- Gerald Helleiner
- Published Date:
- March 1986
We on the staff of the Fund have listened carefully to the views of the governors, and we have tried to explain the policies of our institution, the environment in which we operate, and also the guidelines which we follow for our operations. You have raised important issues. Looking at the different papers, particularly the paper of Professor Loxley on alternative approaches to stabilization, I think the most important issue is the problem of resource flows. I agree that if we had no constraint on the amount of the resources, adjustment would be easier. As you all know, the resources of the Fund are limited. They are limited in duration and they are limited relative to quota. I have indicated that I feel that these resources are expensive for many of the African countries that have fairly difficult debt-servicing problems. It is important, when looking at the problem of access, as Governor Fadiga indicated, that account be taken of this aspect of the problem.
It is important for any adjustment program that the financing be carefully thought through. Without adequate financing, a program cannot work, and Fund support cannot guarantee the success of any program that is underfunded. And in this respect, I noted the concern of most governors regarding Bank-Fund collaboration. We are doing a lot in this area and we will continue to strengthen our cooperation. Over the past few months, we have felt, both at management and staff levels, that for the countries in Africa, given the structural nature of the problems that they face, it would be better to seek greater Bank support. We do want programs negotiated with the Fund to be supported quickly by the World Bank. The Bank and the Fund are working very closely on these matters. The Fund looks at broad macroeconomic policies, but for policies regarding investment programs, rehabilitation of parastatals, and the like, we go to the World Bank to seek their views. We do have the same concern. Adjustment has to go along with growth, and growth requires, as Mr. Lawrence has said, a large amount of investment. Given the low level of savings in Africa, capital flows are clearly necessary to sustain such growth.
Let me turn to the problem of devaluation, exchange rate adjustments, and capital flows. I have noted the concern of many governors that when a country decides to make a substantial change in the exchange rate, adequate resources should be available to the sectors that can profit best from the devaluation. I believe that this is an important aspect of any program.
Apart from the general issue of resources and capital flows, I also feel that institution building is important. Governor Addo has eloquently given us the case of Ghana and has summarized his intervention by saying “the most important aspect of any program is the management of the program.” I agree fully with that, and I think that management has to start with the design of the program. The Fund, as you know, has been placing greater emphasis in recent years on supply-side policies, but we still believe that demand management is essential. If you want to have the proper allocation of resources, you do need demand management policies. If you want to obtain higher rates of growth, you do need both demand-management and supplyside policies, and in that respect, the design of a program is a continuing process and has to take into account the most recent developments in the countries.
In the management of any program, the Fund stands ready to help countries through direct or indirect technical assistance, as we have done in many cases. But management is also the responsibility of the African governments. I have been, myself, an official in an African institution. If a team of people are determined to follow the program, to remind the political authorities that there are targets, to remind them that they have made commitments, to remind them that their credibility depends on the outcome of such programs, and, in the end, that the welfare of their people depends on their credibility and determination in trying to achieve their growth objectives, I am sure that implementation will be easier. I indicated that in many countries implementation is a great problem, which we will have to face and try to resolve together.
We certainly have taken the points made about the design of programs. The Fund staff is open-minded on these issues, and I am sure will try, with the experience that we have had, not only in Africa but elsewhere, to continue trying to design better programs. The design of programs obviously calls for a hard look at the problem of conditionality. The Fund is a monetary institution. We have said this: its resources must revolve. These resources can be used by members with balance of payments difficulties, but they have to be repaid and have to be repaid in conformity with a schedule of repayment that has been agreed in advance. Policies have to be designed to take account of this objective. In effect, conditionality is something which is normal.
I think we all agree that it is necessary that adjustment should take into account the particular circumstances of each country; there is a Board decision that stipulates this. And the Fund staff tries to do its best in this regard. Of course, many countries feel that this effort is not sufficient. Here more progress will certainly have to be made. But I will say clearly that I do not believe that a “soft” program is a solution for Africa. We cannot continue to have current account deficits representing 15–20 percent of GDP and think that their financing is sustainable in the medium term. At some stage, with the Fund or without the Fund, one would have to adjust. The imperative of adjustments must be met. As long as policies are well thought through, the support of the Fund is not only direct but also indirect, as Mr. Brau has pointed out, in relation to other creditors through the Paris/London Clubs or bilateral donors.
I have also noted the concern of Governors regarding the timing of measures and giving consideration to political realities. As I said earlier, it is difficult for the Fund to react to these questions because we cannot cite individual cases, but I can tell you that over the past six months since I have been Director of the African Department, I have been involved directly with this matter at the request of the management. The management has asked me to see heads of state to ensure that some of the political decisions are feasible. We do not want unrealistic programs. We want programs that can be financed, that are properly funded, but that have the political support of the authorities. Credibility has to lie first with the country. The country knows best what is the proper time to implement some of the measures, but the political authorities cannot delay indefinitely such an important measure as appropriate pricing policy or exchange rate policy. There may be several ways of improving policy and it is the role of the Fund to advise governments, given our experience elsewhere, what we think may be the best way to approach a problem. But the decision has to lie with the government.
Many speakers have said that we should put more emphasis on supply-side policies. We have been putting greater emphasis on supply-side policies for some time; perhaps the international economic environment has not allowed the benefits of this shift to be seen. I am sure that with the improvement we are experiencing now, this should be more visible. But supply-side policies necessitate the underlying support of demand-management policies. I do not think that in economic policy you can have a one-sided approach. An appropriate mix of policies is required to allow the authorities to achieve the objective they have set out for themselves. And in this area, clearly the Fund continues to attach great importance to supply-side policies.
Several Governors have raised the problem of communication with the Fund, the procedures of the Fund, even the inflexibility of the Fund. We will attach greater importance to the preparation of missions. I have explained to three or four Governors who have requested negotiation missions that I do not believe that a mission should go to a country unless the country is ready to receive it. Some Governors have pressed me to send missions to negotiate a program when we have not been in the country for a year or so. I know the deficiency in statistics in Africa. I do not believe that, after a year of absence, and a lack of communication of statistical data, a Fund mission should go right ahead and negotiate a program with a country. We have to prepare the ground, even if it takes time. So we will try our best to prepare missions, but you have to help in this respect, not only to make sure that the timing is right, but also to ensure the right type of coordination in the country.
I want to assure the Governors that management is ready to continue discussions on these issues, and that we often do this in Washington. Almost every week the Managing Director and the Deputy Managing Director receive governors and ministers from the African countries to listen to their problems and to try to see what the policy constraints are, what the problems of timing are in some of the decisions, and so forth. This we will continue to do. We will continue to do it in Washington, but we also plan to continue to do this in your own countries.
Governors should feel that the door is open in the Fund. We feel that the dialogue must be continuing, that we should try to understand better the constraints of African governments, and that we should try to listen more about some of the types of policies that they feel are not right. But it has to be a dialogue, a two-way exchange. The Governors should also try to listen to the Fund’s experience. I told one of my former colleagues that Africa has been independent, on average, for only 20 years. The Fund has been dealing with member countries for 40 years. So we should all address these programs with humility and accept that errors can be made on both sides; but the most important aspect is to work in the interest of the countries, and that is what the institution is for.