INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL FINANCE CORPORATION INTERNATIONAL DEVELOPMENT ASSOCIATION

Public Disclosure Authorized 1982 ANNUAL MEETINGS OF THE BOARDS OF GOVERNORS

SUMMARY PROCEEDINGS Public Disclosure Authorized Public Disclosure Authorized

Toronto, Ontario, CANADA SEPTEMBER 6-9, 1982 Public Disclosure Authorized INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL FINANCE CORPORATION INTERNATIONAL DEVELOPMENT ASSOCIATION

1982 ANNUAL MEETINGS OF THE BOARDS OF GOVERNORS

SUMMARY PROCEEDINGS

Toronto, Ontario, CANADA SEPTEMBER 6-9, 1982 INTRODUCTORY NOTE

The 1982 Annual Meeting of the Board of Governors of the International Bank for Reconstruction and Development, held jointly with that of the In­ ternational Monetary Fund, took place in Toronto, Ontario, Canada, September 6-9 (inclusive). The Honorable Abdlatif Y. AI-Hamad, Gover­ nor of the Bank and Fund for Kuwait, served as Chairman. The Annual Meetings of the Bank's affiliates, the International Finance Corporation (IFC) and the International Development Association (IDA), were held in conjunction with the Annual Meeting of the Bank. The Summary Proceedings record, in alphabetical order of member countries, the texts of statements by Governors relating to the activities of the Bank, IFC and IDA. The texts of statements concerning the IMF are published separately by the Fund.

T.T.THAHANE Vice President and Secretary THE WORLD BANK

Washington, D.C. January, 1983

iii CONTENTS

Page Opening Remarks by Pierre Elliott Trudeau Prime Minister of Canada ...... Opening Address by the Chairman Abdlatif Y. AI-Hamad Governor of the Bank and Fund for Kuwait ...... 6 Annual Address by A. W. Clausen President of the World Bank...... 12 Report by Manuel Ulloa Elias Chairman of the Development Committee ...... 28 Statements by Governors and Alternate Governors...... 32

Page Page Afghanistan ...... 32 Luxembourg ...... 121 Algeria...... 37 Malaysia ...... 123 Australia ...... 40 Nepal ...... 126 Austria...... 43 Netherlands ...... 130 Bangladesh ...... 46 New Zealand ...... 133 * Barbados ...... 51 * Nicaragua ...... 134 Belgium...... 57 * Norway ...... 142 Belize...... 60 Pakistan ...... 147 Canada ...... 61 Papua New Guinea ...... 151 China ...... 64 Paraguay ...... 152 *Denmark ...... 68 Portugal ...... 158 Egypt ...... 70 St. Vincent and Fiji ...... 72 the Grenadines ...... 161 France ...... 73 * Senegal ...... 163 Germany ...... 77 Solomon Islands ...... 169 Greece ...... 81 South Africa ...... 170 India...... 83 Spain ...... 173 Indonesia ...... 88 Sri Lanka ...... 174 Iran ...... 90 Thailand ...... 177 Iraq ...... 94 Turkey ...... 180 Ireland...... 97 *United Arab Emirates .... 183 Israel ...... 100 United Kingdom ...... 187 Italy ...... 102 United States ...... 198 Jamaica ...... 106 Vanuatu ...... 204 Japan ...... 110 Viet Nam ...... 207 Korea ...... 115 Western Samoa ...... 208 Lao People's Democratic Yugoslavia ...... 210 Republic ...... 119 'Speaking on behalf of a group of countries

v Page Concluding Remarks by Mr. Clausen ...... 212

Concluding Remarks by the Chairman, Abdlatif Y. AI-Hamad ...... 214

Remarks by Juan Antonio Garcia Diez, Governor of the Fund for Spain ...... 216

Documents of the Boards of Governors ...... 217 Schedule of Meetings ...... 217 Provisions Relating to the Conduct of the Meetings ...... 218 Agendas ...... 219

Joint Procedures Committee ...... 220 Report II ...... 221 Report III ...... 223

Resolutions Adopted by the Board of Governors of the Bank Between the 1981 and 1982 Annual Meetings ...... 224 No. 377 ... Membership of Antigua and Barbuda ...... 224 No. 378 ... Membership of Belize ...... 226 No. 379 ... Places of Forthcoming Annual Meetings ...... 229 No. 380 ... Subscriptions by Certain Members Under Article II, Section 3(c) of the Articles of Agreement of the Bank ...... 229 No. 381 ... Membership of the Hungarian People's Republic ..... 230 No. 382 ... Direct Remuneration of Executive Directors and Their Alternates ...... 233 No. 383 ... Increases in Certain Subscriptions to the Capital Stock and Reallocation of Authorized Shares ...... 233 No. 384 ... 1982 Regular Election of Executive Directors ...... 236

Resolutions Adopted by the Board of Governors of the Bank At the 1982 Annual Meeting ...... 237 No. 385 ... Financial Statements, Accountants' Report and Administrative Budget ...... 237 No. 386 ... Allocation of Net Income ...... 237 No. 387 ... Resolution of Appreciation ...... 237

Resolutions Adopted by the Board of Governors of IFC Between the 1981 and 1982 Annual Meetings ...... 239 No. 125 ... Membership of St. Lucia ...... 239 No. 126 ... Membership of Belize ...... 240 No. 127 ... Membership of the Republic of The Gambia ...... 241

vi Page Resolutions Adopted by the Board of Governors of IFC At the 1982 Annual Meeting ...... 243 No. 128 ... Financial Statements, Accountants' Report and Administrative Budget ...... 243 No. 129 ... Resolution of Appreciation ...... 243

Resolutions Adopted by the Board of Governors of IDA Between the 1981 and 1982 Annual Meetings ...... 244 No. 124 ... Membership of St. Lucia ...... 244 No. 125 ... Membership of Belize ...... 246 No. 126 ... Sixth Replenishment: Adjustment of Voting Rights of Colombia, Luxembourg and Saudi Arabia ... 248 No. 127 ... Membership of St. Vincent and the Grenadines ...... 249

Resolutions Adopted by the Board of Governors of IDA At the 1982 Annual Meeting ...... 252 No. 128 ... Financial Statements, Accountants' Report and Administrative Budget ...... 252 No. 129 ... Resolution of Appreciation ...... 252

Reports of the Executive Directors of the Bank ...... 253 Subscriptions by Certain Members Under Article II, Section 3(c) of the Articles of Agreement of the Bank .. 253 Increases in Certain Subscriptions to the Capital Stock and Reallocation of Authorized Shares ...... 254 1982 Regular Election of Executive Directors ...... 255 Allocation of Net Income ...... 256

Rules for the 1982 Regular Election of Executive Directors ...... 258 Executive Directors Elected at 1982 Regular Election ...... 262 Report of the Executive Directors of IDA ...... 267 Sixth Replenishment: Adjustment of Voting Rights of Colombia, Luxembourg and Saudi Arabia ...... 267 Report of the Chairman of the Development Committee ...... 269 Annual Report of the Development Committee ...... 270 Accredited Members of Delegations at 1982 Annual Meetings ...... 287 Observer at 1982 Annual Meetings ...... 308 Representatives of International Organizations ...... 309 Executive Directors, Alternates and Advisors ...... 310

VB Page Officers of the Board of Governors and Joint Procedures Committee for 1982-1983 ...... 311

Reference List of Principal Topics Discussed ...... 312

viii OPENING REMARKS BY THE RT. HON. PIERRE ELLIOTT TRUDEAU PRIME MINISTER OF CANADA

Speaking for all Canadians, I say: Welcome to Canada. We have waited long for you to come-38 years. We have waited since Canada was with you at Bretton Woods in 1944. At that time a few farseeing Canadians were working there with other like-minded delegates, on ideas and proposals for an International Monetary Fund and a World Bank. They were attempting to create economic order out of a world of economic and political chaos. So our feeling toward you is not just one of membership. It is one of historic kinship. All here, I have no doubt, wish that we were meeting in better economic times. The conditions we face today are worse than any since our beginnings at Bretton Woods. The word "crisis" now emerges frequently in discussion of international economic, trade, finance, and energy developments. These hard times, and these perceptions of looming crises, are generating fear in the minds of some of our people. In many others, frustration and confusion. Also worrisome are the questions current problems encourage concerning the Bretton Woods institutions. Are they effective? Have they failed us? We see widespread unemployment, inflation, reduced trade, unsettled international financial markets, exchange rate instability, high interest rates, and reduced access of developing countries to international funds. When a community faces a crisis it meets and pulls together. It looks anew at its fundamental objectives and purposes, it examines its strengths, its difficulties, and its opportunities for surmounting current problems through common action. We, the members of the Fund and the Bank, are in that position today. We must re-examine our roots and our purposes. Those who toiled at Bretton Woods were driven in their work by the intellectual conviction that the economic and financial chaos of the 1930s need not have happened. The awesome economic problems they faced and feared, they regarded as being man-made, not God-given. The ingenuity of man, they felt, could suc(:ess­ fully be applied to solving them. Today we must approach our difficulties with the same faith and confidence. Driving the intellect of the men and women of Bretton Woods was the even more powerful force of simple human decency. There was a common determination to ensure that the misery and despair wrought by the interna­ tional economic depression of the 1930s, still so fresh in their minds, would not again be visited upon the world. Today we must approach our responsi­ bilities with the same moral determination that economic growth and stability will be restored, so that hope will replace fear, jobs will replace unemployment, and food will fend off starvation. But even with the best intellectual effort and the strongest will, Bretton Woods would not have succeeded without a clear sense of the crucial impor­ tance of international cooperation. Today, even more so today, our eco­ nomic interdependence compels us to understand that, since many of our problems transcend international borders, we must solve them together if they are to be solved at all. Confidence in our ability to overcome our problems, determination to do so, and acceptance of the need to cooperate in solving them are as funda­ mentally important today as they were in 1944 when they constituted the spirit of Bretton Woods. We can draw on that heritage for strength. But this still leaves a vital question unanswered. If the spirit of Bretton Woods still serves us well, have the institutions of Bretton Woods failed us? Is the current international economic and financial environment proof of that? In my view, the Bretton Woods institutions have not failed us. Their original purposes and structures and procedures were designed to deal with develop­ ments that had brought the international economy to its knees in the 19308: competitive exchange rate devaluations, destructive restrictions on trade, chaos in domestic monetary management, a collapse of international capital flows, and little foreign aid. The Bretton Woods institutions emerged to address these problems, and they did so with brilliant success. For two decades or more after Bretton Woods, their influence assisted much of the world in achieving one of its great periods of development and, by historical standards, of enlightened relationships between rich and poor countries. No, the Bretton Woods institutions did not fail to meet the challenges for which they were designed. But they were not able, within existing mandates, to ensure adequate international economic stability in the face of the new difficulties that emerged in the late 1960s and 1970s. An important aspect of the new difficulties was the shift in economic policies of member countries and the periodic policy divergencies between them. In the earlier years relatively stable monetary and fiscal policies of members, particularly the industrial countries, helped maintain the strength of the international economy. But in the 1970s various domestic developments seemed to demand a shift in national policies. Slow growth and rising unemployment called for a new response. Policy precepts of the day pointed to demand expansion as being appropriate. In the circumstances, individual industrial countries adopted aggressively expansionary fiscal and monetary policies. It was not foreseen that these actions would interact to produce an unsustainable inflationary boom and, in addition, would not solve emerging structural problems in industry. As we now know the resulting inflation helped generate conditions of domestic and international economic instability and stagnation. The fiscal and monetary policies of many member countries were not the only source of difficulties. Equally important were the energy crises and the

2 painful adjustments they necessitated; the social rigidities that continue to complicate the removal of deeply imbedded inflation; the growing size, sen­ sitivity, and vulnerability of international financial markets; the mounting debt and funding problems of developing countries; and the structural weaknesses of major industries. In Canada, I believe we have drawn the appropriate lessons from these experiences of the past decade. We recognize that some of our economic problems are domestic in character and require strict domestic economic policy discipline to be cured. How to reduce inflation without excessive costs in the form of lost jobs is currently the most important economic policy problem we face in Canada. We have found that inflation is not consistent with growth and stability. Furthermore, once imbedded, it is most difficult to remove. This is because, in a practical sense, inflation is much more than a mohe­ tary phenomenon. The speed of cost and price adjustments is related not just to changes in the growth of money and credit but also to the attitudes and perceptions of our people. These factors will therefore determine the speed at which our cost and prices will stabilize once again and so lead to conditions permitting a resumption of growth. Well! It is easy to act upon the growth of the money supply but it is difficult to bring about the deter­ mination and the collective will to slow down cost and price increases. Now, our policy tries to create that national will. The essence of our approach is to try to create that national will. We are convinced that if our people understand the benefits to all of reducing infla­ tion, their individual actions will accelerate the process. We do not underestimate the difficulty in explaining that individual restraint for the common good is also in harmony with self-interest. But that is the challenge we have taken up. In our policy program we are taking direct income and price action within the federal government and we are asking for voluntary responses from all others. We will continue to restrain money supply growth and work toward smaller federal fiscal deficits. We are confident that our own example of direct restraint, and a broader understanding of the absolute necessity of reducing costs and inflation, will together generate the national determina­ tion on which success of the voluntary approach depends. We are absolutely determined to solve our domestic problems. Along with this we must, and we will, support new international initiatives that will enhance international economic and financial stability. Without the lat­ ter, efforts to solve our domestic problems can have only a partial success. The sources of international instability to which I have already referred indicate where new initiatives may well be needed. All of us, I believe, recognize that international stability depends heavily on the quality of indi­ vidual national policies and on policy harmony between member countries, particularly the industrial countries. Over the past decade we have seen

3 numerous national actions, involving different countries at different times, which conflicted with maintaining international stability. Out of them came troublesome inflation and current account imbalances; restrictions on trade and finance; and instability in exchange rates, interest rates, and energy prices. We must avoid such destabilizing policies in the 1980s. But is there among us the international consensus, the will, that is needed if progress in this area is to be assured? HO\.ever difficult the task, we must encourage the Fund to find increasingly effective means for helping to maintain stability and harmony in the economic policies of its members. Earlier I spoke of "national will." Now, of "international consensus." Esoteric concepts. Elusive phenomena. But fundamental in practice. The success of our domestic policies depends on our people identifying more closely with the common good and less with narrow sectoral interest. Similarly among nations. International interdependence requires that our individual actions increasingly be determined by common international objects rather than by beggar-thy-neighbor policies and instincts. Nowhere is our interdependence more evident, and some would say more fragile, than in the flow of international capital, both private and official. The 1970s saw an extraordinary increase in private international financing, including the flow of such capital to developing countries. About half of all funds flowing to developing countries in 1980 was private capital. Unless these funds keep flowing in support of productive development, many developing countries will fall far short of their minimum needs. Yet at present we see increasing signs that private funding may diminish, not increase. Fears over the credit standing of sovereign authorities and over the difficulties of individual financial institutions and international corporations are now frequently expressed. They risk eroding the free flow of capital. We must not permit this to happen in the 1980s. We cannot afford international financial crises. Domestically the problem has for decades been recognized, and it has been responded to in part through the development of the "lender of last resort" function of our official monetary institutions. The Fund should now take the lead in examining as a matter of urgency whether current international arrangements provide ade­ quate protection against financial crises or whether they should be further developed. In this regard, I welcome proposals brought forward at this meeting that would mean extra resources available to countries experiencing such difficulties. These flows of private funds at nonconcessional rates, and flows of offi­ cial funds under conditionality terms that involve policy discipline, are fully in harmony with sound economic development. Investments that are pro­ ductive in the foreseeable future will be able to meet nonconcessional terms, and policies of stability are a prerequisite for the productive use of imported capital.

4 But growth and development must go beyond the limits imposed by fore­ seeable economic return. Health and sanitation and education and commu­ nication and transportation and food production-all these give high returns to society but not in a form that markets can measure over short periods. Concessional funding, both bilateral and multilateral, therefore continues to be a vital element of balanced growth and development in many developing countries. For the poorest countries it is their only source of foreign capital for development. And the necessary response from the richer countries can be made with the certain knowledge that such growth and development enrich the whole of the world economy, the industrial countries, and the developing countries. We must ensure that the momen­ tum of foreign aid is maintained and we must maintain the strength of the World Bank. The 1970s forcefully revealed yet another aspect of international inter­ dependence. It revealed that inflation and economic stagnation in the indus­ trial countries soon lead to slow growth among the developing countries. In­ terdependence here is uncompromising, impersonal, and cruel. It is, therefore, of concern to us all that we do not yet fully understand why industrial decay set in among the industrial countries in the 1970s. The structural impact on some of our industries of exploding technology, of ma­ jor changes in energy costs, and of swift shifts in the competitive position of particular countries goes much deeper than that of a temporary economic slowdown. The 1930s produced a Maynard Keynes for bringing insight into demand management. The 1980s need quite a different insight. It concerns the pre­ requisites for stable, noninflationary economic growth and rising productivity. Our variou.s international institutions, including the Fund and the Bank, can and must help industrial countries understand better the nature of their obstacles to growth and productivity, as well as help developing countries overcome the obstacles they face. Clearly, we are now in full face of the high risks and difficult challenges of accelerated interdependence. These challenges justify the same sense of urgency among us that was present among the founders at Bretton Woods. Few of us can have certain hope for acceptable growth and stability if the international economic and financial environment is in turmoil, as it has been. So in addition to our individual efforts, we must marshal the spirit of Bretton Woods to work our way through our deeply troubled times. We must look to a stronger Fund and a stronger World Bank. We must see their role, as well as the role of other international institutions, strengthened so that they can deal better with the international problems that surround us today and that threaten our future. As it has done since the beginning of Bretton Woods, Canada will play its part.

5 OPENING ADDRESS BY THE CHAIRMAN THE HON. ABDLATIF Y. AL-HAMAD GOVERNOR OF THE FUND AND BANK FOR KUWAIT

Fellow Governors, Ladies, and Gentlemen: Let me begin by expressing my deep thanks to the Government and peo­ ple of Canada for their warm reception and excellent arrangements for our meetings in this beautiful City of Toronto. A special welcome is extended to the Governors and delegations for Antigua and Barbuda, Belize, and Hungary who are participating as members in our formal proceedings for the first time. I. Kuwait: Development Strategy Allow me to mention a few words on my own country and our region. Kuwait is a small country with a population of one and a half million. It is blessed with oil wealth which-in relation to the small size of its popula­ tion-may be regarded as bountiful. From the very early days of our inde­ pendence, our development strategy has been greatly influenced by the fact that oil-the principal source of our income and wealth-is a depleting asset. Accordingly, the major aim of our development strategy has been -and still is-the diversification of our economy so as to create new sources of income. In this respect-needless to say-Kuwait is no different from most of the oil exporting countries in our region. Diversification had to take place within the framework of certain con­ straints peculiar to the economy of the so-called capital surplus oil export­ ing countries. While capital is relatively abundant, our development policy has to contend with the relative scarcity of domestic labor, limited size of the local market, and, above all, the virtual lack of natural resources other than oil. Furthermore, development policy has to be carried out in a diffi­ cult natural environment with limited water resources and agricultural potential. However, looking over the past twenty years, I have reason to take satisfaction in the accomplishments of the Kuwaiti economy. To be sure, there is still a long way to go. Nonetheless, significant progress has been made in the development of non-oil sources of income with special em­ phasis on the development of professional and managerial skills. II. The Recycling Process Following the oil price increases of 1973 and 1979-80, Arab capital expor­ ting countries were able to accumulate a significant surplus on their current account. The recycling of these surpluses has been at the center of interna­ tional discussion and controversy. In view of the special importance accord­ ed to this issue, allow me to make a few observations. The absorptive capacity of the capital exporting oil countries has proved to be much greater than was generally assumed. This is largely due to the

6 vast development programs mounted by the oil countries as well as the relatively high marginal propensity to import. As a consequence, the post­ oil boom era witnessed a remarkable expansion in our imports, making trade between members of the Organization of Petroleum Exporting Coun­ tries (OPEC countries) and the outside world one of the most dynamic flows. In addition, development at a high pace was made possible by the in­ flow of large numbers of migrant workers and expatriates. This gave rise to an outflow of remittances which came to play a significant role in the foreign exchange earnings of some countries. The combination of these two factors-imports and remittances-has been instrumental in reducing the size of surpluses and in stimulating the growth of our trading partners, in­ cluding a large number of developing countries. Arab oil countries have been keenly conscious of their responsibilities in the world economy. Well before the oil boom of 1973, these countries had already a sizable development assistance program. The last two decades saw the establishment of a number of national development institutions such as the Kuwait Fund for Arab Economic Development, the Saudi Fund for Development, the Abu Dhabi Fund for Arab Economic Development, and the Iraqi Fund for External Development. These were soon followed by the creation of, or increased participation in, a wide range of regional and inter­ national institutions such as the Arab Fund for Economic and Social Development, the Arab Monetary Fund, the Islamic Development Bank, the Arab Bank for Economic Development in Africa, the African Develop­ ment Bank, the OPEC Fund for International Development, the Interna­ tional Fund for Agricultural Development, and last but not least, the International Monetary Fund, the World Bank, and the International Development Association. For the period 1973-81, official development assistance from these countries accounted for an average of about 4 per cent of their gross national product (GNP). For some donors the proportion was more than twice that level. In relative terms, the overall average is about 10 times as much as the average for the Development Assistance Committee (DAC) Countries. To put our development assistance in perspective, if offi­ cial development assistance (ODA) from DAC countries were to be on the same scale in relation to their GNP, it would have risen from its present level of about $30 billion to $300 billion per annum. This indeed would have made our world a different place. In the area of non-concessional flows, a large number of financial institu­ tions were established; ranging from commercial banks to investment and development banks, underwriting and capital market institutions. The scope of their operations extended beyond the domestic market to cover the major financial centers of the world. These institutions are playing an in­ creasingly important role in the recycling process. However, the bulk of the recycling process in non-concessional flows continues to be handled by financial intermediaries and institutions in the industrial countries.

7 Ill. Global Interdependence Much has already been said about the fact that the different parts of the world economy are inextricably intertwined. Every day we are reminded that global interdependence is very much a reality and not merely a slogan. Our planet is becoming ever smaller. The prosperity in one part soon radiates in ever-widening circles. Similarly, the malaise in one part cannot but have repercussions on others. This is particularly true of the relation­ ship between the industrial countries on the one hand and the developing countries on the other. Dr. Prebisch, the founding father of the United Na­ tions Conference on Trade and Development (UNCT AD), once described this relationship as one between center and periphery. At one stage in the development of the world economy, the center-periphery model was an apt description of reality. This is no longer the case. That the South is depen­ dent on the North is obvious enough. It is much less recognized that the North is becoming increasingly dependent on the South. The following facts serve to illustrate the point: In 1980 Japan, the United States, and the Euro­ pean Community (EC) sent more than one third of their exports to the Third World, with the proportion reaching a little less than 50 per cent in the case of Japan. U.S. exports to the developing countries were more than 4 times those to Japan, and nearly twice those to the EC. The EC exports to the Third World were more than 3 times those to the United States and more than 20 times those to Japan. The importance of this trade to employ­ ment is illustrated by the fact that one job in 20 in the United States is in production for export to the Third World. For some sectors and industries in the developed countries, employment dependence on exports to the Third World is as high as 20 per cent. This two-way interdependence was effectively illustrated by the oil price increase in the 1970s. There can be little doubt that the greatly increased cost of energy has had a profound and adverse impact on some countries, particularly those heavily dependent on imported energy, as well as many of the poorer countries. However, in the media as well as in many reports, the impact of oil price increases was blown out of all proportion. Any fair observer would have easily seen that the energy crisis is but one of many structural problems and imbalances. But oil and OPEC were conveniently blamed for all the ills of the world economy. Such an explanation was as simplistic as it was dangerous. This is not the occasion to embark on sterile controversy. Suffice it to cite the following quotation from the report, Energy for Development prepared by the Society for International Develop­ ment: That the energy issue is a critical and important one for the entire world community is undeniable. But the present tendency to ascribe to energy the blame for most of our current ailments would be as wrong and mis­ guided as the apathy and skepticism that characterized the attitudes exist­ ing before the advent of the energy crisis. 8 Global interdependence was once more brought out by the profound impact of the recession in the industrial countries. The low level of economic activi­ ties in these countries has been reflected in a low level of demand for the ex­ ports of the developing countries. This has led both to a marked slowdown in the growth of exports of the developing countries as well as to a sharp deterioration in their terms of trade. The current terms of trade of primary commodities other than oil are estimated to be the lowest in the post-war period. The problem was compounded by excessively high levels of interest rates. The high cost of money is having a potent deflationary impact. It has im­ peded the access of developing countries to capital markets and has made their debt repayment obligations more burdensome. Contrary to a widely held belief, high interest rates have had substantial adverse effects on surplus oil countries. For instance, while the rate of return on liquid assets has risen, losses have been incurred in the yield and capital value of equity investment and the capital value of fixed income financial assets. From the viewpoint of the domestic economy, high interest rates have aggravated in­ flationary pressures, discouraged private investment, induced capital outflow and complicated the task of financing major development projects. IV. Immediate Issues The most urgent task facing the world community is to overcome the cur­ rent recession in the industrial countries. With such high levels of unemployment and inflation, it becomes more difficult to follow liberal trade and aid policies, which are sorely needed to shore up the sagging economies of the developing countries. It was heartening to read in the com­ munique of the Versailles Summit that: Growth and employment must be increased. This will be attained on a durable basis only if we are successful in our continuing fight against in­ flation. That will also help to bring down interest rates, which are now unacceptably high, and to bring about more stable exchange rates. Developments since the Versailles Summit, however, hardly give reason for optimism. It is being increasingly recognized by both the Fund and the Bank that the payments deficits of developing countries cannot be reduced to sustainable levels by a simple policy of demand management. They are mostly due to some deeply rooted factors arising from structural imbalances. Moreover, a major part of these deficits is caused by external factors, beyond the control of the countries concerned. This diagnosis has important implications for the role of the Fund and the Bank as well as for global aid and trade policies. More than any time in the past, the International Monetary Fund should continue to play a central role in the management of the international

9 monetary system. To do so, however, the Fund quotas would need to be considerably increased above their present level. The forthcoming Eighth General Review of Quotas should provide the occasion to augment the quotas to a level commensurate with the role of the fund and the financing needs of member countries in the 1980s. The distribution of quotas should reflect the change in the relative economic position of member countries and should provide for a significant increase in the voting power of develop­ ing countries. Presently the burden of adjustment falls almost completely on deficit countries. We must share the burden of adjustment equitably if we are all to share in the worldwide goal of sustained, noninflationary growth. The Fund has an important role to play in this regard. In the exercise of its surveil­ lance function, it needs to give special attention to the policies of major in­ dustrial countries, since they have such a pervasive effect on the rest of the world. The Fund should seek to ensure that these policies are not only in the interest of their domestic economies but are also internationally cooperative. It is a matter for concern that so little progress has been made of late on the reform of the international monetary system, a matter that once re­ ceived priority attention. It is of course understandable that more imme­ diate issues have demanded resolution, but we must not lose sight of the im­ portance of reforming the system so as to create a framework in which co­ operation will be facilitated. The experience of the last 20 years has vindi­ cated the conviction that the creation and distribution of international li­ quidity should be a global responsibility. It is now widely recognized that the present system is inequitable as well as unresponsive to the needs of the world economy. To rectify this situation, steps should be taken to make the special drawing right (SDR) the principal reserve asset in the international monetary system. In the present crisis of the world economy, the poorer countries have been hardest hit. Their problem was compounded by a significant reduction in the commitment authority of the International Development Association (IDA). This is a most unfortunate development. The establishment of IDA is probably one of the most outstanding achievements of the post-war per­ iod. This is amply demonstrated by the study undertaken by the World Bank, IDA in Retrospect to assess the accomplishments and shortcomings of that institution. This study shows clearly that, since its establishment in the early 1960s, IDA proved to be an effective vehicle for the mobilization of concessional resources on a multilateral basis. Moreover, available evi­ dence suggests that IDA has been significantly more cost-effective than bi­ lateral sources. It is incumbent upon all donor countries to preserve the in­ tegrity and effectiveness of this institution. The commitment authority of IDA must be restored to its originally planned levels, and the principle of burden-sharing must be maintained as one of the principal foundations of multilateral cooperation. 10

~-~.------..---~~ ..~ ~ ~~----...._------The need to mobilize additional resources to alleviate the plight of devel­ oping countries is still as pressing as ever. I welcome the initiatives that have been taken, and those being considered, by the World Bank for that pur­ pose. I am confident, however, that in pursuing this goal the Bank will not lose sight of the fact that it is first and foremost a development institution. This imposes certain constraints which have to be taken into account in the formulation and implementation of the new policies. Let me conclude by quoting Mr. Willy Brandt in his introduction to the report of the Independent Commission on International Development Issues: The difficult and controversial subjects which divide richer and poorer countries will certainly not be solved by prejudices, nor by wishful think­ ing. They must be approached with a will to overcome dangerous tensions and to produce significant and useful results for nations and regions­ but, first and foremost, for human beings-in all parts of the world.

11 ANNUAL ADDRESS BY A. W. CLAUSEN PRESIDENT OF THE WORLD BANK

We are meeting at a time when the economic situation for most of our member countries-developed and developing alike-is grim. Growth rates in the developed nations have declined in real terms for the past five years. Their average growth for 1982 is likely to be·below 1 percent, as it was in 1974 and 1975. Recovery from the present recession is seriously delayed. Growth rates in the developing countries have displayed a similar downward trend:

• The middle-income countries grew at only 1.7 percent in 1981, com­ pared with 3.5 percent in the preceding year and an average of 4.7 per­ cent between 1973 and 1980. On a per capita basis, their income declin­ ed in 1981. The economies of the middle-income oil-exporting develop­ ing countries grew 3.3 percent in 1981, but the weakness in oil prices this year has brought them serious problems as well. • The lower-income developing countries were able to maintain growth somewhat better: They grew at 3.9 percent in 1981. But this, too, com­ pares unfavorably with their growth of 5.9 percent in 1980, and with their longer-term growth of 4.5 percent between 1973 and 1980. • The rapid economic growth of the high-income oil exporters had already been moderated in 1980 when it fell to 4.5 percent as compared with 8.3 percent between 1973 and 1980. In 1981, it declined by 11.3 percent.

All in all, 1981 was an extremely difficult year for the developing coun­ tries and 1982 promises only a modest improvement-at best. We have to ask ourselves: How did we get into this unacceptable situa­ tion, 'and what are the prospects and possibilities for getting out? The root causes are complex, but I think it is important to try to understand where we are today, and how we got here, in order to appreciate more fully what all of us can do to prepare for a better tomorrow. What I would like to do this morning is to touch briefly on these issues; then turn to how the Bank ought to respond to the challenges, and to how we plan to mobilize the necessary resources to fulfill our task. Let me begin by commenting on some of the causes of the current global economic difficulties. It is instructive to compare the 1974175 recession with the prolonged decline we are enduring today. In the early 1970s, after more than 25 years of unprecedented development progress, strains became evident. Inflation,

12

--.. -.---.------~---- .----. which had long been rampant in some countries, began to spread to others. The 1972-74 period also saw shortfalls in food production, a primary­ product price boom, a sharp increase in oil prices, and the introduction of fundamental changes in the Bretton Woods system of fixed exchange rates. One result was a short, sharp recession. We can see now, with the benefit of hindsight, that some countries ad­ justed quickly by increasing exports, curtailing imports, and changing pro­ duction patterns to deal with the new situation. Other countries borrowed heavily and thus postponed the day when adjustments would become inevitable. The industrial countries as a group sustained consumption, while letting investment fall; many low-income countries had no choice but to do the same. But other developing countries found ways and means of raising in­ vestment, often with considerable sacrifice in consumption. Average investment rates for developing countries rose sharply, and bet­ ween 1975 and 1980, consistently exceeded 25 percent of GDP. This was well above the rates attained in the industrialized countries. It was a remarkable performance, helped by substantial increases in the flows of commercial and concessional capital. Recovery was swift. Although inflation continued, and even accelerated in many countries, interest rates, remarkably, did not reflect this. Real in­ terest rates declined and became negative, and many developing countries, quite sensibly, borrowed heaVily. It was not until 1978 that interest rates became consistently positive again; shortly thereafter, the world experienced a second surge in oil prices. On this occasion, it was a doubling, rather than a quadrupling, of prices as in 1973, but it had about the same effect on the purchasing power of exports. Three years have now passed since we met in Belgrade and saw that shock coming. And yet we still cannot say with assurance that recovery is in sight. There may be some improvement this year in developing-country growth after a disastrous 1981. But if it occurs, it will be modest at best. On a global scale, recovery remains elusive. There seem to be four important elements that have affected economic performance. First, the many developed and developing countries that made an in­ complete adjustment after 1973 have, since then, recognized the inevi­ tability of change. Actions became necessary in energy conservation; in greater productivity to offset the higher cost of energy; and in adjusting to the dramatic changes in the competitiveness of individual firms and entire sectors, brought about by technical advance and new trade patterns. The need to reduce inflation rates also became a matter of profound con­ viction in the industrial nations-and in many developing countries. Both the need for adjustment and the political will to persist with new policies

13 gathered momentum, and these policies often involved restraints on resources. Second, much greater reliance began to be placed on the instruments of monetary policy. As a result, interest rates soared to the high levels that prevail today. Such actions clearly reflect the seriousness of intent on the part of some of the major economic powers to reduce inflation, but the choice of these monetary tools is having widespread international effects. This is because, over the past three decades, there has emerged an open world economy in which trade, capital flows, and exchange rates can move with substantial freedom. This system is one that has yielded, and will yield again, immense benefits. Third, we have seen that changing interest and inflation rate differentials between countries have induced volatility in exchange rates. This has led to uncertainties that have compounded the problems already faced by ex­ porters and investors. Finally, the current recession in developing countries is being prolonged because capital flows are being constrained. Concessional aid from DAC countries, after increasing modestly, declined by 6 percent in 1981 in con­ trast to the steady increase in the 1974-76 period. This dealt a serious blow to the lowest-income nations, which have already suffered the most adverse terms-of-trade trends in their histories. Flows of remittances to labor-exporting countries appear to have reached a peak in 1981. The financial markets tightened, inhibiting the flows of commercial capital to developing countries. As interest payments doubled, the debt-service ratio on medium- and long-term debt rose from 16 percent in 1979 to 20 percent in 1981. All the evidence suggests that developing countries have to, and in fact already have begun to cut back on their bor­ rowing this year-chiefly by curtailing growth-so as once again to avoid serious debt crises. Given this difficult situation, how should we view the prospects for the future? I believe that it is not inappropriate to express cautious optimism-even at this difficult point in time. This is partly because there are certain under­ lying trends that should lead to better future performance, and partly because there are actions that we can take collectively to improve the situation. In the first place, our World Development Reports have documented the enormous gains in human development that the developing countries have made over the past three decades-particularly in education and improved health. There has also been consistent progress in building infrastructure, 'development institutions, and the management skills necessary to adapt policies to today's requirements. The only conclusion that one can fairly draw from the postwar experience is that the development process is, in fact, working.

14

._------, All of us who seek to make a genuine contribution to improving the wel­ fare of the vast majority of mankind can take some encouragement, if not satisfaction, from this record of progress and resilience in the face of adver­ sity. But there is clearly no room for complacency. In many low-income countries, especially in Africa, the preconditions for sustained growth do not yet exist. Second, I would draw particular attention to the fact that average invest­ ment rates in the developing countries have been maintained at historically high levels since 1973. This augurs well for future growth in these countries. Third, despite many attacks, the global trade system remains relatively free. Some actions, however, have been taken in the last year that restrict the entry of exports from developing countries into the markets of the in­ dustrial nations. Any additional steps of this kind must be avoided. We ourselves must understand, and we must persuade our compatriots at home to understand, that to increase protectionism would be to impose an exorbitant cost on the developed and developing countries alike-whatever the current domestic economic difficulties may be. It is within our power to resist the enormous protectionist pressures that now exist-and we must do so. In this connection, the November ministerial meeting of the GATT will be crucial. We all share the hope that the meeting will take a firm stand against trade restriction in all its forms, and that it will lead to further dis­ mantling of unwarranted barriers. We should also consider how we might strengthen the investment frame­ work. The continued rapid growth of modern manufacturing industries for both domestic markets and for exports, the need for increased investment in domestic energy sources, and the diversification of trade in the face of rapidly expanding debt, accompanied by high and volatile interest rates-all these factors only underscore the importance of the constructive support that foreign private investment can bring to development. But there is clearly a need for rules: for broad international arrangements that will promote such investment by providing greater assurance to all parties that their mutual interests will be reflected, and their mutual benefits protected. The World Bank itself, and particularly the IFC, already does much to assist such flows. But more can and should be done. I will refer later to the work on the multilateral investment insurance mechanism that could become an important element in stimulating private capital flows. And we hope, as well, that in the GATT, or in other forums, we can strengthen those elements of an international framework that will attract additional private capital and technology in support of the development objectives of our members. We in the Bank stand ready to assist in such efforts. It is clear, of course, that sustained growth in the developing countries in­ evitably depends on their own sound domestic policies, and that no external economic environment-however improved-can substitute for the basic

15 internal requirements for growth: more efficient use of their own resources; more carefully selected investment programs; better management of public enterprises; and both more effective export programs and import­ substitution policies. But it is also true that a central requirement for the strengthening of the development process today is to ensure that growth accelerates in the in­ dustrial world as well. Surely it is not beyond the wit and wisdom of the in­ dustrial nations to devise the balanced combination of policies that will enable their growth to resume without fatally reversing the progress that has already been achieved in the fight against inflation. The developing countries are making major efforts to deal with these cur­ rent challenges on the global economic scene. They have made their exports more competitive; many have revised both their budgets and development plans to levels more in line with available resources; inflation rates are being dampened; efficiency in the use of resources is rising; the elimination of ex­ cessive controls is proceeding; and debt management is improving. But our member countries continue to need our help in these efforts-both through financial assistance and analytical support. And the World Bank is resolved to do all it possibly can to assist them to meet their development objectives. Because of its very acute problems, sub-Saharan Africa-which again suffered an overall decline in per capita income this past year-remains our top regional priority. The World Bank's report on sub-Saharan Africa, presented last year, provided the foundation for a number of important joint actions with our member countries in that continent. In fiscal year 1982, the share of Africa in IDA lending operations rose to 31 percent, reflecting this increased priority. We are expanding our coordination activities both by increasing our field staff and, whenever governments request, by initiating additional con­ sultative groups. We have established offices in Uganda and Madagascar in the past year, and expanded our service to Rwanda and Burundi by dividing the joint office into one for each country. We have initiated consultative groups for Mauritius, Madagascar, and Somalia, and others are under consideration. We have strengthened our economic staff on Africa through redeployment. Perhaps most important of all, we have substantially broadened and deepened our policy dialogue with African countries in order to help them formulate the adjustment pro­ grams necessary to reverse the long period of economic stagnation and decline. In our focus, however, on structural change and on improved effective­ ness in the use of resources to stimulate growth quickly, we must not ignore basic longer-term issues. In Africa, there has been considerable progress in education, and in human resource development generally, though much yet remains to be done. But there is one area-the continued rapid growth of population-that still receives inadequate attention. This matter requires

16 urgent consideration if even modest prospects for growth in the near term are not to be overwhelmed by the demands of burgeoning populations. Just as sub-Saharan Africa continues to be our top regional priority, so agriculture, rural development, and energy remain our chief sectoral priorities. We have raised our level of lending for energy from $2.3 billion in fiscal year 1981 to $3.4 billion in fiscal year 1982. This now represents a quarter of our total operations. Together with our member governments, we are con­ tinuing to explore ways of further increasing the level of investment in the energy potential of the developing countries. Agriculture and rural development also continue to receive a major em­ phasis in our lending. They are critical both to enhancing food self­ sufficiency in the developing countries and to assisting the poor to become more productive and enter more fully into the development process. There is a close association between rapid progress in agriculture and rapid growth in the overall economy of a developing country. This is true even in those countries that have already made substantial progress in industrialization. And so, we expect to devote about 25 percent of our total investments to this sector. Now, as I have pointed out before, a key and central aim of the World Bank is the alleviation of poverty. Our objective in any developing coun­ try-anywhere in the world-is precisely the same: to assist the country both to accelerate its economic growth, and to reduce its level of domestic poverty by enhancing the productivity of its poor, and thus make possible a better standard of living for all its people. Over this past year, the Bank has reviewed its efforts to assist its develop­ ing member countries undertake practical and effective measures to alle­ viate poverty. We have examined the continuing relevance of the anti­ poverty objective itself; the Bank's experience in pursuing that objective; and the changes and improvements in the Bank's policies in this matter that may be called for. The results of this assessment were completed this summer, and there­ after were discussed with our Executive Directors. The principal conclu­ sions are these: • There are broad and important areas of complementarity between the twin objectives of efficient economic growth and the alleviation of poverty. In general, countries that have placed special emphasis on re­ ducing poverty have not sacrificed growth. • Reducing poverty helps avoid political tensions that disrupt steady growth; and experience demonstrates that development strategies that bypass a large segment of a society's people are not the most effective means to raise a nation's standard of living.

17 • The Bank's projects designed to increase the productivity of the poor have achieved rates of return as high as its other projects and have resulted in broad benefits to substantial numbers of the lowest-income groups. • The Bank has pioneered innovative techniques for reaching the poor­ particularly in its rural development and slum-upgrading projects­ that have been adopted in the national programs of many countries, and by other development agencies. It has been less successful, as has everyone else, at reaching those poor who are without any productive assets at all-the rural landless, the urban jobless, and similar groups. • The Bank has introduced poverty concerns into its country economic work and its policy dialogue with member governments. Where this has occurred, it has been beneficial. • The demonstration value of poverty-oriented Bank projects is impor­ tant. But the Bank needs to broaden its efforts beyond project work and give greater attention in its macroeconomic policy analysis to those measures that can increase the productivity-and hence the incomes­ of the poor. Further, the alleviation of poverty is closely linked with the reduction of excessive population growth rates, as well as with bet­ ter health and nutrition policies. Understandably, the Bank's member countries are wrestling today with such immediate problems as their energy requirements, the scarcity and higher cost of external financing, and the necessity of undertaking difficult structural adjustments in their economies in order to reduce unsustainable balance-of-payments deficits. Many of these societies, particularly in sub­ Saharan Africa, are concerned with restoring past levels of productions. These are urgent priorities, and, in trying to cope with them, there is a very real temptation to put aside longer-term objectives such as the reduc­ tion of absolute poverty. But that is a temptation that we must all firmly resist. For resource constraints in a developing society can create such a crisis at­ mosphere that short-term, quick-fix choices may be made at the cost of longer-term fundamental investments-in agriculture, for example, or edu­ cation. And, in such cases, the real trade-off could well turn out to be temp­ orary relief at the cost of both economic growth and reduced poverty-with negative long-term consequences to the entire economy. In short, careful analysis indicates that a balanced strategy of pursuing faster economic growth, combined with pragmatic measures to reduce ab­ solute poverty, is by far the most effective framework for ongoing develop­ ment in the circumstances of the 1980s. The Bank will, then, continue to commit its intellectual, technical, and financial resources in pursuit of these twin development objectives of accel-

18 erating growth and reducing poverty. But to do so, it must also continue to have access to funds that it can lend to its member countries on terms that they can afford. Let me turn now to the financial issues facing the Bank-both in IBRD and IDA-and to the steps we are taking to mobilize the resources necessary to assist our developing member countries in the new and challenging cir­ cumstances of the 1980s. It is fundamental to everything else we do that the IBRD continue to demonstrate the kind of financial strength that has made it a top-quality borrower in capital markets throughout the world. Maintaining that kind of strength is not easy, particularly in the financial environment that has ex­ isted in recent years. But, as the experience of the past twelve months shows, the Bank can make hard choices when the situation demands it. I am referring in particular to the decisions taken this past year to intro­ duce a supplementary front-end fee on new IBRD loans and, more funda­ mental still, to modify long-established policies regarding borrowing prac­ tices and the lending rate. The specific features of the new policies-which were approved by the Executive Directors on July I-have already been widely reported. On the borrowing side, it was agreed that the Bank should begin, in a cautious way, to broaden the range of securities it offers to investors. As a first step, the Bank may borrow up to $1.5 billion in this current fiscal year in the form of short-term notes. We expect to begin a program of discount note sales in the United States within the next several weeks. On the lending side, it has been agreed that from July I, 1982, the lending rate for all new loans will no longer be fixed for the life of the loan, but will be adjusted every six months-up or down-in accord with the average cost of a pool of IBRD borrowings. We are confident that this new system will be fair, stable, and, in the long run, less costly to borrowers than the previous system. These changes in policy were triggered by the difficult financial environ­ ment in which we have been operating in recent years. We all hope that this environment will improve, that interest rates will decline and become more stable, and that there will be a sustained resurgence in the medium- and long-term capital markets. But the Bank must be prepared to carryon even if improvement does not come as rapidly, or as fully, as we hope. In this connection, let me also stress again the importance of expeditious action by all members on the subscriptions under the General Capital In­ crease. As subscriptions are taken up, they expand the Bank's paid-in equity base, thus strengthening its income position and adding to its callable capital. We would urge those member countries that have not yet subscribed to complete their government-approval processes as early as possible. In my first address to you a year ago, as a new arrival from the commer­ cial banking world, I reported on how impressed I was with the financial

19 strengths of this institution. After a year on the job, I can no longer speak as an outsider. But I can report the facts, and they seem to me to speak for themselves regarding the Bank's ability to perform even in difficult circumstances: • The borrowings completed in fiscal year 1982 totaled $8.5 billion, a 70 percent increase over the previous year, and these were achieved despite continued weakness in medium- and long-term bond markets. • The Bank's liquid holdings are up by over $1 billion, and now total $9.4 billion, providing added financial flexibility that is especially im­ portant under uncertain market conditions. • The Bank's net income this past year was about $600 million, a slight increase over the previous year when put on a comparable basis. This was achieved despite a continuation of very high interest rates in most of the markets where we borrow. This evidence of financial strength, and of the Bank's ability to cope suc­ cessfully with difficult market conditions, needs to be put into perspective. Financial strength is not an end in itself. Rather, it is a means to permit the Bank to mobilize a growing volume of resources at the lowest possible long­ term cost. These resources, in turn, are committed to carefully prepared, high­ payoff projects and programs, that are themselves selected and pursued because of their prospective contribution to the borrowing country's overall development efforts. Thus, the objective-the end that is served by the Bank's financial strength-is accelerated development in our member coun­ tries. Given the massive adjustment and external financing requirements now facing IBRD borrowers, it is imperative that we use the financial strengths of the Bank as fully and as effectively as possible. As I suggested last year, this requires that we be alert to possible economies internally and that we in­ tensify our collaboration with other sources of external finance. We have, in fact, made progress over the past year on both these fronts. The administrative budget for the current fiscal year provides for virtually no increase in staff. This has been due, in part, to events outside our con­ trol, notably the reduced level of IDA commitment authority. But it also reflects a conscious redeployment of staff resources. We have also moved forward with our plans to strengthen collaboration with other sources of external finance. These developments, to which I will return in a moment, can leverage the IBRD's own lending efforts, and, thus, increase the resources available to our members for high-priority development activities. But they are not a substitute for that lending. The Executive Directors have approved an IBRD lending program of $11.2 billion for the current year. As for the future years, we are still

20

...... _------operating on the basis of a notional planning figure of $60 billion for the five-year period that ends in fiscal year 1986. While there has been a good deal of discussion about the origin, significance, and appropriateness of this figure, I believe there is one aspect of it that deserves wider recognition, and that is this: If we stick to that planning figure, there is likely to be little if any real growth in IBRD lending over the next few years. We will be on a plateau. That is not a prospect that can easily be reconciled with the evident needs of our borrowing countries and the apparent financial strengths of the IBRD. Accordingly, we have a responsibility to explore thoroughly the con­ straints that are implicit in the current planning figure, and to seek broad support for ways of relieving those constraints. Whatever the outcome of these discussions, the IBRD lending program can only be a small part of the external financing required by borrowing countries. That realization was the basis for my comments to this audience last year regarding the need to expand collaboration between The World Bank and the private sector. Over the past year, we have actively pursued the three initiatives we proposed at that time in order to strengthen the Bank's traditional role as a catalyst for private investment. First, this has been a record year for private cofinancing: $3.3 billion in fiscal year 1982, as compared with $1.8 billion in the previous fiscal year. But more can and should be done. Co financing with The World Bank en­ sures that the commercial bank loans will be used for high-priority develop­ ment purposes, that the use of the resources is carefully monitored, and that the project financed will be able to service its debt. In order to help attract additional private capital to development pro­ jects-and to make such capital available on more appropriate terms-we have proposed a series of approaches that are now under consideration by the Executive Directors. We are hopeful that we will be able to put new cofinancing concepts into practice soon. We have made progress, too, in exploring the possibility of a multilateral investment insurance mechanism. A new scheme must draw on past ex­ perience, but it must be tailored to present international circumstances and it must be flexible. The Board has considered ideas on this front, and we are confident that we can count on your support and views as our efforts in this matter continue. Finally the International Finance Corporation is making vigorous headway, too. The capital increase of IFC, which was begun in 1977, came to a close last month with fully 90 percent of the shares allotted having been subscrib­ ed to by our member governments. ·We want to thank all who participated. The number of IFC projects approved in fiscal year 1982 increased 16 percent over the previous twelve months, and nearly half of these were in our smaller and poorer member countries. The number of IFC projects cur­ rently under consideration is at an all-time high, and this despite the generally difficult investment climate. 21 IFe is clearly on the move, attracting private sector investment to the developing countries, and assisting in the development of capital markets. We can report considerable progress, then, in mobilizing commercial resources through IFe and other initiatives, as well as in assuring the finan­ cial strength of IBRD. But we have failed even to maintain past levels of funding for IDA. IDA is, of course, of critical concern to the poorest countries. But it ought to be of concern to all the donor nations, as well. For without reason­ able concessional assistance, many societies in Asia and Africa will simply not be able to break out of the self-perpetuating cycle of massive poverty in which they are trapped. Societies as poor as these are, in many cases, vulnerable to social tension and civil unrest. The consequences of poverty-induced destabilization can­ not easily be confined within national borders. They can readily spill over and affect other countries, even those more economically advantaged. There are other sensible reasons that should prompt the industrial na­ tions, in their enlightened self-interest, to assist the poor nations. These emerging societies are both avid customers for OEeD exports and impor­ tant suppliers of many key raw materials. It is, then, in the strategic interests of the donors to provide reasonable concessional assistance, and it makes sound, long-range economic sense. Yet there remain honest but serious misunderstandings about what conces­ sional assistance really does. To help meet those misunderstandings head on, the Bank has just com­ pleted an extensive evaluation-the IDA Retrospective Study-that takes a close, hard look at the IDA record. It examines and assesses the effec­ tiveness of IDA's assistance to nearly 80 countries over a period of more than 20 years. It is a candid and frank appraisal. It is true that IDA has made some mistakes. You can read about those mistakes in that report. But not many close observers over the years will quarrel with the study's chief conclusion: that IDA has been tremendously successful in promoting development in the world's poorest nations. IDA was created in 1960. Through June 30, 1982, IDA has committed $26.7 billion in some thirteen hundred projects in the poorest countries. On the average, each dollar of IDA finance in a project has been more than matched by additional funds from other donors and the recipient country. Well, just what has IDA achieved during these past two decades? Perhaps the most graphic way to answer that complex question is simply to relate briefly three specific examples of IDA's work: one in a very small country of some 7 million people; one in a very large country of nearly 150 million people; and one in a giant country of some 700 million people. All three societies are low-income developing nations, though they differ in many other respects.

22

_ .. _------.... __ ._----_._------The first is the Yemen Arab Republic. When it became a member of IDA in 1970, it had been largely isolated from the rest of the world for centuries. Less than 5 percent of its children were in school. There were few modern institutions-no central bank, no national budget, and no organized pro­ gram for development. Working jointly with the Kuwait Fund for Arab Economic Development and other donors, IDA helped get some basic institutions started: a plann­ ing body; the highway authority; agricultural development agencies; and a national company for water and sewerage. A modest $291 million in IDA credits has been extended to the Yemen Arab Republic in the last 12 years. Those investments have made it possible for IDA to playa catalytic and constructive role in Yemen's progress: by helping establish its institutional infrastructure, by initiating projects with other donors, and by assisting the government to devise successful develop­ ment policies. So here is a case of a small country, receiving small IDA credits, which, in their leveraged aggregate, add up to an immensely worthwhile investment in the future of a people. Now let me take another example from a very different country­ Indonesia-and, in this case, as an illustration of IDA's effectiveness as a catalyst in a particular economic sector. Beginning in 1969, IDA began assisting Indonesia's power authority to develop its electricity-generating capacity and, in the process, to become a central component of the country's infrastructure. After three IDA credits totaling about $100 million-followed by subse­ quent loans from other sources-power generation increased fourfold. More than 2.5 million households gained access to electricity. The agency's staff received up-to-date training, and the accounting pro­ cedures were modernized. Electricity tariffs were adjusted to encourage energy conservation and to strengthen the agency's financial foundation, and thus to permit further expansion. Thus, IDA's initial assistance in a critical sector-in this case power-was a rewarding catalytic effort in an overall national program. When the country's oil revenues increased in the late Seventies, the Bank phased out its use of scarce IDA funds in Indonesia. But in the earlier years, when the nation was in severe financial straits, IDA played a key role in mobilizing external development assistance. And not just in the power sec­ tor, but in many others as well-education, agriculture, water manage­ ment-IDA helped to lay the groundwork for the country's effective use of its subsequent oil earnings. So here, then, is a case of a large country, and IDA's amplifying effects on critical investments-at decisive points-in the development process. Now let me turn to a third example of IDA's versatility and effectiveness: this one in a giant of a country-India-and in a giant undertaking-food self-sufficiency. 23 In the mid Sixties, India had become a huge importer of food grains: more than 10 million tons each year. The country faced a momentous investment decision: It could either ex­ pand its infrastructure-its ports, its storage facilities, its roads connecting the main ports with major areas of food deficits-so as to handle this grow­ ing level of imports; or it could make a massive effort to increase the pro­ ductivity of its agriculture sector. At about this time, scientists working in Mexico had begun to introduce a new high-yielding variety of wheat. The question, then, was whether India should import this new technology, or import more and more food grain. Clearly, there were risks involved in introducing seeds developed on the other side of the globe into the Indian environment. Would they take to In­ dian soil? Would the farmers have the resources to exploit a technology that required heavy inputs of fertilizer, insecticides, and water? And even if the farmers had the resources, would they gamble them on these new ideas? What would happen if the imported seeds failed in India? Would that permanently set back the introduction of new high-yielding strains in the country, even if they were locally developed? Would Indian consumers ac­ cept the slight color difference of the Mexican wheat? These, and many other fears, plagued the agricultural planners. One thing was certain: The introduction of this technology was not a simple matter. It involved immense structural changes. Indian agricultural science had to be reorganized. Marketing ar­ rangements had to be put together to handle the new inputs. Farmers had to be given access to adequate amounts of credit. Supplies of water had to be increased. Fertilizer had to be made available. And the villagers had to be taught to use these inputs efficiently. Such a massive effort required substantial new resources. India decided to launch such a program in the late Sixties. It was at this point that IDA stepped in. It provided India with conces­ sional funds and technical assistance to help develop the country's enor­ mous irrigation potential, to help improve its agricultural credit and exten­ sion services, and to help establish a marketing network. In all, IDA has committed $4.5 billion to the development of agriculture in India, 17 percent of total IDA commitments. Yet, of course, even at this level of activity, IDA has never provided more than a tiny fraction of India's own gross domestic investment in agriculture. But the important point here is that IDA's assistance-and the broad technical support that came with it-contributed directly to India's superb achievement of food self-sufficiency in the early Eighties. These, then, are three quite diverse cases of IDA's sucess. There are many, many more cases, of course. In the end, IDA funds are effective primarily because they are coupled with the Bank's more than 35 years of hard-earned experience in development policy.

24

..__ ... _------_. And development policy would inevitably be less specific and certainly would be less heeded, if it were not an integral part of a substantial invest­ ment program. The money is catalytic, and essential. As these examples suggest, IDA investments do yield high returns. Nearly 200 IDA credits that have been fully disbursed have now been audited. They show an average economic rate of return of over 18 percent. That does not include the longer-range benefits of IDA: the new institutions that have been established; the technological advances achieved; the social improvements that will continue to be enjoyed. IDA, in short, has done, is doing, and must continue to do an absolutely essential job in helping the poorest countries of the world assume a more meaningful role in the mainstream of the global economy. Yet last year, because of a shortfall in funding, we had to slash our IDA program by 35 percent. That is not trimming a program. That is amputating a program. Who is the amputee? Not IDA the institution. But rather the human individual-multiplied by millions in the poorest developing coun­ tries-who is denied IDA assistance to enhance his own productivity and, hence, pry himself loose from the choking grip of poverty. Last year, I repeat, because of a shortfall in funding, we had to slash our IDA program by 35 percent. It pains me to say that the program for this year remains well below the level originally planned for this period. I do not use the word "crisis" lightly. But assuredly, the term is ap­ propriate here. The very poorest nations of our planet-those still on the fringes of the wofld economy-are presently being battered by global economic condi­ tions beyond their control. Yet, under these very difficult global economic circumstances, IDA funds are being severely reduced from levels originally indicated and promised. IDA right now has a pipeline of carefully tailored, high-payoff investments to help meet the present urgent problems of the world's poorest developing countries. It is simply uneconomic and wrong to delay these investments, or to let the opportunities disappear. We are encouraged that the heads of government of the seven major in­ dustrial nations, meeting at Versailles in June, agreed on (to quote them verbatim): "the need for special temporary arrangements to overcome funding problems for IDA VI; and for an early start to consideration for IDA VII." It is urgent that these nations do-now-what they have agreed must be done. I am pleased that the IDA Deputies, at their recent meeting in The Hague, made progress on both the near-term and longer-term funding problems. Some 12 countries have already agreed in principle to allow IDA to commit their contributions to IDA VI in full, despite the delay in payments by the United States, and others have agreed to review their posi­ tions on this matter.

25 Moreover, there is now broad agreement that action should be taken promptly to avoid a hiatus in IDA commitments in the fiscal year that begins next July. In view of the progress made by the Deputies regarding supplementary contributions, I would urge all donor governments that have not already done so to use the mechanism of their choice to provide IDA with commit­ ment authority both for the current year and for fiscal year 1984. The meeting at The Hague also reached agreement on the launching of IDA VII negotiations this fall. It is important that, once launched, they proceed expeditiously. These negotiations will need all the creativity and political goodwill we can collectively marshall in order to reach agreement on a level of resources that is commensurate with the challenge facing IDA in the middle years of this decade. For we cannot turn our backs on the more than two billion in­ dividuals-half the human race-that live in the poorest societies. To do that is in no one's interest. And most certainly not in the interest of the developed nations, whose prosperity depends now more than ever on a stable and secure global system. Again, in the words of the joint communique at the close of the Versailles Conference: "The growth of the developing countries, and the deepening of a constructive relationship with them, are vital for the political and economic well-being of the whole world." Exactly so. Before I close, let me briefly mention the fellowship program that the Bank has established to commemorate Robert S. McNamara's contribution to the cause of economic development. The endowment for the McNamara Fellowships, as of June 30, 1982, stands at $2 million. We are especially grateful to the four governments that have been the first to contribute: India, Pakistan, Peru, and Bangladesh. Ladies and Gentlemen, allow me to add just one final point. This institution of ours-this World Bank-has been meeting annually now for over 35 years. And its membership has lived through all kinds of times. Hard times. Hopeful times. Doubtful times. Everyone is ready to agree, I think, that there have been easier times to get through than 1982. But we must not lose our perspective. Think for a moment of what the world looked like in July of 1944 when our Articles of Agreement were written and signed. A world in flames, caught up in the most destructive and widespread war ever waged. Millions dead. Millions yet to die. The final outcome not yet certain. Those men of vision at Bretton Woods could not know the future. But they were determined that it should be an improvement over the past, and they agreed to work together to help make that happen.

26 Well, the world is improved over what it was then. But if the 1980's tell us anything, it is that there is still so much that needs to be done. And that the work must go on. Ladies and Gentlemen, that is what The W orId Bank is really all about. It is about working together in order to improve the situation. That is what the 143 countries represented in this room are here to do this week. To work together. And by helping one another, to best help themselves. That is our agenda. I look forward to it with the keenest anticipation. Thank you very much.

27 REPORT BY MANUEL ULLOA ELIAS CHAIRMAN OF THE DEVELOPMENT COMMITTEE

The world economic outlook and the development prospects for the inter­ national community have worsened significantly over the past year. In the industrial countries unprecedented inflation and very high interest rates resulting from large fiscal deficits forced tight monetary policies to curb the inflationary forces. The resultant constraints in growth averaging less than 1.0 per cent annually in the 1980-82 period have produced conditions of lingering world recession with high and still rising unemployment. This un­ favorable external environment is having a profound effect on the perfor­ mance of the developing countries. The recession in industrial countries has reduced export earnings of the developing countries both from manufacturers and, in particular, com­ modities which have recorded their lowest levels in the last three decades. The resultant severe deterioration in their terms of trade, the dramatic in­ crease in their combined current account annual deficits of around US$100 billion for the third year running, reduced aid flows, and excessive short­ term foreign borrowings have limited the possibility of commercial bank financing in the context of high and volatile interest rates. The large debt repayment burden plus the abovementioned factors have all combined to create a crisis of very serious dimensions in their development efforts and growth prospects. In fact, the 1981 growth average of developing countries is the lowest in several decades and signifies an exceptional situation of decline in real per capita income in many developing countries. It is against this grim background that the Development Committee in its two meetings held during the year-one in Helsinki in May and the other concluded here in Toronto this Sunday-considered a number of important development issues and some urgent matters relating to the improvement in capital flows to, and their efficient use in, developing countries. The level of lending operations of the multilateral development institutions and the need to increase their lending capacity, IDA's difficulties, additional lending for energy, increased co financing with public and private sectors, the serious economic situation in the sub-Saharan African countries, and the follow-up on the Group of Twenty-Four and the Brandt Commission proposals are the important specific issues which received special attention. The Committee noted with special concern that the situation and prospects for the poorest developing countries are particularly bleak in the period ahead. While it was important that they review their adjustment and domestic policies and programs, there is no denying the fact that they will also need additional outside assistance on concessional terms. It is to be remembered that the net capital receipts of the low-income oil importers did not increase at all after 1975 in real terms. Real ODA receipts by this group of countries in 1980 were lower, in fact, than the level reached in 1975. In

28 the circumstances, urgent measures to reduce strains on their economies are required. It was in this context and in the context of the requirements for structural adjustments, energy development, and the needs of new members, particularly China with its large population, that the Committee devoted special attention to the crisis now faced by IDA-VI and to the problems of the period beyond. IDA is the single most important multilateral source of concessional assistance to the poor developing coun­ tries and the recent Bank study, IDA in Retrospect, has shown the in­ valuable contribution it has made in the development of this group of countries. In the critically important area of concessional flows, a significant decision by the Committee relates to the establishment of a special Task Force composed of industrial donor countries, OPEC, and developing countries, to carry forward and widen the continuing study of the problems affecting the volume and quality and the effective use of concessional flows in the shorter and longer terms. I trust member governments will take special interest in the work of this important Task Force which is scheduled to have its first meeting around the middle of next month. We all hope that its work will contribute to the attainment of the objectives for which it has been established. During the year the Committee concluded its deliberations in the Bank study for accelerated development in sub-Saharan Africa, which accounts for 20 of the 31 least developed countries. The main focus was on the policies and financial issues facing the sub-Saharan countries. The Commit­ tee urged the Bank to move expeditiously to assist these countries to form special programs of action and, taking account of the Dakar Memorandum of March 1982, to continue its dialogue with donor countries in order to mobilize the flow of aid in real terms necessary to support the agreed programs of action. In the area of nonconcessional flows, the Committee considered the final report of its Task Force which had extensively covered this subject in all its aspects. It recommended a number of measures that could be taken to stimulate additionality in the flow of nonconcessional resources to the developing countries. These included recommendations for increasing the future lending capacity of the Bank and other multilateral development in­ stitutions through an increase in their capital with small or no paid-in element or through carefully managed changes in their statutory lending limits, resumption of portfolio sales, provision of various techniques of guarantees, and higher priority to commercial cofinancing. The Committee has asked the Executive Directors of the Bank and the regional banks to consider the recommendations of the Task Force, taking into account the legal and procedural implications, and report the outcome to the Committee in due course.

29 Of the subjects dealt with by the Task -Force, cofinancing in fact was already receiving special attention by the Bank. The Bank's paper on the subject is to be considered by the Bank Board in the near future. It presents a trial program to test out in the private financial markets a range of new in­ struments for cofinancing with commercial banks to provide for an increased and more stable flow of private capital on improved maturities for the borrowing countries. This will be, hopefully, one of the new additional sources of financing to supplement existing and other possible new sources. The lending operations of the Bank, the regional banks, and other multilateral development institutions and their future role in the changed circumstances of the 1980s, was another important subject which engaged the Committee's attention during the year under review. There was general recognition that the strengthening of the MDIs had become indispensable to supplement the flow of private capital to the developing countries to help meet their increased financing needs and to support their internal structural adjustment policies and development programs. The Committee has asked the Bank and other MDIs to continue their study of the scope for expansion in real terms of future lending on reasonable terms to developing countries through the decade of the 1980s. The importance of equity financing, in the light of existing conditions, especially in Latin America, becomes more evident, and we believe efforts should be made by developing countries to encourage equity participation in those areas where local capital cannot meet their development requirements or in order to obtain technology or managerial transfers which are essential to their growth. In this context, the International Finance Corporation, which has already made an important contribution, can playa more significant role in identifying projects and acting as a catalyst among local, public and private, and foreign investors. The Committee's discussion of energy at the Helsinki meeting reflected the global nature of the problem and the international community's keen in­ terest in a general approach to the subject encompassing conservation and the development of both conventional and non conventional sources of energy. The Bank has been able to increase the percentage of its total lending to energy from 15 per cent in fiscal year 1977 to 25 per cent in fiscal year 1982. This percentage cannot be increased or perhaps even sustained without cutting into other priority sectors. The search for new approaches to provide additional funds for this critical area has failed so far to attract broad support from some of the members expected to contribute the bulk of the capital. The Bank, however, continues to explore whether additional sources of finance can be identified to meet the pressing development needs for this important sector. The recommendations contained in the report of the Brandt Commission and in the Group of Twenty-Four's Program of Immediate Action to enhance the flow of resources to developing countries have received con-

30

------._------siderable attention by the Committee over the past two years. The Commit­ tee noted that both the Fund and the Bank had already implemented some of the recommendations applicable to them and are continuing their consideration of other issues relevant to the Committee's work. These in brief are some of the important development issues to which the Committee addressed itself during the year and of which details are provided in its Annual Report. Some progress has been made, but much, much more needs to be done in view of the very serious economic and finan­ cial situations which we all face today. The pessimism surrounding the cur­ rent recession should not obscure the achievements of the developing coun­ tries over the past 30 years. We can repeat and, indeed, improve on that performance. There are some regions, Latin America for instance, that face special problems today. It has a very large foreign debt, concentrated in some of the larger countries. In many cases, it is poorly structured and could not be met under present conditions if the availability of new adequate financing were to be severely curtailed thus severely crippling the minimum requirements of their populations. There is no question about the creditworthiness of these countries; they have ample resources of solid basic value in the foreseeable future. At the same time they are ready and willing to take corrective measures to adapt their growth to the realities of their economies. They have learned the painful lessons of the recent past. It is time for prudence, and the situation requires intelligent, serious thinking, and imaginative approaches with a view to finding a fair and rapid solution to the crisis. Realism is indispensable; no one should expect miracles or that there is a possibility of stopping the normal lives of their populations without creating the real danger of social upheaval and political storms that could affect the stability of an area which is vital to the well­ being of the world. I am convinced that the Fund, as well as the Bank, the Inter-American Development Bank, the principal developed countries, as well as the inter­ national community, can playa key role in the negotiations of solutions that need to be found soon for the region. They can create the environment and the circumstances which could help Latin America to resume its growth and progress in a framework of sounder and stable economic policies. The present world situation is obviously unacceptable and need not be en­ dured. We clearly have the duty, but we have yet to demonstrate that we have the political will, to correct it and accord due priority to development. We need to remind ourselves that it is through an interplay of national and international policies that a strong and durable foundation can be laid for the good of all. The sacrifice of today is the investment of tomorrow, and we have to take care of our tomorrows now. Together we should exert every effort, bear any burden, accept any sacrifice to banish poverty and misery from the face of the earth and usher in an era of peace and prosperity for all. 31 STATEMENTS BY GOVERNORS AND ALTERNATE GOVERNORS'

AFGHANISTAN: ABDUL BAQI SAMANDARI Governor of the Fund and Bank I am greatly honored to represent the Democratic Republic of Afghanistan in this assembly of distinguished leaders of finance and banking. To begin with, my delegation and I would like to convey our sincere ap­ preciation and thanks to the Government of Canada for their warm and cordial reception as well as for the excellent arrangements made for the con­ duct of these Meetings. The current world economic situation, which has been thoroughly reviewed by the reports of both the International Monetary Fund and the World Bank, continues to be dominated by problems of slow or even negative growth and large imbalances on the external current account payments situation. The prevalence of recessionary conditions is reflected in the growing unemployment in the capitalist industrial countries. Inflation also continues to be an acute problem facing the Western in­ dustrial countries. Notwithstanding the restrictive financial policies adopted by these countries, the problem remains yet to be brought under control, though inflation rates have come down somewhat from their peak levels. The impact of these undesirable developments has been most adverse on the non-oil developing countries. Moreover, the weakening of the spirit of international economic cooperation together with the increasing protec­ tionist tendencies in the Western industrial countries further compounds the problems for the poorer developing countries. Along with stagnation in the growth of their exports, the non-oil developing countries also suffer from growing costs of imports from the developed countries because of the high rates of inflation in those countries. Consequently, there has been a further widening of the current account deficits in the external payments situations of these countries, posing problems for financing of these deficits in view of the continued high rates of interest in the world capital markets. The non-oil developing countries suffered a sharp decline in the rate of growth. Indeed, in 1981 for the first time in several decades, the average growth rate of oil importing developing countries seems to have been less than the rate of increase in population so that per capita income appears to have fallen. The non-oil developing countries also suffered a further acceleration of inflation. Apart from the expansionary policies pursued by some of these countries, an important contributory factor was the higher cost of import of goods from the industrial countries. The rise in the prices of their imported

I Comprising statements relating to the work oj IBRD, [Fe and IDA. Omitted passages are indicated by dots( . . J, Statements relating to the Intern%nal Monetary Fund Ofe produced in the IMF Summary Proceedings. 32 goods and the slowdown in the demand for their exports caused by the recessionary conditions in the Western industrial countries also led to the deterioration in the terms of trade of the non-oil developing countries. Thus, the deficit on current account, which was US$53 billion in 1979, enlarged to US$86 billion in 1980, and further to US$99 billion in 1981. The deficit is estimated to persist around this level (US$97 billion) in 1982 also. Naturally, financing of deficits of this magl!itude poses difficult problems for the developing countries. Furthermore, in the case of the poorer and the least developed countries, the stagnation in the flow of concessional finan­ cial assistance (which forms a major source of external capital for these countries) is retarding considerably the progress in planned development. It is in this context that the flow of official development assistance on concessional terms, including aid from the world financial institutions, assumes crucial importance. It is unfortunate that such assistance has been stagnating and might, in real terms, perhaps be declining. Altogether the economic situation facing the non-oil developing countries especially the low-income and least developed countries, like ours, is ex­ tremely difficult and grim. Nor do immediate prospects hold out any hope for improvement in their plight. I shall now turn to review briefly the major developments in the economy of the Democratic Republic of Afghanistan. In addition to the adverse impact of the international economic developments I have indicated above, the destructive activities of the counterrevolutionaries supported by international imperialism, hegemonism and regional reactionaries, and the consequent damage to productive assets, including infrastructure facilities and dislocation of economic activities, compounded the problems facing our country. The year 1360 (corresponding to the year ended March 20, 1982) has thus been another difficult year for us. Nevertheless, the economy has been kept on an even keel and there have been significant improvements in several areas. The gross domestic product registered an increase of 1.5 per cent. This com­ pared with a decline of 3.7 per cent recorded in the previous year. The gross national product, however, remained almost unchanged at around Af 154.3 billion as against Af 155.4 billion in the preceding year. The agriculture and forestry sector, which is by far the predominant activity in our country,., registered an improvement of 13.1 per cent as against a decline of 1. 9 per cent in the year ended March 1981. During the year 1981-82, in addition to a whole series of measures adopted by the Government to implement the democratic land reform for the benefit of the huge number of landless peasants and small-holding farmers, attention was also paid to giving con­ tinued aid to farmers with respect to the provision of chemical fertilizers and agricultural machinery and implements. Improved seeds and pesticides continued to be provided to farmers at concessional prices. At the same time, remunerative prices were ensured for farm output, especially for

33 cotton and sugar beet which are procured by the Government. One of the significant measures taken was to absolve peasants from penalties on tax arrears for the three preceding years, as a result of which some 760,000 farmer families were exempted from paying Af 722 million owed by them. In the industrial sector, it is notable that output of factories in the private sector during the most recent fiscal year has in fact increased by 5.6 per cent as compared with the decline of as much as 10 per cent in the previous year. It has always been the policy of the Government to promote investments by the private sector in productive channels and provide adequate incentives for maximization of output in addition to ensuring availability of bank credit to finance working capital needs. The general increase in the prices of food articles in spite of the growth in the agricultural output during the year reflected in part a disruption in sup­ plies caused by the destructive activities of the counterrevolutionary elements. Steps have already been taken by the Government to overcome these problems. Meanwhile, supply of essential articles for mass consump­ tion was ensured and no material shortages were allowed to develop. In this context, I mention with gratitude the continuing assistance from the friendly countries, especially our good neighbor, the Soviet Union, in providing all-sided assistance including essential goods for consumption by the poorer sectors of the community which has been very helpful in keeping the price situation under control. The Government's fiscal policy during the fiscal year ended March 20, 1982 was also most useful, since for the second year in succession the Government was able to ensure a balanced budget. The rate of monetary expansion during the same year was somewhat higher than that recorded in the preceding year. However, the Government was vigilant to combat inflation and it adopted measures to restrain excessive lending by banks and to bring the price increase under control. During the year, steps were taken by the Government to promote the welfare of the state officials, workers, and employees. Wages and salaries of workers and contract employees have been increased between 26 per cent and 50 per cent. Also, lunch allowances for workers, employees, and officials were increased by 50 per cent. As regards external trade, the policy of the Government is to expand trade and economic relations with all countries for mutual benefit. Pur­ suance of this policy in the fiscal year ended March 1982 has led to the growth in volume of foreign trade. But there has been a decline in the rate of expansion of trade. There have also been, during the year, larger repayments of the external debt, while there were also sharp declines in receipts of commodity loans and grants. As a result, compared to a surplus on external account noticed in the preceding year, there was only a nominal surplus during the year ended March 20, 1982. Convertible foreign ex­ change reserves, however, have declined during the latter year by 16.2 per cent. The continued sharp decline in these reserves is to be mainly explained

34 by the shift in the direction of trade in favor of bilateral payments agree­ ment countries, forced upon us by the Western capitalist industrial coun­ tries because of the policy of curtailment of economic relations by these countries in the aftermath of the April Revolution. Our country is a low-income and landlocked developing country and is inhibited by several constraints. Developing the national economy and raising the standard of living of the vast masses of our people are among the main aims of the April Revolution. Other significant objectives of the April Revolution include introduction of general democratic changes in all walks of social and political life, elimination of all feudal and pre feudal vestiges in social and national relationships, creation of social justice through land reform, gradual abolition of illiteracy, and expansion of education. Socioeconomic development plans are being framed and implemented by my Government in pursuance of these objectives. Successful implementation of these plans require continued external assistance to a substantial extent. It is deeply regrettable that, during the year, the International Develop­ ment Association has cancelled all outstanding loans to the Democratic Republic of Afghanistan. In fact, we have not drawn on these loans in two years, when withdrawals on these loans were suspended. The Asian Development Bank, following the example of the World Bank, also suspended our drawings on loans already sanctioned. The decision regar­ ding the complete cancellation of IDA loans has been taken by IDA unilaterally without consultation with us and without a proper and objective review and assessment of the prevailing conditions in Afghanistan. We are not aware of the economic assumptions which the World Bank felt to be out of date and which justified the cancellation of these loans. We would emphasize that projects for which we have obtained IDA loans continue to be technically sound and economically viable and their economic viability continues to be as strong as before. Obviously the decision to cancel the loans has been taken under the influence of elements hostile to our country and on grounds other than purely economic con­ siderations. These decisions are, in our view, clearly unjust and unfair and contrary to the objectives behind the establishment of the World Bank and IDA. It is hard to understand why the World Bank, which had in the past provided financial assistance to the oppressive regimes in Afghanistan, is denying assistance to us now, when the country is governed by a humane . and progressive regime whose aim is to serve the people and improve the welfare of the masses in Afghanistan. We earnestly hope that a detailed and objective review of the situation in our country will be made which will enable the World Bank to resume its operations in our country-the most deserving among the developing coun­ tries to receive assistance from the international institutions. Resumption of

35 assistance by the World Bank will be in accord with the Resolutions of the UN General Assembly (33/149 of December 20, 1978 and 3281 (XXIX) of December 12, 1974) and UNCTAD (122, 123(4) of June 3, 1979, and 98(IV) of May 31, 1976, etc.), calling upon the international institutions, including the financial institutions, to implement special measures for the solution of the development problems of the least developed countries, especially the landlocked countries. We believe that the undeclared war waged by international imperialism against our Revolution should stop immediately and a political solution to the situation around Afghanistan be found on the basis of the earnest and practical proposals put forward on May 14, 1980, and August 24, 1981, by the Government of the Democratic Republic of Afghanistan. Carrying out those constructive proposals will create an atmosphere of trust and con­ fidence among the neighboring countries in this part of the world and will bring about peace and security in the region. Consequently, as a nonaligned and peace-loving country, the Democratic Republic of Afghanistan will be able to take radical measures to expedite its economic and social development. The basic tenets of the foreign policy of the Democratic Republic of Afghanistan are very clear. To quote Babrak Karmal, General Secretary of the Central Committee of the People's Democratic Party of Afghanistan, and President of the Revolutionary Council of the Democratic Republic of Afghanistan: We are prepared to establish and expand our relations without any exception with all the nations regardless of their political and social systems on the basis of equal rights, serious respect for the in­ dependence, national sovereignty and territorial integrity, mutual in­ terest and good cooperation, noninterference in the internal affairs of each other and respect for the rights of nations to choose their in­ dependent path of development and pursue a specific method of living and likewise respect for the historical, cultural, religious and traditional values. The Democratic Republic of Afghanistan has respected fully all its com­ mitments and obligations to international institutions and will continue to do so in the future. However, we expect that this approach should be reciprocated by international institutions. We earnestly hope that our righteous cause will prevail ultimately and the flow of assistance to our country will be resumed, in accordance with the true objectives underlying the establishment of these institutions.

