Round Table Discussion

Mohsin Khan, Morris Goldstein, and Vittorio Corbo
Published Date:
September 1987
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Ernest Stern

Senior Vice President, Operational Staff

World Bank

I have been struck, both in this conference and in similar discussions of this topic, by the amazing consensus today about the importance of having an adjustment process that also takes into account the need for growth, both current and prospective, and by the wide range of definitions that people who write about this subject take as a starting point from which their conclusions follow without too much difficulty. Much of the debate then revolves around those conclusions, whereas in fact quite often there exists a different set of starting points and starting assumptions.

We have heard in the course of the discussion implicit or explicit definitions of development and the contention that adjustment is about the same as development or that development is about the same as adjustment. It is true that all growth and development require adjustment to changing circumstances, different technologies, and the evolution of the economic structure of a country.

Too much adjustment is the antithesis of growth—and here the word isn’t really adjustment but more properly austerity. But even appropriate adjustment does not provide much assurance in the short term that you end up with a basis for sustainable growth. It is important in thinking about how we in the Bank and the Fund can help countries view their problems to consider what kind of advice we can give. By doing so we will have perhaps a clearer understanding of what is intended by these phrases.

It is clear that we are looking at adjustment programs in countries that are in great difficulty. Whether development is the same as adjustment or adjustment is an integral part of development is not too germane. Countries that by definition failed to adjust adequately in the past are facing particularly acute problems; whether these problems are of internal or external balances or both is not germane.

There is a sense of urgency to the adjustment process, which is different from the normal development process. Normal relationships are different. Future prospects cannot be based on present practices because what is going on has led to the problem. The relationships between debtor and creditor are changed; the relationships between domestic institutions and the public have to be changed; government strategy needs to be reexamined not only as regards quality and implementation but also as regards long-term effectiveness. And this needs to be done quickly because normally a country in this position is running out of the resources to grow and the capacity to adjust.

The adjustment process is multifaceted. There are basic issues of macroeconomic adjustment, since ultimately resource use must equal the resource envelope. But the real adjustment process goes well beyond that. It involves, particularly if you are looking at adjustment with sustainable growth, it seems to me, the philosophy of the country and its government and whether that philosophy is consistent with sustainable growth in a current or prospective resource environment. It involves administrative ability, managerial skills, and the capacity of public institutions to adapt. Without such skills, measures to restore macroeconomic balances often fall apart. If the country has not dealt with the underlying problems, even when times get better, the country will run into very much the same set of problems again.

Structural changes supporting these macroeconomic aggregates are as important, if not more important in the long term, to the success of a program and to the resumption of sustainable growth, thus the initial austerity program. Middle-income and lower-income countries that are going through the adjustment process provide good examples of how difficult change is and how slow progress often is.

Adjustment involves many difficult political choices in open or democratic countries. Even in nonparliamentary countries there are still political processes at work, and it is rare that a single person can decree these choices without undermining his support.

It is clear that many countries, even with the best of will at the top and a clear desire to change the basic strategy, have great difficulty persuading their bureaucracy to accept change. Even when the ministers are all abroad, political leaders have great difficulty in breaking with tradition.

Even if they can do so, the results are not instantaneous and can sometimes be a bit perverse. With all the knowledge accumulated in the Bank about how this process works, and if I may add, with all respect, in the Fund, when a country starts on this process, unexpected developments occur and unexpected results emerge. Once begun, the process is ongoing and another barrier arises because few countries are well endowed with indigenous advisory capacity. Moreover, there is generally inadequate analytical capacity that feeds back to the government allowing it to make necessary mid-term corrections.

Adjustment with growth will not be achieved in a short time and is not an emphemeral issue awaiting the magic solution to the debt overhang. It is a process that needs to continue in many countries for a good number of years to achieve sustainable growth in an external environment where resources will generally be available for some time only in modest amounts, modest not because resources are absent but because the investment opportunities in these countries are less attractive owing to high risk or to low returns.

The weariness that the world seems to have about solving the debt problem is going to continue and probably increase because of the political difficulty and uncertainty of the process and the changing external environment, which, as a number of discussants have pointed out, isn’t getting any better. There are going to be lots of setbacks. Countries making the effort will come back for a second or third or fourth time, and this will lead the impatient, often including our commercial banker friends, to question whether anybody knows what they are doing and why don’t they do it right the first time. That contributes to their unwillingness to continue to raise resources and to their sense of frustration.

It has been suggested on the one hand that the Bank is still at an early stage of formulating an integrated model of how development and adjustment can proceed and, on the other, that the Bank employs excessively simplistic, rigid, and universal models.

I favor the former suggestion because I myself am skeptical about the capacity of a central model to analyze this highly diversified set of issues in different countries. Clearly, that is not to say that there aren’t some well-known basic elements which can be analyzed. But beyond the basics, the real contribution that the Bank can make is not to deal only with those basics, but to go beyond this, to help the country deal with the medium- and longer-term structural issues in their administration, in the operation of public enterprises, and in the incentives not only for the private sector, but for the actual operations of the central bank and financial sector.

Overall, the Bank’s role focuses on how the policy framework and the incentive programs affect the behavior of private individuals, firms, and public enterprises, and whether our expectations at the policy level can, in fact, be translated into reality, and if not, in identifying the remaining barriers to policy implementation and how these can be overcome.

Richard D. Erb

Deputy Managing Director

International Monetary Fund

I thought I might address a number of issues that came up during the symposium. The interesting exchange during the discussion of the country studies brought out a wide variety of country experiences, including not only Turkey, which was the subject of the main presentation, but also countries in Latin America, some elaboration of the experience of Thailand, and mention of developments in Morocco. I was struck by the effort to link in a systematic way these experiences and to draw from one set of countries conclusions and implications for policies that other countries might follow. This is not easy. Cross-country comparisons may be useful in developing insights on individual countries, but there are definite limitations on the practical transfer of cross-country experience.

Given the way that Fund missions work with individual countries, I thought not so much about cross-country comparisons, but rather about the evolution of economic developments and policies in each of those countries.

Despite a tendency to think of the Fund as having a short-run orientation toward individual countries and being involved in crisis situations, the reality is—and this was the case in each of the countries just discussed—the Fund has a long working relationship with each of its member countries. At times, that working relationship involves a formal Fund arrangement. This is true of all the countries mentioned. Discussions within the staff regarding a formal arrangement of each of those countries focused on individual circumstances of each country and the trade-offs that each had to make and did so not within a short-run context but in a longer-term consideration.

Looking at the past experience of these countries and looking forward to their future leads me to the broader subject of adjustment versus growth. I know there was during the staff discussions considerable reflection: Is there a trade-off between adjustment and growth? Is there not a trade-off?

