Reports of the Development Committee
- International Monetary Fund
- Published Date:
- February 1996
The resolution establishing the Joint Ministerial Committee of the Boards of Governors of the Bank and the Fund on the Transfer of Real Resources to Developing Countries (Development Committee) stated that the Committee was to report to the Boards of Governors not less than once a year on the progress of its work. The reports presented in the years 1975–78 are reproduced below.
Report of the Joint Ministerial Committee of the Boards of Governors of the Bank and the Fund on the Transfer of Real Resources to Developing Countries
(October 1974–June 1975)
This first report to the Boards of Governors of the Bank and the Fund of the Joint Ministerial Committee of the Boards of Governors on the Transfer of Real Resources to Developing Countries (Development Committee) covers the period from the Committee’s establishment and inaugural meeting in October 1974 through June 30, 1975. Subsequent annual reports will cover full years ending June 30.
At its inaugural meeting, the Committee unanimously selected its member for the Ivory Coast, Mr. Henri Konan Bédié, as Chairman of the Committee; Mr. Henry J. Costanzo was selected by the Committee to serve as Executive Secretary. The Committee held substantive meetings in January and in June 1975, both in conjunction with meetings of the Interim Committee of the Fund, reflecting the close interrelationship between development issues and the effective functioning of the international monetary system.
During its first year, the Committee completed action on a significant new development finance initiative by unanimously recommending the establishment for one year of a “Third Window” for intermediate-term lending by the Bank and initiated work in several other major areas related to the resource requirements of developing countries, notably a Special Trust Fund under imf administration for balance of payments needs of low-income developing countries for the next two to three years, and ways of improving access, particularly for the middle-income and high-income developing countries, to private capital markets. Important areas nevertheless remained for closer consideration by the Committee, particularly the relation of commodity questions to the problem of development, and further aspects of international monetary reform having a bearing on development. These topics are in addition to the Committee’s ongoing review of real resource requirements and ways of meeting them through official bilateral and multilateral financing as well as through private financial mechanisms.
This report describes the background of the establishment of the Committee and the tasks put before it; reviews the content of the substantive work carried out in connection with the Committee’s meetings in January and June 1975; and surveys briefly the areas to which the Committee will have to turn its attention both in the period immediately ahead and in the longer run.
I. Establishment of the Committee
Two factors converged in the second half of 1974 to provide the impetus for the establishment of the Development Committee.
First, the continuing, intensive effort that had been under way within the Committee of Twenty (formally, the Committee of the Board of Governors of the International Monetary Fund on Reform of the International Monetary System and Related Issues) culminated in June 1974 in the Outline of Reform, which became the focus for discussion and action at the Annual Meetings of the Boards of Governors of the Bank and the Fund in late September. The Committee of Twenty, its own work having been completed, recommended in the Outline that two committees be set up to carry matters forward: an Interim Committee in the Fund, and a Joint Ministerial Committee of the Bank and the Fund—a Development Committee—the latter to continue the study of the broad question of the transfer of real resources to developing countries, and to make recommendations to implement its conclusions. Some work on this broad question had been done and reported on by a technical group of the Committee of Twenty, and many countries felt the need for a ministerial forum which would continue this work and give specific attention to the problems of economic development in developing countries.
Second, developments in the world economic situation during 1973 and 1974 underscored the need for such a forum. These developments left most of the developing countries facing serious difficulties, including trade and current account deficits in 1974 several times larger than in 1973 and still growing. This situation greatly increased their needs for financial resources of a concessional nature at a time when the international climate for an increased flow of concessional funds was not favorable. This formidable combination of many adverse factors posed a threat, not only to the economies of the adversely affected developing countries, but also to their economic and social development prospects.
When the Development Committee was established in October 1974 by parallel resolutions of the Boards of Governors of the Bank and the Fund, it was with the expectation that it could make progress in response to both of the foregoing factors, by serving as a forum at a high political level for a comprehensive overview of international activities in the development area and for orderly and constructive exchanges among industrial, opec, and other developing countries on issues related to development and the transfer of real resources.
The specific terms of reference of the Committee, as embodied in the above-mentioned resolutions, are as follows:
“(a) The Development Committee shall maintain an overview of the development process and shall advise and report to the Boards of Governors of the Bank and the Fund on all aspects of the broad question of the transfer of real resources to developing countries, and shall make suggestions for consideration by those concerned regarding the implementation of its conclusions. The Committee shall review, on a continuing basis, the progress made in fulfillment of its suggestions.
(b) The Development Committee shall establish a detailed program of work, taking account of the topics listed in Annex 10 of the Outline of Reform. The Committee in carrying out its work shall bear in mind the need for coordination with other international bodies.
(c) The Development Committee shall give urgent attention to the problems of (i) the least developed countries and (ii) those developing countries most seriously affected by balance of payments difficulties in the current situation.”
In general terms, the twofold task of the Committee from the outset has been:
(a) to formulate concrete suggestions to meet the immediate capital needs of the developing countries, particularly the poorest and most seriously affected countries, resulting from the extraordinary events of 1973 and 1974; and
(b) to focus on the long-range real resource requirements of all developing countries, with particular reference to the poorest income group, in order to assist these countries to achieve and maintain reasonable growth rates in the balance of this decade.
As the Committee’s work evolved in the initial period, the principal focus has been on the immediate situation of the poorest developing countries and that of the most seriously affected developing countries, but the Committee’s attention has turned increasingly to the longer-term and more fundamental problems of financing development.
II. Activities in the Initial Period
An initial work program was adopted by the Committee at its inaugural meeting in October 1974. In view of the situation then facing the developing countries, the initial work program concentrated on the flow of capital to the most seriously affected countries and to the least developed countries, and on measures to adjust to the new outlook for commodity prices. Subsequent consideration by the Committee of its work program directed attention to the broader problems of developing countries at all stages of development.
1. Review of the situation and prospects facing the developing countries
In pursuance of the initial work program, the Secretariat of the Committee prepared an analysis of the situation facing the most seriously affected and least developed countries which, along with a number of suggestions for action, was considered by the Committee at its second meeting (the first to involve extended substantive discussion) in January 1975. At that meeting, members of the Committee noted the serious difficulties facing many developing countries as a result of substantial adverse changes in their terms of trade and an inadequate flow of external capital. There was recognition that the situation was likely to continue in the immediate future, especially for the poorest and for the most seriously affected of the developing countries. The Committee agreed that industrialized countries should seek to adopt such adjustment measures considered necessary in their circumstances in such a way as to avoid any reduction in the net flow of real resources to the developing countries, that they should seek to improve the conditions under which developing countries and international development finance institutions might have access to their capital markets and to improve the real volume and the quality of official development assistance, and that they should avoid trade restrictions that have a negative effect on exports of developing countries. The Committee also recognized the increasing flow of resources from surplus oil producing countries and agreed that these countries should seek to expand, within their financial capacity, this flow of resources to the developing countries and to the international financial institutions.
2. Areas for early action
Taking into account the willingness expressed by some members to support and contribute toward such a facility, the Committee agreed at its January meeting to invite the Executive Board of the Bank to undertake an immediate study of the concept of Third Window lending by the Bank on terms intermediate between those of the Bank’s regular loans and those of ida’s concessional credits. It also agreed that the Executive Boards of the Bank and the Fund should be invited to study the desirability of creating a Special Trust Fund that would provide additional highly concessional resources to meet the requirements of the most seriously affected countries for the period immediately ahead. Both these studies were completed and made available to the Committee for consideration at its third meeting in June.
(a) Third Window
The concept of a Third Window was studied by the Executive Directors of the Bank and the management of the Bank held a meeting on April 30 with potential contributors to the interest subsidy fund for such an intermediate financing facility. The Bank had calculated that contributions of approximately $225 million in investable form would be required to support ibrd loan commitments of approximately $1 billion in fiscal year 1976 with an interest subsidy of 4 per cent. At the meeting of potential contributors on April 30, five countries announced their willingness to contribute to the interest subsidy fund. At the Development Committee meeting in June, additional support for the interest subsidy fund was expressed and eleven countries from amongst industrial and oil exporting countries indicated a willingness to contribute, although their indicated contributions were still not sufficient to establish the Third Window at the full level of $1 billion. The Committee lent its unanimous support to the establishment for one year of a Third Window in the World Bank and urged the Bank to proceed with its establishment in the fiscal year beginning July 1, 1975 in order to lend to the developing countries in that year up to $1 billion in assistance separate from other Bank operations.
