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The Spring 1985 meeting of the Development Committee

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
June 1985
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Fritz Fischer

The Development Committee held an extended meeting during April in Washington, DC in an effort to begin a broader and deeper dialogue on a number of important development issues. These included, inter alia, external indebtedness, protectionism, commodity prices, interest rates, the structure of capital flows, and obstacles to direct investment and equity capital flows. The Committee also discussed the structural and development aspects of the world economy and the problems confronting developing countries in their efforts to achieve sound economic growth. These discussions took place within the context of a medium- to long-term framework and the current approaches toward resolving debt problems.

Origin of extended meeting

The initiative for such a dialogue on interrelated issues came from the Western Economic Summit of June 1984 in London when Western leaders asked their Ministers of Finance “to consider the scope for intensified discussion of international financial issues of particular concern to developing countries in the Development Committee, an appropriate and broadly representative forum for this purpose.” The Cartagena Group of Finance and Foreign Ministers of Latin America carried this idea further that summer, and the Common-wealth Finance Ministers, in early September 1984, endorsed a Consultative Group’s proposals for a two- to three-day special meeting of the Committee.

The Development Committee, at its own meeting later in September 1984, referred to these converging efforts. The US Secretary of the Treasury, calling for a dialogue, stated: “Our economic future and financial well-being are linked closely to that of the developing world and we must be prepared—developed and developing countries alike—to exchange views, seek consensus where possible, and achieve understanding where we differ.”

For further details of the Committee’s work see The Development Committee—Its First Ten Years 1974-1984. This pamphlet is available in English, French, and Spanish from the World Bank Publications Sales Unit, 1818 H Street, NW, Washington, DC 20433, USA.

Procedural changes

In order to foster a useful dialogue in the extended meeting some changes in the traditional procedures were made. In the past, most of the Committee’s time was spent in the heavily attended plenary sessions, where members and representatives of observer organizations presented formally prepared statements on all agenda items. Informal discussions were largely confined to contacts outside the meeting chambers.

At the Spring meeting, the time spent in the plenary was reduced to one morning while the time allotted for informal discussions was increased substantially. In addition, to facilitate the exchange of views, attendance was limited in numbers.

The Fund’s Interim Committee of the Board of Governors on the International Monetary System followed similar procedures, and the agendas of the two Committees were complementary, to avoid duplication. Thus, trade issues were discussed primarily in the Development Committee, while the world economy in the medium term was discussed primarily in the Interim Committee.

Broad agenda

The Development Committee discussed, at its informal session on April 18, the medium- and long-term setting for growth of developing countries with particular attention to important subjects such as debt and trade. The next day’s discussions centered on capital flows, the future role of the Bank, and a progress report on the World Bank’s Action Program for sub-Saharan Africa. The discussions were supported by overview papers from both the Bank and the Fund evaluating the various background studies prepared by the staff of these institutions. The Chairman had circulated his opening statement in advance to aid the discussion.

The main theme of the first part of the discussion was the need to revive growth in the developing world and the steps needed to foster this objective. The Committee was encouraged by the strengthening of the world economy over the previous two years, with the recovery from recession in industrial countries and the resumption of growth in much of the developing world. It stressed that continued adjustment was needed, however, in both industrial and developing countries, within the limits of social and political tolerance. Members of the Committee noted that many problems remained to be tackled before the progress already achieved could be translated into sustained growth and improved living standards over the long run.

The recognition of shared responsibility, which both developed and developing countries acknowledged in various forums before this meeting, helped the Development Committee in its major task of seeking consensus among all its members on important international economic issues. The communique that followed the meeting reflected this joint responsibility. In the field of debt, for example, the communique noted that the restoration of creditworthiness and normalization of relations between creditors and developing countries “would require, in a manner adapted to the circumstances of each case, the continuation of adjustment efforts, supported by financial flows on appropriate terms, improved access to markets and, where appropriate, by multi-year rescheduling arrangements.”

