monetary system and on various alternatives open for action by developing countries. The Group of 24 will also undertake, with the support of independent or governmental experts, analytical research on problems identified as timely and relevant.
3. The Group of 24 will recommend that the representatives of developing countries in the IMF/IBRD, as well as in the executive organs of GATT, ECOSOC, UNCTAD and other international fora, shall support the agreed views adopted in this document and promote the adoption of the necessary measures in accordance with the objectives underlying these views.
4. The Group of 24 reaffirms the importance of monetary and financial cooperation among developing countries as an integral part of the process of changes in the world monetary and financial order, and will seek ways and means to contribute to the elaboration of specific mechanisms through which monetary and financial cooperation among developing countries could be implemented in the light of the ECDC programs adopted by developing countries and on the basis of its own initiatives.
Joint Document No. 3, October 2, 1979.
Joint Document No. 1, September 30, 1979.
Joint Document No. 6, October 5, 1979.
Report I dealt with the business of the Boards of Governors of the Bank, IFC and IDA. Report II and the resolutions recommended therein were adopted by the Board of Governors of the Fund, in Joint Session with the Boards of Governors of the Bank, IFC and IDA, on October 5, 1979.
See pages 30–34.
Resolution No. 34–10; see page 342.
Resolution No. 34–11; see page 343.
Formerly part of N-5.
Report III and the Resolution recommended therein were adopted by the Boards of Governors of the Fund and of the Bank, IFC and IDA, in Joint Session, on October 5, 1979.
Resolution No. 34-12; see page 343. The Bank parallel Resolution No. 344 is published in the Bank, IFC and IDA Summary Proceedings, 1979.
The Honorable Eduardo Fernandez P., Governor of the Central Bank of the Dominican Republic, served as alternate member to permit the Honorable Cesar E. A. Virata to serve as Chairman.
See Summary Proceedings, 1978, pages 303–304.
Resolution No. 34-12; see page 343. The parallel Resolution of the Bank is No. 344.
See Attachment, pages 312–22.