(b) Special Trust Fund
The Executive Directors of the Bank and the Fund concluded in their study of a Special Trust Fund that if resources additional to those already available to developing countries through other channels could be obtained for such a Fund, consideration should be given to its establishment. The Executive Directors also concluded that such a Trust Fund, to be administered by the imf, should provide balance of payments assistance to low-income developing countries for the next two to three years, in support of medium-term programs of economic adjustment and that the assistance should be on terms more concessional than those applying to the imf facilities. Various suggestions with respect to possible sources of funds for the Special Trust Fund, including voluntary contributions and some use of gold holdings of the imf, were examined in the course of the study by the Executive Directors. After considering, at its June meeting, these and other suggestions placed before it by the Executive Directors of the two institutions, and in order to facilitate early concrete action, the Development Committee urged the Executive Directors of the imf to consider all aspects of the establishment of such a Trust Fund as well as to continue their study of all possible sources of financing.
The concepts of the Special Trust Fund and the Third Window were the Committee’s response to the immediate situation facing the developing countries. Considerable progress has been made toward the establishment of the Third Window, to make it operational during the Bank’s 1976 fiscal year, and the Committee hopes for early progress in the establishment of a Special Trust Fund. Meanwhile, the Committee has welcomed the support of the Interim Committee for continuing and expanding an oil facility in the imf for 1975 and for establishing a special account in order to reduce for the most seriously affected members the burden of interest payable by them.
3. Longer-term measures
The Committee has also given consideration to other measures required to increase the transfer of resources to developing countries. At its inaugural meeting, the Committee also had before it a number of topics for the Committee’s consideration over the longer term. These included, broadly: the amount and quality of official development assistance; policies and procedures of multilateral development finance institutions; improvement of access to capital markets; and international financing schemes for commodity regulation and price stabilization. Aspects of some of these were presented by the Secretariat for consideration by the Committee at its meeting in January 1975. The Committee instructed the Secretariat to propose such measures as might be considered for early implementation to promote increased use of capital markets by developing countries and to facilitate their access to such markets; and to initiate a broad and continuing review of the question of transfer of real resources, using as a basis the work of the Committee of Twenty and taking into account the conclusions of the study of the capital requirements of developing countries initiated by the President of the World Bank.
Accordingly, a World Bank study of capital requirements of developing countries and a Secretariat paper on measures to improve access of developing countries to capital markets received consideration by the Committee at its meeting in June 1975.
(a) Capital requirements
The Bank study concluded that developing countries would require substantial increases in capital flows, both official and private, and among other things would have to undertake at the same time efforts to increase domestic resource mobilization and to expand exports, if they were to achieve adequate rates of growth in the remaining years of the decade. The study suggested, by way of additional measures, increases in official capital flows, increased lending by multilateral institutions, improved access to private capital markets, and actions to increase export earnings of developing countries. In the light of the conclusions of the Bank study, the Committee felt that the low-income countries faced a very difficult prospect and recommended that their requirements for concessional assistance should be met on a priority basis. The Committee also agreed that the middle-income and high-income developing countries required substantial additional amounts of external capital. The Committee re-emphasized the urgency of improving the real volume and quality of official development assistance, both bilateral and multilateral, and reviewing its distribution with a view to improving the share for the poorer countries. It was agreed that a replenishment of ida providing for an expansion in real terms would be most helpful. The Committee also agreed that there should be an expansion of the lending programs of the World Bank and the regional development banks consistent with their capital structure and availability of funds and that the capital base of these institutions should be reviewed.
(b) Capital markets
The Secretariat presentation on questions related to access by developing countries to capital markets had suggested possible measures to improve access, which included expanded technical assistance, a review of regulations of capital-exporting countries with a view to identifying those which impeded access and to exploring joint action to modify or remove such impediments, maximum use of cofinancing possibilities by international financial institutions and consideration of possible mechanisms to support developing country access to private markets, including the establishment of a multilateral guarantee fund. The Committee noted the importance of measures to facilitate and expand access, in view of the substantial role which private capital flows could play in helping to meet overall capital needs, and recommended expanded technical assistance to developing countries seeking such access. The Committee also established a Working Group of government representatives (consisting of Canada, France, Germany, Japan, Kuwait, Malaysia, Mexico, the Netherlands, the Philippines, Trinidad and Tobago, the United Kingdom, and the United States) to review regulatory and other constraints affecting access to capital markets and to study further proposals to support access to capital markets, including the use of multilateral guarantees.
The Committee has shown active interest in the question of fluctuations of commodity prices. This subject was discussed at the January and June meetings. In its consideration, the Committee has recognized that fluctuations in prices and earnings of commodities accounting for a major portion of exports of developing countries can present severe problems to those countries both in their balance of payments and in the maintenance of development expenditures; it has also recognized the need for effective measures to reduce such fluctuations. The Committee has kept itself informed of the measures being pursued in other forums. In particular, the Committee has welcomed the action of the Interim Committee in requesting the Executive Directors of the imf to consider appropriate modifications in the terms of its compensatory financing and buffer stock facilities. Support was also expressed within the Committee for the World Bank and the regional financial institutions to study ways and means of assisting the financing of commodity stabilization schemes, including buffer stock arrangements, as well as for the Bank’s proposal to consider providing financing to the tin buffer stock. Finally, in view of the very substantial benefits which could accrue to the developing countries, the Committee has expressed its earnest hope for maximum progress in trade liberalization during the ongoing multilateral trade negotiations.
(d) Other matters
The Committee directed the Secretariat in January to report on an appropriate work program in response to the conclusions of the World Food Conference on the financing of food, fertilizer, and food production. At the June meeting, the Committee accepted the Secretariat’s conclusion that the Committee would be in a position to consider the financial aspects of the world food situation to the extent necessary only after the broad lines of international action on food are defined by the bodies created by the World Food Conference, particularly the Consultative Group on Food Production and Investment and other relevant forums. The Committee noted, however, the steps already taken in the World Food Council toward the establishment of an International Fund for Agricultural Development, as well as other institutional developments flowing from the World Food Conference.
In view of the inadequacy of the existing information systems on the flow of resources to developing countries and the need to have systematic and complete information for national and multilateral decisions on development finance, the Secretariat, in accordance with a directive of the Committee, formulated a number of suggestions for improvements in the existing information systems and these will be pursued with the concerned agencies and member governments.
III. Future Tasks
Apart from its task of maintaining a comprehensive overview of international activities in development, the Development Committee looks forward to facilitating international action in some of the many specific areas where progress needs to be made. Its ability to play such a role will, of course, depend on the continued willingness of its members to use the Committee as a forum for constructive dialogue on issues of world development and financial assistance and their readiness to demonstrate within its framework the political will necessary for translating proposals into realities.
In the area of external assistance, attention and efforts need to be focused on means of mobilizing, on appropriate terms, substantial increases in real terms in official and private capital flows, in order to sustain a minimum acceptable rate of growth for non-oil producing developing countries, and in particular the poorest developing countries, during the rest of the decade. Steps toward these ends by both the industrial and the surplus oil producing countries are needed.
One obvious objective must be to reverse the trend in the declining relative levels of official development assistance from traditional donors. As the Committee has noted, the existing quantity of aid is on the average still far below the 0.7 per cent of gnp target for the middle of the Second Development Decade. There is a clear need for improved performance. More broadly, there is need for urgent consideration by the traditional aid donors, members of the dac, and by new donors, members of opec, of the means by which to improve the real volume and the quality of bilateral and multilateral assistance. Beyond the resources being channeled through the new Third Window mechanism, early initiatives will need to be pursued in various institutions to accomplish such important objectives as, for example, a replenishment of ida, providing for an expansion in real terms, and an expansion of the lending programs of the World Bank and the regional development banks. In the meantime, there is an urgent need for the provision of interim assistance through the early establishment of a Trust Fund for balance of payments support which the developing countries will increasingly require over the next few years. The multilateral lending institutions should also keep their policies and procedures under review in order to assure that they are effectively meeting the requirements of developing countries. In the absence of adequate measures to maintain and improve the flow of official resources on appropriate terms, it may become necessary to consider official debt relief in some cases, bearing in mind the caution with which this general subject must be approached.
In order to supplement the resources available to developing countries, improved access to international capital markets is vital, especially for higher-income developing countries, and particularly those in Latin America and East Asia. As already noted, work in this area has been started within the Committee, but it will be necessary to pursue it with imagination and diligence to bring it to a successful conclusion.
The full potential of the field of trade as a source of foreign exchange still remains to be explored. There is a need for continued vigorous consideration of trade liberalization measures which will facilitate and expand the access to markets in the developed countries, thereby assisting the expansion of developing country exports. The Committee can express its support for efforts in this direction that are being mounted in other forums. For the Committee itself, the role of commodity price stabilization and other commodity arrangements as well as export earnings stabilization, and their financing, in contributing toward the stability which is desirable for the achievement of development objectives likewise requires further exploration and consideration.