Adjustment is a word that means a lot of different things. Adjustment is not a concrete concept; growth is. If I may be critical for a moment, the question is not of adjustment versus growth. Nonetheless, most countries do not think about adjustment in the abstract, nor does the Fund staff. They think of more concrete policy objectives, of which growth is one. Other objectives include external payments sustainability, integration with the rest of the world, employment, and distribution. Each country has a wide range of policy objectives.

In working with a country the Fund staff looks at these policy objectives, analyzes and examines some of the trade-offs that may be involved not only in the short run, but also over the medium term, and assesses the policy instruments that the government will employ to achieve those objectives. These instruments represent a long list, including monetary policy, pricing policies, expenditure policies, and tax policies. Taking into account the domestic and external environment and the unique circumstances of each country, the staff faces a challenge in providing analysis and advice on the trade-offs that may exist among objectives and in setting policy instruments with a view to achieving those objectives not just within a year or two ahead, but over a longer period of time.

This leads me to a second general observation on the question of the short run versus the long run, which I think is an artificial distinction. One must look at the objectives and the trade-offs of objectives within a multiyear context in the same way that the policy instruments need to be examined and analyzed within a multiyear context.

There have been particularly difficult discussions of the use of Fund resources in which objectives differ and may conflict: external adjustment comes in conflict with growth, or immediate growth comes in conflict with longer-term growth. I think that the most difficult discussions occur when the staff feels that the economic policies that the government is putting in place for the present may encourage growth in the very short run but discourage it in the longer run. Of course, most governments have a short time horizon and would like to maximize economic growth in the short run. They consequently give less attention to the implications of the policy mix on the longer-term growth prospects.

Regarding the debt strategy, about which there was considerable discussion, I would make a couple of observations. A lot of progress has been made since 1982, but at the same time there is no doubt—as is clear from many comments, including those of Mr. Reed—that serious problems remain. In the early days of the debt strategy there was a debate over whether debt was a liquidity problem or a structural problem. Over time, it has become clearer that is it not simply a liquidity problem but a fundamental structural problem. There exists what some call a debt overhang. I personally do not like the term “debt overhang” because it is as imprecise as the word “adjustment.” I like the more specific formulation that the market value of the debt for many countries is well below the par or contract value of the debt.

I recall Mr. Reed saying that, yes, that is true, and indeed commercial bank investors and equity markets have discounted the difference between the market value of the underlying debt and its equity value. A return to more normal creditor relationships requires a closing-up of the market value and par value relationships. One key to solving the debt problem lies in identifying additional ways to reduce the gap between the two.

Another key is not to interfere with the normal market relationship between creditors and debtor countries with less serious debt problems.

Certainly, the management of economic policies within the debtor countries will contribute to the elimination over time of the gap between the market value and the contractual value of debt, but just as certainly other means must be developed. As I think many of those means need to be market oriented, I think that is the current challenge facing the official international community as well as the commercial bank community in closing the gap. For example, an exit bond may be viewed narrowly as a means of freeing smaller banks from the debt problem. It could also be viewed as a more general means of dealing with the debt overhang.

But with just those few comments, I would like to close.

Lal Jayawardena


World Institute of Development Economics Research

I should like to focus my remarks on an issue that grew out of the debate, on the paper on the adjustment process in Latin America by Mr. Bianchi and his colleagues. Mr. Bianchi’s introductory presentation emphasized the current mood of “adjustment weariness” in Latin America, where after a great deal of effort to improve the trade balance, a substantial additional effort is now required, which is, in fact, greater than the effort expended over the last five years in all countries except Brazil, Colombia, and Uruguay. He tended to rule out a significant additional domestic effort essentially on political grounds because of the import compression and expenditure cutbacks that had already taken place, which had driven per capita income generally well below 1980 levels; the only available solution, therefore, was to look to the procurement of additional external resources. Additional resources might be raised in several ways: lower interest rates, reversing capital flight, and new lending—and all of these were found wanting in the Latin American context. I had the feeling that Mr. Bianchi then rather reluctantly raised the issue of debt forgiveness in some form or another as being the last option available.

This promptly elicited a reaction from Mr. Kashiwagi, who asked how one could possibly entertain the thought of debt forgiveness at a time when one was seeking new lending from banks on the substantial scale that the situation warranted. We couldn’t get to grips with that crucial issue at that session, but I would like to address it at this point.

The question is really whether we can have a form of debt forgiveness—noncommercial interest rates or partial cancellation of principal which will avoid, so to speak, a bankers’ strike. Some of us have been working on a set of ideas, which Richard Carey alluded to in his presentation, namely, for redirecting a portion of Japan’s current surplus away from financing the U.S. deficit to financing developing countries. The team that worked on these ideas comprised Dr. Arjun Sengupta, Dr. Saburo Okita, Chairman of The Board of The World Institute of Development Economics Research (WIDER) and a former Foreign Minister of Japan, and myself. I would like to offer this for consideration as an alternative to debt forgiveness together with a proposal developed by Mr. Hattori, a former comptroller of the World Bank and also a former Governor of the Bank of Rwanda.

As outlined personally to us, Mr. Hattori’s approach was to wipe the slate clean, so to speak, of present debt, so that banks would then have a clear way ahead to resume lending. This proposal has obvious affinities with the well-known Kenen and Rohatyn proposals, but in my view has some particular attractions that justify a restatement at this stage.

The idea is very simple. One takes as a starting point the discount at which bank debt is currently trading and reckons that this would be equivalent to nonconcessional lending by banks at 4 percent interest over a 22-year maturity, including a 2-year grace period, with the difference that this discount is not now passed on to the debtor developing countries but is enjoyed by the purchasers of bank debt in the market. Supposing a facility were to be set up that would take over bank debt on just these terms and developing countries offered slightly harder terms at 4.5 percent over 20 years; this would provide a margin for meeting default up to 10 percent of all loans. Taking over developing country debt in this manner would be conditional on the adoption of an appropriate policy package; but the terms could be altogether attractive to both debtor and creditor and could clear the decks in a nondiscriminatory way to enable banks to resume lending.

As Dr. Sengupta and I were really in no position to react immediately to this proposal, we simply listed it as an example of something that might be considered at an appropriate time. But what struck me about that proposal, as I heard the discussion yesterday, was that it was the kind of general proposal that would make it difficult for the banking system to penalize any particular country seeking debt forgiveness in an ad hoc way.