36

._-_.,._._. -,---"" ALGERIA: BOUALEM BENHAMOUDA Governor oj the Bank

It is a pleasure for me to be attending the Annual Meetings of the IMF and the World Bank taking place this year in the beautiful city of Toronto. May I first join with the other delegations in expressing my gratitude to Prime Minister Trudeau for his cordial welcoming address and assure him of the importance I attach to the contents of his statement. I should like to take this opportunity also to address my heartiest congratulations to Antigua and Barbuda, Belize, and Hungary, which have just joined the Fund and the Bank. I shall not dwell on the figures which are fully presented in the Annual Reports of the Fund and the Bank. I shall merely note that they agree in in­ dicating that one cannot discern since the last Meetings any prospects for improvement in the world economic situation. To the contrary, the situation has further deteriorated for many coun­ tries, compromising many a development effort at a time when satisfaction of the food needs of several million people remains far from assured. It is easy to see that the argument of a causal relation between oil prices and the deterioration of the economic situation in the developing countries does not hold. Moreover, the financial surplus due to oil exports, estimated at $115 billion in 1980, is likely to be far below $15 billion in 1982. Despite the significant decline in oil prices, the condition of the developing countries unfortunately continues to worsen. Another belief strongly held by some is that the condition of the developing countries is linked to the level of interest rates. But we note that the fall in interest rates has not given rise to optimism concerning the prospects for the least advantaged economies. The Annual Reports of the World Bank and the International Monetary Fund stress the urgent need for steps to revive and develop agriculture and for lifting the protectionist measures adopted by certain industrial countries. In this regard, we must point out the contradiction between the orthodox line taken in the area of domestic policy by the countries with advanced economies and their protectionist attitude toward the economies of the developing countries. This concept of international trade is not very coherent, nor is it a consistent extension of their monetaristic approach to budget policy. My country regards it as vital that the system of international economic relations be reorganized. The present trade mechanisms are having un­ toward effects, such as burdening the projects of developing countries with extra costs. In combination with the excessive margins demanded on the in­ ternational financial market and paid by the countries with access to it, these extra costs are aggravating the disequilibria stemming from the fall in the value of primary product exports. 37 What is happening is this: the poorer one is, the more one pays. That is the meaning of the present system, which rules out any chance for improvement in the condition of the developing countries, and that is why we persist in urging global negotiations in the context of the North-South dialogue. In addition, my country deplores the fact that it has not been possible to complete operations as important as the quota increase and the Sixth Replenishment of IDA's resources. The quota increase is meeting energetic opposition from one member, despite the readiness expressed by a majority of countries to adjust the level of quotas to the real needs of our economies. The Sixth Replenishment is taking place in such a way that the developing countries south of the Sahara in particular will have only marginal funds available to them, as measured against their needs and against the complexity of the problems they face. The recent measures taken by the World Bank to implement its new bor­ rowing and lending policy, which is officially stated to be a consequence of the situation in the financial markets, give cause for serious concern in terms of their effects on the already heavy debt burden of the developing countries. For all these reasons a comprehensive examination, in a global context, of the world economic situation and its underlying causes could help to speed up a reform of the international monetary system. This must take the form of a real commitment by the developed countries to solving the problems of the developing countries and overcoming the contradictions generated by the malfunctioning of the financial and monetary system. Technology transfer from the industrial nations to the developing coun­ tries should be less restricted and less onerous. What is occurring is not so much technology transfer as the spread of production facilities, with the in­ dustrial countries setting up plants in Third World countries in order to take advantage of their low wage costs, without making any effort to integrate this relocated production into the economies of these countries. Indeed, in most cases the commercial transactions grouped under the heading of technology transfer bring about no such transfer at all, but are merely a cover for the sale of industrial products that do not lead to any changes in the level of technological knowledge in the developing countries acquiring those products. In conclusion, I must mention the problem of food dependence, whose seriousness need hardly be stressed; on its solution depends the survival of hundreds of millions of men, women, and children suffering from malnutrition. In this equally crucial area we are far from seeing implementation of the genuine, effective solutions that are required. Although a more or less satisfactory consensus has emerged on questions such as the development of an emergency international reserve, negotiation of a new international

38 agreement for cereals, and the restructuring of IFAD, these measures are still not enough. Others must be taken to assist countries that face serious, lasting food shortages. We must show imagination and put an end to the in­ humanity of a situation where stocks of food products remain frozen in certain countries for selfish economic reasons when they could be used to relieve the tragic plight of other nations. It is a paradoxical fact that the prices of numerous tropical agricultural products, largely consumed in the richer countries, and which often con­ stitute the sole source of income for a number {)f Third World nations, are continuing to fall, with disturbing effects on the economies of the producer countries. I will mention only the principal effects-declining production, the exodus from the land, malnutrition, and financial and food imbalances. The distortion of the markets for agricultural products, entirely dominated by a few large transnational corporations, which lead the Third World countries to neglect the production of food crops in favor of cash crops for export in order to earn foreign exchange, only aggravates the situation. These successive imbalances, compounded by the difficulties affecting the developing countries in other areas, can only have a cumulative impact on the so-called developed economies. The statistics in the latest Bank report are instructive on this point. They stress the known fact that the developing countries are still an important and valuable outlet for the products of the industrial countries. The imports of the developing countries amount to almost US$500 billion, of which a substantial proportion is used to pay for food products. The report also notes that in fact 24 per cent of the total exports of the industrial countries go to the developing countries. These figures illustrate very clearly the im­ portance of the role of the developing countries in the world economy. Algeria thus declares its willingness to work and participate actively in the search for solutions to all these problems that will enable us to stand up to the current economic crisis together.

39 AUSTRALIA: J. W. HOWARD Governor of the Fund and Bank

At the outset, I join other Governors who have welcomed Antigua and Barbuda, Belize, and Hungary as new members since the 1981 Annual Meetings. I need not attempt to describe here the sad state of the world economy. Few countries have escaped the onslaught of slow or even negative growth, rising unemployment, and stagnation in international trade. And, in many ways, the current world economic situation is even worse than that of the mid-1970s. All this raises the question as to why the world economies have not recovered more quickly from this, our second recession within a decade. Of course, we have made progress in the sense that it is now generally agreed inflation must first be tamed if we are to establish a base for sus­ tainable economic recovery. Indeed, some countries have made excellent progress in reducing their rates of inflation in the last two years. The peak inflation rate in 1980 was significantly lower than the previous peak in 1974. The signs are that the long-term upward trend of inflation, with the level being ratcheted up through successive business cycles, is being broken. Australia believes that inflation is the fundamental enemy of sustainable economic recovery. The lower the rate of inflation any country has, the easier it will be for it to join in the world economic recovery when it comes, and, the lower and more uniform are rates of inflation across the board, the more robust and manageable that recovery will be. I strongly endorse the view of the Fund and the Interim Committee that it would be a grave mistake to relax now the efforts of recent years in controlling and reducing inflation. The failure to date of the major economies to recover more quickly is not an indictment of anti-inflation policies. It is more a reflection of the fact that inflation has become so entrenched in our economies that we have to pursue our policies over an extended period of time before we can hope to peg inflation back. Inflationary expectations built up over many years can­ not be eliminated overnight. Another factor limiting economic recovery has been the failure to control wage pressures. Much remains to be achieved by virtually all countries in this regard if inflation is to be further reduced, and if the maximum benefit is to be gained for profitability, investment, growth, and, hence, employment. Greater wage restraint is a critical challenge for many governments. It is so important because of the great danger that economic recovery, once it comes, will be quickly aborted by a resurgence of wage pressures. It is so difficult not only because it requires firm settings of fiscal and monetary policies-a necessary condition, as the Managing Director has said-but also because in some countries it calls for major changes in deeply

40 entrenched institutions of wage determination and in the attitudes of all the participants in the wage determination processes. I very much agree with the view of the Interim Committee that moderation of wage and salary increases has an important role to play in restoring profit margins, encouraging investment, and so promoting employment. We can take heart, however, from the fact that in many countries monetary growth in recent years has been more subdued and less volatile than during the inflationary boom and bust of the 1970s. It is disappointing, however, that in the related area of fiscal policy, progress in reducing deficits has been slow. Admittedly, in present circumstances, enlargement of the fiscal deficit tends to follow automatically from the slowdown in economic activity. Nevertheless, it remains true that large fiscal deficits are counterproductive in restoring economic activity over anything but the short term. They can add to the height and volatility of in­ terest rates, disrupt private sector economic activity, compound the debt servicing problems facing capital importing countries, and add to the volatility of exchange rates. Rising trade protection has also been limiting economic recovery. A round of increased protection would only compound the world's already serious economic problems. Earlier this year, the Australian Government formulated proposals for international action to effect a standstill on all trade-distorting assistance to industry, and, following that, to wind back gradually the level of such assistance. We have been taking every appropriate opportunity to advance these proposals, and we shall go on doing so. There is a general point here. Microeconomic policies are as important to sustainable recovery as are macroeconomic policies. We cannot expect our economies, even apart from the constraint of inflation, to perform well when their market sectors are gradually diminishing in relation to their non­ market sectors, and when those market sectors are increasingly burdened by regulations, controls, and c0nstraints over their operations ... The present global economic situation has also inevitably affected the Bank, particularly as regards the mobilization of resources for its development activities. There the most important short-term question is the reduced level of IDA funds available. For its part, Australia has decided to release its second in­ stallment in full and, subject to satisfactory arrangements being agreed to for fiscal year 1984, to release its third installment in full also. Australia will also be willing to participate in bridging arrangements for fiscal year 1984, and to play its part in negotiating a satisfactory Seventh Replenishment. However, the question of burden sharing will need to be addressed and, unless this is satisfactorily resolved, there may be a further downward ad­ justment in IDA's operations.

41 In an attempt to offset at least partially the IDA shortfall the Bank has in­ creased IBRD lending to IDA-eligible countries in fiscal year 1982 and fiscal year 1983. These adjustments represent significant increases over the lending originally approved or planned under the fiscal years 1982-86 program. Such an expansion can hardly be sustained without accelerating the timing of a further capital increase and creating further budgetary pressures for donors. As well as those resource considerations, the Bank has also faced problems arising from historically high interest rates and the uncertainty surrounding fund raising in the international capital markets. These have necessitated quite significant changes in the Bank's borrowing practices and lending rate policy. More generally, we must never forget that the Bank's ability to provide loans on relatively favorable terms depends on it maintaining its financial standing and credit rating. In this sense the recent changes made by the Bank represent no more than pragmatic responses to changing circumstances. In the present difficult economic circumstances it is important to seek to maximize the development assistance that can be provided from existing resources. One such approach is through increasing the leverage effect of the Bank's funds by use of co financing with private sources of capital. The Bank's efforts in this regard are to be welcomed. For its part Australia has decided to initiate a cofinancing arrangement with the Bank. In addition, we also need to consider the scope for improvement in the recycling of the Bank's resources, for example, via the terms and conditions of IDA credits and graduation policies. The Bank's willingness to consider these issues, included in the context of IDA's current operations and the Seventh Replenishment, is to be commended. Despite the various difficulties that are at present confronting the Bank, I have no doubt that its proven adaptability over the years will ensure that it is in a position to continue to provide valuable assistance to its developing member countries.

42 AUSTRIA: HERBERT SALCHER Governor of the Bank

I would like to welcome as new members of the Fund and the Bank: Antigua and Barbuda, Belize and, in particular, Hungary, Austria's neighbor country joining our constituency. Since the last Annual Meeting, the world economy has not seen significant signs of an upward trend, though I believe these signs have become more noticeable lately. Or, to put it in another way, it seems that we are slowly creating the preconditions for an upswing. Much has been said and will be said on those problems we have been facing in the last two years. I do not want to elaborate too much on them. Essentially, they are reflected in four problem areas that will require our full attention. These basic four problem areas are:

-stagnation of economic activities, -inflation, -external imbalances, and most alarming, -increasing unemployment.

Associated with these problems are some others, such as stagnation of world trade combined with strong tendencies toward protectionism, a still high level of interest rates, volatile exchange rate markets, structural problems in national economies, and, most recently, imbalances in the international financial markets. The lack of growth and increasing unemployment give us reason to question the economic policies pursued by some leading industrial countries and to look for appropriate policies to re-establish economic growth. I think the warning of a pos&ible flare-up in inflation is appropriate, as has been indicated in the IMF Annual Report. However, I feel that the danger of an overly hasty move to expansionary policies seems to be exag­ gerated. There is not much leeway for global deficit spending strategies. Despite these limitations, there seems to be room for a number of govern­ ments of industrial countries for financing economic structural changes, which are increasingly necessary in our times. However, there are other countries, especially in the developing world, which are not in such a position. They need, therefore, full assistance by the whole international community, in which the IMF and the World Bank playa key role. Given the fact that developing countries are severely affected by the existing worldwide deflationary policies, it would be an act of international solidarity to assist these disadvantaged countries.

43 A sensible way for the industrial countries to show solidarity with the poor countries is to end "restrictive" economic policies and to set the world economy on a new course toward sustainable growth. This would be the best contribution industrial countries could make to help the developing world. In this connection, we thankfully recall in Austria an outstanding example of international solidarity and understanding: the European Recovery Program of the United States, the Marshall Plan. Solidarity should also be seen in connection with big debtors in the inter­ national financial markets. At this crucial point in. time creditors should have a flexible attitude. Too much is at stake: a possible economic recovery and the soundness of the financial system. Thoughtless actions on the part of the creditors could have severe results for many economies. The task ahead of us is a troublesome one. But the present world economic situation also contains some positive features such as:

-a slight rebound of economic activities, -declining inflation, ----:a downward trend in interest rates, and -more efficient use of our energy resources.

Therefore, it would be counterproductive to continue with pessimistic ex­ pectations which have resulted in a prolonged deflationary economic policy stance. This could easily lead to self-fulfilling effects and would multiply restrictive forces. What we really need is a guarded optimism that could reinforce those few positive signs mentioned before. I would now like to make some remarks from the viewpoint of a smaller country which is unavoidably exposed to policy decisions made by others. In addressing the twin problems of high unemployment and inflation, it would be desirable to apply a better policy mix between fiscal, monetary, incomes, and structural policies. In principle, I agree that one aspect, but not the most important one, is that policies should be geared toward elimination of inflationary expectations. However, in view of the very high unemployment and the reduction in real income in many countries, I wonder whether or not too much emphasis is placed on demand restraint. I believe more emphasis on supply measures, or what I just called "structural policy," together with selective demand management, could alleviate the hardship of unemployment. The fight against inflation is important, but it should not have overriding economic priority in a time of high worldwide unemployment. Such an attitude is not only a question of economic strategy but one of human values as well. Fifty years ago, Austria experienced the unbearable social consequences of prolonged high unemployment. It brought despair upon the Austrian people and endangered freedom and democracy.

44 I would like to say now a few words about the current economic situation in Austria. Austria is a relatively small country with an open economy making it very susceptible to economic developments abroad. Nevertheless, Austria's economic performance is quite satisfactory. In August, we had an unemployment rate of only 2.4 per cent; for the whole year of 1982, we expect an inflation rate of 5.5 per cent and a real growth in GDP of 1.5 per cent. The Austrian Government has done much to combat the shocks coming from abroad. Priority is assigned to full employment or to an employment situation that comes close to this target. An immediate consequence of this policy is the willingness on the part of the trade unions to accept more moderate wage increases. This, on the other hand, contributes substantially to reducing inflationary expectations. In the monetary field, it is the exchange rate policy that has to be con­ sidered as a precondition for our incomes policy. By maintaining a stable relationship vis-a-vis the low inflation currencies of its most important trading partners, Austria's exchange rate policy aims at curbing imported inflation. By pursuing such a policy, incomes in the exposed sector are kept under control. At the same time, such a hard currency policy stimulates ad­ justment and thereby fosters the competitiveness of the domestic economy. Thus, exchange rate policy in Austria creates monetary conditions that facilitate the adjustment process in real terms. Structural changes, as a result of this policy, have contributed to a remarkably better performance of the current account this year . . . Coming now to the role of the World Bank, I believe that the adverse economic conditions which most developing countries face call for urgent action. In this environment, the World Bank is certainly the most ap­ propriate institution to assist developing countries in implementing adjust­ ment programs and in sector and project finance. Therefore, I support a sufficient expansion in the Bank's lending program; a strengthening of the capital structure, and new innovative instruments for borrowing. Further­ more, an expansion of cofinancing is an appropriate way to make available additional financial resources and thus to increase the transfer of funds to developing countries. Let me express my deep concern about the current status of IDA. The poorest countries are particularly hard hit by the present crisis of IDA. To ease this burden, we strongly support IDA's activities in these countries and have demonstrated our support by releasing in full all three installments of IDA-VI. I welcome the start of negotiations on IDA-VII later this year, and I hope that an agreement representing an increase in real terms over IDA-VI can be reached in due time. Austria is prepared to participate in the coming negotiations in a constructive way. I am very glad that we could agree here in Toronto on the measures to be taken to ensure the flow of resources to the Association until IDA-VII becomes effective. 45 I would like to express my strong support for IFC's activities. I urge the management to broaden IFC's activities in low-income countries, where IFC assistance is mostly needed by the private sector. In concluding, I believe that the IMF and the World Bank Group, in view of their increasing importance as instruments of international cooperation and solidarity, will playa major role in the struggle for world economic and social programs. Finally, I would like to convey my gratitude to the Canadian Government for its warm welcome and hospitality in Toronto.

BANGLADESH: A. M. A. MUHITH Governor of the Bank

For well over a decade, I have been attending the Fund-Bank Annual Meetings as a member of my country's delegation. Never before have we met under such adverse conditions as those through which the global economy is now passing. The deterioration in the international economic environment is unprecedented and alarming. I am told by my friends, and I agree with them, that at this time to try to manage the finance and planning functions of a country in dire straits like Bangladesh is overly ambitious, if not impossible. But because of our firm conviction that the global com­ munity collectively will rise to the occasion, I have been prompted to exercise this unique privilege of taking the podium in this august gathering. The spirit of international cooperation has suffered an alarming eclipse. Sound domestic economic and financial management is undoubtedly central to good global economic health, but conducted oblivious to global impact many of these policies are proving to be counterproductive. Deepening recession in the industrial countries leading to high levels of unemployment, the decline in world trade and especially depressed market conditions for the exports of the developing countries, severe deterioration in their terms of trade, historically high interest rates, volatile exchange rates, and declining levels of development assistance have struck at the roots of global economic interdependence and growth. There is deterioration all around: -The growth rates of the developed countries are in progressive decline; -For the third successive year, they have declined; -For the developing countries growth has declined to a point where for the first time in three decades there is a fall in per capita income; -Growth in world trade for the first time since World War II has disappeared; -Aid flows have gone down from 0.38 of GDP to 0.35 of GDP to exactly half of the accepted global target;

46 -For the first time, commitment by IDA, the single largest source of concessional assistance to low-income countries, has slowed down by about 23 per cent; -Adverse terms of trade are taking severe tolls on the purchasing power of developing countries. Primary commodity prices are said to be at their lowest in 50 years. The World Development Report, 1982 highlights the depressing scenario of growth in developing countries more grimly than ever before. And the low case scenario projected in last year's Report seems to be coming true. The Reports of the Fund and the Bank outline some reasons for optimism, dim as they are, such as a decline in oil consumption, a decline in oil prices, and a declining trend in the rates of inflation in the industrial world. Some decline in interest rates, though volatile, is also noticeable. These developments are largely due to the prolonged slowdown in economic ac­ tivities and the market decline in commodity prices. These, indeed, are of little comfort to the low-income countries. The latest Fund study on the world economic situation as well as the World Develop­ ment Report make it quite clear that the sharp fall in the growth rate of the non-oil developing countries over the past several years and the dramatic in­ crease in their combined current account deficits are attributable primarily to external influences and changes in the external environment. Weak demand in industrial countries, severe deterioration in the terms of trade of developing countries, and very high interest rates are obviously beyond the control of the developing countries. Even maximum improvement in domestic economic management cannot obviate the difficulties stemming from these factors. This is not to imply that domestic factors are not responsible for a deterioration in economic performance. In the wake of the second oil shock, there seems to have been a dramatic change in the overall scenario. Whereas in the mid-1970s growth could be maintained, and it helped adjustment, now such a process has been negated by inward-looking policies of nations and institutions. The ugly head of protectionism is protruding, and investment is lagging behind. The developing countries are trying hard to make structural adjustments in their economies and to adopt effective and realistic domestic policies. But such adjustment efforts can bear fruit only in a favorable international environment and in the context of much stronger international support. The staggering current account deficits of the developing countries, which rose to almost $100 billion in 1981 and are unlikely to come down this or next year, would indicate the need for stepping up capital flows to the developing countries. This invariably involves acceleration in the flow of concessional assistance to the low-income countries and particularly to the least developed countries. It remains to be appreciated that a slowdown in growth in these countries entails much heavier sacrifices than what is

47 demanded by near stagnation in high-income countries. It is in this context that we are alarmed by the deterioration in the flow of ODA. In 1981, the aDA of the DAC countries declined 4 per cent in real terms. The UN Con­ ference on the Least Developed Countries last year in Paris adopted an SNPA which focused attention on actions by the least developed countries and also pointed out the areas of international action specifically in terms of quantum of aid and its modalities. Most of the developed countries par­ ticipating in the Conference agreed to provide a minimum of 0.15 per cent of their gross national product as ODA to the LDCs during the period 1981-85, and to increase it to 0.20 per cent during the second half of the decade. It was expected that the effect of these commitments would be a doubling of aDA to the least developed countries by 1985 compared with the period 1970-80. It is most unfortunate that there is no indication of any movement in that direction. The Cancun Conference stressed the importance of promoting closer in­ ternational cooperation and confirmed the desirability of supporting, at the United Nations, a consensus to launch global negotiations. At the Versailles Summit, there has been further underscoring of the need for launching global negotiations. Global negotiations indeed have assumed a great urgency as we see the erosion in international cooperation at a time when its need is so compelling. The GATT ministerial meeting in the coming months is a welcome development, but there must be faster progress on global negotiations. The President of the W orId Bank has given us a detailed statement on Bank operations. He has commented on the global situation and the im­ mediate outlook. Rightly, he has devoted a great deal of his time to conces­ sional assistance and to IDA in particular. For the first time in its history of two decades, IDA commitment declined in 1982. It is ironical, indeed, that we should be grateful that because of timely intervention by some donors the decline was not more. The progress made by IDA Deputies in The Hague in programming resources for 1983 deserves our thanks even though this will mean a commitment authority lower than that originally programmed. The Bank initiative in preparing the Retrospective Study of IDA has been very opportune and imaginative. The conclusions of the Report are loud and clear-IDA has not only worked but it has worked well. We congratulate Mr. Clausen for taking every opportunity to put IDA operations in their true perspective. IDA is an emblem of hope to the low­ income countries. We are happy to learn that negotiations on IDA-VII are in' process. We strongly commend IDA Replenishment at $20 billion, which will mean a modest increase in real terms. We are concerned, however, about fiscal year 1984. Commitment authority for 1984 must be finalized immediately and it should be at a level commensurate with IDA-VII's an­ nual authority. What needs to be ensured is that the multilateral character of IDA and its existing terms and conditions are fully protected.

48 Not long ago, we were talking about the major role that the World Bank would have to play in helping the developing countries in the 1980s. When the general capital increase was agreed upon, it was expected that the lending program of the Bank would increase in real terms at the rate of, at least, 5 per cent per annum to take account of the new requirements and new demands on its resources. It is, therefore, disappointing to find that in the present plan period up to fiscal year 1986, there will hardly be any in­ crease in real terms in the levels of annual lending by the World Bank. The number of new measures introduced by the World Bank during the past nine months are too many to comprehend easily. While some of these are directed toward protecting and improving the net income position of the Bank, there are reasons for the developing countries to be concerned about others. It is suggested that the new borrowing and lending instruments have brought the institution closer to its commercial counterparts. We have no doubt that these measures will contribute toward strengthening the health of the World Bank. But it is important to avoid the impression that the in­ stitution is losing, at least in part, its development character. The new bor­ rowing and lending rate policies adopted by the World Bank would be justified if these measures were used to undertake real expansion in the level of lending to the developing countries. I would like to put in one word about cofinancing. While co financing is a means of finding additional resources, it should be ensured that benefit from it is derived not only by commercial banks who look for security of investment but also by the bor­ rowers, at least in securing extended maturity periods for commercial loans. The outlook presented in the Annual Report of the Bank and the discus­ sions in the Development Committee do not augur well for increasing energy investments in the developing countries. Not long ago, much was made by the international community about the need for increased in­ vestments and production of energy in the developing countries. At the con­ clusion of last year's Annual Meeting, Mr. Clausen referred to the over­ whelming support for increased focus by the Bank on development of indigenous energy resources in the developing member countries. He also highlighted that a majority of Governors clearly felt that this objective should be supported in the Bank by the provision of additional finance. The idea of an energy affiliate received full support at the Cancun Meeting. Since then, however, there have been movements in the reverse direction. Without additionality 0 f resources, World Bank lending in the energy sector has obviously reached a limit. It may be symptomatic that combined World Bank and IDA lending for energy in fiscal year 1982 increased to 26 per cent from 19 per cent in fiscal year 1981, and in the same period lending for agriculture went down from 32 per cent to 25 per cent. Further expansion of energy lending will be only at the cost of lending in other sectors, which the World Bank Group has traditionally financed. At the Helsinki meeting, regrettably the idea of an energy affiliate was diluted by instituting a study

49 of the feasibility of a pool or a trust fund for energy lending. We are aware that the Bank had done substantial work on the possible structure of an energy affiliate. We urge that the work be pursued in earnest. We are reassured to note in the Annual Report and also in Mr. Clausen's statement that the Bank has concluded a review of its poverty focus on a positive note, bringing out important areas of complementarity between the twin objectives of growth and alleviation of poverty. We agree with him that such a balanced strategy provides the best framework for development in the 1980s. This will undoubtedly call for protection of the lending programs for the social sectors and expansion in program lending. In this context, we are greatly worried by the thinking in some quarters about possible changes in the terms of IDA and increasing conditionality of program credits. These are obviously against the interests of the low-income countries, as well as of poverty-oriented programs. We note with satisfaction the process initiated for the establishment of the Task Force on Concessional Assistance by the Development Committee. It will be most unfortunate if the lending program of the World Bank stagnates. There are serious implications of such a situation for the overall health of the institution also. We are, therefore, apprehensive of the freeze on recruitment and a reduction in the Young Professionals Program, both of which will undoubtedly adversely affect representation of developing countries. Apart from the slowdown in growth of professional assets, it is bound to adversely affect the future program of World Bank and IDA lending. In our opinion, response to a temporary setback should not involve measures that might inflict lasting damage to the institution ... Before concluding I believe it would not be out of place to take a couple of minutes to give an idea of the attempt that is being made in a least developed country to adjust to the difficult economic environment. In the hopeful environment of 1979, we planned our development efforts for the following years. In fiscal year 1981, partly assisted by good weather, partly by the momentum of the past, and substantially by improvement in domestic policies, we moved forward steadfastly. However, we faced serious difficulties due to the trade and aid environment. In the period 1981-82, the unit value of jute goods, our largest export item, declined by as much as 34 per cent and that for nonjute goods by 26 per cent, whereas the volume of jute goods exported in the same period rose by 10 per cent and nonjute goods exports rose by nearly 50 per cent. The cumulative impact of the deterioration in the terms of trade is estimated to be equivalent to roughly 4 per cent of the gross national product in each of fiscal year 1981 and fiscal year 1982, resulting in an income loss of nearly US$1 billion in these two years. Aid flow stagnated even in nominal terms and its composition changed to our disadvantage. As a result an annual growth rate of over 6 per cent was quickly replaced by one of 0.3 per cent in the following year, meaning a decline in per capita income.

50 Undaunted we have moved forward. For fiscal year 1982 we have adopted a policy package consisting of: -Austere demand management in a country where most people already survive below the margin of subsistence; -Bold domestic resource mobilization efforts covering the limited assets in land and capital; -Hefty price adjustments to pass on the cost of imports to the consumers and to ensure profitability of public enterprises; -Stringent measures cutting down transfer payments and current expenditure even where they are socially not undesirable; -Deliberate fiscal and monetary adjustments to enhance utilization of domestic capacity and promote exports; -Investments focused on priority sectors like agriculture and population and aimed at quick yields; -Opportunities providing for private initiatives in production, trade, and service sectors; -Steps for a regulated and limited public sector development program based on realistic resource estimates and an efficient implementation mechanism. This is an illustration of the abstract concept of adjustment that we so freely talk about. Adjustment we must make, but adjustment is a multilateral process. The adjustment effort of my country will not succeed if we do not receive a minimum level of external support and if the external environment does not turn at least mildly hospitable. Let me conclude now with a prayer that in this worst year since World War II, nay the Great Depression, we take the vow to build an interdepen­ dent world economic order based on equity and consideration for the less fortunate among us.

BARBADOS: J. M. G. ADAMS Governor of the Fund and Bank

It is a great pleasure for me to have this opportunity to address you, not only on behalf of my own country, but on behalf of other Governments of the Commonwealth Caribbean for whom I shall speak on matters related to the activities of the Bank, namely, the Bahamas, Belize, Dominica, Grenada, Guyana, Jamaica, St. Lucia, Trinidad and Tobago, and St. Vincent and the Grenadines. First, I wish to thank our hosts for the excellent arrangements they have provided in this great city of Toronto and the Province of Ontario for the 1982 Annual Meetings of the Fund and the Bank. My colleagues and I very

51 sincerely wish to express our feeling of appreciation to the Government and people of Canada for the friendship and hospitality they have extended to delegates, guests, and visitors to these Meetings. I should also like to take this opportunity to extend a warm welcome to our sister Caribbean states, Antigua and Barbuda, Belize, and St. Vincent and the Grenadines who are represented at this joint Meeting for the first time. I also extend a sincere welcome to the Hungarian People's Republic. Many speakers have emphasized the fact that we are living in troubled and difficult times. Indeed even when the world is not in recession, the Annual Meetings of the Fund and the Bank tend to be a forum for a recital of what is wrong rather than what is right in the economies of our members. No one listening to the speeches made at Meetings five years ago would con­ sider that we would now be looking back to those years as a period of relative economic well-being. What perhaps has happened in the interval is that the industrial countries have joined Third World countries, as never before, in facing massive unemployment, falling output, expectation of continuing recession and the need for making severe changes in their economies comparable to the "structural adjustments" for so long pressed on Third World countries as conditions, not only for balance of payments assistance from the Fund but even for some forms of development assistance from the Bank. Indeed, the effects of the monetarist policies now voluntarily being undertaken by some industrial countries have been every bit as disruptive of their economies (however beneficial in the long run) as the effects on developing economies of the policies enjoined in the course of Fund programs. But, although this may mean that the industrial countries which accept remedies similar in kind to those that they urge on developing countries are demonstrating the courage of their convictions, there is a major difference in situation. In the large economies of the world there is a much wider choice of policies than is available to the small developing countries such as those on whose behalf I now speak. In open, fragile, and above all tiny and dependent economies, we are not free, for example, to choose inflation as against unemployment and still enjoy the development strategies on which our hopes are pinned. Except in rare cases our need for development assistance is so central to our economic planning that we must conform to prevailing doctrines. But in return for our recognition of this, there is one prerequisite that we can reasonably expect, namely, that significant amounts of development assistance will in fact be forthcoming from the in­ ternational community. We therefore hope that there will be no break in the replenishment of funds to the multilateral institutions, no hesitation in re­ taining these institutions at the center of world development initiatives, no retreat from the principles of community as well as bilateral effort in inter­ national assistance. In this context, I particularly welcome the encourage­ ment given by the Managing Director of the Fund to the industrial countries

52 when in the opening plenary session he indicated that cutting back on overseas aid is of little assistance to donor countries in dealing with their budgetary problems. I sincerely hope that this argument, which has repeatedly been put with varying degrees of diffidence by representives of smaller countries to their principal donors, will now be treated with the same regard as we have to treat the injunctions of the Fund on how to view our own fiscal arrangements. I also share the pain of the President of the Bank at the amputation of the IDA program. But I, too, am encouraged by the agreement at the Versailles conference of the seven major industrial nations on the "need for special temporary arrangements to overcome funding problems for IDA-VI; and for an early start to consideration for IDA-VII." If I may turn from the general trends of development assistance to matters more specific to the countries on whose behalf I speak, I would like first to focus attention on our particular problems as countries of very small size. It must be regarded as a matter of some regret that the structural dynamics of the economies of very small countries seem not to be well understood by those who provide assistance to us whether on a bilateral or a multilateral basis. Indeed, it is only very recently that the international financial community has awakened to the realization that such entities have problems which cannot be measured by per capita income and the other in­ dicators used in the World Development Reports. Two of the countries on whose behalf I speak had per capita incomes last year of between US$3,500 and US$3,800, yet it cannot be thought that the Bahamas and Barbados, with our slender resource bases, small areas, and tiny markets, really have less need for development aid than the economic giants of Latin America or the successful economies in Africa and Asia whose per capita incomes may be US$I,OOO less than ours. The debt service ratio for Barbados is only 4 or 5 per cent of the value of our exports of goods and services. But we import US$2,500 per capita annually in capital, intermediate, and consumer goods, and our foreign reserves virtually never exceed three months of imports, with all that implies for vulnerability in the face of recession in world demand for our exports and tourist services. The small countries of our subregion are faced with problems similar to those that confront developing countries everywhere, but the relative deficiency in resources and capability implicit in small size imposes greater difficulties on us in achieving greater self-reliance. What is more, the assumption, even apart from the special cases to which I have just referred, that the relatively high per capita incomes of these countries translate into a capacity to sustain such policies without access both to concessional and conventional development aid is clearly unfounded. There seems little doubt that one major feature of small size is that states in this category require relatively small increments of positive assistance to procure dramatic results, but the paradox of economic reality in very small countries

53 seems to be that vulnerability to external shocks is increased, rather than reduced, at higher levels of income. Thus, low-cost financing from institu­ tions like the World Bank remains a major hope for relief of our faltering economies. It is for this reason that our countries view with enormous concern the prospect of being denied access to such resources whether by "maturation" or "graduation." We recognize that such policies are founded on the prac­ tical imperative of using limited finances to the best advantage, which means in effect that the largest proportion of concessional resources are to be reserved to meet the needs of the poorest nations. However, we feel that there are compelling arguments for a careful, informed, and not rigid basis for the reduction in access to Bank and IDA resources. As we are all aware, per capita GNP is an unhappy standard on which to raise such policies if our concerns are rooted in considerations of welfare. It is also surely by now a truism that per capita GNP indices are often unreliable for the purpose of comparing levels of development, or in estimating the long-term prospects of different economies. More important, the need for concessional resources and the relative efficiency with which they are used cannot be determined by consideration of per capita GNP alone, without reference to differences in resource endowments and the institutional capabilities of countries. Despite the impeccably honorable principles which underlie the graduation principle, and despite the qualifications recited in the Bank's Annual Report 1982, lending agencies need to be alert to the discontinuities which can ensue from an oversimplified application of the concept. The first is that it may block off affected countries from access to concessional credit precisely at the point where they have acquired the absorptive capacity to use such resources efficiently, but have not yet reached the point where they can underwrite their development by recourse to commercial financing. The second danger lies in the creation of a permanent class of what may be called "middle-developed" economies which will never realize their ultimate potential, but which will forever hover between development and underdevelopment. I would suggest that the answer to these problems could reside in a redefinition of degrees of concessionality where the allocation of resources is concerned. In this vein, allowance should be made for such countries to continue to borrow from the multilateral lending institutions, at higher rates of interest or for shorter periods than apply to countries below the graduation line. In short, the Bank must find alternatives which recognize the symbolic and affirmative role which its lending activities have played in the mobilization of financial resources by its borrowers. Such initiatives might include a greater emphasis on the promotion of co financing arrangements aimed specifically at middle-income developing countries and designed to address the fact that while some of the economies.

54 may be too advanced to merit substantial additional concessional funding, they may be unable to underwrite their development efforts entirely by loans on commercial terms. Indeed, a comprehensive approach which links the Bank and its affiliates in the process of project identification and evaluation of projects is likely to assist in engendering confidence on the part of private investors and private market-financed institutions. In concluding my argument in this area, I should like to thank the Development Committee for adverting so positively at its meeting on September 5 to the problems which I have been reviewing. In paragraph 22 of its communique the Committee noted the problems of small island and landlocked states, and recognized the urgent need to review the mechanisms and adjustment prescriptions appropriate to the particular circumstances of such states. The Committee has thus joined the Commonwealth Ministers of Finance who at this year's meeting in London also supported the concept of such a review. I hope that the Board will give early and sympathetic attention to the problem. I turn now to the problem of structural adjustment, which has been of the greatest mutual concern to developed and developing countries alike, and wish briefly to refer to four major issues. In the first place a process of balancing domestic expansion against available external resources has to be undertaken by developing countries, particularly those which pursue a strong outward orientation, and this must be done in the face of external economic circumstances over which we have no control. Second, we agree that to achieve the desired adjustment we need appropriate macroeconomic fiscal and monetary policies and carefully designed institutional reforms. However, lending institutions must resist the temptation to require that all such policies be applied in a package without reference to time, place, or circumstance. Third, lending agencies should recognize that structural adjustment policies, and loans in support of such adjustments, should be applied as a preemptive measure to a balance of payments crisis and not after such a crisis has developed. Finally, I must stress that structural adjustment lending by multilateral agencies presently bears no true relationship to the severity of the problem being addressed. It has been estimated that to date, only 6 per cent of the Bank's resources has been devoted to program lending of the sort designed to deal with long-term structural change, the rest being devoted to project lending. The specific concern of the multilateral agencies must therefore be exercised by con­ sideration of that blend of program and project financing which will give effect to the larger purposes of general adjustment as distinct from sectoral reform. It is well recognized that very small countries require a liberal international environment in which to pursue strategies of development bas­ ed on export-led growth. Structural adjustment for these economies, therefore, must be predicated on improvements in the efficiency of their

55 domestic enterprises to penetrate foreign markets. But such domestic ef­ forts must be matched by a commensurate effort on the part of developed market economies to maintain an open trading system. We must, therefore, regard with alarm any sign that as a reaction to domestic economic dif­ ficulties the developed market economies may be preparing to impose qualitative or quantitative restrictions on imports. Equally, developed market economies should not succumb to the malady of "aid fatigue." While they may understandably have wished to avoid the contradiction of sharply increasing foreign aid while implementing programs of domestic expenditure restraint, they now have the sensible ad­ vice of the Managing Director of the Fund to inform their policies. Over and beyond this advice, they should not lose sight of the role of aid in con­ tributing to the growth in demand for their own goods and services. More pertinently, a shift to emphasis on private investment must recognize the continuing importance of aid-financed investment in social infrastructure which makes private investment feasible. Thus, we would wish to urge IDA donors to move quickly to overcome funding problems of IDA-VI and toward initiating negotiations for IDA-VII. I wish also to recognize the important role which the Bank has played since 1978 in not only mobilizing the international community to provide emergency balance of payments support for the Caribbean countries, but in assisting our region in achieving a greater coherence in its development efforts. The work of the Caribbean Group for Cooperation in Economic Development has served to improve the coordination of both country and regionally focused development assistance, and has facilitated the formula­ tion of new regional programs particularly in the area of energy. It has assisted member countries in clarifying both the scope and range of external development assistance and the domestic framework within which that assistance could most effectively be applied. Likewise, the Bank has supported the growth of the region'S development finance institutions, namely the Caribbean Development Bank. We have always held the view that a reasonable proportion of the inflow of external financial resources into our countries should be made available to us through the Caribbean Development Bank, our regional financial institu­ tion which serves both the public and private sectors of our economies. We note with satisfaction the continuing amicable financial cooperation between the World Bank and the Caribbean Development Bank. We hope that this relationship will continue to be strengthened and that steps will continue to be taken with a view to making the transfer of both World Bank and IDA funds to the CDB smooth and flexible and, as far as possible, in conformity with the Caribbean Development Bank's own policies and procedures. Not the least of the reasons for the desired smoothness and flexibility in the flow of resources is the need for speedy aid delivery to the countries of our region, particularly the less-developed countries which, it

56 should still be firmly emphasized, require most of their external aid on highly concessional terms. The World Bank was founded on the belief that collective international action could be applied even in the least propitious circumstances to redress the problems of poverty, unemployment, and inequitable resource distribution. The current trend in the industrial countries is to accord the highest priority to counterinflationary monetary problems, even if the price of qualified success in this direction is paid for in levels of unemployment unknown in those countries since the Great Depression. Such policies are sustainable only because the social costs are minimized through the well­ established social security systems that exist in those countries. Inadequate domestic resources preclude this option in poor developing countries although we have suffered from high levels of unemployment for most of our histories. The accepted prescription has always been the generation of employment and income through high levels of economic growth. This has proved effective in the past when the Bank's imaginative programs have received the ready support of its members. Our countries as members will continue that support. We expect that the whole international community will do no less.

BELGIUM: WILLY DE CLERCQ Governor of the Bank

I should like at the outset to thank the Government and authorities of Canada warmly for the hospitable welcome extended to our many delegations. I should also like to say how pleased I am to welcome here the represen­ tatives of the new member countries joining the Fund and the Bank since our last Annual Meetings, in particular the delegation of the People's Republic of Hungary, whose presence serves to stress, if it were necessary, the universal nature of our institutions. Our Annual Meetings are once again marked by a significant absence, that of economic recovery, impatiently awaited by all. Underemployment has worsened in almost all the industrial countries. Most of the non-oil developing countries are experiencing significant balance of payments deficits, and several of them have an alarming level of indebtedness. Efforts to control inflation, which must succeed if there is to be a return to sound, lasting economic growth, have continued during this year of continuing world economic stagnation. Nevertheless, while inflation rates have declined to some extent in several industrial countries, including the largest ones, this decline is unfortunately not always sufficient and certainly not widespread enough. Therefore, 57 cautious monetary policies are still required. Any premature or excessive relaxation would only jeopardize the results which have thus far been obtained with such difficulty. For many countries, adjustment must take the form of an in-depth economic reform, aimed simultaneously at restructuring and improving the efficiency of the productive sectors, reducing government budget deficits, and restoring external equilibrium without recourse to protectionism. The required measures are particularly painful because of the fact that they have to be implemented during a period of extremely weak economic growth. Each of the countries concerned bears the major responsibility for the required adjustment effort, and, unfortunately, the most disadvantaged cannot escape it. As far as Belgium is concerned, the Government introduced a policy early in the year designed to restore securely the country's economic health. Our basic objectives are: -to restore the profitability and competitiveness of our enterprises, for only then can we expect a revival of investment and a lasting improvement in employment; -to reduce steadily our budget deficits; -to restore the current balance of payments to equilibrium rather rapidly.

The chief measures taken in pursuit of these objectives include budget restrictions introduced in 1982 and planned for 1983, income restraints and partial disindexation of income, and adjustment of our currency's central rate within the European Monetary System, accompanied by various sup­ porting measures. Introduced in a very unfavorable economic context, and requiring sacrifices which will be equitably distributed, this policy must be firmly pursued for the next several years if it is to yield its promised benefits. This is the clearly expressed intention of the Belgian Government. In an increasingly interdependent world, individual efforts must be undertaken in a framework of international cooperation, particularly at a time when economic growth is weak or nil. The persistence of extremely high real interest rates has, without doubt, curtailed investment and severely aggravated the debt burden of many countries. Fortunately, the rates have declined in the last few weeks in the United States. It is vital not only that this trend take on significant breadth, but that it be lasting, thus enabling other countries as well to move in the direction of a de-escalation of interest rates, though of course with all necessary caution. The steps taken or planned in several major countries to reduce budget deficits and inflationary expectations will facilitate the adop­ tion of a new, somewhat less restrictive orientation of monetary policy. We can only welcome these developments ..

58 In these difficult times, especially for the low-income oil importing developing countries, it is crucial that the Fund's activities be supplemented by maintenance of the World Bank's work in the development field and by its unflagging efforts. I should like at this point to make a few remarks on these matters. The harsh circumstances which characterized fiscal 1982, the first year of the five-year program of activities for 1982-86, are reflected in the figures. While total operations increased by about 6 per cent in nominal value, this increase was due to a 17 per cent expansion in the Bank's lending. Len­ ding by IDA declined significantly from last year's level and from the level planned in IDA's program. The outlook for the coming years is not very encouraging either. President Clausen has bluntly described for us the situation faced by the poorest developing countries and the vast amounts of external capital they will need even to maintain, at the very best, barely satisfactory growth rates. The reduction in IDA lending is therefore particularly unfortunate, and the reason for it-namely, the stretchout in the contribution of lOA's main donor, one of the countries most active in bringing about its establishment a little over 20 years ago-gives special cause for concern. I am pleased that the Bank's staff has put out a well-researched study on IDA, its achievements, and its future prospects. The study is not only in­ teresting, but timely as well. May I take the liberty of urging all countries contributing to IDA-VI to make a special effort to help it overcome its difficulties. The Belgian Government, for its part, has decided to release in full the se­ cond and third installments of its share in the Sixth Replenishment. It takes satisfaction in the unanimous agreement reached to start negotiations on the Seventh Replenishment of Resources during the autumn of 1982, with a view to completing them by the end of 1983. In 1981 Belgium, despite its budgetary and balance of payments problems, increased the level of its disbursements of official development aid from 0.50 per cent to 0.59 per cent of its gross national product. In addition, the initial results of execution of its aid program give grounds for hope that its performance will improve in 1982. Though Belgian aid to the developing countries traditionally focuses on the poorest among them, we also attach great importance to so-called non­ concessional flows, which have grown remarkably in both absolute and relative terms. I am pleased to note how flexibly the Bank has adapted to the economic and financial circumstances of recent years in expanding its loan program. It has had to be imaginative in gathering the resources it needed. I will mention in this regard the Bank's decision to use new borrowing techniques and turn to the short-term market. Despite the disadvantages that could result from this, we feel that the Bank had no other choice under current cir-

59 cumstances. I hope, however, that the impact of its new policy both on bor­ rowing countries and on its own financial situation will be kept under constant review. The perception which private banks and the market in general have of its creditworthiness and of its ability to carry out its program of activities will now playa greater role than before in determining the success of its efforts. Hence, I approve of the steps taken in the past fiscal year to improve the Bank's medium-term earnings prospects. The Belgian Government continues to support the objectives pursued by the Bank and therefore has subscribed 3,250 of the additional shares of­ fered to it in the context of the doubling of the Bank's capital. I am also pleased to announce our agreement to having the Belgian franc portion of our subscription freely usable by the Bank. In the last fiscal year, co financing with the Bank increased sharply, to over $7 billion. For years now, the Belgian authorities have been supporting the expansion of co financing operations between funds of different types and origins. Now more than ever, this kind of cooperation, which permits a multiplier effect, should be encouraged. I therefore take great satisfaction in noting the efforts being made in the framework of the Bank to develop this potential. The Belgian Government, for its part, hopes to conclude shortly an overall cooperative agreement with the Bank as the basis for greater cooperation between Belgium and the World Bank. The time has come to conclude my statement. The crisis facing our economies is of unparalleled intensity and duration. Despite a few noteworthy exceptions and the lessons of the past, growth rates are and will remain unsatisfactory. As the persons responsible for our countries' economic and financial policies, we must reject the idea that the crisis is inescapable. There exist methods and instruments to attenuate the worst effects. It is up to us to pursue the needed adjustment measures unswervingly and to maintain our support for the multilateral institutions, such as those of Bretton Woods, so that they can play fully the role for which they were created. I hope that by the time of our next meeting next year we will be able to point to convincing evidence of a recovery.

BELIZE: GEORGE C. PRICE Governor of the Fund

The privilege of a new member enables a brief statement in the name of the people and Government of Belize to thank the Boards of Governors for admitting Belize to the Fund and the Bank, and for the welcome you give to us. We thank you.

60 Belize, like the rest of the world, is weathering the economic financial storm that ravages our countries and our peoples. In time it must blow over, and a new and better order will dawn to gladden us all. We recognize what is required of oil importing countries. We must pursue 'policies of more pro­ duction, diversification, processing, and improved marketing of raw materials. We must apply good husbandry. The poor developing countries call for an increase of financial resources-not as charity but in equity. In the past three years Belize has had a net decline in trade and has suffered the economic ills we want to cure. A newly independent democracy in the Caribbean Central American region, we strive to maintain a climate of peace and stability in our region. Pope Paul VI pointed the way to peace. He said: "Peace is another word for development. Without human development there can be no peace." Our work will be in vain and all economic strategy will be frustrated if they do not satisfy basic human needs: water, food, shelter, employment, health care, and education. We live in an age of extraordinary creativity. Science and technology have made giant forward leaps. In our world of interdependence, this historic success challenges us, rich and poor nations alike, to share the work of continuing creation for the welfare of peoples everywhere. Allow me, please, to place on record my delegation's gratitude to the people and Government of Canada for their hospitality, and pray God's blessing on our work here and in the days ahead.

CANADA: ALLANJ. MACEACHEN Governor of the Fund and the Bank

It is heartening to see so many countries participate in a cooperative effort to discuss our economic problems and find solutions to them. I join Prime Minister Trudeau in extending my warmest welcome to all of you and especially to Antigua and Barbuda, Belize, and Hungary, which are participating in these Annual Meetings for the first time. Cold realities confront us in the world economy but there has recently been a glimmer of hope. The more pronounced downward trend in inflation rates and the consequent lowering of historically high interest rates are en­ couraging. Nevertheless, the ravages of a prolonged world recession remain with us. Growth everywhere has stalled or declined. Unemployment has risen to distressingly high levels. World trade, so often a powerful driving force for growth and development, is stagnant, and many countries face serious balance of payments problems. The developing countries, with their urgent need for growth, have borne a particularly heavy burden. None of us, however, have been able to insulate ourselves. The social and economic

61 costs to our societies have been tremendous and continue to mount, in­ evitably inflicting pain and suffering on those least able to protect themselves. The foundation of recovery must be the will and determination of those present here today to follow a wise course in the management of our economies. I believe the Interim Committee's prescription that we must per­ sist in our efforts at reducing inflation in order to achieve sustainable economic growth and lower unemployment is the right one. The world recession has by no means ignored Canada. With its highly open economy, Canada has been particularly vulnerable to the effects of in­ ternational inflationary pressures, high and volatile interest rates, and the depressed state of world commodity markets. As a result, output since last summer has dropped sharply, with severe declines in primary and secondary industries. The squeeze in profit margins has contributed to a regrettable decline in job-creating investment. Nonetheless, inflationary expectations remain deeply entrenched. Inflation, while somewhat lower than its peak at 13 per cent a little over a year ago, continues to be the main obstacle to recovery. The inflationary expectations which permeate our society, reveal­ ing themselves at every turn in demands that are greater than can be accom­ modated by what is being produced, must abate if we are to win our battle against inflation. It is a battle which we cannot afford to lose. Unemployment has risen dramatically in most of the industrialized coun­ tries with over 30 million unemployed in the OECD area. Over the past year, unemployment in Canada has risen dramatically from 7112 per cent a year ago to nearly 12 per cent or 1.4 million people at the present time. As for most industrialized countries, the prospects for absorbing these unemployed rapidly are not promising. And yet we remain firm in our resolve to bring about renewed economic growth and create more jobs by dealing with the source of the problem-inflation. Earlier this summer, I introduced a new budget which demonstrates a clear and strong commitment by the Government of Canada to speed the process of adjustment to lower levels of inflation. The maintenance of an anti-inflationary monetary and fiscal policy stance is being reinforced by a number of creative policy initiatives to build a new social consensus. Our goal is to move from a 12 per cent world of recession to a 6 per cent world of recovery. Since the introduction of this budget, I have been encouraged by the response of many Canadians who have joined in the cooperative struggle against the obstacles to recovery. The Canadian Government has provided leadership by implementing firm wage restraint in the federal public sector, keeping wage increases to 6 percent this year and 5 per cent in the next year. The Government has also subscribed to similar objectives in the area of ad­ ministered prices under its jurisdiction. Given the national character of this effort, the Government has called upon provincial and municipal

62 authorities to endorse this program. Our consultations in recent months with the private sector, including labor, have been fruitful and productive. The consensus which is being built through these efforts forms the cor­ nerstone for an acceptable and lasting solution to the seemingly intractable problem of inflation in our economy. It is our view that these efforts must be voluntary in nature if they are to be truly effective. The need to alter inflationary behavior through a broad social consensus internationally is also vital. Each country individually cannot hope to suc­ ceed in restoring growth and economic well being without the diligent ef­ forts of others. The performance of the U.S. economy in the next few months will be a key determinant of the nature and extent of world economic recovery. The Fund and the Bank have continued to playa pivotal role in assisting the world economy through this difficult time ... Earlier I referred to the particular burden which has been borne by the developing world. Last year's World Development Report emphasized the importance of economic growth in this decade if we are to reduce the number of people living in absolute and desperate poverty. The perfor­ mance of the world economy over the past year gives no cause to be sanguine about our ability to achieve this reduction. This year's Report offers some hope that over time we will be able to roll back further the number of people living on the margin of survival. However, the past year or two have been particularly difficult and have undermined some of the earlier gains made by the developing countries. It is all the more urgent that those of us in the more developed countries stand firmly behind our aid programs and multilateral institutions like the Bank and IDA. Of equal im­ portance is that the developing countries themselves set policies which will foster sound development and which will inspire the confidence of private and official lenders. This will help overcome any fears and apprehensions of international lenders and restore the dynamic thrust that international capital markets can give to development. The Bank has continued to cope remarkably well in a period when demands upon it have been ever increasing and the financing of its operations have proven even more difficult. I congratulate the Bank's management for its innovative steps in its borrowing and lending operations to strengthen its financial position, as well as for the lead it has taken in en­ couraging increased cooperation with both public and private cofinancing agencies. The imaginative use of its financial leverage is essential if the Bank is to accomplish what needs to be done during a period of budgetary restraint and slower growth of ODA. The biggest problem faced by the Bank over the past two years has been the financing of IDA. At a time when the need for concessional develop­ ment resources is greatest, the difficulty of mobilizing these resources has been equally great. Canada, with others, has argued strongly for a

63 resolution to IDA's funding problems which would take into account both appropriate burden-sharing considerations and the budgetary problems of donor countries and the urgent development needs of borrowing countries. I was encouraged to hear that the IDA Deputies are close to reaching an agreement which will permit us to achieve these goals. I am confident that they will be successful. We will now be able to turn our attention to IDA­ VII negotiations, due to start shortly, and on the broad problems of IDA lending terms, the scale of Bank operations, and the means of increasing badly-needed energy investment. The contribution of the Bank and IDA to the improvement in the quality of life in poorer countries far outweighs the dollar value of their project lending. We must ensure that these institutions have room to grow in the future and that the Bank and IDA can continue to be confident of their members' support. The problems facing all of us are taxing and complex but not insoluble. Persistence in our economic policies and responsible adjustment to the economic realities will set the stage for a sound and more prosperous world economy. Hopefully, as we leave this meeting three days hence, we will carry with us a renewed sense of will and determination to see a world recovery blossom.

CHINA: WANG BINGQIAN Governor of the Bank

We in the delegation of the People's Republic of China are pleased to come to this well-known Canadian city, Toronto, to participate in the Thirty-Seventh Annual Meetings of the International Monetary Fund and the World Bank. Allow me first of all to extend, on behalf of the Govern­ ment of the People's Republic of China, a warm welcome to Antigua and Barbuda, Belize, and Hungary, three new members that have joined the IMF and the World Bank since our last Annual Meetings. I would also like to extend our high regards to His Excellency Abdlatif AI-Hamad, Chairman of the Boards of Governors for this year's Annual Meetings. I am confident that under his chairmanship and with the support of all participants, our Annual Meetings this year will achieve the goals set for them. I would also like to take this opportunity to express deep thanks to our host, the Canadian Government, for the considerate arrangements they have made for the Meetings. I listened with great interest to the greetings of the Prime Minister of Canada, Mr. Pierre Trudeau, and to the opening addresses of Mr. Abdlatif AI-Hamad, Chairman of the Boards of Governors, Mr. de Larosiere, Managing Director of the IMF, and Mr. Clausen, President of the World Bank, and to the previous speakers. On behalf of the Chinese delegation, I

64 would now like to make some comments on the present world economic situation and on the operations of the International Monetary Fund and the World Bank. Like many previous speakers, I share the view that the present state of the world economy is still very grim, and the harshness of the situation is about the same as last year. The developed countries have experienced another year of recession. Unemployment has been unusually high. Inflation remains at a high level, though its momentum has slackened somewhat. Production is still declining or only picking up sluggishly. A matter of particular concern is the fact that the measures to shift their economic crisis onto other countries by some developed countries have affected in a very adverse manner the economy of the developing countries. In the past year, the developing countries, especially the least developed countries, have met with serious economic difficulties. Prices of their export commodities have declined sharply, and their export earnings have been reduced drastically. Their drive to export manufactured goods continues to be hampered by all sorts of protectionist obstacles from some developed countries. In 1981, the per capita real income of developing countries as a whole declined in absolute terms for the first time since the end of World War II. The combined current account deficit of the oil importing developing countries is still projected to be close to $100 billion in 1982. Moreover, the high in­ terest rates in the international capital markets and volatile exchange rates have not only added to their debt service burden but made it all the more difficult for them to borrow new funds or rollover their debt. The serious downturn in the economies of the developing countries is mainly due to a series of exogenous factors. While the developing countries do need to adopt adjustment measures to overcome their economic dif­ ficulties, the developed countries are also duty-bound to give them economic assistance. The significance of helping the development process of the developing countries in the context of the current international situation has become increasingly apparent, for not only the recovery of the entire world economy, but also global peace and stability, are at stake. Regrettably, at a time when the developing countries are facing greater economic difficulties, there has been no progress toward the establishment of a new international economic order during the past year. Negotiations between the North and the South remain deadlocked, and the cause of inter­ national economic cooperation is beset with obstacles. Despite the efforts of parties concerned, the global negotiations of universal interest have yet to be launched. Meanwhile, a number of countries have strengthened trade protectionism against the developing countries and significantly reduced their ODA flows, which contributed to a lowering in the previous level of multilateral assistance through the international financial institutions. In particular, the "IDA crisis" brought on by the failure of a major developed country to honor fully and on schedule its commitments to an international

65 financial institution is jeopardizing the basic principle of international economic cooperation and development, which is "to assist low-income countries. " This state of affairs should be ended, for it has not only disappointed the developing countries and aroused their dissatisfaction, but also wrought concern and dismay among most developed countries. To bring about such a change has become a major task of great urgency on the agenda of the in­ ternational community. The flexible attitude of many developed countries is a welcome development. There have been signs of a change in attitude on the part of other major developed countries. We hope that the latter will soon adopt more flexible policies and thus give due strategic significance to the cause of promoting international economic cooperation and development. Both the International Monetary Fund and the World Bank have a key and special role to play in the cause of promoting international economic cooperation. I concur in the view expressed by some speakers that these two international financial institutions, confronted as they were last year by dif­ ficulties created by some major developed countries, did nonetheless try to provide funds to developing countries to cover their balance of payments deficits or help them borrow needed capital for development. However, we are all aware that these efforts fall far short of what needs to be done in the current situation and the specific requirements of the developing countries. We hope that these two international financial institutions will continue to move in the direction of promoting international economic cooperation and development and work for more and greater improvements and reforms. Progress in this direction will surely receive the strong support of the developing countries. Moreover, we hope that these improvements and reforms may also be supported by an increasing number of developed countries ... Meanwhile, the Seventh Replenishment of IDA is an important item that should be put on our agenda without delay. We deeply appreciate the recent efforts of many countries to release in full the third installment of their agreed contributions to the Sixth Replenishment of IDA. We think it not unreasonable to ask that the fiscal year 1984 IDA commitment authority should not be less than one third of the IDA-VI Replenishment. We hope that all donor countries will adopt a positive attitude vis-a-vis the Seventh Replenishment, both in terms of a substantial additionality of IDA resources and a reasonable allocation among recipients. We look forward to a successful conclusion to the IDA-VII Replenishment issue before the end of 1983. Now let me touch briefly on recent developments in China's economy. When I addressed the Thirty-Fifth Annual Meetings of the IMF and the World Bank in my capacity as head of the delegation of the People's Republic of China in September 1980, I gave a comprehensive description

66 of China's economic development, emphasizing in particular the enormous economic difficulties caused by the "decade of turmoil." I also told you about our policy of "readjustment, restructuring, consolidating, and im­ proving" designed to cope with these difficulties. After implementing this readjustment policy during the last three years, there has been a marked im­ provement in correcting the serious imbalances in our economy. The ratios between the various sectors of our economy are being gradually brought into harmony. The economic situation in China is stable. The fiscal deficit has closed dramatically. Personal incomes have increased. Markets are brisk in both town and country. Savings accounts have continued to grow. Prices are stable by and large. We have weathered our hour of utmost hard­ ship. Our endeavors in every field have embarked on the road of steady progress toward a dynamic economy. Of course, there are still some problems and difficulties in our national economy. Our economic base is still modest and fragile. Energy production, transportation, and certain parts of the infrastructure cannot adequately meet the needs of our economic development. Our per capita output value is very low. Our finan­ cial resources are limited. Yet enormous investments are needed in energy development, in expanding transportation facilities, and in developing human resources. Under this set of circumstances, we will continue to follow the principle of self-reliance, to further implement our policies of readjustment and growth, and to strive to improve economic results. At the same time, we will actively try to make good use of foreign capital and im­ port advanced technology and equipment. I have just outlined our major tasks for the further development of our economy. With self-reliance as our mainstay, supplemented by foreign assistance where available, developing our foreign trade and expanding economic and technological exchanges with other countries-such an approach is bound to accelerate our drive to achieve the four modernizations. Therefore we will firmly adhere to the policies of outward orientation and of loosening the rigidities in our economy. We extend a welcoming hand to all foreign economic organiza­ tions, whether official agencies or nongovernmental institutions, willing to cooperate and have economic dealings with us on the basis of equality and mutual benefit. China shares similar experiences with many developing countries and faces many identical problems. We all face the important task of transforming our poor and backward economies into modern and advanced economies. The similarity of our circumstances impels us to support and help each other in developing our economies. China will continue to do what it can in this direction. Finally, I would like to express China's desire to further the understanding and cooperation with the International Monetary Fund and the World Bank on the basis of the good cooperation we have been evolving.

67 DENMARK: IV AR N0RGAARD Governor of the Fund

I have the honor of addressing this meeting on behalf of the Member States of the European Communities. Since the last Annual Meetings there seems to have developed a deeper understanding of the gravity of the world economic situation. The Com­ munity hopes that this will provide a broader basis for overcoming the pre­ sent severe economic difficulties for developed and developing countries alike. The fact that strong price increases are still in evidence in many developed as well as developing countries is a worrisome feature in the situation. However, several countries have made important progress in the fight against inflation and the overall picture for the industrial countries points to a continued slight reduction in the rate of price increases. However, these steps forward should not be a reason for diminishing the struggle against in­ flation. Since 1980, hopes of a revival in growth have been repeatedly disap­ pointed and at present the growth performance of the world economy is still discouraging. Despite the improved price and cost performance in several important countries and some recent decline in interest rates, nominal and real interest rates remain unacceptably high-partly as a consequence of high budget deficits-providing an important obstacle to productive invest­ ment. We are therefore witnessing a delay in the resumption of sustainable growth of the world economy. Both the development in oil prices in 1981 and 1982 and the sustained adjustment efforts by many countries have con­ tributed to a distinct improvement in the global balance of payments pat­ tern. However, the deficit of the non-oil developing countries as a group re­ mains at a high level, and the high international rates of interest are par­ ticularly burdensome for this group of countries. So far as the European Community is concerned, output is developing in a more satisfactory way than was the case when we met last year. However, the rate of expansion in output is modest indeed and could easily come to a halt in the event of only minor unfavorable external developments. The pre­ sent and prospective growth rates for 1983 in the Community are clearly in­ adequate to stop unemployment from rising further from its already far too high level. Against this background, the European Council at its meetings in March and June stressed the importance of a coordinated policy for combating unemployment by promoting productive investment, increasing com­ petitiveness and productivity as well as the development of a Community in­ dustrial strategy based on a technology and innovation policy. Over the last two years, the Community has been increasingly worried by the international economic situation. We have, in particular, witnessed high

68 and volatile interest rates which, along with other factors, have played an important part in producing sharp exchange rate movements between the major currencies, often unrelated to the underlying fundamentals. The European Council, therefore, in March called for increased coopera­ tion between the major industrial countries, aimed particularly at encourag­ ing a reduction in interest rates and at making exchange rates less volatile. In this respect, we are encouraged by the reductions in U.S. interest rates in recent weeks. It is important that this trend should be strengthened and made durable in order to pave the way for a more general reduction of in­ terest rates internationally. The Community welcomes the undertakings which were agreed upon at the economic summit meeting in Versailles in June. At its meeting late in June, the European Council confirmed its intention for its part to adhere to the lines of policy agreed by the participants at Versailles to the full. We hope that the agreement reached in Versailles will improve interna­ tional economic cooperation. A development toward lower interest rates and more stable exchange rates hopefully can create the basis for sus­ tainable growth and an improved employment situation. Last but not least, we believe that an improvement in the international economic situation will support our endeavors to maintain free world trade. The Community strongly supports the efforts of the International Monetary Fund and the World Bank. We agree that it is important that the Fund's special responsibility in the field of surveillance be strengthened. Generally, the recycling process has been functioning smoothly during the past two or three years. However, it must be recognized that an increas­ ing number of developing countries have run into financial difficulties. The experience since 1973 has clearly demonstrated the importance of preserving the duties and competencies of the Bretton Woods institutions. In order for the Fund and the Bank to be able to fulfill their functions; we are prepared to support proposals to secure that these institutions have ade­ quate financial resources at their command. In order to assist developing countries in their longer-term development and in their adjustment policies, the Community is concerned that sizable amounts of aid should continue to flow from the industrial countries and the better placed of the OPEC countries. In this connection, the funding situation of IDA-following the reduction in the contribution by the largest donor-is cause for serious concern, but we attach the greatest importance to a rapid and effective·realization of the conclusions of the Versailles sum­ mit which express "a need for special temporary arrangements to overcome funding problems for IDA-VI, and for an early start to consideration of IDA-VII." The Community gives its full support to such an action ...

69 EGYPT: M. SALAH EL DIN HAMED Governor of the Fund

It is my pleasure to address these Thirty-Seventh Annual Meetings of the Boards of Governors of the International Monetary Fund and the World Bank on behalf of the Arab Republic of Egypt. I would like to join the previous speakers in extending our appreciation to the people and Government of Canada for the gracious hospitality and the excellent arrangements for this meeting. I would like also to welcome the new members who joined our institutions during this year. We meet this year at a very difficult time. High levels of inflation, unemployment, and interest rates are undermining the prospects for growth and development. The deep and prolonged recession is having a profound impact on developing countries. The slowdown in growth of the industrial countries is reflected in the slackening of demand for imports. As a consequence, developing countries are confronted with a significant reduction in export growth, a sharp decline in the prices of primary commodities, and a severe deterioration in their terms of trade. The current account deficits of oil im­ porting developing countries have reached record levels, amounting to about US$l00 billion in 1981/82, more than three times the level in 1978 ... The fact that current imbalances are very largely structural in nature highlights the role that the World Bank should play in the current crisis. We have been greatly disturbed by recent developments in IDA which resulted in a serious reduction in its commitment authority. This development could not have come at a worse time. The poorer countries have been among the most seriously affected by the current recession. Dependent as they are on the exports of primary commodities, they have suffered much more than other countries. Some of the poor countries found their export earnings cut by half following the sharp decline in the price of their major export com­ modities. Against this background, we hope that IDA donor countries will be forthcoming so that the commitment authority of IDA in 1983 and in 1984 will be maintained at a reasonable level. Weare gratified to note that agreement has been reached to start negotiations on IDA-VII, shortly after this meeting. My delegation hopes that the level of the Seventh Replenish­ ment will represent a significant increase in real terms over IDA-VI. The World Bank has recently initiated new lending and borrowing policies. From the point of view of the borrowing countries, the most strik­ ing feature is the application of variable interest rates for the first time in the history of the World Bank. We look at this development as a reflection of the process of adaptation imposed on the World Bank by the peculiar situation in the financial markets. The World Bank, and for that matter all financial intermediaries, have been confronted with high and volatile in­ terest rates, unknown in recent history. We should realize, however, that

70 variable interest rates are likely to cause significant difficulties for the bor­ rowing countries. We have been reassured in this respect by the fact that the new policies will come up for a major review by the Executive Board before the end of the current fiscal year. We hope by that time interest rates will have fallen well below present levels, and that the financial markets will be stabilized. In this event, the new lending and borrowing policies should be set aside in favor of the more traditional policies which we expect from the leading development institution. We also hope that by that time there will be no need for the front-end fee which is imposing an additional burden at a time the borrowing countries are least capable of carrying it. The World Bank is facing new demands on its resources due to the need to expand energy lending and increase structural adjustment loans. If these new demands are to be satisfied while the Bank carries on with its tradi­ tional role, the level of lending should increase appreciably above the pre­ sent levels. My delegation would like to see further progress in co financing with public sources of development assistance. We note the new proposals being considered by the World Bank for more co financing with commercial banks. We would like to strike a note of caution against the risks involved in this type of cofinancing. In the context of development financing it is im­ portant to strengthen the capital base of the World Bank. Allow me to say a few words on some of the development problems and prospects of the Egyptian economy. We have just embarked on a new five­ year development plan covering the period from 1982/83 to 1986/87. The principal objectives of our development policy are to stimulate the rate of growth and achieve a better distribution of income while maintaining a reasonable balance of payments position. Like many other developing countries, we have been adversely affected by the current recession in the in­ dustrial countries. This is reflected in the decline of foreign exchange receipts from our four major earners, namely, commodity exports including oil, tourism, remittances, and Suez Canal dues. To counteract these developments, we are trying to improve the productivity of agriculture so as to reduce reliance on food imports. We are also taking steps to encourage the private sector and to promote the inflow of private foreign investments. At the same time, we are following a policy of support for the export­ oriented industries and of strengthening the incentives for a higher level of efficiency. We are conscious of the need to control inflation and increase productive employment. Special effort is being made to reduce the budget deficit, rationalize our foreign exchange and import policy, and achieve a balanced mix between fiscal and monetary policies. In our case, as in the case of other developing countries, our success will depend in no small measure on the trade and aid policies of the industrial countries and on the effective role that the World Bank and the Interna­ tional Monetary Fund can and should play in support of our development effort. We do hope that this meeting will represent a landmark on the road toward greater cooperation and understanding among nations. 71 FIJI: CHARLES WALKER Governor of the Bank

I thank the Right Honorable Pierre Trudeau, Prime Minister of Canada, for his cordial words of welcome. I also thank the people and Government of Canada for the warm hospitality around us and for the excellent ar­ rangements under which we meet this week. I compliment the Managing Director of the Fund and the President of the Bank for their comprehensive coverage of the world economic situation. Three new members, Antigua and Barbuda, Belize and the Hungarian People's Republic, have joined the membership since we last met. I would like to join colleagues who preceded me in extending a very warm welcome to them. I shall not elaborate upon the current and prospective world economic situation as they are covered in detail in the Annual Reports of the Fund and the Bank. I shall focus only upon a number of issues which are of great concern to all of us. World economic performance since we last met is rather mixed. Unemployment remains a matter of widespread concern. Economic growth continues to be sluggish. This environment has, unfortunately, brought in­ creased protectionist tendencies in its wake. World trade has not grown. Weak demand in the industrial countries does not augur well for the past and present depressed prices of primary commodities. These factors together with high interest rates in the capital markets have contributed to the escalating current account deficits of the non-oil developing countries. There are, however, some encouraging developments on the horizon. In­ flation and interest rates are declining, although they are still relatively high at present. The volume of world trade is expected to grow by more than 2 per cent this year compared with no growth last year. Faced with stagflation, the industrial countries resorted to increasingly restrictive financial policies in the recent past. In most of these countries, due to the rigidities of fiscal policy, monetary policy has had to bear the burden of adjustment, resulting in high levels of interest rates and weakened output growth. By and large, some of the restrictive counterinflationary policies have been maintained despite growing unemployment and stagnant economic growth. Economic recovery of the industrial countries if fundamental to the health of the world economy. The timing of economic policies in the direc­ tion of economic expansion needs to be carefully assessed. Introduced too early, such policies could erode whatever confidence consumers and in­ vestors may have gained. Yet the current unsatisfactory state of the world economy will only improve with the onset of increased investment and economic activity within a climate of global financial stability. It is, I believe, time for a cautious move toward expansionary policies by the in­ dustrial countries. This can be done provided fiscal policies are allowed to playa greater role than over the last months. 72 The weakening of terms of trade is the most serious problem facing the developing countries. I concede that this is a complex problem and that its causes are deeply rooted in the domestic and international economic en­ vironment. The solutions to this problem, therefore, lie in global coopera­ tion in economic management. In this respect it is sad to note that some economically strong countries are reducing economic and financial assistance to developing countries, as well as to multilateral lending institu­ tions. This trend is taking place in the face of growing caution by interna­ tional private banks towards lending to developing countries. For some developing countries the precarious nature of their economies will not allow them to bear further rigors of adjustment. The need for Fund and Bank assistance by some of these countries has never been greater than at present. Having said this I must however enter a word of caution. External im­ balances require both financing and adjustments. It is obviously impossible to expect that balance of payments deficits could be sustained indefinitely without adjustments. We need to examine the economic policies we have in place. We have to recognize that policies which may be politically un­ palatable in the short term tend to be the ones upon which stable and steady growth could be assured in the long run . . . The health of the world economy and that of our individual economies are dependent upon our collective efforts to coordinate our economic policies. The Fund and Bank were established to promote and coordinate economic and financial policies. We meet annually to contribute, exchange, and develop our thoughts on how to minimize economic conflicts and pro­ mote mutual cooperation in economic management. It is a sobering thought that with all our accumulated economic wisdom we cannot look back upon an impressive collective track record. But coming as we do from finance ministries and central banks we must never entertain pessimism. We shall succeed, but we must be prepared to recognize the signs, accept and imple­ ment the inevitable when called for, and patiently protect and nurse the positive developments which have begun to emerge.