The Development Committee has also deep and parallel interest in the favorable outcome of the many issues related to the effective functioning of the international monetary system which have a direct bearing on development and the promotion of the flow of real resources to developing countries. It has been and intends to remain in close touch with the work of the Interim Committee of the imf.
The aid, trade, and monetary fields, although crucial, do not exhaust the areas which should attract the attention of the Development Committee for a comprehensive program of action for the accomplishment of the task assigned to it. Apart from external factors, progress in economic development will depend on domestic policies of developing countries which will ensure the most efficient use of scarce external resources and support them through mobilization of domestic savings and resources. There can be no substitute for such a domestic effort. Increasing export earnings through an integrated approach will need special attention. Domestic policies for improved economic management should, besides focusing on programs aimed at the poorest sections of society, comprehend the crucial areas of incentives for domestic savings, agricultural production, and exports, if full benefit is to be derived from an increased flow of external resources and if the success of development programs is to be ensured in the shortest possible period.
The task ahead is indeed challenging and success will be achieved only through a collaborative and cooperative effort on the part of all concerned. In support of such an effort, the Development Committee intends to keep the important issues of development under continuing review, recognizing that they are by their very nature of an ongoing character and that many problems are likely to remain in an acute form in the years ahead. The Committee hopes to preserve its character as a forum for dialogue, where representatives from industrial, opec, and developing countries can periodically meet at a high political level for an overview of the entire field of the transfer of real resources for development, with particular focus on the long-term requirements of the developing countries. It will continue to strive to achieve practical progress, by endorsing and encouraging agreed action programs which hold out hope for nearly two billion people in the developing countries, and thereby to make a significant contribution to the peace and stability of this interdependent world.
Report of the Joint Ministerial Committee of the Boards of Governors of the Bank and the Fund on the Transfer of Real Resources to Developing Countries
(July 1975–June 1976)
The Joint Ministerial Committee of the Boards of Governors of the Bank and the Fund on the Transfer of Real Resources to Developing Countries (Development Committee) was established in October 1974. Its 1975 Annual Report to the Boards of Governors of the Bank and the Fund covered the period from October 1974 through June 1975. This second report covers activities from July 1975 through June 1976.
During the year under review, the Committee continued to serve as a forum for discussion of financial aspects of the broad questions of development and transfer of resources. While not constituted as a decision-making body, the Committee sought to promote a high-level international consensus as a means of facilitating decisions on development issues in appropriate bodies. A number of proposals given support by the Committee were translated into action by the relevant bodies during the year, and consideration of other possibilities was under way. As a contribution toward improved coordination of international programs of development, the Committee disseminated to its members analytic documentation regarding such programs, and continued to maintain close relationships with a number of international institutions and entities concerned with development, many of which participate as observers in the Committee’s meetings.
The Development Committee met twice during the year: first in Washington in September 1975, at the time of the Annual Meetings of the Boards of Governors of the Bank and the Fund, and second in Kingston, Jamaica, in January 1976. The Washington meeting was the occasion for extensive discussion of the work program for the year ahead, and for an expression of Committee support for establishment of an imf Trust Fund. The Committee also urged that sufficient funding be made available to the newly established Third Window of the Bank. At its Jamaica meeting, the Committee examined aspects of the use of Trust Fund resources and of work being done on the access of developing countries to international capital markets. The Committee also strongly endorsed the need for adequate increases in the capitalization of major international and regional lending institutions, including particularly ida. In addition to these activities at Committee level, a Working Group on Access to Capital Markets began work in August 1975 and met four times during this year.
The Committee focused in the initial period on the immediate problems confronting the poorest and the most seriously affected developing countries. At the same time, a basis was laid for giving attention to the longer-term and more fundamental problems of developing countries at all stages of development. The transition to principal concern with the latter problems was well under way by the end of the period under review. It is expected that the bulk of the Committee’s attention in the period ahead will be directed toward structural problems extending to the end of the decade and beyond, e.g., official and private financing in development, the long-term role of international financial institutions, long-term balance of payments stabilization of developing countries, efforts to assist the developing countries in the area of world trade, and the impact of an evolving international monetary system on the development process.
II. Committee Consideration During the Year of Major Questions Affecting Resource Transfer
The subjects considered by the Committee during 1975–76 fall into the following major areas: the general situation and external resource requirements of developing countries, official development assistance, private capital flows, the operations of multilateral lending agencies, and balance of payments assistance.
1. Situation and prospects of developing countries and their external resource requirements
Analysis prepared by the Fund in December 1975 and presented to the Committee at its Jamaica meeting showed that less developed non-oil primary producing countries were expected to incur current account deficits aggregating about $35 billion in the year 1975, compared with about $27 billion in the preceding year, and would have a deficit of about $31 billion in 1976. The Committee noted with concern that 1976 would be the third successive year in which the non-oil developing countries were likely to incur such extraordinarily large current account deficits, which had had to be financed by an unprecedented recourse to borrowings, often at relatively hard terms, and substantial use of reserves.
Taking into account these developments, the World Bank analyzed for the Committee the likely growth performance of the non-oil developing countries to the end of the decade and the associated requirements for external capital. Their assessment suggested that the un target of annual growth of 6 per cent would probably not be attainable, and that average growth to the end of the decade by lower-income developing countries was not likely to exceed 5.0 per cent, while that of the middle-income countries was not likely to exceed 5.5 per cent. It was estimated that an additional $12.3 billion of official capital (above the projected average annual availability from public and private sources of $49.4 billion) would be required annually to 1980 to realize even these projections, including a substantial and critically important proportion on concessional terms.
The Committee expressed grave concern that the 6 per cent growth target for the Second Development Decade was unlikely to be achieved by the non-oil developing countries, and concluded that substantial amounts of additional external capital would be required if the shortfall from that target is to be held to modest proportions.
2. Official Development Assistance
At its meeting in September 1975, the Development Committee decided to include among those issues requiring its special attention “means of improving the current situation affecting resource transfers … including quantitative aid targets and their implementation.” To this end, the Committee received for the Jamaica meeting in January 1976 Secretariat documentation dealing with recent trends in the flow of official development assistance, with aid targets and a possible phased movement toward their realization, and with the relationship between existing underutilization of productive resources in aid-giving countries and the aid efforts of such countries.
Aggregate net disbursement of concessional resources in 1974 amounted to $14.9 billion, of which $11.3 billion came from dac countries, $2.4 billion from opec countries, and the balance of $1.2 billion from the centrally planned economies. Slightly over a quarter of the 1974 flow was made available through multilateral channels, dac assistance remained virtually unchanged in constant dollar terms over the ten years ending in 1974; as a percentage of gnp, it declined from 0.53 per cent in 1961 to 0.33 per cent in 1974. (Preliminary figures recently available indicate that this percentage rose to 0.35 per cent in 1975.) dac aid on the average had a grant element above 84 per cent in 1974. For opec countries, 1974 flows represented 1.4 per cent of gnp, and were estimated to involve a grant element of about 65 per cent.
Currently, the most widely accepted—although by no means universally endorsed—goal for aid-giving by donor countries is the un target of 0.7 per cent of gnp in the form of oda by the end of the decade. Considerable emphasis was given to the importance of reaching the 0.7 per cent target at the Seventh Special Session of the un in September 1975 and more recently at the Unctad session in Nairobi, although a number of countries continue to maintain their reservations as to acceptance of the target itself and others as to the date by which they might reach the target.
Against this background, the Committee initiated discussion at the Jamaica meeting of ways to improve the performance of the aid-giving community with respect to the flow of official development assistance, including the possibility that, in the anticipated circumstances of recovery in industrial countries, aid givers might agree to set aside a small fraction of the increment in their gnp as additional development assistance. There was also discussion of the concept that idle productive capacity in industrial countries, reflecting recessionary conditions, might be put to work producing developmental goods for export to developing countries under special financing arrangement. Although there was no agreement on the feasibility of the concept, the discussion gave useful emphasis to the broad underlying idea that production of aid goods for export has a stimulating effect on levels of overall production and employment in industrial countries.
3. Access to capital markets
The subject of improving access of developing countries to international capital markets continued to be of special interest to the Committee, and was pursued very actively during the year by a Working Group set up in August 1975. The Working Group consists of representatives of 12 members of the Committee, 7 representing capital market countries and 5 representing developing countries. It met four times during the year, including one meeting substantially devoted to a seminar with representatives of banks and other institutions active internationally in private capital markets.