In the area of private direct and portfolio investment, the Committee stated that such flows could be promoted by improving the policy environment for foreign investment in both developing and industrial countries. In this context, the Committee encouraged the Bank to hold further discussions in order to reach an understanding among governments for the creation of a Multilateral Investment Guarantee Agency. (For a description of MIGA see “Increasing private capital flows to LDCs” by Ibrahim Shihata, Finance & Development, December 1984.) While noting the importance of officially-guaranteed export credits, the Committee agreed that developing countries and export credit agencies, in cooperation with the World Bank and the Fund, should take steps to enhance the developmental impact of export credits.

Trade and development

The relationship between trade and development had been discussed at previous meetings of the Committee. In its September 1984 communique the Committee had “welcomed the consideration being given to the role that could be played in liberalizing and strengthening the trading system by a new GATT round of multilateral trade negotiations in which all countries—developed and developing alike—could participate and from which all could benefit.”

In the Spring meeting, the Committee dealt with the subject of trade in two parts. It sought to identify the problems facing the international trade system and the opportunities offered by trade, with particular reference to the developing world. It also aimed at reaching consensus on the steps that needed to be taken. In this context, there was agreement—as the communique stated—that “the growth and adjustment prospects of developing countries are closely linked to the expansion of world trade.

Trade liberalization is a part of a coordinated effort aimed at securing a better economic environment.”

In agreeing on the future course of action, the Committee stressed the central role of GATT and called on all countries “to promptly implement their undertakings to lift any measure inconsistent with GATT or not based on specific GATT disciplines, given the fact that these practices have in particular the effect of restricting exports of developing countries to trade markets.” The Committee also underlined the necessity to resist protectionism and, to the extent feasible, roll back existing barriers to trade. Importantly, the Committee endorsed the need “to engage as matters of priority, in serious efforts to carry forward the unfinished business from the 1982 GATT work program.”

The Committee noted the various concerns of developing countries regarding a new round of multilateral trade negotiations. The communique hoped that “this could lay the basis for a general participation of all countries in the trade negotiation round.” Such participation, the Committee felt, would be encouraged by quick action to improve market access for developing countries.

Future role of the Bank

There was a full discussion on the future role of the World Bank, a topic that had been discussed extensively in the Bank’s Executive Board over the past year. The Committee endorsed the broad consensus that had emerged from those deliberations as summarized in a Bank background paper for the meeting. “Bearing in mind the need to maintain lending standards and prudent financial policies,” the Committee called for an expansion in the Bank’s lending program in order for it to respond more effectively to the needs of its borrowing members and to stimulate the flow of capital from other sources. It asked the Bank’s management to present a report at its next meeting in Seoul, in October 1985, projecting Bank lending over the next five years and the resources needed for different levels of lending, so that an early consensus could be reached on the future financial requirements of the Bank, including the possibility of a General Capital Increase.

For the low-income countries, the Committee agreed that increasing flows of official development assistance deserved the highest priority. It reiterated its request to the management of the International Development Association to carry out a midterm review of the Seventh Replenishment of IDA’s resources. In this context, it urged the Bank’s management and Executive Board to consider a broad array of possibilities for addressing the future needs of the poor countries for concessional resources, including IDA.

In concluding its informal discussions, the Committee turned once again to the critical situation in sub-Saharan Africa. It was gratified by the prompt action taken by the Bank to explore with donors various approaches to mobilizing resources, as requested at the Committee’s September 1984 meeting, and welcomed the establishment of a Special Facility for Africa of some $1.2 billion. The Committee encouraged donors that had not contributed to the facility to do so. At the same time, it commended private and governmental responses to the emerging needs of the region.

Overview

The Spring meeting benefited from the intensive preparatory consultations that took place among the industrial as well as the developing countries. This helped develop a convergence of views on the complex subjects under discussion. While this meeting was not expected to achieve any major results in the many areas under discussion, it was expected to initiate a detailed examination of those difficult international economic issues and foster a useful dialogue among its members on those issues. This it managed to do. As the members noted in the concluding section of their communiqué, they considered the deliberations “to have been constructive, informative and productive.”

The Committee’s Spring meeting produced consensus between participating nations on a number of economic issues of vital interest to both developed and developing countries. There is reason to believe that the momentum generated in April will be sustained in the future, and that in the Committee the development community might have found a forum where understanding can be reached on the problems that confront the various parts of the globe.

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