I did some homework last night on Professor Sachs’s ideas, which I think we all found extremely interesting. He had presented an earlier version of his paper in Helsinki to a conference held at WIDER in memory of Carlos Diaz-Alejandro, a well-known Latin American economist. Now what is interesting about that set of ideas is the following: The key to granting debt relief, he says, is to make it selective so that not every debtor country feels a need to suspend its international payments and so that the contractual basis for future international lending is not fundamentally undermined.

I think these ideas are important because all of us are now looking at selective debt relief as a way of keeping the process of new lending going. I think Professor Sachs’s way has much to commend it, because his plan separates the heavily indebted Latin American countries from the less indebted ones. For the list of countries Professor Sachs read out very hurriedly at the end of his presentation, his plan would imply a loss of 15 percent of bank capital for the major U.S. banks and 5 percent of bank capital for all other U.S. banks. The proposal relates to the suspension of interest payment for only a five-year period to give the countries concerned the necessary breathing space to adjust, with the missed payments forgiven rather than capitalized.

I did some calculations according to Professor Sachs’s formula, and the absolute magnitudes corresponding to these percentages turn out to be surprisingly low. Debt forgiveness à la Sachs means US$ 6.5 billion in the case of the major U.S. banks and rising to US$ 9.5 billion if all other U.S. banks are additionally brought in. As the proposal is couched in terms of a claim on bank capital, commercial banks are bound to share my worries about the precedent this might set. The crucial question is whether we are left with any other option.

If one looks at the problem in terms of recycling part of the Japanese surplus to developing countries, I suspect resource availability ought not, if the issue is imaginatively handled, to be too much of a problem.

I will not go into the WIDER proposal in detail, but what I simply want to note for the moment is that the Wharton Econometric Forecasting Associates’ January 1987 report, entitled “Status Report: The Debtor Countries after the Debt Crisis,” picks up the idea. Let me just say a word about their comments. They say, “A new opportunity for securing a net flow of funds back to the debtor countries may be on the horizon. Just as the need to recycle the petrodollar surplus in the 1970s led to a dramatic increase in lending, the Japanese current account surplus may now be the source of the next wave of new finance for the debtor countries.”

Regarding the WIDER proposal which they christen, after the Chairman of the WIDER Board, the Okita plan, Wharton Econometric Forecasting Associates say that “in late December 1986 Japan appeared to be moving in the direction suggested by the Okita plan,” and that the Japanese Government has “announced a program to recycle US$9 billion of their current account surplus to developing countries.”

On this point, I have to take issue with Mr. Carey’s way of describing the proposal. He sees no necessity for the structural current account surplus of Japan to persist. But if looked at in terms of Japanese savings behaviour, which is as high as 27 percent of GDP, there is doubt as to whether any reasonable degree of domestic expansion will absorb the greater part of these savings domestically. Given the level of savings, there are bound to be substantial amounts available for investment abroad in the form of current account surpluses despite domestic expansion.

The question is whether these surpluses can be diverted away from financing the U.S. deficit to financing the deficits of other nations. What has to be worked upon are the terms, conditions, and guarantees that will make that happen. One element of such a scheme might involve the use of part of Japan’s official development assistance as an interest subsidy to provide annual lending that is a significant multiple of the subsidy. For example, an interest subsidy of only 4 percentage points would cost no more than US$ 400 million of official development assistance monies to generate lending of US$ 10 billion in the first year of an annual program of loans on this scale to developing countries; subsequent annual subsidy requirements would depend on the terms of lending.

Mamadou Touré

Minister of Economy and Finance


Like Mr. de Groote, I would like to make remarks on the whole symposium, not only on the discussion yesterday when I was in the chair.

My first remark concerns the broad and unanimous consent on the propriety of the title of the symposium, Growth-Oriented Adjustment. Nobody questions that growth adjustment is the right thing to do now. This therefore constitutes an important step because it was not well recognized years ago. In his opening address, the Managing Director indicated two extreme positions that have to be rejected in dealing with the subject. First, there is no inherent conflict between growth and adjustment. Second, growth does not automatically follow adjustment. The tone was set for our discussion by the papers presented by Mr. Michalopoulos and Mr. Guitián and the suggestion that we are confronted with a series of trade-offs or, according to some, with a false dilemma. I can cite some of the trade-offs.

Besides the one already mentioned and rejected by the Managing Director, the dilemma or the trade-off between adjustment and growth is the temporary use of Fund resources versus the medium-term loan needs of financing adjustment. Some see no distinction between the work of the Fund and that of the Bank in making short-term as opposed to long-term loans. I think this is broadly correct, although the resources of the Bank and the Fund are different. The Fund has short-term or medium-term resources at best, while the World Bank has long-term resources. Therefore, countries that are contemplating programs with the Fund and the Bank should know what is involved in use of Fund resources.

The Fund has a principle of revolving its resources over a period of time, which is sometimes short-term, sometimes medium-term. Is it advisable for a country to take on a Fund program to finance structural adjustment whose benefits will be derived only after a long period of time? This problem has arisen recently when, after the cycle of the Fund programs, some African countries were hard pressed to repurchase from the Fund. The distinction between short-term and long-term policies in the Fund and the Bank has to be taken into consideration when we are putting adjustment programs together.

Another dilemma or trade-off was signaled by several speakers: the trade-off between inflation and balance of payments growth. There is yet another. Can Turkey or Japan or Korea be considered a general model for other developing countries or are there as many models as there are developing countries? Some of the speakers seem to think so: Nations have just to take measures and to liberalize and then everything will be all right.

The address of Mr. Saracoglu gave hopes for solving situations that are desperate but not serious, as people used to say. In his country a bold package of important financial responses in support of a comprehensive structural adjustment program has led to success.

This may be so, but we have to take into consideration the environment and adapt to it the general scheme. The strategy of straitjacket cannot work. All of us in this room cannot wear the same jacket. In sum, though basic principles may be retained, we have to tailor programs to the particular environment of a country to achieve lasting progress.

Another false dilemma or trade-off lies in the sequence of action: stabilization first, then adjustment and growth, or together. Perhaps we should try to develop guidelines in this matter.

It is not right to expect growth in a destabilized economy. Therefore, in an economy that has been destabilized by fiscal and external imbalances, the first thing is to stabilize. One cannot build a building on unstable foundations. The same is true for economic management. Therefore, stabilization programs are essential, though the words to express such a program have changed over time: stabilization program, financial program, adjustment program. I believe the difference has to be made very clearly between stabilization, on one hand, and the other programs, on the other.