An Interim Report of the Working Group to the January 1976 meeting of the Committee noted as primary areas of interest (a) restrictions and other obstacles to access to markets, (b) direct measures to support the creditworthiness of developing country borrowers in capital markets, including possible multilateral guarantees or active use of guarantee authority of international lending institutions, (c) the problem of secondary markets for developing country securities, (d) cofinancing involving international lending institutions and private lenders, (e) a possible international investment trust, and (f) technical assistance to developing countries seeking market access and the correlative problem of educating potential investors regarding the situation and prospects of developing countries.
(a) Restrictions and other obstacles to access to markets
In regard to restrictions and practices constituting obstacles to capital market access, the Executive Secretariat, pursuant to guidance from the Working Group, and with the assistance of staff of the International Monetary Fund, was actively engaged at the end of the period of this report in consultations with authorities in selected countries aimed ultimately at either formulation of a general program of liberalization which could be adopted by common agreement of market countries, or agreements with specific market countries on liberalization actions appropriate to that country, or both approaches simultaneously. A selected group of developing countries that have had access to international capital markets was asked to identify specific obstacles to market access. On the basis of the information gathered from these countries, as well as a generalized questionnaire, capital market countries were being consulted regarding regulatory or other restrictions and, where such existed, the scope for liberalizing actions.
(b) Measures to support creditworthiness of developing country borrowers
In its consideration of direct actions to support the creditworthiness of developing countries, the Working Group examined a Secretariat outline of a possible new multilateral guarantee facility based on new contingent liability undertakings by participants among industrial and opec countries and a modest reserve fund. The facility was seen as providing, on a fee basis, partial or full guarantees for bonds floated in national or international markets primarily by those developing countries that were potentially creditworthy but had not yet developed substantial access to the bond market. Factors of concern to the Working Group in its examination included the problem of ensuring that the facility would elicit additional resources from capital markets rather than divert resources from established developing country borrowers; the question of costs in comparison with loans intermediated by the international lending institutions; means of confining guarantees to a transitional stage en route to fully independent market access by borrowers; and the possibility of avoiding the creation of new international organizations. Particularly in the light of the last consideration, there was support in the Working Group for pursuing the multilateral guarantees idea through activation of authority to make guarantees already vested in the international and regional development lending institutions. It was recognized that in such institutions direct loans and guarantees are supported by the same capital base so that special additions to capital resources for guarantees would have to be comtemplated if direct lending capabilities are not to be reduced.
(c) Secondary markets for developing country securities
The Working Group’s exchanges with private market experts revealed that the absence of secondary markets of any depth for issues by developing countries was regarded as a significant obstacle to the successful primary marketing of such issues. The Executive Secretariat prepared an analysis of various courses of action that had been suggested, including the possible use of liquid funds of international lending institutions for secondary market purchases and sales of developing country securities; use of such funds for short to medium-term investments in such securities in order to strengthen both primary and secondary markets; and creation of a semi-public institution to function as a market-maker in the obligations of developing countries. These ideas were pending with the Working Group at the end of the reporting period.
At its January 1976 meeting, the Committee took note of the progress being made in regard to cofinancing arrangements involving international lending institutions on the one hand and private lenders on the other. The Committee urged that such arrangements be expanded. An examination covering experience to date and appraising the scope for further expansion is in progress.
(e) International investment trust
An international investment trust, whose function would be to offer an attractive investment opportunity to private investors and possibly to certain governments in a diversified portfolio of developing country debt and equity obligations, was suggested at the Seventh Special Session of the un General Assembly, and analytical work on the idea was undertaken by the International Finance Corporation. It is anticipated that the ifc analysis will be considered by the Working Group later in calendar year 1976.
(f) Technical assistance
A Secretariat review of existing bilateral and multilateral technical assistance activities related to access to capital markets, together with preliminary suggestions for possible actions in this area, was being prepared for early consideration by the Working Group.
4. Operations of international lending institutions
From the outset, the Committee has attached great importance to the role played by the international lending institutions—the World Bank and the regional development banks—within the overall picture of official development assistance.
In response to the view expressed in the Committee that a survey of the international lending institutions and of initiatives in other bodies might help avoid duplication of functions and promote a coordinated approach to the problem of transfer of resources, the Executive Secretariat prepared and submitted to the Committee for its Jamaica meeting an initial paper covering major existing international lending institutions. A further paper, possibly covering some additional institutions and recent initiatives will be prepared for a subsequent meeting. The Secretariat paper emphasized the quantitative importance of multilateral lending. The core group of international lending institutions during 1974 lent $6.7 billion, compared to total bilateral loans and grants by dac countries of $11.6 billion in that year, and total multilateral loan commitments during the period 1972–74 averaged $5.2 billion per annum. For the future, it appeared that loan commitments expressed in current dollars might rise from $8.4 billion in 1975 to $14.2 billion in 1980, in nominal terms, or in terms of constant 1974 dollars, from $5.9 billion in 1975 to $7.7 billion in 1980. A matter of concern was that concessional lending as a proportion of total loan commitments, which showed an irregular downward trend during 1972-74 and averaged 34 per cent for that period, would on the basis of the projections decline further to about 28 per cent of the total in 1980.
The Secretariat paper was not concerned with the criteria for the allocation of multilateral lending. Its analysis of the sectoral and geographic composition of such lending in 1975 showed that agriculture was being accorded first priority by the institutions as a group; that Latin America was the largest regional recipient; and that in terms of relative population of borrowing areas, South Asia’s share of multilateral lending was substantially lower than other regions. Finally, the Secretariat paper described the pending or anticipated capital resource replenishment proposals by the various institutions. In the light of the analysis presented, the Committee expressed its full support for an adequate increase in capital for the international lending institutions, and members of the Committee suggested areas to which the analysis should be broadened.
Regarding particular institutional developments, the Committee noted at its Jamaica meeting that the Third Window of the World Bank for loans on intermediate terms, establishment of which the Committee had called for at an earlier meeting, had become operational in December 1975 with resources permitting $600 million of loans, mainly for countries with per capita income below $375. The Committee urged those countries that had not already contributed to help increase the Third Window’s resources. The Committee also requested the Executive Directors of the World Bank to place a proposal for an increase in the Bank’s capital before the Governors at an early date. Committee support was given for an early increase in the capital of the International Finance Corporation as well. Taking note of the particularly urgent need for assistance to low-income countries, the Committee called for a substantially enlarged Fifth Replenishment of the International Development Association. Many members felt that the enlargement should result in an increase in real terms over the previous replenishment. As far as the resources of the regional banks were concerned, the Committee urged that timely replenishment action be taken, including action to provide for their concessionary funds.
5. Balance of payments assistance
The acute balance of payments problems of developing countries arising from recent unprecedented world economic events and particularly the balance of payments problems of the most seriously affected developing countries, necessarily commanded close attention of the Committee from the outset. The two areas of Development Committee interest as far as short-term balance of payments assistance was concerned were an imf-administered Trust Fund and expansion of the imf compensatory financing facility, although it was recognized that the main responsibility for carrying forward both of these topics lay with the Interim Committee and the Executive Directors of the imf.
By the time of the Committee’s meeting in September 1975, the Interim Committee had reached agreement that one-sixth of the Fund’s gold should be disposed of and the net proceeds applied for the benefit of developing countries, but it had not yet reached agreement that the Trust Fund should be established and receive the gold disposal proceeds. At that juncture, the Development Committee, after being informed of the status of the Fund Executive Directors’ consideration of the questions associated with the Trust Fund, supported the principle that such a Fund should be established for balance of payments help primarily to lower-income countries, using profits from Fund gold sales but without neglecting consideration of other possible sources of financing. In the final phase of consideration at Jamaica, the Interim Committee, after agreeing that the Trust Fund should be established without delay, asked the Development Committee to consider further certain aspects of use of Trust Fund resources. The Development Committee accordingly discussed the matter and indicated various considerations to be taken into account by the Executive Directors of the Fund in completing their work on establishment of the Trust Fund. Formal announcement that the Executive Directors of the Fund had established the Trust Fund and had fixed the date for the first auction of gold to generate profits for the Trust Fund’s financing was made by the Managing Director of the Fund in early May.
Discussion in the Committee of the need for liberalization of compensatory financing facilities was largely held in the context of consideration of commodity problems in general. Following the announcement by the Fund’s Executive Directors at the end of 1975 of liberalized Fund compensatory financing rules, a number of Committee members called for an early review of the adequacy in practice of the new measures. Accordingly, the Committee agreed to keep the subject of stabilization of export earnings among those topics to which it would give priority attention, along with several other trade and commodity matters.