FRANCE: JACQUES DELORS Governor oj the Bank

Each year the Bretton Woods institutions give the world economic and financial leaders a chance to compare their analyses of the economic and financial situation and to discuss measures to strengthen the international community. We are confronted this year by the same types of problems as in 1981, though our worries have obviously intensified to the point that there is a growing feeling that the situation is becoming less and less manageable.

73 In fact, this does not come as a surprise to me. Last year, on behalf of my Government, I advocated a comprehensive approach to world economic problems. This viewpoint was shared by numerous participants, who tended to be regarded by others as incorrigible pessimists. Today the facts are clear: we are all caught up in a cumulative process of recession. We must accept the challenge. Last year I joined with those who tirelessly urged that the role of the in­ ternational organizations be strengthened. At times the debate tended to turn into an ideological confrontation, though my own opinion was based solely on concrete analysis of world realities and on the need for a step-by­ step, pragmatic response, through the activities of the International Monetary Fund and the World Bank. Now that the international financial system appears threatened by even greater risks, the role of the major inter­ national institutions must be further expanded, to a level commensurate with the problems we face. Finally, last year I proposed an increase in official development assistance. The French Government has already taken steps along these lines; commitments have been made in this area and are being fulfilled. While the poorest countries are suffering tragically from the crisis, this ap­ peal for increased official assistance takes on even greater significance. I. Meeting the Challenge of Recession Disturbing signs are multiplying. In the industrial countries there is almost zero growth, unemployment is growing rapidly, and business bankruptcies are multiplying. As a result, the contribution of the richer countries to the expansion of foreign trade, to the financing of official assistance to developing countries, and therefore to world economic recovery, is insufficient. In the developing countries, economic growth is generally at a very low level, and is quite inadequate, even if viewed only in relation to population growth. Their borrowing hardly covers their debt service charges. It will obviously take time to emerge from such a deep-seated and disorienting crisis. Certainly, we must not give in to the easy temptations of unrestrained public expenditure or the deceptive, transient attractions of in­ flation. In this connection, we should welcome the progress made in the in­ ternal reorganization of national economies. However, we must ensure that the application of "virtuous circles" at work in individual countries does not produce a totally vicious circle worldwide. We indeed face the threat of being caught up in such a spiral, as is shown by the world trade situation and the constraints on private financial flows. Let me be clear: I believe there can be no economic dynamism without rigorous management. But what would be the effects of a policy intended solely to fight inflation without due regard, domestically, to investment and employment and externally, to solidarity among nations?

74 We are applying this principle first of all to ourselves. The fight against inflation is being carried on with a fierce determination to achieve signifi­ cant results as quickly as possible. A strict limit has been placed on the budget deficit, the social accounts are in balance, monetary policy is under control, and collective discipline is inducing a gradual moderation in the growth of nominal incomes. But at the same time we are striving to channel an increasing proportion of savings toward risk capital; we are stepping up our research effort and our productive investment; we are introducing special programs for employment and for increasing the efficiency of the labor market. The structure of our public expenditure attests to this desire to reconcile discipline and dynamism: current expenditure has been re­ duced, while future-oriented spending has been increased. We are relying primarily on our own efforts to improve the basic in­ dicators of our economy. This is essential. But, like any other country, France knows that such efforts would be useless if they were not backed by an improvement in the world economic situation. And what is true for a developed country is even more true for a developing country. For this reason we support every pragmatic and balanced approach to the world's problems. This was the thrust of the resolution adopted at Versailles during the summit conference of industrial countries, and this could be the most significant line of action to emerge from our work here.

II. Strengthening the International Financial System Without being obsessed by the ghosts of the past, we must remember the 1930s. It is apparent that certain countries, including some of substantial economic weight, are experiencing very serious difficulties. The same is true of firms, whatever their size. Even the financial system itself is showing disturbing signs of strain.

How could it be otherwise, at the end of a period affected by two oil price shocks, then by a soaring dollar and sustained high interest rates? Even though these rates have been coming down in the last few weeks, which is gratifying, this does not mean that they are not still too high in real terms. Moreover, the instability and volatility of exchange rates merely add to the confusion.

A return to a more stable base is therefore more necessary than ever. Although repetition may be tiresome, it should be stressed once more that the world economy would be strengthened by the launching of a new effort of international cooperation, as a prelude to the introduction of a new monetary and financial order, governed by sensible rules respected by all and based on a renewal of the role of the specialized international institu­ tions ...

75 III. Restoring Hope to the Poorest Countries Reading the World Bank's Report made me shudder. Despite extremely optimistic assumptions regarding growth prospects in the industrial coun­ tries, it is highly likely that per capita income in the poorest countries will stagnate, or even, in a great many cases, decline in the 1980s. We cannot remain indifferent to this tragic situation, the essentials of which were presented at the 1981 Paris Conference on the Least Developed Countries (LDCs). The Conference showed that, over and above their own specific prob­ lems, those countries are highly vulnerable, even more so than others, to changes in the world economy. The latest figures demonstrate how much they have been affected, to some extent cumulatively, by the stagnation of world trade, the fall in-and in some cases the fluctuations of-raw material prices, and the caution-understandable in itself-of private in­ vestors and banks. The poorest countries are of course always the ones that suffer most from any deepening of the crisis in the world economy and from the many disturbances that beset it. For this reason, above and beyond efforts to stimulate the world economy, specific policies must be adopted for the benefit of the LDCs, both multilaterally and bilaterally. First of all, there can be no substitute for the indispensable increase in of­ ficial aid, especially in the form of concessional flows. France, for its part, has assumed precise commitments-to achieve a rate of 0.15 per cent of GDP for the LDCs by 1985 and an overall rate of 0.70 per cent for the developing countries by 1988. We are moving progressively toward this goal; specifically, the level of our aid, which was 0.46 per cent in 1981, is to reach 0.52 per cent in 1983. An expansion of official aid is called for especially in view of the fact that new borrowing by the developing countries has at best kept up with their debt service burden. In other words, the financial operations carried out in 1981 and 1982 have not released any additional funds for development. One of our major concerns, therefore, is to strengthen the role played by the World Bank, IDA, and the regional development banks. The efforts of France are directed at enabling these institutions, each in its area of com­ petence, to provide the financial underpinning without which private finan­ cing mechanisms cannot properly function. This explains the proposals we have put forward for speeding up the replenishment of IDA's resources and stepping up, in one way or another, projects in energy, agriculture, and rural development. As I said last year, African countries deserve precedence in this effort, in view of their handicaps, but also of their resources, after so much time has been lost. I am pleased to note today that the international institutions have been increasing their efforts to assist those countries. This must be a lasting priority.

76 Meeting the challenge of recession, strengthening the international finan­ cial system, and restoring hope to the poorest countries-running through these three objectives for our common action is a central thread: the idea that the world economy must organize itself around certain rules of the game, combining the proper functioning of the market and of trade with the growth of multilateral cooperation and development on the part of the ma­ jor international institutions. Our chances of dispelling the specter of crisis lie in this equilibrium, however difficult it may be to acknowledge and to achieve. What we need is to bring about a state of mind-the same state of mind that animated the meeting at Bretton Woods, where the institutions that bring us together today were born and the framework for the growth of the 1950s and 1960s was established. I will of course be told that times have changed and that circumstances are no longer the same. But the need remains the same-to return to the path of true and living solidarity, in the interests of all. May the alarms sounding around us strengthen our awareness of our duty.

GERMANY: MANFRED LAHNSTEIN Alternate Governor of the Fund

We are gathering in critical circumstances. All over the world continuing economic stagnation is a severe test of our patience and tenacity as citizens and policymakers. All over the world we detect signs of a growing loss of confidence in the efficiency of our common economic and financial system,and also a loss of confidence in our ability to master the crisis. Our policy choices remain narrowly constrained and we are facing tremendous difficulties in trying to make these choices understood by large sectors of our public opinion. Sharply rising unemployment has reached intolerable levels in industrial countries. Underemployment and hunger plague millions and millions of people in developing countries. The advocates of impatience are getting the upper hand in many coun­ tries. Protectionism, beggar-my-neighbor policies, and inward-looking policies are the dangerous and unacceptable answers. For all of us, our total capabilities are put to the test. During these days at Toronto we have to give clear, common, and political answers. First of all, governments, rightly or wrongly, will be judged by their abili­ ty to maintain a sufficiently high level of employment. This ability hinges on restoring investment-led, noninflationary growth. Such growth is a necessary prerequisite for mastering the adjustment task of industrial and developing countries alike. For the latter this task is being enormously amplified by the prevailing slack in the world economy. Developing coun-

77 tries have indeed, as the Fund has put it, "had to run harder merely to stay in place." Let us be aware of a simple truth: responsibility for economic revival begins at home. That is a major theme of the Fund's policy advice. Responsible policies include a monetary policy that is firm enough to be credible but flexible enough to avoid unsettling swings of interest and ex­ change rates; success in this respect has been limited. Correction is also called for in the conduct of fiscal policy. Inevitably, budget structures still bear the imprints of the good old days when economic growth was taken for granted; when business slowdowns were relatively mild and responsive to traditional demand management; when rising expec­ tations could be accommodated by increasing revenues. In the Federal Republic we have contained inflation in the face of strong cost pressures from abroad. We have improved the competitiveness of our industry and restored equilibrium to our current account. My Government is firmly committed to cut back growth in public expenditure and the size of our budget deficits; this is not a once-and-for-all task but a medium-term challenge. However, in an interdependent world small- and medium-sized countries have come up against the limits of what they can achieve on their own. This leads me to another major theme of Fund policies: the need for a maximum degree of international cooperation. Cooperation is a matter of shared responsibilities and benefits. The world's largest economy and leading reserve center has a special responsibility in this respect. Policies in the United States profoundly affect what statisticians like to refer to as the "rest of the world." Its policy has a decisive impact on the functioning of the international monetary system and the course of the two organizations whose work we are reviewing today. Its readiness to help others, and especially the countries of the Third World, is a yardstick for all of us. The recent easing of U.S. interest rates could become a major turning point. To some degree this easing is attributable to the success of the Ad­ ministration in containing the fiscal deficit through higher tax revenues. I wish to congratulate Secretary Regan on this success, which we all find ex­ tremely gratifying. We should not, however, blame all economic troubles on interest rates. In particular, monetary policy must remain geared to the need to improve in­ flationary expectations, which, in many countries, remain very much alive. But the extended period of unacceptably high and volatile interest rates our economies have been going through has contributed to the worsened world economic and financial environment. These rates have depressed invest­ ment, strained the balance sheets of corporate and sovereign borrowers, and triggered recurrent spells of exchange market unrest. This period is not yet finished. Therefore, we have to add: the key to a

78 lasting normalization of U.S. interest rates is to convince markets that the U.S. budget deficit will be reduced to, and held at, sustainable levels and that inflation can be firmly contained. Commitment to international cooperation includes commitment to free world trade. Here the European Community, together with the United States and Japan, bears a special responsibility. This responsibility relates not only to trade among industrial countries but perhaps even more so to trade with those developing countries that follow outward-looking policies and that have succeeded in broadening their external markets for their own products. The access of developing nations to industrial countries' markets must be kept open. You can count on the Federal Republic to remain a staunch advocate of free trade. We will resist protectionism in all its forms, overt or hidden, including the monetary variant. Over the past year, financial markets have become increasingly aware of the potential risks of international lending. Bankers have reduced the volume of net new lending, at least to certain debtor countries. This in itself is not unwelcome; in the wake of the second oil shock, international credit had been growing at an unsustainable pace. We need indeed an appropriate balance between financing and adjustment that keeps the transfer of finan­ cial resources to deficit countries within the limits of their debt servicing capacity. If these limits are not respected it will be of no use whatsoever to devise new financial safety nets and to pile debt upon debt. So far, individual payments problems have been kept from spilling over into the financial system at large. The network of cooperation between fi­ nancial intermediaries, central banks, and governments has proved effective in containing damage. But increased prudence by banks, increased attention by banking supervisors, and, of course, stepped-up adjustment efforts by borrowing countries are clearly required ... For some of the developing countries the outlook is bleak indeed. But generalized pessimism is inappropriate. As the OECD Secretariat recently put it: "There is not one developing world but many." Developing coun­ tries starting from roughly comparable conditions have evolved quite differ­ ently. Some of them have definitely "taken off." They, too, were handi­ capped by poor natural resource endowment and other constraints. They, too, had to cope with external shocks. But they have managed to emerge as a major force in the world economy. This highlights the crucial difference that domestic policies can make. But developing countries-and in particular the poorest among them-need continued support by the industrial world. This support cannot be granted through monetary relief only. It is therefore essential that in­ dustrial countries do not solve their fiscal problems by slashing away at development aid budgets. Germany will continue to increase its aid expen­ diture at a rate that exceeds markedly the overall rate of growth of public expenditure.

79 The commitment of industrial countries to the cause of development must be reflected in continued and firm support of the World Bank. Given its financial constraints, the growth of Bank commitments in the years ahead is unlikely to match the rates of the past. I regret this situation. But the Bank would be well advised not to start a hectic search for alter­ native financial sources, e.g., by setting up special funds or splitting existing institutions, just to force a short-term expansion of its lending. In my view, the Bank would do better to use the opportunities provided by a period of slower expansion in order to consolidate its work and to assure that its effi­ ciency and high standards be maintained. In a period of slower growth of Bank lending, the broad range of its non­ financial consultative services, like advising on economic and social policies, on program selection and implementation, will become increasing­ ly important. I welcome the Bank's efforts to step up its cofinancing operations and to promote private capital flows to developing countries. However, the Bank itself should not assume the characteristics of a commercial bank; it must preserve its specific nature as a development institution. It is important that the Bank maintain a sound financial structure. Sub­ scriptions to the general capital increase should be made promptly and the local currency portions of subscriptions should be released. My Govern­ ment completed its subscription in July. The situation in IDA is a cause for serious concern, following the delay in the contribution of the United States. My Government expects all donors to live up to their obligations. It will therefore continue to adhere to the agreed burden sharing. We should not allow a major shortfall in the fiscal year 1984 lending pro­ gram of IDA. My Government is ready to participate in a special effort to ensure a steady flow of resources to the poorest countries. This special ac­ tion must, however, be a one-time operation. There can be no withdrawal of the single most important donor, be it only partial. We should therefore not accept a solution that would result in splitting up IDA as an institution. Negotiations should be opened as soon as possible and be completed in time for IDA-VII to come into force before the beginning of fiscal year 1985. Given the wide spectrum of political and economic situations of members, differences of view on what course the Bank and IDA should take may be inevitable. But these institutions cannot function effectively, unless there is a spirit of compromise and a willingness to reach consensus. Let me conclude on a guardedly optimistic note. Adjustment to changing economic structures has been gathering pace. On the whole, the network of international cooperation has held up under con­ siderable strain. If progress toward policy coordination remains slow, we have at least prevented a general relapse into the kind of inward-looking

80 policies that wrecked the world economy in the 1930s. We must do better, however. The Fund and the World Bank must and will continue to catalyze eco­ nomic progress and growth. No other institution can accomplish this task more efficiently. These are elements of strength on which we can build. But saying so is not enough. We must put our political will behind our well-meant intentions. We are with all those who share this conviction.

GREECE: GERASIMOS ARSENIS Governor of the Fund and Bank

This Meeting-as many other of our Meetings in recent years-is over­ shadowed by persistent and unresolved economic problems. Once again, this Meeting gives us the opportunity of expressing our deep concern about the state of the world economy, as well as our disappointment that we have not been able so far to agree upon a concerted program of action to get the world economy moving forward. As regards the world economic situation, I need not dwell on recent de­ velopments since they are adequately discussed in the Reports of the Fund and the Bank. In this connection, I wish to express my appreciation to Mr. de Larosiere and Mr. Clausen for their illuminating opening statements. I should like only to stress that the near stagnation of economic activity and the unprecedentedly high levels of unemployment in developed countries, the virtual stagnation of world trade, the continuous decline in growth rates of developing countries, and debt servicing difficulties in several developing countries are all manifestations of a deep-rooted malaise, which this year has produced the worst economic crisis since the establishment of the Bret­ ton Woods institutions. To be sure, there has been some progress in several areas. For one thing, the inflation rates in several of the major industrial countries have been reduced. Furthermore, interest rates have recently declined. It is an open question, however, whether these welcome developments reflect successful adjustments in the underlying structure or whether they are transitory features associated with the depressed level of economic activity. While there is widespread agreement about the seriousness of the situa­ tion, we have not as yet managed to converge on a coordinated program of action. Under the circumstances, small and medium-sized countries have no choice but to pursue their policies, taking the unfavorable conditions prevailing in the world economy as given. For those countries that ex­ perience persistent inflationary pressures and large external deficits there exists no real alternative other than to pursue vigorous adjustment policies which should place emphasis on reducing the government deficits and keep-

81 ing labor costs and prices in line with those of competing countries. There is no doubt that adjustment in this direction must be pursued, but there are limits as to how far countries can go on depressing the levels of domestic ac­ tivity. There is also another danger with this approach that I should like to stress. If each country is to pursue vigorously such policies we may witness a synchronized downturn, which could possibly lead to worldwide depres­ sion. We all know that the only viable solution to our problems is to secure an investment-led noninflationary growth. As I said, in an interdependent world, it is difficult for a country-acting on its own-to succeed in this task when the world economy is in the doldrums. Yet what is difficult for a single country can be manageable if all countries act together in the framework of an international concerted action to promote investment and growth. I am fully aware, of course, that such a concerted effort presents a number of technical problems and issues of coordination, but I do not believe them to be insuperable if we are really committed to the cause of growth. After all, the Bretton Woods institutions were established in spite of the technical difficulties that surrounded their functioning, and because there was a moral determination that economic growth should be restored and that the financial and economic disaster of the 1930s should not be allowed to repeat itself. In the face of the high risks that the present situation contains, I believe that it is necessary for the international community to pull together and design a concerted program of action to surmount our difficulties. The Development Committee or an appropriate body in the United Nations system could take up-with a sense of urgency-the question of working out an international plan for investment-led growth. If international cooperation is to playa significant role in the search for an effective solution to the problems that besiege the world economy, we must equip the multilateral institutions with the required resources and mechanisms to carry out their tasks: viewed in this light the resources of the Fund and the Bank are grossly inadequate . . . One of the main inadequacies of the functioning of the international economic system has been that it has permitted a widening gap to emerge between the richer and the poorer countries. Moreover, the present economic crisis has placed an unduly heavy burden on the poorer countries. Such a situation puts an extra strain on the already unacceptable level of mass deprivation and human suffering among hundreds of millions living in absolute poverty. It has been recognized by all that these countries would need an increased flow of concessional aid to help them undertake a program of economic transformation. Yet, the actual performance of the donors, taken as a whole, has been rather disappointing. The pressure to cut back government spending to reduce fiscal deficits in a period of crisis should not dampen the

82 political will and commitment to assist the poorest among the less developed countries and their peoples. It is in this spirit that the Government of Greece has decided to join a number of other countries in an effort to respond positively toward funding IDA and to maintain, if possible, the commitment authority of IDA-VI at the level originally planned. Thus, Greece commits itself to release, in full, its second installment and to proceed to immediately release its third install­ ment, to be placed in a special account.

INDIA: PRANAB KUMAR MUKHERJEE Governor of the Fund and Bank

Let me begin by extending a hearty welcome to Belize, St. Vincent and the Grenadines, Hungary, and Antigua and Barbuda, the new members in the Bank-Fund family. Let me also place on record our appreciation to the Government and people of Canada for their hospitality and for making our stay in this beautiful city of Toronto so pleasant. At the meetings of the Interim Committee and the Development Commit­ tee, the world economic situation has been reviewed at great length. There is little that one can add to the exhaustive analysis of the gathering gloom. Suffice it to say that the crisis of the world's economic and financial system has deepened. Adverse developments in the world economy have affected different groups of countries differently. I would like, however, to focus on the situa­ tion in the oil importing developing countries. It is generally recognized that their present plight is, in large part, due to external factors over which these countries have little control. Their growth rates continue to decline; their terms of trade are at a postwar low; and their external deficits have reached almost unsustainable levels. Even these indicators do not capture adequate­ ly the social and economic distress of these societies as they struggle to ad­ just to the changed environment. We in the developing countries have to tackle these problems ourselves. However, in an interdependent world our efforts alone will not bear fruit without an adequate response from the international community. It is becoming increasingly clear that revival of the world economy is a precondi­ tion for the success of the massive effort being undertaken by developing countries to restructure their economies. In this context, the present policies being pursued by industrial countries need to be reviewed. Indeed there is an increasing awareness of the fact that the present policies are not working satisfactorily. As we see it, the critical and mutually reinforcing elements of a world recovery program are:

83 -a revival of the growth process in industrial countries; -removal of protectionist barriers; and -a rapid step-up in concessional and other flows to developing coun- tries. The role of the Fund and the Bank in the 1980s is to be viewed in the con­ text of this qualitatively new economic and financial environment. It is not an environment where problems can be solved by withdrawal from obliga­ tions. A crisis demands solutions that go to its root causes. The Bretton Woods institutions have to help in the search for remedies for an ailing system. Fortunately, a set of policies and programs has been evolved over the years, both in the Fund and in the Bank, that provide a part, an important part, of the solution to the problems confronting the world economy. Let me remind my fellow Governors that these policies were the result of a cooperative effort between the developed and the developing countries. True, they did not go far enough in meeting the aspirations of developing countries. But at least the general direction was right. It is important that this sense of direction be preserved. Let me deal first with issues connected with adjustment. In India we are implementing a wide-ranging adjustment program as an integral part of our overall development plan. We believe that for adjustment to be meaningful it has to be within the framework of growth. The program, therefore, recognizes the national objectives of growth with social justice in a democratic polity. I am glad to say that this program, which is being sup­ ported by the Fund, is working as well as can be expected in the present dif­ ficult situation in the international economy. In fiscal year 1981 we were able to reduce substantially the rate of inflation in our economy. In August 1982, prices were only about 1 per cent higher than a year ago. What is more, the reduction in inflation was accompanied by a strong growth per­ formance. Agricultural output was at a record level. Industrial production increased by more than 8 per cent. Performance of the infrastructure im­ proved, and output levels in key sectors, especially in the crucial energy sec­ tor, rose significantly. A high level of investments was maintained, with special emphasis on restructuring the energy base to reduce dependence on imported oil. Exports grew by 7 per cent in real terms. Despite these achievements, our overall balance of payments situation re­ mained difficult due to a further deterioration in our terms of trade. I have dwelt on our experience only to stress the point that even a strong adjust­ ment effort will not be sufficient to overcome the present difficulties of oil importing countries unless the international environment improves. If the global economy has to escape the trauma of deflationary adjust­ ment, a high level of external financing, including that from the Fund, for developing countries will be required for some years. Even as finance without adjustment may be inadvisable, adjustment without financial sup­ port is unsustainable . . . 84 Finance for adjustment is not the only area of scarcity. Development assistance suffers the same fate. Both concessional and nonconcessional flows through multilateral development institutions are either stagnant or are declining. Future prospects appear at best to be uncertain. At a time when development needs of oil importing developing countries have in­ creased manifold, the resource squeeze in the W orId Bank and in the regional banks is pushing the developing countries inexorably toward the low case scenario of the World Development Report. As we all know, IDA is the single most important vehicle for concessional assistance to low-income countries. It is creditable that in some industrial countries aid has been protected against budgetary constraints. Several countries have waived the pro rata clause to make their full contributions for IDA-VI in fiscal years 1982 and 1983. Initiatives for contributing either to the Special Fund or the fiscal year 1984 account have also met with good response from most donors. Nevertheless, the fact remains that IDA-VI has been effectively extended over four years. For the first time in its history, an IDA replenishment cycle has been interrupted. Moreover, over the four­ year period, fiscal years 1981-84 taken as a whole, annual IDA flows to low­ income countries would have declined substantially as compared with the originally programed levels. In considering the purely temporary arrangements for fiscal year 1984, two basic principles need to be kept in view. First, care has to be taken to ensure the continuity of IDA in its present form. Secondly, additional con­ tributions need to be delinked from IDA-VII. We welcome the commitment made by the industrial countries in the Ver­ sailles communique to begin negotiations on IDA-VII. These negotiations should be completed speedily. The sharp deterioration in the economic situation of low-income developing countries has heightened the urgency and importance of a substantial enlargement of IDA assistance during the Seventh Replenishment. In this connection we have also to take into ac­ count IDA's expanded geographical coverage as well as emerging demands for structural adjustment and energy development. As Mr. Clausen has so eloquently urged, "These negotiations will need all the creativity and political goodwill we can collectively marshal to reach agreement on a level of resources that is commensurate with the challenge facing IDA in the mid­ dle years of the decade." The suggestion has been made that even for some low-income countries market-related flows should form an increasing proportion of external capital assistance. While recognizing that commercial capital has a role to play in the process of development, we have serious reservations about the logic of this approach. In fact, adequate levels of concessional assistance are essential to sustain private capital flows to low-income countries. Moreover, for basic infrastructural investment and for human resource development such countries can hardly make use of private flows. This is

85 the basic rationale for programs of official development assistance. These were the considerations which in the late 1950s led the Eisenhower Ad­ ministration to playa critical supporting role in the creation of IDA. These considerations have greater force today. Proposals have also been put forward for differentiation between IDA recipients. It would indeed be an odd way of solving the problem of world poverty if countries with large populations below the poverty line are made ineligible for IDA assistance on usual terms and conditions. In plain language, it means that the international community is being asked to disown its responsibilities toward the world's poor, an overwhelmingly large proportion of whom live in Asia. What would then remain of IDA's poverty focus? The basic premise that concessional loans will be easier to secure than grants is of doubtful validity. In either case, the same budgetary and legislative hurdles will have to be overcome. From all angles, therefore, the proposal for differentiation between IDA recipients is unsound and impractical. The threat to the future of IDA is not the only cause of anxiety to developing countries. Failure to expand Bank lending is a setback to the process of development. The lending projections for the period fiscal years 1982-86 reveal a stagnant level in real terms from one year to another. The Group of Twenty-Four both at Helsinki and here in Toronto have strongly urged that action should be taken immediately to provide for a substantial annual increase in real terms. The urgency of doing so is highlighted by the fact that the net transfers to developing countries are decreasing. From $2.6 billion in fiscal year 1982, they would decline to an estimated $1.9 billion in fiscal year 1986 if the lending assumption of $60 billion holds good. A time would soon come when the developing countries would be obliged to pay more than what they receive. Therefore urgent consideration should be given to designing appropriate policies for expanding Bank lending and for augmenting its lending capacity for the medium term. The resource constraints being experienced by the World Bank have af­ fected adversely the prospects of energy lending. Although the Bank has shown commendable flexibility in increasing energy lending, which now ac­ counts for 25 percent of overall lending, the scope for further expansion is virtually nonexistent. I would like to remind my fellow Governors that as recently as April 1981, the Bank management had pointed out that a massive effort involving average annual investments of around $40-50 billion in developing countries was needed to promote energy development consistent with acceptable rates of growth. It proposed that the Bank finance just about 10 per cent of these investment outlays over the period fiscal years 1982-86. The present lending program over the same period would barely amount to $14 billion as against $30 billion implied in the ex­ panded program.

86 The figures I have just quoted show the vast gap that exists between re­ quirements and availability of resources for energy. A two-pronged ap­ proach is necessary to solve the problem. In the interim, Bank lending should be substantially stepped up to take care of additional requirements. However, in the medium term it would be necessary to establish a new in­ stitution, within or outside the auspices of the Bank, to mobilize adequate resources for energy development. Funding problems of the Bank are disturbing. No less worrisome are the pressures being exerted upon the Bank to change its policies and programs. These pressures have to do with the scope and manner of Bank operations in developing countries. More significantly, they have also to do with the kind of policy environment the Bank should promote in developing coun­ tries on the strength of its financing. Alteration of the scope of Bank lending is being sought. For example, it is being asked not to lend for the oil and gas sector, on the grounds that the job can be done better by the private sector. We in India see no conflict bet­ ween the public sector and the private sector or between private and official flows. The two complement each other. What we cannot accept, however, is that a multilateral development institution should, in its sectoral policies and programs, refuse to assist a particular sector simply because financing for it can be arranged through private channels. Moreover, if the Bank does not lend for projects with attractive rates of return, it cannot but adversely affect the market perception of its portfolio. Thus, both in the interests of the Bank and its borrowers, this approach has little to commend itself. The Bank has a large membership consisting of countries with different economic systems and institutions. Its policies and program have to fit in with the priorities and institutional arrangements of borrowing govern­ ments. Co financing has been advocated as a major instrument for mobilizing ad­ ditional resources. In itself, co financing may be desirable and necessary in specific circumstances. However, borrowing governments alone can judge whether cofinancing in a particular case is appropriate or not. There were apprehensions that cofinancing could become a sort of conditionality for Bank lending. I was glad to hear Mr. Clausen state categorically that cofinancing was not intended to be a precondition for Bank lending. Development in the Third World is a complex process. A uniform set of prescriptions for all countries is unlikely to produce the desired result. Bank policies must avoid the pursuit of a particular model of development. The Bretton Woods institutions were created in the aftermath of a breakdown of the international system of trade and finance. They have done much to nourish the concept of international cooperation. Much more needs to be done in these troubled times. We have no doubt that, under the leadership of Mr. de Larosiere and Mr. Clausen, the Fund and the Bank would respond positively to the new challenges. The task calls for vision and courage. It is a task in which we cannot afford to fail. 87 INDONESIA: ALI WARD HAN A Governor of the Fund

May I first of all, on behalf of my Government and myself, extend to His Excellency Abdlatif Y. AI-Hamad, Minister of Finance from Kuwait, our warm congratulations on his election as Chairman of our Meetings. He is taking over the Chairmanship of the Boards of Governors at a most dif­ ficult time. Due to the position of his country and his experience, he is familiar with the financial operations of the developed world, and coming from a developing country he knows the problems of the Third World. We have confidence that our Meetings are in excellent hands. The documents which the Fund and the Bank have prepared for us, namely, their respective Annual Reports, together with the Bank's World Development Report 1982 and the Fund's analysis of the world economic outlook, continue to paint a gloomy picture of our present economy and its immediate future. The recession which set in a few years ago continues, and the Fund has been compelled to scale down its estimates and projections of rates of growth in the industrial and non-industrial world. It is true that due to courageous monetary policies aimed at controlling the money supply, in­ flation has been reduced, especially in the United States, Great Britain, Japan, and West Germany, but the cost is high in the form of unemploy­ ment, high rates of interest, instability in exchange markets, and the threat of increasing protectionism. Lately, rates of interest have begun to come down, but it is too early to know if they will continue to do so. On the whole the improvement of economic growth has hardly emerged. I believe that it is time for the industrial countries to consider implementing additional measures besides the monetary restraint which they have introduced. Inflation, although reduced, is still high, and its con­ trol remains mandatory in order to create the necessary conditions for the resumption of balanced growth. It seems that governments are still hesitant to tackle their fiscal deficits, which have been the result of a number of factors relating, inter alia, to social considerations which their economies can finance no longer. It is understandable that cuts are difficult to make because the beneficiaries of course will resist any reduction. However, they have to be looked into. A reduction of fiscal deficits will strongly support monetary policy and bring nearer the time of more appropriate interest rates and therefore the moment of recovery. Also, it seems that in the matter of the need to restructure their economies, governments in the industrial countries have not yet done enough. Unprofitable production should be replaced by industries with more potential for growth and profit, instead of being protected by direct and indirect means. It is in the interest of the industrial countries themselves to implement the measures which they know should be undertaken because the millions of

88 unemployed people in their societies cannot be left waiting too long. The impact of the stubborn stagnation and inflation in the industrial countries on the rest of the world has become increasingly serious, and many of our governments look forward to next year with great anxiety. Prices of primary commodities have plummeted, and manufactures have been hit by protectionism. All this causes a drop in the external and internal revenues necessary for the financing and continuation of a balanced economic growth. Many countries have not been able to implement the necessary adjustment; others have depleted their reserves, stepped up their borrowings, of which the burden in the form of interest rates is increasing, and all of us have been compelled to accept lower rates of growth. The situation in the developing countries, hit by recession and inflation with its corollary of worsening terms of trade, is nearing desperation. The Fund and the Bank are doing their utmost to assist countries in their balance of payments and development needs, but their resources are limited. Also, a number of countries have not been able to execute the programs agreed with the Fund for a number of reasons. Along with a bet­ ter appraisal by the Fund, they will have to make more efforts to stabilize their economies. Whatever the case may be, the multilateral institutions need resources. Unfortunately, at present the mood in a number of industrial countries concerning an increase in resources is not favorable. Partly because of their own situation but partly also, in some of them, for ideological reasons, the willingness to provide more resources through multilateral channels has diminished. This means that at a time when, due to the weakening position of many developing countries, more resources are needed from official sources, these resources will not be available. Developing countries are therefore at present caught in a kind of pincer, one arm of which is continuing recession, and the other the reduced flow of official resources through multilateral and bilateral channels. No new SDR allocation is contemplated; the amount of resources to be made available to the Fund and the Bank is still being disputed by a number of the stronger countries; and the prospect of so-called official development aid is bleaker than ever. No acceptable alternative has been given so far. Countries needing resources are being referred to private investment and private capital from the market. The problem is that a great number of countries have access neither to private investment nor private capital. If this mood in the industrial countries persists, the expected recovery may bring some improvement in the developed world and in some middle­ income countries, but the agonizing question is how in particular the weaker economies will survive. I cannot believe that this is an acceptable situation for the world community. Some serious rethinking on the part of the relevant stronger countries is necessary, and a way out must be found.

89 For my part, the increase of quotas of the Fund in a meaningful manner is essential for the working of the Fund, as are adequate contributions to IDA and to the Bank's capital for the smooth operation of the World Bank. As far as SDRs are concerned, the negative attitude of some of the major countries is disappointing. If inflation is being reduced, the argument that SDRs would contribute to inflation does not make sense. But, moreover, either we are serious in allowing the SDR to play a role in the monetary system, with a view to enhancing its working and operation, or we should frankly recognize that we do not see such a role for it. I would like to make an urgent appeal to the relevant major countries to enable the Fund and the Bank to function as they should. Quotas and capital subscriptions, as well as IDA contributions, should be meaningful. As far as ODA is concerned, if the mood to curtail it persists I would like to ask what meaningful and practical alternatives are contemplated? We are living in a difficult situation. We cannot afford to let it last. Through greater understanding, willingness to compromise, and interna­ tional cooperation, we must be able to solve our problems. Let me now end by thanking our Canadian host for the hospitality which we are all enjoying in this great country.

IRAN: "OSSEIN NEMAZI Governor of the Bank

I would like to express my gratitude to the people of Canada for hosting this gathering, and to the Fund and the Bank staff for their endeavors to prepare this well-organized environment for our meetings. This is a great setting which provides an opportunity for a large number of members of the world community to be represented here-those who are expected to be primarily concerned with economic problems faced by the masses of the poor and underprivileged countries. In spite of all the glory and magnificent setting of our gathering, unfortunately there are countries represented among us whose policies do not seem to be oriented toward helping the op­ pressed masses of the world. It would be naive to expect a better future when we accept, as full members of our institutions, the representatives of a regime which has em­ barked on total destruction of another country and annihilation of a whole nation, while we do not accept representatives of those people who are be­ ing ruthlessly uprooted by that regime to sit among us, even as observers. We are surely being observed and judged by the oppressed people of the world. Their judgment is always just, for it rests only on tangible and harsh realities of their lives, realities that have become even harsher during the in­ itial years of the new decade. The last two years have not given them any comfort, and the prospect for the years ahead is even bleaker.

90 Our failure to move toward a better arrangement for the world economic relationships has contributed greatly to this discouraging future. We began the present decade with a year in which the growth of the real output in developing countries dropped to almost one third of the preceding year's level. It appears to be followed by profound stagnation in 1981, which seemingly is more severe than in any previous year in the postwar period. Last year was one in which the development of the world economy as a whole came to a virtual halt. Once again it was the poor who bore the brunt of the burden, as the per capita output of most of the developing countries experienced a decline for the first time during the period after World War II. The first year of this decade witnessed a halt to the growth of world trade, while last year it started a decline in real terms. The prospect is hardly better for the current year. All who have studied the recent developments in trade policies of major countries conclude that "the rise in protectionist pressures is worrisome" and increasingly so, especially during the last 18 months. All fear a protectionist vicious circle, which is highly probable in a setting of slow economic growth and highly interdependent economies. It is obvious that the group of countries suffering most from those prohibitive trade bar­ riers are low-income nations with a relatively large share of their national income linked to foreign trade and with near total reliance on the export of one product as their main source of foreign exchange earnings. This is even more crucial in view of their worsening terms of trade. The recent moves toward protectionist policies were partly due to ex­ change rate movements, since unfavorable rate changes in an environment where there is virtually no control over speculative dealings forces the deficit countries to apply trade restrictions. The main victims of exchange rate instabilities are developing nations with little or no influence over their international foreign exchange markets. This not only complicates the management of their economies but also leads to uncertainties in their foreign trade, results in higher inflationary pressures, and causes inefficient allocation of their resources. The exchange rate instability originates in the industrial countries as a result of currency manipulation by international speculators and central banks of major economic powers, while developing countries suffer the consequences. They are further penalized under the so-called surveillance policies once they come to us asking for help. The system of floating ex­ change rates was heralded as one of the triumphs of the effort to reform the international monetary system. After relatively long experience with this system, however, it has become increasingly clear that even if there are benefits to derive from this textbook panacea, there are none for typical developing countries. They are basically unable to gain from exchange rate movements. This is primarily due to the rigidities of supply and low demand elasticities for their internationally traded goods. Devaluation of their

91 currencies therefore usually triggers a new wave of inflationary pressures, while revaluation makes their already difficult task of marketing their goods even more troublesome. The basic question here is why in the last decade could the underdevel­ oped countries more easily cope with recessions, trade barriers, and ex­ change rate fluctuations, and yet maintain their growth momentum? That was only because of the fact that relatively more generous sources of easy­ term finance were available to help them through the difficult periods. Now, in the last three years, not only have the value of official flows in real terms declined considerably and the conditions attached to the Fund loans become more stringent but also the resources of money and capital markets have grown out of less-developed countries' reach. This is because the bor­ rowers are faced with mounting debts-which make further borrowing dif­ ficult and costly-while at the same time an unprecedented rise in the in­ terest rates during the last two years has made their new borrowings tremen­ dously expensive. One study shows that each percentage point increase in LIBOR adds about $2 billion to the developing countries' burden of yearly interest payments. One of the major factors creating such a heavy burden is the policy of funneling these funds into the most unproductive and destruc­ tiv"e of all human activities, i.e., arms production and purchases. One positive and urgently needed step is a comprehensive reform of the international monetary and financial relations. Any effort toward this end, however, will be countered by developed nations as long as the truly needy countries have such little voice in the decision making process of the two most important financial institutions, i.e., the Fund and the Bank. We still distribute seats and voting powers in these institutions in such a way as to ensure that no decision could be made without the consent of the industrial powers of the West. No example is more typical of an oligarchic and unjust system. And all oligarchies have historically shared the same fate. If such systems are not corrected internally, there will certainly be external forces to change them. The Islamic Revolution in Iran was just an example of such a move by the masses of oppressed people in a society which had suffered for ages from the intransigence and arrogance of a ruling class. This regime, backed by the imperialist powers of the East and the West, had turned a blind eye to the call for economic and political independence and religious and other freedoms by our underprivileged people. Our oppressed people vividly demonstrated that no matter how well-equipped the oppressors are with sophisticated and modern weaponry, they will not be able to stand against the will of the masses. The Islamic Revolution in Iran from its very inception has been facing tremendous obstacles and hindrances which were created primarily by those who saw in the collapse of the former regime an end to their satanic powers and illegitimate domination over the human and natural resources of our

92 country. They have, in fact, faced the bitter reality that the popular movement in Iran not only heralded the end of the human exploitation within the country but it has also ushered in a message of salvation for all the oppressed masses of the region and of the world. They have, as ex­ pected, resorted to all possible artifices to recapture their lost interest and maintain their exploitative positions in other countries. This was not the first time, however, that the heroic Iranians have been put to a historic test of withstanding immense economic and political pressure to save their iden­ tity, though it was one of the few times that they relied on their true inner strength emanating from their profound faith in Islam. The political turmoil which prevailed during the first year after the Islamic Revolution was aggravated by the application of a host of punitive economic (and other) measures against our nation to the extent of an illegal blockade of our financial assets. We were supposedly protected by virtue of our membership in an organization whose charter discourages and prohibits the application of discriminatory financial measures among its members. Regrettably, however, the Executive Board of the Fund refused even to hear our grievances against the illegal actions of the U.S. Government. This may be regarded as a clear proof of our earlier claim that the Fund, in its present composition, is unable to take any effective measure against the will of its major industrial shareholders. The punitive actions of the imperialist powers against our Islamic Revolution finally culminated in an all-out military invasion of Iranian ter­ ritory on September 22, 1980. The Iraqi aggression, backed by its ac­ complices in the region, and with the implicit support of both superpowers, has brought substantial damage and destruction to our country in terms of both human and material losses in the vain hope of destroying our Islamic Republic. The committed Muslim people of Iran-in much the same way as they stood against the former regime which was armed to the teeth-have put up such a heroic resistance against the invading Iraqi forces that they have astonished the outside world and made the enemy flee in such haste that it has left its army in total disarray. With the help of Almighty ALLAH, the decisive leadership of Imam Khomeini, and the ceaseless efforts of our determined people, we will shortly conclude our defensive actions. The task of economic reconstruc­ tion before us, which we have already started to tackle, is one of such gigantic dimensions that it calls for the deployment of all our financial and human resources. Amid all these problems and difficulties, and in spite of them, we have succeeded in concluding vast numbers of development projects, particularly for the most economically neglected regions of our land. Government organizations and revolutionary institutions are involved in thousands of development projects ranging from a vast expansion program of provincial road networks to electrification of a great number of remote villages and

93

------_. - the rapid improvement of our post and communication facilities. These have all become possible through putting all of our financial resources, in­ cluding the oil income, into the service of the most underprivileged people of our nation. We follow an independent oil export policy which refrains from dumping this depletable, valuable resource into the markets for the sake of accumulating highly vulnerable liquid assets. Our foreign trade policy is not any different. We are totally aware of the fact that for our development projects, and to supplement our domestic supply, we need to trade with the outside world. We are therefore ready to expand our trade relationships with all those partners who may be willing to deal with us on a just and equitable basis, free from the kind of exploitative relations formerly experienced. A great number of world financial community leaders, some of whom may be present here, will testify-as did the esteemed President of the Bank in a public comment-to the effect that in spite of all the problems and hardships we have been facing during recent years, we have never failed, even in one instance, to honor our financial commitments abroad. This was done despite all the unfair, negative, and· damaging credit reports occasionally published by some aligned international media and credit institutions. May ALLAH give us, and everyone around us, the strength to do our duty toward all His creatures, independent of any and all worldly corrupt powers, and relying solely on His SUPREME POWER!

IRAQ: THAMER REZOOKI Governor of the Bank

It pleases me to express sincere appreciation and gratitude to the Govern­ ment of Canada for hosting the joint Annual Meetings of the IMF and World Bank Board, and for providing this opportunity to visit the beautiful city of Toronto and get acquainted with the hospitable people of Canada. On this occasion I would also like to welcome the countries attending the Annual Meetings for the first time. As you are well aware, Iraq was among the founders of the World Bank and the IMF. The Iraqi delegation was among the participants in the historical Bretton Woods Conference which laid the foundation stone for the emergence of these two institutions in the course of achieving a better world economic order. Since 1946 up to date, Iraq has been in the forefront of the- countries which supported the joint international effort toward the realization of stability and justice in the international economic relations. Iraq has been resolutely keen on backing up the international institutions; notably in­ cluding the Fund and the Bank. It has always taken the initiative to attend

94 to the problems and issues tackled by the Annual Meetings, being keen not to see differences emerge among member countries in such a way as to affect the proper functioning of the Bank and Fund. However, to our regret, the Governor for Iran has violated this principle by deviating from the basic issues before this Meeting, to mention matters irrelevant to the basic objectives of our Meetings; he has launched an attack on Iraq and dwelt upon recriminations which are improper for such an in­ ternational gathering. For this, we find it imperative to retaliate the attack by tangible facts and objective evidences, to be contained in the Meeting minutes, leaving it to the prudent judgment of the Governors to weigh the facts and appraise the situation. It was not our intention to preoccupy this Annual Meeting with tackling a question that falls within the context of bilateral relations between Iraq and Iran. We proceed in this connection from our desire to permit the authorities concerned with the financial and monetary affairs to deal with the dire difficulties confronting the world today. However, the fabrications and distortion of facts which yesterday's speech of the Iranian delegate in­ volved, and his flagrant attack on Iraq, have made it imperative for us to elaborate tangible facts and expose the fundamental attitudes in the current situation between Iraq and Iran, for the perusal of this conference and the world at large. The Iranian delegate claimed that Iraq had launched a war of aggression against Iran on September 22, 1980. This historical fabrication, no doubt, involved an attempt to camouflage the real intentions of the Iranian Government and provide the pretext for the rulers of Iran to carryon their policy of expansion and aggression in the area. The fact that is perceived by the whole world is that Iran launched an armed military onslaught on the Iraqi border areas on September 4, 1980, i.e. before the Iraqi legitimate retaliation in self-defense. The Iranian attack resulted in the destruction of economic installations and displaced the civilian inhabitants of the border area. Iraq had had to adopt a decisive attitude to repel the aggression and contain its serious danger. In fact, Iraq resorted to the military retaliation after it had exhausted all the political and diplomatic means at its disposal. It resorted to the U.N. Security Council to induce Iran to surrender its policy of expansion and refrain from interference in the internal affairs of Iraq and its encroach­ ment on Iraq's vital rights and interests. Through a number of protest memoranda handed over to the Tehran Government, Iraq tried to put an end to such aggression and interference. It demanded the Government of Iran to drop its policies and practices of aggression and expansion; it held the Iranian Government responsible for the grave consequences of its hostilities against Iraq and the Arab countries in the area.

95 However, the Government of Iran, proceeding from its tribal mentality and racial congestion, proceeded with its aggression and aggravated its coercive actions and illegal practices against Iraq and its Government. It proclaimed its determination to overthrow the Government of Iraq and in­ stall a lackey regime against the desire and basic aspirations of the Iraqi people. The racist, reactionary and underdeveloped regime in Tehran tried to divert the attention of the Iranian peoples from the calamities inflicted on them by the Khumeini clique, hence the bloodshed, mass persecution and genocide practiced against the Iranian forces which sought to establish good-neighborly and friendly relations with Iraq. Even the old men, women and children could not escape the Khumeini atrocities. Iraq has repeatedly confirmed, through H.E. President Saddam Hussein, its genuine desire to put an end to the war and negotiate a peaceful settle­ ment of the Iraqi-Iranian dispute, to reach such a dignified solution as would guarantee the vital interests of both sides and result in good­ neighborly relations between them. This attitude has been expressed despite the decisive victories scored by the Iraqi army, in contrast with the allega­ tions put forth by the Iranian delegate yesterday. However, the Iranian Government turned these initiatives down, as it did any other peaceful in­ itiative made by the U.N. organization, the Islamic Conference and non­ aligned group. The Iranian Government reflected, thus, a desire to escalate its aggression and intensify its coercive policies and expansionist practices, against which Iraq has had to defend its territory, safeguard the interests of its people and preserve its national independence. We declare it from this important international forum that Iraq has always been willing to accept any peaceful initiative to resolve its differences with Iran, but we shall never accept any such attitude that would involve an encroachment on our legitimate rights and vital interests. We extremely deplore the exploitation by the Iranian delegate of this forum to launch an impertinent attack on Iraq, seizing, thus, the opportunity of the distinguished participants being preoccupied by the at­ tempt to relieve the burdens of the poor nations in a world of confrontation between the virtuous aspirations and vicious arrogance. I would like to reaffirm that my intention is to elaborate the facts and remove the ambiguity brought about by the Iranian speech. We are confident that the whole world has become aware of the real state of affairs in the Arab gulf area and the reflections of the Tehran policies on the inter­ national developments, including their threat to the peace and security of the area and the world. I wish our conference every success in addressing itself to the settlement of international problems.

96 IRELAND: RAY MACSHARRY Governor of the Fund and Bank

May I begin by welcoming the new members who have joined since the last Annual Meetings-Hungary, Belize, and Antigua and Barbuda. I wish them all well in their membership of the Bretton Woods institutions. The world recession has now lasted for over three years, yet we find that previous recessionary experience gives little reliable guidance on how to cope with present economic difficulties. There seems no immediate, or even reliable, prospect of a measure of recovery which would give firm hopes of stemming the rise in unemployment. Admittedly, stabilization measures are having an impact: inflation is coming down, and both domestic and exter­ nal imbalances are improving in many countries. But these changes have been achieved at considerable and largely underestimated costs, in terms of lost output and employment. The ability of national and international policymakers to lead the world to recovery is on trial now to a greater extent than at any time since the 1930s. Against this background the Fund has, in recent papers, reviewed the ap­ propriateness of present restrictive policies and the reasons why these policies have proved so costly in human and economic terms. Despite the discouraging prospects, no change in the general policy is seen to be necessary. I do not quarrel with this basic conclusion: certainly, generalized expansionary policies offer no lasting solution to our problems and could well unleash a new wave of inflation. Nevertheless, the gravity of the international recession, and the improve­ ment which has taken place in the economies of some of the major in­ dustrial countries, call for some review of the dosage of the adjustment medicine. Strengthening a noninflationary recovery in the major countries would go a long way toward restoring the international foundations of confidence which are themselves so essential to world recovery ... The international policy environment is of particular importance to small, exposed countries such as my own. Because of its high degree of openness to external influences, Ireland is suffering, in a particularly acute form, the impact of global recession, especially on unemployment. For us, the policy to be followed is clear and unambiguous. Since coming to office, my Government has indicated its determination to restore better balance in our economy by progressively reducing the current budget deficit. We have already made a start on this path and we have recently taken further steps to bring greater discipline into our public finances. In other respects, the Irish economy is making significant im­ provement-inflation is showing encouraging signs of coming down and the external trade deficit is improving dramatically. One reason for the better trade performance is the impressive growth in our exports, which is one of the highest in the OEeD area. Regrettably, the benefits have so far been

97 partly offset by the burden of external debt servicing created by the high in­ terest rates of recent years, but recent developments on the interest rate front give some encouragement in this respect. We intend to continue with this progress in the framework of our medium-term economic plan, which is currently in preparation. This will set out the more comprehensive measures we propose to take, on the lines generally regarded as necessary to rectify imbalances while, at the same time, being designed to accomplish structural change and increase employ­ ment. But these efforts to achieve balanced growth and higher employment will, of themselves, be inadequate unless we can look to an upturn in inter­ national trade. I am sure that many of the other small industrial countries, and even more so the developing countries, are in the same position. Policy for promoting investment is an essential element of an interna­ tional recovery strategy. The decline in new investment in recent years and the low level of capacity utilization due to the recession carry a real danger that the capital stock of many countries will be dated when the recovery eventually appears. This could cause the world economy to be ensnared for a long time in a trap of low growth. If investment is to grow, our policies must generate the necessary con­ fidence. This in turn requires a positive slant to policy within an overall anti-inflation framework. Since demand management policies of general ex­ pansion are not appropriate, structural measures to encourage growth and investment must be given increased emphasis. These would help to increase confidence now and, by dealing with bottlenecks that might arise when economic activity picks up, help also to keep inflation under control. In present circumstances, I would see public investment playing a vital role in this process because public policy can still exert a beneficial influence on overall investment-provided it forms part of a consistent and credible medium-term strategy for economic recovery and price stability. Recent developments suggest that there is scope for action in this field, although, depending on the fiscal situation, the room for maneuver will vary from country to country. Given the reduction in inflation, and the im­ provement in fiscal and external balances, particularly in some of the major countries, a less restrictive attitude to public investments seems warranted. This would help to support recovery, relieve the pressures of rising unemployment on current budgets, and improve the potential of our economies in the medium term. The recent fall in interest rates internationally is to be welcomed. The level and volatility of interest rates over the past couple of years have been greatly damaging. As well as stifling economic growth, they have imposed a major burden-both directly, through interest costs, and indirectly, through their effects on exchange rates-on foreign debt-servicing payments of many countries, including my own. This has made even more difficult the task of those of us who are trying to reduce excessive budget deficits. 98 It is essential that the fall in nominal interest rates should be sustained and that real rates should come down to more acceptable levels. The bigger countries have a major part to play in this by ensuring that they strike the right balance in their own policies . . . The international community must continue to focus its attention on the developing countries. The bleak prospects of the low-income group are a challenge to us all-a challenge whose dimensions are well documented in the World Development Report. The relative per capita income figures are a standing reproach to the rest of us. We are in many cases faced with a reality of human deprivation-a reality of people living at or below sub­ sistence level. A combination of national and multinational efforts, official and private, will be needed to make any progress. The scale of the problem is such that an increase in the help coming from one source, for example private investment, does not reduce the need for other forms of assistance. A maximum effort on all fronts is needed if this blot on the conscience of mankind is to be removed. The attack must continue to be spearheaded by a strong World Bank which would continue to give priority to projects-such as agriculture and rural development-that help directly to alleviate poverty and which ex­ perience has shown to be highly successful. I am happy to say that, in line with our commitment to the Bank, Ireland has recently taken a number of steps to help it: - We have now taken up the full amount of the shares allocated to us under the Bank's general capital increase; -We have already released, for commitment in full, the first and second installments of our contribution to the Sixth Replenishment of IDA and we have now decided to release our third installment on the same basis; and - Weare prepared to play our part with other donors in trying to ensure that IDA will be adequately funded in fiscal year 1984. Over the past 20 years, IDA has been very effective. Its track record in helping the poorest countries is second to none. Recent financing dif­ ficulties are all the more worrying for this reason. IDA's members, in­ cluding the United States, which is still the largest single donor, have spent much effort in building up IDA. Now that we are facing talks on the Seventh Replenishment, I hope that we can put these problems behind us and strengthen IDA in accordance with the principles that underlay its establishment in 1960. There are many aspects to these meetings, but what they come down to is an annual stocktaking of the economic and financial situation in the world economy. This year the picture, on the face of it, does not inspire great op-

99 timism. The basic issue is whether we can cooperate sufficiently with each other in these institutions to achieve a significant improvement. Our view on this cannot be confined to 1983. We must have a vision of the longer­ term road we are traveling. But we must be seen to make a tangible start within the next year. I hope when we reassemble in 12 months time, we can record better progress toward our goals. If not, the ability of our whole economic system to cope with our problems may come under severe strain.

ISRAEL: MOSHE Y. MANDELBAUM Governor of the Bank

I deem it an honor and a privilege to address this distinguished assembly on behalf of Israel and join with my fellow Governor both in welcoming new members to the Bank and the Fund, and in expressing our appreciation for the gifted leadership of Mr. Clausen and Mr. de Larosiere. As the recent World Economic Outlook indicates, the industrial countries are, for the most part, making some progress in containing inflation. Un­ fortunately, this is being achieved at the cost of diminished economic growth and mounting unemployment, so that, if I may coin a phrase, "stagdisflation" appears to be replacing stagflation. Declining rates of economic growth and mounting unemployment in many instances are reflected in a contraction of tax revenues at a time of ex­ panding government expenditure for social programs. Budget deficits are leading governments into competing with the private sector for available funds. And, as a corollary, there are fears that deficits will be monetized and that interest rates will remain high. These factors, coupled with rigidities in the labor market and inflexibility in wage structures, preclude the environment necessary for reactivating private investment and revitalizing economic growth. Confronted with this situation, many govern­ ments find themselves in a vicious circle. It is vicious not only because it perpetuates problems, but especially because the price of unemployment paid for abating inflation is socially unacceptable. We have always believed in Israel that unemployment should be avoided as much as possible. In almost all the years of its existence Israel enjoyed low rates of unemployment. (In the year 1981 the unemployment rate was only 5.1 per cent.) To overcome three-digit inflation without recourse to unemployment we have embarked on a long-term policy of gradually reducing budgetary deficits. We do this by reducing government expenditure and at the same time encouraging the growth of the private sector. The monetary and fiscal policies have been modified to meet these ends. The growth of the business sector (which in 1981 amounted to 5.3 per

100 cent) will broaden the tax base of the economy and will increase tax revenues. There are good chances for this policy to succeed, as Israel enjoys an ex­ ceptionally high rate of private savings (in 1981 it was close to 30 per cent). Israel maintains such a high rate of savings because of its comprehensive system of indexation. In the year which has elapsed since our last Meeting, the problems con­ fronting developing countries in general and oil importing developing coun­ tries in particular have become more acute. Although oil prices have declined recently, they are still six times higher than a decade ago. While developing countries' oil bills remain excessively high, declining demand for their exports has rendered their balance of payments problems even more serious ... Turning now to the Bank, whose projects over the years have helped to improve the lives of many, we sincerely hope that the funding n6cessary to sustain a high level of activity will be forthcoming without undue delay. This is essential if the hundreds of millions who still live in absolute poverty are to be reached. Those who deal with the complex problems of alleviating rural and urban poverty know that simple panaceas do not exist. I would, however, like to dwell briefly on two basic elements in poverty alleviation that reflect our ex­ perience in Israel and in other developing countries, namely, development of the individual's capacity for productive employment and increasing agricultural productivity. In many developing countries, large-scale unemployment exists side by side with an unsatisfied demand for skilled and semiskilled labor. Develop­ ment programs are hampered by lack of adequately trained manpower. We would be the last to deny the importance of basic education. Nevertheless, in the early stages of development, one may ask if the needs of the in­ dividual and of society would not be better served if the Bank's education programs centered more on providing adults with basic skills than with basic literacy. Investment in capital goods must go hand in hand with in­ vestment in human resources. Pragmatic training programs in basic, needed skills can provide the poor with the income and the well-being that come with real economic self-reliance. Israel's most important natural resource is its people. Our energies have therefore centered on training and education. Training programs have evolved for a wide range of skills and sectors, geared to both the individual's potential and society's needs. These programs, which have proven themselves equally appropriate in many other developing countries, strengthen our conviction that real socioeconomic development requires the participation of the broad population. At the core of this participation lies the individual's ability to be productively employed.

101 Three quarters of the world's poor are to be found in rural areas. In sur­ veying the Bank's work in the last two decades, its achievements in agricul­ tural development and, as part of this, its expanding use of the "training and visit" system of agricultural extension, are to be especially commended. This system, which originated in Israel two decades ago, has been the cor­ nerstone of our own agricultural development. In three decades, Israel has gone from dependence on the import of food to large-scale agricultural exports despite severe physical and financial con­ straints. We are grateful to have the opportunity to share our experience and technology with other developing countries through the Bank's devel­ opment projects. I should like to turn to another problem confronting many of us-the energy problem. The Bank's lending this year to the energy sector amounts to $3.3 billion-one quarter of its totallendings. This trend is most commendable as other avenues for coordinated efforts in this field are not being pursued with the desired vigor. The ill effects of the energy bills on the balance of payments of many developing countries make all the more vital the Bank's increased lending for alternative programs and the fostering of nonconven­ tional energy systems in its projects as a whole. Israel embarked on the search for nonconventional energy resources long before the outbreak of the oil crisis and achieved remarkable results in this field. I should like to take this opportunity to reiterate my country's readiness to place its development experience-in agriculture, training, and alternative energy-at the disposal of all other developing countries. I should now like to express my conviction that our own and other embat­ tled regions of the world will soon attain peace. Because so many areas of the world are torn by strife, human and material resources continue to be diverted from social and economic development, where they are truly needed. Let us hope that the day is not too distant when all peoples will live in peace and harmony. In closing may I say that we are most fortunate in the choice of Toronto as the site of this year's Annual Meeting. Its scenic and architectural beauty is amply matched by the hospitality of its people and we are grateful for their warm welcome.

ITALY: BENIAMINO ANDREATTA Governor of the Fund

I wish, first of all, to thank the Canadian authorities and the city of Toronto for their warm hospitality and for the excellent organization of our Meetings. I also wish to welcome Antigua and Barbuda in the Fund and St. Vincent and the Grenadines in the Bank, as well as Hungary and Belize who have joined both institutions.

102 World Economic Situation As we gather here in Toronto, the signs of the much-expected recovery are not yet clearly in sight, although progress has continued to be made during the past year in reducing inflation and external payments im­ balances. The prolonged stagnation of economic activity has brought the number of unemployed in industrial countries to over 30 million. Economic conditions of the developing world have worsened dramatically. Interna­ tional financial markets have come under pressure, as major debtors seek rescheduling of their external obligations. Depressed world demand and trade are compounding external financing difficulties and feeding a new wave of protectionism. Excessive oscillations of exchange rates aggravate the general climate of uncertainty and hamper international adjustment. Against this background, the relevant question we should be addressing is to what extent present policies can be regarded as adequate to solve current difficulties. After a protracted period of rising inflation in the aftermath of the second oil shock, major countries adopted strict monetary policies, for it was recognized that deceleration of monetary growth was a precondition for eradicating inflation from the fabric of society. However, excessive con­ fidence in the monetary tool combined with the difficulties encountered in checking government deficits and wage growth placed the burden of stabilization almost entirely on monetary policy. As a consequence, nominal and real interest rates have been extremely high for more than two years. The progress made in reducing inflation, although initially slow, has now become substantial. However, in a world of extensive rigidities in relative prices and of scarce mobility of resources, a high cost had to be paid in terms of output and employment. Moreover, the unprecedented experience of a very long period of severe monetary restraint, even after recession spread, has seriously strained the capacity of enterprises and individuals to service debt obligations. Internationally, the problem has been compound­ ed by the high level of debt accumulated following the oil shocks, par­ ticularly by developing countries. The balance sheet of financial in­ termediaries is thus coming under strain, as the liquidity and quality of assets are reduced by important debt rescheduling operations. The scale of the problem and the danger it poses for the entire world economy can be hardly overestimated; it raises the specter of financial crisis and spiraling deflation. For these reasons the recent easing of interest rates in the United States must be seen as a most welcome development. Real interest rates however are still too high, given the current state of recession, and further declines are badly needed, especially on the long end of financial markets. The fiscal package recently approved containing the federal budget deficit should pave the way to easier and more stable monetary conditions. Nevertheless, given

lO3 the great uncertainties that still remain, a clear commitment by the U.S. authorities to maintain and strengthen the recent policy changes would help to improve business confidence worldwide and to stimulate economic recovery. In countries where inflation is being brought under control and wage moderation has prevailed, governments should be in a position to offer brighter growth prospects. This would bring a much-needed relief to an already unbearable unemployment situation. Overall budgetary discipline can be made consistent with a selective use of fiscal incentives to promote capital accumulation in key areas and sectors. Indeed, a higher level of in­ vestment to correct structural weaknesses and promote energy conservation is required in both developed and developing countries. In the latter, the in­ vestment effort requires a sustained inflow of real resources through official bilateral channels, multilateral development institutions, as well as private markets. The Italian Economy A resumption of noninflationary growth of the Italian economy hinges on adjustment in two areas, namely, public finances, and wages and in­ comes. At the end of July, the Government adopted a fiscal package, centered on higher indirect taxes and tariffs, of the order of 2 per cent of GDP. The main policy problem is still that of checking the expansion of spending, particularly in the fields of social security and health services, where there exist strong built-in mechanisms and widespread indexation. The aim of the financial law for 1983, now before Parliament, is to bring about adjustment in these areas as well. The deceleration of inflation and the recovery of investment also require wage moderation. The Government has announced a target path for infla­ tion and is requesting that wage settlements should not exceed stated guidelines. A change is also being sought in the extensive indexation system of wages, which introduces distortions in wage differentials, reduces the ef­ fectiveness of macroeconomic policies, and perpetuates inflationary pressures. As regards monetary policy, changes in the present restrictive stance can be envisaged only to the extent that concrete progress is made in reducing inflation along the targeted path. Lately, some decline in interest rates has taken place, partly because of easier conditions in international markets, but also as a consequence of the deceleration of inflation from the peaks reached in mid-1981. We are aware that it is our task to reduce and possibly eliminate the im­ balances existing in the Italian economy, but, even if we succeed, we would be unable to set in motion by ourselves an economic recovery which would bring relief to soaring unemployment. Our economy is heavily dependent on foreign demand and we want to maintain it free from the lures of protec-

104 tionism. Only a concerted action on the part of those industrial countries that have already brought inflation under control will bring to an end the longest recession since the war before it turns into something dangerous for the life of democracies. International Monetary and Financial Issues We are convinced that the adjustment process requires a strengthening of international monetary relationships. The progressive convergence of inflation rates and of policies in major c0untries makes it rpore realistic to seek to reduce exchange rate instability. Owing to slow response of trade flows to exchange rate changes and high in­ tegration of capital markets, exchange rates, in the short run, become dominated by interest rate differentials. Divergent monetary policies in major countries have thus led not only to high exchange rate volatility, but also to prolonged periods of overshooting. Protracted deviations of ex­ change rates from fundamental economic conditions introduce distortions in the relative price structure and can feed inflationary pressures in the presence of downward price rigidities. The costs of such developments are difficult to quantify, but are certainly substantial. Greater cooperation in this area is therefore desirable. The usefulness at times of concerted in­ tervention to counter disorderly market conditions and the buildup of speculative psychology should not be underestimated. Over time, a reduc­ tion of exchange rate oscillations through an agreement on target zones by major countries could also be sought. With the rapid reabsorption of the OPEC surplus, international payments positions are changing significantly. Imbalances, however, remain large: in fact, aggregate deficits in the current year will not differ significantly from those of 1981. Heavy concentration of bank exposure vis­ a-vis developing countries, and debt servicing difficulties of some of the larger among them, require prudent lending policies. However, the danger of overreaction should also be avoided in order not to aggravate further the situation. The network of consultation and cooperation among central banks offers a framework to cope with temporary liquidity needs that may impinge on the stability of international financial markets. However, soundness of the system would not be favored by granting indiscriminate central bank sup­ port to bail out private banks involved in international activities. Indeed, any such decision would encourage imprudent behavior. In a situation characterized by a slowdown of lending from private markets, the strained external position of developing countries and still large international payments imbalances clearly call for a substantial expan­ sion of the role of our multilateral international institutions in support of rigorous adjustment programs ... The World Bank plays an essential role in the development process.

105 The prospects for IDA have somewhat improved lately, in spite of the continuing uncertainties regarding the timing and the level of support of the largest contributor. Italy will release in full its third tranche of the Sixth Replenishment, and will join efforts to cover the shortfall of funds in fiscal 1984 through special contributions, but I want to stress that the principle of fair burden sharing must be preserved as the basis of multilateral assistance. Italy will support IDA programs also through cofinancing with conces­ sional funds, as part of our program to expand Italy's overall official development assistance. The World Bank has been able to maintain a strong financial position even in the most adverse market conditions. I believe that, in the interest of both developed and developing countries, we should allow this institution to resume some real growth in its lending program, by considering the appropriate timing for new capital increases. Although we welcome a greater collaboration between the World Bank and the commer­ cial banks, this cannot be a substitute for the strengthening of the World Bank. To conclude, greater cooperation in crucial policy areas among major countries and fuller support of our international institutions can do a great deal in pulling the world economy out of its present slack and restore sustained growth. The attainment of this goal is not outside the realm of our own human capabilities: failure will not be forgiven.

JAMAICA: EDWARD P. G. SEAGA Governor of the Fund and the Bank

.. The 1982 Annual Meetings of the Fund and the Bank is of fundamental importance to charting directions for the future, and if there is one common issue on which all are agreed it is concern for the future direction of the world economy. The period through which we are passing is acknowledged to be the most critical of the last 50 years. This has given rise to views which portray scenarios of economic apocalypse. One scenario of global trends would certainly support the "judgment day" forecasts prevailing in a large section of world opinion today. Taken as a whole, the prospects for oil importing developing countries are grim: -Current accounts deficits are escalating at a frightening rate. The deficit for these countries in 1981 reached US$l00 billion mark-in­ creasing by an astounding 150 per cent from US$40 billion in 1978 as a percentage of exports of goods and services, deterioration in current account balances is equally disturbing, moving from 15.2 per cent in 1978 to 22.4 per cent in 1981.

106 -Analysis clearly indicates that the sharp buildup of the current account deficit is principally a result of slow growth of export earnings and rapid growth of import costs. The index of commodity prices in developing countries, in real terms, is currently at its lowest point in nearly 40 years. - The recourse for recovery has been to borrow substantially more to compensate for reduced earnings. Predictably, the long-term debt service ratio has moved from 17.3 per cent to 21 per cent over the period 1978-81, or in money terms, from US$44.7 billion to US$92.3 billion, more than doubling in a mere three years. -It is equally predictable that oil importing developing countries cannot sustain this widening gap for a prolonged period. The scenario which foresees grim conclusions is, therefore, well founded. Another scenario exists, however, in spite of the predicament of the western industrial world and economies which depend on them. For not­ withstanding the general sluggishness of the world economy in the 1970s, a number of developing countries registered substantial economic gains. Some 20 of these, mainly in Southeast Asia, experienced expansion in their economies that was more than double that of the developed countries. This expansion largely occurred in their export manufacturing sector. The Caribbean Group too continued to show positive developments despite adverse circumstances. The Caribbean economies for which I speak fit into both these sce­ narios-victims of deteriorating terms of trade and escalating debt service, on the one hand, while poised for dynamic expansion on the other, given the transfer of resources now focusing on the Caribbean and the growth capabilities demonstrated by past performance. My own country has effected a spectacular turnaround last year amid adverse global conditions under the umbrellas of both a new IMF three-year agreement and a structural adjustment program with the World Bank: -We reversed eight years of negative growth to positive; -six years of balance of payments deficits to a surplus; -established 100 new investments in one year; -reduced unemployment marginally; and -drastically reduced the rate of inflation from 28 per cent to 4.7 per cent. Fitting into both these scenarios of some gloom and some boom, the Caribbean Group offers a particular perspective which forms the basis of our position. The Commonwealth Caribbean economies are by structure open economies, heavily dependent on trade in a narrow range of basic commodities supplied to the industrial world. Reduction of global trade, culminating in zero growth in 1981, has resulted in a slowdown of growth in the economies of these countries. Predictably for the nonoil group, current

107 account balances have deteriorated and, equally predictably, borrowings have increased. We understand and appreciate the need for anti-inflationary measures by the industrial countries. Success in this drive will reduce the high interest rates which now inhibit trade, investment, and borrowings in our Group. We support those measures because we critically need the cure. But a good part of the world finds itself in the position of the Caribbean Group-hurting as much from the medicine as from the cure. The reason is obvious. Unlike the industrial countries, we have no cushion to rest on while we wait for adjustments to the trade and payment system to correct the distortions. A prolonged adjustment process would inevitably have the effect of diminishing much of the sparkle remaining in the world economy to pinpoints of light receding over the horizon. We must face critical and fundamental options which confront us now to cope with stagnation in order to ensure that when the lights come on again in the industrial world the rest of the world will not be in darkness. If not, the job of adjustment and recovery then will be a different, bigger, and decidedly more difficult one. What are these options? It must be recognized at the outset, as a first option, that a slowdown of the adjustments being made in industrial countries, particularly at a time when signs of recovery are appearing-inflation being brought under control and interest rates falling-cannot be an acceptable path to the revival of growth. Indeed, one view is to look more deeply at the extent of structural adjustment being pursued in the major industrial countries. In­ depth analysis will conclude that these structural adjustments are not fun­ damental enough, with the result that protectionist policies are being revived by some industrial producers to protect areas in which they are no longer competitive and which they are reluctantly yielding, with great anxie­ ty, to producers in the developing world. Labor-intensive, low-technology manufacturing, is a suitable description of this category, of which textiles, garments, leather work, and the assembly of appliances are the most prominent examples. If protectionism is not to grow, there is an inevitable second round of ad­ justments facing some major producers of the industrial world in the near future as inevitable displacements in production occur from the failure to hold competitive advantages. The question which remains is whether this further adjustment should be planned, timely, and orderly-or disorderly, untimely, and executed in industrial anguish? A second option retains the strategies of adjustment now being pursued, but seeks in addition, meaningful noninflationary production as a means of restarting the engine of growth by transferring unutilized resources to areas of unutilized capacities.

108 It is the marketplace and the workplace of the developing world which holds the best solution for reflation without inflation. The unsatisfied and growing demands of the consumer market, unsatisfied and growing capabilities of the work force of a growing number of countries in the developing world, of which the Caribbean nations for which I speak are examples, need only the catalyst of expanded credit resources to fuel an expansion of trade through export-led growth ... Increased liquidity for trade expansion could also be accomplished by the expansion of trade credits, utilizing excess liquidity in the commercial bank­ ing system accumulated through the increased savings which have resulted from current anti-inflationary strategies. Logically, these savings are likely to be available only for short-term financing. The concern by commercial banks about current levels of credit exposure to developing countries indi­ cates that an intermediary to trigger a meaningful flow of these under­ utilized resources may be necessary. One such intermediary mechanism already exists in the Bank's lending program through an export development fund for export trade credit. With appropriate modifications, this mechanism could fulfill the purpose of a ready and available instrument, to mobilize ready and available resources, to be utilized by ready and available capacities, to expand trade, growth and employment on a basis consistent with the objectives of the adjustment process. The specific mechanism to serve the end of revitalizing trade may be a matter of debate. What should be less debatable is the need to urgently re­ view the policies which are precipitating stagnation without recognizing the critical need to maintain elements of momentum for growth-if not survival. This Conference should not conclude without speaking to the problem of the threat of economic stagnation by assuming that if the industrial coun­ tries succeed in current adjustment programs everything else will fall into place. The evidence is that things are beginning to fall out of place . .. It may well be that next year, when these Annual Meetings of the Fund and the Bank reconvene, hindsight may be adjudged better than foresight. Prevailing trends, nonetheless, tell us today that the massive forces of change now at work in the adjustment process can achieve the results desired given time, patience, and understanding. The real world of people which we face, however, is not wealthy in these commodities, and in the poverty of such circumstances there is a powerful voice calling for' 'change without chaos" as the most reasonable course. We would all be well advised to heed that voice of reason.