What do adjustment and growth mean? We don’t have a definition of adjustment, but fortunately we have a definition of what structural adjustment is, in the Manual of Operations of the Bank, in Mr. Michalopoulos’s paper. He defines structural adjustment lending as non-project lending to support programs of policy and essential change necessary to modify the structure of an economy so that it can maintain both its growth rate and the viability of its balance of payments in the medium term. Adjustment programs should aim at these objectives. I define the programs by their objectives. For the least-developed countries what is at stake is not only growth but development. If we are to speak about development-oriented adjustment, we would see the structural problems, the structural bottlenecks, and the necessary investment that has to be made in human resources and in infrastructure. Indeed, there can be growth without development. What we need is development and growth together.

I need just to say two words about the debt problem, which constitutes the most serious constraint on developing countries at this time. Here again, I would like to single out the IDA countries that negotiate with the Paris Club rather than with other creditors, that is, commercial banks. There are two categories of debt: debt that can be rescheduled, and debt that cannot and is mainly owed to multilateral institutions.

As to the first type, many countries have reached a level where there is no longer a possibility to reschedule. About 50 or 60 percent of the debt is not eligible for Paris Club rescheduling because it has already been rescheduled. Therefore, a certain limit has been reached.

As to the second type, much could be said about the shared responsibility between the parties concerned: the Bretton Woods Institutions, the private sector, and the governments. Each one has a role to play.

On the Bretton Woods side, we have to be very careful about how to enter programs. I wish to refer you to a quotation from an open letter to the President of the World Bank by Mr. Richard E. Feinberg in Between Two Worlds, the World Bank’s Next Decade, “A long list of requirements either holds an entire program hostage to a secondary issue or is open to highly subjective assessment.” I feel that the Bretton Woods Institutions should concentrate on the basic program, do some monitoring, and then leave to the countries the flexibility to attain their objectives.

One last point I only want to mention. For developing countries like ours, even if we make efforts to liberalize and to be outward oriented, we are confronted with low commodity prices. If the swings in the price of commodities make changes in our programs, they can offset the programs within one year and lengthen to three or four years the times required to adjust the economy.

T.P. Lankester

Executive Director

International Monetary Fund/World Bank

I would like to comment on some themes recurring at the session on external financing.

If there is one point on which practically everyone is agreed, it is that growth-oriented adjustment programs are a lot more likely to succeed if the countries concerned can obtain a reasonable flow of external finance. The form this should take for countries in different circumstances is becoming a matter of increasing debate: I will come back to it later in my remarks.

I am not going to try to say what would be a reasonable flow of finance. What one can say is that, for the major indebted countries, if the experience of the last two or three years—at least as regards commercial bank flows—were to be repeated for very much longer, those countries’ growth and debt-servicing prospects would be fairly bleak.

In the case of the low-income sub-Saharan African countries, external financing has been reasonably maintained. In an ideal world, it would be desirable for it to be substantially increased. But since we are talking here largely about official financing, the prospects for such an increase are frankly not very great. The priority therefore has to be for donors and recipients to get better value—in developing terms—from the financing that is available.

With the greater emphasis now on institution building and on policy-based lending, my guess is that aid effectiveness is on an improving trend. But much needs to be done. It may sound tautol-ogous, but aid to Africa will not be effective unless adjustment programs are well designed and determinedly implemented. An issue from the donors’ side that must be addressed is the need to reduce the great burden that often-competing aid agencies place on fragile administrations. There may be a need to look at some aspects of Paris Club procedures, which also place a heavy burden on African administrations.

For the highly indebted middle-income countries, the central question is how to restore the flow of private external capital. The principles laid out by Secretary Baker, I believe, remain valid in the sense that growth-oriented policies and stepped-up lending by the multilateral development banks are necessary conditions for the resumption of private lending. But questions are beginning to be raised whether these conditions are sufficient.

John Reed has sought to identify one constraint when he argued that new lending is being held back by countries’ insistence on non-market-related terms. It seems to me that there may be an element of truth in this. But there is a real question as to what market-related terms mean in a situation of nonspontaneous lending.

If we were back in the spontaneous lending phase with banks competing with each other for lending business, it would be possible to talk of “market terms.” But as long as we are in the present concerted lending phase, the terms of any package seem bound to involve a certain amount of non-market- related or political bargaining. It may be that a particular package would be more easily put together with a higher spread. But what if the borrower walks away and decides instead to limit its debt-service payments?

But I do think that new bank lending might be better facilitated if borrowing countries were more sensitive to the requirements of the banks in other ways. The banking community might be more willing to provide new money if, for example, ways could be found to channel more of it directly to the private sector—though unless there are appropriate exchange rate and monetary policies in place, the relevant foreign exchange will not become available to the monetary authorities to help the governments in question meet their obligations. (This is another aspect of the fact that the private sector already has considerable net foreign exchange assets in many countries while governments are net debtors.) Debt equity conversion schemes and more encouragement for private direct investment, besides bringing in capital from non-bank sources, would also be welcomed by the banks without imposing necessarily undue costs on the borrowing country.

Maybe, too, the Bank and the Fund have to be more sensitive to the commerical banks’ requirements. Instead of offering them financing packages almost fait accompli, perhaps the size and type of financing required in connection with Fund/Bank supported programs ought to be discussed at an earlier stage with the banks. The country concerned should be a party to these discussions.

There are some other questions. First, will the banks differentiate between “good” and “bad” debtors? Or will the good debtors be tainted in their relations with the banks by their bad neighbors? I suspect the answer at present is partly yes and no. It seems to me that it would be very much in their own interests if the banks were fully to recognize the good performers in Latin America.

Second, do the banks have adequate machinery and mechanisms? The problem of how to bring in, or take out, banks with small exposures is posing greater difficulties than ever. This is something the banks need to address. It has, for example, been suggested that some form of de minimis rule would enormously simplify new money negotiations and be bearable for the banks with large exposures.

It seems to me also that, with the different preferences and prejudices of individual banks, banks will need to be given (or give themselves) a range of options as to the form in which they offer new financing. For example, banks in some countries have expressed a preference for interest capitalization.

This brings us to the question of the form of finance that debtor countries would prefer. There are two major categories or forms of finance: those that add to debt (and debt servicing) and those that reduce the present value of existing debt such as write-offs and thereby provide savings on interest payments. The latter, as John Reed has stressed, could have major implications for access to sources of new finance, and the banking community as a whole seems very unenthusiastic. As well as the question of future access to external finance, there is the related question of whether countries would have as great an incentive to adjust. Nonetheless, some economists think there is scope for going down this road.

Some speakers referred to the absence of a default mechanism that might enable countries with extremely high debt ratios to limit their debt-service payments, at least for a while, without causing lasting damage to themselves or to their creditors. Except for some vague references to the 1930s, I am not clear what such a mechanism might consist of in today’s circumstances. But one related concept that was mentioned perhaps needs to be explored further. This is the idea of subordinating old bank debt for new. Is this feasible? Since it may involve write-offs, could it not create great difficulties for the banks?