III. Review of the Committee
In order to facilitate the review of the performance of the Committee by the Boards of Governors of the Bank and Fund called for at the end of two years by the Resolutions by which the Committee was established, the Committee decided in January 1976 to review its initial period of operations at its meeting scheduled immediately prior to the Bank and Fund Annual Meetings at Manila in October 1976, and to present its conclusions to the Boards of Governors. At its Jamaica Meeting, the Committee asked that, as a basis for its review, a report be prepared by the Boards of Executive Directors of the Bank and Fund, together with the Executive Secretary. At the close of the period of this Annual Report, there was under preparation a report and draft resolution recommending that the Boards of Governors should review the performance of the Committee at the end of four years from the effective date of the parallel Resolutions, i.e., October 2, 1978.
* * * * *
The past year has been one of intense consideration in various forums of the problems of development and the transfer of real resources to the developing countries. Apart from the work already in hand, the Development Committee will, at its Manila meeting, consider further areas of activity, taking into account the emergent trends in the world economy and the results of recent interchanges among the industrial countries, the oil economies, and the developing world, notably the Fourth Unctad and the North-South dialogue.
Report of the Joint Ministerial Committee of the Boards of Governors of the Bank and the Fund on the Transfer of Real Resources to Developing Countries
(July 1976–June 1977)
1. This is the third annual report of the Joint Ministerial Committee of the Boards of Governors of the Bank and the Fund on the Transfer of Real Resources to Developing Countries (Development Committee). It covers activities from July 1976 through June 1977.
2. During the year under review, the Development Committee continued its endeavor to promote better international understanding and consensus at a high political level as a means of facilitating decisions on the financial aspects of the broad questions of development and transfer of resources. Throughout the year close relationships were maintained with a number of international bodies concerned with development, many of which participated as observers in the Committee’s meetings.
3. The Committee held three meetings during the year: two in Manila on October 3 and 6, 1976, at the time of the Annual Meetings of the Boards of Governors of the Bank and the Fund, and the third in Washington in April 1977.
4. The October 3 meeting in Manila was the occasion of a review of the Committee’s past two years of work and of discussion of its future work program. The review of the Committee’s work was based on a report called for by the Committee from the Executive Directors of the Fund and the Bank. The joint report of the two Boards reaffirmed the view that the Committee should be a useful forum for the discussion of issues relating to the transfer of real resources. It envisaged no change in the mandate of the Committee but suggested several operational improvements. Further, because the period of the Committee’s operation had been brief and affected by special events, the Executive Directors in their report recommended that the Boards of Governors of the Fund and the Bank make a review at the end of four years from the effective date of their parallel Resolutions with which the Committee was established in October 1974. This report was agreed to by the Committee and the Boards of Governors.
5. The Committee also considered a report from its Working Group on Access to Capital Markets and adopted the Group’s recommendations to governments on a number of measures to improve the access of developing countries to the capital markets of capital-exporting countries. Specifically, the Committee agreed that capital market countries would endeavor, as far as possible, to move toward liberalization of capital movements, and, in the meantime, would afford favorable treatment to the bond issues of developing countries. A Working Group on Development Finance and Policy was established to review a World Bank study on the proposed International Resources Bank, and to examine official development assistance on a continuing basis, including measures to improve its volume, quality and distribution. The Committee’s strong support for the timely completion of the Fifth Replenishment of ida was reaffirmed.
6. At its October 6 meeting, the Development Committee unanimously elected the Honorable Cesar E. A. Virata of the Philippines as its Chairman. Thanks and appreciation were expressed for His Excellency Henri Konan Bédié’s work as Chairman of the Committee during its first two years. The Committee also appointed Sir Richard King, of the United Kingdom, to serve as Executive Secretary.
7. At the Washington meeting in April 1977, the Chairman, in his opening address, outlined his views on the future role of the Committee and sought members’ response and suggestions in this regard.
8. There was general agreement that the Committee should concentrate on a limited number of particular topics of appropriate and urgent concern of Finance Ministers.
9. As regards the substance and content of the Committee’s future work, there was endorsement of the work underway in the two Working Groups and in this connection attention was drawn to the need to increase flows of oda; the lending programs, the resources position and the arrangements for replenishing the international financial institutions (ifis); the importance of private flows; and the need for the mobilization of domestic resources and other appropriate domestic policies to ensure effective use of external assistance. Interest was also expressed in a presentation of the needs for and availability of development finance against the background of the trade situation confronting developing countries. It was thought that such a presentation could be of advantage as a background for the consideration of development flows.
10. It was generally recognized that significant areas of activity could emerge on the conclusion of the North/South discussions in Paris where the Committee should stand ready to play a useful follow-up role, inter alia, in the areas of international indebtedness, oda flows, the development of natural resources in developing countries including particularly energy resources, and the stabilization of export earnings. In order to ensure better preparation of subjects for Committee discussion, it was proposed to hold a meeting of Deputies prior to the next Committee meeting.
11. In addition to the three main Committee meetings, the Working Group on Access to Capital Markets met three times during the year and the Development Finance and Policy Working Group met once.
II. Committee Consideration During the Year of Major Questions Affecting Resource Transfer
12. The subjects considered by the Committee in the past year fall into the following three broad areas: the situation and prospects of developing countries and their external resource requirements, official development assistance, and access to capital markets.
1. Situation and prospects of developing countries and their external resource requirements
13. A study prepared by the imf in July 1976 was discussed by the Committee at its Manila meeting. The study showed that the non-oil developing countries had a current account deficit of $37 billion in 1975.1 This deficit was financed to the extent of $19 billion by official capital flows, $4 billion by direct investment, $10 billion by borrowing from the market, especially from commercial banks, and the balance through borrowing by monetary authorities—mainly imf credit—and the use of reserves. In 1976 and the first half of 1977, the deficit was expected to continue at a high level. The Committee noted that the low-income countries had had little or no growth in their per capita income since 1970 and that their levels of imports had fallen by some 20 per cent below those of the late 1960s. Official aid to them had been inadequate. Many developing countries, especially the middle-income countries, borrowed heavily to maintain the flow of imports and to avoid undue interruption of their development programs.
14. Against the background of the deficit projections noted above the Bank staff analyzed for the Committee in September 1976, the likely growth performance of the non-oil developing countries to 1985. Based on some assumptions about growth rates for the industrialized countries (around 5 per cent), about terms of trade and value of exports of non-oil developing countries, and about the availability of official capital from donors, it was thought that the growth rate for low-income countries would average about 4.2 per cent and for middle-income countries about 6.6 per cent per annum after 1978. This was expected to give rise to combined current account deficits on the part of non-oil developing countries of $37.4 billion in 1980 and $51.5 billion in 1985.2
15. It was recognized that most of the resources needed to meet the projected current account deficits of low-income countries must come from official sources and be on concessional terms. The middle-income countries should be able to obtain well over half of their required capital inflow from private sources and while most of them did not require large amounts of concessional assistance, they would be heavily dependent upon long-term financing from official sources in order to keep their overall debt burden manageable. There was also recognition that besides larger flows of external resources, there was need for a greater emphasis upon domestic policies attuned toward the necessary internal adjustment process.
2. Official development assistance
16. Two aspects of oda were considered by the Committee: volume, and contributions to multilateral lending institutions. The Working Group on Development Finance and Policy considered a Secretariat paper on recent trends in the flow of official development assistance, and the Group’s views on the subject were reported to the Committee at the Washington meeting. The Secretariat paper presented three main conclusions: first, that the real volume of oda had shown very little growth over the past decade and indeed expressed as a percentage of their gnp, dac countries were contributing a good deal less than they had been ten years ago; secondly, again expressed as percentage of gnp, that the largest and richest donors were contributing less than the smaller, and in some cases, poorer donor countries; and thirdly, that the share of the low-income developing countries in oda was disproportionately low in relation to their needs. Over the past ten years, oda in nominal terms had gone up—from $5.9 billion in 1965 to $13.6 billion in 1975, but it had remained almost stagnant in real terms. As a ratio of gnp of the members of the dac, oda had declined almost steadily over the last decade and a half—from 0.53 per cent in 1961 to 0.30 per cent in 1973, registering some improvement thereafter to 0.36 per cent in 1975. The World Bank projected in 1976 on the basis of oda commitments made and the known intentions of dac donor countries, that net oda disbursements as a ratio of gnp might be about 0.33 per cent in 1980. Net disbursements of oda by opec donor countries in 1975 represented 1.35 per cent of their gnp.
17. In harmony with the conclusions of the initial report of the Development Finance and Policy Working Group, there was general agreement within the Committee on the urgency of achieving a substantial increase in the total volume of oda. The role of multilateral flows was stressed, and several Members indicated that the Committee should be prepared to discuss increases in the capital of the World Bank and regional banks if the issues remain unresolved in the Boards of these institutions.