109 JAPAN: MICHIO WATANABE Governor oj the Fund and Bank

Let me begin my address by expressing my sincere gratitude for the favors given by the Government of Canada and the city of Toronto and their great efforts devoted to organizing these joint Annual Meetings. I would also like to give my warmest welcome to Antigua and Barbuda, Belize, and the Hungarian People's Republic, which have joined us as our newest members. The Recent Japanese Economy First, I would like to evaluate the present state of the Japanese economy and explain our economic policies. In fiscal year 1981 ended this March, Japan's gross national product amounted to US$I.1 trillion, an increase of 5.2 per cent in nominal terms or 2.7 per cent in real terms from the previous fiscal year. As for the balance of payments, while the current account recorded a surplus of US$5.9 billion, the net long-term capital outflow amounted to US$14.8 billion, far ex­ ceeding the current account surplus. During the fiscal year, prices were ex­ ceptionally stable with an annual increase of 4 per cent in consumer prices and only 1.4 per cent in wholesale prices. The unemployment rate remained at 2.2 per cent. The major reasons why the Japanese economy could attain such a relatively favorable performance despite serious recession and inflation worldwide are as follows. To cope with the virulent inflation due to the second oil crisis, we placed the highest priority on stabilizing prices, and took prompt action to moder­ ate aggregate demand by implementing appropriate fiscal and monetary policies. We also promoted resource and energy savings by organizing a na­ tional campaign. As a result, while the economy grew, our oil consumption dropped by 18 per cent during the last two years to almost the same level as ten years ago. Meanwhile, private enterprises made every effort to increase productivity by thoroughly rationalizing production. Owing to cooperative labor-management relations, labor secured stable employment, while re­ straining from demanding an excessive wage increase. On the other hand, growth in personal income remained moderate, and consumption and housing investments stagnated. More recently, exports have started to decline. The recovery of the economy slowed, and as a result, an unexpected budgetary revenue shortage arose, further expanding the already huge budget deficit. Fiscal Policy As economic recovery slowed, the actual tax revenue fell short of an in­ itially estimated amount by approximately 10 per cent with the total budget

110 deficit reaching some US$66 billion or 6 per cent of GNP. Government bonds outstanding reached an enormous US$350 billion or 33 per cent of GNP. If this situation is left uncorrected, the government deficit will have serious adverse effects on private economic activities. The reduction of the budget deficit as well as the further recovery of the economy are the Government's most important political goals. With the Government's best effort to reduce budget expenditures, an annual increase in general expen­ ditures excluding automatic transfers to local governments and public debt­ service payments were kept to 4.3 per cent in fiscal 1981 and 1.8 per cent in fiscal 1982. As for fiscal 1983, a 1.4 per cent ceiling was set on the budget requests by ministries. However, some people are now calling for prompt stimulation of domestic demands by expanding public works, even at a risk of a temporary increase in the budget deficit. They maintain that present economic trends would lead to a recession and thus further aggravate fiscal difficulties. On the other hand, others insist that a larger budget deficit would not only jeopardize the important government goal to restore fiscal soundness but also raise the general level of interest rates, including those of government bonds, thus hindering our economic recovery. Which view prevails remains yet to be seen. However, since our economy has been basically recovering and consumer expenditures have started increasing in real terms due to price stability, we consider that we can reasonably rely upon an expectation of steady and stable economic growth. Structural Reform of Administration and Budget Until the early I 970s Japan enjoyed a high economic growth that took ad­ vantage of the availability of abundant low-priced oil. Accordingly, public finance could afford rapidly growing public expenditures for social security, education, and public works, which had lagged behind the coun­ try's economic development, but which were essential to higher living stan­ dards for Japanese people. Because of the drastic oil price hikes in the 1970s, economic growth was sharply reduced and the situation in public finance was seriously ag­ gravated. However, once any given measure is publicly financed, it is not easy to stop budgetary support, even after it has accomplished its initial purpose; as a consequence, people's sense of self-help and self-control has been weakened. The most important and essential task for our country today is to review those systems premised on high economic growth. The level of public services and their cost-sharing should be fundamentally reviewed. For this reason, the Government has decided to thoroughly simplifY and rationalize government organizations and economize on administrative ex­ penses and subsidies. We have also decided to limit the role played by the central and local governments and to promote the transfer of public

III organizations to the private sector as much as possible, even if the organiza­ tions in question are proud of their long history in the public sector. For example, both the Japanese National Railways, well known for its famous "bullet train" but recording a deficit of about US$6 billion a year, and the Nippon Telegraph and Telephone Public Corporation, which is being urged to accommodate further technical innovation through organizational reform, are to be examined for possible transfer to the private sector. Our fundamental principle on administrative reform is to relax ad­ ministrative regulations and to diminish protectionism as much as we can. We aim to promote free competition and self-help efforts in the private sector and thus create an environment where the dynamics of our society can be further vitalized. Monetary Policy Next, I would like to address monetary and exchange rate policy. At present the official discount rate in Japan is 5.5 per cent and the long-term prime rate 8.9 per cent. As the recent price performance remains extremely stable, some people argue for lowering interest rates in order to improve business conditions. However, in light of the present appreciation of the dollar and the consequent depreciation of the yen, we are not now in a position to lower interest rates and thereby widen international interest rate differentials. On the other hand, I recognize that there are other people abroad who support a tighter monetary policy and higher interest rates in order to strengthen the yen. Increased interest rates would, however, discourage private investment and prevent the recovery of domestic private demand. Under these circumstances, we will maintain free financial markets and respect the market mechanism as much as possible. The Yen Rate There is also criticism abroad that Japanese policies are oriented in favor of depreciation of the yen. Such charges are totally groundless. Japan im­ ports many kinds of resources, and depreciation of the yen, with its adverse effects on imported prices, is absolutely contradictory to the fundamental concept behind our economic policies, which is to achieve economic growth based on price stability. On the contrary, a stronger yen would lower the cost of imported resources and promote stable economic growth. It would also prevent higher interest rates and thus enable us to adopt the most desirable economic policies for stable conditions. Broad exchange rate trends, in principle, reflect the performances of home and foreign economies, and inter alia, the differential in inflation rates among different countries. Although the yen rate has been so far heavily influenced by international interest rate differentials, I believe that our improved economic performance, including stable prices, should lead to the appreciation of the yen in due course.

112 International Economic Policy Cooperation The achievement of stable currencies is the dearest wish of all the world nations. However, with the world economy still troubled by instability, it would not be realistic to adopt any exchange rate system other than floating rates. The currency stabilization should be based on the restoration of fiscal and monetary disciplines and realization of continuing noninflationary growth over the medium and long term. In order to realize the above objec­ tives, both the efforts of individual countries and the cooperation of economic policies among different countries are of the utmost importance. In this sense we sincerely hope that the United States will endeavor further to reduce its budget deficit with expenditure cuts and tax increases, thereby moderating inflationary expectations and enabling a further decline in interest rates. Means of intervention However, actual exchange rate movements are extremely volatile in the short run due to interest rate fluctuations and speculation. Generally speaking, it is difficult to guide exchange rates in a certain direction or to fix them at a given level through interventions, but interventions would be ef­ fective to correct excessive short-term fluctuations. Especially when ex­ change rates change drastically, due to disorderly market conditions, I strongly hope that every country concerned will take mutually coordinated action to cope with the situation ... Japan's Economic Cooperation Policy Regarding official development assistance, in spite of the financial dif­ ficulties we are faced with, we intend to steadily expand our economic cooperation, paying due attention to the effective implementation of of­ ficial development assistance. To extend a total package of economic assistance programs would, however, discourage recipient countries from making self-help efforts. Our economic cooperation policy will, therefore, be based on a thorough, basic survey of each project, on a case-by-case basis, so that it will be the most efficient and effective for a recipient coun­ try in terms of the size, timing, area, and form. It is important to note that economic cooperation is supposed to assist self-help efforts of recipient countries. In other words, loans should not be extended where there would be no repayment, and aid should not be forthcoming on a permanent basis. No one would endlessly prime a pump that would never bring forth water. I stress that aid can be effective only when there is a strenuous effort to bring up water in response to the pump priming. Fund-Raising Activities of the World Bank Japan, fully recognizing the important role of multilateral development banks, not to speak of the World Bank, will continue to cooperate with the Bank as much as possible. In view of the severe financial difficulties being

113 experienFed by member countries, I would like to call on the Bank to make its operation more efficient and encourage the use of private funds, in­ cluding cofinancing. On the other hand, as the Bank has already borrowed substantially in private capital markets, I would like to strongly request that it seek closer contacts and mutual understanding with the managing authorities of capital markets. As for IDA, I hope that the outstanding issues caused by the shortage of the fund for fiscal 1983 and 1984 will be resolved and formal discussions on the next IDA Replenishment will commence as soon as possible. At the same time, I would like to stress that IDA lending operations should not be concentrated on a particular country. With regard to Japan's equity share in the Bank, I would like to reiterate here that it should properly reflect our active contributions to the Bank's operations; otherwise, it will be difficult to obtain public support in Japan. Concluding Remarks Discussions and arguments abound on the causes of the present worldwide inflation and economic stagnation. They include the following: first, the loose control on public finance and the relaxation of monetary discipline by many governments; second, the people's own inadequate self­ help efforts and their excessive dependence on their governments; third, trade union demands for wage increases exceeding productivity growth and a lack of persuasiveness on the part of management; and fourth, excessive protection of ailing industries. Many other causes have also been cited. They include the stagnation of investment and the accumulation of debts attributable to high interest rates worldwide. There are temporary measures to cope with balance of payments deficits by depending heavily on exchange rate depreciation under the floating exchange rate system. There are sharp oil price increases which could not be absorbed by productivity increases. There is the outflow of key currencies caused by prolonged wars. There is, in some cases, expansion of military expenditures preventing adequate funds from being invested in the productive private sector. We may yet find a number of other causes, and the views on the relative importance of these factors are sure to differ from person to person and country to country. However, in essence they do not seem so different. What we now must do is to study deeply how the present difficulties in the world economy came about. We must consider countermeasures, and together solve the problems through cooperation. It is impossible for any single nation to maintain its present living stan­ dards in an autarkic economy. Under the free economic system the world is bound together like the links in a chain. Production cannot mobilize an economy without adequate demands; demands cannot be created without

114 purchasing power; and purchasing power does not come about without production. Some items we do not have ourselves are owned by others, and items others do not have are surely owned by us. When every country offers what it has, the chain is linked and rotates. If the chain rotates, goods are mobilized, production encouraged, and employment increased. The rising tide of protectionism worldwide is thus a matter of the greatest concern. In order to strengthen the chain, we must uphold the free trade system and make every effort to increase productivity in every country. At the same time we need to keep financial markets as free as possible to ensure the smooth flows of international capital. I have said nothing here today that you did not already know. However, I fear that fundamental principles are being forgotten. There are too many professional arguments that stick to minor points. We should return to the fundamental points once more, scrutinize seriously the real causes of the present worldwide inflation and economic stagnation, and reflect on what is to be done. I would like to close with my favorite expression in Oriental philosophy: "What is emptiness, that is form." As "emptiness" also means "sky" in Japanese, it symbolizes what is infinite and intangible, such as the heart. On the other hand, as "form" means "color" in Japanese, it symbolizes what is finite and visible, such as human behavior. Thus the literal translation of the phrase would simply be, "Sky is color." In other words, it can be inter­ preted thus: the heart, which extends infinitely within ourselves, can only be expressed through our daily visible behavior. Our policies to cope with the fundamental problems facing the world economy may prove unpopular. However, if we persuade people by demonstrating our ideas with action and a sincere heart, I am confident that our polcies will be understood and will bear invaluable fruit.

KOREA: KYONG-SHIK KANG Governor of the Fund and Bank

First of all, on behalf of the Korean Delegation, I would like to express our gratitude to the people and the Government of Canada for hosting the Thirty-Seventh Annual Meeting in this beautiful city of Toronto and for providing such warm hospitality to all participants at the meeting. At the same time, I want to welcome Belize, Antigua and Barbuda, and the Hungarian People's Republic as new members of the IMF, and Belize, the Hungarian People's Republic, and St. Vincent as new members of the World Bank. I would also like to take this opportunity to convey our Government's sincere thanks to all the member states for supporting Korea's bid to host

115 the Fortieth Annual Meeting in Seoul in 1985. We will do our best to make the meeting a most successful one. As you all know very well, the world economy is currently going through one of the most difficult periods in recent economic history. The industrial economies have practically stopped growing since 1979, and unemployment rates in some of these economies have reached the highest levels since the Great Depression. The growth rates of most developing countries have also dropped sharply from the levels achieved in the 1960s and the 1970s, and the increasingly large current account deficits are causing serious concern in many of these countries. The problems facing non-oil developing countries are particularly acute, because of their high vulnerability to changes in external conditions. The second oil shock nearly trebled their oil import bill, and the consequent worldwide recession has sharply reduced the demand for their products from the industrial countries. In addition, exceptionally high interest rates in advanced countries have further eroded their balance of payments positions. Although these non-oil developing countries are trying hard these days to adjust to a changed world economic environment, the prospect for an early economic recovery and an improvement in their balance of payments position is not bright, because of continuing weak demand in the industrial countries and the prospect of lingering high interest rates. As the World Economic Outlook has correctly noted, the cause of the current worldwide recession is more deep-rooted than appears on the sur­ face, thus any quick or easy recovery is not expected. In other words, the current recession is more of a structural character than of a cyclical one, thus the remedy called for is also of a fundamental nature, requiring con­ siderable time and sacrifice to correct the structural imbalances and rigidities in the economic system. Thus, policies of structural adjustment which many advanced and developing countries are pursuing at the moment are unusually difficult and painful, and international cooperation is needed now more than ever to restore the health of the world economy. An uncertain and grim economic prospect, however, tends to breed pro­ tectionism and economic nationalism. But nationalistic policies that disregard their impact on the economies of other nations will not be able to achieve their objectives because of defensive adjustments from other countries. Only constant efforts to remove rigidities in the economic system and prudent demand management at the domestic level, and strong and spon­ taneous cooperation at the international level, will pull us out of the current recession. In fact, the Korean Government's adjustment efforts during the past couple of years have been largely along similar lines. The Korean

116 Government, in recognition of the urgent need to remove rigidities in the economic system, has been promoting structural reforms in various sectors of the economy. First, to remove inefficiencies created by comprehensive government in­ tervention in the management of the economy, liberalization has been pursued with respect to government price control, commercial bank operations, and the exchange rate system. Second, in order to promote a more harmonious development of in­ dustries along the lines dictated by the law of international comparative ad­ vantage, the industrial incentive system is currently being overhauled with substantial import liberalization, relaxation of foreign investment regulations, and reduction of preferential financing or tax treatment. And third, various anti-inflationary measures have been taken to enhance the competitiveness of Korean products and to change the deepseated infla­ tionary expectation of the Korean people, who have grown accustomed to double-digit inflation over the past three decades. Helped in part by these structural changes, the Korean economy re­ covered in 1981, achieving 7 per cent growth from the negative growth of 6 per cent in 1980, and is expected to grow about 6 per cent this year. More significant than these macroeconomic growth figures was the realization of price stability and a considerable improvement in its balance of payments position. The annual rate of increase in consumer prices is currently less than 5 per cent, compared with 23 per cent in 1981 and 29 per cent in 1980, and the current account deficit is also expected to drop considerably this year to around $2 billion, down from $4.5 billion in 1981 and $5.3 billion in 1980. With such improvement in price stability and balance of payments, and with enhanced efficiency realized through the various reform efforts, the Korean economy is expected to achieve another healthy, sustained growth as the world economy gradually recovers from the current recession. The recovery of the world economy would depend, in large measure, on increased cooperation among countries, as I have noted earlier. And, in this respect, the role of multilateral organizations like the IMF and the World Bank should be further strengthened, particularly to help member countries carry out necessary adjustments more smoothly ... The role of the World Bank should similarly be strengthened in view of the escalating difficulty in financing the development needs of many developing member countries. The World Development Report has correctly noted that, during the 1970s, developing countries, in general, have weathered the unfavorable international environment better than most advanced countries. This observation, nevertheless, should not be the base of undue optimism for their continuous successful performance in the 1980s.

117 We should note that the relatively fast growth of developing countries during the 1970s was based on favorable international financial market conditions and consistent expansion of world trade volume during the decade. During the 1980s, however, external conditions are expected to worsen because of mounting difficulties in servicing debts and rising protectionism in advanced countries. Thus, there is no question that the role of the World Bank as the world's most important development finance institution needs to be further reinforced. In this perspective, we sincerely hope that the Bank will continue to study the scope and means for expansion, in real terms, of future lending during the 1980s. In a similar spirit, we hope that some positive actions will be taken to restore the level of IDA financing in order to relieve the plight of our neediest members. Mobilization of resources for development financing is becoming more and more difficult, as donor countries are increasingly being faced with their own internal problems. Thus, we understand, the Bank's efforts to diversify its mode of financing through such schemes as cofinancing, variable lending rates, and the multilateral investment insurance program. Nevertheless, such expansion or diversification of the Bank's activities should proceed very cautiously in view of the consequent increasing dependence on private capital and the limitations on additional financial exposure for many developing countries. For more efficient use of the Bank's limited resources I also would like to argue strongly for the expansion of program loans, particularly structural adjustment loans. As I have noted time and again, the world economy is in the process of major structural adjustment, and in these times of uncertainty and volatility, program loans are far more effective than project loans in meeting the financial needs of member countries. In a word, the lending activity of the Bank should be more closely geared to the changing development needs of member countries in terms of scope, mode, and objects of financing, in order to maximize the Bank's effectiveness in promoting international economic development. In closing, I would like to express the Korean Government's deep ap­ preciation to the staffs of both the IMF and the World Bank, for their con­ tinuous efforts to meet the changing financial needs of member countries in this difficult international economic environment. I sincerely hope that, through the concerted goodwill and determination of all member countries, this meeting in Toronto will be remembered as the first moment in a new era of international cooperation.

118 LAO PEOPLE'S DEMOCRATIC REPUBLIC: KIKHAM VONGSAY Temporary Alternate Governor oj the Bank

First of all, the delegation of the Lao People's Democratic Republic would like to offer its warm congratulations to His Excellency Abdlatif Y. AI-Hamad, of Kuwait, on his unanimous election to the important office of Chairman of this Thirty-Seventh Annual Meeting of the Boards of Governors of the International Monetary Fund and the World Bank. We feel that his wide experience and his competence ensure that under his leadership this Meeting will achieve the desired results. My delegation would also like to take this opportunity to tender a sincere welcome to the delegation of the Hungarian People's Republic, a developed socialist state with which the Lao People's Democratic Republic maintains fraternal relations and close cooperation in every field. Its presence among us will undoubtedly contribute to achievement of the noble objectives of these two institutions, which by this well-judged action move a further step toward that universality which is the very foundation of their existence. May I also warmly welcome the other friendly countries that have become full members of our two institutions. I should like to tender my sincere thanks to the people and Government of Canada for the warm welcome extended and the satisfactory facilities furnished to my delegation and for the excellent manner in which they have organized this Meeting. Our thanks are due also to the Managing Director of the International Monetary Fund, the President of the World Bank, and their staffs for the unflagging work they have done to ensure the efficient conduct of this Meeting and for the high sense of responsibility they have unfailingly displayed in the performance of their duties. As the reports of the International Monetary Fund and the World Bank rightly stress, this Meeting is taking place at a time when the world economic situation, and particularly that of the developed market-economy countries, faces an acute crisis, characterized by worrying stagnation in a number of economic sectors, galloping inflation, and high unemployment. This adverse situation has had harmful consequences for the economies of the small developing countries, especially the less advanced and the landlocked countries. In addition to this critical situation, one of the effects of which is a heavy trade balance deficit, these small countries have to contend with ever widening recourse to protectionism. My delegation fully shares the World Bank's concern on this subject, which has led it to issue a pressing appeal to oppose protectionism, to grant wider access to capital markets, and to expand assistance programs. In the case of agriculture, in view of the widespread famine by which most Third World countries are afflicted my delegation firmly supports the constructive and deeply humanitarian proposal contained in the World

119 Bank's report, asking the industrial countries to increase their financial and technical assistance to the developing countries to help them raise their farm production and, in particular, achieve greater self-sufficiency in food supply. Turning to the situation in my own country, the Lao People's Democratic Republic, the multinational Lao people have concentrated all their efforts on binding up the wounds suffered in the long war of aggression and building a new life. In spite of the numerous problems bequeathed by the devastating war, and the unremitting maneuvers by our enemies to under­ mine us, aggravated by a succession of natural disasters during the years 1977 and 1978, we have accomplished significant progress in a number of fields, particularly in consolidating our nation and laying its economic, social and cultural basis. That we have been able to achieve these substantial successes in a brief time is due to the resolute efforts of our own people together with the assistance of brother socialist countries, other friendly countries, and international organizations, including the International Monetary Fund and the World Bank. I should like to take this opportunity to extend to them, on behalf of the people and Government of the Lao Peo­ ple's Democratic Republic, sincere thanks and deep gratitude for their ef­ fective assistance. This year marks the second year of our five-year program. The results so far have been encouraging. In particular, our gross national product has risen by 43 per cent and per capita national income by 40 per cent, while the population has grown by only 10 per cent, since 1976. While these accomplishments, significant as they are, have not of course enabled us to achieve all the results we desire, they have nevertheless brought about a progressive improvement in the level of living of our people. We are confident that through the resolute will of our people, together with ever increasing assistance from brother countries, other friendly countries, and international organizations, we shall succeed in carrying through in full the tasks defined in our five-year plan. With regard to the policy pursued by our two institutions, I fully concur in the views expressed by many delegations of developing countries. My delegation considers that we shall have to move faster toward increasing the resources of the International Monetary Fund and the World Bank. As regards IDA, my delegation feels that it would be useful for the discussions of the last meeting of delegates, held in The Hague on July 5-6, 1982, to be thoroughly reviewed during the course of the present Annual Meeting. There is a need to examine, first, special provisional ar­ rangements, including the special fund proposed by certain members with the object of increasing IDA's commitment capacity during fiscal years 1983 and 1984, and second, to consider other important matters such as the prospects for the opening of negotiations concerning IDA-VII, so that they may begin following the conclusion of this Annual Meeting.

120 On the subject of lending and borrowing policy, my delegation considers that our two institutions should make every effort to persuade those coun­ tries that are in a position to accord greater loans and borrowing facilities to the Fund and the Bank to enable them to meet their members' growing needs. In that connection my delegation finds no difficulty in accepting the new change in borrowing practices and lending rate policy approved by the World Bank for entry into effect in fiscal year 1983. Another matter to which my delegation attaches great importance is that of cofinancing. It considers that co financing with various organizations, such as the OPEC Fund for International Development, IFAD, UNDP and others, should be pursued and further developed. Moreover, my delegation unreservedly supports the memorandum relating to study of the question of cofinancing with commercial banks that the World Bank proposes to submit to the Board of Executive Directors following the present Annual Meeting. In conclusion, my delegation feels that the views expressed above will help to strengthen the role and the effectiveness of our two institutions on the world level. Please accept the assurance of my fuli cooperation for the success of this Thirty-Seventh Annual Meeting.

LUXEMBOURG: PIERRE WERNER Governor oj the Fund

Let me first express my gratitude to the Canadian authorities for the warm hospitality that they have extended to us and that tends to compen­ sate, as far as possible, for the still rather gloomy outlook of the world economy. As the Managing Director of the Fund, Mr. de Larosiere, and the President of the World Bank, Mr. Clausen, have pointed out in their brilliant speeches, the current and prospective situation of the world economy confronts both national policymakers and international financial institutions with new and complicated challenges. Comparing our own forecasts of these last years with actual perfor­ mances, we have to admit that, in general terms, we have been too op­ timistic about the chances of a quick recovery of the world economy. This lesson should draw our attention particularly to the structural aspects of the world economy and to the major impediments to a better performance. Inflation remains, of course, a most serious problem, and a high priority must continue to be placed on policies to bring down inflation and infla­ tionary expectations. In this respect, both a correct functioning of market mechanisms and a responsible behavior by social partners in fixing labor costs are essential. In the same vein we have to acknowledge that in many countries the public sector deficits have currently attained excessively high levels and thus have induced higher interest rates, higher tax burdens, and

121 higher prices. Therefore, efforts to better control public expenditure and budget deficits must be vigorously continued. Finally, positive adjustment policies for the new features of the world economy should also include measures to stimulate investments in innovative technologies, to improve productivity, and to reinstall a normal profitability of production. We think that this strategy offers the best chance, in the long run, to reduce unemployment, which we consider an unacceptable human cost, especially for our youth that otherwise risk being deprived of the chance to become fully integrated into community life. The above-described strategy inspired the Luxembourg Government's special program, enforced by law in April this year, to improve internal economic equilibrium after the February adjustment of the exchange rate of the Belgian and Luxembourg franc and to strengthen the efforts of our in­ dustry, especially the steel industry, to overcome the problems of structural adjustment. Efforts toward this goal will be continued in the coming year and will also include a significant moderation of public expenditure in 1983. But we are, of course, aware of the fact that the impact of these measures on the economic development of our country will depend largely on the overall recovery of the world economy. A particular point of concern, especially for small countries with a heavy dependence on foreign trade, is the growing protectionist pressure and the spreading of practices that hamper international trade and disrupt free trade and competition between countries of different sizes. Therefore, we hope that the joint efforts of governments and international institutions to resist protectionist pressure and to resolve urgent short-term problems within the framework of the multilateral trading system will preserve our in­ ternational cooperation, which is based on open markets and open trade ... Turning now to the problems that developing countries face, one has to acknowledge that the depressed economic environment is a heavy burden on the development expectations of the majority of humanity despite the in­ novative efforts of the World Bank. With due regard to this, the role of multilateral institutions is of absolute importance with respect to the volume of funds channeled, as well as to the conditions attached. Therefore I should like to underline once again the necessity of continuity in the fun­ ding of these institutions and of fulfillment of each member's obligations. In strict adherence to the resolution concerning the Sixth Replenishment of the International Development Association, Luxembourg will soon disburse and release the last installment of its contribution, and is ready to start negotiations for IDA-VII in order to conclude before the end of 1983. In order to permit the continuity of IDA's programs, it is of tantamount im­ portance to guarantee in fiscal year 1984 the funding of IDA until its next replenishment following a formula closest to normal IDA proceedings. With regard to the general policy of the World Bank according to the An­ nual Report, it is comforting that the Bank gives due consideration to

122 economic and financial constraints while carefully avoiding any disruptive movement. One can only support the changes in the borrowing practices of the Bank, which increase its room for maneuver on the capital markets. The variable lending rate as adopted by the Bank takes into account the ex­ cessive fluctuations of present interest rates and the gloomy outlook, while giving due consideration to the problems of the borrowers. Realism and equilibrium will also guide the Bank with respect to co finan­ cing with private banks as well as with public institutions. These operations channel increased flows to developing countries, especially private funds to countries that have little or no access to capital markets. The Government of Luxembourg notes with satisfaction the existing ties in this area with the banks established in Luxembourg and is confident that this collaboration will further expand in the near future. I imagine that a development in co financing operations could also lead to special arrangements between the Bank, IDA, and IFC on one hand, and the development-aid or export­ financing institutions of Luxembourg on the other. Another study of the Bank concerning a multilateral investment in­ surance agency deserves to be pursued in order to outline concrete and prac­ ticable solutions with due regard to past experience and the present economic and political environment. When I attended for the first time an Annual Meeting of the Governors of the Bretton Woods institutions, in 1946, the world was only beginning to heal the wounds of prewar autarchy, monetary disarray, and war destruc­ tion. Much hope was placed in the new twin institutions for restoring the economies and world trade, with some doubt whether they would be able to live up to the magnitude of the postwar problems. Today, 36 years later, I can say that the institutions' contribution to the restoration and expansion of the world economy has been essential, due to the fact that, especially up to the beginning of the 1970s, they warranted a decent monetary stability and convertibility, a growing liberalization of foreign trade, and a substantial flow of capital to the developing world. Now, however, confronted as we are with tremendous economic and finan­ cial troubles, together with large shifts in national income between coun­ tries, we must admit that the pursuit of the fundamental goals just mentioned puts us in a defensive rather than an offensive position. This dif­ ferent environment does not allow us to stand back from these fundamental goals for which every member country bears responsibility.

MALA YSIA: TENGKU RAZALEIGH HAMZAH Governor of the Fund and Bank

It gives me great pleasure to address distinguished fellow Governors at these Thirty-Seventh Annual Meetings of the Boards of Governors of the

123 International Monetary Fund and the World Bank. When we met last year, there was some optimism for a slight recovery in the world economy in 1982. However, conditions have changed dramatically since then. High interest rates continue to prevail particularly in the United States and this has effected a pickup in business investment and consumer spending. As a result, economic activities have slowed down and, according to the latest forecast, the economies oj the OEeD countries will remain weak with real output increasing by only about 0.2 per cent compared with 1.2 per cent in 1981. Unemployment is expected to worsen further from 7.2 per cent in 1981 to 8.5 per cent in 1982. In absolute terms, the number of people unemployed could reach 30 million in 1982. Unemployment could further increase unless immediate remedial measures are taken. While prospects for growth and unemployment are not encourag­ ing, inflation has appreciably declined in almost all countries but the levels are still high. For 1983, although the forecast indicates a moderate resumption in economic growth, there is still uncertainty about this growth prospect in view of prevailing high interest rates and the policies pursued by some in­ dustrial countries, particularly the United States. A low rate of growth or no growth can not be ruled out if interest rates, which currently show some signs of declining, continue to remain high. Thus, in short, there is as yet no firm basis for being too optimistic about the future. In view of this, we should be cautious and yet firm and positive in our approach in the light of the present economic difficulties. Although it is appreciated that industrial countries have continued to pur­ sue strict monetary policies in order to fight inflation with some encourag­ ing results, it is important that greater emphasis should be placed on fiscal and structural adjustment measures. Rigidities and structural imbalances, especially in the fiscal field and in labor and goods market, need to be eliminated to improve economic efficiency. At the same time, industrial countries should continue to implement policies to reduce inflation and to strengthen productive capacity. This is important in order to provide the basis for more sustainable economic growth in the future. However, in con­ tinuing these policies, greater attempt should be made to minimize the possible adverse effects of these policies on the developing countries. In the area of trade, industrial countries should look toward promoting an open environment for international trade as trade plays an important role in the economies of the developing countries. Efforts should be made, especially in this difficult period, to further increase international coopera­ tion so as to avoid intensification of protectionism and improve market ac­ cess for developing countries' commodities and products. Industrial coun­ tries should avoid inward-looking policies as these may not only be detrimental to their long-term national interest in terms of encouraging in­ efficiencies in their own domestic industries and loss of competitiveness in

124 overseas markets but also to the economies of other countries, especially developing countries which are dependent on the markets of these industrial countries for their commodities and manufactured goods. In this respect, structural adjustments in the economies of the industrial countries may have to be made, however painful this may be, in the interest of the world community at large. In this way, economic activities and trade may be pro­ moted and can result in higher real incomes to both developed and develop­ ing countries alike ... As I mentioned earlier, the continued international recession has adversely affected the developing countries, especially the oil importing developing countries. These countries find it extremely difficult to make necessary adjustments in view of declining revenues, balance of payments problems, and the inability to obtain loans from the international capital markets. While concerted expansionary policies by the OEeD countries would benefit the developing countries, an increase in financial assistance is necessary to enable the developing countries to take the necessary ad­ justments process. At present the flow of resources is inadequate to meet the financing needs of the developing countries. Official development assistance for example constitutes only 0.35 per cent of the GNP of the developed countries, lower than the United Nation's target of 0.7 per cent. In this connection, it is most unfortunate that some developed countries, especially the United States, have adopted strict attitudes toward interna­ tional multilateral financial institutions and, as a result, the flow of real resources to developing countries have somewhat declined in real terms. These institutions have, in addition, been forced to make some adjustments to accommodate the needs of borrowing countries by adopting certain policies recently which have somewhat changed their character as develop­ ment institutions. In the World Bank, for example, there has been growing emphasis on graduation of developing countries, increase in private invest­ ment, and cofinancing. These developments have thrown the entire burden of adjustments on the borrowing developing countries. While it is understandable that a change may be necessary, it must be made in the con­ text of an expansion in Bank lending, so that developing countries will have greater access to Bank resources to finance development. This is especially the case since developing countries, particularly low-income developing countries, are not in a position to avail themselves of market borrowing or co financing facilities where the terms and conditions may not be acceptable in view of the already high debt burden of these countries. With regard to lending, I am happy to note that the Bank has continued to give high priority to lending for energy projects. Bank lending for energy projects has increased from US$1.1 billion in fiscal year 1976 to US$3.23 billion in fiscal year 1982 and now constitutes about 25 per cent of total len­ ding. While this is laudable, the Bank must ensure that lending for energy will not affect significantly the World Bank's program for poverty eradica-

125 tion. This, we feel, could best be achieved through the establishment of an energy affiliate. In my view, poverty eradication must continue to receive priority attention for financing and therefore attempts should be made to ensure that lending for this important area will continue to increase in real terms. In this regard, I would like to emphasize Bank lending for integrated projects in agriculture and rural development which would not only have greater impact on economies but also help to improve institution building, which is extremely important in enabling the developing countries to plan, manage, and administer projects more effectively for the benefit of the peo­ ple. No amount of assistance will help the developing countries until and unless the planning and management capabilities are further improved. Greater attention should therefore be given by the Bank to these matters when considering development projects. In conclusion, I wish to congratulate the Fund and the Bank for another year of successful operation, in particular to the Fund Managing Director, Mr. J. de Larosiere, and the Bank President, Mr. Clausen for their unself­ ish devotion to the cause of development in the Third World. It is hoped that in this decade of the 1980s the Fund and the Bank will continue to pur­ sue policies with greater vigor and imagination as well as flexibility, bearing in mind the special needs and circumstances of the developing countries so that we will see greater progress and prosperity for all nations, developed and developing countries alike.

NEPAL: YADA V PRASAD PANT Governor of the Bank

It is my pleasure and honor to represent my country once again in the An­ nual Meetings of the International Monetary Fund and the World Bank held in this beautiful city of Toronto. I would like to express my delegation's sincere appreciation to the Government of Canada for the warm hospitality extended to us, and for the excellent facilities provided for the Meetings. I should like to take this opportunity to welcome and greet the distinguished representatives of Antigua and Barbuda, Belize, and the

126 Hungarian People's Republic who have become members of our two institutions. Before I proceed further, let me express my profound gratitude to His Ex­ cellency Prime Minister Pierre E. Trudeau for his inspiring address to this meeting calling for concerted action by all member countries to overcome current economic, monetary and trade problems. May I offer to you, Mr. Chairman, my delegation's sincere thanks for your opening address which set the tone of our deliberations, and to Mr. A. W. Clausen, President of the World Bank, and Mr. J. de Larosiere, Managing Director of the Fund, for their untiring efforts for the cause of economic development and cooperation among the member nations. The world economic situation continues to be afflicted with serious pro­ blems, such as slow or negative economic growth, high inflation, a high level of unemployment, and large external payments imbalances. The An­ nual Report 1982 shows that real growth in the aggregate GNP of develop­ ing countries suffered a setback in 1981, dropping to 2.2 per cent from the 5 per cent level in 1980. A decrease in net disbursement of ODA coupled with declining prices of major exports of developing countries has further ag­ gravated their problems. As a result, the combined current account deficit of the developing countries amounted to US$ll0 billion and the debt service ratio of oil importing developing countries increased to 19.3 per cent in 1981. The effect of sluggish growth of demand and output in industrial countries has had an adverse impact on the economies of the developing countries. The industrial countries are also experiencing markedly slow growth. In fact, 1982 is likely to be another year of slow growth which would make the 1980-82 period the most prolonged economic slowdown in the industrial countries since the 1930s. The World Development Report 1982 has rightly stressed the responsibility of the major industrial economies for bringing about a recovery in the world economy by raising their own investment and output, eschewing increases in trade barriers, allowing capital to move more freely among nations, and raising their con­ tributions of aid to low-income countries. We note with deep concern the interruptions and reductions in IDA's commitment authority. It is amply clear that erosion of IDA's resource position has ~erious implications for the LDC's development programs. The importance of IDA as the major source of concessional assistance to the least developed countries is ever growing. It is a matter of serious concern to us that IDA commitments have declined by 22.9 per cent in fiscal year 1982. I would like, therefore, to stress the need for completing IDA's commit­ ment authority through 1984 in order to ensure that IDA's operations are not adversely affected in the coming years. I earnestly hope that the various approaches now under consideration for supplementing IDA's resource availability will find favor with the donors. In this respect, I would also like to note with appreciation that several donors went beyond the normal ar-

127 rangement of proportionate burden-sharing and released their subsequent installments in full. As we are approaching the end of IDA-VI, it is essential that negotiations for the Seventh Replenishment be taken up as early as possible. While the large industrial economies are struggling through the recession, its impact on export earnings as well as the effect of high interest rates on the debt burden of the developing countries has led to severe deterioration of their economic capabilities. The current account deficit of the oil impor­ ting developing countries is mounting to almost unsustainable levels, and even the oil exporting developing countries moved from a balance on current account in 1980 to a deficit in 1981. The deficit of the developing countries will continue to remain high in coming years if the volume and prices of their primary commodity exports continue to decline. In the face of such a dif­ ficult situation, the low-income countries need all the more net capital flows of official development assistance in support of their development efforts. I would like to stress that the proportion of official concessional lending to total external debt of low-income developing countries should not be allow­ ed to decrease, instead, it needs further enhancement in the coming years. No doubt, investment and economic growth are liable to be obstructed by a shrinkage of concessional development assistance, in addition to several other emerging problems in recent years. I welcome the efforts made by Mr. Clausen, for raising the general resource position of the Bank and strengthening its role as a major partici­ pant in the development efforts of the member countries. The financing needs of the member countries have increased, and it is natural that there would be an increased resort to additional sources through co financing on terms suitable for the borrowing countries. However, the application of this rationale should be made carefully so that the objectives of IDA itself are preserved. The World Development Report has given the grim warning that pro­ spects of most of the least developed countries remain bleak and many of them are in a situation even more desperate than that of the previous year. It deserves to be noted that their main escape route from the poverty trap could only be the intensive development of agricultural output and produc­ tivity and an increase in farm income. In this context, I would like to recall the recommendations of the UN Conference on the Least Developed Coun­ tries held in Paris which adopted the Substantial New Programme of Ac­ tion. In order to implement this Programme, concessional assistance should be made available on a priority basis ... Much has been said of the need for adjustment by developing countries themselves. But, I believe that adjustment is not a prescription merely for developing countries alone; all countries must adjust in a positive way to the ever-changing economic environment. The developing countries are greatly concerned about the unfortunate effects on adjustment programs, par-

128 ticularly of those countries whose economies depend on the export of primary commodities. The steady expansion of output and reduction of unemployment can be achieved only when necessary measures are pursued on a sustained basis to reduce inflation, interest rates, and similar impediments. The importance of structural policies and special programs designed to encourage production and employment is well recognized. Before I conclude, I would like to briefly touch upon some aspects and problems of the current economic situation of Nepal. This is the third year of our Sixth Plan. The Plan envisages a substantial increase in development outlays-the ratio of investment to GDP is ex­ pected to reach about 22 per cent. The Sixth Plan also places more emphasis on the promotion of private investments through liberal economic and in­ dustrial policies. The Sixth Plan has emphasized investments in programs designed to increase production at a faster rate, to promote productive employment, to ensure the availability of basic needs, and to promote health services, primary education, rural development, and population. The target of the Plan is to achieve a GDP growth of 4.3 per cent per annum. We are making strenuous efforts to mobilize additional resources internally. In the process of resource mobilization we could increase govern­ ment revenue by 21 per cent in fiscal year 1981-82, and it has been estimated to increase by 38 per cent in the current year, i.e., fiscal year 1982-83. His Majesty's Government has recently launched a special economic pro­ gram which is designed to increase production on one hand and meet the basic needs of the people on the other. This will be brought about by chan­ neling the flow of resources toward the productive sector and mobilizing people's participation in development works. In addition, determined ef­ forts will be made to ensure speedy implementation of development projects. Under this program, a new trade policy has been adopted, which seeks to promote export trade and encourage domestic and foreign private invest­ ment in the industrial sector. The year 1981-82 was comparatively a good year. GDP increased by 4.1 per cent, the urban price index by 10.4 per cent, and government revenues by 21 per cent in the year. The overall balance of payments remained favorable despite a huge trade deficit. However, the difficult topography and land-locked position of the country have caused a slow process in our development efforts. The sharper increase in the prices of our imports than those of our exports has had an unfavorable impact on our trade. Apart from these shortcomings, natural calamities such as drought and flood in the past have seriously handicapped the speed of our economic development. Unexpected delay in the monsoon this year has become a matter of serious concern to us as expressed by other neighboring countries of this subcontinent. Delay in the monsoon has already created a drought situation

129 in the hilly region of the country where the main food products are harvested before the winter season. This situation is bound to create im­ balances in our food supplies. His Majesty's Government has taken several measures to deal with the situation, which include a crash program to aug­ ment winter crops, a complete ban on export of foodgrains, and institu­ tional arrangements to procure and distribute foodgrains in deficit districts. To cope with this drought situation in the country, his Majesty's Govern­ ment, in addition to procuring internally, this year has been seeking food assistance from external sources. Despite these natural adversities, Nepal's development strategy, under the wise and dynamic leadership of our Sovereign King Birendra Bir Bikram Shah Dev, is aimed at benefiting the people through fundamental and struc­ tural changes and enhancing development programs which are manifest in the Sixth Plan. Nepal is making efforts to improve its growth rate, decrease inflationary pressures, and bring stability in the economy through effective fiscal and monetary policies. In conclusion, I would once again like to pledge our support and coopera­ tion to further strengthen the constructive role of the Fund and the Bank in improving the economic welfare of all the member countries.

NETHERLANDS: A. P. J. M. M. VAN DER STEE Governor of the Bank

The world economy continues to be beset by many problems. The most serious of these are unemployment and inflation. The Fund's Annual Report outlines in an excellent way how to cope with these problems: cautious monetary and fiscal policies seem to be the best tools to fight these evils. Because I agree with these policy prescriptions, I do not want to discuss them in detail now. Instead, I would like to pay special attention to the Fund and the Bank as institutions and the roles they have to play-the Fund in restoring financial equilibrium and the Bank in stimulating economic development in the world ... Before I come to deal with the problem of securing adequate financial resources for the World Bank, I would like to dwell on a few more general remarks. The World Bank is more than any other institution experienced in the assistance it can offer its member countries in their development and struc­ tural adjustment. Its rich experience in these matters shows in the yearly publication of the World Development Report. The Bank staff must be commended for the high quality sustained over the years, as a result of which these reports have a large, receptive audience and thereby contribute to the public support for the cause of development. The publication of the

130 reports brings along with it a constant re-evaluation of the policies applied. It is with great pleasure that I observed that in the latest report such domi­ nant place is reserved for agricultural and rural development as a major source of growth and wealth. I notably appreciate the accent on the impor­ tance of the development of programs for small farmers. In this respect I was somewhat disappointed to learn that the share of agricultural and rural development in the combined Bank/IDA lending program has decreased substantially in the fiscal year 1982. I certainly hope that this downward trend will soon be reversed. During the last decade or so, we see a growing awareness of global in­ terdependence and, increasingly, governments have been recognizing that they have great interests in the maintenance of a viable global financial and economic system. In a lecture given recently at the Asian Development Bank, Professor Lewis, who will chair the Task Force on Concessional Flows of the Development Committee, observed that, while the integration of national economies has led to the growth of relatively large-in the perception of some, too large-national public sectors, the global financial and economic system has remained remarkably stunted. And, he continues, if national governments recognize interests such as maintaining an expan­ ding, evolving system of trade, sustaining a workable and working system of international finance, and balancing global energy use and production at acceptable costs, the effective pursuit of these interests will require not only a more efficient but also a larger global system than we have now. It is my Government's conviction that in this context the multilateral development institutions-and among these especially the World Bank and IDA-have a major role to play. Therefore, it is with much regret that I observe that a growing number of governments seem satisfied with a more relaxed attitude toward their ODA performance, and especially toward their contribution to the multilateral development institutions. These institutions have proven to be efficient and cost-effective vehicles for the transfer of resources to finance economic and social progress in developing countries, thus leading to a more stable global financial and economic system. Therefore, they deserve the continued and further increased support of the wealthier and more industrialized member countries. It is with great concern that I observe a distinct stagnation in the provi­ sion of concessional flows in general and, much to my regret, just now IDA faces the most serious financial crisis since it was established. I am very happy indeed that it was during a meeting of the IDA Deputies recently held (in my ministry) in The Hague that the decision was reached that the negotiations on IDA's Seventh Replenishment will start this year. I sincerely hope that a compromise solution will be found here in Toronto for the problem of the financing of the interim period between IDA-VI and IDA-VII and will soon be endorsed by the authorities in the respective capitals, so that the present most unfortunate curtailment of the activities of IDA will be reduced to a minimum. 131 Neither is the World Bank safeguarded against undue constraints on its operations. While its role as a catalyst of financial flows is a highly essential one, it is confronted with the problem of the acquisition of adequate finan­ cial resources. The doubling of the Bank's capital via the general capital increase was most welcome. The doubling of the Bank's capital does not mean, however, that over the coming years it will be easy to finance the Bank's activities. With a view to upholding the Bank's credit standing in the financial markets, the Executive Board has, during the last and the beginning of the current fiscal year, taken a number of much-needed measures such as the in­ troduction of a front-end fee and of a variable lending rate. The switch from a fixed to a variable lending rate was acceptable, though I regret that a decision like this, which certainly will not simplify matters for the borrow­ ing countries, had to be taken. It is with much more hesitation that I agreed with the Executive Board's decision that during fiscal year 1983 a maximum amount of US$1.5 billion may be borrowed in the short-term markets. The Bank lends long and, therefore, should not borrow short. Although I understand the circumstances that led up to this decision and therefore have accepted short-term borrowing as a temporary measure, I wish to stress that Bank management should not regard short-term borrowing as a permanent source of funds. I welcome the recent initiatives by the Bank in the field of co financing and of a multilateral investment insurance scheme. Cofinancing, especially with commercial banks, can develop into a worthwhile mechanism to at­ tract additional external capital for development purposes in many member countries. This kind of cooperation between the Bank and the private sector is most useful, as it complements and improves the Bank's assistance to its borrowers. It is an advantage to private banks as co-lending with the World Bank assures that their money will be put to sound use. Cofinancing can also be a vehicle through which borrowing member countries will in future gain independent access to international capital markets. Thus, it enables the Bank to allocate more of its scarce resources to the countries that need them most. It is gratifying to note that co financing is attracting renewed interest from private and public sources. In this respect I am pleased to announce that the Netherlands will intensify its official co financing activities with the Bank and IDA. We intend to start negotations on a formal cofinancing agreement with the Bank and IDA. Furthermore, for fiscal year 1984 my Government will, in addition to its prospective contribution to IDA for fiscal year 1984, earmark an amount of up to 10 per cent of this contribution for joint financing with IDA for high­ priority development projects and programs. The Government of the Netherlands commends the World Bank and its President for reopening the debate on an international investment insurance

132 scheme. Such a scheme can be an important tool to channel additional in­ vestment capital to the developing countries. It is my hope that soon con­ siderable progress will be made on this subject. Let me conclude by stressing once more that we cannot stand aside and await the results of the Bank's efforts to attract the necessary additional financial resources. If the World Bank is to further expand its activities in the pursuit of the development of its member countries-and it should-then it will in the first place need the continued and further increased support of its industrial member countries. The Netherlands is prepared to continue to give these institutions the support they need and deserve.

NEW ZEALAND: R. D. MULDOON Governor oj the Fund

The world economy is in a critical situation. We have heard, and will con­ tinue to hear, speakers elaborating on the themes of high inflation, world recession, massive unemployment, unstable exchange rates, excessive in­ terest rates, widespread protectionism, and financial crises. The situation has been aggravated by the behavior of the major exchange rates which have taken on a speculative life of their own that is not consistent with relative costs or trading performance. This has distorted competitive posi­ tions and trading shares and has triggered further trade barriers distinguished in some cases by the grimly humorous pseudonym "voluntary." The situation is for many countries, especially the poorer ones, desperate. The policies of the major countries, necessary though they may be if inflation is to be reduced, have forced on the less developed coun­ tries declining commodity prices, lower demand for their exports, and reduced access for their products to international markets. Their attempts to diversify from primary products into textiles and other manufactured goods have been obstructed by trade barriers. The balance of payments and debt problems of many developing coun­ tries have reached critical levels. On the capital account, these countries need to supplement domestic savings with inflows of aid and borrowed funds if they are to finance economic development and at the same time maintain basic living standards. The very high cost of servicing external debt, in conjunction with a static level of aid, has brought the development process close to a halt and forced many countries into financial crisis and political instability. The reduced significance of the Fund and the increased size and number of national deficits have forced developing countries to turn to private banks. The situation has now been reached where growing numbers of countries and some private banks are clearly at risk.

133 This combination of difficulties is without precedent in the postwar period. The world has, of course, survived such crises before, as in the 1930s, but only at enormous cost. That last crisis, and the lessons that were drawn from it, led to the Bretton Woods Conference and to the establish­ ment of the Fund and the Bank. Further negotiations led to the compromise of GATT. These institutions were founded as the centerpiece of a system of exchange rate stability, freedom of trade and payments, orderly adjustment of balance of payments deficits and surpluses, and international economic cooperation in the widest sense. This system served us well for a quarter of a century until the 1970s when the fixed exchange rate system collapsed, economic activity slowed, and there emerged balance of payments deficits and surpluses of a persistent rather than a cyclical character. The response to these developments by the international community has been limited and can now, I believe, be clearly seen as inadequate ... I cannot avoid the conclusion that on the whole the approach to the ques­ tion of international economic cooperation needs to be reviewed, but I question whether the present calendar of international meetings is adequate for this purpose. The economic summits are too exclusive and, in any event, have shown little evidence of an ability to make progress on difficult issues ... The continual resort to partial measures to deal with problems shows that we have failed to adequately strengthen and develop the central institutions. Few countries can be satisfied with the present approach. Indeed there is widespread recognition of the need for a fundamental reappraisal. This was overwhelmingly clear at the Commonwealth Finance Ministers' Conference in London last week and also emerges in the communique of the Group of Twenty-Four following their meeting here last Friday. Comprehensive solutions are needed. If we do not start out to seek solu­ tions, however, I can only be pessimistic for the future of the world economy. If we do not start on this soon we will only be forced to do so later, in even less propitious circumstances. I, therefore, conclude that we should meet again, as we did at Bretton Woods, in a full-scale conference to review the state of the international financial system and the role of the Fund and the Bank in managing that system. We should also re-examine GATT. We must, I believe, address these matters with a sense of urgency.

NICARAGUA: JOAQUIN CUADRA CHAMORRO Governor of the Bank

I have the honor of addressing these Meetings of Governors of the Interna­ tional Monetary Fund and the International Bank for Reconstruction and Development and its affiliates, the International Development Association

134

--~------.------and the International Finance Corporation, on behalf of twenty-two coun­ tries-Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, the Dominican Republic, Ecuador, EI Salvador, Guatemala, Haiti, Honduras, Mexico, Panama, Paraguay, Peru, the Philippines, Spain, Suriname, Uruguay, Venezuela, and my own country, Nicaragua. May I first express our pleasure at the appointment of Mr. Abdlatif Y. AI-Hamad, Minister of Finance and Planning of Kuwait, as Chairman of the Meetings of Gover­ nors. I am certain that under his direction we shall succeed in our work. We extend cordial greetings to Mr. A.W. Clausen, President of the World Bank, and to Mr. Jacques de Larosiere, Managing Director of the Interna­ tional Monetary Fund. A warm welcome as well to all the governors and delegations here, and to Belize, Hungary, and St. Vincent and the Grenadines, the new members of the Bank. We are grateful to the Federal Government of Canada, the government of the province of Ontario, and the authorities of the city of Toronto for the warm hospitality they have given us. We especially appreciate the words of Mr. Pierre Trudeau, the Prime Minister of Canada, in the opening session. His message to us on the present problems and future prospects of the inter­ national economy confirms the capacity of this great country for con­ tributing solid, clear ideas on the most significant matters of concern to our countries in connection with the world's socioeconomic development. At this point in time, the international economic picture is truly discouraging-far worse than the pessimistic forecasts that have been com­ ing out since the Belgrade meetings in 1979. And we are concerned not only about the persistence of the major adverse factors, but, even more, about their growing intensity. It need only be pointed out that world trade stagnated in 1981, leading to an increase of only 1. 5 per cent in the gross domestic product of the developing countries and, hence, to a decline in real per capita income in many of them. This unfavorable trend is likely to ex­ tend into the future, aggravating the recessive tendencies and external im­ balances of the developing countries and causing the adjustment process to depend more and more on external borrowing. The dilemma facing the in­ ternational community in the present economic situation is how to continue the fight against inflation without generating unacceptable levels of unemployment, while initiating a process of economic recovery that does not reverse the progress achieved in controlling inflation. The difficult international economic situation has at least three main con­ sequences or implications. In the first place, it tells us that the global adjust­ ment process which has been taking place in the early 80s is far from satisfactory. For one thing it has been extremely slow, and for another it has taken place at the cost of large-scale external indebtedness and considerable economic stagnation. At the same time, the maintenance and intensification of the industrial countries' protectionist measures, including new and more

135 subtle forms in the area of nontariff barriers and those taken for noneconomic purposes which affect the sovereign rights of the developing countries, are cause for growing concern. We therefore call for the earliest possible halt to this harmful, unfair trend, since the international economy cannot recover at an acceptable pace in the coming years unless world trade is permitted to expand. On the basis of these considerations, our countries support the proposal made last month in Geneva by Mr. Javier Perez de Cuellar, Secretary General of the United Nations, who, in addressing the UN Economic and Social Council, stressed the need to develop a coordinated, noninflationary economic recovery program which would have "as an integral component an effort to correct the excessive burden imposed by the current crisis on the developing countries." We wish to place special emphasis on the need for both the Interim Committee and the Development Committee to include this subject regularly on their future agendas, focusing on the draft action program for international monetary reform. Unless the adjustment process is coordinated internationally and promotes an equitable distribution of its costs and benefits between industrial and developing countries, it will be im­ possible to overcome the present difficulties within a reasonable timeframe, that is, by the end of the current decade. We must not forget that much of the cost of the industrial countries' adjustment policies has been borne by the developing countries. The second implication of the gloomy world economic picture is that, despite the magnitude of the external disequilibria, international economic and financial cooperation has entered a critical phase in the last few years, characterized not only by a decline in official development aid in real terms, but also by a rapid rise in the cost of funds provided by the multilateral financial institutions, hardened conditionality, a rapid fall-off of conces­ sional financing, and, finally, questioning of the very importance of multilateral cooperation. We also wish to stress the growing difficulty of ac­ cess to the capital markets, making the financing of external imbalances ex­ tremely costly. The third consequence is almost a result of the first two. It is an emerging tendency to change gradually the concept of economic interdependence which had been developing in earlier years within the international com­ munity. We cannot but be disturbed by the virtual abandonment of the North-South dialogue and the poor follow-up to the recommendations made by the Cancun summit, for they seem to indicate a qualitative change in the conduct of international economic relations at the very time when the developing countries most need the cooperation of the international com­ munity. In short, we face the combination of an exceedingly slow, costly global adjustment with a decline of development cooperation in real terms and a gradual erosion of the basic principles of multilaterality and in­ terdependence which are the very reason for being of our two major institu-

136 tions of cooperation-the International Monetary Fund and the World Bank. Latin America has not been able to escape this gloomy, discouraging pic­ ture and has, in fact, been directly affected by the overly prolonged interna­ tional economic recession, despite the significant adjustment measures taken by our countries. According to estimates by the Economic Commis­ sion for Latin America (ECLA), the terms of trade, which registered a 30 per cent deterioration in the three-year period 1978-80, worsened by an ad­ ditional 11 per cent in 1981. The economic growth rate in turn was only 1.7 per cent in 1981-the lowest in the postwar period, and per capita product declined for the first time in 30 years. We must add that preliminary estimates by the UNCTAD Secretariat point to a continued deterioration in the region's economic growth rate this year. Similarly, the deficit of the balance of payments on current account rose from 28 billion dollars to 38 billion dollars in 1981, and the gross disbursed external debt reached 240 billion dollars toward the end of 1981, meaning that it had doubled in the last three and one-half years. Finally, though some countries have made considerable progress in controlling inflation, consumer prices rose by an average of approximately 60 per cent in the region as a whole in 1981. As a result of this difficult economic situation, real wages decreased and there was an unusual rise in unemployment. A situation like that sketched above must definitely not be permitted to continue in the coming years. Reducing and eventually halting these regressive tendencies will require an expanded international cooperative ef­ fort and a full return and updating of the original principles that inspired creation of the Bank and the Fund. To do otherwise would be to confirm in practice Keynes' concerns regarding selfishness and irrationality as the main sources of international economic crises. The crisis in the international economic system is not irreversible. We are confident in the institutional capacity of our two organizations to react through concrete measures in the short term which will prevent the emergence of a crisis of still greater dimensions. Although interest rates have moved favorably for the developing coun­ tries in recent weeks, they are still high in both nominal and real terms and their future behavior is still unpredictable. We must therefore also point out that the arrangement recently adopted by OECD countries on minimum in­ terest rates for export credits has aggravated the situation. We support the recommendation of the Group of Twenty-Four that imports by developing countries financed by these credits should be exempt from the provisions of this arrangement. We repeat what we said at our previous Meeting, that it is important that in its activities the Bank abide by the fundamental principles that have helped to establish its reputation. We consider it particularly important that the financial organizations not interfere in borrowing countries' systems of

137 economic organization by making its financial support conditional on the introduction of particular development models. On the contrary, the Bank should provide support regardless of economic and political systems, making financing available to the priority areas defined by the countries themselves in their dialogue with the Bank, and applying strictly technical considerations in appraising development projects and programs. We likewise consider it absolutely essential to maintain the multilateral character of the Bank's decisions. Basic changes in financial policy should therefore be preceded by increasingly wide-ranging and intensive consulta­ tions with borrowers so as to smooth the way for the decisions involved. In fiscal year 1982 important financial policy decisions were taken which must be evaluated in the light of experience and whose introduction in the countries concerned calls for a gradual process of adjustment. This is true both of the front-end fee and of the new system of variable interest rates. We request that the justification for the fee be examined in the light of the Bank's liquidity and net-income policy, and again stress that the evaluation of the interest rates system should include not just the possibility of main­ taining the variable interest rate policy but also that of modifying and even discontinuing it should it lead to serious problems in borrowing countries. We request that this fuJI analysis of the Bank's new operating and lending policies be made in a document prepared by Management for the next meeting of the Development Committee in the spring of 1983. We wish to express our appreciation for the approval of the Selective Capital Increase for seventeen of our countries. This adjustment is designed to correct a structural limitation of the original World Bank quota system. We also support the President's appeal that member countries proceed rapidly to subscribe and pay up their contributions under the general capital increase approved in 1980. This increase in the Bank's capital is a top priority matter, since it helps to reduce the tendency for its operations to become increasingly dependent on access to the capital market. Last year we affirmed our countries' support for expanding the energy loans program, while noting that this expansion must be assessed from a global point of view, with financing adjusted to the needs and characteristics of each country. We would add that the fact that this sector now constitutes 25 per cent of the Bank's lending program shows that a reasonable limit, imposed by the need not to neglect other sectors, has already been reached. In this case, the question of additionality of resources again arises, as a matter of utmost importance. The Bank's activity should also be coordinated with the proposals made by the Interim Committee at the Nairobi meeting on new and renewable sources of energy. Turning to cofinancing, at the last meeting we supported the Bank's ef­ forts to increase participation by private banks in its loans, as has occurred in fiscal year 1982. We also stated that any new mechanism in this area should clearly signify additionality of resources. The co financing policy

138 defined should not only reiterate these principles but should also result in improvements in lending terms and conditions. We therefore consider it very important that the Executive Directors should examine very soon the study that has been prepared. We would nonetheless like to stress now that the creation of a new kind of loan, to be granted on strictly commercial con­ ditions, must be carefully assessed in the context of the Bank's other current financial policies (such as variable interest rates), which in the medium- and long-term could substantially modify the Bank's nature of a development institution, conferred on it by its Articles of Agreement. All new forms of cofinancing should be very closely examined from the legal point of view, as well as that of the possibility of potential conflicts of interest arising bet­ ween the Bank's functions as advisor to and financial agent of its member countries and commitments undertaken toward international banks. Moreover, two risks must be avoided: the risk of these mechanisms replacing the Bank's own contributions to development financing, and the risk of developing countries that already have access to the same financial markets being crowded out. There should therefore be extensive consulta­ tion with governments on the new cofinancing policy guidelines. We support the views expressed by President Clausen regarding the need to avoid adopting adjustment measures which, although they may be beneficial in the short term, prejudice more fundamental development ob­ jectives in the medium- and long-term. We also agree with the President concerning the need to maintain a close relationship between economic growth and the simultaneous frontal attack on extreme poverty, the breeding ground for profound social convulsions. Finally, we agree with his assessment that the indicative figure of US$60 billion for the World Bank's lending program for the period 1982-86 means that, in real terms, there would be no appreciable increase in the transfer of resources to member countries. This figure must be reviewed so as to explore-as the President of the Bank himself suggests-the most suitable ways of removing the con­ straints that have determined the present tentative program of Bank lending. We are concerned by the fact that whereas in 1977-81 the share of Latin America and the Caribbean in total lending was 33.5 per cent, the current plans for fiscal years 1982-86 call for a reduction in this share to 26.8 per cent, which would mean a real increase of only 0.6 per cent, or virtual stagnation. Our countries cannot accept a reduction of such magnitude, and request Management to undertake the necessary revision of the lending pro­ gram for Latin America to keep an appropriate share of Bank operations. Bearing in mind that the topic of additionality of resources also concerns countries other than those that I represent, the possibility of a new capital increase must be considered a valid option. We therefore request that Management undertake the necessary exploratory work to provide the basis for such an increase. We also stress that it is important that in any change in

139 the capital structure the present geographical representation of our coun­ tries be retained. We would also like to stress the need to complete the review, in conjunction with the Executive Directors, of the recommenda­ tions made in the Brandt Commission Report, especially concerning possi­ ble changes in the relationship between loans granted and outstanding and the Bank's capital and reserves (the "gearing ratio"). We are aware that this is a subject that must be studied with great care and with an eye to the reac­ tion of the financial markets. But it is also one whose consideration by the Bank's Management cannot be postponed. We note with satisfaction the efforts by the International Finance Cor­ poration to help increase private investment flows, support mixed-capital corporations in developing countries, and generally improve the prevailing climate for attracting such investments. This has been possible thanks to the expansion and diversification of the Corporation's activities, in keeping with the catalytic role proper to it in a period marked by uncertainty in the financial markets. We are likewise gratified by the fact that 90 per cent of the shares corresponding to the increase in the Corporation's capital ap­ proved in December 1977 have now been subscribed. Our countries would like to stress the importance of strengthening the financial basis of the International Development Association (IDA) so as to provide it with the institutional and operational stability that formed the background to the Sixth Replenishment. In the last fiscal year the countries that I represent were extremely con­ cerned by the effects of the uncertainty surrounding the Sixth Replenish­ ment of IDA on the availability of Bank resources and the lending policies that both organizations, IBRD and IDA, found themselves obliged to follow. As a result, some countries lost access to IDA credits and became Bank borrowers, while certain Latin American countries face the possibility of graduation from the Bank just when they most need to continue receiving support from the multilateral development organizations. The countries that I represent consider that the Bank's graduation policy poses a threat to significant economic achievements that have required great efforts. This policy also differs significantly from the Bank's past practice in this matter, making it tougher and more inflexible. Thus, in previous years the real in­ come levels governing application of the graduation policy were much higher than current levels, in both real and relative terms, while there is a tendency to apply the new policy in a mechanical way involving an attach­ ment that is rather difficult to understand to quantitative aspects linked to a given figure of per capita income. We therefore reiterate the statement by the Group of Twenty-Four that the graduation policy of the World Bank and the regional development banks restricts the role of these institutions, and we support their recommendation for alternative approaches, such as maturation, while recognizing the particular circumstances of countries at different stages of development.

140 Our countries recognize the importance of increasing private investment flows to developing countries. However, as regards the possible establish­ ment of a multilateral investment insurance organization, a large majority of the countries I represent have serious reservations concerning initiatives of this kind, which could conflict with our countries' legislations and inter­ nal policies by giving foreign investors a privileged position in relation to their national counterpart. With regard to structural adjustment loans, we wish to stress the impor­ tance of preserving the flexibility anticipated from the outset for this type of financing; hence, conditionality should not entail the setting of quantitative targets, but should consider the degree of commitment assumed by govern­ ments in their economic policies and the maintenance of those policies over time. Similarly, structural adjustment programs must be realistic and their basic contents must be shaped by the countries themselves. Finally, though coordination with the International Monetary Fund is essential, it is crucial that the granting of loans not be contingent on a country first having con­ cluded an agreement or worked out a program with the Fund. I wanted to leave my views on the Central American region and my own country for last. The Central American countries are going through an especially difficult socio-economic period and are beginning to adopt the adjustment measures required for adaptation to the new international economic circumstances and to their own internal economic realities. We therefore request the World Bank, the Inter-American Development Bank, and the rest of the international financial community to lend prompt, flexi­ ble aid to the individual and collective development efforts of these coun­ tries. In particular, the regional cooperation arrangement must be strengthened, and in that context such multilateral financing mechanisms as the Central American Bank for Economic Integration and the bodies con­ nected with the Central American Monetary Council, especially the Central American Clearing House and the Central American Monetary Stabiliza­ tion Fund, must be consolidated. These mechanisms have remained fully ef­ fective and operational, but they require a significant financial input in sup­ port of our own internal efforts to reinforce them. As an integral part of Central America today, Nicaragua has been af­ fected by the economic problems common to our five countries, problems which relate, inter alia, to the dis savings induced by the external sector owing to the deterioration in the terms of trade, inflation, and the increased severity of the world recession, all of which brought about sizable balance of payments disequilibria and affected the growth rates of economies in the region. In our own particular case, this has been compounded in the past decade by the effects of the earthquake which destroyed the city of Managua, the human, social, and economic costs of the War of Liberation, and, just three months ago, the effects of floods unprecedented in history in Nicaragua. The latter, according to ECLA estimates, inflicted direct

141 damages valued at over $350 million. It also bears noting that in the two year period 1978-79, Nicaragua's gross domestic product declined by more than 30 per cent in real terms. In these circumstances, the economic recovery and the national reconstruction effort initiated in the last three years have proceeded at a slow but steady pace as part of a gradual con­ solidation of a mixed economic system. Other key aspects of our program are the effort to stimulate domestic production without neglecting social sectors, the protection of real wages, the strengthening of export capabilities, and the achievement of ever higher levels of efficiency in the public sector, especially in the state enterprises. We have also successfully renegotiated all the external debt contracted prior to July 1979 with the in­ ternational banking community, as well as that contracted with various governments-except in the case of one country. External debt service payments have been met fully and without problems. Our relationships with the multilateral development institutions have been totally satisfactory and our dialogue with the World Bank has been far-reaching and fruitful. We are confident that this support from the international community will be maintained in the years to come. The countries I represent did not come to these Meetings in order to lay the blame for all their major socio-economic problems on the difficult and urgent international situation. Quite the contrary, we recognize the need for firmness by every member country of the Bank in carrying out the hard and urgent task before it domestically in order to overcome existing difficulties. Nevertheless, there is also no escaping the conclusion that the period through which the developing countries are now passing calls for con­ siderable imagination on the part of the institution itself, consistent with its role as a development bank, imagination which must be reflected in new measures and new activities which are at the measure of the task before us. The World Bank may count on our support in these efforts.

NORWAY: ROLF PRESTHUS Governor of the Bank

Speaking on behalf of the five Nordic countries, Denmark, Finland, Iceland, Norway, and Sweden, I would like to begin by warmly welcoming the three new members of the Bank. We appreciate the increased geographical and political broadening of the Bank's membership. Let me also take this opportunity to express our appreciation to the Government of Canada for the warm hospitality extended to us here in Toronto. Since the last Annual Meeting of the World Bank Group, the world economic situation has worsened and the short-term prospects for an im­ provement are still bleak. The low-income developing countries have been particularly hard hit by the recession in the industrialized world. To quote

142 President Clausen in his foreword to fDA in Retrospect: "The poorest countries of the world remain in desperate need of further assistance." The recession has also had a negative impact on North-South relations in general. Another effect of the worsening of the world economic situation has been the increasing protectionist tendencies and a risk of an erosion of the open international trading system. We expect that the GATT ministerial meeting in November will confirm our determination to take a firm stand against trade restrictions and pave the way for a continued liberalization of world trade while at the same time facilitating increased participation of the developing countries in the world trading system. Against the background of the present international economic crisis, multilateral assistance is of crucial importance. First, the international financial institutions play an important role in the promotion of interna­ tional cooperation and security. Second, it is a fact that the developing countries have a preference for multilateral aid, which often allows them a more direct participation and influence on the orientation of the programs. And third, multilateral aid benefits almost all developing countries and is, therefore, a natural and necessary supplement to the concentration by donor countries on a limited number of bilateral aid programs. I might add that in the case of the World Bank, this institution is particularly well equip­ ped to play an important role in the policy dialogue and development pro­ cess in the Third World. It is therefore all the more regrettable if the role of the World Bank in the multilateral aid field is weakened by the lack of will of some major donor countries to contribute at an appropriate level to the funding of the Bank's activities. From the Nordic point of view, the main question before us at this An­ nual Meeting is whether we want to revitalize the multilateral aid system by showing the necessary political will to increase significantly our contribu­ tions. We have to face this important policy question. If not, what we discuss here and now will have little impact on the difficult problems facing the developing countries. The Nordic Governments welcome the efforts by countries that are in­ creasing their concessional development assistance, while we deeply regret that others are reducing theirs. We continue to support the aid target of 0.7 per cent of the gross national product-a modest target by itself in view of the obvious needs of developing countries and of the industrialized world's ability to assist them. It is hard to understand why some of the industrial countries, which otherwise play such important roles in the world, are now reducing the development assistance from their present low level of con­ tributions. The present economic setbacks in the industrial countries should not be a reason to slacken efforts to help the poorest countries who are really in need and who, in addition, are especially hard hit by the recession. Assistance alone, however, cannot bring about the desired results of development efforts. Needless to say, the recipient countries have the

143 responsibility for their own development, including the formulation of policies that promote economic and social progress. For more than 800 million people in the low-income countries, to which IDA commits over 90 per cent of its resources, per capita income rose by only US$80 during the last 30 years, to a level of US$230 in 1980. What does US$80 represent for an average family in any donor countries? Public opinion is often referred to as a politic~l obstacle to increased levels of contributions to developing countries. What is needed, however, in many donor countries is an active policy, including government-supported campaigns and programs, to increase public understanding of the impor­ tance of development assistance and development problems. Increased understanding and increased assistance are indeed necessary if the situation for the hundreds of millions in absolute poverty in the Third World is to be at all improved at a faster rate in the next 30 years. In the 1970s, the World Bank went through a rapid expansion, during which lending for basic needs-oriented projects increased substantially. The Nordic countries have strongly supported this development. As pointed out in the Annual Report, the share of IBRD and IDA lending to sectors and subsectors more directly beneficial to large numbers of poor people rose from 5 per cent in 1968 to 31 per cent in 1981. Unfortunately, the expansion of the 1970s now appears to have been halted, as reflected in the present severe resource problems of IDA and in the reduction in nominal terms of the IBRD commitment projections for the coming three-year period. There are very disturbing indications that a shift in resource allocation away from agriculture and rural development is taking place. The above-mentioned new tendencies-the halt in the Bank's expansion and the possible change in the general orientation of the aid programs-are not acceptable to the Nordic countries. There is evidence that, in the long run, socially oriented projects tend to further not only social progress but also economic growth. Most recently, the Bank's own study "Poverty Focus" has documented that the twin ob­ jectives of rapid economic growth and poverty alleviation are not mutually exclusive. On the contrary, it has been clearly demonstrated that poverty­ oriented projects have rates of return as high as other projects. It is impor­ tant to keep this in mind. In the view of the Nordic countries, therefore, the World Bank should continue to stress the human development and poverty­ alleviation objectives, not only at project and sector levels, but also in the macroeconomic policy dialogues. In this connection, it is pertinent for me also to point to the need for im­ proving the status and living conditions of women in developing countries. The woman's role is not infrequently characterized by inequality and lack of access to otherwise existing opportunities. In this situation also the World Bank should-in carrying out its activities-pay more attention to

144 the need for integration and participation of women at all levels of the development process. In the context of development, the Bank can and should have a social profile of its own. As we see it, it would be perfectly justified for the Bank to assist especially those countries willing to actively pursue goals aimed at poverty alleviation. On the basis of our general attitude, the Nordic countries are concerned about the projected decline in the Bank's lending to agriculture and rural development from 32 per cent in fiscal years 1977-81 to 27 per cent in fiscal years 1982-86 and the relative stagnation in lending to the socially oriented sectors, such as education, health, and nutrition, which normally have a direct impact on the poorest segments of the population in the developing countries. We are, therefore, of the opinion that the projected negative trend in allocations to these sectors in the IBRD-IDA lending program for fiscal years 1982-86 should be reversed. Another aspect of the increasingly difficult financial situation for the low-income countries is their difficulty in covering recurrent costs and financing rehabilitation of projects. In spite of good intentions and obvious needs, the economic realities may exclude the utilization of scarce funds for essential maintenance and repairs. Increased attention should be given to this issue during the project's preparation in order to avoid deterioration of otherwise sound and vital projects. The Nordic countries also find that rehabilitation of already completed projects that subsequently have run into difficulties merits increased attention. Another issue to which more atten­ tion should be paid is the impact of the development process on the environment. The present shortfalls in the contributions to IDA is of great concern to the Nordic countries. It is of paramount importance to keep up the flow of aid through contributions to this Association, which represents about 30 per cent of total concessional flows through multilateral institutions. A number of countries, among them the Nordic countries, have released or are about to release in full their third and final tranche, thereby fulfilling their IDA­ VI obligation according to the agreed time limit. We urge that other coun­ tries take corresponding action. It must be welcomed that donor countries-with certain excep­ tions-have expressed willingness to enable IDA to continue its valuable operations in fiscal year 1984 through some form of gap-filling operation. The Nordic countries intend to contribute their share to such an operation. It must also be welcomed that negotiations will start on IDA-VII before the end of this year. The Nordic countries intend to participate actively in such negotiations with the objective of obtaining an IDA-VII replenishment agreement of a size which in real terms surpasses IDA-VI and is based upon equitable burden sharing. We urge all participating countries to show a con­ structive attitude in these negotiations, so that IDA-VII can become effec-

145 tive early in fiscal year 1985. This is all the more important as IDA in the years to come will face new tasks. We should have no illusions about solving IDA's resource problems simply by changing the terms on which IDA cred­ its are granted. Nor will increased co financing with the private sector, or other forms of private investments, solve this problem. For the poorest countries, there is no substitute for concessional aid. Let me in regard to IDA commend the recent publication IDA in Retrospect, which is timely and well balanced, demonstrating the value and efficiency of the Association. Also, nonfinancial assistance is most valuable for the development pro­ cess. It ought to become increasingly recognized that the Bank's nonfinan­ cial assistance has an important role to play. But, in this process, duplica­ tion of other international organizations should be avoided. To provide more resources also for Bank activities, the Nordic countries would strongly urge that the recent IBRD commitment plans be revised and that earlier plans, based on an annual real growth of about 5 per cent in the lending program be reinstated. We find it difficult to understand that finan­ cial reasons should make this impossible. It is, of course, true that an ex­ panded lending program could necessitate a further capital increase at an earlier stage than anticipated. But this is a real obstacle only to the extent that such an increase would place excessive budgetary burdens on the member countries. Even with a paid-in portion of the present size of 7 112 per cent, this would not be the case. With an increase in the callable capital only, there would be no financial outlays at all. The Nordic countries fully support the importance of furthering in­ vestments in the energy sector. The need for additionality in regard to energy lending seems so obvious that it is indeed regrettable that an energy affiliate has not yet been established. The Nordic countries would like to reiterate their support for the establishment of such an affiliate and urge that discussions to that effect be reactivated as soon as possible. We feel it important that increased energy lending not be made at the expense of len­ ding to agriculture, rural development, and other basic needs projects. This can be avoided by mobilizing additional funds through an energy affiliate. The Nordic countries can see some merit in increased involvement of the private sector in the development effort, for instance, through cofinancing with the World Bank. The private capital must, however, be of an addi­ tional character. It is essential that it contribute to an overall increase in private capital flows for development purposes in the Third World. It is, of course, equally important that it not be substituted for official flows. We also consider it essential that increased Bank co financing with private finan­ cial sources should not justify a lack of will to strengthen the Bank's fun­ damental role as a development institution. The market mechanism alone will not produce the most socially responsive and desirable results. To conclude my statement, I would urge all donor countries to look at the

146 positive results of past efforts, notably in the agricultural field, and to mobilize the necessary political will to increase their official development assistance. The World Bank Group is, in our view, eminently qualified to assist us in channeling aid to the Third World. The development assistance should especially be aimed at basic needs and poverty alleviation. This means a concentration on the poorest countries and the poorest segments of the populations. Development assistance should be an expression of our solidarity with the poor in the developing countries. Such a solidarity should be a vital part of our overall economic strategy aimed at raising the standard of living in the Third World and promoting international security and cooperation.