The Bank and Fund will need to go on playing an active catalytic role in bringing new money packages together. The Bank and the other multilateral development banks will need to be a substantial net provider of funds. But Richard Carey in his paper rightly warned against the Bank’s exposure rising too fast relative to other creditors. If the banks are unwilling to lend, and the World Bank lends more instead, sooner or later its credit rating is going to suffer, with possible consequences for other borrowers and shareholders. For the same reason, a massive increase in World Bank guarantees is not the answer.

One final point. There is a tendency these days for people to say that the case-by-case strategy enunciated by Secretary Baker won’t work. I believe that is a premature judgment. No doubt there need to be modifications at the edges, some of which I have referred to. But in my view the basic strategy remains the best strategy the debtors and creditors have.

Jacques de Groote

Executive Director

International Monetary Fund/World Bank

Mr. Chairman, when we discussed in the Boards of the Fund and the World Bank the possibility of this symposium, several of my colleagues expressed serious doubts as to the usefulness of such an exercise. But, on the whole, I think these doubts were not founded if we look at the experience of these last hours.

During the brief interludes you left us for social contacts, I tried to gather some reactions of my colleagues in the two Boards and in the staff, and I think it is almost unanimously recognized that the exposure to high-level outside criticism is timely, especially on the topics that are central in growth-oriented adjustment programs, such as export-led outward-looking strategies and exchange rate activism.

I will center my remarks, therefore, not only on what was said during my panel but on what I feel could be the experience of that symposium for those who have to follow Fund and Bank business on an everyday basis.

Let me first say that I am sure I shall not be the only one to feel the need to be more cautious or more humble, to use the word that was used a lot during this meeting, in the day-to-day sort of elaboration and examination of Fund and Bank programs.

For instance, we will be very careful, I think, in examining whether the case we have before us is one of export promotion or one of trade liberalization, and I think it will easily be recognized that there are specific situations in which it might be appropriate to start fresh with a period of export promotion before attempting to liberalize the countries’ trade and payments across the board.

Almost all participants here now recognize that it is imperative to assess the results in terms of growth that are expected from trade liberalization by taking into account the budgetary situation and the distribution of income. The Fund and the Bank programs might usefully incorporate those relationships more explicitly. We also will have to make sure that the notions of budgetary deficit used in our different deliberations and documents reflect best the development preoccupations, and it is anyway always useful to have a word with Mr. Tanzi about it to know whether the notion we deal with is the appropriate one.

The discussions also gave many good reasons for helping us to avoid exchange rate dogmatism and to check even more carefully whether accompanying measures and external circumstances justify the rate adjustments recommended by the staff. Staff is perhaps oversensitive in using this instrument, which is within the Fund’s province, because it has witnessed with professional despair the massive appreciation in real terms of the currencies of the poorest countries that remained pegged to the U.S. dollar when the dollar rose during the early 1980s.

I think we also might become in the future a little more cautious in referring candidates for adjustment programs to the model cases. Turkey and Korea no doubt responded to the adopted policies in the expected way, and the financial markets responded to the quality of the programs. But it was probably because of the special circumstances and especially the political will in those countries that those policies were successful.

It is a salutary exercise to keep those good examples in mind as a distant image because in our day-to-day business we almost never have to deal with such ideal cases, which, by the way, appear more ideal when you look at them afterwards.

In many of those countries the philosophy and managerial capabilities are not always conducive to broadly oriented strategy. Therefore, we have to deal with situations that are halfway in between, shadowy, and for which we have to look for approximative solutions that do not perfectly fit ideal models.

I think it is also useful that attention was drawn to the need to look at adjustment programs over a somewhat longer perspective than one year and to try to see how we can build up multi-year approaches, which are already part and parcel of many of the Fund’s and, of course, of the Bank’s activities. It is also useful that attention be drawn to the sequence of reforms. Should one start first with stabilization? Should a country attempt to start at the same time with stabilization and supply expansion?

The symposium made me also understand better how the representation of Fund and Bank activities is lagging unavoidably behind practices. For instance, the notion of growth-oriented adjustment—and it is useful perhaps to mention this—didn’t find its way into Fund programs on the occasion of the Baker Plan nor is it predominantly embodied in the Structural Adjustment Facility. It was nevertheless already fully recognized many years ago, especially when we implemented the Extended Fund Facility, and Turkey in that respect led the way.

I remember vividly the discussions I had with Mr. Ozal, who was at that time the Chief Economic Adviser of the Turkish Government. He was vividly aware that durable correction of the balance of payments could not be obtained only through action on the supply side. The elimination of price controls and subsidies and the dismantling of state economic enterprises were essential ingredients of a program aimed from the outset at achieving a relatively high rate of growth. Turkey was also the first case for which we developed medium-term balance of payments projections, trying to look beyond the annual segmentation.

And on the Bank side, where growth is obviously a direct preoccupation, the integration of stabilization elements in development programs as a precondition for their success has been a growing concern for the last, say, eight or nine years. I would say that the Bank and even the Bank Board have developed some expertise in that regard, and there is now a general practice of trying to assess development strategies of member countries not only when they propose for approval non-project-related loans but also on the occasion of the discussion of projects. Moreover, in the general discussion of the development strategies of a country, the implementation by a country of a stabilization program is generally taken as one of the basic elements for the success in the medium term of the Bank’s own development objectives.

Both Boards have now the benefit of the presence of staff members of the other Board. Consequently, the discussion in the Bank Board of stabilization aspects and the discussion in the Fund Board of growth aspects are now, I would say, day-to-day business. I cannot recall one single program for low-income countries in the Fund during the last two or three years in which the issue of growth was not discussed at length and in great detail, and I think we have tried to consider also more specific subjects, such as sectoral priorities or the development of local savings.

Of course, this is far from an easy exercise in day-to-day business because in many cases countries come indeed very late to the Fund so that the stabilization has to precede growth ambitions. And a long time is often needed, as was pointed out by Mr. Stern, before the growth effects can be perceived.

Another interesting fact relating to the topics that have been discussed during the symposium is the Fund’s explicit acceptance that the country’s income evolution and export proceeds should explicitly be taken into consideration at least once in a while, and for some countries in the definition of their access to Fund resources. The Mexican case came about not as a result of a discussion of principles but, as is often the case, in a pragmatic way. This case has been already discussed in the Board in a broad way, and several colleagues and myself have examined the possibility of trying to consider more explicitly in Fund programs the evolution of a country’s income and export proceeds.