18. The Committee also urged that donor countries whose oda as a proportion of their gnp was below the current average donor performance should recognize the urgent need to inform their legislatures and the general public of the situation, especially the needs of the poorest countries, with a view to mobilizing political support for expanding the volume of their oda. It was generally agreed that the Committee should keep the volume of oda continuously under review.
19. On the question of contributions to multilateral development institutions one problem was seen to be that of improving the procedures for replenishing the funds of these institutions so as to give them more timely and adequate resources. The Committee asked the Development Finance and Policy Working Group to examine the problem and the scope for improvement and report back to the Committee.
20. The Secretariat presented an updated version of an earlier paper on international development lending institutions. Clearly evident from the study was the importance of the capital replenishment needs of the World Bank and ida, which together represented 65 per cent of multilateral lending in 1976. The study suggested that, if World Bank lending were held to an annual level of $5.8 billion, multilateral lending as a whole would show only very modest increases in real terms in 1977 and 1978, and would then actually decline. Moreover even this modest result would depend on the success of the Fifth ida Replenishment in mobilizing resources at least equal in purchasing power terms to the Fourth Replenishment. Accordingly, at Manila the Committee expressed its strong support for a timely and satisfactory completion of the Fifth Replenishment of ida. At the April meeting satisfaction was expressed at the agreements reached concerning the Fifth ida Replenishment. The Committee foresaw a need to give attention to increases in the capital of the World Bank and of the regional banks.
3. Access to capital markets
21. The subject of improving the access of developing countries to international capital markets remained one of the Committee’s major interests during the year. The subject was very actively pursued in the Working Group on Access to Capital Markets, established by the Committee in August 1975. The primary areas of concern were (a) regulations and practices affecting access to capital markets, (b) multilateral guarantees, (c) cofinancing, (d) technical assistance to developing countries seeking market access, (e) promotion of the bond issues of developing countries, (f) a possible International Investment Trust, and (g) improvement of information reporting systems on international stocks and flows.
(a) Regulations and practices affecting access to capital markets
22. The Working Group submitted to the Committee a number of recommendations designed to remove or reduce various restrictions upon access to capital markets that affect developing countries, and, as a result, resolutions concerning the treatment of developing country borrowers were adopted by the Committee. It was agreed that capital market countries would endeavor, as far as their balance of payments situation permitted, to move progressively toward greater liberalization of capital movements, and, in particular, of capital outflows. The Committee also resolved that, in the meanwhile, when regulations governing capital outflows are maintained for unavoidable reasons:
—governments of capital market countries would afford favorable treatment, as among foreign borrowers, to developing country borrowers with regard to permission to make an issue or secure a place in the issue calendar;
—those capital market countries which currently maintain quantitative limits on the amount of foreign issues in their markets would endeavor to keep developing country borrowers outside these limits, at least up to specified amounts;
—since the Eurobond market presents potential opportunities for developing countries to raise finance, countries whose currencies are in strong demand, and which maintain restrictions on international issues denominated in their currencies, would endeavor to give favorable treatment, as among foreign borrowers, to developing country borrowers.
23. The Committee noted a number of recommendations in the report that consideration be given to the removal of legal and administrative barriers. Specifically, the report recommended:
—that governments of capital market countries should generally agree, with due regard to the interests of the investors, to adopt a flexible attitude concerning rules and regulations which prescribe limits on the investments of institutional investors in foreign securities. They should agree to consider modifications of these rules as and when they seem to be proving a serious obstacle to developing country borrowing and to promote the necessary efforts in this regard;
—those countries which have complex statutory requirements for registration and listing of securities should attempt to administer their regulations in a flexible manner to the extent practicable in conformity with investor protection and other requirements of their laws.
Capital market countries were urged to give the recommendations their urgent consideration.
24. As a follow-up action on the agreement reached by the Development Committee at its meeting in Manila, the Executive Board of the imf decided that imf staff would, in the course of its regular consultations with the main capital exporting countries, inquire regarding the implementation of the Development Committee recommendations covering regulations and practices and that a brief report of the staff findings would be included in the staff report on consultation discussions.
(b) Multilateral guarantees
25. The Working Group on Access to Capital Markets had under active consideration the possible use of multilateral guarantees for bonds issued by developing countries on the “threshold” of market access, enabling them to stand on their own credit in the future. At an April 1976 meeting of the Working Group, it was agreed to focus on the possible use of the guarantee authority that now exists with international financial institutions but which has not recently been used. After consideration of the Working Group’s report on multilateral guarantees at the Committee’s Washington meeting, there was a consensus that the World Bank and the regional development banks should be prepared to consider requests for guarantees of bond issues from interested developing countries. It was generally considered that such guarantees could appropriately be in the form of partial guarantees and the Working Group was asked to explore this possibility further in consultation with the relevant bodies. In the light of the Committee’s discussions in Washington, the World Bank has indicated that it would be prepared to consider requests from member countries for guarantees on their bond issues.
26. At its October 3 meeting in Manila, the Committee stressed the importance of cofinancing by international and regional development banks as a means of augmenting private capital flows to some developing countries and urged that cofinancing arrangements be further expanded.
(d) Technical assistance
27. The Working Group on Access to Capital Markets gave attention to the importance of technical assistance for developing countries seeking market access, and presented recommendations on the subject which were substantially adopted by the Committee. The Committee recognized the need to reinforce and expand technical assistance activities for developing countries seeking access to capital markets. It noted the bilateral programs already in the field and recognized the need to coordinate the implementation of present and future available services. Finally, it recommended that attention be given by the Board of ifc to the possibility of expanding the ifc’s activities in this field.
(e) Promotion of bond issues
28. At the April meeting satisfaction was expressed with the study by the Working Group on Access to Capital Markets on the promotion of bond issues. The consensus was that the Working Group should be asked to work out detailed arrangements, in consultation with the ifc, of a sustained, long-term program of promotion in the markets to facilitate the bond issues and placements of developing countries.
29. After consultations with international and regional organizations and with the private sector, the Working Group decided that the promotional program for the “education” of potential investors should run parallel with technical assistance activities for “threshold” developing countries seeking entrance or expanded access to capital markets. Promotion and technical assistance were considered to be complementary and integral parts of a single program. This close relationship encouraged the view that the ifc, which had already been asked to expand its technical assistance activities in this area, should take primary responsibility for the promotion program as well. This possibility has now been discussed with the management of the ifc. An outline of the proposed program has been agreed upon and the management have stated that the ifc would be prepared, if requested, to test the feasibility of this program by working with a few countries where there was a concrete need for assistance and a reasonable chance of success.
(f) International Investment Trust
30. The Committee considered a suggestion for the establishment of an International Investment Trust to encourage additional foreign portfolio investments in the securities of developing countries. The consensus of the Committee was that further consultations on the idea were needed with both developed and developing countries. Together with the ifc, the Executive Secretariat has accordingly held consultations with certain interested governments on future steps that might be taken with regard to the proposal, and the matter will be considered further by the Committee.
(g) Information flows
31. As a result of interest expressed at the Manila meeting in statistical reporting systems on international financial stocks and flows, the Working Group examined various aspects of this subject. It concluded that there had recently been substantial improvement of existing information systems, but that, despite the improvements in individual systems and the resultant benefits to the overall statistical framework, there nevertheless remained difficult problems of reconciliation between the systems of the imf, the World Bank, and the bis. While recognizing that the pace of further improvement would be governed mainly by technical factors, the Group felt that a momentum toward achieving technical improvements exists. It presented a number of recommendations to the Committee at its Washington meeting which were viewed with approval. These recommendations included reaffirmation of the importance the Committee attached to improved information flows. It asked all governments to give their fullest cooperation to the efforts of international bodies to improve the reporting systems for which they were responsible.
III. The Task Ahead
32. The period under review was one of considerable international activity in the field of North-South relations. It spanned a time from the fourth Unctad session to the conclusion of the Conference on International Economic Cooperation (ciec) in Paris. In the aftermath of the world economic upheavals of 1974 and 1975 the period has been beset with serious problems of adjustment both for the industrial and for the developing countries. Some short-term solutions were devised by the international community to help meet the crisis and the focus is now shifting to longer-term solutions such as increased flows of public and private resources and a new range of domestic policies. The problems are complex, and solutions are not easy. But as a result of the intensive international dialogue, there is now a clearer recognition both of the dimensions of the problems and of the urgent need to resolve them. This indeed was the main message of the ciec. The Conference has now concluded and there are many subjects of importance on which follow-up action is envisaged in the Development Committee and other relevant international fora.
33. Those subjects which might be pursued in the Development Committee include various matters relating to the access of developing countries to capital markets, private foreign investment, export-earnings stabilization, energy resource development, continued consideration of some aspects of official development assistance, and possibly indebtedness. The precise nature of the Committee’s work program in these areas and the priority to be assigned to them will need to be decided.