PAKISTAN: GHULAM ISHAQ KHAN Govornor of the Bank

Mr. Chairman, I would like to join those colleagues who have preceded me in expressing our deep appreciation for the hospitality extended by Canada and the excellent arrangements the Government has made for this Meeting. Let me also welcome Antigua and Barbuda, Belize, and Hungary as members of this community. We are fortunate, in view of the formidable challenges faced by the world community today, to have the benefit of the inspiring inaugural address of Prime Minister Trudeau and your presence, Mr. Chairman, to conduct our deliberations. We have also listened with close attention to the statements made by the President of the World Bank and the Managing Director of the Interna­ tional Monetary Fund. These statements and the excellent and thorough reports on the world economy produced by the Fund and the World Bank convey the same depressing message; economic recession and lack of proper coordination of policies by the industrial countries have cast a shadow on the world economy and in particular on the non-oil developing countries. Things have never been worse for this group. Their current account deficits have multiplied two and a half times over the last three-year period. Initially, this resulted from higher import costs and rising interest payments and, more recently, from a slump in commodity prices and stagnation in world demand. The quantum of international trade has averaged an in­ crease of only 1.3 per cent over the last three years. Meanwhile, commodity prices have registered the steepest annual decline over three decades with the exception of the 1975 recession. The commodity price index in 1982 has slumped below the level of five years ago, while in the corresponding period the prices of manufactures rose by over 45 per cent and of oil by even more. As a consequence of these forces, over which the non-oil developing countries exercise virtually no control, their economic growth plummeted to around 2.5 per cent, trailing for the first time in decades behind the popula- 147 tion growth in the majority of these countries. As long as the world economy remains trapped in its current crisis, the prospects for the develop­ ing countries are exceeding sombre. The central dilemma we confront today is the progressively increasing current account deficits of the oil importing developing countries and the existence of no automatic or properly designed international mechanism to finance these deficits in the short run or to correct the fundamental im­ balance in international payments in the long run. The events in the last few years have created an extraordinary international monetary situation, calling for extraordinary measures and unparalleled vision. It would be simply defeatist on the part of the international community to sit on the sidelines, watch this situation with calm detachment, and let the burden of this extraordinary adjustment pass on entirely to the developing coun­ tries-in fact, to the weakest members of the international community. And yet this is precisely what is happening at the moment. The Managing Director of the Fund presented an in-depth analysis of the current international monetary situation to a meeting of ECOSOC in July this year. According to this analysis, current account deficits of the oil im­ porting developing countries have increased by about $50 billion in 1981 over the level of 1978. Toward this deterioration, about $60 billion were contributed by the rise in the price of oil and higher interest payments on long-term foreign debt. Lack of harmony and coordination in economic policies pursued by developed countries compounded the oil price increase and the two factors taken together were entirely responsible for the worsen­ ing deficits. As pointed out by the Managing Director, "the increase in the oil deficit and in interest payments exceeded-by some $10 billion-the total deterioration in the current account deficit of the oil importing developing countries during 1979-81. This indicates that other elements of the current account strengthened-a finding that is all the more significant in view of the recessionary conditions in the world economy that constrained the growth of international trade and depressed commodity prices." This conclusion is quite startling and has profound policy implications. It means that external factors have accounted for the recent deterioration in the current account deficits of the oil importing developing countries. As far as their own internal efforts are concerned, they reduced these deficits by $10 million by import substitution efforts, and by improving their export performance despite a prolonged world recession during which the GDP growth rate of developed countries has averaged around 1 per cent for the last three years. If, despite their own determined efforts, the developing countries are still facing a deteriorating balance of payments situation, the question naturally arises: what can the international system do about it? There is not only a shortage of liquidity in the international system, it is grossly maldistributed. Every deficit of the developing countries surfaces in a corresponding surplus of another country in the international system.

148 What is lacking are the mechanisms which would keep the global liquidity at an adequate level and make the adjustment process operate smoothly and equitably ... There is need for more than monetary reforms to rescue the developing nations from their current crisis. Among these, the question of concessional capital flows to poorer countries is of key importance in this forum. The ODA-GNP ratio, another victim of recession and unemployment, is once again receding from the 0.35 per cent of developed countries' GNP, which itself was the halfway mark of the 0.7 per cent target established 12 years ago. Not just the levels of aid, the form that it takes and its relation to debt servicing are also of significance today. The Brandt Commission and the Program of Action prepared by the Group of Twenty-Four contain an ex­ tensive list of measures, each of which is significant and deserves support. It is unfortunate that most international discussions are concerned with gross commitments of foreign assistance rather than with net resource flows to the developing countries. It is the latter that is critical for any policy analysis. If interest payments and amortization are deducted, the net flows of capital to oil importing developing countries have fallen in recent years to about one third of their gross flows. In my own country, the net flows have shrunk dramatically, from about 75 per cent of the gross flows six years ago to 20 per cent now, and are likely to fall further in the absence of decisive in­ ternational action. Serious questions of policy arise then a country has to pay back as much as 80 per cent of each dollar it receives, in free and flexible foreign currency, in order to obtain an additional dollar of assistance, which often comes tied to purchases in donor countries and to a good deal of project and policy conditionality. In other words, developing countries' own payments of in­ terest and principal are increasingly financing the so-called new assistance that they negotiate these days. We must seriously review whether this is either a fair or a lasting system. There must be greater focus in future on the trend in net resource transfers to developing countries and a major effort must be made to explore all avenues to increase these net transfers-whether by increasing the level of fresh assistance or by pro­ viding assistance in a quick-disbursing form, such as through program and sector loans, or by instituting unencumbered lines of credit particularly for the private sector, or by considering consolidation and refinancing of past foreign debts. It is absolutely vital for low-income developing countries that the volume of concessional assistance be substantially enlarged, its terms improved, and the policy conditionality attached to it tailored to the objective realities in each country. The appointment of a Task Force on Concessional Assistance is an encouraging signal that this problem is receiving attention. I hope that the Task Force will make concrete recommendations on the manner in which net assistance flows must be increased, both in absolute

149 real terms and as a proportion of gross assistance. In this context, the Task Force should also examine whether medium-term consolidation of debts of poorer nations is necessary for this purpose. Since IDA plays an especially significant role in concessional flows, the short funding of IDA-VI and the threatened delay in commencement of IDA-VII are matters of the most serious concern to us. The recent World Bank study, IDA in Retrospect: The First Two Decades of the Interna­ tional Development Association, has concluded that IDA has played a very effective and constructive role, as demonstrated by the high rates of return on IDA projects, the influence of the agency on policy reforms and institu­ tion building, and the intersectoral responsiveness of IDA lending to chang­ ing perceptions and needs of developing nations. The study also notes that the graduation of some countries from IDA's list has in no manner lessened the need for concessionary assistance in general, and of IDA in particular, because extensive groundwork remains to be laid for promoting long-term development in the poorest countries of the world. IDA must be restored, in view of these findings, to a secure and substan­ tial role. We must make a determined attempt to prevent the threatened delay in replenishing IDA-VII. We would press for a serious and urgent process of negotiations in the meeting of Deputies so that IDA-VII can become effective within the next fiscal year. Meanwhile, special ar­ rangements should be made to enable a significant expansion in real terms for IDA commitments in fiscal year 1983 and fiscal year 1984. The Ver­ sailles communiqu e had stressed the need for special temporary ar­ rangements to overcome the problems with IDA-VI and IDA-VII and we note with appreciation the action by some donors to release their third tranche of IDA-VI in full. We would urge other donors to follow suit and make full releases of their outstanding balances and to take other ap­ propriate action to provide commitment authority for fiscal year 1984, which is significantly larger in volume than fiscal year 1983. As a bridging arrangement, a special fund, with a somewhat more limited membership, should also be considered as proposed by some members. The world economy currently faces a deep crisis, the kind of crisis not witnessed since the dark days of the 1930s. Our task is not to find faults but to find solutions. We need the birth of a new internationalism. We need the revival of a new spirit of global cooperation. Together, we can rebuild the world economy on sound and permanent foundations of economic efficiency and economic justice. This can be done by the full participation of developing countries in international economic decision making, not through their exclusion. Our markets and economic futures are linked together in an increasingly interdependent world. Let us respect the im­ peratives of this interdependence. And let us make a real effort to find realistic and practical proposals for fundamental reforms in the prevailing world economic structures and institutions.

150 PAPUA NEW GUINEA: PHILLIP BOURAGA Governor of the Fund

I am pleased to attend for the first time these meetings as the new finance minister of the Papua New Guinea Government, which has recently been elected for a five-year term. My Government is committed to retain respon­ sible economic management and to do its best to facilitate faster develop­ ment of our nation. Papua New Guinea's experience of the effects of the current general recession is no different from that of the other member countries. As a small open economy, Papua New Guinea has adopted various mechanisms to stabilize internal economic activity in the face of inevitable fluctuations in the prices of our export commodities. We have learned to plan for fluc­ tuations. However, events of the last two years contain elements of long­ term difficulties which require more far-reaching domestic adjustment measures. Two important factors are depressing the outlook for Papua New Guinea:

1. The steep rise in oil prices in 1979-80, which worsened Papua New Guinea's terms of trade, has been compounded by the probability of reduced prices for agricultural commodities over the remainder of the decade; 2. Mineral contents at our single large copper and gold mine will decline faster than anticipated, which implies a substantial reduction in the flow of mineral revenues to the budget.

My Government's response has been to consider first a medium-term fiscal adjustment program, which will entail both expenditure reductions and a scaling down of overseas commercial borrowing. Papua New Guinea is also seriously considering greater restraint on wages, so as to improve competitiveness and to maintain limited scope in the budget for expenditure to provide the required stimulus for development. Monetary policy will also remain restrictive, bearing in mind overseas interest rate movements and lower foreign exchange earnings resulting from reduced commodity prices. Long-term development prospects for the country are relatively favorable, with a productive resource base in agriculture, forestry, fishing, and metals. Development potential, therefore, remains sound, but will re­ quire adequate government expenditure and a responsible macroeconomic framework, as well as responsible resource management, to bring about the growth and development that the country is capable of. It is also of great importance that the international community, including the multilateral institutions, do not react to the recession with responses which may harm long-term growth. Protectionism and lower development

151 assistance flows are inappropriate long-term responses to present economic difficulties and will, I am afraid, deny us the considerable benefits inherent from the growing economic interdependence. So is the view that World Bank credit for financing further development of coffee, cocoa and tea ought to be restricted. Producers who can demonstrate viability even at low projected prices should have their case considered on its merits. Less effi­ cient producers should look to alternative crops. It is just as important for structural change along the lines of comparative advantage to occur in the developing world as it is for the developed group of countries. In Papua New Guinea we are planning for and looking forward to in­ creased investment in our traditional agricultural export sector, and to some progress in food import replacement. Agriculture remains the key element in my Government's plan to bring about broad-based development in which all Papua New Guineans can share. For this purpose, the continued finan­ cial and technical involvement of the World Bank is appreciated. I know that the Governors will use the formal and informal opportunities provided by the meetings to understand and appreciate the many problems we are facing, and hopefully to develop a framework capable of delivering mutual benefits to the peoples of our nations.

PARAGUAY: CESAR ROMEO ACOSTA Governor of the Bank

It is my honor to represent my country at this Meeting of the Governors of the World Bank and to convey to them the warmest greetings from my Government and the Paraguayan people. I should also like to extend our thanks to the Government and people of Canada and let them know how pleased we are to be meeting in the beautiful city of Toronto. My remarks will be focused on the work of the Bank in the past fiscal year and will pro­ vide some recent data on the economic and social development of Paraguay. From a reading of the World Bank Annual Report for fiscal 1982, it may be inferred that the readjustment of the currencies of the industrial coun­ tries following the 1971 collapse of the Bretton Woods system of fixed parities, as well as the 1972-74 crisis in food production, have contributed to an acceleration of the inflationary process and to rising exchange rates and interest rates, giving rise to a prolonged economic recession and to substan­ tial unemployment throughout the world. During fiscal 1982, the World Bank (IBRD, IDA and IFC) extended credits and loans totaling $13,628 million, representing an increase of $526 million over the 1981 level. Of that total, the IBRD was responsible for $10,330 million and IDA, $2,686 million; IFC credits declined by $199 million from the level of the previous year. 152 Paraguay obtained unprecedented amounts of financing commitments from the World Bank during fiscal 1982, with the agricultural sector receiv­ ing the largest proportion. In May 1982, Bank commitments in Paraguay totaled $69 million, $22 million of which was for the agricultural sector. During fiscal 1982, the IBRD turned to co financing to enhance routine flows of capital to developing countries. It called upon three sources of financing, namely, official assistance organizations, export credit institu­ tions and commercial banks. The breakdown by sector of the credit operatigns of this group of inter­ national financial organizations has changed considerably over the last decade as regards the electricity, transportation, agricultural and industrial sectors. The basic infrastructure of member countries was strengthened dur­ ing that period. Throughout the world, more ambitious development objec­ tives were achieved and the productivity of the poorest segments of the rural and urban populations was improved. We should like on this occasion to stress the need to continue the policy of increasing the financial support devoted to improving the conditions of and outlook for agricultural production, fighting rural poverty, increasing the volume of international trade and intensifying the long-term develop­ ment trends of the world economy. It is only fair to highlight the efforts of the World Bank in the form of the financial support it extends to its member countries. In formally moving that the Annual Report and balance sheet be approved, I am expressing our gratitude for the work carried out by the World Bank in the period just completed. I should now like to refer to various aspects of Paraguay's economic and financial performance in 1981 and the first six months of 1982.

The Paraguayan Economy in 1981 The Paraguayan economy once again recorded satisfactory growth despite the unfavorable world economic conditions which prevailed throughout 1981, a year characterized by high rates of inflation in the larger countries, contraction in growth and increased unemployment, and the decrease in the expansion of world trade aggravated by rising interest rates internationally. The final calculations for gross domestic product indicate that economic activity in Paraguay registered an increase of 8.5 per cent in real terms in 1981, the highest rate of growth in Latin America and the Caribbean although somewhat below the rate for earlier periods because of the world recession. In the past four years, Paraguay's economy has been growing at a cumulative annual rate of 10.4 per cent. Sector by sector increases in gross domestic product during 1981 show that the value added by agricultural production increased by 8.2 per cent, livestock increased 3.2 per cent, forestry 4.8 per cent, construction 16.7 per

153 cent and services 6.8 per cent. The most salient feature of 1981 was that value added from the production of goods grew more rapidly than that from services. In accordance with the revised estimate of the population, which rose to 3,268,489 for 1981, and the overall gross domestic product, which totaled o 390,837 million at 1977 constant prices, per capita GDP amounted to $949, a 5.1 per cent increase over the $903 for 1980. Favorable developments in the agricultural sector as a whole reflected dissimilar trends for the major crops. Soybean production rose by 35.4 per cent, totaling 880,000 metric tons, while cotton increased 34.9 per cent to a total of 317,000 metric tons. Wheat production increased 26.4 per cent to 55,000 metric tons and sunflower production rose 35 per cent to 23,476 metric tons. Production increases were also registered by coffee (39.3 per cent), beans (5 per cent), rice (3 per cent), and manioc (1 per cent). Value added by agricultural production totaled 0 80,268.5 million at constant 1977 prices. In the livestock sector, a total of 384,873 head of cattle were slaughtered in 1981, an increase of 7.2 per cent over 1980. Domestic consumption ac­ counted for 378,715 head, or an increase of 7.9 per cent, while export de­ mand (6,158 head) showed a decline of 24.8 per cent. The gross value of industrial output increased to 0 153,209 million in 1981 and added value to production rose to a total of 064,162 million, both in terms of constant 1977 prices. The industries with the most significant in­ creases were foodstuffs (22.4 per cent), textiles-particularly cotton fiber (31 per cent), shoe manufacture (21 per cent), the lumber industry (27 per cent), plastic manufactures (70.3 per cent), nonmetallic minerals (9.6 per cent), electrical goods (74 per cent), rubber products (14.8 per cent), and skins and hides (7.9 per cent). Paraguay's foreign trade again registered a deficit in 1981; its amount, $210.6 million, was 1.8 per cent greater than the deficit of the preceding year. This imbalance in international trade stemmed from price increases for imported inputs and intermediate goods required for economic develop­ ment and from the decline in exports owing to the contraction in world demand. Despite the unfavorable showing of international trade, however, the balance of payments again yielded a surplus of $45.2 million in 1981, equivalent to a 73 per cent reduction from the preceding year's favorable balance of $167.4 million. As a result of the 1981 balance of payments posi­ tion, the Central Bank's gold and foreign exchange holdings increased by $32.3 million and the exchange position of commercial banks improved by $12.9 million. With this $32.3 million (or 4.3 per cent) increase, the net international reserves of the Central Bank totaled $781 million as at December 31, 1981. The gain stemmed principally from inflows of external capital, investments

154 of binational entities in hydroelectric projects at Itaipu and Yacyreta, and an increase in holdings in dollar terms attributable to the exchange rate changes of the currencies making up the monetary reserves of the Central Bank of Paraguay. In the fight against inflation, the downturn of consumer prices which began in the first six months of 1981 resulted in an annual rate of increase of 13 per cent for 1981, well below the 1980 figure of 22.4 per cent. The manual wages index increased 20 per cent in 1981, a slower rise than the increase of 23.3 per cent in 1980. There were wage increases in every labor sector. In the manufacturing industry sector, the increase was 20.3 per cent, in electricity, water, and energy it was 20.0 per cent, 19.3 per cent in construction, 24.5 per cent in trade, 19.4 per cent in transportation, warehousing, and communications, and 21.5 per cent in the services sector. To offset the increase in consumer prices, in view of the 13 per cent rise in the average index of consumer prices in 1981, the Government authorized a minimum wage increase of 15 per cent effective May 1, 1981. There was an inflow of private investment capital and a surge in private transactions, including the opening of new private banks. New investment projects authorized by the Government under Law No. 550175 on the pro­ motion of investment for economic and social development totaled $50.6 million in the first six months of 1982, indicating a slight decline from the total of $61.5 million in the same period of 1981. Some 38 per cent of total investment went for 20 investment projects in new enterprises, while 62 per cent went to 33 projects involving existing enterprises. It is estimated that the projects approved will provide jobs for 1,095 per­ sons. As the result of ongoing efforts to extend electrification and improve communications begun in the past, the majority of the new industries in question are agro-industrial projects located in cities outside the capital. The Government's economic program includes long-term measures designed to strengthen the basic structures of the Paraguayan economy. By channeling public investment toward providing an adequate infrastructure in communications, roads, telephones, etc., the Central Government is con­ tributing to improving the efficiency of the entire productive apparatus. Among the most promising efforts initiated in 1981 with the financial support of the Government and the cooperation of private initiative were the investments made under a program designed to substantially reduce the high degree of dependency on petroleum in meeting our increasing needs for fuel in transportation: these include the investments devoted to the establishment of a plant for the production of alcohol for fuel. The banking and monetary policy measures adopted by the Government in 1981 to deal with the problem of stagflation affecting most countries pro­ duced the desired results. The principal monetary measures adopted in 1980 remained in force in 1981. These include setting the rediscount margin of banks at 30 per cent for

155 the financing of production and exports and the 3 per cent increase in the in­ terest rate on bank savings deposits, raising it to 11 per cent. Additional measures adopted in 1981 included raising the rediscount rate to 8 per cent per annum as compared to 5 per cent in 1980. In September 1981, commer­ cial banks were authorized to pay a bank interest premium of up to 3 per cent on term deposits which, when added to the nominal interest rate of 11 per cent, raised the rate to 14 per cent per annum. It was also decided to lower the cash reserve requirement on time savings deposits from 42 per cent to 30 per cent. Both measures increased domestic liquidity while offset­ ting the effects of the increase in the interest rate paid on bank loans. In ad­ dition, the home savings and loan system was authorized to increase the in­ terest rate on fixed-term savings deposits by 3 per cent per annum and to credit the monetary readjustment on savings on a quarterly basis, replacing the annual crediting which had previously been used. In 1981, the monetary readjustment was 5 per cent as compared to 9 per cent in 1980.

First Half of 1982 Generally speaking, most of the indicators point to new increases in economic activity during the first half of 1982, although the development of the economy was affected by adverse cyclical factors such as the sharp rise in the value of the dollar on exchange markets, the high interest rates on in­ ternational financial markets, and the large devaluations in the currencies of neighboring countries. As a result of these negative developments, although exports increased, trade declined and domestic economic activity slowed down, fueling a rise in the quoted price of the dollar on the fluctuating free market. With the object of moderating the increase in the value of the dollar on the fluctuating free market, the Central Bank ruled that the foreign ex­ change earned by exports would be apportioned as to 50 per cent at the of­ ficial market price of

156 Monetary issue fell by 0.5 per cent during the first half of 1982, compared with a first-half increase of 4.4 per cent in 1981. Deposits by the autonomous entities and state enterprises fell sharply during the first half of 1982, reducing the room for maneuver in the Central Bank's issue capacity. The money supply fell by 2.5 per cent during the first half of 1982, poin­ ting to a decline in the rate of expansion of the media of payment, com­ pared with an increase of 0.6 per cent during the first half of 1981. The fall in the money supply was due to reductions in private sector deposits of 4.4 per cent and in public sector deposits of 3.6 per cent, as a consequence of the higher interest rate offered by the banks for savings and term deposits. At June 30, 1982 the trade balance showed a deficit of $63.7 million, against $93.6 million for the first half of 1981, indicative of a less sharp deterioration in terms of trade. Exports totaled $203.8 million in the first half of 1982, an increase of $58.7 million (40.5 per cent) over first-half 1981 ($145.1 million). Volume of exports rose by 169,444 metric tons (36.1 per cent), to 638,826 metric tons. Some export products faltered during the first half of 1982; for example, exports of sawn wood fell by 24.8 per cent as a consequence of successive sharp currency devaluations in Argentina, our main market. Imports rose by $28.8 million (12.1 per cent) compared with the same period of 1981. The rise was due mainly to increases in imports of machinery, appliances and engines, and fuels and lubricants. The balance of payments registered a small deficit of $9.7 million during the first half of 1982 as a consequence of the world recession and high in­ terest rates on international financial markets. In the same period of 1981 the balance of payments showed a surplus of $8.8 million. At June 30, 1982 the Central Bank's net international reserves totaled $767.2 million, a decline of $14 million (1.8 per cent) from the December 30, 1981 total of $781.3 million. Net international holdings at June 30, 1982 were made up as follows: foreign exchange balances of the Central Bank, 91 per cent; investments and contributions to international agencies, 2 per cent; gold holdings, 1 per cent; net reserve position in the IMF, 4 per cent; and special drawing rights, 3 per cent. Purchases of bonds of the Inter-American Development Bank and the World Bank totaled $11.3 million at June 30, 1982. The external debt balance totaled $1,087.7 million at June 30, 1982, 14.7 per cent higher than the balance at December 31, 1981. During the first half of 1982 amortization payments were made of $38.4 million and interest payments of $23.3 million, a total of $61.7 million (1981 first-half total: $59.1 million). The successes achieved by the Government of Paraguay represent a substantial effort in pursuit of the country's economic and social growth and the well-being of the people during a period of unfavorable world

157 economic conditions that are seriously hindering the success of our programs. My Government wishes to express, through me, its great satisfaction with the work accomplished by the World Bank and its affiliates during the past fiscal year. On behalf of the Government and people of the Republic of Paraguay, I wish to express a sincere hope that the world will achieve a sus­ tained economic and social recovery. I take this opportunity to reaffirm our confidence in the authorities of the Bank and, very particularly, in its President, Mr. A. W. Clausen.

PORTUGAL: JOAO M. F. SALGUEIRO Governor of the Bank

I should like to associate myself with my fellow Governors' words of ap­ preciation and thanks to all those in Canada who have been responsible for the arrangements made for our Meetings. It gives me particular pleasure to meet in this country that is the host of hundreds of thousands of my com­ patriots. I know that here in Canada, as in so many countries on different continents, these individuals demonstrate fully their capabilities as hard workers and dynamic entrepreneurs, and have easily integrated into the na­ tional economy. I would also like to extend my Government's congratulations and welcome to the new members that have recently joined the Fund and the World Bank. If the forecasts for 1982 made by the International Monetary Fund and the World Bank are confirmed, 1980-82 will be the longest period of slackening of economic activity in the industrial countries since the reces­ sion of the 1930s. The continuous increase in unemployment, which worries us so much, is therefore no surprise. This trend is certainly the result of the monetary and fiscal policies adopted to fight the high levels of inflation, which were fueled by the oil shocks and the less strict policies followed in the past. Nevertheless, difficulties encountered by governments in implementing the necessary rigorous budgetary measures have led to excessive use of monetary policy to fight inflation. This has resulted in high interest rates, which reached top levels both in nominal and in real terms, especially in the United States. Exchange markets have been strongly affected and the behavior of the dollar has had enormous repercussions on the world economy, especially on the developing countries. In these circumstances, I am glad to see the considerable efforts made recently by the American Government aimed at reducing the public sector deficit. It is too soon to assess the exact scope of the measures that have been announced but, taking into account the initial reactions of the

158 markets, it seems that the right path has been chosen. Nevertheless, even if the drop in interest rates proves to be a lasting one, we should not rely too much on it. It will not be the panacea for all the evils of our economies. Major difficulties in balance of payments felt by a growing number of countries, including some oil exporters, will not be overcome just by the reduction of interest rates. There is clear need for a consistent set of policy actions backed by the whole international community that effectively ad­ dress the core of the crucial problems now at stake. The industrial sectors are undergoing a crisis from which they will not recover overnight: adjustment efforts will have to be pursued. The fact that even some prestigious corporations, not operating within the so-called "traditionally sensitive sectors" in the industrial world, are facing very serious difficulties is a clear indication that we still have a long way to go to overcome the crisis and that great efforts will have to be made. Each and everyone of our countries will have to pursue these adjustment efforts internally, but the achievement of positive results will depend, to a large extent, on an intensification of international cooperation. Actually, for the required adjustments to be effective implies that structural solutions will be implemented over the medium term. The existence of stable institutions in our countries is a fundamental prerequisite to the successful implementation of adjustment policies. In this respect, 1982 has been a particularly important year for Portugal. Eight years after the abolishment of the nondemocratic regime, a wide consensus among the main democratic parties both in the government and in the op­ position made it possible for the constitution to be revised in such a way as to provide the country with the institutional framework I have mentioned. Weare now in a position to fully address the major problems our economy is facing. The first priority of our economic policy is to regain a suitable pace for the development of our country. Therefore, one of our main targets in the near future will consist of reducing the current account deficit to a sus­ tainable level over the medium term. To this end, both fiscal and monetary policies will continue to be directed toward the re-establishment of the main macroeconomic equilibria. On the budgetary front a major effort is being undertaken to reduce ex­ penditure, namely, subsidies to prices and state-owned enterprises, and also to rationalize government administration. At the same time, a tax reform directed toward a reduction in the excessive burden still placed on investors will continue to be implemented. Particular attention will continue to be given to measures concerning public and private investment so as to guarantee channeling of resources to internationally competitive projects and to sectors bearing great influence upon external imbalance, such as agriculture and energy.

159 On the other hand, monetary policy will continue to be designed so as to avoid an excessive expansion of credit and, simultaneously, to maintain the attractiveness of financial assets denominated in escudos. Simultaneously, we will continue to implement a strategy which aims at making the Portuguese economy less rigid and more capable of reacting to exogenous shocks. This is the aim of the measures for the modernization of the financial, monetary, and exchange markets, for the clarification of the role to be played by government enterprises, and for the liberalization of foreign direct investment. This policy gives rise to considerable interest in the international financial community as demonstrated by the growing presence of foreign institutions in Portugal, including the opening of bank representative offices and the equity participation in investment and leasing companies. It is a pleasure for me to mention at this particular meeting the contribution provided by the International Finance Corporation in the launching of new institutions and instruments in the capital market. Portugal will pursue an active presence in the international financial markets, oriented toward a greater diversification of the currencies and the instruments utilized. Along with the growing presence of foreign institutions in Portugal, Portuguese banks are making a great effort to modernize in order to be able to face future challenges, such as the opening of this sector to private in­ itiative, the accession to the EEC, and the strengthening of their position in the international financial markets. Our concerns with short-term difficulties should not divert us from the search for durable solutions. International cooperation is particularly im­ portant in this respect. The need to reduce balance of payments disequilibria and to prevent higher unemployment should not lead us or the major industrial countries to adopt protectionist measures. These will only contribute to increasing the difficulties others are facing and make the inevitable adjustments more painful. Portugal attaches great importance to the development of clear and stable relationships with its main partners. We believe that clear and unbiased in­ ternational relations will provide a sound framework for economic agents to avoid uncertainty from becoming a permanent threat. It is within this perspective that we have been conducting negotiations with the EEC, to be concluded by the end of the year, and also strengthening our cooperation with the Portuguese-speaking African countries. These are two fundamen­ tal guidelines of Portuguese policy. These two orientations do not hinder but rather reinforce my country's willingness to take an active part in the reinforcement of cooperation with other countries. A confirmation of this can be found in our recent decisions to join the African Development Fund and the African Development Bank.

160 Now I would like to refer to our cooperation with the World Bank. The deterioration of the current account of developing countries and the grow­ ing difficulties in these countries' development process make it necessary to reinforce the role played by multilateral financial institutions working to finance economic development and, namely, the institutions constituting the World Bank. This is why Portugal has supported the recent measures taken to improve the financial strength of the World Bank and to provide the institution with an increased degree of flexibility which would be better adjusted to the changes in the capital markets where it has to mobilize the necessary funds for financing its operations and the corresponding changes in the interest rate policy. It was this acknowledgement of the need to channel additional financial resources to less developed countries that recently led Portugal to formalize its intention to join the International Development Association and to take part in the Sixth Replenishment. Again, it is in the understanding that the Bank needs to playa more significant role in the financing of the develop­ ment process of member countries that Portugal has shown special interest in the cofinancing schemes and the establishment of a multilateral invest­ ment insurance agency. This is our assessment of the role the Bank should play. Consequently, we were surprised to see that according to the World Bank budget approved for fiscal year 1983, the lending program for next year will be, in real terms, practically the same as in fiscal year 1982, precisely when additional effort is required for investment to be made in the energy sector and in the structural adjustment of the economies of member countries. The result of this stagnation in the loan volume will essentially affect two regions, Latin America and the Caribbean and EMENA, where there has been a substantial deterioration of economic conditions in the recent past. Therefore, Portugal strongly supports an expansion of the lending pro­ gram of the World Bank in such a way as to lead to recovery of the impor­ tant role which its financial institutions have had in the last few years. The measures adopted in 1982 to increase the Bank's financial strength and to provide it with tools better adjusted to present conditions of capital markets will only make sense if taken with that aim in mind ...

ST. VINCENT AND THE GRENADINES: R. MILTON CATO Governor of the Fund

I would like to express on behalf of my country, St. Vincent and the Gren­ adines, our sincere appreciation for the very warm welcome extended to us on our admission to membership in the World Bank, and it is indeed a signal honor for me to be the representative of my country in this forum today.

161 I would like in particular to put on record the thanks of my Government for the ready cooperation given to us by the President and staff of the Bank in expediting our admission at such short notice, and particularly at a time when they must all have been fully occupied with the numerous important details of organizing this Meeting. St. Vincent and the Grenadines has been pragmatic and cautious in its ap­ proach to membership in international organizations. This is so for the very good reason that we view the commitments and responsibilities of member­ ship with the utmost seriousness. In addition, my country, because of our financial constraints, is compelled to be cautiously selective in determining the priority and order in which we apply for membership in various institu­ tions. We are mindful of the immense prestige and authority of the Fund and Bank and pledge that in St. Vincent and the Grenadines they will have a member firmly committed to the proper execution of its responsibilities and constructive in its contribution. We therefore take our place here with full confidence that both organizations will be responsive to the needs of our small country. Following two successive years of natural disasters in 1979 and 1980, the economy of St. Vincent and the Grenadines recovered strongly in 1981, growing in real terms at an estimated rate of 9 per cent. Significant increases in production were recorded in agriculture and manufacturing. The balance of payments situation also showed an improvement, with the current ac­ count deficit falling to 8 per cent of GDP in 1981 from an average level of 15 per cent in 1979 and 1980. In order to ensure sustained economic growth in the medium to long term, we require both to consolidate and expand industry and tourism, and to strengthen our agricultural base. However, the success of our efforts in these areas is to a large degree influenced by global economic conditions over which we have no control. As amply described in the latest edition of the Bank's World Develop­ ment Report and the Fund's Annual Report, the state of the international economy and the prospects for recovery have worsened during the course of the past year. The industrial countries are experiencing continued recession, and are faced with the problems of fiscal deficits, inflation and rising unemployment. The tight monetary policies followed by some countries have served to raise interest rates to unprecedented levels. Growth in world trade has also fallen to a very low level, with consequent effects on the ex­ port earnings of developing countries. May I respectfully suggest that in coping with the problems besetting their economies, it is essential not only that the industrial countries adopt ap­ propriate and sound policies, but also that they continue to embrace the spirit of international cooperation. In this regard, we would wish to focus on two particular areas which are of major relevance to low-income countries like St. Vincent and the Grenadines. 162 Weare concerned, first, to note the increasing pressures within the economies of developed countries for the adoption of protectionist policies. The implementation of such policies cannot solve the structural unemploy­ ment problems faced by industrial countries. They will be effective, however, in retarding the development efforts of economies attempting to expand manufactured exports, and ignore the potential benefits to be gained from increased world trade. Second, St. Vincent and the Grenadines has formulated an investment program for the period 1981/82-1984/85 totaling US$46 million (EC$124 million) of which US$29 million has still to be secured. St. Vincent and the Grenadines has a limited dept capacity and must rely to a large extent on concessional assistance for implementation of this program. Our develop­ ment and adjustment efforts would be severly hampered if the availability of such concessional financing were to be curtailed. We would, therefore, urge the Fund and Bank to exercise their powers of surveillance to ensure that countries adopt consistent policies and to ensure ~hat such policies do not introduce distortions into the world economy. Both institutions have a vital role to play in ensuring the creation of an en­ vironment conducive to the economic development of all countries. The President of the Bank in his address has described most graphically the achievements of IDA during the past two decades, and related two specific examples of IDA assistance to low-income developing countries with populations of 700 million and 7 million people respectively. IDA had been able to render assistance with, among other things, their problems of water, education and agriculture. I would reluctantly like to draw attention to another part of the world which President Reagan has recently described as the third frontier of the United States. In this area of which my own country forms a part-with populations numbered not in millions but in some cases mere thousands, we have got to cope with the problems of poor infrastructure, lack of technology, and general poverty. These very small and poor countries might yet have an important part to play in the new world economic order. Finally, if I might be permitted to borrow the words of the President of the Bank, societies such as ours are in many cases vulnerable to social ten­ sion and civil unrest which might spill over and affect even more economically advantaged countries.

SENEGAL:OUSMANESECK Governor of the Fund

On behalf of my fellow African Governors I would like to welcome the new members of our iustitutions-Antigua and Barbuda, Belize, and Hungary.

163 It is clear from the 1982 Annual Reports of the Fund and the Bank that the global economic situation today is worse than it was at the time of our last meeting in Washington, D.C. The large external payments imbalances have persisted and the prospects of an early recovery remain bleak. While inflationary pressures in the industrial countries are expected to ease, the rate of output growth in these countries is expected to decline further from 1.2 per cent in 1981 to 0.3 per cent in 1982. The persistence of recession in industrial countries has adversely affected world trade with depressive effects on exports and growth of the developing countries. The growth of output of non-oil developing countries in 1981 was 2.8 per cent, compared with a rate of growth of 4.8 per cent in 1980. For Africa, the growth rate which was only 2.7 per cent in 1981 is projected to decline further to 2.2 per cent in 1982. For lower-income countries of the continent, the growth in output was 0.9 per cent in 1981, considerably below the growth in population. These developments mean that the gap in living standards and economic performance that separate Africa from other regions has been widening. We therefore call upon the international com­ munity to assist African countries in the effort to arrest this trend which is intolerable and, in fact, dangerous for the stability of the region. The deficits on current account of the non-oil developing countries rose sharply from US$86 billion in 1980 to approximately US$I00 billion in 1981 and are expected to remain at about that level in 1982. The deficits reflected mainly the persistent worsening in the terms of trade. These deficits have in the main been financed by drawing down reserves and by increased borrow­ ings on capital markets. This latter factor has added to the external debt of the developing countries, which was approximately US$465 billion in 1981. The record high interest rates have aggravated the cost of debt service. Be­ tween 1980 and 1981, interest payments for debt service alone rose by more than US$lO billion. The higher interest rates, shorter maturities, and in­ creased proportion of tied loans are making it more difficult for the developing countries to manage their external debt. In view of the mounting difficulties, the African Governors would like to propose the establishment of an efficient institutional framework for debt refinancing and reschedul­ ing to take better account of adjustment problems and the future financing needs of the LDCs. In this connection, the African Governors call upon the Fund and the Bank to give consideration to an institutional mechanism for dealing with the problems of debt refinancing and rescheduling. Further­ more, it would be desirable for all countries which have not already done so to move as rapidly as possible to cancel the debts of the least developed countries. Of greater concern is the fact that Africa is the region in the developing world that recorded the greatest decline in both value and volume of its ex­ ports last year. As a result, the African countries were compelled to cut back their imports even further, despite the fact that these are already at a

164 level that seriously jeopardizes growth. The decline in the volume of exports and commodity prices, as well as the marked worsening of the terms of trade, has contributed in large measure to the deterioration in Africa's economic position. The African Governors wish to emphasize once again the fundamental importance of commodity price stabilization for the suc­ cess of any economic policy in Africa, and remain firmly convinced that the conclusion of international agreements on commodities within the framework of the UNCT AD Integrated Program is one of the keystones for true international economic cooperation. We recognize the economic difficulties and rising unemployment in the industrial countries, but we feel that these difficulties should not be used as a justification for the spread of protectionism. Trade restrictions have in­ tensified since our last meeting and have created tensions in the multilateral trade system. The industrial countries have adopted a number of restric­ tions. Experience shows clearly that these measures have an adverse impact on the global adjustment process. In view of this, it is imperative for the in­ dustrial countries to take decisive steps to open up all their markets to pro­ ducts from the developing countries. Given the urgent requirements of development and the persisting prob­ lems of adjustment, the external capital needs of the LDCs will continue to grow. In this connection, the current volume of official development aid and the future prospects for this category of assistance are a source of great concern to African Governors, as a number of donor countries have in­ dicated that economic difficulties at home compel them to cut back their aid programs. According to the Development Assistance Committee of the OECD, official development aid fell from 0.38 per cent of the gross na­ tional product of the industrial countries in 1980 to 0.35 per cent. The volume of aid fell from US$27.3 billion in 1980 to US$25.5 billion in 1981. It is discouraging to note that this weakening of aid efforts has not spared the multilateral development institutions. The International Development Association has been in crisis for more than a year. As for the World Bank, we understand that some member countries would like to restrict its 1982-86 lending program to no more than US$60 billion. While aid finances only a small proportion of the investments undertaken in the LDCs, we must not underestimate its significant impact on the overall development effort. Africa's dependence on external assistance is even greater, given that most African countries have very limited access to international capital markets. We feel that a substantial increase in the flow of aid to the poor nations of the region will complement their efforts to undertake meaningful ad­ justments. In this regard, the international community should give con­ sideration to implementing the recommendation put forward by the World Bank, calling for a doubling of official aid in real terms to the countries of sub-Saharan Africa during the 1980s as a minimum to be exceeded. We are also highly appreciative of the efforts of those donor countries that have

165 achieved or even exceeded the target of 0.7 per cent in GNP, and we urge the other countries to reach this target as rapidly as possible. Finally, the African Governors welcome the establishment by the Development Com­ mittee of a task force on concessional flows. We wish to reiterate our views on the World Bank's sub-Saharan African Report as reflected in the Dakar Memorandum of African Governors which was presented to the Helsinki meeting of the Development Committee last May. We commend the Bank for the efforts so far to implement the ac­ cepted recommendations of the Report and urge the international com­ munity to vigorously support those efforts in view of the dismal economic prospects of the subregion. While discussing the difficulties facing multilateral development institu­ tions, I would like to underscore the importance the African Governors attach to the African Development Bank. This institution has set up a pro­ gram of activities for the period 1982-86 that requires resources in excess of what is currently available. We hope that this program and the decision of the AfDB's Governors to open the capital stock to nonregional members will receive the necessary support from the international community. We also welcome the continuing collaboration between the Bank and AfDB in the areas of cofinancing, training, and exchange of information. We hope that this cooperation will be strengthened and broadened to include new areas in the future. I should now like to say a few words concerning the activities of the World Bank. Throughout the past fiscal year, the World Bank has operated under a cloud of uncertainty. It is remarkable in these circumstances that the Bank was largely able to implement its program of activities. Total Bank/IDA commitments amounted to US$13 billion instead of the US$13. 7 billion originally scheduled. The African Governors are convinced that the financial constraints on the World Bank would have been even greater if the management had not in the course of the year actively taken a number of positive initiatives: increasing the 1982 Bank lending program to substitute Bank loans for IDA credits as a result of the reduction of approximately US$1.5 billion in IDA's commitment authority; arranging meetings of IDA Deputies to offset the harmful effects of the pro rata rule on the IDA credits for 1982-83; the search for an appropriate solution for the 1984 program; and insistence on full observance of the agreement on the Sixth Replenish­ ment. However, we deplore the crisis currently facing IDA, which is the main source of concessional flows to the poor countries. The uncertainties of the world economy, the reduction in bilateral aid on the part of several donors, and the cutback in IDA credits dangerously threaten progress achieved to date in the struggle against absolute poverty. Besides, the modest gains in improved living conditions for the most impoverished groups in the LDCs are being jeopardized. We deeply regret that the agreement on the Sixth

166 Replenishment has not yet been honored fully by all the donor countries. The African Governors call on all donor countries to step up their efforts to find a solution that will make it possible to avoid further reductions in IDA's commitment authority. In this regard, we strongly support the con­ clusions of the Versailles summit, which recognized the need to overcome the problems of IDA-VI and recommended that negotiations on the Seventh Replenishment be initiated without further delay. Bank/IDA commitments in African countries amounted to approxi­ mately US$2.7 billion, or 20.7 per cent of total commitments. It should be noted, however, that IDA credits to Africa were only US$840 million, which was well below the average of US$1 ,025 million for the past three years (1979-81). Efforts were indeed made to limit the harmful effects for African economies of the reduction in IDA's commitment authority. In this context, the African Governors welcome the decision to earmark 34 per cent of IDA's resources for Africa during the period 1982-86. The significance of this increase in Africa's share will, however, be minimal if the Associa­ tion's resources are not secured and growing in real terms. The African Governors duly endorse the focusing of the Bank's resources, specifically those of IDA, on the low-income countries. This approach should logically result in a sizable increase in IDA activities in Africa, which contains by far the largest number of least developed countries. The development of energy sources in the LDCs should continue to be an important field for international cooperation. Although the Bank devoted roughly 25 per cent of its 1982 commitments to the financing of energy proj­ ects in the LDCs, the sum involved (approximately US$3.25 billion) was low in relation to investment requirements in this area. Moreover, this level of lending cannot be sustained without compromising other high-priority sec­ tors. The African Governors are of the view that the creation of an energy affiliate or the establishment of any other mechanism that can lead to addi­ tionality of resources is still the most appropriate solution to enable the Bank to playa meaningful role in this sector. The creation of this affiliate would not only facilitate co financing with other investors but would also release additional resources for structural adjustment loans and other operations. In any event, continued thought and discussions must be devoted to ways and means of financing energy development in LDCs if we are to continue and substantially increase Bank operations in other priority sectors. While still limited, experience has demonstrated the utility of the in­ troduction of structural adjustment lending in Bank activities. There is, however, still a risk of confusion between measures to be taken in the medium term and specific actions to be taken in the short term. Thus, there is a need to proceed with caution and realism in formulating structural ad­ justment programs. The establishment of a true dialogue on economic policy, in particular between the Bank and the countries in question, should

167 help avoid possible difficulties during implementation of adjustment pro­ grams. It must be recognized that adjustment will be a long and painful process. But for the African countries the process will be rendered even more difficult by the extreme vulnerability of the African economies to the vagaries of an adverse international environment and climatic factors. The Bank should continue its technical assistance for the formulation of realistic and appropriate adjustment policies that is a highly recommendable feature of structural adjustment loans to African countries. The African Governors have always appreciated the value of World Bank technical assistance. We are particularly pleased to note that a substantial increase in economic and sectoral work in sub-Saharan African countries is to be initiated by the Bank. The new technical assistance unit for IDA coun­ tries, which is to place greater stress on general policy analysis and economic advice, should be speedily accessible to those African countries wishing to make use of its services. In view of the current scarcity of resources, co financing can play an im­ portant role in supplementing Bank resources. The African Governors, therefore, welcome the initiative taken by the President of the Bank with respect to co financing and hope that these initiatives will lead to mobiliza­ tion of addItional resources for LDCs. We also hope that before the final determination is made on this matter, borrowing countries will be consulted and their opinions and sentiments taken into full account. In any case, pro­ jects financed by the Bank should not be systematically linked to cofinanc­ ing nor should the disinclination of a borrower to accept co financing for a specific project be cause for the Bank to decline to provide the same level of financial and technical assistance that it had originally intended for that project. With regard to Africa, particular emphasis should be placed on co financing with official sources. Since we last met, the World Bank has introduced new measures which add to the financial costs borne by the borrowing countries and which might, in the long run, change its role as a development institution. In­ troduction of the front-end fee has raised the effective cost of the Bank's lending to more than 13 per cent. The new changes in borrowing and len­ ding policies are likely to increase even further the debt service burden car­ ried by the LDCs. While the African Governors fully appreciate that the Bank's financial and other policies must be adjusted to changing cir­ cumstances, they do not agree that the consequence of this adjustment must be borne by the developing countries alone. We also very much hope that the changes in borrowing and lending policies will provide the Bank with greater flexibility in raising the necessary funds at the lowest cost and, in ad­ dition, that this flexibility will be fully utilized to increase the lending pro­ gram to a level and on terms commensurate with the financing needs of the developing countries. To this end, the Board should study possible expan­ sion of the lending program for the next five years as soon as possible, and

168 closely monitor experience with the new borrowing and lending policies. In this connection, we call on major shareholders of the Bank to speed up their subscriptions in the general capital increase. . .

SOLOMON ISLANDS: BARTHOLOMEW ULUFA'ALU Governor of the Bank

I am most grateful for the hospitality that has been given us by the Cana­ dian Government, and I join others in welcoming the new members who have joined us. I am struck, as so many Governors must be, by the contrast between the amount and quality of the analysis presented to us, leading unavoidably to very clear conclusions, and the abysmally slow speed at which political will and action can be marshaled in support of logic and necessity. Are we really saying that there is choice to be made, whether or not to expand the Fund and revitalize the Bank? Because if we do not, we sentence these great in­ stitutions to a slow death by starvation. If the industrial countries, led by the United States, allow these institu­ tions to decline in effectiveness, they will have only themselves to blame for an increasingly fragmented and destablized world. The buying and selling of political and strategic influence, in return for bilateral support of various kinds, will replace the broad-based impartiality and good faith of these institutions. Perhaps that is what some of the richer countries want; but, if so, I think they have wrongly perceived even their own interest. Economic and political chaos does not serve the real long-term interests of any country or group of countries. Yet we seem to be witnessing deliberate moves in that direction, in the blocking by the United States and others, of even a moderate degree of growth of these institutions. The two institutions will become increasingly irrelevant to our needs as we perceive them, unless the Fund can be enabled to respond to our balance of payments needs on a much larger scale, and the Bank given the resources to finance a significant part of our investment needs on concessionary terms. Governors here know what political imperatives are at work on us at home. Faced with young and growing populations, in countries with inade­ quate infrastructure, minimal domestic capital, and export markets that are closed to us or offer us prices below the cost of production-is it any wonder that frustration sometimes lends heat to our arguments based on economic common sense? As Ministers of Finance, we are charged with the preservation of effective monetary and fiscal systems under almost impossi­ ble circumstances, and all too often our colleagues, as well as our political opponents, clutch in desperation at straws offered them by advisors and salesmen of outlandish schemes, which we must subsequently disallow.

169 However, there are proposals now on the table that are not outlandish and that do offer us the prospect of real partnership in tackling our enor­ mous problems ... On the Bank side ... it is to IDA that we must look for financing of in­ vestment in infrastructure and human resources. If concessionary funds are not available, we must go to harder sources, thus worsening our debt service and putting more pressure on the balance of payments; or do without the in­ vestments, thus making quite sure that our people will suffer a continuing fall from their already low standard of welfare and economic activity. Two points then I wish to emphasize: on the Fund side, the need for a very large overall increase, and a minimum quota of SDR 12 million; on the Bank side, the need to revive, replenish, and expand IDA. Unless these im­ provements can be achieved, then these institutions must become increas­ ingly irrelevant, as our external financing needs become more sharply felt in the next few years. We may then find ourselves turning to sources of finance devoid of every merit except apparent availability of cash. I believe in argument and logic, not emotion, as a way of reaching deci­ sions. There is no logical barrier, no argument resting on empirical evidence, to prevent the increase in quotas, and funding of IDA. I trust that wisdom will prevail during these Meetings and action will follow forthwith.

SOUTH AFRICA: O.P.F. HORWOOD Governor of the Fund

I wish to begin by paying tribute to Mr. de Larosiere, Mr. Clausen and the management and Executive Directors of the Fund and the Bank for their contribution, under exceedingly difficult circumstances, to world economic stability and advancement during the past year. The twin institutions of Bretton Woods have proven their worth once again. This is not to deny that most Fund-Bank member countries have ex­ perienced economic conditions during the past year which have been, to quote the Fund's Annual Report, "troublesome" -a masterly understate­ ment! Neither 1981 nor 1982 will go down in economic history as a vintage year. The inescapable fact is that the present international economic situa­ tion is almost too bad to be true. Neither the Keynesian economists of yesterday nor the "monetarists" of today could have expected that we would end up with the present unenviable combination of low growth, high unemployment, payment imbalances, declining world trade, increased pro­ tectionism, debt servicing problems, and the threat of international banking failures hanging over our heads. And yet we must not lose heart. The present parlous state of the world economy must not blind us to the fact that fundamental changes for the bet-

170 ter have occurred in some of the major industrial countries during the past two years-the full benefits of which will only become apparent to the world community in the years ahead. I refer in particular to the success achieved in the fight against inflation by the United States, the United Kingdom, West Germany, Switzerland, Japan and a number of other in­ dustrial countries. These countries have had the courage to apply restrictive market-oriented monetary and fiscal policies, involving curbs on govern­ ment spending and money creation, and they have accepted the inevitable rise in real interest rates which has resulted from this fundamentally sound approach. In this way they have curbed both excess demand and infla­ tionary expectations, and have significantly reduced price and wage infla­ tion. Equally important, they have begun to restore faith in at least certain currencies and in the ability of monetary authorities to implement effective stabilization policies. Admittedly, a price has had to be paid, and is still being paid, for these gains-in the form of low growth and high unemployment. But it would be superficial and wrong to view these negative developments as the result of the financial discipline of the past two years. On the contrary, they are the direct consequence of the lack of financial discipline of the preceding years-a period which was characterized by excessive government spending and regulation, undue money creation, unrealistic interest and exchange rates, and the excessive use of mandatory price, wage, import, and ex­ change controls. It is in these earlier misguided policies that the root causes of the world's present economic difficulties are to be found. And it will in­ evitably take some time before the corrective process has run its full course. But if the United States and the other major industrial countries persist with their present policies of financial discipline, making the necessary ad­ justments to changing conditions as they go along, the concomitant strains involved will prove to have been well worth while. The "mix" of fiscal and monetary policies may not always have been ideal, and at one stage the resultant high real interest rates and strong U.S. dollar certainly added to the economic difficulties of the rest of the world. But this should not blind us to the fact that the hardships we have suffered have not been in vain, and that considerable success has already been achieved in putting the world economy back on a more even keel. My own country is one of the Fund-Bank members which has suffered from the adverse impact on primary exports of the recession in the in­ dustrial countries. And, of course, the decline in the gold price between 1980 and the middle of 1982 added to our difficulties. But we have made the necessary adjustments by tightening our own monetary and fiscal policies, by keeping a firm rein on government spending, and by accepting high in­ terest rates and realistic market-determined exchange rates. And even before the latest upward movement in the gold price, we were already reap­ ing the benefits of that approach.

171 The way out of the world's present economic difficulties is therefore not to be found in a return to the old ways of undue money creation, high government spending, and artificially low interest rates. That would be a recipe for disaster. The answer lies in persisting with appropriate fiscal and monetary policies, and in that way laying a solid foundation for the next upswing in the world economy ... In present circumstances the challenges facing the Bank are daunting in­ deed. We are therefore fortunate in having, in the person of Mr. Clausen, a President of the Bank who has the professional skill and experience which is so sorely needed at this time. I have some knowledge of the present plight of many developing countries, and I support their case for increased develop­ ment assistance. I would argue that rekindling the fires of inflation by means of national and international liquidity creation is not the proper way to bring about the required transfer of real resources to developing coun­ tries. But then more effective and appropriate ways of doing so should be found. On the subject of gold, I have two comments this year. The first is that the recent report of the United States Gold Commission has once again focused attention on the widely divergent views which still exist on the pre­ sent and future role of gold in the international monetary system. Not sur­ prisingly, the Commission does not recommend the restoration of a traditional-type gold standard either in the United States or internationally. But neither does it favor any steps to demonetize gold. It even recommends the minting by the United States Treasury of a new gold coin. The future monetary role of gold, it seems, is a subject which simply will not go away. My own position is, I believe, well known. It is that the sooner gold's monetary function is generally recognized and normalized, the better for the international monetary system. My second comment is that the behavior of the gold price in recent years tells us a good deal about the state of the world economy. During most of the 1970s, after the collapse of the Bretton Woods par value system, the rapid rise in the gold price reflected to a large extent the lack of faith in paper currencies during a period of excess liquidity, low real interest rates, and accelerating inflation. At that time gold simply outperformed the U.S. dollar and currencies in general. However, during the latter part of 1980, 1981 and the first half of 1982, the successful anti-inflationary policies ap­ plied in the United States, the United Kingdom and certain other industrial countries contributed to the decline in the gold price during this period. The recent new upsurge in the gold price appears to be a different phenomenon. Again people are turning to gold in times of trouble. But this time the trouble is not inflation-not yet anyway. This time the problem is the fact that the existing world recessionary conditions and the heavy debt burdens of many governments and companies might result in countries or banks defaulting on an increasing scale. In such circumstances there is a

172 strong tendency to move out of paper debt instruments into gold-the ultimate liquidity. Gold remains a haven in times of general uncertainty and of serious inter­ national monetary problems-whether of the inflationary or the defla­ tionary kind. For that reason alone, I believe that in our attempts to deal with present international monetary problems, we shall be forced to recon­ sider certain aspects of gold's role in the period ahead.

SPAIN: JUAN ANTONIO GARCIA DIEZ Governor oj the Fund

For almost a decade the Annual Meetings of the Fund and the Bank have noted the persistence of imbalances and stagnation in the world economy. It is already clear that the problems we face have a basic long-term dimension and that short-term measures must not delay adjustments that can only be achieved over a longer period of time. The persistence of these difficulties has given rise to the conviction that the current situation can be improved only through slow adjustments grow­ ing out of a collective effort. Our cooperation must extend to trade policies as well as financial and monetary policies. The need for this cooperation has recently been demonstrated by signifi­ cant financial and exchange rate alterations that have delayed the desired recovery in economic activity. For, although it is of fundamental impor­ tance for the international community that the major industrial countries restore their basic equilibrium, it is important that they do so in the least unsettling way for the rest of the world. In the area of trade the current difficulties constitute a continuous temp­ tation to intervention and protectionism. However, flexibility is needed if economies are to adapt to new relative prices, and this flexibility must prevail not only within national economies but at the level of the world economy as well. The adjustments required extend beyond national boun­ daries; to give way to protectionist pressures thus amounts to delaying adaptation to the new structure of comparative advantages and hinders world economic recovery. When this protectionism is practiced by the major industrial countries, it impedes adjustments in the less developed nations and aggravates the pro­ blems that they face. I fear, however, that the prevailing trend at this time is toward protectionism. In this connection, I would like to stress my country's interest in the GATT ministerial meeting in November and our conviction that both the Fund and the Bank must continue to combat and denounce protectionist tendencies. Although economic policies in several countries are moving in the right direction to correct imbalances, it is clear that the adjustment process will

173 be slow and that the economic crisis will persist. Meanwhile, its long dura­ tion is having very serious consequences. One issue affecting economic policy in many countries is the control and reduction of the public deficits, which in many cases is an essential step in the adjustment process. However, we believe that this policy should not be pursued dogmatically; there have been public deficits in many economies over the years of the crisis in clearly depressionary situations. In our opi­ nion, the right approach is necessarily a gradual one; which must take into account the stimulating effect of public deficits in economic situations such as those many of our countries have experienced or are experiencing. There are also the consequences for the international economy. First, although current economic conditions are difficult for everybody, recent trends and the forecasts that can now reasonably be made indicate that the paths of the industrial countries and the developing countries are diverging. The prospects for the latter appear a good deal more gloomy. Second, the protracted nature of the crisis has affected the international capital markets. Since the first energy crisis in 1974, funds have been recycled in the international markets basically by private institutions. While they have performed this task very effectively and with excellent results, the time has come for the multinational institutions to contribute more decisive­ ly to the adjustment process ... For its part, the Bank must continue to be a vital instrument in the fight against world poverty and backwardness. We are therefore concerned that support for the institution may decline under current conditions and that, as a result, the level of its activities may fall and the concessionality of its lending be weakened. Spain will continue to support the Bank, the Interna­ tional Development Association and its affiliates. In this connection, Spain has initiated the process of making its contribution to the Sixth Replenish­ ment of IDA and will join in the efforts designed to overcome the problems associated with this Replenishment. We are living through a lengthy period of difficulties that our errors may aggravate and prolong. The excellent reports prepared by the Fund and the Bank clearly indicate the need for national policies to be directed toward restoring basic equilibria and promoting the adjustment process. But we must also concern ourselves with the risks entailed by the persistence of the crisis and work to remove them by strengthening these two demonstrably useful and effective institutions.

SRI LANKA: RONNIE DE MEL Governor of the Fund and Bank

On this my sixth consecutive appearance before this assembly, I wish to express Sri Lanka's appreciation to all those who have worked tirelessly to 174 organize these meetings. I also extend our thanks to the Government and the people of Canada for their kind hospitality and excellent arrangements which have made our sojourn here both pleasant and rewarding. In the same spirit, we welcome Antigua and Barbuda, Belize, and the Hungarian People's Republic to our midst. Our tributes are due to the Managing Direc­ tor of the Fund, Mr. de Larosiere, and the President of the World Bank, Mr. Clausen, for their stewardship of the institutions they head. For over four decades of the postcolonial period, developing countries have toiled to overcome their disadvantages. Our record of achievement is substantial. Undoubtedly, there is poverty, malnutrition, ill-health and all the other characteristics of a disadvantaged condition in most of our coun­ tries. But there is more than ample evidence to show that in agriculture, education, housing, health, population planning, institution building, financial management, and so on, we have both attempted and achieved a great deal. What is more, we have often-too often-done so in an adverse international environment. As the World Development Report, 1982 has said, my country, Sri Lanka, "provides a dramatic example of adjustment to external shocks and of the elusiveness of success in the face of continuous deterioration of the international environment ... In 1980 Sri Lanka found itself with a volume of per capita GDP almost 70 per cent higher than in 1960, a fourfold in­ crease in real per capita investment ... yet reduced per capita consumption. Sri Lanka represents an extreme, although perhaps not a unique, case of the terms of trade loss that can affect a specialized, raw material exporting economy. It also shows the difficulty of adjusting to continuous terms of trade losses despite considerable success in reducing consumption and in­ creasing production." In other words, for no fault of ours, we have found ourselves continuously condemned to shooting at a moving target. We would like the international community to recognize the record of countries like ours, and adopt new policies and measures that do not perpetuate our disadvantages. Pessimism has become permanent in assessments of the international economic outlook. Faced with an unprecedented recession and inflation, the industrial countries have adopted deflationary policies, in the hope that their economies will revive to grow in an orderly manner thereafter. The downturn in economic activity and slow growth have resulted in unattrac­ tive export prices for many largely primary producing developing countries. As a result, the current account deficits of non-oil developing countries have grown to an estimated $100 billion last year, and are at about the same level this year. High interest rates which result from deflationary policies have seriously raised the debt servicing burden of the developing countries, preempting more than one fifth of their export earnings. At the same time, official development assistance has declined. In practical terms, support for multilateral lending institutions has varied. Protectionist measures have

175 blossomed at a time when the developing countries after years of sustained effort have begun to build a rudimentary export base. Looking closely at the World Bank, we have to admit that IDA's lending operations are threatened. The IDA commitment authority for both fiscal years 1982 and 1983 are far below the originally envisaged levels. As a result, allocations to South Asia have had to be chopped by a heavy 43 per cent. This is a body blow which implies a reduction in IDA lending to our region by 8 per cent in real terms between fiscal years 1977-81 and fiscal years 1982-86 compared with a 40 per cent increase considered desirable last year. Moreover, the phasing of the usual commitment period from three to four years, will further reduce the IDA-VI resources available each year. We appreciate the Bank's effort to moderate the strains on IDA borrowers by compensating with the Bank's own resources though, of course, at somewhat greater cost. Weare encouraged, also, by the efforts of the Bank to salvage IDA-VI and to initiate early negotiations on IDA-VII. The com­ mitment authority under IDA-VII should be substantially higher than under IDA-VI in order to meet the increasing needs of poorer developing coun­ tries in the coming years. We appreciate the positive response from many in­ dustrial countries at the recent IDA Deputies' meeting, and hope that other donors would look on IDA not as a bottomless pit of charity but, as Mr. Clausen describes it, as "a hard-headed investment in international trade and economic growth and greater global stability and cohesion." With respect to supplementing Bank resources, we have supported cofinancing, achieved through the mediatory role of the Bank. Although the scope for commercial bank co financing seems large, it should not be treated as a substitute for official development assistance, but as a source of additionality. Moreover, unless cofinancing also carries a concessional ele­ ment, increased cofinancing can raise the debt service burden of developing countries. Co financing should not, however, become a precondition for Bank support to a borrowing country. We welcome the increased emphasis placed by the Bank on lending to the energy sector, but this should not cause a diminished emphasis on other sec­ tors. Agriculture and rural development lie at the core of the development strategy of all developing economies. In South Asia, in particular, the potential for agriculture and rural development is still so vast that a substantial increase in lending to this sector is justified. An expansion in program and structural adjustment lending is also desirable. The structural adjustment lending facility reflects a very impor­ tant policy change, which can enhance the Bank's catalytic role in pro­ moting orderly adjustment at a satisfactory pace, and based on condi­ tionality that must be realistic and achievable ... We in Sri Lanka, like many other developing countries, have benefited from the support provided by both the Bank and the Fund. We appreciate this. These institutions are not independent entities living and moving in a

176 world apart. They are creatures of the international economic environment. And it is policymakers and politicians who shape and reshape that environ­ ment. The response, the toil, the hopes, the expectations, and the destinies of the world's disadvantaged dictate that our reshaping of that environment should be creative and constructive. For the finance ministers of the world to do less, would be for them to fail the people they represent.

THAILAND: SOMMAI HOONTRAKOOL Governor of the Bank

First, let me Jom my colleagues in welcoming our new members, the Hungarian People's Republic, Belize, and Antigua and Barbuda to the 1982 Annual Meetings of the Boards of Governors. At this meeting, we are deliberating on no less grim a situation economically as any in the past three decades. We are experiencing a world economy plagued by monetary volatility, little overall growth, slow pro­ gress in development financing endeavors, and an increasing world economic structural impasse. This forum can show, and should sincerely try to show that, those difficulties can be overcome and that the world's economies can be dynamic and progressive again as before. However, where we are now is grim. The energy shocks of the 1970s have left in their trail the difficult tasks of economic adjustment. Those of us who have not easily overcome these problems are finding it more difficult to adjust, because more alternatives are being foreclosed. The world's economies which used to enjoy prosperity interdependently are departing more and more from the cherished norms. Concessional flows of resources are falling. Developmental financial institutions are finding it necessary, or expedient, to pass on increased costs. Capital markets are becoming more and more shielded as a result of monetary volatility. Developmental fervor is compromised by the call for help-yourself-first thinking. And so on. As problem compounds problem, we are now at the point where, I hope, practical considerations will keep us from driving to a standstill. The evils of inflation have been combatted extensively. But the payoffs in pursuing it more intensively now seem not advisable. Reasonable growth in industrial countries is necessary for global economic recovery and stability. This year's zero growth in the industrial economies is a decline from last year's 1.2 per cent-an unfavorable development. Prospects would be brighter if the accessibility of international markets were generally improved. The record level of some 30 million unemployed in industrial economies will mean substantial dampened demand and is a signal of increased economic inactivity. Are we benefitting sufficiently from so severe a treatment of the state of economic malaise? From original concerns with inflation and

177 monetary volatility it seems the remedial prescriptions have created more worries. As a result of stagnant growth in world trade in the last two years, and coupled with other difficulties involved in adjustments, developing countries' overall current account positions steadily deteriorate. Even the oil exporting developing countries have to witness the dramatic dwindling of their current account surpluses to $15 billion this year. Other developing countries' current accounts are even less buoyant: combined deficits are now about $100 billion and directly or indirectly driving up these countries' debt service ratios in relation to exports approaching the range of 20 per cent. The fight against inflation should not be given up, but urgency should be given now to generating a minimum steady growth momentum. Without such a momentum, more and more smaller economies will be overwhelmed with a loss of alternatives. For the non-oil developing countries caught up in this situation with not much to fall back on, developmental progress becomes slow and difficult. Now, they find that existing avenues for the development of their economies and societies are being redesigned with no likelihood that ex­ pected developmental characteristics will be retained. We have listened to arguments why lending rates of development finance institutions should float; why their resource base cannot/should not be expanded now; why resource flows for development through private sources should be strengthened; why official resources for development should actually be falling; why specialized organizations, such as an energy affiliate, are not appropriate now, and so on. But such departures should be well considered before permanent adoption. Reasonable accommodation for every country should be expected from this gathering ... For the same reasons that the Fund and the Bank were established 38 years ago, the international community should maintain the original aims and support ongoing developmental efforts. In particular, the flows of real resources to developing countries ought not to decline if poverty is to be wiped out and tbe plight of the least developed countries, such as those in the sub-Saharan region, is to be alleviated. But, for the Bank, the world's leading development finance institution, real expansion is not foreseen up to 1986. We welcome the efforts to introduce financial instruments that can help to mobilize more resources in today's market conditions, but we hope the new instruments will not replace traditional ones. We urge the Bank to return to fixed-rate long-term lending as soon as possible and to consider, in the meantime, whether the 50 basic points still retained in the new short­ term borrowing situation are justified when the change in instruments is based on better cost targeting. Being a development institution, the Bank should not press for the usual income target, in view of the overall economic difficulties of members. In fact, its capital funds should serve somewhat to cushion the full effects on hard-hit members.

178 Apart from returning to fixed-rate long-term lending, we want to urge the management and the Executive Directors to look into the feasibility of ex­ pansion in the Bank's lending in real terms. Inducement and enhancement of private resources are welcome, but if the developmental character will be substituted in the process, it is to be expected that developing countries will not be able to cope adequately with obstacles imposed on them externally. In this light, commitment authority for IDA-VI should be maintained at normal expected levels with or without the necessity of devising and in­ stituting supplemental mechanisms. Moreover, member countries should act quickly on their decision to subscribe to the general capital increase so that more resources will be available. In the present world situation, those developing countries that are trying to improve economically with little domestic petroleum supplies are running into greater current account and external debt difficulties. With the Bank approaching limits in its lending for energy programs, overall global ad­ justments are not being accommodated. The dimension and urgency of the problem should allow for some realizable alternatives. We cannot keep on deliberating on ideal solutions because there is little room now for real maneuvers. Recognition of international economic stability should urge each of us to accept an efficiently operating specialized institution to cope with energy investments and funding. In view of difficult adjustment situations, we welcome ideas that do not base adjustment solely on discipline but allow for a broadbased approach. In this regard, the structural adjustment program is very desirable and an integral component for solving our current problems as well as for ex­ pediting economic transformation and development. On the current small expansion in resource flows for development, member countries may wish to prepare to act some way or another, especially with respect to the ODA target of 0.70 per cent of GDP for the Third Development Decade and with respect to IDA-VII. Of importance also is the issue of the framework for the IBRD's selective capital increase. If we want the needed resources for development, an acceptable updated framework ought to be adopted. Partnership in development should be pro­ moted alongside vested hierarchy. Finally, in recognition of the distinguished and outstanding service of Mr. Robert McNamara in international economic development, Thailand wishes to underscore that recognition by pledging to contribute toward the scholarship fund that is being set up. My Government will effect the con­ tribution in due time. To the people and the Government of Canada, my delegation and I are sincerely appreciative of the kind hospitality accorded us during our stay in Canada and of the excellent arrangements made for the meetings.

179 TURKEY: ADNAN BASER KAFAOGLU Governor of the Fund

As the new Minister for Finance of Turkey, I would like to express on behalf of my Delegation our sincere appreciation to our host country for its warm hospitality and efficient arrangements. I would also like to extend our congratulations to Mr. de Larosiere, Managing Director of the Interna­ tional Monetary Fund; Mr. Clausen, President of the World Bank; the Ex­ ecutive Directors, and the staffs of the two organizations as well as their af­ filiates for their dedication to our cause and for their accomplishments in the past year. I take great pleasure in welcoming among us the new members, Antigua and Barbuda, Belize, Hungary, and St. Vincent and the Grenadines. I am particularly pleased to have Hungary in our constituency. The problems with which we were concerned at the last Annual Meeting are still with us. Although some progress has been made in fighting global inflation, it nevertheless remains at a high level; economic growth is slow or negligible; and unemployment is rising, becoming a major problem. The Annual Reports of the International Monetary Fund and of the World Bank, and the World Development Report of 1982 all indicate that the in­ ternational economic situation continues to remain precarious, particularly for developing countries. The present conditions in the global economic en­ vironment and immediate prospects for a great number of member coun­ tries continue to be very unfavorable. Against this bleak picture, the recent slowdown in inflation and the decrease in external imbalances in developed countries are indeed encouraging signs. However, these improvements have been achieved at the cost of slower economic growth, higher unemploy­ ment, a lower volume of international trade, and more protectionism. Middle-income developing countries, like the low-income ones, are faced with less than acceptable rates of growth, substantial chronic deficits on their current accounts, and a rapidly rising external debt burden. Now more than ever, an unrroportionately large part of the adjustment burden of the world economy falls upon the oil importing developing countries. This holds true despite the fact that developing countries generally pursued more successful adjustment policies in the 1970s compared with developed coun­ tries. This fact is duly acknowledged in the World Development Report. Although developing countries suffer from lagging development aid, reduced exports possibilities, worsening terms of trade, and the increased cost of interest rates on their external debt, they have so far achieved a suc­ cessful adjustment. I believe that the actual volume of long-term and concessional capital flows to the developing countries must be increased in order to speed up their adjustment proce~s and alleviate their difficulties. Therefore, I would ask especially that the large donor countries make every effort to raise their

180 bilateral official development assistance so as to reach the internationally agreed upon target. Besides aid, the other and perhaps more important con­ dition for a successful adjustment for developing countries is the need for urgent progress in the area of international trade. World trade stagnated in 1981. The Bank and the Fund both share a common concern over rapidly expanding protectionism. Its removal is not only a means of promoting the developing nations' exports but also of bringing about a more efficient global pattern of industrial division of labor. It is now vitally important to further our efforts to ensure the most efficient allocation of our limited resources. The protectionist measures which have been adopted by the in­ dustrial countries must be discontinued. We believe this is an integral part of global adjustment efforts. In this context we attach great importance to the forthcoming GATT ministerial meeting. We sincerely hope that firm results will be achieved at this meeting. In particular, I want to stress the need for the policies of the industrial countries to be supportive of and compatible with adjustment policies of developing countries. The best contribution the industrial countries can make is to reverse their sluggish growth performance, without stimulating inflation, and to move toward sustainable high growth levels that will create the external environment conducive to the "high-case" scenario developed in the World Development Report. In this context, the industrial countries must follow liberal and open trading policies. They will themselves benefit from these policies through ef­ ficient trading and by enhancing the potential of the developing countries in an increasingly interdependent world economy. These countries must also design a balanced monetary and fiscal policy mix to attain low inflation rates while allowing interest rates to decline to more reasonable levels. This has a vital bearing on bringing down especially the debt burden of non-oil developing countries to a less pressing level. Without these major policy measures the cost of even successful adjustment efforts of the developing countries will reach unbearable levels ... It is gratifying for me to observe that the resources of the Bretton Woods institutions are actively and satisfactorily augmented by the oil exporting Islamic countries, in addition to their support for developing countries through their own agencies and regional banks. Now I wish to comment on the activities of the World Bank and the IFe. In the framework of the Five-Year Lending Program, the approved 1983 figures for the World Bank and IDA are the minimum dictated by present economic conditions. Since the projected rates of annual expansion even in nominal terms are not adequate, they are exceedingly low in real terms for every group of developing countries. Therefore, the total Five-Year Lending Program should be appropriately increased. We admit that these prospects are due to the present limitations on budgetary contributions, especially to IDA and to constraints on the inter- 181 national capital markets for the IBRD. Therefore, we understand the need to diversify the Bank's borrowing policy. However, we are concerned about the increasing trend of the effective lending rate to developing countries. In spite of the moderation in interest rates, the rate of the front-end fee should be reconsidered and decreased gradually. I feel that the main reliance of the IBRD should be on medium- and long-term fixed-rate borrowing. In reference to the sectoral distribution of the lend~ng program, I strongly support the priority given to the energy sector. In expanded energy lending, additionality is essential. But I feel that the institutional framework should also be clarified in this vital issue. I also support structural adjustment lending which aims to increase the effectiveness of macroeconomic adjustment imposed by the world economic conditions. In principle, we are in favor of the co financing ac­ tivities of the W orId Bank, with the understanding that the new proposal under consideration will provide additional resources and improve terms and conditions. We shall be interested in examining the outcome of the review in the area of the multilateral investment insurance. I would like to express my appreciation for the important work being car­ ried out by the IFC for the private sectors of developing countries. I feel that the role of the IFC should be enlarged and diversified. Turkey, as a middle-income non-oil developing country, has been under­ taking vigorous adjustment measures since January 1980 against the background of extremely adverse world economic conditions. Despite the enormous difficulties and sacrifices inherent in such programs, we are con­ vinced that we have made very important progress in the process of adjust­ ment, as indicated in the World Development Report of 1982. We are deter­ mined to maintain this program in its entirety. There will be no retreat from its fundamental premises. Weare equally determined to take all the necessary steps which international cooperation requires. The most suc­ cessful aspects of our stabilization measures are related to the areas of balance of payments and inflation. At present, we plan to activate other policy instruments which will be complementary to and supportive of monetary policy. In this respect, we intend to develop on the one hand a comprehensive fiscal program and on the other to put emphasis on the im­ provement of the institutional efficiency of both the public and private sectors. In conclusion, I should express our conviction that the Bretton Woods in­ stitutions are a clear recognition of the growing interdependence among na­ tions. These institutions must be further strengthened, for they serve the in­ terests of all our nations. It is our hope that through our cooperation in these institutions the world community will ultimately succeed in overcoming present difficulties and continue its march toward greater pro­ sperity and peace.