Now trying to reconcile in everyday practice business growth and development preoccupations raises a number of basic problems and difficulties, on which it might be useful to center attention, and which could perhaps be taken as subjects for further reflection in another symposium. I am thinking, first of all, of the problem of the duration and the size of the assistance given by the Fund in combination with the World Bank. Of course, as Mr. Finch pointed out, the Fund is a trustee of repayable money and thus has to be careful that that money is reconstituted in due time. It must never be forgotten that the counterpart of that lending is reserves for the countries whose currency is used, reserves that have to remain liquid. It is an erroneous notion of the Fund’s liquidity to consider only the use made of its resources by developing countries. Those countries that provide reserves do so in the full expectation that they are liquid at all times.

How can we reconcile that obvious liquidity preoccupation with the need to assist countries using Fund resources during a time sufficiently long for supply effects to manifest themselves? Do we have to consider lending over longer periods? Is this compatible with the Fund’s role? Can we develop closer forms of cooperation with the Bank so that countries would have the certainty that they can count on financial assistance for a certain period? And how far would that also be helpful for the country to develop better relations with the banking community, which also in its turn has to know for how long the country can have the benefit of Fund assistance under appropriate conditions?

Another interesting issue that we might discuss is the adaptation to the circumstances of Fund policies on the use of Fund resources. It was decided that the policy of enlarged access to Fund resources had to be considered as temporary and had to be dismantled over time. And the dismantling or the stabilization of the policy of access to Fund resources had been pursued irrespective of the evolution of countries’ export prices and income.

Are there ways for circumventing in that way the distribution of quotas? You have seen Mr. Fekete’s proposals in that respect. He thinks of an allocation, the proceeds of which could be used for debt stabilizaton purposes. Others have thought of allocations that could be retransferred by industrial countries to the Fund for assisting programs, either the Fund’s general programs or programs of the Mexican type.

Another interesting topic that I might briefly raise is why we haven’t referred more to the experience of industrial countries. We gave all the time the impression that the Fund is only concerned with developing countries, and it is true that only developing countries are the Fund’s customers now. But many industrial countries follow shadow programs under Fund guidance and monitoring. Belgium is an obvious case where the stabilization program introduced in 1982 continues to be monitored by the Fund and where every year the government reports to the public and to Parliament on the basis of the Fund’s report.

For those countries, growth was also an important issue. And the Fund managed to advise an important transfer of resources from households to enterprises and from households to the government. Shouldn’t we consider more explicitly the experience of industrial countries as it results from the daily consultation with those countries in the Fund Board?

Another issue is whether we shouldn’t think of financing more explicitly countries involved in systemic changes, a country that, for instance, steps over from a dirigiste economy to a market economy. Does that country have a way to use Fund resources, and could it justify that use by the effects of such policy on its balance of payments?

The last issue that I think we might also usefully consider is how to associate better the banking community. I am not too sure that I followed completely Mr. Reed’s suggestion at the end of his very stimulating exposé. Is there a way to give to the banks more information than what they have already? He definitely gave the impression that the banks learn at the last minute what is happening. I have some reservations about the interpretation. I think all along the Fund and the World Bank are very careful to inform the banking community. It is a matter of responsibility more for the country to try to maintain appropriate relations with possible lenders.

Jacques J. Polak

Financial Consultant

The title of this symposium, Growth-Oriented Adjustment Programs, was not chosen by accident. It correctly conveys the joint challenge of the Fund and Bank. Certainly the two main aims of the organizers of this conference are to come to a balanced view of the interrelationship between adjustment and growth, and to present evidence of a meeting of minds between the Fund and the Bank on how they should discharge their respective responsibilities in this area.

The presentation during the first session from the side of the institutions was helpful in setting this process in motion. Substantially, the message of the Fund’s Managing Director was that adjustment and growth are both attainable and can reinforce one another. He started out by rejecting two simplistic propositions: that adjustment inherently conflicts with growth, and that growth follows automatically from adjustment. The rejection of this second simplistic proposition is not recent. It dates back over 25 years to the 1961 Annual Meeting in Vienna, when the then Managing Director, Per Jacobsson, stressed that “to introduce monetary stability is often only the beginning of the efforts needed to achieve growth. While the subsequent efforts largely fall outside the sphere of Fund activities, the Fund does not underrate their importance and, insofar as it can, is anxious to assist these efforts in every possible way.” The Managing Director elaborated on his basic propositions by emphasizing that “the extent to which adjustment is conducive to growth depends in good measure on the quality of adjustment.” From my own experience in the Fund and from discussions with former colleagues, I feel able to add that these views (and their elaboration) represent views held by the Fund Board and the Fund staff generally.

The paper by Mr. Michalopoulos conveyed a similar message. It reflected on most issues a highly pragmatic, eclectic approach, with the broad message that a judicious combination of policies (dealing in particular with demand management, exchange rates and other prices, and liberalization), plus a certain amount of foreign financing, can attain over the medium term the objectives of adjustment and growth. Mr. Michalopoulos acknowledges that in the short run a slowdown in growth is almost a prerequisite for successful stabilization.

Mr. Guitián’s paper focused on the constraints that adjustment poses on economic policymakers. There is a great deal of empirical validity in many statements in that paper. Thus, there are, unfortunately, far too many examples in the Fund’s experience of countries that opt for delayed or mitigated adjustment on the grounds that this is necessary to maintain growth and that usually grow neither now nor later but are forced into harsher adjustment later. Similarly, when growth is maintained by expansionary demand policies financed by foreign borrowing or by using up reserves, the end result is frequently a more painful adjustment later and less growth over the medium term.

These observations from experience suggest that there are limits, indeed rather narrow limits, on the extent to which adjustment can be traded off against growth, even with the best possible use of a wide range of demand and supply policies and a prudent use of foreign savings. But it is going too far to say that there is no tradeoff between adjustment and growth, or that an accurate short way to describe the role of foreign borrowing, if one wants to put it in a nutshell, is that foreign borrowing “can make it temporarily possible for domestic demand and the rate of growth to reach levels beyond those that the economy can sustain.” I am sure that Mr. Guitián would not disagree with these observations.

There has been further widespread support in this conference—and here I quote again from the Managing Director—for country-specific program designs in a medium-term framework and hence against inflexible precooked policy packages. If these are, as I believe, the broad views both of our guests and of the two institutions on the question of adjustment with growth, I think we have a common basis for Fund and Bank work in this area.

Richard N. Cooper

Professor of Economics Harvard University

I could ease all of your pain, I suppose, by simply thanking you all for coming to this symposium and calling it to a conclusion. I will not try to summarize the conference, but I would like to comment on several themes of the conference and some of the character of the discussion.