34. The Development Committee remains a useful forum for constructive discussions at a high political level among the developed, oil-exporting and other developing countries. It has continued to exercise a comprehensive overview of international activities in the field of development and has provided support at the political level of government to negotiations being conducted in other international fora. It has contributed to the broader understanding of the international economic situation and has made significant progress on some specific matters such as policy actions which should lead to improvements in access to capital markets. On the subject of official development assistance, where the need to achieve a substantial increase in volume is widely recognized, the Committee has begun serious consideration of various aspects including volume, distribution, terms and quality.
35. In short, the Committee appears both ready and able to lend its political weight to a more productive and significant advance in international economic cooperation in many areas of mutual interest in this increasingly interdependent world.
(July 1977–June 1978)
1. This is the fourth annual report of the Joint Ministerial Committee of the Boards of Governors of the Bank and the Fund on the Transfer of Real Resources to Developing Countries (Development Committee). It covers activities from July 1977 through June 1978.
2. The Development Committee was established to maintain an overview of the development process and to consider all aspects of the broad question of the transfer of real resources to developing countries. During the year under review the Committee continued its work aimed at creation at the highest political levels of a consensus on a number of issues of mutual interest to the developed and developing countries.
3. The Committee held one meeting during the year—in Washington on September 25, 1977 at the time of the Annual Meetings of the Boards of Governors of the Bank and Fund. Two meetings were held at Senior Official level, one in Paris on September 15, 1977 and one in Mexico City on April 28, 1978. At the technical level of Working Group there were five meetings during the year.
4. The main emphasis of the discussion at the Committee’s meeting in September 1977 was on the need to increase the flow of assistance. It was recognized that the continued slow per capita growth of low-income countries was the main development issue on which the attention of the international community should focus. In this context, Members stressed the need for larger flows of concessional assistance and more effective use of both external and domestic resources to improve the situation of those 750 million people still living in absolute poverty. At the same time Members agreed that the continued successful growth of the middle-income countries depended upon their continued access to the capital markets of the industrialized countries as well as on the steady increase in their export earnings. The need for a satisfactory conclusion of the current multilateral trade negotiations, and for the maintenance of an open trading system, was strongly advocated.
5. At this meeting the Committee also endorsed recommendations regarding the access of developing countries to capital markets. They agreed that (a) the ifc should at the request of a developing country test the feasibility of promoting a program of bond issues for that country; (b) the ibrd and other development banks should consider requests from member countries for full or, preferably, partial guarantees of bond issues; (c) the ifc should be invited to undertake simulation of operations and results of international portfolio investment such as might be done by an International Investment Trust; and (d) the imf should be asked to prepare an annual progress report on the elimination or reduction of restrictions affecting developing country access to capital markets.
6. A future work program was agreed which, in keeping with the Committee’s terms of reference, included ongoing reviews of the overall economic situation and prospects of developing countries; and the volume, distribution and quality of official development assistance (oda). The review of the prospects of the developing countries would be based on the World Development Report, to be prepared annually by the ibrd. In addition, the Committee decided to study the following subjects: (i) the role of the various multilateral development institutions in financing development; (ii) the role of private direct foreign investment in promoting development; (iii) the role of external borrowing in financing development; and (iv) the stabilization of export earnings. As suggested by the Conference on International Economic Cooperation (ciec), the Committee will also monitor the progress of the Special Action Program of US$1 billion of additional concessional assistance.
II. Committee Consideration of Major Questions Affecting Resource Transfer
A. Economic Prospects and Capital Requirements of Developing Countries
7. The Committee discussed a paper prepared by the ibrd on the economic situation and prospects of the developing countries up to 1985. The paper indicated the broad magnitudes of external capital requirements based on alternative assumptions about growth rates and export performance.
8. It was noted that the growth rates of different groups of developing countries had been and would remain quite uneven. In particular, the low growth rates of low-income countries during the past decade were projected to remain around 1.7 per cent per capita between 1978–85, though even this level would be dependent on sustained inflows of concessional funds equivalent to about 2.5 per cent of gdp and on an improved export performance. Raising the growth rate even moderately above this figure would require continued improvements in domestic policies, better export performance and increased availability of concessional assistance. The outlook for such additional flows was not promising and Members viewed with particular concern the decline in real terms that had taken place in 1976 in the volume of official development assistance. Members strongly stressed the importance of larger flows of concessional assistance to augment the domestic resources of this group of countries and of making the optimum use of both external and domestic resources.
9. So far as the middle-income countries are concerned, Members noted that for the group as a whole the outlook for 1978–85 was for substantially higher growth than had been achieved in the past four years—i.e., around 4 per cent per capita as compared to 2.9 per cent per capita in the period 1974–77. However, for the poorer countries in this group this projected growth performance would depend on continued inflows of public capital. A substantially improved export performance together with an increase in capital flows would be necessary to raise growth rates beyond these projected levels. This underlined the need for a satisfactory conclusion of the current multilateral trade negotiations and for the maintenance of an open world trading system.
10. The Committee agreed that extreme poverty remained the most pressing problem of development. It was pointed out that some 750 million people were currently lacking minimum needs of nutrition, clean water, functional literacy, basic health services, and shelter. Members felt that growth policies must be supplemented by a direct attack on poverty involving a reorientation of donor programs and the domestic policies of developing countries in order to ensure that the benefits of development would reach the poorest section of society.
B. Official Development Assistance
(i) Volume and Terms of ODA Flows
11. Members reviewed the situation regarding official development assistance (oda) against the background of a report from the Working Group on Development Finance and Policy. The main emphasis of the discussion was on the need to increase the flows of assistance which, as mentioned in para. 8 above, had declined in real terms in 1976. Members particularly urged the need to channel more concessionary funds through the multilateral development institutions. Members noted that the collective effort of the oecd countries expressed as a percentage of gnp had declined again in 1976 to a figure of 0.33 per cent, and the urgent need to reverse the process and move toward the un target of 0.7 per cent of gnp was widely stressed. Although some of the major bilateral donors, e.g., the United States and Japan, announced plans for significant increases in their oda programs, Members were agreed that a great deal remained to be done before it could be said that the international community was fully responding to the development needs and opportunities of the developing countries. They noted with appreciation that opec aid flows had increased from 0.43 per cent of gnp in 1970 to 2.20 per cent in 1976.
12. The Committee also considered other aspects of oda. The particular need of the poorest countries for these concessional flows was repeatedly stressed. It was noted with approval that a growing number of donors were making aid available to these countries in grant form and other donors were urged to soften the terms of their assistance to these countries. Other aspects mentioned briefly in discussion were the desirability of a progressive untying of aid, the need for assistance by donors to suppliers from developing countries competing for orders financed from untied aid, and a larger amount of local cost financing and program aid, particularly from the multilateral development institutions. The Committee agreed that oda should remain one of its prime concerns and that the matter should be kept under close review. In this connection they welcomed the prospects of more information being provided about opec aid flows by Unctad and the opec Special Fund.
(ii) Special Action Program
13. The Conference on International Economic Cooperation (ciec) suggested that the Development Committee should monitor progress in implementing the US$1 billion Special Action Program. The Executive Secretary presented his first report on the subject to the Committee at its meeting in September 1977. This report showed that while most of the contributors were making plans for implementing their undertakings, five of them had not yet reached firm decisions. It seemed likely that in some cases the contributions would take the form, in whole or in part, of cancellation of debt servicing on old development loans to the poorest countries.
14. The Committee took note of the report and requested the Executive Secretary to provide a further report at the next meeting. The Committee asked that this should, inter alia, provide answers to the following questions:
a. Would the contributions be truly additional to intended aid programs (as distinct from existing levels of aid)?
b. When would the money be disbursed? and
c. Would it be concentrated on the lowest-income countries?
This further report is now under preparation.
C. International Resources Bank
15. The Committee considered a report from the Working Group on Development Finance and Policy on the suggestion first put forward by the United States at the Unctad iv meeting for the establishment of an International Resources Bank (irb) designed to increase investment in the developing countries in the natural resources sector. The report endorsed the views of the ibrd to the effect that the establishment of an irb was not feasible or generally acceptable at the present time and welcomed the ibrd Board’s decision that the World Bank Group should expand its operations in the development of fuel and nonfuel minerals in developing countries from the presently planned figure of $200 million to around $850 million in the year 1980. It was hoped that this program would have the effect of stimulating considerable increased private flows. They hoped that the regional development banks would also increase their activities in this sector. The Committee intends to keep this matter under review and to consider at an appropriate time the results achieved by the multilateral development institutions and whether any further action is necessary.