182 UNITED ARAB EMIRATES: SHEIKH HAMDAN BIN RASHID AL MAKTOUM Governor oj the Fund and the Bank

I have the honor to speak on behalf of the Arab Governors of the Inter­ national Monetary Fund and the World Bank. Allow me to start by express­ ing our sincere thanks to the Government and people of Canada for their warm reception and excellent arrangements. I join other speakers in welcoming the new members of the Fund and the Bank. I also wish to ex­ press our appreciation, Mr. Chairman, for your thought-provoking open­ ing address and for the informative and thoughtful statements by Mr. de Larosiere and Mr. Clausen. This year's Annual Meetings take place in a global economic setting which is not fundamentally different from that at the last year's Meetings. The world economy continues to be afflicted by slow growth of output and trade, growing unemployment, large external imbalances and high rates of inflation. The persistence of these problems points clearly to the continuing need for strong adjustment efforts, both in industrial and developing countries. While it is encouraging to note that the rate of inflation has fallen significantly in some major industrial countries, inflation remains a serious problem in most of these countries. Furthermore, the lowering of the rate of inflation has entailed a further deepening of the recession in their economies. While we agree that bringing inflation under control is a necessary step in creating conditions that are conducive to resumption of sustained growth at a satisfactory pace, we would also stress that this objec­ tive needs to be pursued through a balanced mix of policies which would minimize the cost of inflation control in terms of accentuation of the economic slowdown. An appropriate degree of monetary restraint needs to be combined with improvements in fiscal discipline in order to bring down the present high interest rates which are not only thwarting economic recovery within the relevant industrial countries but are also having serious international repercussions. Furthermore, an appropriate mix of demand management policies needs to be supplemented with measures to alleviate the many structural imbalances and rigidities which have developed over the years, undermining efficiency, productivity growth and the ability of these economies generally to adjust to changing circumstances. I may note here en passant that after the oil price adjustments in the early 1970s-which, incidentally, followed decades over which the price of oil had been kept artificially depressed-it became quite common to place a large share of the blame of the ills of the world economy on the higher cost of oil. However, the course of the world economy in recent years, in par­ ticular the persistence of stagflation and large payments imbalances, has shown that this view was grossly exaggerated and simplistic. It is now

183 recognized that the causes of the current global economic ailments are both complex and deep-rooted-having cumulated over a number of years-and that they encompass both weaknesses in the conduct of financial policies as well as problems and imbalances of a structural kind, of which the energy problem is but one. The situation in the industrial countries has had a grave impact on developing countries. The prolonged recession has greatly depressed the de­ mand for their exports. It has also contributed to a further deterioration of their terms of trade: for many primary commodities the current real prices are the lowest in the post-war period. Their debt servicing burden has in­ creased substantially on account of the high interest rates in international financial markets. Largely as a result of these adverse external developments, the average rate of growth in these countries has fallen to its lowest level in several decades-resulting in declines in per capita income for a number of them-and their overall external deficit has remained extremely high. We agree with you entirely, Mr. Chairman, that the difficult economic challenges facing the world at present call for a maximum degree of interna­ tional cooperation. The need for this derives from the high level of economic interdependence which exists between countries today and which you so rightly emphasized in your opening address. In essence, international economic cooperation requires that countries pay due regard to the interests of other countries in the formulation and conduct of their economic policies. In present circumstances, the economic situation in developing countries cannot be expected to improve much without an improvement in the exter­ nal economic environment facing them. Thus, the pursuit of sound adjust­ ment policies in major industrial countries is necessary not only for a return to higher sustainable growth rates within their own economies but also for the success of the adjustment process globally. As part of the adjustment measures, the industrial countries should allow freer access to their markets. The array of tariff and non-tariff barriers maintained by these countries on agricultural products and relatively labor intensive manufactures have a particularly damaging effect on the exports of developing countries, thereby seriously hampering their adjustment and growth efforts. The developing countries recognize that, while the severity of the pro­ blems currently being faced by them would be eased considerably by a less harsh external economic environment, improvement in their situation also depends on their own efforts. Accordingly, adjustment-oriented policies have been undertaken in many of them. Indeed, the 1982 Development Report of the World Bank concludes that most developing countries have adjusted better than the industrial countries in recent years. However, the task of adjustment has been rendered even more severe by the deepening of

184 the recession in the industrial countries. The task is especially difficult and painful for the low-income developing countries, where the scope for fur­ ther belt-tightening is already limited. Evidently, there are limits to the ex­ tent these countries can implement adjustment with their own resources. If economic adjustment is to take place in these countries on the required scale without involving undue hardships for their peoples, their own efforts will have to be supported by an adequate flow of external resources, conces­ sional as well as nonconcessional. Clearly, the present circumstances call for a more substantial role by the Fund and the Bank ...... we have been disturbed by the crisis of IDA which has resulted in a significant decline in its commitment authority. This unfortunate develop­ ment has occurred at a time the poorer countries are facing great dif­ ficulties. We are hopeful that the present crisis will be overcome in a manner that would preserve the integrity of IDA and maintain the principle of burden-sharing which represents the only basis for a viable multilateral cooperation in concessional aid. The recent meetings of IDA Deputies have grappled with the problems arising from the reduction in IDA's commitment authority. We are gratified to note that a large number of donor countries have rallied to the support of IDA and that its commitment authority in fiscal years 1983 and 1984 will be maintained at appropriate levels. We are looking forward to participating in the forthcoming negotiations on IDA-VII and hope that the 7th replenishment will represent a sizable in­ crease in real terms over IDA-VI and that it will be free of the uncertainty and disruption which afflicted IDA-VI. We are pleased to state that Arab development assistance continues at a high level despite the recent substantial decline in oil revenue. In fact, some of the capital surplus countries have started borrowing to meet their development requirements, while others are experiencing a significant budget deficit. In terms of their GNP, development assistance in 1981 amounted to approximately 4 per cent. This is more than ten times as great in relative terms as the performance of the industrial countries. It is effec­ tively higher if account is taken of the fact that aid from the Arab countries is untied unlike assistance from the DAC countries. Arab aid to developing countries has become increasingly diversified. Non-Arab recipients of aid account for a significantly higher proportion than was the case five years ago. Among the non-Arab recipients, Sub-Saharan African countries have received, and will continue to receive, special attention in terms of volume and quality of aid. There is need for a significant expansion in the lending program of the World Bank in order to satisfy the real needs of member countries. The len­ ding program in the current fiscal year as well as that planned for the next five years would seem to fall well below the borrowing needs of developing countries. 185 An acceleration of subscription to the general capital increase, which we support, will alleviate but not eliminate altogether the resource constraint of the World Bank. A higher level of lending can be sustained only by a higher level of borrowing from capital exporting countries. For their part, the Arab capital exporting countries have recognized the borrowing needs of the World Bank and have recently opened up their markets and entered into direct lending operations. It is hoped that other capital exporting countries, especially the major traditional suppliers of funds, will improve the condi­ tions of access to their markets. The present situation in the financial markets has posed a number of pro­ blems. The most serious are those related to high and volatile interest rates, and the relative decline in the medium- and long-term bond markets. These circumstances have led the Bank to adopt new policies, in particular the im­ position of a front-end fee, and, more importantly, lending at variable in­ teres t rates. We understand the rationale for these policies and hope they will achieve their objectives. It should be recognized, however, that the new policies do raise a number of problems for the borrowing countries. We support the decision of the Executive Board that the new system should be subject to constant monitoring, with a major review at the end of the current fiscal year. At that time, it should be possible to determine, in light of actual ex­ perience, its advantages and disadvantages, the reaction of the financial markets and the degree of acceptability to the borrowing countries. It should be recognized that, in the context of development financing, this is an exceptional policy which should be reversed as soon as circumstances permit. It is also important to review the front-end fee with a view to phas­ ing it out as early as possible. We welcome the efforts of the World Bank to mobilize additional resources through cofinancing. These efforts have already been rewarded by a significant increase in the amount of resources mobilized through this particular form of cooperation. We believe that there is still scope for fur­ ther expansion by closer cooperation with bilateral and multilateral sources of official development assistance. The on-going dialogue between the Bank and Arab development financial institutions on a wide range of issues related to cofinancing has already yielded positive results. The last two years have witnessed notable progress in this area. The Arab Development Funds have stepped up their cofinancing with the World Bank/IDA, and have provided almost one third of the total official co financing in 1982. We note the new proposals currently under consideration by the World Bank for increased cofinancing with commercial banks. While these pro­ posals might result in additional resources from commercial banks, we would like to emphasize that such means of raising additional funds should not be a substitute, nor should it weaken the incentive, to augment the regular resources of the Bank and IDA. In the final analysis, the develop-

186 ment role of the World Bank will depend, not so much on its ability to secure loans on commercial terms, but on the strength of its own resource base.

UNITED KINGDOM: GEOFFREY HOWE Governor of the Fund

Introduction I should like at the outset to join my colleagues in extending a very warm welcome to our three new members-Antigua and Barbuda, Belize, and Hungary. We are meeting at a time of economic transition. Important gains have been made in the fight against inflation, but recovery remains elusive. The world economy is under strain: unemployment in the industrialized world is high and rising; falling commodity prices and high real interest rates com­ bine to squeeze the developing world; and financial stresses on companies and countries are all too evident. It is not only national economies that are experiencing the stresses of transition. There is also a new set of issues which the major international in­ stitutions are having to analyze and assess. There is a clear parallel between the global and the national implications of the issues that we face. The question is: are we in the grip of a worsening disease, or has its pro­ gress been checked? We need to remember that treatment and cure can in­ itially seem as painful-indeed more painful-than the disease, and that convalescence can be frustrating and testing. We need continually to check our diagnosis, and be sensitive in our prescription.

Preconditions of Economic Success There are two preconditions for economic success, nationally and inter­ nationally, which are valid without regard to the state of the cycle or even the most fashionable set of equations. They are stability and flexibility. The words "fixed but adjustable" are, of course, familiar from the foun­ ding tenets of the Fund, but it is not only in the foreign exchange markets that the need for both stability and flexibility is evident. By stability I mean a firm economic framework, founded on fair political systems securely rooted in the rule of law, and a currency which maintains its value. I mean, too, an international exchange-rate structure which offers a reasonable measure of stability, while allowing freedom for rates to reflect differential economic performance. By flexibility, I have in mind a willingness to promote and adjust to economic change, and a willingness and capacity to challenge market rigidities: a willingness too to check and reverse any tendency toward protectionism. 187 The Causes oj Decline Both of these conditions for economic success have been inadequately met in recent years. The stability of the Bretton Woods system was eroded as inflation built up in many countries. In particular, the value of the dollar was put at risk, and finally destroyed, by the inflationary consequences of simQltaneous commitment to the space program, the Great Society, and the Viet Nam war. And around the world flexibility has been more and more stifled by the entrenchment of inflationary expectations, the fossilization of many market structures-particularly rigidity in labor markets-and the spread of protectionism. The oil price shocks owed something to the growing strength of infla­ tionary pressures. But they were reinforced by the scale of OPEC's action. The disposition of many countries was to seek to print and float their way out of trouble. It is easy to see why. But the outcome, as we all know too well, has been high inflation. With what consequences? In the industrial countries, high unemploy­ ment. And in the developing countries, the inevitable setback to forecasts of growth that relied upon a continuation of high commodity prices and low interest rates.

The Common Objectives Faced by these mounting problems, the international community has, during the three years that have passed since the second oil shock, moved toward a large measure of agreement on the strategic objectives we should follow to obtain a sustainable recovery. This is no mean achievement. This agreement rests upon an increasingly clear understanding of the need for a sustained and successful fight against inflation, and for the policies that this implies. It rests on the firm control of monetary growth, and of public deficits and public spending-themes that the Managing Director has stressed frequently. It rests on the better working of markets, the reduction of costs, and the improvement of profits. It points the way perhaps to a new Fund role in surveying countries' policies, which would not be unlike its old position in relation to exchange rates. I shall have more to say about this later. But we should note first that we have held to the objectives on which we agree. The historians will record that at Helsinki, at Versailles, and now in Toronto, commitment to the central strategy has been restated and reconfirmed. Such continuity of strategy is crucial. But its maintenance also presents great difficulty. This is partly because the process of secure recovery is slow. Even where appropriate policies have been adopted there is no early payoff. And none of us can avoid the tensions of transition, though they express themselves in different ways in different countries .

188 Tensions of Transition For the industrial economies the greatest tension concerns the adjustment of pay and inflationary expectations to the monetary framework. This is crucial, but progress has been painfully slow. As a result, profitability has been severely squeezed, and output and employment sharply reduced. Today's high levels of unemployment are the sad price, in social as well as economic terms, which we pay for past failures to tackle inflation, and for the rigidities of the labor market. The industrial economies now require a boost to profit expectations and thereby to investment. Progress is being made, but much more is required. It must be recognized more widely that the level of real wages is crucial to recovery, that excessive pay increases only delay the process. The success of some of the newly industrialized countries, where transition has been achieved with less loss of output and employment, demonstrates the resilience which greater adaptability allows. For the non-oil developing countries a major tension of transition arises from the ability of OPEC to maintain high oil prices combined with the im­ pact of disinflation on other commodity prices. Such prices have carried much of the initial burden of adjustment. Unrealistically high pay set­ tlements in the industrial countries not only destroy jobs there, they also, through lost markets and weak prices, reduce developing country incomes already hard hit by rising energy costs. But this too is a transitional pro­ blem: as adjustment proceeds in the industrial countries, some of this burden on non-oil developing countries should be reduced. Further tensions arise from the consequences of the indebtedness whose origins lie in years of imprudence. The impact of this problem has been before our eyes day by day in recent weeks. For developing countries the burden of debt has become greater through the combination of falling in­ comes and high interest rates-and, for some, of past overborrowing. Clearly there is scope for flexibility in determining the rate of necessary structural change, taking account of developments elsewhere in the world. But it is essential to recognize the inevitable implications of changes in the balance of demand and relative prices for products and commodities. Con­ sequent structural adjustment is unavoidable. Transitional difficulties are of course uneven in their impact. The justice is certainly rough. But we have all seen examples of developing countries which, in spite of all the problems, have maintained a steady course by able management. I hope it is not presumptuous to refer in this connection to the particular example of India. In other cases a deteriorating situation has been effectively corrected: I have in mind Jamaica, where after years of fall­ ing living standards and steep inflation, a firm policy of monetary restraint-coupled with denationalization-has halved inflation, and created conditions for attracting foreign investment.

189 Success Against Inflation The tensions of transition can perhaps be seen as global withdrawal symptoms. For across the world the inflationary fever has been checked. Inflationary expectations in most of the major industrial countries are changing significantly. Given the predominant weight of the United States in the world economy, and the importance of its currency in international financial markets, the progress registered there is particularly important. And in the United Kingdom we have brought inflation down to around one third of the peak rate suffered two years ago. And the prospect, with Government borrowing following the downward path we set then, is for further falls. Elsewhere too there has been progress. But of course there is justified worldwide anxiety about the pain of the process. We need not only strong nerves but also the determination to per­ suade our people that the course on which most of us here agree really is the best, and that a turnaround in policy now would only plunge us back again into rising inflation and still worse unemployment. Defeating inflation may be profoundly uncomfortable, but to be defeated by inflation would have been disastrous.

The Way Ahead But agreement on the diagnosis, and on the proper course of treatment, does not absolve us from the need to be sensitive in our precise prescription. How can we best help each other and our common interest? Can we, without losing sight of the agreed objective or slowing the adjustment pro­ cess, ease the tensions of transition? First, we must foster both the stability of our system and its ability to adapt to change. We need more than ever the international financial institu­ tions which we have inherited from the Bretton Woods era, and we need to defend and develop their tried and familiar roles in contributing both to stability and to change: in the one case to adjustment, in the other to development. From time to time there are calls for new institutions. What their roles would be, and how they would be defined, is not clear. What is clear, in my view, is that this is not the time for a fundamental reappraisal of a tested in­ stitutional structure which has served us well, and never more so than at the present juncture. As I said last year, new institutions are not the key to a better future. But we must certainly encourage the evolution of the Fund and the Bank in response to changing needs. And it is to this that I now turn.

The Development of the Multicurrency System Last year I spoke about the network of our joint responsibilities toward each other and toward the world monetary system. I suggested that the special drawing right (SDR) could not be a worthwhile asset unless its com-

190 ponent currencies retained their value. I spoke also of the reciprocal obliga­ tions which would arise if the countries whose currencies are represented in the SDR in fact discharged that responsibility. This theme was taken up in the statement issued at the Seven Power Economic Summit at Versailles, acknowledging a joint responsibility toward the world monetary system. That statement recorded the agreement of the Seven that greater stability in the system depended on convergence of policies, which would maintain the internal and external value of the cur­ rencies of the signatory countries. And it laid special emphasis on the role of the Fund. There was special reference too to the currencies constituting the SDR, and to developing multilateral cooperation in relation to them which would reinforce the Fund's role. We need to carry forward our thinking about how a multicurrency world monetary system can best be made to work to the advantage of us all. Floating rates absolve none of us from our responsibilities toward others. It is unlikely that we shall return to a system wholly dominated by one currency. But the Versailles undertakings could prove a major step toward a more stable multicurrency system, with countries sharing the responsibility for providing the asset base of the system, and working together to ensure that currencies maintain their value. The Versailles undertakings rightly put the emphasis on major countries following noninflationary policies, and on international cooperation. Monetary stability in a multi currency system depends first on principal cur­ rencies-let us say for this purpose the five SDR currencies-gaining and re­ taining a reputation as low inflation currencies. The more important a cur­ rency is in the world, the more important this becomes in the interests of the system. There is a special reciprocal obligation among the Five. They have as well an obligation, recognized at Versailles, to other nations. Within the Five there is a particular need for cooperation on policy, a recognition by each of an international obligation and a right to urge the needs of the system on its partners. The policymakers responsible for these currencies are the main custo­ dians of the world money supply. Collectively they have an important role in guarding the world from inflation, though the scale of their individual responsibilities differs. Each owes it to the others, and to the whole membership of the Fund, to facilitate the exercise of this responsibility and not to make it more difficult. A multicurrency system cannot succeed by simple resistance to change. Arguably the Bretton Woods system suffered from being too inflexible for too long. The system will have to accommodate changes in relative currency values, and the operation of markets in bringing about those changes. But the purpose of policy, reinforced by cooperation, should be to reduce volatility and instability by fostering confidence. The necessary exchange rate changes ought, with such confidence and with lower inflation rates, to be more gradual, smaller, and less feverish. 191 I have spoken so far of the obligations of the major currency countries. But they in turn have a right to look to others to undertake reciprocal obligations. At Versailles the major countries undertook not to make com­ petitive devaluations, and undertook not to use currency manipulation for trade advantage. The counterpart of that ought to be a progressively more open trading system not only between them but in the rest of the world. This has a special relevance to newly industrializing countries which benefit greatly from the rapid growth of world trade. An orderly multicurrency system has implications for the worldwide management of reserves, a matter of legitimate interest to the Fund. Reserves are there to be used in need and to ease the process of adjustment. But sharp swings in the currency composition of reserves, whether as a result of diversification or intervention, could in some circumstances add undesirably to instability. The SDR would be more likely to be held in reserves on its own merits as a strong unit if the value of its component currencies were better maintained. SDR assets would also be increasingly attractive in the private sector. Both developments should be mutually reinforcing and would help international stability.

The Intervention Study I have spoken about one theme taken up at Versailles. A second initiative was the decision to undertake a study of exchange market intervention. We must take care that the study does not become a purely academic exercise in analysis. It would be regrettable if each country regarded it simply as a device for justifying its present practice. The object of the exercise should . not be to achieve, or justify, a widening of differences, but a meeting of minds.

The U.S. Economy: Key to the Timing of Recovery I have emphasized already the importance of the policies of the major countries in guarding the world against inflation. The U.S. Administration's firm and public commitment to prudent monetary and fiscal policies should be a reassurance that inflationary pressures will not once again be allowed to undermine the recovery. As many of us know from our own national experience, however, the im­ plementation of these policies is far from easy. The effort to control monetary growth and deficits has been accompanied by high, and at times volatile, interest rates. These not only put immediate pressure on borrowers, whether persons or companies. They also put at risk investment for the future. And they pose special problems for developing countries. We have seen, too, how they have been accompanied by a sharp rise in the dollar's exchange rate. This has reinforced the pressure on U.S. companies, leading to calls for protectionism and increasing the risk of trade warfare. 192 Our own experiences have taught us how complex is the operation of monetary policy. Monetary conditions need to be assessed in the light of a range of indicators: the growth of the various monetary aggregates, pro­ gress on inflation, the exchange rate, and liquidity pressures on companies. Experience in the United States is pointing to similar conclusions. I welcome, therefore, the flexible but firm approach of the American authorities. And, of course, we all welcome the reduction in U.S. interest rates in recent weeks. We can all welcome, too, the passage by Congress of the U.S. President's tax package. My own country had to take hard deci­ sions last year in the course of carrying through our own medium-term financial strategy. Firm monetary policies do have to be supported by str­ ingent fiscal control if a reduction in interest rates is to be sustained. This will be particularly important as the U.S. economy picks up and private de­ mand for credit revives. If a sympathetic outsider may offer a view, it seems clear that an impor­ tant battle has been won. But a long campaign may still lie ahead. The deficit needs to be clearly set on a declining trend for the medium term. Convincing success in that direction would bring immeasurable benefit not only to the U.S. economy but also to the rest of the world. It would give economic agents and governments everywhere the confidence that recovery, at least in the world's largest economy, was likely to be sustained and noninflationary. The medium term starts now. Of course, if other countries are to share the benefits fully, then they, too, need to follow prudent policies. For some, the need to cut budget deficits is urgent. In others, particularly Japan, where good progress has been made on inflation and on the budget deficit, the short-term room for maneuver may be greater. A recovery of activity that is coupled with lower interest rates should ease some of the global pressures on non-oil developing countries. Renewed growth should help to increase the volume of their ex­ ports and halt the decline in commodity prices which has so worsened their terms of trade. High export earnings and lower interest rates should in turn ease the problem of servicing their debts. Some continuing, and all too often painful, adjustment of the economies of developing countries will, however, still be unavoidable. This is particularly the case for those who have overborrowed in the past.

The International Banking System There is concern at present about the effects of such overborrowing on the international banking system. I need hardly stress the importance of sus­ taining its stability. In the past decade international banking has grown apace. A bigger share of savings has been made available through the major financial centers for international lending, both to companies abroad, and to sovereign borrowers. This process, made more necessary by the two oil shocks, has helped to carry the world economy through them.

193 Technological development, especially in communications, inevitably also played a part in increasing international lending. We are moving toward a single global market. There is little prospect that this process will be reversed or that the in­ termediation discharged by the banking system will be substantially transferred to international financial institutions. Their share in the total transfer of resources is likely to remain a relatively modest proportion of the total. So we all have a powerful interest in the health of the international banking system. This is one of the contexts in which a return to more normal levels of in­ terest rates will be valuable. Very high interest rates have helped to produce accumulations of debt of shorter and shorter maturity. Equally valuable in this context will be our full support for the interna­ tional financial institutions. An effective Fund is part of the framework within which the banking system operates: we need to demonstrate that the international community remains determined to restore the credit­ worthiness of its members by a judicious combination of help and programs of adjustment. And, of course, adjustment by borrowers who have pro­ blems, whether they be companies or countries, is as essential to the banks as it is to the Fund. Creditworthiness maintains the flow of resources to bor­ rowers. It also maintains the flow of interest and repayments to banks. In these ways we can help to underpin confidence. But there is certainly work to be done at the level of the banking system itself. The first oil shock produced tremors which gave a salutary impetus to international coopera­ tion in banking supervision. There has been steady improvement in such cooperation and in national standards of banking supervision, covering risk assessment, prudential standards, monitoring and control. But I am sure central banking colleagues would agree that there is further progress to be made. Some recent developments testify to that. In particular it is important that there should be a watertight allocation of supervisory responsibilities, and that when agreement has been reached on a principle such as the con­ solidation of the accounts of banking groups, priority is given to the legal or administrative steps needed to give effect to it. Recent events will have brought home to banks that they alone are responsible for the assessment of credit risk, and that credit risk applies to sovereign borrowers as well as to others. Proper risk analysis is a respon­ sibility which no banking management can abdicate. What cannot be ac­ cepted is the charge that the authorities should not have allowed commercial banks to lend as much as they have. This assumes that the authorities can be better judges of credit risk than banks themselves. I can think of many ac­ tions by public administrations around the world which put a very large question mark over that proposition. There is no alternative to tackling each problem case, whether it is a coun­ try, a corporation or a bank that is in trouble, on its merits. There can be no

194 general and automatic system of debt relief which will spare banks the costs of imprudent lending or debtors the pain of adjustment. Rescheduling of debt can be neither automatic nor painless. Capital markets have long memories and may for a long time be reluctant to provide funds for development if borrowers take hasty decisions for the sake of temporary relief. Banks should not withdraw credit indiscriminately from a whole region because one or two countries in that region are suffering payments difficulties. But equally borrowers should not regard rescheduling as an easy way out: that could only be counterproductive. My conclusions on current banking issues are that they must therefore be tackled in several ways. Governments have to face the need for adjustment, press home policies which reduce inflation and interest rates, sustain con­ fidence in the international institutions. And we must try to see to it that both the banks' own risk assessment and the fabric of banking supervision recognize that the free world is increasingly one single market with a com­ mon thread of risks and responsibilities ...

Development Issues As with the financing of the Fund, so we must all now be concerned to en­ sure adequate funding for IDA. For we are learning to recognize the fact of our mutual interdependence. As Mr. Clausen pointed out in an important speech earlier this year, we live in a multipolar world. The simplistic North­ South economic model of the 1960s and 1970s is no longer apposite today. With our long tradition of support for the Association and our special Commonwealth links with many of the borrowing countries, we in the United Kingdom continue to be concerned for the future of IDA. There is a growing recognition that all the problems of developing coun­ tries cannot be solved by massively increasing aid flows. Official aid is costly to donor countries. Nor is it reasonable to expect aid to be immune from public expenditure restraints. All the more reason, as I said last year, to concentrate scarce aid funds where they are most needed in the poorest countries. The United Kingdom has a good record in this respect. And IDA is the major channel of multilateral assistance to such countries. Earlier this year the United Kingdom announced its readiness to waive the pro rata rule that would otherwise have applied to commitments for our second payment to IDA-VI. We did this in order to help sustain IDA's lending program and in the hope that other donors would follow our exam­ ple. This has indeed happened. I am glad to confirm today that we have decided to waive the pro rata condition on our third and final payment. We believe this is the most effective way of helping IDA in the short term. And we hope most strongly that the United States, as the most important donor member of IDA, will now complete its contribution to IDA-VI not later than fiscal year 1984. And we are prepared to participate with others in a special operation to provide additional resources to IDA in 1984.

195 Looking further ahead we attach great importance to a successful out­ come to the negotiations on the Seventh Replenishment which are due to begin in Washington in the autumn. We cannot be too sanguine about the prospects for a real increase in donors' contributions over the total agreed for IDA-VI. It is generally recognized that the United Kingdom, for exam­ ple, has been contributing more than is justified by its relative economic strength. This cannot continue. The Association will need to look construc­ tively at all possible ways to increase the resources available to IDA, in­ cluding perhaps the more rapid recycling of IDA funds. For the majority of developing countries the maintenance of an open world trading system is far more important than official aid flows. All the evidence shows that it is those countries which have followed a policy of outward orientation (concentrating on export production rather than im­ port substitution) which have been most successful in attaining their development objectives. Their major need is to retain the widest possible ac­ cess to world markets for their goods. This will be one of the main issues for discussion at the ministerial meeting of GATT later this year. Access to development capital and the encouragement of private invest­ ment are also important factors. This is where the Bank has a major role to play. Mr. Clausen's first year as President has seen some major developments. The changes in borrowing and lending rate policies recently agreed by the Executive Board represent a significant new departure. The new borrowing policy should give the Bank the necessary flexibility to tap all available sources to fund its lending program. The new system for calculating the lending rate half yearly is a necessary corollary. Although in­ terest rates remain high for borrowers, the new system should in the long run bring them some relief by minimizing the effects of temporary fluctua­ tions in the Bank's borrowing costs. With the Bank's borrowing and len­ ding programs both at record levels it is in the interests of all the Bank's members to maintain the confidence of the financial markets. It is for this reason that I welcome the policy changes. I should also like to welcome the progress made during the year on subscribing to the general capital increase. We were glad to be able to help the Bank with its problem of finding sufficient shares for the initial subscription of its newest member country, Hungary, and for existing members with justified claims for increased shareholdings. We shall seek Parliamentary authority in the autumn to enable us to take up the shares now allocated to the United Kingdom. The Bank management, in response to the recommendations of the Development Committee's Task Force on Non-Concessional Flows, have recently circulated new proposals on co financing with commercial banks. It remains my view that increased cooperation between the multilateral development banks and the private sector is the best hope for increasing financial flows to the developing countries in the short term. The proposal

196 for a new multilateral investment insurance agency is an interesting one which deserves further study. I know also that discussions are continuing on the best means of attracting additional funds to finance energy projects in the developing countries. I hope that this will indeed prove possible. In the meantime, I welcome the priority which the Bank is already giving to len­ ding in this sector. Of course, none of these initiatives can do more than provide an institu­ tional framework which is favorable to the development process. The con­ tribution that multilateral organizations and governments (whether inside or outside the developing world) can make is limited. Real development depends on the skills, enterprise, and dedication of individuals. The real progress that has been made in recent years is to be attributed mainly to the governments and peoples of developing countries themselves: the same will be true in the future.

Conclusions I have spoken today about some of the tensions in this period of economic transition: stresses on companies, banks, and nations. I have spoken of the need for both stability and flexibility, a need never greater than in such a transitional period. And I have described the nature of the generally-agreed strategy to defeat inflation, the progress which has been achieved, and the particular actions which ought in my view now to be taken. They can be summarized under five headings. First, and most obviously, we must maintain and sustain the central in­ stitutions, the Fund and the Bank. That means support for their key roles, in surveillance and advice on adjustment policies, and in providing develop­ ment finance. And it means support through the assurance of adequate ad­ ditional resources, for example, by reaching early agreement on a substan­ tial increase in Fund quotas, and through the timely release of agreed con­ tributions to IDA-VI. Secondly, and hardly less obviously, we must continue to pursue respon­ sible financial policies. This means a firm but flexible approach to monetary policy, taking into account all monetary indicators and avoiding excessive tightness or easing of financial conditions. And it means that we must con­ tinue to reduce budget deficits, putting further downward pressure on in­ terest rates. In this respect we look particularly to the United States. For companies-or countries-facing difficulties at present, lower interest rates are an urgent requirement. Thirdly, we must work for greater exchange rate stability. This certainly means building on the joint responsibilities recognized at the Versailles sum­ mit, which could involve a fuller and more secure expression of the original purposes of the Bretton Woods agreement than we have seen for many years.

197 Fourthly, governments of almost all industrial countries, including my own, need to persuade their peoples of the need for pay restraint, permitting labor costs to adjust and profitability to increase. We must also remove un­ necessary controls, encourage flexibility in goods and labor markets, and avoid resort to protectionism. Finally, countries with excessive debts must like the rest of us follow ap­ propriate adjustment policies, and private sector banks will need to show a matching responsibility. The former should accept that rescheduling can only be effective if accompanied by the right policy changes; the latter that adequate supervision and prudent individual risk assessments are essential components of a stable system. It is not, I hope, immodest to commend these five points to the attention of all our countries. The more closely we are able to observe them during the months ahead, the more we shall succeed in shortening the transition and abating its pain. And the more we are able to adhere to them in the years beyond that, the sounder will be the foundations of the recovery for which we are striving together.

UNITED STATES: DONALD T. REGAN Governor of the Fund and Bank

I am happy to be here today, enjoying the hospitality of a neighbor with whom we share the world's longest unfortified border. I am delighted to be with you and to join in welcoming three new members to this meeting­ Antigua and Barbuda, Belize, and Hungary. Last year, President Reagan met with this group in Washington and said: "We need to recognize our progress and talk about it more ... with one another. This in no way denies the immense problems we face. But without some sense of what we have achieved ... we will succumb to defeatism or sur­ render to ill-advised solutions." During the past year, there have been major economic achievements, both in my country and in the international arena, and we would do well to recognize them. But first let me put these accomplishments in perspective. At these meetings last year in Washington, at Helsinki, and again at the economic summit in Versailles, we were told that the U.S. budget deficit and high interest rates were the major economic problems for every other country in the world. In recognition of widespread concern and uncertainty in financial markets over the projected size of future U.S. budget deficits, we acted. In an atmosphere made difficult by domestic economic and political pressures-and despite our own unwavering commitment to incentive-oriented tax rate reductions-we asked the Congress to reduce budget deficits over the next three years by $380 billion, including the $99 billion in revenue increases which just passed the Congress. Although there

198 are complaints about inadequate U.S. control of government expenditures, we have cut $270 billion from non-defense expenditures since taking office, in addition to the $280 billion in further cuts we are now asking for. Presi­ dent Reagan is personally committed to seeing these cuts through. We are already seeing tangible results from our economic program. We have been predicting a decline in interest rates. This prediction met with en­ trenched skepticism, both at home and abroad. But the fact is that interest rates have been dropping for some time now. And while they are still much higher than we would like, they are far, far below their peaks. The three-month treasury bill rate, which peaked at 16.7 per cent at the beginning of 1981, is now at 8.6 per cent. The prime rate was over 20 per cent then. Today it is 13 112 per cent. The federal funds rate has moved in the same period from 15 per cent to 9 per cent. These are major declines. With continued progress on inflation, we should see more in the months ahead. The decline in long-term rates has lagged behind short-term rates. Historically, this has been the pattern, and the transition we are presently moving through is no exception. However, even long-term rates have now started downward. In our first budget, we anticipated that the rate of consumer price in­ crease in the United States would drop from the double-digit rates prevailing before we took office to about 8 112 per cent this year and a little over 6 per cent in 1983. Our critics, back then, scoffed at such projections. But in fact we have done even better. Consumer price inflation in the first half of this year ran at a 5.1 per cent annual rate, and we expect it to be only a bit higher than that for the year as a whole. Wage increases in the United States have averaged only about 6 per cent in the first six months of 1982. Wholesale prices are up only 2.5 per cent in the same period, and one of our major automobile manufacturers has increased prices for the 1983 models by a mere 1.9 per cent-a clear indication of weakened price pressures. At last year's Annual Meeting, President Reagan said that "each of our societies has a destiny to pursue. We have chosen ours in light of our ex­ perience, our strength, and our faith." The theme of the United States under the Reagan Administration is by now very familiar to you: we have faith in the market mechanism. Economic decision making through private market activity simply produces more efficient results than decisions imposed by governments. And ex­ perience has demonstrated time and again that this is the case, both domestically and internationally. In the United States, we have worked to put in place an economic pro­ gram that embodies this approach. We have set our goals high-but they are attainable goals.

199 The declines in interest rates and inflation that I have mentioned are wel­ come. But they provide only the first inkling of the real benefits that the U.S. and world economies will realize from the President's economic program. The stage has been set for a strong recovery that is becoming more pro­ bable and more imminent with each passing day. Our index of leading in­ dicators for July rose 1.3 per cent-the fourth consecutive monthly in­ crease. The turnaround in U.S. real GNP, which began with modestly positive growth in the second quarter, will give us stronger growth later this year, before settling back into a sustained recovery with growth in the 4 per cent range. While countries differ greatly in culture, traditions, and present economic circumstance, we believe that there is a broad blueprint for sound economic policy which is applicable to all. A stable and non-inflationary macroeconomic policy, formulated with a long-term planning horizon, and implemented steadfastly despite short-run pressures, is necessary for sus­ tainable economic growth. This type of macroeconomic policy must in our view be reinforced by a free-market orientation. When we allow market forces continually to adapt our economies to changing economic circumstances, adjustment is less abrupt. Governments can sometimes delay adjustment for a short time by using subsidies, protectionist measures, and capital controls-but sooner or later the adjustment has to be made. These, then, are the components of our approach to both domestic and international economic issues: an emphasis on noninflationary, market­ oriented domestic economic policies and on effective international coopera­ tion. This is the philosophical framework which shapes our attitude toward the Fund and Bank. The Fund continues to be the key institution of the international monetary system. In the current environment the only acceptable approach is the one the Fund is taking-an approach designed to foster economic and balance of payments adjustment. The types of problems our nations face have not changed in character. They still include excessive inflation, high unemployment, substantial payments imbalances, and the daily burden of poverty and hunger. But in the past twelve months, there has been fundamental improvement on a number of fronts. First and foremost, there has been broad-although not universal­ improvement in the areas of inflation and payments imbalances. But we have only to look about us, or to listen to our citizens, to know that we still have a long way to go. A lasting world economic recovery, with significant reductions in unemployment, is now within our reach. But it will require continued diligence and perseverance to attain. From a worldwide perspec­ tive, the fires of inflation, while not as white-hot as they were a year or two ago, are still uncomfortably warm. In some countries, they continue to rage virtually unchecked. 200 Second, the experience of the past few months underscores the basic strength and resilience of the international financial system. The system is sound. It has coped with some difficult liquidity and debt problems, and I am confident that it will do so in the future. At the same time, it is clear that the rapid growth of international debt has placed strains on the world banking system. Ironically, many current problems stem from government policies designed to stimulate rapid growth but which-because of their excesses and reliance on controls-have produced little or no growth and have greatly damaged economic perfor­ mance in all respects. All too often, governments have tried to follow overly ambitious national economic plans that exceed the real and financial resources of their nations. Confronted with the gap between aspirations and resources, the temptation is great to spend beyond one's means-a problem not unheard of in Washington. There are pressures for massive government deficit spending and temptations to monetize budget deficits, thus fueling inflation. And there are heavy pressures to borrow excessively abroad-to the point that a nation loses access to foreign credit markets altogether. The results are inevitable: too little growth, too much inflation, too much debt. Confidence in the borrower's economy becomes shaken and money flees to other countries and to other currencies. The lessons here for all of us-creditors and debtors-are plain. The in­ ternational financial system is tough and resilient, but its resources are not inexhaustible. Societies cannot grow faster than their resources will allow. Attempts to promote unrealistic growth rates lead only to inflation. The real solution to the problems we all face is to be found through a series of courageous and concerted steps toward adjustment. As President Clausen said this morning: "Sustained growth in the developing countries inevitably depends on their own sound domestic policies." The same applies to all. Without sound national economic policies, both domestic and interna­ tional resources-real and financial-are misallocated, and economic and social disruptions can only increase. With sound policies, the basis is laid for reconciling the necessary prudence in lending by the private sector with the need for continued financing during the period of adjustment. Reluctance to tackle difficult economic decisions, coupled with recent sluggishness of the world economy, has made it all the more difficult to resist the political pressures for protectionism. But one of the lessons of history is that protectionism does not pay. Free-flowing trade and invest­ ment are part of the engine which drives economic growth. For this reason it is essential that we maintain forward momentum on trade liberalization, rather than slipping back into politically motivated pro­ tectionism. While liberalization of international trade and investment, in itself, is no panacea for our economic difficulties, it is an essential compo-

201 nent of any sustainable long-run recovery. We have been working hard to keep up momentum for such liberalization, and that will be the central focus of our efforts at this fall's GATT ministerial meetings ... The programs of the World Bank and the regional development banks are a concrete response to the twin challenges of maintaining growth and vitality in the international economy, and assuring that all countries­ particularly the poorest-are provided the opportunity to participate fully in a dynamic and efficient international economic system. In February, we released the results of the most thorough U.S. examina­ tion of the multilateral development banks that had been conducted since their establishment. In summary, our examination underscored the value of an effective MDB role in a market-oriented international system and highlighted the very con­ siderable potential the banks have for enhancing growth and stability in developing countries:

-as catalysts for mobilizing private sector resources; -as sources of sound economic policy advice and technical assistance; and -as financiers of viable development projects that the private sector is not well positioned to provide.

We are convinced, however, that there is considerable opportunity for the World Bank to utilize its resources more effectively. As you are no doubt aware, the United States is taking a much closer look at individual projects and is casting votes on these loans consistent with the conclusion of our study. We have abstained, for example, on some recent oil and gas loans because we felt that the role of the Bank was not adequately justified in these cases. We continue to believe that prudent operations and more in­ novative co financing techniques will enable the Bank to continue its lending program at a satisfactory level without accelerating the recently enacted general capital increase. With regard to specific policy recommendations, we will continue to ad­ vocate a more selective approach to Bank lending, with less emphasis on lending targets, more emphasis on selecting projects that maximize use of the Bank's special skills, and greater attention to loan and project quality. We believe that an economic environment which enhances the opportunity for private sector enterprise also enhances the prospects for sustained economic growth. In particular, the United States remains strong­ ly committed to the objectives and catalytic role of the International Finance Corporation. We look forward to a discussion by Directors of the IFC's new five-year plan and to specific suggestions as to how the IFC's role can be strengthened. In the months ahead, we will encourage active efforts in all the develop-

202 ment banks to enhance the role of the private sector in development. In IFe especially, we suggest early attention to such things as:

-appropriate involvement in more energy projects, where a catalytic or "umbrella" role can be justified; -within the World Bank Group, an expanded IFe program of lending/equity investments in development finance corporations (particularly privately owned); and -a more concerted effort to exploit four demonstrated areas of IFe comparative advantage: innovative financial intermediation and project financial packaging; effective support of private sector, market-oriented industrial activity; promotion and strengthening of capital markets in developing countries; and policy advice to improve the investment climate and framework in developing countries. The United States also welcomes the Bank's preliminary report on the creation of a multilateral investment insurance mechanism. Such a mechanism could promote valuable additional investment capital, and we strongly encourage the Bank to continue to examine its feasibility. There has been some criticism that the United States has de-emphasized the importance of Bank assistance to the poorest sectors and countries. This is simply not the case. In fact, many of our policy recommendations-such as increased cofinancing and accelerated graduation from the soft-loan to the hard-loan window-are designed precisely to maximize Bank resources available for the poorest nations. We are genuinely concerned about the very difficult constraints on development facing the poorest countries. We will work hard to ensure that available concessional resources are used primarily for those countries that really do not have the alternative of bor­ rowing significantly at hard-window terms or from the private market. We view U.S. policy objectives as consistent with, and in many important ways complementary to, existing Bank policies and procedures aimed at en­ suring that the poorest sectors of recipient countries share in the benefits of growth. A year ago, when I first addressed this body, I urged a return to the types of economic policies that gave the world such an excellent record on growth and development during the first decades after World War II-market­ oriented policies to mobilize private economic activity. The events of the intervening year have served to remind us that, while such policies will lead us to lasting economic recovery and vigorous growth, the process is not quick. Nor is it easy. We are making solid progress toward reducing inflationary pressures and restoring the basis for growth-but much more remains to be done. The International Monetary Fund and the World Bank continue to em­ body sound principles. They continue to make very important contributions

203 to world economic progress. The United States remains an energetic sup­ porter of both the Fund and the Bank. It is clear, I am sure, that this Ad­ ministration holds fast to certain principles and to certain policies. At the same time, I hope it is evident that dialogue and cooperation are also bywords of this Administration. We listen. We discuss. And thus we all have a continuing opportunity to learn from one another. Thirty-eight years ago at Bretton Woods, another American Treasury Secretary, Henry Morgenthau, said: "We can accomplish our task only if we approach it not as bargainers but as partners-not as rivals but as men who recognize that their common welfare depends on ... mutual trust and joint endeavor." And with that view still in mind, we look forward to effec­ tive cooperation with these institutions and their members in the future.

VANUATU: KALPOKOR KALSAKAU Governor oj the Fund and Bank

I would first like to join with other Governors in welcoming among us the Governors and Delegates from Antigua and Barbuda, Belize and Hungary who are with us for the first time. I also wish to thank the authorities and people of Canada for the warmth of their hospitality, and to congratulate the management and staff of the Fund and the Bank for their excellent organization of these Meetings. The very great majority of the problems and concerns with which we were preoccupied a year ago are still with us today: continuing low rates of growth, still higher unemployment, a continued slowdown in the growth of world trade, and the threat of increasing protectionism. It is only in two areas, firstly inflation and secondly interest rates, that the picture has im­ proved to any extent. We must hope that the reduction in the rate of infla­ tion in industrial countries will help to encourage some recovery in demand and output-which in turn will allow some expansion in the developing countries' exports of raw materials and other goods and, therefore, some small acceleration in their growth rates. As you, Mr. de Larosiere, pointed out some months ago, the average growth rate of developing countries in 1981 was lower than their population growth rate for the first time since World War II. Positive growth in per capita terms is no longer assured. And it is therefore uncertain whether the low-income countries in particular can maintain rates of growth which can prevent a decline in real per capita in­ comes. The very profound social and political consequences that such a development could carry with it should not be brushed aside. The recent decline in interest rates is, of course, to be welcomed. But lower interest rates alone will not, from the standpoint of developing coun­ tries, be sufficient to reverse the critical situation which many of them face. I mentioned just now the threat of increasing protectionism in trade. So far,

204 pressures for across-the-board trade restrictions have been resisted. But re­ cent protectionist tendencies are a cause for growing concern. From the developing countries' point of view, it is essential that the industrial coun­ tries keep their markets open. It is vital too that, in dealing with their economic problems-and I admit that they are many and serious-the in­ dustrial countries resist pressures to reduce their external economic assistance. Several countries have announced cuts in their bilateral and multilateral aid programs. I understand the budgetary and other constraints which these countries face. But development assistance is a very small ele­ ment in most countries' budgets. I urge that the industrial countries bear in mind the grave implications of a reduction in their aid programs for growth in developing countries and, thus, for their social and political stability. Twenty years ago, the members of the OECD's Development Assistance Committee gave over 0.5 per cent of their combined gross national products in overseas aid. By 1980, this figure had fallen to 0.38 per cent. In 1981, the figure had fallen still further-to 0.35 per cent. By cutting its contribution to multilateral agencies last year, U.S. aid fell from 0.27 per cent of its GNP to 0.2 per cent. As a result, some other major donor countries delayed or held back their own contributions. Aid from other sources, from private in­ vestment, and bank borrowing are not going to fill the resulting gap. The cushion of foreign currency reserves has now all but disappeared for many countries. Unless aid increases and commodity prices pick up, and unless there is an increase in the demand for their exports, then the only outcome for the poorest countries is even more dire poverty and a breakup of the political and social fabric. It would appear that problems in several areas have, if anything, inten­ sified since we met last year. A further deterioration in the world economy and the international financial system must be avoided. Tinkering with the present framework of international economic cooperation may not be enough. I therefore lend my support to those who have called in recent days, both in Toronto and elsewhere, for a re-examination of that framework and of the international trade and payments system. This can be done, in my view, without prejudicing the very important ongoing work or negotiations already being carried out in several areas. I would like lastly to say a few words about the particular problems of small-island economies. I believe that many small-island economies have particular features which deserve special consideration. Nowhere is this more true, in my view, than in the South Pacific. In the recent past, a number of seminars have been held by the Com­ monwealth Secretariat, with Fund and Bank participation, which have touched on the problems and policy issues in small-island economies. These have been extremely useful, and I draw on at least some of the conclusions of those seminars today.

205 There are, I believe, a number of features which set the Pacific Island countries apart from most small developing countries and many other island economies. Our problems may perhaps be summed up in the phrase "small is disadvantageous. " But it is not smallness by itself which is crucial, but rather it is smallness combined with isolation and, often, a scattered population on small, widely-dispersed islands. Many of us are fragmented geographical entities with tiny populations. We tend to be more remote from the major countries of the world which are our market place. We face an inability to exploit economies of scale and a lack of necessary skilled human resources. We are often more vulnerable to adverse developments internationally. It is in the agricultural sector-particularly in the transportation and marketing of goods-that the disadvantages of small size and scattered location are most obvious. Interisland transport and trade are particularly difficult to organize successfully at low cost-but without them the market is either too narrow or nonexistent. There are problems, too, in bringing together the factors of production in a way that releases enterprise and pro­ motes more productive agricultural practices. Weare very dependent on foreign trade. Our dependency on foreign trade is paralleled only by our dependency on foreign capital inflows. Even in the area of foreign capital, smallness has tended to be a disadvantage. Some international financing in­ stitutions have operation techniques which do not fit the small-scale needs of island economies. Project financing requirements tend to be much smaller than the average, yet small-scale projects require as much prepara­ tion, processing, and supervision as larger projects. It is even less reasonable, in my view, to expect small island economies to adjust-for example to external shocks-in only one or two years. Fine tuning of our economies, particularly in the short term, is also a great deal more difficult to achieve. I have suggested just a few features which I believe deserve special con­ sideration. I should like to propose that the Fund and Bank together join in making an in-depth examination of the features and problems which are peculiar to the island economies of the South Pacific. I believe that we have special problems and, therefore, that we have special needs. Perhaps I could make one further suggestion-that the Bank might give thought to the possibility of establishing an office in one of the South Pacific countries, in order to have more direct contact with, and gain a better understanding of, the needs of these countries-which are at present handicapped by their remoteness from Washington and from the Bank's nearest regional office.

206 VIET NAM: NGUYEN DUY GIA Governor of the Fund and Bank

On behalf of the Vietnamese delegation to the Thirty-Seventh Annual Meetings of the Boards of Governors of the International Monetary Fund and the International Bank for Reconstruction and Development and affiliates, I would like to congratulate Mr. Abdlatif Y. AI-Hamad as Chair­ man of the Meetings and want to join other Governors in expressing a warm welcome to new members of both institutions. I wish to convey my sincere thanks to the Gov(!rnment and people of Canada, especially the people of the city of Toronto for the facilities made available for the Meetings. I also wish to express to Mr. de Larosiere, Managing Director of the In­ ternational Monetary Fund, Mr. Clausen, President of the World Bank and their staffs, our appreciation for the careful preparations for the Meetings. The world economic, financial, and monetary situation is disappointing, which was fully reflected in the Annual Reports of the Fund and the Bank and voiced by previous speakers. In this connection I should like to draw your attention to some recent developments:

-The harmonious trends of international markets with a detente in relations among nations was put under the force of a threat of punishment by one country to another. This in fact prevents coun­ tries from maintaining a sustainable economic growth and controls others' markets, leading to a dangerous confrontation and creating a grave concern in the world. - The developing world is not only suffering from the impact of infla­ tion and high interest rates in developed countries, but is also in a disadvantageous position with its exports underpriced in comparison to higher-priced imports from developed countries.

From these, one notes that the prosperity of the world economy must spring from an economic exchange, the equal and mutually beneficial cooperation among nations of different levels of development, of identical or different political views. We believe that the operations of the Fund and the Bank must be devoted to the promotion of international cooperation and economic exchange. We agree with the view of Mr. Clausen when he said in Tokyo, "Its pragmatism, its freedom from political polarity, and its emphasis on con­ sensus and cooperation had made it possible for the World Bank to serve all its member countries-despite their own sharp diversity and disagreements among one another. Its role is to bring all its member countries together in joint-and mutually rewarding-global economic efforts. And that is what it does quietly and successfully, week after week and year after year."

207 Now let me come back to the relations of my country with the Fund and the Bank. After 30 years of war, our country was liberated and became reunited in 1975. As it is endowed with rich natural resources and abundant labor forces, we intend to develop economic relations with all countries and international organizations. Our country suffers from financial difficulties as a result of the most serious destruction of war and continuous natural calamities. That is why we need assistance from the Fund and the Bank, but while the Fund does respond to our need, the Bank has so far refused our requests on grounds of well-known noneconomic reasons. We demand equal treatment and rights from both institutions like other members. Friendly governments toward us, people, and international organizations come to our need in difficult time with sympathy, support, and valuable assistance. I avail myself of this opportunity to express, on behalf of my Government and people, our gratitude to these friendly governments, people, and international organizations for their effective assistance. May I wish my fellow Governors good health. My wishes also go to the management and staff of both institutions for the greatest success in their task. May relations between the Socialist Republic of Viet Nam and both in­ stitutions be ever improved and developed.

WESTERN SAMOA: TOFILAU ETI Governor of the Fund

This is my first attendance at the International Monetary Fund and World Bank Meetings, and, first, I wish to express appreciation on behalf of myself and my delegation for the hospitality accorded to us by the Government and people of Canada. I would also like to take this opportunity of welcoming Antigua and Barbuda, Belize, and Hungary who have joined the Fund and the Bank since our last Annual Meetings. A new Government assumed office in Western Samoa only a few months ago. But, even in this brief time span, we have come to realize and ap­ preciate the crucial roles being played by the Fund and the World Bank in the economic and financial welfare of the community of nations. In this context, I wish particularly to acknowledge the financial and technical assistance extended to us by both these institutions in the past decade. As at previous Annual Meetings, several new ideas and new proposals are being placed before us by the Interim Committee, the Development Com­ mittee, individual Governors, and the Fund and Bank staffs aimed at in­ creasing the effectiveness of the two Bretton Woods institutions. Taking a cue from the welcoming address of the Prime Minister of Canada, when the world economy is so fluid and passing from crisis to crisis, the Fund and the

208 Bank must continually adapt their activities to the changing circumstances lest they fail, resulting in disastrous consequences for the world economy. My Government welcomes all proposals aimed at substantially raising Fund quotas, establishing appropriate minimum quotas for all members, considering a new SDR replenishment, strengthening the SDR role, augmenting IDA resources, and bringing more flexibility in Fund and Bank operations. In particular, we strongly endorse the proposals for a substan­ tial increase in Fund quotas, with an equitable distribution of the increase between the developed and developing nations and between large and small member countries. We believe that establishment of an appropriate level of minimum quotas should assist in ensuring a fairer share for the smaller countries. However, I am not taking a stand here just to restate what you all know so well about the economic disorder pervading us or to endorse the various proposals to strengthen the Bank and the Fund. I am here to touch delicately, though passionately, on a matter that we feel is very crucial for developing positive, meaningful relationships between the Fund, the Bank, and other international institutions, on the one hand, and countries like Western Samoa, which either because of population or area, very small, are geographically isolated, or are otherwise specially disadvantaged. These countries have very special, almost unique in some instances, historical, sociopolitical, institutional, or economic circumstances that re­ quire deep study with open, sympathetic minds. In the past 15 years, substantial contact has developed between such countries and the world bankers and financiers, which has improved their understanding of our unique problems. Based on such understanding and study, some definitive conclusions can be arrived at about the special financing needs of these countries, which would beacon the need for establishing a special flexibility of approach within the Fund and the Bank, and other international finan­ cial institutions, to meet these unique needs. Such flexibility of approach can, we strongly believe, well be established within Fund and Bank opera­ tionallatitudes under the broad gambit of the overall goals of these two in­ stitutions. Perhaps, such an approach could, in the course of time, lead to the establishment of new facilities within the Bank and the Fund for meeting such unique needs of the specially handicapped countries. In conclusion, I would be remiss if, while supporting the proposals for strengthening the two Bretton Woods organizations and urging for greater flexibility in their approaches toward small countries, I did not emphasize that we, for our part in Western Samoa, will step up our efforts to expand and diversify our domestic production base, explore further our export potential, and improve further the efficiency of our public sector ad­ ministrative and management machinery.

209 YUGOSLA VIA: JOZE FLORJANCIC Governor of the Bank

Let me first welcome the new member countries of Antigua and Barbuda, Belize, Hungary, St. Vincent and the Grenadines, who joined our institu­ tions last year. In his excellent speech Mr. Abdlatif AI-Hamad very rightly assessed the current world economy. We fully share this assessment. World economic developments during the past few years, especially in 1981 and 1982, prove that the developing countries were correct about the dangers generated by the exaggerated concern for the anti-inflation battle, restrictive monetary policies, high interest rates, and foreign trade protectionism. More than ever before in the postwar period, we approached the abyss of a great reces­ sion eroding the results achieved in international economic and monetary cooperation. In considering the reports prepared for this Annual Meeting, we can con­ clude that an urgent change in the current approach is indispensable in solv­ ing the difficulties existing in the international economy: to initiate, wherever possible, measures aimed at averting the current decline in the world economic growth rate, and to activate the depressed potential for the growth of the world economy. We strongly believe that the countries that have basically managed to fight inflation and have balance of payments surpluses can and should im­ prove the growth rate of their national economies. This would be of great help for the developing countries, and the world as a whole. There would be greater possibilities to increase exports from the developing countries, which would facilitate their access to capital markets. At present, access of developing countries to capital markets is almost impossible. This will have far-reaching negative consequences for developing countries and the world economy. In our belief, the principal task at this stage is to help the world economy gradually recover from the recession. Our institutions should also turn toward that goal and provide the contributions expected from them ... The unjustified restrictive international monetary policy has shifted to the sector of transfer of real resources to the developing countries. Their difficult situation has been clearly presented in the address of the President of the World Bank. We appreciate Mr. Clausen's efforts to expand the len­ ding programs of both IDA and IBRD, which have been carried out in rather unfavorable circumstances and with a lack of necessary support. Official development assistance (ODA) faces increasing resistance by many industrial countries. At a time when the least developed countries are strongly affected by developments in the world economy that are beyond their control, the growth of ODA funds is lagging far behind existing needs. The least developed countries are, therefore, facing an even more difficult situation. 210 The World Bank lending program will not rise at the annual rate of 5 per cent in real terms, as previously agreed. Its growth hardly reaches 1 per cent per annum in real terms. It is our opinion, therefore, that the Board of Ex­ ecutive Directors must urgently propose measures to provide an increase of 5 per cent annually in real terms in the lending program during the for­ thcoming period. It is difficult to understand why this leading international development financial institution is presently forced to slow down its growth at a time when its activity is of crucial importance to the recovery of the world economy. We welcome, therefore, the efforts of the World Bank in its attempt to provide additional funds for its member countries through co financing. Although this form of financing is rather complex, we expect it to give the desired results. The World Bank initiative in the creation of the Robert S. McNamara Fellowship deserves all our praise. It adequately pays tribute to the former meritorious President who devoted more than 12 years to the problems of the developing world. The Yugoslav Government joined this collective action with a contribution of $150,000. The programs of IDA financing are also in crisis. The earlier interna­ tionally agreed obligations have not been carried out. IDA activities are threatened by paralysis, and its future is uncertain. The communique of Ministers of the Group of Twenty-Four warns about the difficulties that have occurred, and indicates the direction necessary for future action. The Yugoslav Government fully supports the views expressed by the Ministers of the Group of Twenty-Four that relate to future IDA activities. We share the views expressed by President Clausen on the importance of the IFC role, and the need for further expansion of this institution. In its Program of Action adopted in Belgrade in 1979 at the ministerial level of the Group of 77, the developing countries warned about the increasing number of sources of crisis in international economic and finan­ cial relations. Three years ago they pleaded for the initiation of an interna­ tional monetary system reform, and elimination of negative developments in the field of transfer of real resources to developing countries. The developed industrial countries did not respond to that plea. Key questions from the Program of Action remained without response, with the world moving deeper and deeper into recession. Today, when the elimination of recession and the revival of the world economy have become the basic concern of us all, the Group of 77 Program of Action can help in finding new roads leading to the revival of the world economy.

211 CONCLUDING REMARKS BY MR. CLAUSEN

We have had a very active and useful week. In their statements all Gover­ nors recognized the difficulties we face and have also recognized the need for immediate action in a number of areas. Let me first mention IDA. Here we have progress to report. What has been accomplished this past week is a remarkable achievement in that it signifies, in a way few other actions could have, that the world's nations do indeed consider themselves as part of a single community. The donor members of IDA have placed aside their serious domestic difficulties and their budgetary constraints in a magnanimous gesture to those less for­ tunate. They have at the same time emphasized, in the only way that counts, their commitment to a multilateral system that works to the mutual benefit of all. I am indeed pleased to report that the IDA Deputies have successfully concluded their deliberations on the important matter of ensuring that IDA's operations are not irreparably impaired. Twenty-two countries have agreed to release their full third installments under the Sixth Replenishment, for fiscal year 1983. As a result IDA should be able to operate this year at a substantially higher level than last year, about $3.5 billion instead of last year's level of $2.7 billion. Even more important is the agreement reached to provide IDA with additional resources amounting to some $2 billion to bolster IDA's commitment authority for fiscal year 1984. This agreement will ensure that there will be no hiatus in IDA's operations in 1984, and that they will continue at the same level as 1983. The most important caveat in all of this is that, if these levels are to be realized, the United States must deliver on its commitment to provide IDA with resources at the levels re­ quested by the Administration in 1983 and 1984. It is unfortunate that cir­ cumstances compelled us to make interim arrangements for this transitional year between IDA-VI and IDA-VII, and we hope that such an occurrence will not need to be repeated again. In this connection, we have all noted with satisfaction the statement made by the U.S. Secretary of the Treasury to the Development Committee that the U.S. Administration will work to complete its IDA-VI contributions by fiscal year 1984. We now look forward to the next step, namely the start up of IDA-VII negotiations, scheduled to begin in November this year. These negotiations must proceed with a sense of urgency to enable IDA to continue the work it has carried on for a generation. From the statements made by so many Governors it is clear that there is broad agreement with the main finding of the IDA Retrospective Report just published that during the first two decades of IDA's existence it has been an exceedingly effective collective in­ strument of development. In the forthcoming negotiations, I am sure that we will bear in mind the injunction of Prime Minister Trudeau that developed countries must stand firmly behind their aid programs and multilateral institutions like the Bank

212 and IDA. It is in this spirit that we shall undertake these negotiations, and in the spirit of firm multilateral understanding that has characterized the Toronto Agreement. Many Governors have commented on the financial difficulties of a number of countries. The problems are the result of a number of adverse factors: among them is the sharp decline in commodity prices, the fall in the rate of growth of world trade, and high and volatile interest rates and the service of excessively burdensome short-term debt. Clearly it is necessary that appropriate adjustment policies should be put in place to correct the impact of internal and external factors of imbalance and the Bank is helping its members with such policies. Such adjustments are bound to take some time, but in many cases time is of the essence: the combination of un­ favorable factors is placing great strains on many developing countries today. They need help now. It is therefore natural that so many Governors have pleaded for increased assistance from the multilateral financial institutions and in particular for a larger lending program by the World Bank. We in the Bank will do our utmost to respond to these appeals and we hope our shareholders will help us find ways of doing so. Mr. Chairman, ours is an interdependent global economy. Governments, international organizations, and bankers are more acutely aware than ever that what happens in one area affects everyone. A great deal has been said during our Meetings about this being a period of grave economic and finan­ cial crisis. But we should not be overwhelmed by the present situation. We must recognize that potential exists for a return to significant real growth in global output. But the issue is how can we ensure that this potential is realized? How can we act in the immediate future to secure a more stable and prosperous world? I think that a consensus has clearly emerged here on some of the answers. We must ensure that our developing member countries can borrow ade­ quate external capital for their absolute essential development objectives at rates and maturities that they can in fact afford. We must work resolutely toward lowering inflation, and thus build a more solid base for the reduc­ tion of unemployment. We must stand fast against protectionism. We must ensure that international trade once again becomes the engine of growth and development for all parts of the global economy. And we must create an environment for investment and devise patterns of conduct which would prompt a greater flow of productive direct investment to the developing countries. But the present juncture requires the full participation of the private sector. Commercial bank lending is an essential part of our global system and nowhere is it more important than in developing countries. We all understand that this is a time for prudence in lending, but it is certainly not a time for retreat or withdrawal. We in the World Bank are seeking expand-

213 ed co financing activity with the commercial banking sector, and we have been gratified by the response. We can leave these Meetings with a sense that there is a better understanding of the problems and greater agreement on the solutions. We need to build on this base: we need to see success at the GATT meeting in November, success in the IDA-VII negotiations, success in the discussions for the IMF quota increases, and successful discussions at UNCT AD VI. The important thing is to learn from our past mistakes, to find construc­ tive and lasting solutions to our present problems, to continue to build a world economic system that accommodates all interests, and not to lose hope. Let us hope that when we meet again next year in Washington we will be meeting in an environment that will be less burdened by many problems that preoccupied us in these Meetings to such a great extent. Mr. Chairman, our meetings over these busy days have been rewarding, and we are most grateful to you for the care and patience with which you have presided over them. Let me also repeat our welcome to our new member countries who joined us for the first time this week. I hope they have found this first Meeting useful and productive. Finally, I want to express once again the gratitude of us all in the World Bank to our gracious hosts here in Canada. To Prime Minister Trudeau; to Governor MacEachen; to their colleagues in the Canadian Government; to Premier Davis and the Government of Ontario; and finally, to Mayor Eggleton and to all the people of this utterly charming city of Toronto, we are deeply grateful for their warm and cordial hospitality. Ladies and Gentlemen, I look forward to seeing you at next year's Meeting in Washington, and I wish you all Godspeed and a safe and pleasant journey home.

CONCLUDING REMARKS BY THE CHAIRMAN THE HON. ABDLATIF Y. AL-HAMAD

As it was my privilege, three days ago, to open these Thirty-Seventh Annual Meetings of our Boards of Governors, so it is now my duty to bring them to a close. These Meetings provide a unique opportunity for all of us to share with each other our perceptions and concerns on economic pro­ blems and policies in an interdependent world. I would like to take this oc­ casion to thank my fellow Governors, the Managing Director of the Fund, and the President of the World Bank for their thoughtful contributions to these deliberations. I am also especially grateful to my colleagues from Ireland and Korea who took the chair at the plenary sessions when I was unable to be present.

214 The world economy is now in the third year of the most severe and pain­ ful recession of the postwar period and not surprisingly, all the speeches that we heard this week were addressed to the search for policies to reverse its course. Several of the major industrial countries have made significant progress in bringing inflation under control. Others have expressed their determination to do the same. There is a consensus among all of them that a sound and sustained economic recovery can only be based on a victory over inflation. Hence, while anxious for a resumption of the growth of output and employment, they are nevertheless resolved to be vigilant on the anti­ inflation front. I hope that this approach is correct and that this policy will result in a lasting economic recovery. Without such a recovery, the situation of the developing countries will re­ main extraordinarily difficult. As several of their Governors have pointed out, in the presence of an external environment of such grim adversity as at the present time, even the most rigorous domestic adjustment measures would not suffice to solve their external adjustment problems. There is an asymmetry in international interdependence in this respect because the ex­ ternal environment of the developing countries is largely shaped not by them but by the success of the industrial countries in overcoming the current recession. In this context, it is important to bear in mind that the industrial countries have also a stake in the growth and prosperity of developing countries. The Fund has an important role to play under the present circumstances. In carrying out its surveillance responsibilities, it needs to take into account the differing circumstances of its members as well as the growing impor­ tance of developing countries for the health of the world economy. The Fund also has the primary responsibility for promoting adjustment and must have financial resources commensurate with this task. It is encouraging that there was widespread support at this Meeting for an early implementation of a substantial increase in the total quotas in the Fund. I would like to express to Mr. de Larosiere my best wishes for success in car­ rying out the challenging tasks that await him. During our deliberations, Governors have once again acknowledged the effectiveness of the World Bank and of IDA as instruments for channeling multilateral assistance to the world's disadvantaged countries. These in­ stitutions must be given the resources and the flexibility they need to translate their lofty goals into action. In the case of the Bank, its innovative borrowing techniques should be given a chance to prove their viability, but should be used with utmost care and attention to the needs of its beneficiaries so as not to compromise the organization's character as the premier development agency of the world. As for IDA, Mr. Clausen in his opening remarks referred to the amputa­ tion of its resources. I am happy to report that agreement has been reached on special arrangements through which donors would provide additional

215 resources up to the end of fiscal year 1984, thus helping to maintain IDA's operations at a reasonable level. I am also gratified that donors have now reiterated their commitment to beginning negotiations for IDA-VII later this year. If we are to weather the crisis that confronts the world's financial and economic system, we must find a way to revive the spirit of Bretton Woods and apply it to solving the difficult and controversial issues identified by the Brandt Commission. Before concluding, I would like to express my appreciation for the ex­ cellent arrangements that have resulted in such smooth functioning of these Annual Meetings. On my personal behalf and for all of you, I would like to convey to the Government and the people of Canada, to the authorities of the Province of Ontario and of the city of Toronto, sincere thanks for the excellent facilities and warm hospitality which they have extended to us. I extend my congratulations and best wishes to the Governor for Spain who succeeds me as Chairman of the Boards of Governors. Finally, to all of you, let me wish you a safe journey home.

REMARKS BY JUAN ANTONIO GARCIA DIEZ GOVERNOR OF THE FUND FOR SPAIN

It is an honor for Spain to have been selected for, and to accept, the chairmanship of the Boards of Governors of the Fund and the Bank for the year ahead. I hope to be able to carry out these duties with the same skill as my predecessor, the Governor for Kuwait. Our institutions do not have an easy year before them. As the distinguish­ ed Governors have pointed out in their statements, the international economy faces some of the greatest complexities it has experienced for years. The current difficulties compel the Fund and the Bank to undertake special efforts to strengthen the confidence of the international economic community in our financial mechanisms and institutions. Before concluding I would like to congratulate Mr. de Larosiere, Mr. Clausen, the Executive Directors, and the administration and staff of both institutions for their excellent work, initiative, and dedication to their important tasks.

216 DOCUMENTS OF THE BOARD OF GOVERNORS SCHEDULE OF MEETINGS'

Monday September 6 10:00 a.m. -Opening Ceremonies Address from the Chair Annual Address by Managing Director, IMF Annual Address by President, IBRD, IFC, IDA 3:00 p.m. - Annual Discussion

Tuesday September 7 9:30 a.m. - Annual Discussion 3:00 p.m. - Annual Discussion IMF Election of Executive Directors IBRD Election of Executive Directors

Wednesday September 8 9:30 a.m. - Annual Discussion 5:30 p.m. - Joint Procedures Committee 6:00 p.m. - ICSID Administrative CounciF

Thursday September 9 9:30 a.m. - Annual Discussion J oint Procedures Committee Reports Comments by Heads of Organizations Adjournment

'All sessions were joint sessions with the Board of Governors of the Internatinal Monetary Fund. 'The summary of proceedings of ICSID are published separately.

217 PROVISIONS RELATING TO THE CONDUCT OF THE MEETINGS·

ADMISSION 1. Sessions of the Boards of Governors of the Fund and of the Bank, IFC, and IDA will be joint and shall be open to accredited press, guests, and staff. 2. Meetings of the Joint Procedures Committee shall be open only to Governors who are members of the Committee and their advisers, Exec­ utive Directors, and such staff as may be necessary. PROCEDURE AND RECORDS 3. The Chairman of the Boards of Governors will establish the order of speaking at each session. Governors signifying a desire to speak will generally be recognized in the order in which they ask to speak. 4. With the consent of the Chairman, a Governor may extend his statement in the record following advance submission of the text to the Secretaries. 5. The Secretaries will have verbatim transcripts prepared of the pro­ ceedings of the Boards of Governors and the Joint Procedures Commit­ tee. The transcripts of proceedings of the Joint Procedures Committee will be confidential and available only to the Chairman, the Managing Director of the Fund, the President of the Bank and its Affiliates, and the Secretaries. 6. Reports of the Joint Procedures Committee shall be signed by the Com­ mittee Chairman and the Reporting Member. PUBLIC INFORMA TION 7. The Chairman of the Boards of Governors, the Managing Director of the Fund, and the President of the Bank and its Affiliates will com­ municate to the press such information concerning the proceedings of the Annual Meetings as they may deem suitable.

'Approved on January 26, 1982 pursuant to the By-Laws, IBRD Section 6(d), IFe Section 4(d) and IDA Sec­ tion 1(0),

218 BANK AGENDA'

1. 1981/82 Annual Report 2. Financial Statements and Annual Audit 3. Allocation of Net Income 4. Administrative Budget 5. Joint Development Committee 6. Rules for 1982 Regular Election of Executive Directors 7. Officers and Procedures Committee for 1982183

IFC AGENDA'

1. 1981/82 Annual Report 2. Financial Statements and Annual Audit 3. Administrative Budget

IDA AGENDA'

1. 1981182 Annual Report 2. Financial Statements and Annual Audit 3. Administrative Budget

'Approved on July 16. 1982 pursuant to the By-Laws. IBRD Section 6(0). IFe Section 4(0) and IDA Section 1(0).

219 JOINT PROCEDURES COMMITTEE

Chairman ...... Kuwait Vice Chairmen ...... Ireland Korea Reporting Member ...... Ivory Coast

Other Members

l 2 Bahamas • Kenya Canada Malawi Chile Panama Colombia Papua New Guinea l Denmark Romania ,2 France Saudi Arabia Germany United Kingdom India United States Japan Yemen, People's Democratic Republic of2

'Not a member oj fDA 'Not a member oj fFC

220 REPORT II'

September 9, 1982

At the meeting of the Joint Procedures Committee held on September 8, 1982, the items of business on the agendas of the Boards of Governors of the Bank, IDA and IFC were considered. The Committee submits the following report and recommendations on Bank and IDA business: 1. 1982 Annual Report The Committee noted that the 1982 Annual Report and the activities of the Bank and IDA had been discussed at these Annual Meetings. 2. 1982 Regular Election of Executive Directors The Committee noted that the 1982 Regular Election of Executive Direc­ tors of the Bank had taken place and that the next Regular Election of Ex­ ecutive Directors will take place at the Annual Meeting of the Board of Governors in 1984. 3. Financial Statements, Annual Audits and Administrative Budgets The Committee considered the Financial Statements, Accountants' Re­ ports and Administrative Budgets contained in the 1982 Bank and IDA An­ nual Report, together with the Report dated August 2, 1982. The Committee recommends that the Boards of Governors of the Bank and IDA adopt the draft resolutions ... 2 4. Allocation of Net Income of the Bank The Committee considered the Report of the Executive Directors dated August 3, 1982, on the Allocation of Net Income ... 3 The Committee recommends that the Board of Governors of the Bank adopt the draft resolution ... 4 The Committee submits the following Report and Recommendations on IFC Business: 1. 1982 Annual Report The Committee noted that the 1982 Annual Report and the activities of IFC had been discussed at these Annual Meetings. 2. Financial Statements, Annual Audit and Administrative Budget The Committee considered the Financial Statements and the Accoun­ tants' Report contained in the 1982 Annual Report, and the Administrative Budget attached to the Report dated August 2, 1982.

'Report I related to the business of the Fund. 'See pages 237 and 252 'See page 256 'See page 237

221 The Committee recommends that the Board of Governors of IFC adopt the draft resolution, , , ' ' .. Approved: / s / Abdlatif y, AI-Hamad / s / Abdoulaye Kone Kuwait-Chairman Ivory Coast-Reporting Member This report was approved and its recommendations were adopted by the Boards of Governors on September 9, 1982,

'See page 243

222 REPORT III

September 9, 1982

The Joint Procedures Committee met on September 8, 1982 and submits the following report: 1. Development Committee The Committee noted that the Annual Report of the Joint Ministerial Committee of the Boards of Governors of the Fund and the Bank on the Transfer of Real Resources to Developing Countries (Development Com­ mittee) has been presented to the Boards of Governors of the Fund and the Bank pursuant to paragraph 5 of Resolutions Nos. 29-9 and 294 of the Fund and the Bank, respectively ... I The Committee recommends that the Boards of Governors of the Fund and the Bank note the report and thank the Development Committee for its work.