First, I am going to begin in an academic way on the tiresome but necessary topics of nomenclature and methodology. We simplify complex matters in order to comprehend them and designate the generalizations with simple labels in order to economize language. But that process runs the risk that the labels may become slogans. Words such as “liberalization” and “privatization” and “adjustment and growth” may become slogans used by both proponents and opponents of particular courses of action. If this happens, the debate can occur without sufficient refinements and therefore without being really joined. We need to remind ourselves that such terms are not well defined and are not monolithic.

One of the nice things about economics is that it rarely dichotomizes cleanly, but rather has continuous gradations and therefore gives rise both to subtle distinctions and to possibilities for compromise. That is especially true of such terms as “liberalization,” to which I will return below.

Methodology concerns how we learn. Policymakers are rightly skeptical about acting on the basis of purely theoretical reasoning. They distrust models and the conclusions of models. They want to know what experience has taught us. But when experience contains apparent lessons that they do not like, they have to resort to subterfuge, identifying the experience as valid for only a special period of time, or as a special and unique case not applicable to the circumstances that they are currently interested in. This typically leaves us in a quandary. If we reject models and we reject experience as too special or unique to be relevant to our task at hand, how do we learn? Too often such rejections leave us and the policymakers to wing it or to rely on preconceived notions, which in fact involve implicit models typically far less well developed than the models that have been rejected.

We have to draw a model, as Professor Fischer underlined strongly in his paper, to a consistent framework for looking at the problem at hand. We must also draw on experience, the past experience of our own country or of other countries, which is far richer in detail than any model can be. But both the model and the experience have to be strongly tempered with judgment to bring them to bear on the particular problem. Judgments will legitimately differ as to the precise relevance of models or experience to the problem at hand, which will always have some unique features; but drawing on models and experience helps to isolate the unique features and force an evaluation of their importance. We should listen carefully to the experience of other countries, even when the circumstances seem quite different, because of the lessons they might offer to our particular country and our particular set of circumstances.

I turn now to some of the themes of the symposium, starting with stabilization and liberalization. There was wide consensus that stabilization is a necessary condition for growth. Sustained growth year in and year out is not possible if the macroeconomic environment is constantly disrupted. So stabilization is a necessary condition, although we did not define precisely what we meant by it and, in particular, whether it encompassed a steady rate of inflation. I suspect opinion would differ quite sharply on the question of whether steady inflation year in and year out would or would not undermine growth. It is noteworthy that formal monetary models all-but-universally have the property that steady, anticipated inflation can have at most negligible impact on economic efficiency and growth. As Professor Sachs noted in his paper, Japan had inflation—the numbers sound small now in comparison with what has happened in the last decade—of 6 to 7 percent a year measured by the consumer price index right through the mid-1960s, a rate far higher than that in other OECD countries. (As was pointed out, there is a serious problem of measurement, and the choice of measure must be guided by the use to which it is to be put: the consumer price index is inappropriate for calculating real exchange rates.) Clearly, however, highly erratic inflation creates all kinds of problems. So I have open the question of exactly what we mean by stabilization, except to note the general consensus that a stable macroeconomic environment is necessary for growth.

I sensed more disagreement on whether liberalization was necessary either for stabilization or for growth. Mr. Finch pointed out that at least one form of liberalization is necessary for stabilization; namely, if you want to reduce absorption without running the economy into a recession, you have to substitute external demand for internal demand. So at least to that extent there is a link between them. One can identify other links between both liberalization and growth, but I did not sense any consensus on this issue.

Even if liberalization is not necessary for either stabilization or growth, it may be thought to be desirable. It is a well-known phenomenon that on difficult matters governments act more decisively in a period of crisis than in a period of calm, perhaps on the principle that if something is not broken, don’t fix it. There is therefore a temptation for those who believe that liberalization is desirable for a variety of reasons to use a stabilization crisis to shoe-horn liberalization in. This is quite understandable, but it requires a refined political judgment to decide whether that is merely taking advantage of an opportunity that might not otherwise come, or overloading the system.

As I suggested, it is necessary to distinguish between different types of liberalization to make clear that liberalization can be viewed as a process rather than a state and to disassociate liberalization from laissez-faire. In liberalization, I see two elements. The first is getting prices closer than they were to efficiency prices; the second, equally important, is allowing economic agents to make decisions on the basis of those prices. By emphasizing the first element, one can have a lot of liberalization and still remain far from laissez-faire.

Liberalization has different dimensions, and it is worthwhile for completeness to identify six of them. The first dimension concerns the market for domestic goods and services. Two aspects of that, state enterprises and agriculture, generated considerable discussion in the symposium. A second dimension is external goods and services. That, in turn, has two sub-components: exports (getting export industries focused on world prices) and imports. A third dimension is the domestic financial system (interest rates and credit markets). Fourth is the link with the international financial system (the nature and extent of capital controls). A fifth dimension is the domestic labor market (whether or not there are wage controls). And sixth, for completeness, is the link of labor to the rest of the world—whether there are controls on immigration or emigration. When we talk about liberalization, we do not have to give equal weight to all these dimensions, but to avoid misunderstanding it is necessary to be clear about which kind of liberalization we are talking about in each particular instance.

We did not discuss these dimensions in detail, but two general points of consensus seemed to come out. The first was that, insofar as one can say anything at all, external financial liberalization, the fourth dimension in my list, should follow, perhaps by a long distance, other forms of liberalization. At least there was not dissent from that view. Other distortions elsewhere in the economy will provoke a socially unwarranted outflow of domestic capital, or, conceivably, an inflow of capital that is not in the country’s best long-run interests.

Second, whatever is done with the rest of the economy, it is important to get export prices right. Liberalization is this sense is important for growth. That leaves open lots of topics that we either did not discuss at all or on which there seemed to be substantial disagreement, such as, for example, somewhat to my surprise, agricultural prices. There seemed to be disagreement on the propositions that Professor Johnson put forward. One thing we can be sure about is that import substitution as a source of growth for most countries—the United States, the U.S.S.R., China, and India might be exceptions—has distinct quantitative limitations. A country experiences a rapid spurt while it is first substituting domestic production for imports, but once that process is more or less complete, future growth industry by industry is limited to the rate of growth in domestic demand, and that is generally not very high for most industries. Countries that want industrial growth beyond that limitation must rely on export markets. This is a very simple model, but it is quantitatively understandable. Even so populous a country as Indonesia before the first oil shock had a domestic market for manufactured goods about the size of Norway’s. That exemplifies how import substitution as a growth strategy is distinctly limited for most countries, and how some kind of export orientation is necessary.