D. Multilateral Development Institutions
Role of the Multilateral Development Institutions (MDIs)
16. At its September 1977 meeting the Development Committee decided to study the role of mdis as one of the priority subjects in its work program for 1977–78. This matter has been pursued in the Working Group on Development Finance and Policy.
17. A basic document has been prepared by the Secretariat with the object of providing a survey of the existing mdis and highlighting a number of policy issues regarding their relative roles, their funding and their operational activities. It was the first time that an attempt had been made in any forum to bring together information bearing on the activities of a wide spectrum of mdis which together provide about one third of the total official flows to developing countries.
18. The document prepared by the Secretariat covers not only the World Bank and the three larger regional development banks (Inter-American Development Bank, Asian Development Bank, and African Development Bank) but also the European Investment Bank, the European Development Fund, the United Nations Development Programme and its associated programs, the World Food Programme, the International Fund for Agricultural Development, the opec Special Fund, the Arab Bank for Economic Development in Africa, the Islamic Development Bank, the Arab Fund for Economic and Social Development, and the Special Arab Fund for Africa.
19. The information supplied by the relevant mdis indicated that the share of concessional flows to developing countries channeled through the mdis had increased over the last few years and would increase further if their prospective programs were implemented. This, in turn, was dependent upon increases in their capital resources which in some cases required important decisions by the donor countries.
20. Other issues raised in the Secretariat document related to the criteria for setting up new mdis, the procedures for replenishment particularly of soft funds, and a number of operational issues. The study indicated a shift in the distribution of mdi lending toward agriculture and the social sectors including projects particularly designed to improve the standard of living of the poorest segments of the population. This shift of emphasis was considered a direct result of a change in the perception of the development process that has received wide international acceptance. Growing attention was also being given to energy and mineral resource development and the amounts devoted to these sectors by the mdis, though still relatively small were increasing.
21. With regard to the geographical distribution of multilateral assistance, the report showed that compared with bilateral programs as a whole, mdis devoted a larger percentage of their soft funds to projects and programs in the poorest developing countries, which in 1976 amounted to 59 per cent. In this connection, the report recalled that the Development Committee at its June 1975 meeting had emphasized the urgent need to review the distribution of oda with a view to improving the share of the poorer countries.
22. The report also raised the question of the comparative advantage of the different mdis and whether a certain degree of specialization among mdis according to geographical areas served or sectors financed was desirable or feasible.
23. The study contained recent information on the extent of program lending by mdis and of their local and recurrent cost financing. The report stressed the importance and the scope for more cofinancing between mdis and both official and private sources of capital. It also highlighted the important role mdis played in coordinating the activities of other donors, particularly through consortia and consultative groups.
24. The Secretariat’s report was first discussed in the Working Group on Development Finance and Policy in February 1978. A number of issues were identified as being suitable for discussion in the Development Committee in due course, while others would need further technical discussion at Working Group level.
25. The Senior Officials reviewed the progress of the study at their meeting in Mexico City in April 1978. It is likely that a report on the subject will be available for consideration by the Development Committee early in 1979.
E. Access to Capital Markets
26. The Working Group on Access to Capital Markets completed its substantive work on the subject of developing country access to the long-term (bond) market. The Senior Officials at their meeting in April 1978 discussed the imf Progress Report on Developing Country Access to Capital Markets. They welcomed the paper and expressed the view that it would be useful for the Fund to continue to report on a regular basis on changes in capital market access for developing countries. It was noted that insufficient progress had been made since the Manila recommendations of the Development Committee adopted on October 3, 1976, and that the increase in developing country issues in both foreign and international bond markets which had taken place during the period under review had been due largely to the liquidity of some of the markets and the temporary absence of some other borrowers. While progress remained to be achieved in liberalizing capital market restrictions, it was recognized that unfavorable conditions such as high interest rates, balance of payments deficits, lack of knowledge of potential borrowers’ credit, also contributed to the difficulties encountered.
27. The Executive Board of the imf decided on May 15, 1978 that in the course of regular consultations with the main capital market countries, the staff should continue to inquire into recent developments regarding the implementation of the Development Committee recommendations and that a general report on this subject should be prepared before mid-1979 for consideration by the Executive Board and subsequently by the Development Committee.
28. The Senior Officials also endorsed the view of the Working Group that the major obstacles to capital market access by developing countries were lack of expertise on the part of borrowing countries and insufficient information on the part of lenders regarding the creditworthiness of potential borrowers and that, therefore, it would be useful to convene a seminar, or seminars, to bring together potential borrowers and market operators to discuss some of the technical problems involved in offering and marketing developing country issues in the capital market countries. Accordingly, a seminar is being planned for October 1978.
F. Direct Foreign Investment
29. At its meeting in September 1977, the Development Committee decided to include the subject of private direct foreign investment in its Work Program with the object of considering how it might assist in the process of transfer of resources for development. The Working Group, meeting in December 1977, identified the issues for priority consideration, and a first round of discussions took place in March 1978. The Working Group planned to continue the consideration of this matter at its meeting in July 1978.
G. Role of External Borrowing in Financing Development
30. This subject, also included in the Committee’s work program for 1977/78, was considered by the Working Group at its meetings in December 1977 and March 1978. Three aspects of the problem were identified, namely: (i) the review of the experience of a group of middle-income developing countries during the 1974–77 period; (ii) the prospects through 1985 for external finance to this group of countries; and (iii) the role of multilateral institutions in this field. The item was to be discussed again at the July 1978 Working Group meeting.1
H. Proposal for a Long-Term Facility for Financing Purchases of Capital Goods by Developing Countries
31. At the meeting of the Senior Officials on April 28, 1978 the Mexican representatives circulated a proposal for the establishment of a long-term facility for financing purchases of capital goods by developing countries. The Secretariat in consultation with the World Bank were asked to make an initial study of the proposal and report to the next meeting of Senior Officials.
I. Stabilization of Export Earnings
32. The ciec drew attention to the importance of effective international action to offset the adverse effects on developing countries of fluctuations in export earnings, particularly from primary commodities. Both groups of participants suggested that the Development Committee should undertake a comprehensive study of the problem.
33. At its September 25, 1977 meeting, the Development Committee invited the Fund and the Bank to prepare a report on the subject in cooperation with the Executive Secretariat of the Development Committee and in consultation with the interested international organizations (Unctad, eec, etc.).
34. The terms of reference of the study were to review (a) the adequacy of existing facilities in this field; (b) the need, if any, and scope for, and the financial implications of possible improvements in these facilities; and (c) the need, if any, and scope for additional approaches, the appropriate institutional arrangements for any such approaches and their financial implications.
35. After discussion in the Executive Boards of the Bank and Fund the draft report will be considered by the Committee in September 1978.
III. Future Work
36. The year under review began just after the conclusion of ciec. Although the Conference failed to realize all its aims, the examination of many of its main issues has been carried on in other international fora, including the Development Committee. However, all these discussions have naturally been affected by the difficult world economic situation, particularly the slow recovery of the developed countries which has led to increasing domestic pressure to adopt protectionist trade policies, restrict capital flows and limit budgetary appropriations for both bilateral and multilateral aid.
37. In the immediate future, the Committee will continue to provide a forum where Ministers responsible for managing their countries’ economic resources can meet in a relatively small grouping for a free and frank exchange of views on development issues. It is at this important political level that many issues of vital concern can be considered and the groundwork for future agreements can be established. The general problem of resource transfers will continue to provide the Development Committee with its agenda. oda will remain vitally important to the poorest developing countries. The more affluent developing countries will require increasing access to developed world markets to sell their exports and to borrow capital. All developing countries will continue to grapple with the difficult problem of achieving reasonable rates of economic growth while at the same time giving special attention to the basic needs of the poorest inhabitants. The World Development Report, the first issue of which will be considered by the Committee in September 1978, is expected to be a first step toward building the framework for considering all these challenges. It will provide a comprehensive analysis of development problems, their complexities, their linkages and the impact of alternative internal and external policies on development strategies in countries at various stages of development. It is earnestly hoped that this Report will heighten awareness of the close mutuality of interest between the developing and developed countries and thus lead to the creation of an atmosphere more conducive to positive action to increase the growth rates and living standards of the people of the developing world.
Figures in this paragraph relate to the study prepared in July 1976. More recent projections are available in International Monetary Fund, Annual Report of the Executive Directors for the Fiscal Year Ended April 30, 1977 (Washington: International Monetary Fund, 1977).
Figures in this paragraph relate to the study prepared in September 1976. More recent projections are available in International Bank for Reconstruction and Development, Prospects for Developing Countries, 1978–85, Bank Report No. 1674 (Washington: World Bank, July 1977).
At its meeting in July 1978, the Working Group decided that no further work was required on this subject for the time being.