2. Officers and Joint Procedures Committee for 1982183 The Committee recommends that the Governor for Spain be Chairman, and the Governors for Bangladesh and Paraguay be Vice Chairmen, of the Boards of Governors of the Fund and of the Bank and its affiliates, to hold office until the close of the next Annual Meetings. It is further recommended that a Joint Procedures Committee be established to be available, after the termination of these Meetings and until the close of the next Annual Meetings, for consultation at the discretion of the Chairman, normally by correspondence and, if the occasion requires, by convening; and that this Committee shall consist of the Governors for the following members: Argentina, Bangladesh, Belgium, Benin, China, Costa Rica, France, Germany, Haiti, Japan, Malaysia, Niger, Pakistan, Paraguay, Saudi Arabia, Spain, Tunisia, Uganda, United Arab Emirates, United Kingdom, United States, and Yugoslavia. It is recommended that the Chairman of the J oint Procedures Commit­ tee shall be the Governor for Spain, and the Vice Chairmen shall be the Governors for Bangladesh and Paraguay, and that the Governor for France shall serve as Reporting Member. Approved: lsi Abdlatif Y. AI-Hamad I s I Abdoulaye Kone Kuwait-Chairman Ivory Coast-Reporting Member This report was approved and its recommendations were adopted by the Boards of Gnvernors on September 9, 1982.

'See page 270

223 RESOLUTIONS ADOPTED BY THE BOARD OF GOVERNORS OF THE BANK BETWEEN THE 1981 AND 1982 ANNUAL MEETINGS

Resolution No. 377

Membership of Antigua and Barbuda

WHEREAS the Government of Antigua and Barbuda has applied for ad­ mission to membership in the International Bank for Reconstruction and Development in accordance with Section l(b) of Article II of the Articles of Agreement of the Bank; and WHEREAS, pursuant to Section 19 of the By-Laws of the Bank, the Ex­ ecutive Directors, after consultation with representatives of the Govern­ ment of Antigua and Barbuda, have made recommendations to the Board of Governors regarding this application; NOW, THEREFORE, the Board of Governors hereby RESOLVES: THA T the terms and conditions upon which Antigua and Barbuda shall be admitted to membership in the Bank shall be as follows: 1. Definitions: As used in this resolution: (a) "Bank" means International Bank for Reconstruction and Develop­ ment. (b) "Articles" means the Articles of Agreement of the Bank. (c) "Subscription" means the capital stock of the Bank subscribed to by a member. (d) "Member" means member of the Bank. (e) "General Capital Increase Resolution" means Board of Governors' Resolution No. 346 entitled "1979 General Capital Increase" adopted on January 4, 1980. (f) "Additional Capital Increase Resolution" means Board of Gover­ nors' Resolution No. 347 entitled "1979 Additional Increase in Authorized Capital Stock and Subscriptions Thereto" adopted on January 4, 1980. 2. Subscription: By accepting membership in the Bank, Antigua and Bar­ buda shall subscribe to 20 shares of the capital stock of the Bank at par. 3. Membership in the Fund: Before accepting membership in the Bank, Antigua and Barbuda shall accept membership in and become a member of the International Monetary Fund. 4. Payment on Subscription: (a) Before accepting membership in the Bank, Antigua and Barbuda

224 shall pay to the Bank on account of the subscription price of one­ half of such shares: (i) Gold or United States dollars equal to 2070 thereof; and (ii) An amount in its own currency which, at the appropriate prevail­ ing exchange rate, shall be equal to 18% thereof. (b) With respect to the subscription price of the other one-half of such shares, the 2% portion payable in gold or United States dollars and the 18% portion payable in the currency of the member shall be left uncalled, as set forth in Resolution No. 129, on the same basis as the 2% and 18% portions of subscriptions made pursuant to Resolution No. 128 of the Board of Governors. 5. Representation and Information: Before accepting membership in the Bank, Antigua and Barbuda shall represent to the Bank that it has taken all action necessary to sign and deposit the instrument of acceptance and sign the Articles as contemplated by paragraphs 6(d) and (e) of this resolution and Antigua and Barbuda shall furnish to the Bank such information in respect of such action as the Bank may request. 6. Acceptance of Membership: Antigua and Barbuda shall become a member of the Bank with a subscription as set forth in paragraph 2 of this resolution as of the date when Antigua and Barbuda shall have complied with the following requirements: (a) become a member of the International Monetary Fund; (b) made the payments called for by paragraph 3 of this resolution; (c) furnished the representation, and such information as may have been requested, pursuant to paragraph 5 of this resolution; (d) deposited with the Government of the United States of America an instrument stating that it has accepted in accordance with its law the Articles and all the terms and conditions prescribed in this resolu­ tion, and that it has taken all steps necessary to enable it to carry out all its obligations under the Articles and this resolution; and (e) signed the original Articles held in the archives of the Government of the United States of America. 7. Limitation on Period for Acceptance of Membership: Antigua and Bar­ buda may accept membership in the Bank pursuant to this resolution until June 30, 1982, or such later date as the Executive Directors may determine. 8. Additional Subscription on Terms and Conditions of General Capital Increase Resolution: (a) Antigua and Barbuda may subscribe up to 19 shares of the capital stock of the Bank, subject to adjustment as provided in paragraph 8(b) of this resolution, on the terms and conditions specified in paragraph 4 of the General Capital Increase Resolution.

225 (b) In the event that the number of shares authorized to be subscribed by each member under the General Capital Increase Resolution shall be reduced pursuant to paragraph 3 thereof, the amount authorized to be subscribed under paragraph 8(a) of this resolution shall be reduc­ ed correspondingly (to the nearest number of shares). (c) The provisions of paragraph 5 of the General Capital Increase Resolution shall apply to Antigua and Barbuda to the same extent as if the subscription authorized by paragraph 8(a) of this resolution had been authorized under paragraph 2 of the General Capital In­ crease Resolution. 9. Additional Subscription on Terms and Conditions of Additional Capital Increase Resolution: (a) Antigua and Barbuda may subscribe to 250 shares of the capital stock of the Bank on the terms and conditions specified in paragraphs 2 and 3 of the Additional Capital Increase Resolution. (b) Subscriptions to capital stock pursuant to paragraph 9(a) of this resolution shall not be taken into account in determining the amount of the unimpaired subscribed capital, reserves and surplus of the Bank for purposes of Article III, Section 3 of the Articles of Agreee­ ment of the Bank. (Adopted January 6, 1982)

Resolution No. 378 Membership of Belize

WHEREAS the Government of Belize has applied for admission to membership in the International Bank for Reconstruction and Development in accordance with Section l(b) of Article II of the Articles of the Bank; and WHEREAS, pursuant to Section 19 of the By-Laws of the Bank, the Ex­ ecutive Directors, after consultation with representatives of the Govern­ ment of Belize, have made recommendations to the Board of Governors regarding this application; NOW, THEREFORE, the Board of Governors hereby RESOLVES: THA T the terms and conditions upon which Belize shall be admitted to membership in the Bank shall be as follows: 1. Definitions: As used in this resolution: (a) "Bank" means International Bank for Reconstruction and Develop­ ment. (b) "Articles" means the Articles of Agreement of the Bank. (c) "Subscription" means the capital stock of the Bank subscribed to by a member. 226 (d) "Member" means member of the Bank. (e) "General Capital Increase Resolution" means Board of Governors' Resolution No. 346 entitled "1979 General Capital Increase" adopted on January 4, 1980. (f) "Additional Capital Increase Resolution" means Board of Gover­ nors' Resolution No. 347 entitled "1979 Additional Increase in Authorized Capital Stock and Subscriptions Thereto" adopted on January 4, 1980. 2. Subscription: By accepting membership in the Bank, Belize shall subscribe to 39 shares of the capital stock of the Bank at par. 3. Membership in the Fund: Before accepting membership in the Bank, Belize shall accept membership in and become a member of the Interna­ tional Monetary Fund. 4. Payment on Subscription: (a) Before accepting membership in the Bank, Belize shall pay to the Bank on account of the subscription price of one-half of such shares: (i) Gold or United States dollars equal to 2010 thereof; and (ii) An amount in its own currency which, at the appropriate prevail­ ing exchange rate, shall be equal to 18% thereof. (b) With respect to the subscription price of the other one-half of such shares, the 2% portion payable in gold or United States dollars and the 18% portion payable in the currency of the member shall be left uncalled, as set forth in Resolution No. 129, on the same basis as the 2% and 18% portions of subscriptions made pursuant to Resolution No. 128 of the Board of Governors. 5. Representation and Information: Before accepting membership in the Bank, Belize shall represent to the Bank that it has taken all action necessary to sign and deposit the instrument of acceptance and sign the Ar­ ticles as contemplated by paragraphs 6(c) and (d) of this resolution and Belize shall furnish to the Bank such information in respect of such action as the Bank may request. 6. Acceptance of Membership: Belize shall become a member of the Bank with a subscription as set forth in paragraph 2 of this resolution as of the date when Belize shall have complied with the following requirements: (a) become a member of the International Monetary Fund; (b) made the payments called for by paragraph 4 of this resolution; (c) furnished the representation, and such information as may have been requested, pursuant to paragraph 5 of this resolution; (d) deposited with the Government of the United States of America an instrument stating that it has accepted in accordance with its law the

227 Articles and all the terms and conditions prescribed in this resolu­ tion, and that it has taken all steps necessary to enable it to carry out all its obligations under the Articles and this resolution; and (e) signed the original Articles held in the archives of the Government of the United States of America. 7. Limitation on Period for Acceptance of Membership: Belize may accept membership in the Bank pursuant to this resolution until June 30, 1982, or such later date as the Executive Directors may determine. 8. Additional Subscription on Terms and Conditions of General Capital Increase Resolution: (a) Belize may subscribe up to 37 shares of the capital stock of the Bank, subject to adjustment as provided in paragraph 7(b) of this resolu­ tion, on the terms and conditions specified in paragraph 4 of the General Capital Increase Resolution. (b) In the event that the number of shares authorized to be subscribed by each member under the General Capital Increase Resolution shall be reduced pursuant to paragraph 3 thereof, the amount authorized to be subscribed under paragraph 8(a) of this resolution shall be re­ duced correspondingly (to the nearest number of shares). (c) The provisions of paragraph 5 of the General Capital Increase Resolution shall apply to Belize to the same extent as if the subscrip­ tion authorized by paragraph 8(a) of this resolution had been authorized under paragraph 2 of the General Capital Increase Resolution. 9. Additional Subscription on Terms and Conditions of Additional Capital Increase Resolution: (a) Belize may subscribe to 250 shares of the capital stock of the Bank on the terms and conditions specified in paragraphs 2 and 3 of the Additional Capital Increase Resolution. (b) Subscriptions shall not be taken into account in determining the amount of the unimpaired subscribed capital, reserves and surplus of the Bank for purposes of Article III, Section 3 of the Articles of Agreement of the Bank. (Adopted February 26, 1982)

228 Resolution No. 379

Places of Forthcoming Annual Meetings

RESOLVED: THAT the invitation of the Government of Korea to hold the Annual Meetings in Seoul in 1985 be accepted; THAT the 1985 Annual Meetings be convened on Tuesday, October 8, 1985; and THAT the 1986 and 1987 Annual Meetings be convened, respectively, on Tuesday, September 30, and September 29, in Washington, D.C. (Adopted March 9, 1982)

Resolution No. 380 Subscriptions by Certain Members Under Article II, Section 3(c) of the Articles of Agreement of the Bank

WHEREAS on October 2, 1981, the Board of Governors of the Bank adopted Resolution No. 374 entitled "Increase in Authorized Capital of the Bank and Subscription by China" authorizing an increase of 11,500 shares in the authorized capital of the Bank; WHEREAS Resolution No. 374 authorizes China to subscribe shares in the capital stock of the Bank under terms and conditions specified, inter alia, in paragraph 4(a) to (e) inclusive of Resolution No. 346 entitled" 1979 General Capital Increase" (hereinafter referred to as the General Capital Increase Resolution); WHEREAS the Governments of Argentina, Bolivia, Brazil, Chile, Col­ ombia, Costa Rica, the Dominican Republic, Ecuador, El Salvador, Guatemala, Haiti, Honduras, India, Mexico, Nicaragua, Panama, Paraguay, Peru, the Philippines, Spain and Venezuela have notified the Bank of their intention to subscribe their proportionate shares of the in­ crease in the authorized capital stock of the Bank provided for in Resolu­ tion No. 374 pursuant to Article II, Section 3(c) of the Articles of Agree­ ment of the Bank and accordingly each said Government is entitled to subscribe the number of shares of stock of the Bank set forth opposite its name in paragraph I below; WHEREAS it has therefore become necessary for the Bank to determine the terms a:1d conditions under which such subscriptions may be made; NOW THEREFORE the Board of Governors hereby resolves as follows: Pursuant to Article II, Section 3(c) of the Articles of Agreement, the

229 Bank is hereby authorized to accept subscriptions to shares of its capital stock upon the following conditions: 1. Each of the members of the Bank listed below may subscribe up to the number of shares of stock of the Bank set forth opposite its name: Member Country Maximum Number of Shares Argentina 77 Bolivia 4 Brazil 88 Chile 20 Colombia 19 Costa Rica 2 Dominican Republic 3 Ecuador 6 EI Salvador 2 Guatemala 3 Haiti 2 Honduras 1 India 369 Mexico 37 Nicaragua 1 Panama 4 Paraguay Peru 15 Philippines 28 Spain 74 Venezuela 32 2. Each subscription authorized pursuant to paragraph 1 above shall be on the terms and conditions specified in paragraph 4(a) to (e) inclusive of the General Capital Increase Resolution. (Adopted April 13, 1982)

Resolution No. 381

Membership of the Hungarian People's Republic

WHEREAS the Government of the Hungarian People's Republic has ap­ plied for admission to membership in the International Bank for Reconstruction and Development in accordance with Section I(b) of Article II of the Articles of Agreement of the Bank; and WHEREAS, pursuant to Section 19 of the By-Laws of the Bank, the Ex­ ecutive Directors, after consultation with representatives of the Govern-

230 ment of the Hungarian People's Republic, have made recommendations to the Board of Governors regarding this application; NOW, THEREFORE, the Board of Governors hereby RESOLVES: THAT the terms and conditions upon which the Hungarian People's Republic shall be admitted to membership in the Bank shall be as follows: 1. Definitions: As used in this resolution: (a) "Bank" means International Bank for Reconstruction and Develop­ ment. (b) "Articles" means the Articles of Agreement of the Bank. (c) "Subscription" means the capital stock of the Bank subscribed to by a member. (d) "Member" means member of the Bank. (e) "General Capital Increase Resolution" means Board of Governors' Resolution No. 346 entitled "1979 General Capital Increase" adopted on January 4, 1980. (f) "Additional Capital Increase Resolution" means Board of Gover­ nors' Resolution No. 347 entitled "1979 Additional Increase in Authorized Capital Stock and Subscriptions Thereto" adopted on January 4, 1980. 2. Subscription: By accepting membership in the Bank, the Hungarian People's Republic shall subscribe to 2,042 shares of the capital stock of the Bank at par. 3. Payment on Subscription: (a) Before accepting membership in the Bank, the Hungarian People's Republic shall pay to the Bank on account of the subscription price of one-half of such shares: (i) Gold or United States dollars equal to 2070 thereof; and (ii) An amount in its own currency which, at the appropriate prevail­ ing exchange rate, shall be equal to 18070 thereof. (b) With respect to the subscription price of the other one-half of such shares, the 2070 portion payable in gold or United States dollars and the 18070 portion payable in the currency of the member shall be left uncalled, as set forth in Resolution No. 129, on the same basis as the 2070 and 18070 portions of subscriptions made pursuant to Resolution No. 128 of the Board of Governors. 4. Representation and Information: Before accepting membership in the Bank, the Hungarian People's Republic shall represent to the Bank that it has taken all action necessary to sign and deposit the instrument of accep­ tance and sign the Articles as contemplated by paragraphs 5(c) and (d) of

231 this resolution and the Hungarian People's Republic shall furnish to the Bank such information in respect of such action as the Bank may request. 5. Acceptance oj Membership: The Hungarian People's Republic shall become a member of the Bank with a subscription as set forth in paragraph 2 of this resolution as of the date when the Hungarian People's Republic shall have complied with the following requirements: (a) made the payments called for by paragraph 3 of this resolution; (b) furnished the representation, and such information as may have been requested, pursuant to paragraph 4 of this resolution; (c) deposited with the Government of the United States of America an instrument stating that it has accepted in accordance with its law the Articles and all the terms and conditions prescribed in this resolu­ tion, and that it has taken all steps necessary to enable it to carry out all its obligations under the Articles and this resolution; and (d) signed the original Articles held in the archives of the Government of the United States of America. 6. Limitation on Period jor Acceptance oj Membership: The Hungarian People's Republic may accept membership in the Bank pursuant to this resolution until December 30, 1982, or such later date as the Executive Directors may determine. 7. Additional Subscription on Terms and Conditions oj General Capital Increase Resolution: (a) The Hungarian People's Republic may subscribe up to 1,911 shares of the capital stock of the Bank, subject to adjustment as provided in paragraph 7(b) of this resolution, on the terms and conditions specified in paragraph 4 of the General Capital Increase Resolution. (b) In the event that the number of shares authorized to be subscribed by each member under the General Capital Increase Resolution shall be reduced pursuant to paragraph 3 thereof, the amount authorized to be subscribed under paragraph 7(a) of this resolution shall be re­ duced correspondingly (to the nearest number of shares). (c) The provisions of paragraph 5 of the General Capital Increase Resolution shall apply to the Hungarian People's Republic to the same extent as if the subscription authorized by paragraph 7(a) of this resolution had been authorized under paragraph 2 of the General Capital Increase Resolution. 8. Additional Subscription on Terms and Conditions oj Additional Capital Increase Resolution: (a) The Hungarian People's Republic may subscribe to 250 shares of the capital stock of the Bank on the terms and conditions specified in paragraphs 2 and 3 of the Additional Capital Increase Resolution.

232 (b) Subscriptions shall not be taken into account in determining the amount of the unimpaired subscribed capital, reserves and surplus of the Bank for purposes of Article III, Section 3 of the Articles of Agreement of the Bank. (Adopted June 24, 1982)

Resolution No. 382

Direct Remuneration of Executive Directors and their Alternates

RESOLVED: THAT, effective July 1, 1982, the annual rates of remuneration of Ex­ ecutive Directors of the Bank and their Alternates pursuant to Section 13(e) of the By-Laws shall be as follows: (i) As salary, $69,200 per year for Executive Directors and $57,900 per year for their Alternates; (ii) As supplemental allowance (for expenses, including housing and entertainment expenses, except those specified in Section 13(f) of the By-Laws), $8,000 per year for Executive Directors and $6,400 per year for their Alternates.

(Adopted June 25, 1982)

Resolution No. 383

Increases in Certain Subscriptions to the Capital Stock and Reallocation of Authorized Shares

WHEREAS Resolution No. 346 entitled "1979 General Capital Increase" adopted by the Board of Governors on January 4, 1980 (the 1979 Capital Increase Resolution) stated that the Executive Directors have con­ cluded that it would be desirable to reserve a portion of the increase in capital authorized by that resolution for selective increases in the subscrip­ tions of present members; WHEREAS the Executive Directors have recommended that certain selective increases be authorized as set forth in this resolution; WHEREAS the following members have notified the Bank that they will not subscribe the shares they were authorized to subscribe under previous resolutions, as follows: Allocated by Number Country Resolution No. of Shares Botswana 314 31 Lebanon 346 167

233 Liberia 258 34 314 47 Sierra Leone 258 50 Singapore 258 209 314 591 335 82 Tunisia 258 36 United Kingdom 346 12168 Total 13415

NOW THEREFORE, the Board of Governors hereby RESOLVES: THAT, pursuant to Article II, Section 3(b) of the Articles of Agreement of the Bank, the Bank is hereby authorized to accept additional subscrip­ tions to shares of its capital stock upon the following conditions: 1. Each of the members of the Bank listed below may subscribe up to the maximum number of shares of stock of the Bank set forth opposite its name, subject to adjustment as indicated below: (a) (b) Maximum number of Maximum number of shares with 10% shares with 7- Vi % Member Country paid in paid in Bolivia 104 97 Chile 533 499 Colombia 402 376 Costa Rica 204 191 Dominican Republic 274 256 Ecuador 204 191 EI Salvador 210 197 Guatemala 250 234 Honduras 169 158 Mexico 1214 1136 Nicaragua 168 157 Panama 152 142 Paraguay 118 110 Peru 402 376 Suriname 42 39 Uruguay 168 157 Venezuela 1616 1513 2. Saudi Arabia may subscribe up to the maximum number of shares of stock of the Bank set forth opposite its name, subject to adjustment as follows:

234 (a) (b) Maximum number oj Maximum number oj shares with 10% shares with 7- 0 % Member Country paid in paid in

Saudi Arabia 5770 5401 3. Each subscription authorized pursuant to paragraphs 1 and 2 above shall be on the following terms and conditions: (a) The subscription price shall be par; (b) A member may subscribe at any time prior to July 1, 1986, or such later date as the Executive Directors may determine; (c) The subscribing member shall pay to the Bank: (i) in the case of one-half of the shares subscribed under column (a) of paragraphs 1 and 2 above, (A) gold or United States dollars equal to 2(1,10 of the subscription price of the shares subscribed and (B) an amount of its own currency equal to 18% of such subscription price; and (ii) in the case of shares subscribed under column (b) of paragraphs 1 and 2 above, (A) gold or United States dollars equal to % % of the subscription price of the shares subscribed and (B) an amount of its own currency equal to 6% % of such subscription price; (d) The Bank shall call the amounts of the 2% and 18% portions of such subscriptions which are not required to be paid under paragraphs 3(c)(i) and 3(c)(ii) above only when required to meet obligations of the Bank for funds borrowed or on loans guaranteed by it, and not for use by the Bank in its lending activities or for administrative ex­ pense; (e) No member may subscribe shares (i) under this resolution unless such member has subscribed all the shares which it is authorized to subscribe under Resolutions Nos. 258, 313, 314 and 335 adopted by the Board of Governors on July 31,1970, January 3,1977, February 9,1977, and April 30, 1979; (ii) under column (b) of paragraphs I and 2 above until such member has subscribed all the shares it is authorized to subscribe under column (a) of paragraphs 1 and 2; and (iii) under column (b) of paragraph 2 above until such member has subscribed all the shares it is authorized to subscribe under the 1979 General Capital Increase Resolution. (f) Before any subscription shall be accepted by the Bank, the following actions shall have been taken:

235 (i) the member shall have taken all action necessary to authorize such subscription and shall furnish to the Bank such informa­ tion thereon as the Bank may request; and (ii) the member shall have made the payments provided for in paragraph 3(c) above. 4. In the event that the number of shares authorized to be subscribed by each member under the 1979 General Capital Increase Resolution shall be reduced pursuant to paragraph 3 thereof, the amounts authorized to be subscribed under column (b) of paragraphs 1 and 2 of this resolution shall be reduced correspondingly (to the nearest number of shares). 5. In addition to the reduction, if any, made pursuant to paragraph 4 above, the amounts authorized to be subscribed pursuant to this resolution shall be further reduced at the same time to the extent necessary to bring the total number of shares authorized to be subscribed pursuant to this resolu­ tion within the total number of shares of authorized capital stock neither subscribed nor authorized to be subscribed at that time pursuant to resolu­ tions of the Bank other than this resolution. For the purposes of this paragraph shares, with respect to which a member shall have notified the Bank of its intention not to subscribe, shall be included in the total of shares neither subscribed nor authorized to be subscribed to the extent another member shall not have been authorized to subscribe them. 6. If any member shall have subscribed a number of shares in excess of the number of shares authorized to be subscribed by it after any reduction pur­ suant to paragraphs 4 and 5 above, such excess shall be cancelled and any amounts paid thereon shall be credited to the member on account of the subscription price of the balance of the shares theretofore subscribed to the extent that the amounts provided for in paragraph 3(c) above have not been paid and any balance shall be returned to the member. (Adopted July 8, 1982)

Resolution No. 384

1982 Regular Election of Executive Directors

RESOLVED: (a) THAT the proposed RULES FOR THE 1982 REGULAR ELEC­ TION OF EXECUTIVE DIRECTORS are hereby approved; and (b) THAT a Regular Election of Executive Directors shall take place at the Annual Meeting of the Board of Governors in 1984. (Adopted August 12, 1982)

236 RESOLUTIONS ADOPTED BY THE BOARD OF GOVERNORS OF THE BANK AT THE 1982 ANNUAL MEETING

Resolution No. 385

Financial Statements, Accountants' Report and Administrative Budget

RESOLVED: THAT the Board of Governors of the Bank consider the Financial Statements, Accountants' Report and Administrative Budget, included in the 1981/82 Annual Report, as fulfilling the requirements of Article V, Sec­ tion 13, of the Articles of Agreement and of Section 18 of the By-Laws of the Bank. (Adopted September 9, 1982)

Resolution No. 386

Allocation of Net Income

RESOLVED: 1. THAT the Report of the Executive Directors dated August 3, 1982 on "Allocation of Net Income" is hereby approved; 2. THAT the Bank transfer to the International Development Association by way of grant the equivalent of $125 million out of the net income of the Bank for the fiscal year ended June 30, 1982, such transfer to be made at the time and in the manner to be decided by the Executive Directors; and 3 . THAT the allocation of the balance of the net income of the Bank for the fiscal year ended .J une 30, 1982 to the General Reserve is hereby noted with approval. (Adopted September 9, 1982)

Resolution No. 387

Resolution of Appreciation

RESOLVED: That the Governors of the International Monetary Fund, the Interna­ tional Bank for Reconstruction and Development, and the Bank's affiliates express their deep appreciation to Prime Minister Trudeau of Canada and

237 to the Government and people of Canada, of Ontario, and of Toronto for their gracious reception and hospitality; That they express their warm congratulations and gratitude for the fine facilities made available for the Meetings in Toronto; and That they express particular appreciation to the Governor and Alternate Governors for Canada and to their associates for the efforts which they made toward ensuring the success of the 1982 Annual Meetings. (Adopted September 9, 1982)

238 RESOLUTIONS ADOPTED BY THE BOARD OF GOVERNORS OF IFC BETWEEN THE 1981 AND 1982 ANNUAL MEETINGS

Resolution No. 125

Membership of St. Lucia

WHEREAS the Government of St. Lucia has applied for admission to membership in the International Finance Corporation in accordance with Section l(b) of Article II of the Articles of Agreement of the Corporation; and WHEREAS, pursuant to Section 17 of the By-Laws of the Corporation, the Board of Directors, after consultation with representatives of the Government of St. Lucia, has made recommendations to the Board of Governors regarding the application of said Government; NOW, THEREFORE, the Board of Governors hereby RESOLVES: THAT the terms and conditions upon which St. Lucia shall be admitted to membership in the Corporation shall be as follows: 1. Definitions: As used in this resolution: (a) "Corporation" means International Finance Corporation. (b) "Articles" means the Articles of Agreement of the Corporation. (c) "Dollars" or "$" means United States dollars. (d) "Subscription" means the Capital Stock of the Corporation subscribed by a member. (e) "Member" means member of the Corporation. 2. Subscription: By accepting membership in the Corporation, St. Lucia shall subscribe to 19 shares of the capital stock of the Corporation at the par value of $1,000 per share. 3. Payment of Subscription: Before accepting membership in the Corpora­ tion St. Lucia shall pay $19,000 to the Corporation in full payment of the capital stock subscribed. 4. Information: Before accepting membership in the Corporation, St. Lucia shall furnish to the Corporation such information relating to its ap­ plication for membership as the Corporation may request. S. Acceptance of Membership: St. Lucia shall become a member of the Corporation with a subscription as set forth in paragraph 2 of this resolu­ tion, as of the date when St. Lucia shall have complied with the following requirements: (a) made the payment called for by paragraph 3 of this resolution; 239 (b) furnished such information as may have been requested by the Cor­ poration pursuant to paragraph 4 of this resolution; (c) deposited with the International Bank for Reconstruction and Development an instrument stating that it has accepted without reservation in accordance with its law the Articles and all the terms and conditions prescribed in this resolution, and that it has taken all steps necessary to enable it to carry out all its obligations under the Articles and this resolution; and (d) signed the original Articles held by the International Bank for Reconstruction and Development. 6. Limitation on Period for Acceptance of Membership: St. Lucia may ac­ cept membership in the Corporation pursuant to this resolution until June 30, 1982, or such later date as the Board of Directors may determine. (Adopted November 16, 1981)

Resolution No. 126

Membership of Belize

WHEREAS the Government of Belize has applied for admission to membership in the International Finance Corporation in accordance with Section 1(b) of Article II of the Articles of Agreement of the Corporation; and WHEREAS, pursuant to Section 17 of the By-Laws of the Corporation, the Board of Directors, after consultation with representatives of the Government of Belize, has made recommendations to the Board of Gover­ nors regarding the application of said Government; NOW, THEREFORE, the Board of Governors hereby RESOLVES: THA T the terms and conditions upon which Belize shall be admitted to membership in the Corporation shall be as follows: 1. Definitions: As used in this resolution: (a) "Corporation" means International Finance Corporation. (b) "Articles" means the Articles of Agreement of the Corporation. (c) "Dollars" or "$" means United States dollars. (d) "Subscription" means the Capital Stock of the Corporation subscribed by a member. (e) "Member" means member of the Corporation. 2. Subscription: By accepting membership in the Corporation, Belize shall subscribe to 26 shares of the capital stock of the Corporation at the par value of $1,000 per share. 240 3. Payment of Subscription: Before accepting membership in the Corpora­ tion Belize shall pay $26,000 to the Corporation in full payment of the capital stock subscribed. 4. Information: Before accepting membership in the Corporation, Belize shall furnish to the Corporation such information relating to its application for membership as the Corporation may request. 5. Acceptance of Membership: Belize shall become a member of the Cor­ poration with a subscription as set forth in paragraph 2 of this resolution, as of the date when Belize shall have complied with the following requirements: (a) become a member of the International Bank for Reconstruction and Development; (b) made the payment called for by paragraph 3 of this resolution; (c) furnished such information as may have been requested by the Cor­ poration pursuant to paragraph 4 of this resolution; (d) deposited with the International Bank for Reconstruction and Development an instrument stating that it has accepted without reservation in accordance with its law the Articles and all the terms and conditions prescribed in this resolution, and that it has taken all steps necessary to enable it to carry out all its obligations under the Articles and this resolution; and (e) signed the original Articles held by the International Bank for Reconstruction and Development. 6. Limitation on Period for Acceptance of Membership: Belize may accept membership in the Corporation pursuant to this resolution until June 30, 1982, or such later date as the Board of Directors may determine. (Adopted February 24, 1982)

Resolution No. 127

Membership of the Republic of The Gambia

WHEREAS the Government of the Republic of The Gambia has applied for admission to membership in the International Finance Corporation in accordance with Section I(b) of Article II of the Articles of Agreement of the Corporation; and WHEREAS, pursuant to Section 17 of the By-Laws of the Corporation, the Board of Directors, after consultation with representatives of the Government of the Republic of The Gambia, has made recommendations to the Board of Governors regarding the application of said Government; NOW, THEREFORE, the Board of Governors hereby

241 RESOLVES: THAT the terms and conditions upon which the Republic of The Gambia shall be admitted to membership in the Corporation shall be as follows: 1. Definitions: As used in this resolution: (a) "Corporation" means International Finance Corporation. (b) "Articles" means the Articles of Agreement of the Corporation. (c) "Dollars" or "$" means United States dollars. (d) "Subscription" means the capital stock of the Corporation sub­ scribed by a member. (e) "Member" means member of the Corporation. 2. Subscription: By accepting membership in the Corporation, the Republic of The Gambia shall subscribe to 35 shares of the capital stock of the Corporation at the par value of $1,000 per share. 3. Payment of Subscription: Before accepting membership in the Corpora­ tion, the Republic of The Gambia shall pay $35,000 to the Corporation in full payment of tht: capital stock subscribed. 4. Information: Before accepting membership in the Corporation, the Republic of The Gambia shall furnish to the Corporation such information relating to its application for membership as the Corporation may request. 5. Acceptance of Membership: The Republic of The Gambia shall become a member of the Corporation with a subscription as set forth in paragraph 2 of this resolution, as of the date when the Republic of The Gambia shall have complied with the following requirements: (a) made the payment called for by paragraph 3 of this resolution; (b) furnish such information as may have been requested by the Cor­ poration pursuant to paragraph 4 of this resolution; (c) deposited with the International Bank for Reconstruction and Development an instrument stating that it has accepted without reservation in accordance with its law the Articles and all the terms and conditions prescribed in this resolution, and that it has taken all steps necessary to enable it to carry out all its obligations under the Articles and this resolution; and (d) signed the original Articles held by the International Bank for Reconstruction and Development. 6. Limitation on Period for Acceptance of Membership: The Republic of The Gambia may accept membership in the Corporation pursuant to this resolution until December 30, 1982, or such later date as the Board of Direc­ tors may determine. (Adopted May 28, 1982)

242 RESOLUTIONS ADOPTED BY THE BOARD OF GOVERNORS OF IFC AT THE 1982 ANNUAL MEETING

Resolution No. 128

Financial Statements, Accountants' Report and Administrative Budget

RESOLVED: THAT the Board of Governors of the Corporation consider the Financial Statements and the Accountants' Report, included in the 1981182 Annual Report, and the Administrative Budget attached to the Report dated August 2, 1982, as fulfilling the requirements of Article IV, Section 11, of the Articles of Agreement and of Section 16 of the By-Laws of the Corporation. (Adopted September 9, 1982)

Resolution No. 129

Resolution of Appreciation

RESOLVED: That the Governors of the International Monetary Fund, the Interna­ tional Bank for Reconstruction and Development, and the Bank's affiliates express their deep appreciation to Prime Minister Trudeau of Canada and to the Government and people of Canada, of Ontario, and of Toronto for their gracious reception and hospitality; That they express their warm congratulations and gratitude for the fine facilities made available for the Meetings in Toronto; and That they express particular appreciation to the Governor and Alternate Governors for Canada and to their associates for the efforts which they made toward ensuring the success of the 1982 Annual Meetings. (Adopted September 9, 1982)

243 RESOLUTIONS ADOPTED BY THE BOARD OF GOVERNORS OF IDA BETWEEN THE 1981 AND 1982 ANNUAL MEETINGS

Resolution No. 124

Membership of St. Lucia

WHEREAS the Government of St. Lucia has applied for admission to membership in the International Development Association in accordance with Section l(b) of Article II of the Articles of Agreement of the Associa­ tion; and WHEREAS, pursuant to Section 9 of the By-Laws of the Association, the Executive Directors, after consultation with representatives of the Government of St. Lucia, have made recommendations to the Board of Governors regarding this application; NOW, THEREFORE, the Board of Governors hereby RESOLVES: THA T the terms and conditions upon which St. Lucia shall be admitted to membership in the Association shall be as follows: 1. Definitions: As used in this resolution: (a) "Association" means International Development Association. (b) "Articles" means the Articles of Agreement of the Association. (c) "Dollars" or "$" means dollars in currency of the United States of America. 2. Initial SUbscription: (a) The terms and conditions of the membership of St. Lucia in the Association other than those specifically provided for in this resolu­ tion shall be those set forth in the Articles with respect to the membership of original members listed in Part II of Schedule A thereof (including, but not by way of limitation, the terms and con­ ditions relating to subscriptions, payments on subscriptions, usabili­ ty of currencies and voting rights). (b) Upon accepting membership in the Association, St. Lucia shall subscribe funds in the amount of $150,000 expressed in terms of United States dollars of the weight and fineness in effect on January 1, 1960. (c) Before accepting membership in the Association, St. Lucia shall make all payments on its initial subscription which would have been payable on or before the date of acceptance had it become a member of the Association as an original member listed in Part II of Schedule A of the Articles.

244 3. Acceptance of Membership: St. Lucia shall become a member of the Association with a subscription as set forth in paragraph 2(b) of this resolu­ tion as of the date when St. Lucia shall have complied with the following re­ quirements: (a) made the payments called for by paragraphs 2(b) and (c) of this resolution; (b) deposited with the International Bank for Reconstruction and Development an instrument stating that it has accepted in accor­ dance with its laws the Articles and all the terms and conditions prescribed in this resolution, and that it has taken all steps necessary to enable it to carry out all its obligations under the Articles and this resolution; and (c) signed the original Articles held in the archives of the International Bank for Reconstruction and Development. 4. Limitation on Period for Acceptance of Membership: S1. Lucia may ac­ cept membership in the Association pursuant to this resolution until June 30, 1982 or such later date as the Executive Directors of the Association may determine. 5. Additional Subscriptions: Upon or after acceptance of membership, S1. Lucia shall also be authorized at its option to make the following additional subscriptions: (a) An additional subscription in the amount of $14,845 which shall carry 7,185 votes and be subject to the following terms and condi­ tions: (i) Payment of such additional subscription shall be made in the currency of S1. Lucia within 30 days after S1. Lucia notifies the Association of its intention to make such additional subscrip­ tion. (ii) The rights and obligations of the Association and S1. Lucia with regard to such additional subscription shall be the same (except as otherwise provided in this resolution) as those which govern the 90070 portion of the initial subscriptions of original members payable under Article II, Section 2(d) of the Articles by members listed in Part II of Schedule A of the Articles, provided, however, that the provisions of Article IV, Section 2 of the Ar­ ticles shall not be applicable to such subscription. (b) A further additional subscription in the amount of $3,250 which shall carry 2,730 votes, calculated on the basis of 2,600 membership votes and 130 subscription votes. The rights and obligations of the Association and St. Lucia with regard to such further additional subscription shall be the same as those which are applicable to the subscriptions authorized for Part II members under Section D of the

245 Sixth Replenishment Resolution (No. 117) adopted by the Board of Governors on March 26, 1980. (Adopted November 17, 1981)

Resolution No. 125

Membership of Belize

WHEREAS the Government of Belize has applied for admission to membership in the International Development Association in accordance with Section l(b) of Article II of the Articles of Agreement of the Associa­ tion; and WHEREAS, pursuant to Section 9 of the By-Laws of the Association, the Executive Directors, after consultation with representatives of the Government of Belize, have made recommendations to the Board of Gover­ nors regarding this application; NOW, THEREFORE, the Board of Governors hereby RESOLVES: THAT the terms and conditions upon which Belize shall be admitted to membership in the Association shall be as follows: 1. Definitions: As used in this resolution: (a) "Association" means International Development Association. (b) "Articles" means the Articles of Agreement of the Association. (c) "Dollars" or "$" means dollars in currency of the United States of America. 2. Initial Subscription: (a) The terms and conditions of the membership of Belize in the Association other than those specifically provided for in this resolu­ tion shall be those set forth in the Articles with respect to the membership of original members listed in Part II of Schedule A thereof (including, but not by way of limitation, the terms and con­ ditions relating to subscriptions, payments on subscriptions, usabili­ ty of currencies and voting rights). (b) Upon accepting membership in the Association, Belize shall subscribe funds in the amount of $200,000 expressed in terms of United States dollars of the weight and fineness in effect on January 1, 1960. (c) Before accepting membership in the Association, Belize shall make all payments on its initial subscription which would have been payable on or before the date of acceptance had it become a member

246 of the Association as an original member listed in Part II of Schedule A of the Articles. 3. Acceptance of Membership: Belize shall become a member of the Association with a subscription as set forth in paragraph 2(b) of this resolu­ tion as of the date when Belize shall have complied with the following re­ quirements:

(a) become a member of the International Bank for Reconstruction and Development; (b) made the payments called for by paragraphs 2(b) and (c) of this resolution; (c) deposited with the International Bank for Reconstruction and Development an instrument stating that it has accepted in accor­ dance with its laws the Articles and all the terms and conditions prescribed in this resolution, and that it has taken all steps necessary to enable it to carry out all its obligations under the Articles and this resolution; and (d) signed the original Articles held in the archives of the International Bank for Reconstruction and Development. 4. Limitation on Period for Acceptance of Membership: Belize may accept membership in the Association pursuant to this Resolution until June 30, 1982, or such later date as the Executive Directors of the Association may determine. 5. Additional Subscriptions: Upon or after acceptance of membership, Belize shall also be authorized at its option to make the following additional subscriptions: (a) An additional subscription in the amount of $19,736.28 which shall carry 7,312 votes and be subject to the following terms and condi­ tions: (i) Payment of such additional subscription shall be made in the currency of Belize within 30 days after Belize notifies the Association of its intention to make such additional subscrip­ tion. (ii) The rights and obligations of the Association and Belize with regard to such additional subscription shall be the same (except as otherwise provided in this resolution) as those which govern the 90<170 portion of the initial subscriptions of original members payable under Article II, Section 2(d) of the Articles by members listed in Part II of Schedule A of the Articles, provided, however, that the provisions of Article IV, Section 2 of the Ar­ ticles shall not be applicable to such subscription.

247 (b) A further additional subscription in the amount of $4,325 which shall carry 2,773 votes, calculated on the basis of 2,600 membership votes and 173 subscription votes. The rights and obligations of the Association and Belize with regard to such further additional subscription shall be the same as those which are applicable to the subscriptions authorized for Part II members under Section D of the Sixth Replenishment Resolution (No. 117) adopted by the Board of Governors on March 26, 1980. (Adopted February 26, 1982)

Resolution No. 126

Sixth Replenishment: Adjustment of Voting Rights of Colombia, Luxembourg and Saudi Arabia

1. WHEREAS (a) Colombia, Luxembourg and Saudi Arabia have made or agreed to make additional contributions to the Sixth Replenishment of the resources of the Association (hereinafter referred to as the Addi­ tional Contributions); (b) it is proposed that voting rights be accorded to such members in respect of the Additional Contributions on the basis hereinafter set forth; and (c) all members have already been given the opportunity, under the voting power adjustment reflecting the Sixth Replenishment authorized by Resolution No. 117 of the Board of Governors (hereinafter referred to as the Sixth Replenishment Resolution), to subscribe an amount enabling each of them to maintain its relative voting power in respect of the voting rights to be accorded for the Additional Contributions, as required under the provisions of Arti­ cle III, Section l(c) of the Articles of Agreement of the Association; NOW, THEREFORE, THE BOARD OF GOVERNORS HEREBY RESOL VES THAT: 2. The Additional Contributions shall be divided into subscriptions carry­ ing voting rights and contributions not carrying voting rights as specified in the table shown below. 3. Colombia, Luxembourg and Saudi Arabia shall, in respect of such subscriptions, have the voting rights specified in the table shown below, calculated on the basis of one vote per $25 of each such subscription, and to be accorded as provided in Section G of the Sixth Replenishment Resolu­ tion. For this purpose, the additional subscription votes specified for each

248 of said members in the table shown below shall be deemed to be, as from the date of adoption of the present Resolution, subscription votes provided for such member in Table 2 to the Sixth Replenishment Resolution and the voting rights of said members shall be adjusted accordingly as from such date. CALCULA TION OF ADDITIONAL VOTING RIGHTS Additions to Contributions and Subscriptions' Total Additional Additional Contribu- Subscrip- Subscription Member Resources tions tions Votes Colombia 10,000,000 9,975,750 24,250 970 Luxembourg 500,000 498,775 1,225 49 Saudi Arabia 30,000,000 29,927,225 72,775 2,911

(Adopted April 5, 1982)

Resolution No. 127

Membership of St. Vincent and the Grenadines

WHEREAS the Government of St. Vincent and the Grenadines has ap­ plied for admission to membership in the International Development Association in accordance with Section I(b) of Article II of the Articles of Agreement of the Association; and WHEREAS, pursuant to Section 9 of the By-Laws of the Association, the Executive Directors, after consultation with representatives of the Government of St. Vincent and the Grenadines, have made recommenda­ tions to the Board of Governors regarding this application; NOW, THEREFORE, the Board of Governors hereby RESOLVES: THA T the terms and conditions upon which St. Vincent and the Grenadines shall be admitted to membership in the Association shall be as follows: I. Definitions: As used in this resolution: (a) "Association" means International Development Association. (b) "Articles" means the Articles of Agreement of the Association.

'In u.s. dollars equivalent, at IMF representative exchanges rates as of October 5, 1979 in the case of Luxembourg, and as of September I, 1980 for Colombia. The Additional Contribu­ tion of Saudi Arabia is expressed in terms of u.S. dollars.

249 (c) "Dollars" or "$" means dollars in currency of the United States of America. 2. Initial Subscription: (a) The terms and conditions of the membership of St. Vincent and the Grenadines in the Association other than those specifically provided for in this resolution shall be those set forth in the Articles with respect to the membership of original members listed in Part II of Schedule A thereof (including, but not by way of limitation, the terms and conditions relating to subscriptions, payments on subscriptions, usability of currencies and voting rights). (b) Upon accepting membership in the Association, St. Vincent and the Grenadines shall subscribe funds in the amount of $70,000 expressed in terms of United States dollars of the weight and fineness in effect on January 1, 1960. (c) Before accepting membership in the Association, St. Vincent and the Grenadines shall make all payments on its initial subscription which would have been payable on or before the date of acceptance had it become a member of the Association as an original member listed in Part II of Schedule A of the Articles. 3. Acceptance of Membership: St. Vincent and the Grenadines shall become a member of the Association with a subscription as set forth in paragraph 2(b) of this resolution as of the date when St. Vincent and the Grenadines shall have complied with the following requirements: (a) become a member of the International Bank for Reconstruction and Development; (b) made the payments called for by paragraphs 2(b) and (c) of this resolution; (c) deposited with the International Bank for Reconstruction and Development an instrument stating that it has accepted in accor­ dance with its laws the Articles and all the terms and conditions prescribed in this resolution, and that it has taken all steps necessary to enable it to carry out all its obligations under the Articles and this resolution; and (d) signed the original Articles held in the archives of the International Bank for Reconstruction and Development. 4. Limitation on Period for Acceptance of Membership: S1. Vincent and the Grenadines may accept membership in the Association pursuant to this resolution until December 30, 1982 or such later date as the Executive Direc­ tors of the Association may determine. 5. Additional Subscriptions: Upon or after acceptance of membership, St. Vincent and the Grenadines shall also be authorized at its option to make

250 the following additional subscriptions: (a) An additional subscription in the amount of $6,931.27 which shall carry 6,980 votes and be subject to the following terms and condi­ tions: (i) Payment of such additional subscription shall be made in the currency of St. Vincent and the Grenadines within 30 days after St. Vincent and the Grenadines notifies the Association of its in­ tention to make such additional subscription. (ii) The rights and obligations of the Association and St. Vincent and the Grenadines with regard to such additional subscription shall be the same (except as otherwise provided in this resolution) as those which govern the 90070 portion of the initial subscrip­ tions of original members payable under Article II, Section 2(d) of the Articles by members listed in Part II of Schedule A of the Articles, provided, however, that the provisions of Article IV, Section 2 of the Articles shall not be applicable to such subscrip­ tion. (b) A further additional subscription in the amount of $1,525 which shall carry 2,661 votes, calculated on the basis of 2,600 membership votes and 61 subscription votes. The rights and obligations of the Association and St. Vincent and the Grenadines with regard to such further additional subscription shall be the same as those which are applicable to the subscriptions authorized for Part II members under Section D of the Sixth Replenishment Resolution (No. 117) adopted by the Board of Governors on March 26, 1980. (Adopted June 24, 1982)

251 RESOLUTIONS ADOPTED BY THE BOARD OF GOVERNORS OF IDA AT THE 1982 ANNUAL MEETING

Resolution No. 128

Financial Statements, Accountants' Report and Administrative Budget

RESOLVED: THAT the Board of Governors of the Association consider the Financial Statements, Accountants' Report and Administrative Budget, included in the 1981182 Annual Report, as fulfilling the requirements of Article VI, Section 11, of the Articles of Agreement and of Section 8 of the By-Laws of the Association. (Adopted September 9, 1982)

Resolution No. 129

Resolution of Appreciation

RESOLVED: That the Governors of the International Monetary Fund, the Interna­ tional Bank for Reconstruction and Development, and the Bank's affiliates express their deep appreciation to Prime Minister Trudeau of Canada and to the Government and people of Canada, of Ontario, and of Toronto for their gracious reception and hospitality; That they express their warm congratulations and gratitude for the fine facilities made available for the Meetings in Toronto; and That they express particular appreciation to the Governor and Alternate Governors for Canada and to their associates for the efforts which they made toward ensuring the success of the 1982 Annual Meetings. (Adopted September 9, 1982)

252 REPORTS OF THE EXECUTIVE DIRECTORS OF THE BANK Subscriptions by Certain Members Under Article II, Section 3(c) of the Articles of Agreement of the Bank

1. On October 2, 1981, the Board of Governors of the Bank adopted Resolution No. 374 entitled "Increase in Authorized Capital and Subscrip­ tion by China" authorizing an increase in the authorized capital stock of the Bank of 11,500 shares having a par value of $100,000 each in terms of United States dollars of the weight and fineness in effect on July 1, 1944. The resolution provides that in the absence of notice to the Bank from any member on or before October 9, 1981, that it intends to exercise its right to subscribe its proportionate share of the increase in capital provided for in the resolution, such member will be deemed to have waived such right. The resolution also provides that if any such notice is received from any member, all other members will be notified thereof and will be given an additional 30 days after October 9, 1981, to give such notice. 2. Pursuant to the procedure described above, Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, the Dominican Republic, Ecuador, El Salvador, Guatemala, Haiti, Honduras, India, Mexico, Nicaragua, Panama, Paraguay, Peru, the Philippines, Spain and Venezuela notified the Bank that they intended to exercise their pre-emptive rights. 3. Under Article II, Section 3(c) of the Articles of Agreement of the Bank, a member exercising its pre-emptive right is entitled to subscribe a propor­ tion of the increase of authorized capital equivalent to the proportion which its stock theretofore subscribed bears to the total authorized capital stock of the Bank before such increase. On October 9, 1981, the Bank's authorized capital (excluding the increase authorized under Resolution No. 374) was 705,000 shares. On this basis each of these members is entitled to subscribe the number of shares set forth opposite its name in paragraph 1 of the at­ tached draft resolution. I 4. The Executive Directors have concluded that it would be reasonable that the terms and conditions under which the subscriptions of the above­ mentioned members may be made should be the same as those specified in Resolution No. 374, except that, as the increase in the capital stock of the Bank authorized under Resolution No. 374 is not subject to adjustment, there would be no provision for adjustment of the number of shares allocated in the present case. 5. Accordingly, the Executive Directors recommend that the Board of Governors adopt the draft resolution attached to this Report. I This report was approved and its recommendation was adopted on April 13, 1982.

'See page 229 253 Increases in Certain Subscriptions to the Capital Stock and Reallocation of Authorized Shares

1. When the Board of Governors was asked to approve the General Capital Increase (Report of the Executive Directors to the Board of Governors dated June 28, 1979) it was suggested that about 25,000 shares be set aside for selective increases for which requests had been received but not yet acted on by the Executive Directors. 2. Since then, while the question of the criteria under which such increases should be granted was under consideration, the Executive Directors have recommended allocations of shares to China in 1980 and 1981 and to ten new members, and the number of shares available for allocation is now reduced to about 15,000. The Executive Directors have also had under con­ sideration the application for membership of the Hungarian People's Republic, to which, on the basis of the usual criteria for new members, the Executive Directors are recommending separately the allocation of 4,203 shares. 3. The number of shares available for special increases would thus have been reduced to around 11,000. However, the United Kingdom has notified the Bank that it will not subscribe half of the shares allocated to it under the General Capital Increase Resolution and that it consented to the realloca­ tion of these shares to other members. Six other members had, in the past, notified the Bank that they will not subscribe shares allocated to them. The table below sets forth for each such member the resolution in which the allocation was made and the number of shares involved:

Allocated by Number Country Resolution No. of Shares Botswana 314 31 Lebanon 346 167 Liberia 258 34 314 47 Sierra Leone 258 50 Singapore 258 209 314 591 335 82 Tunisia 258 36 United Kingdom 346 12168 Total 13415

The shares now available make it possible for the Executive Directors to recommend to the Board of Governors the allocations described in the next two paragraphs. 254 4. On April 29, 1981, Saudi Arabia's quota in the Fund was increased from SDR 1,040.1 million to SDR 2,100 million. Under the past practice of the Bank, Saudi Arabia would be eligible for an increase in its subscription to the capital stock of the Bank in the same proportion as its quota increase in the Fund. This would amount to 11,171 shares and it is recommended that such increase be authorized. 5. Although, as a general principle, allocations of shares of the Bank's capital stock have followed members' quotas in the International Monetary Fund, the initial subscriptions of a number of developing countries were reduced, at their request, below their Fund quotas. Subsequently, Brazil and Yugoslavia requested that their subscription in the Bank be brought up to the proportionate levels of their Fund quotas, and these requests were granted (Resolutions Nos. 98 and 334 of the Board of Governors dated August 9, 1956, and April 26, 1979, respectively). The Bank has received similar requests from 17 additional members and, following these precedents, it is proposed to agree to them. 6. Of the capital of the Bank subscribed before the General Capital In­ crease, 10070 has been paid in, while under the General Capital Increase Resolution, 7-1/2070 of the subscriptions authorized to be subscribed is to be paid in. In order to maintain parity of treatment, the shares proposed to be allocated would be divided into one portion as to which 10070 would be paid in and another as to which 7-1/2070 would be paid in. These two portions reflect the relation between shares authorized to be subscribed prior to the General Capital Increase and those authorized to be subscribed under the General Capital Increase Resolution. The increases recommended above would be subject to adjustment if the allocations under the General Capital Increase are scaled down pursuant to Resolution No. 346. 7. The Executive Directors recommend that the Board of Governors adopt the attached draft resolution. 1 This report was approved and its recommendation was adopted on July 8, 1982.

1982 Regular Election of Executive Directors

1. Pursuant to Resolution No. 358 of the Board of Governors, a Regular Election of Executive Directors will take place at the 1982 Annual Meeting of the Board of Governors.

2. The Executive Directors recommend that, at the 1982 Regular Election, sixteen Executive Directors be elected, except that, if the Board of Gover­ nors should decide to increase the number of elected Executive Directors to seventeen, seventeen Executive Directors would be elected.

'See page 233 255 3. The Executive Directors have noted that there was some uncertainty as to the voting power certain members will have at the time of the election because members could subscribe shares under the General Capital Increase Resolution and, when it is approved by the Board of Governors, under the Resolution on Selective Increases in Certain Subscriptions to the Capital Stock of the Bank and Reallocation of Authorized Shares at any time prior to the election. In view of this uncertainty, the Executive Directors recom­ mend that the maximum and minimum percentages of eligible votes re­ quired in the election be thirteen and one half percent and three percent, respectively. 4. The Executive Directors recommend that the date from which the 1982 Regular Election will be effective be November 1, 1982. 5. The Executive Directors consider the present structure of the Board acceptable and believe it desirable that both wide geographical and balanced representation be maintained. As in previous years there is strong feeling among Executive Directors that a lack of such wide geographical and balanced representation would call for prompt corrective action. 6. The Executive Directors recommend that the subsequent Regular Elec­ tion of Executive Directors take place at the Annual Meeting of the Board of Governors in 1984. 7. The Executive Directors recommend the adoption by the Board of Governors of the attached Election Rules 1 for the 1982 Regular Election of Executive Directors. 8. The attached draft Resolution, embodying the above recommendations, is proposed for adoption by the Board of Governors ... 2 This report was approved and its recommendation was adopted on August 12, 1982.

Allocation of Net Income 1. The Bank's net income available for allocation for the fiscal year ended June 30, 1982 is estimated at $598 million. A net translation adjustment due to exchange rate changes of $245 million has been charged directly to the General Reserve. As of June 30, 1982, the Special Reserve created under Article IV, Section 6 of the Bank's Articles of Agreement totalled $293 million and, without regard to the 1982 fiscal year's income, the General Reserve amounted to $2831 million. Total reserves including accumulated net income therefore amounted to $3721 million, of which the $293 million in the Special Reserve is kept in liquid form, the remainder being used in the business of the Bank.

'See page 258 'See page 236

256 2. The Executive Directors have considered what action to take, or to recommend that the Board of Governors take, with respect to the net in­ come for the fiscal year ended June 30, 1982. 3. The Executive Directors have considered what portion of that net in­ come should be allocated to the General Reserve and what portion thereof, if any, they should recommend that the Board of Governors transfer to the International Development Association. The Executive Directors have con­ cluded that that part of such net income which it is not necessary to retain in the Bank's business amounts to $125 million. They have further concluded that the interests of the Bank and its members would best be served by the transfer of that amount to the International Development Association by way of grant. 4. The Executive Directors have allocated the balance of such net income to the General Reserve. 5. As far as drawings on the transfer are concerned, the attached draft Resolution I provides that the transfer would be made at the time and in the manner to be decided by the Executive Directors. 6. Accordingly, the Executive Directors recommend that the Board of Governors approve the present Report and adopt the draft Resolution at­ l tached •••• This report was approved and its recommendation was adopted on September 9, 1982.

'See page 237

257 RULES FOR THE 1982 REGULAR ELECTION OF EXECUTIVE DIRECTORS

1. DEFINITIONS:

In these Rules, unless the context shall otherwise require, (a) "Articles" means the Articles of Agreement of the Bank. (b) "Board" means the Board of Governors of the Bank. (c) "Chairman" means the Chairman of the Board or Vice Chairman acting as Chairman. (d) "Governor" includes the Alternate Governor or any temporary Alternate Governor, when acting for the Governor. (e) "Secretary" means the Secretary or any acting Secretary of the Bank. (0 "Election" means the 1982 Regular Election of Executive Directors. (g) "Eligible" votes means the total number of votes that can be cast in the election.

2. DATE OF ELECTION:

The election shall be held during a plenary session of the 1982 Annual Meeting of the Board to be held Tuesday, September 7, 1982.

3. BASIC RULES-SCHEDULE B:

Subject to the adjustments set forth herein, the provisions of Schedule B of the Articles shall apply to the conduct of the election, except that: (a) "three percent" shall be substituted for "fourteen percent" in Paragraphs 2 and 5 and "thirteen and one half percent" shall be substituted for "fifteen percent" in Paragraphs 3, 4 and 5 thereof;· (b) "sixteen persons" shall be substituted for "seven persons" in Paragraphs 2, 3 and 6, "fifteen persons" shall be substituted for "six persons" in Paragraph 6, and "the sixteenth" shall be substituted for the "seventh" in Paragraph 6 thereof.·

4. EXECUTIVE DIRECTORS TO BE ELECTED:

Sixteen Executive Directors shall be elected, provided, however, that, in the event that the Board of Governors decides that there shall be seventeen Executive Directors, seventeen Executive Directors shall be elected.

·To be adjusted further in the event seventeen Executive Directors are to be elected.

258 5. NOMINATIONS:

( a) Any person nominated by one or more Governors entitled to vote in the election shall be eligible for election as Executive Director. (b) Each nomination shall be made on a Nomination Form furnished by the Secretary, signed by the Governor or Governors making the nomination, and deposited with the Secretary. (c) A Governor may nominate only one person. (d) Nominations may be made until 12 o'clock noon on the day preceding the election. The Secretary shall post and distribute a list of persons nominated.

6. SUPERVISION OF THE ELECTION:

The Chairman shall appoint such tellers and other assistants and take such other action as he deems necessary for the conduct of the election.

7. BALLOTS:

One ballot form shall be furnished before a ballot is taken to each Governor entitled to vote. On any particular ballot only ballot forms distributed for that ballot shall be counted.

8. BALLOTING:

Each ballot shall be taken as follows:

(a) There shall be a call of members whose Governors are entitled to vote and each ballot, signed by the Governor, shall be deposited in the ballot box. (b) When a ballot shall have been completed, the Chairman shall cause the ballots to be counted and shall announce the names of the per­ sons elected as soon as practicable after the tellers have completed their tally of the ballots. If a succeeding ballot is necessary, the Chairman shall announce the names of the nominees to be voted on and the members whose Governors are eligible to vote. (c) If the tellers shall be of the opinion that any particular ballot is not properly executed, they shall, if possible, afford the Governor con­ cerned an opportunity to correct it before tallying the results; and such ballot, if so corrected, shall be deemed to be valid.

9. When on any ballot the number of nominees shall not exceed the number of Executive Directors to be elected, each nom'inee shall be deemed to be elected by the number of votes received by him on such ballot; provided,

259 however, that, if on such ballot the votes of any Governor shall be deemed under paragraph 4 of Schedule B to have raised the votes cast for any nominee above thirteen and one half percent of the eligible votes, no nominee shall be deemed to have been elected who shall not have received on such ballot a minimum of three percent of the eligible votes, and a suc­ ceeding ballot shall be taken for which any nominee not elected shall be eligible.

10. If, as a result of the first ballot, the number of Executive Directors to be elected in accordance with Paragraph 4 above shall not have been elected, a second and, if necessary, further ballots shall be taken. The Governors en­ titled to vote on such succeeding ballots shall be only:

(a) those who voted on the preceding ballot for any nominee not elected; and (b) those Governors whose votes for a nominee elected on the preceding ballot are deemed under Paragraph 4 of Schedule B to have raised the votes cast for such nominee above thirteen and one half percent of the eligible votes.

11. If the votes cast by a Governor raise the total votes received by a nominee from below to above thirteen and one half percent of the eligible votes, the votes cast by the Governor shall be deemed under Paragraph 4 of Schedule B not to have raised the total votes of the nominee above thirteen and one half percent.

12. If on any ballot two or more Governors having an equal number of votes shall have voted for the same nominee and the votes of one or more, but not all, of such Governors could be deemed under Paragraph 4 of Schedule B not to have raised the total votes of the nominee above thirteen and one half percent of the eligible votes, the Chairman shall determine by lot the Governor or Governors, as the case may be, who shall be entitled to vote on the next ballot.

13. ABSTENTION FROM VOTING:

If a Governor shall abstain from voting on any ballot, he shall not be entitled to vote on any subsequent ballot and his votes shall not be counted within the meaning of Section 4(g) of Article V towards the election of any Executive Director. If at the time of any ballot a member shall not have a duly appointed Governor, such member shall be deemed to have abstained from voting on that ballot.

260 14. ELIMINATION OF NOMINEES:

If on any ballot two or more nominees shall receive the lowest number of votes, no nominee shall be dropped from the next succeeding ballot, but if the same situation is repeated on such succeeding ballot, the Chairman shall eliminate by lot one of such nominees from the next succeeding ballot.

15. ANNOUNCEMENT OF RESULT:

After the tally of the last ballot the Chairman shall cause to be distributed a statement setting forth the result of the election.

16. EFFECTIVE DATE OF ELECTION:

The effective date of the election shall be November 1, 1982, and the term of office of the elected Executive Directors shall commence on that date. Incumbent elected Executive Directors shall serve through the day preceding such date.

17. GENERAL:

Any question arising in connection with the conduct of the election shall be resolved by the tellers, subject to appeal, at the request of any Governor, to the Chairman and from him to the Board. Whenever possible, any such questions shall be put without identifying the members or Governors con­ cerned.

261 EXECUTIVE DIRECTORS ELECTED AT 1982 REGULAR ELECTION

Number Executive Director Elected by the Votes of: of Votes

Patricio Ayala Costa Rica 381 (Mexico) EI Salvador 370 Guatemala 417 Honduras 334 Mexico 3,406 Nicaragua 341 Panama 466 Spain 4,801 Suriname 412 Venezuela 2,222 13,150

Mourad Benachenhou Afghanistan 550 (Algeria) Algeria 5,005 Ghana 1,106 Iran 1,830 Libya 1,837 Morocco 2,862 Tunisia 623 Yemen, People's Dem. Rep. of 498 14,311

Jacques de Groote Austria 5,469 (Belgium) Belgium 10,768 Hungary 2,292 Luxembourg 908 Turkey 3,658 23,095

Said EI-Naggar Bahrain 816 (Arab Republic of Egypt) Egypt, Arab Republic of 1,900 Iraq 948 Jordan 483 Kuwait 3,453 Lebanon 340 Maldives 256 Oman 442

262 Number Executive Director Elected by the Votes of· o/Votes Said EI-Naggar Pakistan 2,769 (continued) Qatar 577 Saudi Arabia 5,149 Syrian Arab Republic 758 United Arab Emirates 1,230 Yemen Arab Republic 356 19,477

Pekka Korpinen Denmark 5,386 (Finland) Finland 2,724 Iceland 472 Norway 2,660 Sweden 7,617 18,859

Stanley A. McLeod Australia 12,987 (New Zealand) Korea, Republic of 3,197 New Zealand 2,681 Papua New Guinea 496 Solomon Islands 267 Vanuatu 573 Western Samoa 267 20,468

Morris Miller Bahamas 421 (Canada) Barbados 389 Belize 289 Canada 11,372 Dominica 266 Grenada 267 Guyana 421 Ireland 1,516 Jamaica 696 St. Lucia 279 st. Vincent 263 16,179

Giorgio Ragazzi Greece 1,195 (Italy) Italy 19,842 Portugal 1,574 22,611 263 Number Executive Director Elected by the Votes of' o/Votes

H.N. Ray Bangladesh 1,492 (India) Bhutan 259 India 22,883 Sri Lanka -.Llli 25,845

Antonio V. Romualdez Brazil 10,956 (Philippines) Columbia 1,425 Dominican Republic 839 Ecuador 618 Haiti 400 Philippines 3,848 18,086

William Smith Botswana 293 (Liberia) Burundi 400 Ethiopia 364 Gambia, The 303 Guinea 450 Kenya 650 Lesotho 293 Liberia 463 Malawi 400 Nigeria 3,191 Seychelles 261 Sierra Leone 400 Sudan 850 Swaziland 318 Tanzania 600 Trinidad and Tobago 785 Uganda 583 Zambia 898 Zimbabwe 1,067 12,569

Nicephore D. Soglo Benin 350 (Benin) Cameroon 450 Cape Verde 266 Central African Republic 350

264 Number Executive Director Elected by the Votes of: of Votes

Nicephore D. Soglo Chad 350 (continued) Comoros 266 Congo, People's Republic of 350 Djibouti 281 Equitorial Guinea 314 Gabon 370 Guinea-Bissau 277 Ivory Coast 688 Madagascar 469 Mali 423 Mauritania 350 Mauritius 471 Niger 350 Rwanda 424 Sao Tome and Principe 264 Senegal 612 Somalia 439 Togo 400 Upper Volta 350 Zaire ~ 10,074

Phaichitr Uathavikul Burma 841 (Thailand) Fiji 397 Indonesia 4,138 Lao People's Dem. Rep. 350 Malaysia 2,316 Nepal 783 Singapore 570 Thailand 1,728 Viet Nam 793 11,916

Ferdinand van Dam Cyprus 528 (Netherlands) Israel 1,358 Netherlands 15,367 Romania 2,251 Yugoslavia 1,428 20,932

265 Number Executive Director Elected by the Votes of' of Votes

Wang Liansheng China (China) Eduardo Zalduendo Argentina 4,951 (Argentina) Bolivia 514 Chile 1,490 Paraguay 636 Peru 1,188 Uruguay 661 9,440 lsi D.B. Quigley(Ireland), Teller lsi Y.K. Park (Korea), Teller

266 REPORT OF THE EXECUTIVE DIRECTORS OF IDA

Sixth Replenishment: Adjustment of Voting Rights of Columbia, Luxembourg and Saudi Arabia

1. The Report of the Executive Directors to the Board of Governors on "Additions to IDA Resources: Sixth Replenishment", dated January 15, 1980, envisaged contributions in a total amount equivalent to US$12 billion. This total included an unallocated amount of US$161.44 million. Accordingly, the Report and the Sixth Replenishment Resolution (Resolu­ tion No. 117 of the Board of Governors, adopted on March 26, 1980) pro­ vided for the possibility of additional voluntary contributions to cover this unallocated amount. 2. Since that time, the Executive Directors have adopted resolutions authorizing the acceptance by the Association of additional contributions to the Sixth Replenishment totaling US$40.5 million equivalent, reducing the unallocated amount remaining to be covered to US$120.94 million. These additional contributions have been provided by the following three member countries:

(a) Saudi Arabia increased its contribution by US$30 million; (b) Colombia agreed to make a contribution in "usable form" equivalent to US$1O million (at the IMF representative exchange rate as of September 1, 1980); and (c) Luxembourg made an additional contribution equivalent to US$500,000 (at the IMF representative exchange rate as of October 5, 1979).

3. In order to treat these additional contributions in the same way as other resources made available to the Association under the Sixth Replenishment, additional voting rights are to be given to the members which have provided additional contributions. It is considered appropriate to proceed with such a voting power adjustment now that the Sixth Replenishment has become ef­ fective and the voting power adjustment on account thereof has become operative. The additional votes thus to be accorded in respect of the addi­ tional contributions are set forth in the table included in the attached draft Resolution.' Such votes have been computed on the same basis as the voting rights adjustment among Part I members and for contributions in "usable form" by Part II members under the Sixth Replenishment Resolution, and they are to be accorded following the same rules and procedures as those governing the subscription votes provided for under said Resolution. 4. The voting power adjustment reflecting the Sixth Replenishment has been calculated as if the unallocated amount of such Replenishment was

'See page 248

267 covered by additional subscriptions and contributions of members for which votes would be accorded. Therefore, all members have already been given the opportunity to subscribe an amount enabling each of them to maintain its relative voting power in respect of the voting rights to be ac­ corded for the additional contributions. 5. Accordingly, the Executive Directors recommend that the Board of

Govenors adopt the draft Resolution attached to this Report. I This report was approved and its recommendation was adopted on April 5, 1982.

, See page 248

268 REPORT OF THE CHAIRMAN OF THE DEVELOPMENT COMMITTEE

September 5, 1982 Sir: As Chairman of the Joint Ministerial Committee of the Boards of Gover­ nors of the Bank and the Fund on the Transfer of Real Resources to Developing Countries (Development Committee), I have the honor to pre­ sent herewith to the Boards of Governors a report by the Committee on the progress of its work during the period July 1981-June 1982. The report is presented in compliance with Section 5(i) of the Bank Board of Governors Resolution No. 294 and the Fund Board of Governors Resolution No. 29-9, adopted on October 2, 1974.

Sincerely yours,

/s/

Manuel Ulloa Elias

269 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 1981-June 1982

I. INTRODUCTION

1. This is the eighth 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 the period from July 1981 to June 1982. 2. The Committee on Reform of the International Monetary System and Related Issues (Committee of Twenty) in 1974 agreed that one of the impor­ tant objectives of the Reform of the World Monetary and Economic Order should be the promotion of economic development and to this end the net flow of real resources to developing countries should be given positive en­ couragement. It therefore recommended that appropriate arrangements be made to achieve this objective. The Boards of Governors of the Bank and the Fund accordingly established the Development Committee in September 1974 to maintain an overview of the development process and to carry for­ ward the study of the broad question of the transfer of real resources to developing countries, including measures to implement its conclusions. The Committee was established at ministerial level and it was thus designed to provide a focal point at a high political level in the structure of international economic cooperation for the formation of a comprehensive overview for efficient and prompt consideration of development issues and for coordina­ tion of the international efforts to deal with problems of financing development. 3. On the background of analyses and projections of the IBRD's World Development Report, the IMF's World Economic Outlook and other studies specially prepared, the Committee during the year under review con­ sidered a number of development issues and matters relating to the im­ provement in capital flows to, and their efficient use in, developing coun­ tries. The status of lending operations of multilateral development institu­ tions (MDIs) in the changed circumstances of the 1980s constituted an im­ portant element in the Committee's work. The attention of Finance and Development Ministers, representing developed, OPEC and developing countries, was focused on important development issues of mutual interest in an effort to promote international consensus and to facilitate decisions in appropriate bodies at national and international levels. 4. The Committee held two meetings during the year. The first meeting was in Washington on September 27-28, 1981, at the time of the Annual

270 Meetings of the Boards of Governors of the Bank and Fund. It was chaired by H.E. Manuel Ulloa Elias, Prime Minister and Minister of Economy, Finance and Commerce of Peru, in the absence of the Committee's Chair­ man, H.E. David Ibarra Munoz, Secretary of Finance and Public Credit of Mexico, who was unable to attend the meeting. The second meeting of the year-the eighteenth in the series-was held in Helsinki, Finland on May 13-14, 1982. As H.E. David Ibarra Munoz had earlier resigned from the post of Chairman, the Committee at its meeting in Helsinki unanimously selected H.E. Manuel Ulloa Elias as the new Chairman of the Committee. 5. At the technical and preparatory level, the Task Force set up by the Committee for an in-depth study of conditions relating to nonconcessional capital flows to developing countries held a series of meetings during the year. It had a further free and extensive exchange of views on the subject with high level representatives of the international banking community before finalizing its report which was presented to the Committee at the Helsinki meeting. 6. The changes introduced in April 1979 to enhance the effectiveness of the Committee had made the organization of its work the joint responsibility of the Chairman of the Development Committee, the Manag­ ing Director of the International Monetary Fund and the President of the World Bank assisted by the Executive Secretary. The reorganization also provided for a greater and closer involvement of the Executive Boards and the staffs of the Fund and the Bank. A further improvement was made by structuring the Committee's discussions around broad topics rather than on a number of individual papers. The various papers prepared for the Com­ mittee now serve as background information against which discussion is focused on a small number of selected topics. This is accomplished through the preparation of an annotated agenda summarizing and highlighting the issues requiring ministerial attention. This approach makes the agenda more manageable and is found to be helpful particularly in the context of the time constraint somewhat inherent in meetings at ministerial level. These changes in the organization and procedure have helped, but the im­ pression persists-with some justification-that the full potential of the Committee remains to be realized. The search for ways and means to fur­ ther enhance the Committee's effectiveness to attain its objectives continues to engage its attention. 7. The main thrust of the Committee's work in the year under review has continued to be on capital flows to developing countries, both concessional and non-concessional, bilateral and multilateral. The status of lending operations for MDIs, their role in the changed circumstances of the 1980s, the IDA difficulties, additional lending for energy, increased co-financing with public and private sectors, the serious economic situation in the Sub­ Saharan African countries, and the follow-up on the G-24 and Brandt Com­ mission proposals are the important specific issues which received special attention. 271 II. COMMITTEE CONSIDERATION OF MAJOR QUESTIONS AFFECTING RESOURCE TRANSFER

A. World Development Report and Economic Situation and Prospects Facing the Developing Countries in the 1980s

8. The IBRD's World Development Report 1981 and the IMF's World Economic Outlook were invaluable sources of background information for the Committee's discussions on many current and urgent development issues. These documents showed that the world economic situation con­ tinues to be dominated by serious problems of slow or negative economic growth; reduced but still unacceptably high rates of inflation; near record high levels of unemployment with its mounting economic, social and political significance bringing new trends of protectionism; stagnation in the volume of world trade resulting in particular in depressed commodity prices; high interest rates; and large imbalances on external account positions. 9. A factor of central importance contributing to the gloomy assessment has been the slowing of the average growth of real GNP in the industrial countries from an annual rate of 4 per cent in the period 1976-79 to only 1.3 per cent in 1980 and 1.2 per cent in 1981. The persistent low level of economic activity in the industrial countries has had a profound effect on the performance of the non-oil developing countries. Their growth rates, already unsatisfactory for the majority of them, are now markedly below the corresponding rates of the late 1960s and early 1970s and very modest in relation to developmental needs against a background of high population growth. In recent years the current account positions of most non-oil developing countries have been sharply affected by external developments- notably high energy costs, inflation, and high interest rates in international markets and the pervasive slowdown of economic activity. Thus, the combined current account deficit of the non-oil developing coun­ tries in 1982 was projected to remain at a level of around $100 billion for the third year running as compared with $39 billion in 1978. 10. The IBRD World Development Report 1981 presents two growth scenarios for various parts of the global economy for the decade of the eighties. According to the high case scenario, per capita incomes in the middle-income oil-importing developing countries could grow at 3.4 per cent annually, the low-income countries at 1.8 per cent. For this scenario to be realized there would need to be a recovery in the rate of growth in in­ dustrial economies, a reduction in interest rates, an expansion in world trade and an increase in the flow of concessional assistance. On the assump­ tion of the low case, the ratios of growth are 2.1 and 0.7 per cent, respectively.