As Professor Bhagwati pointed out, there are semantic ambiguities in the expression “export orientation.” Ten years ago it meant reducing bias against exports moving back toward neutrality. As Professor Sachs and others pointed out, however, in the historical experience of some countries it actually meant much more that that—active and aggressive support for exports, a bias in favor of exports. Again terminology is an issue: we should be clear on what exactly we are talking about.

I will make two other observations on liberalization. One is that while liberalization is not the same as laissez-faire and while everyone seemed to agree that there is an important role for government, we do have one example that we can draw on for what lessons we can learn about laissez-faire, namely Hong Kong. Hong Kong is a minimal state, a law-and-order state with a British sense of rectitude and a Chinese sense of commercial integrity, and it has been enormously successful. Unique, everyone would say. Certainly every country is unique, but nonetheless it is worth noting that laissez-faire is not an obviously absurd strategy, nor a guarantee of failure to develop. At least in certain circumstances it has been notably successful.

The other point I would make is that we have talked mostly about developing countries. Two weeks ago I was in New Zealand, a small, high-income country, which 30 years ago was toward the high end of the range OECD countries in terms of per capita income. Last year it was at the low end of the range in terms of per capita income. This country has been highly dirigiste over the last 30 years, and its per capita income has slipped quite markedly—an example of Professor Fischer’s non-convergence. The new Labor government has moved strongly toward liberalization of the whole economic system. Most of that liberalization is focused on domestic markets so far, but it includes some external liberalization as well. It is too early to pronounce a judgment on the outcome of these policies. I mention them because as are talking about not only problems of developing countries but of developed countries as well, and there is considerable experience that can be drawn on.

Where liberalization involves the external sector, especially trade, historical experience suggests that it is a lot easier to liberalize in the context of a major inflow of resources. Professor Sachs pointed to the cases of the Taiwan Province of China and the Republic of Korea in the early 1960s. We heard about the case of Turkey in the early 1980s. I might add the case of Indonesia in the late 1960s and early 1970s. In all these cases a liberalization program was undertaken with a substantial inflow of external resources to tide the country over a difficult transition period in which it might experience a surge of imports. As Governor Bruno pointed out, the surge in imports might not occur, but it is nice to have the funds available in case a surge does occur so as to provide credibility to the program. Chile and Brazil also had heavy injections of funds in the context of liberalization programs in the late 1960s, and these programs unraveled in the course of time. So there is not assurance of success; other elements must have accompanied them. But matters go easier if foreign funds are available to backstop, and that is something for the international community to keep in mind.

On external debt, the issue here is the dead hand of the past, which it would be advantageous to remove, as a number of participants mentioned, but it is difficult to do so without jeopardizing the future. I think I speak for most of us in expressing pleasure and surprise at how flexible at least one leading commercial bank seems to be on the range of issues involved in debt, as reflected in Mr. Reed’s remarks yesterday afternoon. He seemed to suggest that the rigidities in the debt renegotiations are not all on the side of the banks; they are elsewhere in the system. That may not be entirely true, but it is worth taking note of to make sure that where the banks are willing to be flexible, others in the system, be they American or European officials, or officials of the Fund, are equally flexible.

We had a brief discussion of the possible parallel between private and sovereign debtors; the point was made that excessive private debts often involve write-downs, although Mr. Kashiwagi said the analogy did not apply to countries. It is another one of those analogies that is suggestive but applies imperfectly to countries. I would suggest that the mechanism that we have established in the Paris and London Clubs linked to a Fund program is the surrogate in the realm of sovereign debt for the court-appointed receiver in the case of a private debt. Where purely private negotiation fails, the old management is literally taken out of the firm before liquidation, before write-down of the debt, and court-appointed management is put into the firm, often as a prelude to both reorganization and to a write-down of debt.

It is hard to push this analogy to its extreme in the case of sovereign debts, but the Fund is in the unhappy but necessary role of being the analog of a court-appointed receiver who tries to work out a viable reorganization of a debtor country’s economic policy.

One final substantive point, and it surprised me that it was not given more emphasis, although Mr. Carey addressed it, concerns the problem of aggregation for the world as a whole. Policies that seem sensible and straightforward for one country or three or even ten, may not be perfectly straightforward if applied to 50 or 60 countries, because they form a big enough group to influence the environment in which the adjustment is taking place.

To bring this point into the present, let me remind you of the current U.S. trade deficit of $150 billion, which everyone claims must be reduced substantially. A program is underway to do that. There has been a sharp devaluation of the dollar. The forecast for the U.S. GNP for the coming two years shows a substantial part of the modest growth, 2.5-3 percent, coming from a major turnaround in U.S. net exports. That forecast may, of course, not come to pass; but if it does, that is the environment in which we are asking the developing countries to push their exports very hard. With a sharp reduction in the U.S. trade dificit, and indebted developing countries striving to increase their net exports, there will have to be a large reduction in the net exports of Europe and Japan.

It is especially incumbent on the Bank and the Fund to take the global environment into account when they work out policy packages with individual countries. There is perhaps an implicit assumption that of 20 arrangements with 20 countries, only 2 will really work and the other 18 will fail for various reasons. This seems to be a bad operating assumption on which to base programs.

So much for substantive remarks. Let me close by saying that a common theme has run through the conference, and that is while general principles are all very well they have to be adjusted to the diverse circumstances of individual countries. There was general agreement on that. That raises the question of whether the Fund and the World Bank staffs, and in particular the teams sent out to individual countries, are capable of doing this. Are there enough team leaders who are seasoned, sensible people of sound judgment, able to make a general framework, which must be common framework in institutions such as these, and adapt it subtly and creatively to the circumstances of the individual country? This is of great importance. The team leaders are the equivalent of ambassadors and have to be skillful diplomats we well as first-rate analysts with the flexibility to adapt general principles to local circumstances.

Finally, this conference has relied mainly on generalities. There have been few concrete suggestions. Mr. Cline gave some this morning on debt. Mr. Sengupta gave one that I especially like regarding the Fund’s gold. This gold serves no useful purpose sitting there with a market value of over $400 an ounce and book value of $42 an ounce. We should sell some of it, as was done in the 1970s, and use the capital gains for constructive purposes.

Apart from a very few concrete suggestions, we have coasted on generalizations, and in a way it is too bad the conference is not beginning now. We have become used to one another’s styles. We have moved the generalizations out of the way, and the really constructive work involves getting down to operational details. What exactly do we do about debt? What exactly do we do in particular circumstances, taking the general environment into account?

I will bring this conference to a close by thanking and congratulating the World Bank and the Fund for holding what I understand to be the first joint conference that they have held since Bretton Woods, and urge them to hold more. So the symposium is adjourned.

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