272 11. In the light of this world economic situation and prospects, the Com­ mittee expressed its deep concern that most developing countries, especially the low-income countries, continue to face grave economic problems with poor medium-term prospects. They continue to contend with a difficult ex­ ternal economic environment. The Committee therefore found that efforts by industrial nations to further curb inflation and reduce unemployment and restore their growth rates while at the same time intensifying the pursuit of liberal trade regimes should be encouraged. The Committee reiterated that in a world of tightening interdependence there is a need for the economically more important countries to take into account the effects of their economic policies on other countries. 12. The Committee stressed the importance of efforts by all countries to pursue appropriate adjustment policies and encourage developed countries, capital surplus oil-exporting countries, as well as advanced developing countries to support adjustment and development through technical assistance and financial efforts. The Committee reiterated the need for measures to increase the flow of official development assistance (ODA) to the oil-importing developing countries, especially the low-income countries.

B. Concessional Flows

(i) ODA Flows

13. The Committee noted with concern that the situation and prospects for the poorest developing countries are particularly bleak as they face stagnation, in some cases retrogression, in the period ahead. While it was important that the developing countries review their domestic policies and programs if their development objectives were to be achieved, it should at the same time be recognized that they would also need additional outside assistance. For these countries to be able to move along the high growth road projected in the World Development Report, that report estimates that as much as $66 billion from all sources of concessional assistance in 1990, as against $22 billion in 1980, might be necessary. This tripling in the quantum of concessional flows in nominal terms is equivalent to a rate of growth of only 11.7 per cent per annum, much less than the 18.1 per cent rate increase achieved in 1970-80. The report's projections of concessional flows in 1990 will still mean only 0.37 per cent of GNP transferred by the OECD coun­ tries. Of the $66 billion, it is estimated that half would have to flow to the low-income countries. It is to be remembered that net capital receipts of the low-income oil importers did not increase at all after 1975 in real terms. Real ODA receipts by this group of countries in 1978 and 1980 were, in fact, lower than the level reached in 1975. There was no increase in the flow of commercial loans either. Thus, poorer countries have received no additional support from the international community even to deal with their terms-of-

273 trade losses in 1979-80. In the circumstances, urgent measures to reduce strains on their economies are required, including improving the flow of concessional assistance. In this connection, the Committee recalled the Ottawa Communique which acknowledged the decisive importance of the developing countries' own efforts, recorded the commitment of par­ ticipating industrial countries to maintain substantial and, in many cases, growing levels of official development assistance and to seek to increase public understanding of its importance.

(ii) IDA

14. At its September 1981 meeting, the Committee welcomed the coming into force of IDA 6. As it is the single most important source of conces­ sional assistance to the poorer developing countries, the Committee urged all contributors to resolve outstanding issues so that planned commitment levels could be maintained. The Committee further requested the World Bank to initiate preparatory discussions for the next IDA Replenishment as soon as possible. 15. Reductions in IDA's commitment authority under the Sixth Replenishment will certainly have a serious impact on the economies of poorer developing countries, for whom concessional assistance is a major source of external support. A hiatus or reduction in the availability of IDA credits would disrupt the momentum behind development efforts and pro­ grams so assiduously built up through sustained efforts over several years. The Committee therefore felt that it was important and necessary to resolve the crisis now faced by IDA and to take steps to address the problems in FY82 and FY83 and beyond. In this connection, the Committee welcomed the action taken by some donors to release, irrespective of the pro rata prin­ ciple, I the full amount of the second tranche of their contribution to IDA 6. It noted the importance attached by a number of donors to finding ways of reducing current and prospective shortfalls of IDA's commitment authority in the years FY82-84. Several ways, including waiving or relaxing the pro rata provisions of the IDA resolution, as well as the creation of a Special Fund which would provide additional resources, have been proposed. The Committee welcomed the progress made in considering these alternatives in informal meetings held by donor representatives during the week preceding the Helsinki meeting in order to develop specific action programs which could be quickly translated into operational mechanisms so that originally planned commitment levels could be maintained to the maximum extent possible. The Committee also emphasized that discussions should proceed apace so that the Seventh Replenishment of IDA could begin, if possible, as scheduled in FY84.

I The pro rata prinCiple reflects the burden-sharmg agreement amongst the IDA donors according to which any shortjail in the agreed share or rephasing oj Its contribulwn by a participant entJIles others to reduce or rephase thelf contribution accor­ dingly if they so choose. 274 (iii) Task Force on Concessional Flows

16. In the critically important area of concessional flows, the other signifi­ cant decision arrived at by the Committee relates to the establishment of a special Task Force. The decision, in principle, to establish such a Task Force was taken at the Gabon meeting on May 22, 1981 in order to carry forward and widen the continuing study of the problems affecting the volume and quality and the effective use of concessional flows in the shorter and longer terms. In pursuance of this decision and directive of the Com­ mittee, the Executive Secretary at the request of the Chairman of the Com­ mittee, had undertaken extensive consultations. The Committee welcomed the successful outcome of these consultations on the terms of reference of the Task Force, its composition and its chairman. The Committee's ap­ proval will now enable the 18-member Task Force on Concessional Flows, representing industrial donor countries, OPEC and developing countries, to undertake in the period ahead its important task under the chairmanship of John P. Lewis, Professor at Princeton University and former Chairman of the Development Assistance Committee of OECD.

C. Non-concessional Flows

Final Report of the Task Force on Non-concessional Flows

17. Non-concessional flows was the subject of an in-depth study by a Task Force set up by the Committee in 1980. This was done in the knowledge that the official financial flows alone could not possibly meet the large and in­ creasing need for funds required by developing countries facing extraor­ dinarily large balance-of-payments deficits. The Task Force, after agreeing on an intensive program of work, held a series of meetings over the past two years. It also consulted extensively with international bankers and drew upon the work of IMF and World Bank staff. The successful completion of its mandate is reflected in its final report submitted to the Committee at its Helsinki meeting. 18. The topics relating to developing countries covered by the final report include: the pattern of financing; external debt management; the role and objectives of debt restructuring; possible structural constraints on interna­ tional bank lending; access to international bond markets; the role of official bank supervision in respect of continuity of market financing flows; the impact of inflation and interest rates on the economies of the developing countries and their creditworthiness; and the role of adjustment policies in promoting financing from capital markets. 19. The Task Force considered that an essential condition for meeting the external financing needs of oil-importing developing countries is that non-

275 concessional flows continue to be available to them in conjunction with private direct investment and concessional and part-concessional flows. 20. As regards future action, the report of the Task Force recommends a number of measures that could be taken by the World Bank and other MDIs with a view to stimulating additionality in the flows of nonconces­ sional resources to developing countries. It recommends that this may be ac­ complished through:

(i) examining possibilities of increasing the future lending capacity of the World Bank and other MDIs through (a) increases in their capital with smaller-or no-paid-in element; or (b) through carefully managed changes in their statutory lending limits; (ii) giving higher priority to commercial co-financing through a variety of new mechanisms and techniques; (iii) a resumption of portfolio sales when market conditions permit, and subject to prior approval of the countries whose loans are being sold; and (iv) examining the feasibility of introducing various techniques such as the role of Partially-Guaranteed Loan Pass-Through Certificates and the provision of partial guarantees in respect of commercial loans to developing countries.

21. The Committee expressed its appreciation to the Task Force on its useful report and it noted its final conclusions and recommendations. It asked the Executive Directors of the World Bank and the regional banks to consider the recommendations of the Task Force taking into account their legal and procedural implications and report their deliberations to the Com­ mittee in due course. The Committee also considered it desirable that ap­ propriate arrangements be made to periodically review further developments in the field of non-concessional flows. 22. In view of the general interest in this subject, the Committee also decided to make the report of the Task Force on Non-concessional Flows available to the public.

D. Status of Lending Operations of Multilateral Development Institutions and Their Role in the 1980s

23. The lending operations of the World Bank and other multilateral development institutions and their future role in the changed circumstances of the 1980s was another important subject which engaged the Committee's attention during the year under review. There was general recognition that the strengthening of the MDIs had become necessary to supplement the

276 flows of private capital to the developing countries to help them meet their increased financing needs and to support their internal structural adjust­ ment policies and programs. 24. The size of the World Bank's borrowing program for the next several years, the rising cost of borrowing and the erosion of the long-term fixed­ rate markets have raised a number of major issues regarding the level and rate of Bank lending in the period ahead. Either an expansion of Bank lend­ ing over previously planned levels or the absorption of new de­ mands-mostly the lending program for new members and energy-within the previously planned levels pose problems. The Committee, bearing in mind budgetary constraint considerations, urged governments to accelerate their subscriptions to the $40 billion General Capital Increase of the Bank and to release the local currency of these subscriptions as rapidly as possi­ ble. The Committee also took note of the on-going discussions concerning the Bank's borrowing practices and its lending rate policy and urged the Ex­ ecutive Directors of the Bank to reach prompt decisions on these matters in order to enhance the Bank's funding flexibility both as a means of keeping the cost of Bank borrowing as low as possible and of assuring that planned growth in lending can be financed on reasonable terms. It also requested the Executive Directors to continue their study of the scope for an expansion, in real terms, of World Bank lending. 25. The Committee, on the basis of the material provided by the regional banks, also took note of their resource needs and urged member govern­ ments speedily to seek means of financing the future capital requirements of the regional banks' ordinary and concessional funds at an appropriate level besides completing commitments previously entered into. The Committee also expressed its full support of the regional banks in their efforts to serve as catalysts and seek expansion in their co financing programs.

E. Additional Lending for Energy

26. The Committee's discussion of energy reflected the global nature of the problem and the international community's interest in a general ap­ proach to the subject encompassing conservation and the development of both conventional and non-conventional sources of energy. 27. This new emphasis on energy development is reflected in the expan­ sion of the Bank's energy lending program from $1.1 billion in FY77 to $2.4 billion in FY81 while the FY82 program is likely to amount to $3.25 billion. This acceleration was accomplished by increasing the percentage of total Bank lending to energy from 15 per cent in FY77 to 25 per cent in FY82. 28. However, this percentage cannot be increased or even sustained without cutting into other priority sectors. It was feared that without addi­ tional funds the remainder of the expanded program of the Bank will not be achieved.

277 29. In the circumstances the Committee, while noting with satisfaction that the Bank's lending program for energy has expanded rapidly, asked the Executive Directors of the World Bank further to explore ways which would permit the Bank to prepare and secure financing for an increased program of energy investments including an Energy Affiliate or a Special Fund or agreed co-financing arrangements. The Committee desired to receive a pro­ gress report in this regard at its September 1982 meeting.

F. Co-financing

30. In view of IBRD's and IDA's possible immediate and longer term resource constraints, the World Bank Group is giving renewed emphasis to the need to supplement its funding of projects with co financing from three other main sources. These are: bilateral and other multilateral conces­ sionary funds; official export credits; and commercial bank lending. 31. The Committee noted with satisfaction the sizable expansion achieved by the World Bank in co-financing. The Bank is currently engaged in evaluating a broad array of new co-financing techniques and developing a range of co-financing instruments. The Committee endorsed the efforts of IBRD and IDA to secure an increase in co-financing from all sources on terms suitable for, and acceptable to, the borrowers and asked the Ex­ ecutive Directors of the Bank to consider the various proposals on co­ financing which they will be discussing in the period ahead and to report on them, if possible, to the September 1982 meeting of the Committee.

G. Program of Action for Sub-Saharan Africa

32. The study entitled, "Accelerated Development in Sub-Saharan Africa: An Agenda for Action" prepared by the World Bank at the request of the African Governors was the subject of great interest in the Development Committee both for its diagnosis of the current economic crisis in Sub­ Saharan Africa and for its policy suggestions. The Committee noted with deep concern the revelation in the report that in the preceding two decades output per person rose more slowly in Sub-Saharan Africa than in any other part of the world and growth prospects for the eighties were dismal since, except under optimistic assumptions, per capita incomes are projected to decline for this part of the continent which already accounts for 20 of the 31 least developed countries. The potential for growth, however, exists and can be realized through increased flows of resources to the region, a substantial improvement in their world trading opportunities and through appropriate adjustments in domestic economic policies and in the efficiency with which resources are used. This will require attention and resources from the inter­ national community in forms suited to African development needs.

278 33. The report was considered to provide a good basis for a dialogue between the African governments, the international donor community and the multilateral financial institutions. The Committee urged the World Bank to take the lead in carrying forward this dialogue with a view to pro­ moting joint action by African governments, donors and international agencies in order to accelerate growth and development through effective financial and technical assistance, appropriate policy changes and expanded investment programs. 34. At its Helsinki meeting, the Committee had before it the Dakar Memorandum of March 3, 1982, drawn up by the African Governors of the World Bank as well as a report on the Bank's further discussions with OPEC aid agencies, bilateral donors and the African Development Bank. The main focus of this information was on the policy and financial issues facing the Sub-Saharan countries. The Committee urged the World Bank to move expeditiously to assist the Sub-Saharan African countries to for­ mulate specific programs of action and, taking account of the Dakar Memorandum, to continue its dialogue with donor countries in order to enhance the flow of aid in real terms necessary to support such programs of action.

H. Private Foreign Investment

35. The Committee noted that the World Bank has now completed its plan to study the quantitative and qualitative impact of both foreign investment incentives and performance requirements on direct investment and trade patterns, and it encouraged the World Bank to complete the study for its consideration. I. 0-24 Program of Immediate Action and Brandt Commission Report 36. The recommendations contained in the report of the Brandt Commis­ sion and in the G-24's Program of Immediate Action have received con­ siderable attention by the Committee over the past two years. As a background to these discussions, the staff of the Fund and the Bank had prepared and submitted to the Committee a number of documents analyz­ ing the recommendations. The Committee welcomed the active considera­ tion given by the Fund and the Bank to the recommendations with regard to measures to enhance the flow of resources to developing countries and stressed that the Brandt Commission proposals on reduction of poverty should receive special attention. The Committee noted that both the Fund and the Bank had considered, and in some cases implemented, the recom­ mendations in question and encouraged the two institutions to continue to pay due regard to these recommendations. The Committee has now asked the two institutions to present to the September 1982 meeting of the Com-

279 mittee reviews of the status of implementation of the recommendations which are of particular relevance to the Committee's work.

III. PERFORMANCE REVIEW

37. The parallel Resolutions of the Boards of Governors of the Bank and the Fund establishing the Committee had provided for a review of its per­ formance on the basis of which they were to take such action as they deemed appropriate. 38. The Committee carried out two such reviews in 1978 and 1981. The reviews comprised an examination of the Committee's mandate, its struc­ ture, its work methods and the limitations which it faced in its operations. The Committee reaffirmed the importance, the usefulness and the potential of this ministerial forum. It concluded that the objective for which the Committee was established is still valid and the need for such a high-level political forum is probably greater now than when the Committee was established in 1974. Suggestions or proposals to further enhance the effec­ tiveness of the Committee can be examined at any time on the Committee's initiative in the light of experience gained or changed circumstances. The Boards of Governors, taking into account the views and recommendations of the Executive Boards of the Bank and the Fund and the Development Committee, concluded that the review of the performance of the Commit­ tee, as required by the relevant parallel Resolutions, had been completed.

IV. FUTURE TASKS

39. The Annual Report briefly describes some of the basic problems which currently confront the economies of both the developed and developing countries. The periodic review of financial and development issues such as the volume, quality and effective use of financial flows to the developing countries, both bilateral and multilateral, concessional and non­ concessional, will remain the major responsibility and concern of the Com­ mittee in the period ahead. The problems are complex, solutions are not easy, and consensus has yet to be reached. This much, however, is clear that neither domestic policies of developing countries nor external assistance alone can do the job. Both have to be pursued and blended together to pro­ duce the right results. 40. The Development Committee with its broad responsibilities, its com­ pact size and the support of two premier multilateral institutions in the fields of finance and development, continues to provide a representative ministerial forum which attempts to seek international consensus on a number of vital development issues and thereby facilitates decisions in ap­ propriate bodies.

280 ANNEX A

Members of the Committee

Member Countries I. His Excellency Saudi Arabia Mohammad Abal-Khail Minister of Finance and National Economy Saudi Arabia 2. His Excellency Bahrain, Iraq, Jordan, Kuwait, Lebanon, Abdlatif Y. AI-Hamad Libya, Maldives, Pakistan, People's Minister of Finance Democratic Republic of Yemen, Qatar, and Planning Somalia, Syrian Arab Republic, United Kuwait Arab Emirates, Yemen Arab Republic 3. The Honorable Greece, Italy, Malta, Portugal Beniamino Andreatta Minister of the Treasury Italy 4. His Excellency Austria, Belgium, Luxembourg, Turkey Willy De Clercq Minister of Finance Belgium 5. His Excellency France Jacques Delors Minister of Economy and Finance France 6. The Honorable Brazil, Colombia, Dominican Republic, Carlos Despradel Ecuador, Guyana, Haiti, Panama, Suriname, Governor Trinidad and Tobago Central Bank Dominican Republic 7. The Honourable Australia, Korea, New Zealand, Papua J.W. Howard, M.P. New Guinea, Philippines, Seychelles, Treasurer Solomon Islands, Western Samoa Australia 8. The Right Honourable United Kingdom Sir Geoffrey Howe, Q.C., M.P. Chancellor of the Exchequer United Kingdom 9. Her Excellency Costa Rica, EI Salvador, Guatemala, Maritza Izaguirre Honduras, Mexico, Nicaragua, Spain, Minister of State, Chief of Venezuela CORDI PLAN Venezuela 10. His Excellency Afghanistan, Algeria, Ghana, Iran, Abdellatif Jouahri Morocco, Oman, Tunisia Minister of Finance Morocco II. His Excellency Benin, Cameroon, Cape Verde, Central Abdoulaye Kone African Republic, Chad, Comoros, Congo, Minister of Economy, Finance Djibouti, Equatorial Guinea, Gabon, and Planning Guinea-Bissau, Ivory Coast, Madagascar, Ivory Coast Mali, Mauritania, Mauritius, Niger, Sao Tome and Principe, Senegal, Togo, Upper Volta, Zaire.

281 Member Countries 12. The Honourable Bahamas, Barbados, Canada, Dominica, Allan J. MacEachen, P.e., M.P. Grenada, Ireland, Jamaica, St. Lucia, Deputy Prime Minister SI. Vincent and the Grenadines and Minister of Finance Canada 13. The Honorable Bangladesh, India, Sri Lanka Pranab Mukherjee Minister of Finance India 14. His Excellency Germany Rainer Offergeld Federal Minister for Economic Cooperation Germany 15. His Excellency Denmark, Finland, Iceland, Norway, Rolf Pres thus Sweden Minister of Finance Norway 16. The Honorable United States Donald Regan Secretary of the Treasury United States 17. The Honorable Burma, Fiji, Indonesia, Lao People's Rachmat Saleh Democratic Republic, Malaysia, Nepal, Governor Singapore, Thailand, Viet Nam Bank Indonesia Indonesia 18. His Excellency Argentina, Bolivia, Chile, Paraguay, Manuel Ulloa Elias' Peru, Uruguay Prime Minister and Minister of Economy, Finance and Commerce Peru 19. His Excellency Cyprus, Israel, Netherlands, Romania, A.P.J.M.M. van der Stee Yugoslavia Minister of Finance The Netherlands 20. His Excellency China Wang Bingqian Minister of Finance China 21. His Excellency Japan Michio Watanabe Minister of Finance Japan 22. His Excellency Botswana, Burundi, Ethiopia, The Gambia, Teferra Wolde-Semait Guinea, Kenya, Lesotho, Liberia, Malawi, Minister of Finance Nigeria, Sierra Leone, Sudan, Swaziland, Ethiopia Tanzania, Uganda, Zambia, Zimbabwe

IHlS Excellency Pedro-Pablo Kuczynski, Minister of Energy and Mines of Peru. served as Alternate Member ro permit HIS Excellency Manuel Ulloa Eltas to serve as Chairman.

282 ANNEX B

Organizational and Administrative Aspects

1. The Committee on Reform of the International Monetary System and Related Issues (Committee of Twenty) in 1974 agreed that one of the impor­ tant objectives of the Reform of the World Monetary and Economic Order should be the promotion of economic development and to this end the net flow of real resources to developing countries should be given positive en­ couragement. The Committee of Twenty, in its final report in June 1974, therefore recommended that two committees be set up: an Interim Commit­ tee in the Fund to deal with monetary reform, and a joint ministerial com­ mittee of the Bank and the Fund (Development Committee) to continue the study of the broad question of the transfer of real resources to developing countries. 2. It was hoped that the Development Committee would be helpful in pro­ viding a focal point in the structure of economic cooperation for formation of a comprehensive overview of diverse international activities in the inter­ national area, for efficient and prompt consideration of development issues, and for coordination of international efforts to deal with problems of financing development. The Committee was expected to work in close association with the management and the boards of the two institutions. 3. The Development Committee was accordingly established pursuant to Bank Governors Resolution 294, October 2, 1974, and Fund Governors Resolution 29-9, October 2, 1974. The parallel resolutions provided that the members of the Development Committee were to be governors of the Bank, governors of the Fund, ministers, or others of comparable rank. Each member government of the Bank or the Fund that appoints an executive director or group of members that elect an executive director was to appoint one member of the Committee (in all: 21 in the Bank and 22 now in the Fund) and up to seven associates. The members were to be appointed in turn for successive periods of two years by the members of the Bank and the members of the Fund. 4. At the inaugural meeting of the Committee held October 2-3, 1974, Mr. Henri Konan Bedie, Minister of Economy and Finance of the Ivory Coast, was selected as Chairman, and Mr. Henry J. Costanzo, Executive Vice President of the Inter-American Development Bank, was appointed Executive Secretary. At the seventh meeting of the Committee, held Oc­ tober 6, 1976, Mr. Cesar E.A. Virata, Secretary of Finance of the Philip­ pines, was selected as Chairman and Sir Richard King, Permanent Secretary of the Ministry of Overseas Development of the United Kingdom, was ap­ pointed Executive Secretary. Mr. Virata was re-elected as Chairman on September 27, 1978, at the eleventh meeting of the Committee. On expiry of Mr. Virata's term, the Committee, at its fifteenth meeting held on October 2,

283 1980, in Washington, D.C., unanimously selected Mr. David Ibarra Munoz, Secretary of Finance and Public Credit of Mexico, as Chairman, and appointed Mr. Hans E. Kastoft, as Executive Secretary. Mr. Ibarra resigned from the post of Chairman in March 1982 and the Development Committee at its eighteenth meeting in Helsinki in May 1982 selected Mr. Manuel Ulloa Elias, Prime Minister and Minister of Economy, Finance and Commerce of Peru, as the new Chairman of the Committee. 5. The Boards of the Bank and the Fund are used as preparatory bodies for the work of the Development Committee. The mechanism of Task Forces, with a specific limited task and duration, is used by the Committee whenever a need is felt for an in-depth study of a particular subject. A Task Force on the problems of Non-concessional Flows was established in 1980 and concluded its comprehensive work by presenting its Final Report to the Committee at its Helsinki meeting in May 1982. The Committee also ap­ proved the establishment of a new 18-member Task Force on Concessional Flows to carry forward and widen the continuing study of the problems af­ fecting the volume and quality and effective use of concessional flows in the shorter and longer terms. 6. The organizations listed below were official observers to the Develop­ ment Committee during 1981-82. In addition, the Government of Switzerland was represented by an observer:

African Development Bank Arab Bank for Economic Development in Africa Arab Fund for Economic and Social Development Asian Development Bank Commission of the European Communities Commonwealth Secretariat Development Assistance Committee European Investment Bank General Agreement on Tariffs and Trade Inter-American Development Bank International Fund for Agricultural Development Islamic Development Bank OPEC Fund for International Development Organisation for Economic Cooperation and Development United Nations United Nations Development Programme United Nations Conference on Trade and Development.

284 ANNEX C

The text of the parallel IBRD and IMF Resolutions establishing the De­ velopment Committee is reproduced in Summary Proceedings, 1974 (pages 180-183) and Summary Proceedings, 1978 (pages 301-305).

ANNEX D

Agenda of Development Committee Meeting, September 27-28, 1981 1. World Development Situation and Prospects 2. Status of Lending Operations of the Multilateral Development Institutions (i) IBRD/IDA (ii) Regional Banks 3. Action Program for Sub-Saharan Africa 4. Follow-up on Outstanding Development Issues 5. Annual Report and Review of the Performance of the Develop­ ment Committee 6. Other Business (i) Study of Investment Incentives and Performance Criteria­ Recommendation of Development Committee Task Force on Private Foreign Investment (ii) Press Communique (iii) Date of Next Meeting

Agenda of Development Committee Meeting, May 13-14, 1982

1. Selection of Chairman 2. Status of Lending Operations for Multilateral Development In­ stitutions (MDIs) (i) Status of IDA (ii) IBRD Lending (iii) Additional Lending for Energy (iv) Regional Banks

3. Non-concessional Flows and Co-financing (i) Final Report of the Task Force on Non-concessional Flows (ii) IBRD/IDA Co-financing

285 4. Follow-up on Sub-Saharan African Action Program 5. Review of the Follow-up on the Brandt Commission and 0-24 Recommendations 6. Progress Report on the Composition and Terms of Reference of the Task Force on Concessional Flows 7. Other Business

286 ACCREDITED MEMBERS OF DELEGATIONS AT 1982 ANNUAL MEETINGS

Afghanistan 0 ° Juan Carlos Iarezza Governor Raul Vicente Ibarra Abdul Baqi Samandari Adalbert Krieger Vasena Jorge Osvaldo Lauria Alternate Governor Benito Jaime Lucini Rajab Ali Yagana • Domingo J. Messuti Federico Morchio Algeria ° Agustin F. Nunez Governor Alberto Juan Paronetto Boualem Benhamouda Ernesto H. Pemberton Ms. Irene Philippi Alternate Governor Hector C. Posse Mustapha Benamar • Pedro Pou Armando Ribas Advisers Jorge Sakamoto Boukrami Ali Jorge F. Scosceria Debbakh Amar Dante Simone Mourad Benachenhou Alberto Sola t Abderrezzak Ferroukhi Alejandro Soldati Oualitsen M'Hamed Juan Carlos Sorondo Cyrus Sassanpour Manuel A. Tagle Saad M. Zerhouni t Carlos Jose Tecco Mario Teijeiro Argentina 0 ° Arturo Valles Bosch Governor Eduardo A. Zalduendo Jorge Wehbe Guillermo Zoccali Federico J.L. Zorraquin Alternate Governor Pedro Camilo Lopez • Advisers Australia 0 ° Salvador Aisenstein Governor Horacio Alonso J.W. Howard Alejandro C. Antuna Hernan Ayerza Alternate Governors Julio Juan Bardi D.N. Sanders Habib Basbus C.E.T. Terrell • Juan Ramon Branchi Advisers Carlos A. Carballo N.J. Brady Federico Carles Robert G. Carling Jorge Federico Christensen Anthony S. Cole t Mauricio Christensen John R. Garran Ramiro J. J. Costa John R. Hewson Miguel Angel Cuervo Anthony M. Hinton Jose Maria Dagnino Pastore D.A. Hollway Santiago del Puerto Kevin W. Popple Antonio M. Estrany y Gendre Robert J. Whitelaw Maximo Flugelman Raul Alberto Fuentes Rosi Luis Garcia Austria 0 ° Jose Maria Gonzalez de la Fuente Governor Jorge Herrera Vegas Herbert Salcher

• TempQrary t Executive Director t Alternate Director o IFC Member o IDA Member

287 Alternate Governors Belgium 0 ° Hans Seidel Governor Hans Heller * Willy De Clercq Advisers Alternate Governor Alfred Liebich Jean Godeaux Herbert A. Lust Maria Pilz Advisers Herbert Sutter Jean-Pierre Arnoldi Franz J. Weissenboeck Luc Coene Jacques de Groote t Bahamas Marc G.H. de Pauw Governor Jan F.M. Hendrickx Arthur D. Hanna Georges Janson Josef K.E. Kortleven Alternate Governor Jacques C. Roelandts Perry Christie * Walter Van Gerven Jan Vanden Bloock Advisers Jan Vanormelingen Reno J. Brown t Pierre A. Verly Hubert Ingraham Mrs. Ruth Millar Belize 0 ° James Moultrie Governor Bahrain Said Musa Governor Alternate Governor Ibrahim Abdul Karim Edmund Marshalleck

Adviser Benin ° Anwar Jassim Lori Governor Zul-Kifu Salami Bangladesh 0 ° Alternate Governor Governor Paul Dossou A. M. A. Muhith Advisers Alternate Governors Jerome Ahouanmenou Mazifur Rahman Abou Bakar Baba-Moussa M. Syeduz-Zaman *t Houeton Nestor Advisers Bhutan° M. Nazimuddin Governor A. H. Sarkar Dawa Tsering

Barbados 0 Alternate Governor Yes hey Dorji Governor J. M. G. Adams Bolivia 0 ° Alternate Governor Governor Stephen E. Emtage Jaime Delgadillo Advisers Advisers Winston Cox Jose Arias Carl Jackson Juan Cariaga Frank McConney Edward Dirksen George Reid Armando Dupleich

• rt~KY~~&er t Executive Director t Alternate Director ~ IDA Member

288 Guillermo Gutierrez Horacio Sabino Coimbra Gonzalo Humerez Cesario Com bra Neto Jorge Lopez David P. Nogueira Dana Omar Medrano Jayr DelOit Jorge Palza Ronaldo Ferreira Dias Jorge Valdes Abilio do Santos Diniz Luiz Fernando Monteiro Faria Mailson Ferreira da Nobrega Botswana 0 0 Felismino de Figueiredo Barretto Governor Renato Francesco Fileppo Peter S. Mmusi Dilson Sampaio da Fonseca J.C.P.M. da Fonseca Alternate Governor Eloy Fontes Lessa Baledzi Gaolathe Marcio Fortes Alberto Sozin Furuguem Advisers Paulo Galvao Campos B.l. Gasennelwe Orlando Galvao, Jr. K. Kuiper Mario Garnero Moteane J. Melamu Eduardo da Silviera Gomes, Jr. D.N. Mokgethi Henrique Sergio Gregori M.J. Pugh Alcindo Carlos Guanabara Roberto Henri Guitton

BrazilD 0 Edy Luiz Kogut Milton Lamanauskas Governor Pedro Leitao da Cunha Ernane Galveas Mauricio M. Leite Barbosa, Jr. Alternate Governors Antonio Carlos Lemgruber Carlos Geraldo Langoni Dalton Estillita Lins Oswaldo Roberto Colin • Roberto de Moraes Maisonnave Octavio Gouvea de Bulhoes • Ermelino Matarazzo Alexandre Kafka • Pedro Jose da Matta Machado Jose Carlos Madeira Serrano • Adilson Sampaio Mayllart Jorge Babot Miranda Advisers J.R. Novaes de Almeida Alvaro Pinto de Aguiar, Jr. Marcio Papa Heinz Wolfgang Ahlert Affonso Celso Pastore Jose Eduardo de Andrade Vieira Mario Nascimento de Paula Xavier Tarcisio Barbosa Arantes W. Floriano Pecanha dos Santos Joao Batista Baldini Franco Jose Araujo Penna Paulo Nogueira Baptista M. Adonay S. Peralta Jorge Amorim Baptista da Silva Paulo H. Pereira Lira Luiz Barbosa Francisco Jaime Nogueira Pinheiro Filho Delauro de Oliveira Baumgratz Pedro Paulo Pinto Assumpcao Paulo Vieira Belotti Carlos Eduardo Quartim Barbosa Lino Otto Bohn Sergio Franklin Quintella Rolando Celestino Bonaccorsi Jean Paul Ricommard Herculano Borges da Fonseca Karlos Rischbieter Antonio Bornia Tarcisio Marciano da Rocha Fernao C.B. Bracher Pedro Luiz Rodrigues Carlos Baptista Braga, Jr. Joseph Safra Angelo Calmon de Sa Jose Maria Sampaio Correa Camilo Calzans de Magalhaes Jose Souza Santos Wolmen Carvalho Ary dos Santos Pinto Pedro Cipollari Luis Antonio Saude de Oliveira Solomon Cohn Antonio de Padua Seixas

t Executive Director t Alternate Director

289 Luiz Guilherme Z. Sewaybricker Canada 0 ° Oscar Bloch Sigelmann Governor Fernando Moreira da Silva Allan J. MacEachen Moacyr de Araujo Simoes Geraldo F. Siqueira Alternate Governors Norberto Stensen Bernard J. Drabble Francisco Thompson Flores Netto Pierre Bussieres • Ivo Cauduro Tonin John C. Coleman • Jonice Siqueira Tristao Marcel Masse • Berndt Lothar Ulrich Ivan Mendes de Vasconcelos Advisers Paulo d' Arrigo Vellinho Jacques Bussieres Carlos Alberto Vieira Roy Culpeper Marcio Manoel Garcia Vilela Pierre de Bane Lydiberto dos Santos Villar Earl G. Drake t Masato Yokota Alain Dudoit Tomas Zinner Douglas Fisher Ms. Laurette Gauthier Michael Gillan D.J.R. Humphreys W.J. Jenkins BurmaDO Robert K. Joyce Governor D. Blake Mackenzie Tun Tin Jean·Marc Metivier Morris Miller Alternate Governor Robert Pattillo Kyaw Myint· Ms. Dorothy Powell G.E. Shannon Advisers Howard Smith Nyung Lwin Philip Somerville Aung Pe t Cape Verde ° BurundiD ° Governor Alternate Governor Osvaldo Lopes da Silva Anselme Habonimana Alternate Governor Advisers Antonio Hilario Cruz Astere Girukwigomba Adviser Bonus Kamwenubusa Carlos Santos Silva Bernard Sunzu Central African Republic ° CameroonDO Governor Guy Darlan Governor Bello Bouba Maigari Alternate Governor Cyriaque Samba· Panza Alternate Governor Louis-Claude Nyassa Advisers Jean-Francois Boisvert Advisers Joseph Koyagbele Jean-Baptiste Djoumessi Antoine Edo Chad ° Robert Ghogomu Tapisi Paul Moyo Governor Isaac Njiemoun Togoi Kerim

t Executive Director t Alternate Director ~ Tf~~~~ber o IDA Member

290 Alternate Governor Eduardo Michelsen Cuellar M. Gnonkreo Mrs. Lola de Pastrana Javier Fernandez Adviser Jose R. Fernandez Ali Adoum Mahmat Alejandro Figueroa Jose Gutierrez-Gomez 0 Chile 0 Roberto Jaramillo Posada Governor Alvaro Jaramillo Vengoechea Rolf Luders Sch. Rodrigo Llorente Martinez Benjamin Martinez Moriones Alternate Governor Rafael Martinez V. Francisco Garces Juan Manuel Medina Barrera Alberto Mejia Hernandez Advisers Jorge Mejia Salazar L. Ruben Azocar Rodrigo Munera Zuloaga Pablo Cabrera Mrs. Ligia Nieto de Bonito Francisco Javier Comandari Garcia Guillermo Nunez Vergara Raul Ernesto Contreras Hernandez Lion Dobry Folkmann Jaime Ochoa Francisco Ochoa Palacio Alvaro Donoso Roberto Pardo-Vargas Francisco Javier Errazuriz T. Michael Phair Fernando Escobar Nicanor Restrepo Santamaria Adolfo Goldenstein Eduardo Rivera-Giraldo Prudencio Gomez G. Jimmy Rodriguez Mauricio Larrain Angel Serrano Luis Antonio Marchant S. German Tabares Cardona Maria Elena Ovalle De Vigneaux Vladimir Radic P. Comoros 0 Mario Silva Concha Governor China 0 0 Mikidache Abdou'Rahim Governor Alternate Governor Wang Bingqian Ahmed Abdou Alternate Governors People's Republic of the Congo 0 0 Chen Hui *+ Fei Lizhi * Governor Wang Liansheng *t Pierre Moussa Advisers Alternate Governor Andre Batanga Li Miao Song Guangwei Advisers Wang Baoliu Paul Andely Xi Kezheng Joseph Baroung Alphonse Ekagna Colombia 0 0 Maurice Moutsinga Abraham Ngassaki Governor Ange Edouard Poungui Edgar Gutierrez Castro

Alternate Governor Costa Rica 0 0 Hernan Beltz Peralta * Governor Advisers Federico Vargas Roberto Brigard Alternate Governor Jose Joaquin Casas Walter Coto M. • Guillermo A. Constain oTf~K1'~~ber t Executive Director t Alternate Director o IDA Member

291 Advisers EcuadorD 0 Luis Bell Governor Alfredo Cesar Aguirre Jose Antonio Correa E. Rodolfo Silva Alternate Governor CyprusDO Miguel Salazar • Governor Advisers Simos Vasiliou Miguel Babra Alternate Governor Jose-German Cardenas t H. Hadjipanayiotou Danilo Carrera Drouet Carlos Julio Emanuel Victor Ferrero DenmarkDO Gianni Garibaldi U. Governor Guillermo Jauregui Mogens Isaksen Marcel Laniado de Wind Oscar Orranti a Alternate Governors Franklin Proano P. Erik Hedegaard • Henning Kjeldgaard • EgyptD 0 Advisers Governor Torben Dithmer M. Samir Koraiem Ole L. Poulsen : Advisers J esper Kirstein Thomsen Mohamed Dakrorri Kamal Fahmy Hanna

DjiboutiD 0 Ahmed Ismail Abdel Hamid Kabodan Governor Aly Hussein Abdel Latif Ibrahim Mohamed Sultan Ahmed Maaroof Alternate Governor Salah Moharam Mohamed Hassan Abdillahi • Abdel Moneim Roushdy

El Salvador 0 0 DominicaDO Governor Jose Manuel Pacas Castro Governor Mary Eugenia Charles Alternate Governors Manuel Antonio Robles Granados Alternate Governor Filadelfo Baires Paz • Alick B. Lazare Advisers Fausto Betancourt Dominican RepublicD 0 Alfredo Benjamin Noyola Governor Rafael Rodriguez Loucel Bernardo Vega Benjamin Vides D.

Alternate Governor Equatorial Guinea 0 Victor Livio Cedeno • Governor Advisers Marcelino Nguema Onguene Manuel R. Aristy Alternate Governor Manuel Cocco Efua Efua Asangono Jose R. Gabriel-Pena Eduardo Garcia Michel Adviser Guillermo A. Rivera Wenceslao Alba-Quiroz

~ TI~K¥~~er t Executive Director t Alternate Director o IDA Member

292 Ethiopia 0 ° Mrs. Denise Mairey Governor Francois Mimin Teferra Wolde-Semait Henri Pezant Michel Planque Alternate Governor Rene-Paul Riguad Mitiku Jembere Thierry Walrafen Advisers Tadesse Abebe Gabon 0 ° Alemu Aberra Governor Lemma Argaw Pascal Nze Kebede Shoandagn Alternate Governor FijiD ° Jean-Felix Mamalepot Governor Advisers Charles Walker Jean-Louis Abiaghe-Nkoue Celestin Bayoga-Nembe Alternate Governor Jean-Claude Labouba R.R. Sharma Marius Nziengui-Moussodou Emmanuel Ondo-Methogo Finland 0 ° Alternate Governors The Gambia ° Mrs. Annikki Saarela Governor Osmo Sarmavuori • A.A.B. Njie Advisers Alternate Governor Ms. Inga-Maria Grohn M.G. Bala-Gaye Veikko Kantola Pekka Korpinen t Advisers Ingmar Strom Lawrence D'Mellow Ossi Sunell Horace Monday Ms. Taina Teravainen Housainou Njai Pekka Tukiainen Heikki Tuominen Federal Republic of Germany 0 ° Matti Vanhala Governor Rainer Offergeld FranceD ° Governor Alternate Governors Jacques Delors Horst Schulmann Gerhard Boehmer • Alternate Governors Gebhard Kerckhoff • Jean-Pierre Cot Reinhard Munzberg ·t Bruno De Maulde • t Philippe Jurgensen • Advisers Bernd BeicheIt Advisers Horst Breier Jean Audibert Johannes Esswein Philippe Bonnet Peter Feile Gerard de Margerie Werner Flandorffer Jean-Claude Faure Wolfgang Grams Jean-Luc Graeve Guenter Grosche Elisabeth Guigou Otto-Raban Heinichen Robert Hudry :j: Wolfgang Hinz Jean-Louis Imhoff Volker Klein Michel Lallemand Claus Knetschke Gabriel Lefort Ernst-Guenther Koch

• Temp()rary t Executive Director ~ Alternate Director o IFC Member o IDA Member

293 Wilfried Koschorreck Advisers Gerhard Laske Davison Budhoo Mrs. Ingrid Matthaeus-Maier Jimmy Emmanuel Gerhard Nourney Chris Linton Hans-Dietrich Pallmann Friedheim Rentrop Guatemala D ° Wolfgang Rieke Governor Thilo Sarrazin Leonardo Figueroa Villate Gerd Saupe Ursula Schaefer Alternate Govenors Hans-Josef Schavier Julio P. Matheu Duchez Guenther Schlatter Guillermo E. Matta O. * Norbert Schmidt-Gerritzen :j: Victor Vincente Secaira Estrada * Karl-Heinz Spilker Rudolf Sprung Advisers Alwin Steinke Leonel Gonzalez Erich Straetling Hugo Quinto Chew Friedrich Voss Guinea Peter P. Wrany ° Governor Kory Kondiano GhanaDO Alternate Governor Governor Siradiou Bah Kwesi Botchwey Adviser Alternate Governor Abraham Doukoure S.M.A. Adjetey Guinea-Bissau D ° Advisers Governor Miss Mary Adjorlolo Pedro A. Godinho Gomes Tsidi Tsikata Alternate Governor GreeceD ° Placido Silva Evora Governor Adviser Gerasimos Arsenis Inacio Semedo, Jr. Alternate Governor Constantine Vaitsos GuyanaD ° Advisers Governor Mrs. Julia Panourgia Clones Hugh Desmond Hoyte Nicholas Coumbis Alternate Governor Theodore B. Karatzas Clarence F. Ellis Nicholas Melissaropoulos Stratis Papaefstratiou Advisers Stathis Papageorgiou R. Gravesande B. Halder Joseph Tyndall GrenadaD ° Governor HaitiD ° Lyden Ramdhanny Governor Frantz Merceron Alternate Governor Ms. Dessima Williams Alternate Governor Edouard Racine

t Executive Director t Alternate Director • T;~~~~er ~ IDA Member

294 Advisers P.N. Soni Christian Dumoulin C.M. Vasudev Philippe Prosper

HondurasO ° Indonesia 0 ° Governor Governor Arturo Corleto Moreira Rachmat Saleh Alternate Governors Alternate Governors Juan Agurcia E. * Soegito Sastromidjojo Rigoberto Pineda * Widodo Budidarmo * Advisers Advisers Guillermo Bueso Darryl Dewantoro Victoria Diaz Miss Nani Gandabrata Maria Antonieta Dominguez Faisal Harahap Felix Martinez Dacosta H. Hutagalung Enrique Ortez C. Mrs. C. Mamuaya Paul Vinelli Widjokongko Puspoyo Syahril Sabirin Hungary Soesilo Sardadi Governor Soejono Soerjoatmodjo Miklos Pulai Srihadi Sumitro Alternate Governor Paul Sutopo Tjokronegoro Tibor Melega IranO ° Advisers Mrs. Ida Foldesi Governor Janos Horvath Hossein Nemazi Istvan I pper Alternate Governor Jeno Malatinszky Ebrahim Arabzadeh Ede Sziklai Advisers Iceland 0 ° Abdolamir Khalili Mohammad Tavakol Governor Behzad Alipour Tehrani Tomas Arnason Iraq 0 ° Alternate Governor Ragnar Arnalds Governor Thamer Rezooki Adviser Sigurgeir Jonsson Alternate Governor Subhi Frankool IndiaO° Advisers Governor A. Majid A. AI-Ani Pranab Kumar Mukherjee Sami Atto Alternate Governors Subhi J. Ibrahim R.N. Malhotra Ireland 0 0 G.K. Arora * H.N. Ray *t Governor Ray MacSharry Advisers Miss C.J. Batliwalla Alternate Governors V.B. Kadam Maurice F. Doyle Y.V. Reddy Dermot Quigley *

t Executive Director ~ Alternate Director • TFC~~~ber ~ IDA Member

295 Advisers Lambert Konan Brian Bermingham Souleymane Kone Michael Casey Diby Kroko Louis Guirandou N'Diaye Israel 0 ° Kako Ouraga Governor Jacques Ropars Moshe Y. Mandelbaum Bi Sei Sia Daouda Tanon Alternate Governor Ezra Sadan Jamaica 0 Advisers Governor Valery D. Amiel E.P.G. Seaga Saul Bronfeld Alternate Governor Dan Drach Horace Barber A vner Halevi Eitan Raff Advisers Arie Sher Headley Brown Miss Dorothy Carter ItalyD ° Miss Doris Chin Noel Eldridge Governor Neville Gallimore Carlo Azeglio Ciampi Oswald Murray Alternate Governor Miss Masie Plummer Mario Sarcinelli Leslie Wilson Advisers JapanDO Fabio Bonci Governor Aldo Carboni Michio Watanabe Ms. Fernanda Forcignano Paolo Gnes Alternate Governors Guido R. Haschke Haruo Mayekawa Lucio Izzo Toyoo Gyohten • Rainer Masera Teruo Hirao • Stefano Micossi Tomomitsu Oba • Guiliano Monterastelli Shijuro Ogata • Roberto Pepe Kimimasa Tarumizu • Giorgio Ragazzi t Kiichi Watanabe • Leonardo Romano Kenji Yamaguchi *t Fabrizio Saccomanni Augusto Zodda Advisers Masahiro Akiyama Ivory Coast 0 ° Hideo Asahina Yuichi Ezawa Governor Sugio Hatanaka Abdoulaye Kone Chikara Higashi Alternate Governor Akira Iida Leon Naka Takuo Inaba Kengo Inoue Advisers Morinobi Iritani Joachim Aka Koffi Akira Kanno Reny Amany Toshihiro Kiribuchi Rene Amichia Tekehiko Kondo Oumar Diara Daisuke Kotegawa Tiebenon Diarrassouba Kazuya Murakami Lancina Dosso Akira Nagashima

t Executive Director t Alternate Director

296 Y oshiji Nogami Eung-Soon Choi Seigo Nozaki Choon-Taik Chung Y oshio Okubo Jae-Yoon Kim Kenjiro Suzuki Sun-Kil Kim Nobuyuki Teramura Sung-Bae Kim Takuji Tsuchikane Bohn-Young Koo Toshihiro Yamakawa :I: Tai-ho Lee Tadaie Yamashita Shee-Yul Ryoo Yukio Yoshimura Myoung Ho Shin Hiroyuki Yushita B.S. Song Wi-Sup Song JordanD ° Sung-Yong Wei Chang Ki Whang Governor Dong-Kyun Yi Hanna Salim Odeh Jeung-Hyun Yoon Alternate Governor Mohammad Saleh Horani KuwaitDO

Advisers Governor Ziyad Annab Abdlatif Y. AI-Hamad Wasef Y. Azar Alternate Governor Ahmad Chalabi Faisal Abdul Razzak AI-Khaled Adnan H. EI-Hindi Ismail El-Zabri Advisers M. Said Hammami Abdulaziz AI-Bader Zuhair Khouri Fahad Rashid AI-Ibrahim Bader Abdullah AI-Rushaid KenyaD ° Sheikh Fahad Mohammed AI-Sabah Governor Sheikh Salem Abdulla AI-Ahmed AI-Sabah Arthur Kinyangui Magugu Mohamed Nassim Kochman Talal Ahmad Razooqi Alternate Governor J.G. Karuga • Lao People's Democratic Republic ° Advisers Robert K. Gathungu Alternate Governor Mwabili Kisaka Kikham Vongsay • Alex K. Komora Mrs. Helen W. Macharia LebanonDO John P. Mbogua Governor F.A. Njagi Khattar Chebli

KoreaD ° Alternate Governor Governor Raja Himadeh • Kyong-Shik Kang Advisers Alternate Governors Andre Chaib Yeung-Ki Hah Adnan Kassar Byung-Kug Choo • Assaad Sawaya Dong-Sheon Ha • Y ong-Sung Lee • LesothoD ° You-Kwang Park • Governor K.T.J. Rakhetla Advisers Hee-Won Ahn Alternate Governor Chang-Nak Choi Mrs. Mahapo Sixishe

~ TtC~~~ber t Executive Director t Alternate Director o IDA Member

297 Advisers Daniel Rakotomavo M.T. Mashologu Claude Ramaharobandro S.N. Molapo MalawiD ° LlberiaD ° Governor Governor L. Chakakala Chaziya Emanuel O. Gardiner Alternate Governor Alternate Governor C.L. Mphande John G. Bestman Advisers Advisers L.P. Anthony Emmanuel K. Akpa A.Y. Bobe Mary B. Dennis W.J. Chawawa John S. Morlu C.T. Mwalwanda David Vinton Z.T. Soko A.A. Upindi Socialist People's Libyan Arab Jamabiriya D ° MalaysiaDO Governor Governor Kassem M. Sherlala Tengku Razaleigh Hamzah Alternate Governor Alternate Governor Abdul Rahman R. Shalgham Thong Yaw Hong Advisers Advisers Nuri A. Baryun Alias Ahmad Ezeaddin Ben Soud Mohd Arshad Abdulgader A. Muttardy Aiyob Ghazali Bakri Mahmud Ali Sherlala Bhupatrai M. Premji Ali M. Souri Abdul Malek Bin Tunku Kassim Mohd. Ramli Wajib LuxembourgD ° Governor Maldives ° Ernest Muehlen Governor Fathulla Jameel Alternate Governor Raymond Kirsch Alternate Governor B. Ibrahim Saleem Advisers Dieter Hartwich MaJiD ° Yves Le Portz Christopher Lethbridge Governor Richard Ross Ahmed Mohamed Ag Hamani Jacques Silvain Alternate Governor MadagascarD ° Ibrahima Bocar Ba Governor Advisers Pascal Rakotomavo Zana Ousmane Dao Amidou Oumar Sy Alternate Governor S.D. Sylla Jean Robiarivony Mamadou Thiero Advisers Mauritania D ° Jose Andrianoelison Jocelyn Rafidinarivo Governor Andre Rajaonah-Ratsimisetra Lt. Col. Anne Amadou Babaly

t Executive Director t Alternate Director ~ Tf~~~~&er o IDA Member

298 Alternate Governor Omar Kabbaj M'Rabih Rabou Ould Cheikh Bounena Abdellatif Loudiyi Advisers Nepal 0 ° Michel Arnaudon Governor Mohamed Ould Nani Yadav Prasad Pant Mauritius 0 ° Alternate Governors Governor Karna Dhoj Adhikary Keerteecoomar Ruhee Bhekh Bahadur Thapa • Alternate Governor Adviser Madhukarlall Baguant M.P. Ghimire Advisers Netherlands 0 ° Rundheersing Bheenick Governor Jagnaden Padiaty Coopamah A.P.J.M.M. van der Stee Chitmansing Jesseramsing Khushhal C. Khushiram Alternate Governors Kadress Vencatachellum C.P. van Dijk L.M.P.M. van Vlden • Mexico 0 ° Advisers Governor Marco 1. de Castro Jesus Silva Herzog los de Vries Alternate Governors T. de Vries Jorge Espinosa de los Reyes T.M.T.M. KasteeJ Salvador Arriola Barrenechea • Anthony IJ. A. Looijen t B.J. Meins Advisers P.C. Timmerman Miguel Acevedo Garat Ferdinand van Dam Patricio Ayala Gonzalez lelle Zijlstra Jesus A. Cervantes Gonzalez Alejandro de Pedro Cordoba New Zealand 0 ° Francisco del Cueto y Donde Governor Jose Luis Flores Hernandez B.V. Galvin Pedro Galicia Estrada Ms. Rosario Green-de-Heller Alternate Governor Jose Angel Gurria Trevino G.c. Scott • Ricardo laime Penaloza Webb Rafael Resendiz Contreras Advisers Jose Rivera Banuet L.A. Beath Francisco Suarez Davila T.1. Groser H.B. Hewett Morocco 0 ° Edward G. Latter B.L. Lockstone Governor Stanley A. McLeod t Abdellatif Jouahri Alternate Governors Nicaragua 0 ° Abdelkader Benslimane Governor M'Hamed Tazi Mezalek • loaquin Cuadra Advisers Alternate Governors Omar Alaoui Edmundo larquin Hassan Belkora Nestor Avendano • Abdellatif Bennani Roberto Mayorga-Cortes .~

• Temporary t Executive Director t Alternate Director D IFe Member o IDA Member

299 Adviser Steinar Sorbotten Jaime Valdivia Knut Toraasen NigerD ° OmanDo Governor Governor Annou Mahamane Qais Munim Al-Zawawi Alternate Governors Alternate Governor Hamid Algabid Sherif Lotfy Toubo I. Ari • Advisers Abdoulaye Fadiga • Mohamed Nasser Al Khasibi Advisers Ahmed Nassir El-Rikaishy Nouhou Amadou Warren Woods Marcel Mensah Kodjo Patrice Kouame PakistanD ° Lambert Messan Governor Emmanuel Nana Ghulam Ishaq Khan Alassane D. Ouattara Alternate Governor NigeriaDO Ejaz Ahmad Naik Governor Advisers Victor I. Masi Ziauddin Ahmad Alternate Governors Jawaid Azfar Izharul Haque Alhaji Abubakar Alhaji Yusufu Musa Maiangwa • PanamaDO Advisers Governor Tsetim Akoso J. Menalco Solis R. P .E. Archibong M.A. Disu Alternate Governors C.E. Ennenwosu Juan L. Moreno • W.A. Fadare Jose Simpson Hiu • Sani Bukar Gada Flavio Velasquez • E.I. Ige Alhaji Shehu Malami Advisers R.O. Mowoe Hernando Arias Garcia Alhaji Muhammed Reinaldo A. Decerega G.O. Nwankwo Ofilio Perez-Balladeres S.C. Nwokomah Papua New GuineaD ° A.E.Ogbuehi R.Oladejo Governor M.A. Uduebo Mekere Morauta V. Garba Zarafi Alternate Governor NorwayDO Eliakim Tobolton Governor Adviser Rolf Presthus George Paru Alternate Governor ParaguayD ° Eivinn Berg Governor Advisers Cesar Romeo Acosta Bjarne S. Hansen Alternate Governor Per G. Schoyen Augusto Colman V.

• Temporary t Executive Director t Alternate Director o IFe Member o IDA Member

300 Advisers Portugal 0 Jucundino da Silva Furtado Governor Oscar Estigarribia Joao M.F. Salgueiro Magno Ferreira Falcon Ramon Ramirez Rolon Alternate Governors Julio M. Rejis Sanguina Alberto H.N. Regueira Heriberto Insfran Ruotti Mrs. Maria Alexandra Costa Gomes * Epifanio Salcedo Alberto de Oliveira Pinto • Miss Elodia Beatriz Vargas Mrs. Maria Rosa Ramos de Jesus • Peru 0 ° Fernando Ulrich * Governor Advisers Manuel Ulloa Elias Mrs. Isabel Almeida Mota Abel Machado de Oliveira Alternate Governor Carlos Saldanha do Valle Fernando Montero Luis Gois Figueira Rodrigo M. Guimaraes : Advisers Roberto Abusada Qatar Augusto Bedoya Governor Manuel Bustamante Olivares Majed M. Al-Majed Juan Casabonne Roberto Danino Zapata Adviser Henry Harman Taysir Awwad Raul T. Salazar Romania Philippines 0 ° Governor Governor Petre Gigea Cesar E.A. Virata Alternate Governor Alternate Governor Stelian Marin • Gilberto Teodoro • Advisers Advisers Horia Demian Tristan E. Beplat Constantin Duna Romeo Bernardo Liviu lonescu Honorio T. Cagampan loan Petre Mada Remedios M. Cochico Dan Pascariu Ramon V. del Rosario Emil Radu Basilio Estanislao Vladimir Soare Romeo O. Fernandez Edward S. Go RwandaDO Mrs Luisita S. Itchon Ricardo Kwek Governor Benito Legarda Jean-Damascene Hategekimana Ernest C. Leung Alternate Governor Alejandro Melchor Cleophas Mugaragu Manuel Morales Antonio H. Ozaeta Adviser Mrs. Josefina Reyes Cyprien Habimana Antonino P. Roman, Jr Antonio V. Romualdez t St. Lucia 0 ° Elrani Unas Governor Danilo Ursua John Bristol Cesar C. Zalamea Edgardo P. Zialcita Alternate Governor Rolando Zosa Ausbert D. Auvergne ~ TF~~~~ber t Executive Director t Alternate Director ° IDA Member

301 Adviser Advisers Lucius Mason Aristide Alcantara Ali Ba St. Vincent and the Grenadines 0 Pierre Babacar Kama Governor Amadou Deme Milton Cato Pierre Denis Alioune Diagne Alternate Governor Idy Adama Diaw Karl John • Abdoulaye Mar Dieye M. Saliou Diodj Faye Sao T orne and Principe 0 Aziz Diop Governor Demba Diop Henrique Pinto da Costa Serigne Lamine Diop Cheickh Hamidou Kane Alternate Governor Ousmane Noel Mbaye Isaias Rosario Trinidade • Moussa Ngom Ibrahima Famara Sagna Saudi Arabia D 0 Amathe Samb Governor Mamadou M. Tall Sheikh Mohammad Abalkhail A.B. Taylor Idrissa Thiam Alternate Governors EI Hadji Oumar Toure Sheikh Hamad AI·Sayari Moussa Toure Usamah J. Faquih • Amadou Sada Wane Yusuf A. Nimatallah • Advisers SeychellesD Ahmed Abdel Atti Governor S.W.Y. Al Wayel Jean Desire Maxime Ferrari Mohammed AI-Daries Abdul Aziz Mohammed AI-Dukheil Alternate Governor Ahmed S. AI-Ghamdi Robert W.J. Grandcourt Ayeidh AI-Giead Mohammed AI-Hakami

Humoud AI-Humoud Sierra LeoneD 0 Sheikh Hassan AI-Mashari Sheikh Soliman AI-Olayan Governor Abdullah AI-Omran Salia Jusu-Sheriff Mohammed AI-Saddi Alternate Governor Abdulaziz AI-Siddiqi V.A.W. Nylander Sheikh Abdul A. AI-Abdullah AI-Sulaiman Abdul-Raouf Banaga Advisers Sheikh Mohammed Salim Bin Mahfouz Tamba P. Alpha-Kpetewama Samir EI-Khouri J.K.E. Cole Saleh H. Humaidan D.S. Kamara Bahjat Khalil E. Pearce Abdulrahman M. Sehaibani :t: C.J. Smith Ibrahim Shams Jobarah E. Suraisry SingaporeD SenegalD 0 Alternate Governors Governor Tan Chok Kian • Mamoudou Toure Toh Peng Kiat • Alternate Governor Adviser Matar Seye Francis Yeo Teng Yang

t Executive Director t Alternate Director ~ Ti~~~~&er o IDA Member

302 Solomon Islands 0 ° Sri LankaO ° Governor Governor Bartholomew Ulufa' Alu Ronnie de Mel Alternate Governor Alternate Governors Felix P. Panjuboe W.M. Tilakaratna Ernest Corea • Somalia 0 ° Rodney Vandergert • Governor Advisers Abdullahi Ahmed Addou I. Coomaraswamy Alternate Governor A. C. Randeni Mohamud Mohamed Nur SudanO ° Advisers Governor Mohamed Haji Ali Ibrahim Moneim Mansour Said Ahmed Yusuf Alternate Governor South Africa 0 ° Abdul Rahman Abdul Wahab Governor Advisers G.P.C. de Kock Fath El Rahman Bin Idris Alternate Governor Francis Madeng Deng C.L. Stals Orner Salih Eissa Mamoun O. Medani Advisers Abdel Rahman A. Osman J.J. Becker Sayed Ali Zaki Deon T. Brand Frederic G. Browne Suriname A.B. Dickman Governor W.1. Engelbrecht Henry R. Neijhorst P.J. Liebenberg R.W.K. Parsons Alternate Governor Jan A.J. Pickard Sub has Mungra • C.J. Roets Johan C. Senekal Advisers Chris J. Van Wyk Albert J. Brahim Henry Ferrier SpainO 0 Governor Swaziland 0 0 Jose Ramon Alvarez Rendueles Governor R.J. Strydom Alternate Governor Francisco Javier de la Riva Garriga Alternate Governor V.E. Sikhondze Advisers Luis Ruiz Arbeloa Adviser Jose Arguelles-Salaverria James Church German Calvillo Urubayen Jose Luis Feito SwedenO 0 Joaquin Muns t Governor Juan Nigorra Sten Westerberg Ramiro Nunez Alberto Pico Maeso Alternate Governors Antonio Sanchez-Pedreno Carl Tham Fernando Varela Parache Per Jodahl • Manuel Velasco Lopez Bertil Lund •

t Executive Director t Alternate Director ~ T:[!1~~~6er o IDA Member 303 Advisers Mrs. Subimol Ramakomud Kaj Bjork Charn Sophonpanich Ms. Ulla-Britt Croner Sathien Tejapaibul Kurt Arne Hall Pakorn Thavisin Lars Kalderen Vitthaya Vejjajiva Karin Sylvan Prachitr Yossundara Per Taxell TogoDO Syrian Arab Republic DO Governor Governor Koudjolou Dogo Hamdi Sakka Alternate Governor Alternate Governor Komlanvi Klousseh • Mouaffac Tarabichi Advisers Advisers K.A. Apaloo Mohammed Imady Michel Del Buono Izzat Trabulsi Komlan L. Tossou

Trinidad and TobagoD 0 TanzaniaD 0 Governor Governor C. Anthony Jacelon Kighoma A. Malima Alternate Governor Alternate Governor Frank Barsotti F.M. Kazaura Advisers Advisers Clarry Benn A.A. Abbas Lionel Campbell F. Byabato Charles De Silva N.S. Chalamila T. Ainsworth Harewood M. T. Kibwana Jerry A. Hospedales Simon M. Mbilinyi Miss Joan John B. Mkapa Ravi Permanand R.N. Mlolwa A.M. Muhery TunisiaD 0 M.B. Ngatungwa Governor Miss Grace C. Rubambey Moncef Zaafrane

ThaiiandD 0 Alternate Governors Governor Mohamed Ali Souissi Sommai Hoontrakool Zine Mestiri • Alternate Governors Advisers Suwan Pasugswad • Sadok Bahroun Snoh Unakul • Sadok Bouraoui Habib Bourguiba, Jr. Advisers Mohamed Brigui Yos Euarchukiati Moktar Fakhfakh Tamchai Kambhato Mohamed Fantar Sukri Kaocharern Mohamed Ghenima Choedchai Khannabha Habib Hadj Said Kriang Kiatfuangfoo EI Beji Hamda Ekamol Kiriwat Siaheddine Ben M'Barek Mrs. Benjawan Kladjarern Chekib Nouira Thananchai Na Ranong Rafik Said Apiway Nandhabiwat Tawfik Torgeman

t Executive Director t Alternate Director • r{~~~~&er ~ IDA Member

304 TurkeyD 0 Alternate Governors Governor John Anson ·t Sermet Refik Pasin Sir Kenneth Couzens • Sir William Ryrie • Alternate Governor Derek F. Smith .~ Tevfik Altinok Advisers Advisers J. Bremridge Gunduz Aktan K.G.W. Frost Tuncay Altan M.A. Hall Tunc Bilget J.O. Kerr Yavuz Canevi L.D.D. Price Avni Hedili

Turan Kivanc ~ United StatesD 0 Aydemir Koc Mrs. Gulnur Ucok Governor Zekeriya Yildirim Donald T. Regan Alternate Governors UgandaD 0 James B. Burnham ·t Governor James W. Conrow • H.M.B. Makmot Charles H. Dallara • Richard D. Erb • Alternate Governor Jon Hartzell • Robert E. Ekinu George R. Hoguet .~ Advisers Marc E. Leland • T.B. Byatike R.T. McNamar • Lars Ekengren M. Peter McPherson • R. Kaijuka Ronald E. Myers • A. Mawanda Beryl W. Sprinkel • I. Mulindwa Henry C. Wallich • David Mulira Advisers J.Okune Robert B. Anderson Stephen H. Axilrod United Arab EmiratesD 0 Norman Bailey Governor Joseph W. Barr Sheikh Hamdan bin Rashid AI Maktoum Robert Bench Michael Bradfield Alternate Governor Gregory Carman Ahmed Hamaid AI-Tayer C .T. Conover Advisers Elinor Constable Hussein AI Midfa James K. Coyne Nasser AI-Nowais Sam Y. Cross Ahmed Lutfi Ali Thomas C. Dawson Saeed Ghobash William H. Draper, III Mohammed Khalfan Kherbash David W. Evans Abd AlIa Usama Malki W. Antoinette Ford Abdullah Mazrui Henry H. Fowler Abdulla Mohammed Saleh Margaret L. Greene Robert Hormats

United KingdomD 0 David M. Kennedy Frank Kimball Governor John J. Lafalce Gordon Richardson Thomas Leddy

t Executive Director t Alternate Director ~ TF~~~~ber o IDA Member

305 Ann Dore McLaughlin VenezuelaD Constantine Michalopoulos Governor Henry Nau Maritza Izaguirre Porras Jerry M. Patterson William Poole Alternate Governor Paul H. Robinson, Jr. Miguel Sposito William E. Simon John W. Snyder Advisers Anthony M. Solomon Ms. Margarita Alegrett J. William Stanton Alfredo Belloso Bruce E. Thompson Alfredo Caraballo Thomas Timlen Polo Casanova Edwin M. Truman Oscar de Guruceaga W. Allen Wallis Jose Manuel Egui Peter J. Wallison Francisco Garcia Palacios Marcos Gutierrez Hector Hurtado Upper VoltaC 0 Ricardo Martinez Governor Gustavo Marturet A. Mamadou Sanfo Eugenio Mendoza Alain Morales Alternate Governor Luisa Morales Moussa Francois Zoungrana Juan Tomas Santana Miguel A. Senior Adviser Aquiles Viloria Doulaye Corentin Ky

Viet NamD 0 UruguayD Governor Nguyen Duy Gia Governor Juan Jose Anichini Alternate Governor Cao Dac Cuong • Alternate Governor Kenneth Coates Western SamoaD 0 Advisers Governor Manfredo Cikato Kolone Va'ai Cesar Civetta Alternate Governor Roberto Couce Pule Lameko • Carlos Maria Di Giovanni Juan Olascoaga Advisers Pablo Perez Marexiano Robert T. Newton Luis Pigurina S.A. Pandit Francisco M. Ravecca Arana Peter Tapsell Mario San Cristobal Yemen Arab RepublicD 0 Pedro Sanchez Varela Gonzalo J. Soto Platero Governor Francisco A. Tourreilles Fuad Kaid Mohamad Alternate Governor VanuatuD 0 Omar Salim Bazara • Governor Advisers Kalpokor Kalsakau Mohamed Al Khadem Al Wageeh Alternate Governor Amin AI-Shaibani John A. Howard Mohammed El-Eryani Yahya Kabe

~ lt~~~;:;ber t Executive Director t Alternate Director o IDA Member

306 People's Democratic Republic of Yemen° Zambia 0 ° Governor Governor Farag Bin Ghanem Kebby S.K. Musokotwane Alternate Governor Alternate Governors Hassan Hubaishi * F.S. Kazunga Wila Mung'Omba * Yugoslavia 0 ° Advisers Governor C.L.M. Chirwa J oze Florjancic Tekali Gedamu Alternate Governors F.C. Kaunda Gavra Popovic Sianga Malumo Krsto Bulajic * B.N. Mibenge Miodrag Stojiljkovic *+ D.C. Mulaisho Thomas G. Murray Advisers Babacar N'Diaye Mrs. Milica Borlja Seyni N'Diaye Miodrag Draganovic W.P. Rao Bosko Gligoric M.G. Sakala Mrs. Gordana Hofmann F.M. Walusiku Mihajlo Nikolic Michael Ward Djordje Stojkovic

Zaire 0 °

Governor ZimbabweO° Namwisi Ma Koyi Governor Alternate Governor B. Walters Kazumba Luaula * Alternate Governor Advisers K.J. Moyana Babala Mwel S.L Buana Ba Bidounga Advisers Bondjale Impemba L.G. Chitapi Kasongo Mutuale John B. Cooke Kinzonzi Mvutukidi A.T. Copeland Kumbu Di Ndembe F. Kachana Pongo Mavulu Xavier Kadhani Muninda Muansa C.T. Kuruneri Tshiunza Mbiye G.M. Maswiswi

t Executive Director t Alternate Director ~ TfE~~~&er ° IDA Member

307 OBSERVER AT 1982 ANNUAL MEETINGS

Switzerland Hans Ith Daniel Kaeser Fritz Leutwiler Hans Meyer Eric Roethlisberger Werner Steiner Bernard Stofer Peter Vogler Jean Zwahlen

308 REPRESENTATIVES OF INTERNATIONAL INSTITUTIONS

United Nations International Fund for Agricultural Development Adly Abdel-Meguid Abdelmuhsin AI-Sudeary G. Arthur Brown Philip Birnbaum Iqbal Haji Enrique V. Iglesias Alfonso Inostroza Taher H. Kanaan Krishan Kapur Roger Lawrence Cristian Ossa Jean Ripert Pierre Vinde

309 EXECUTIVE DIRECTORS, ALTERNATES AND ADVISORS September 9, 1982

Alternate Advisors to Executive Directors Executive Directors Executive Directors Y.S.M. Abdulai William Smith James Nxumalo (Nigeria) (Liberia) (Swaziland) Mrs. Elene Makonnen (Ethiopia) John Anson Derek F. Smith (U nited Kingdom) (United Kingdom) David Blanco Alberto Sola Fernando Escobar (Bolivia) (Argentina) (Chile) James B. Burnham George R. Hoguet (United States) (United States) Jacques de Groote Turan Kivanc (Belgium) (Turkey) Bruno de Maulde Robert Hudry Jean-Louis Imhoff (France) (France) (France) Earl G. Drake Reno J. Brown W. Brian Hunter (Canada) (Bahamas) (Canada) Said E. El-Naggar Abdulrahman M. Sehaibani Ezzedin M. Shamsedin (Eqypt) (Saudi Arabia) (Lebanon) Arshad Farooq (Pakistan) Ismail Khelil Saad M. Zerhouni K.S. Adusei-Poku (Tunisia) (Algeria) (Ghana) Pekka Korpinen Ole L. Poulsen Ms. Ulla-Britt Croner (Finland) (Denmark) (Sweden) Anthony IJ. A. Looijen Miodrag Stojiljkovic (Netherlands) (Yugoslavia) Stanley A. McLeod Anthony S. Cole Myoung Ho Shin (New Zealand) (Australia) (Korea) Joaquin Muns Roberto Mayorga-Cortes Ms. Margarita Alegrett (Spain) (Nicaragua) (Venezuela) Reinhard Miinzberg Norbert Schmidt-Gerritzen Klaus P. Meyer-Haake (Germany) (Germany) (Germany) Giorgio Ragazzi Rodrigo M. Guimaraes (Italy) (Portugal) H.N. Ray M. Syeduz-Zaman Y.V. Reddy (India) (Bangladesh) (India) Armand Razafindrabe Nicephore D. Soglo Ali Mohamoud Kalfan (Madagascar) (Benin) (Somalia) Antonio V. Romualdez Jose-German Cardenas Guillermo A. Rivera (Philippines) (Ecuador) (Dominican Republic) Wang Liansheng Chen Hui Xi Kezheng (China) (China) (China) Kenji Yamaguchi Toshiro Yamakawa (Japan) (Japan) Zain Azraai Aung Pe (Malaysia) (Burma)

3lO OFFICERS OF THE BOARD OF GOVERNORS AND JOINT PROCEDURES COMMITTEE FOR 1982-83

OFFICERS

Chairman ...... Spain Vice Chairmen ...... Bangladesh Paraguay

JOINT PROCEDURES COMMITTEE

Chairman ...... Spain Vice Chairmen ...... Bangladesh Paraguay Reporting Member ...... France Members ...... Argentina Bangladesh Belgium Benin China Costa Rica France Germany Haiti Japan Malaysia Niger Pakistan Paraguay Saudi Arabia Spain Tunisia Uganda United Arab Emirates United Kingdom United States Yugoslavia

311 REFERENCE LIST OF PRINCIPAL TOPICS DISCUSSEDI

International Economic Relations International Economic Cooperation, Independence, Trade, Protectionism ...... 6, 32, 37, 40, 43, 46, 51, 61, 64, 68, 70, 73, 77, 81, 83, 97, lO2, 1lO, 115, 119, 121, 123, 126, 133, 134, 142, 147, 152, 158, 161, 163, 170, 173, 174, 177, 180, 183, 187, 198, 204, 207,2lO Development Assistance, Concessional and Non-Concessional Flows, Need for Multilateral Institutions ...... 6, 32, 46, 51, 57, 60, 61, 72, 73, 77, 83, 90, 97, 102, 110, 119, 123, 126, 130, 134, 142, 147, 163, 169, 170, 174, 177, 180, 183, 187,204, 2lO Role of the Public and Private Sectors ... 83, 142, 198 Multilateral Investment Insurance Scheme ...... 121, 130, 134, 158, 180, 187, 198 Development Committee ...... 51, 81, 134 Role of the World Bank Group Role of the Bank ...... 6, 64, 72, 73, 77, 83, 94, 1lO, 115, 121, 130, 133, 134, 151, 158, 161, 163, 173, 187, 198, 207,208,2lO IFC ...... 43, 134, 180, 198, 2lO IDA IDA-6 and IDA-7 ...... 6, 40, 43, 46, 51, 57, 61, 64, 68, 70, 73,77,81,83,97, lO2, 1lO, 115, 119, 121, 126, 130, 134, 142, 147, 158, 161, 163, 169, 173, 174, 177, 183, 187, 198, 2lO

I This list relates 10 the Addresses and Statements of Governors. It excludes discussions of individual countries, tributes to the host country. and personal tributes. References are to pages.

312 Bank Policies, Operations and Resources Additional Bank Resources; Additional Capital Increase ...... 40, 43, 61, 64, 68, 70, 73, 77, 81, 100, 102, 110, 119, 121, 123, 130, 134, 142, 169, 198 The General Capital Increase (GCI) ..... 57, 77, 97, 134, 163, 187 Selective Capital Increases ...... 134, 177 Borrowing and Lending Policies; Front-end Fee ...... 6, 37, 40, 43, 46, 57, 61, 70, 110, 115, 119, 121, 130, 134, 158, 163, 177, 180, 183, 187 Lending Level; Size of Lending Program ...... 43, 46, 57, 70, 83, 115, 134, 142, 158, 173, 177, 180, 183, 210 Co-financing ...... 40, 43,46,57,70,77,83, 102, 110, 119, 121, 126, 130, 134, 142, 158, 163, 174, 180, 183, 187,210 Graduation ...... 51, 134 Conditionality ...... 73, 83, 134 Lending Program Priorities ...... 46, 73, 97, 100, 102, 115, 119, 123, 130, 134, 142, 152, 174, 180, 187, 198 Expanded Energy Lending ...... 46,83, 134, 142, 163, 177, 187 Structural Adjustment; Program Lending ...... 51, 115, 134, 163, 177 Technical Assistance; Non-financial Assistance ...... 100, 142, 163 Other Regional and Country Concerns; Small Island Economies ...... 32,51,64, 134, 158, 161,204, 207, 208 Bank Staffing ...... 46 Board Representation ...... 90, 134 Robert S. McNamara Fellowships ...... 177,210 World Development Report ...... 130

313 WORLD BANK / IFC / IDA

Headquarters 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. Telephone: (202) 477-1234

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