Summary Proceedings

of the Forty-Fifth Annual Meeting of the Board of Governors September 25-27, 1990

International Monetary Fund Washington, D.C.

©International Monetary Fund. Not for Redistribution International Standard Serial Number ISSN 0074-7025

©International Monetary Fund. Not for Redistribution CONTENTS

Page Introductory Note ix Address by the President of the United States, George Bush 1 Opening Address by the Chairman of the Boards of Governors, the Governor of the Fund and the Bank for Kenya, George Saitoti . 5 Presentation of the Forty-Fifth Annual Report by the Chairman of the Executive Board and Managing Director of the International Monetary Fund, M. Camdessus 12 Discussion of Fund Policy at Second Joint Session Report by the Chairman of the Interim Committee of the Board of Governors on the International Monetary System, Michael H. Wilson 22 Statements by the Governors for Italy—Guido Carli* 25 Italy—Guido Carli 29 Indonesia—J. B. Sumarlin 33 France—Pierre Bérégovoy 38 Japan—Ryutaro Hashimoto 40 Côte d'lvoire—Kablan D. Duncan* 46 China—WANG Bingqian 52 Philippines—Jesus P. Estanislao 56 Kuwait—Sheikh Ali Al-Khalifa Al-Sabah 58 Austria—Ferdinand Lacina 61 Israel—Michael Bruno 63 Greece—Efthimios Christodoulou 67 Discussion of Fund Policy at Third Joint Session Report by the Chairman of the Joint Ministerial Committee of the Boards of Governors on the Transfer of Real Resources to Developing Countries (Development Committee) B.T.G. Chidzero 73 Statements by the Governors for Islamic Republic of Iran—Mohsen Nourbakhsh 76 Federal Republic of Germany—Karl Otto Poehl 79 United Kingdom—John Major 83 India—Madhu Dandavate 87 *Speaking on behalf of a group of countries.

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Page Brazil—Zelia Maria Cardoso de Mello* 91 United States—Nicholas F. Brady 96 Somalia—Abdirahman Jama Barre* 99 Czech and Slovak Federal Republic—Vaclav Klaus 102 Thailand—Virabongsa Ramangkura 106 Australia—Simon Crean 109 Turkey—Günes Taner 112 Ireland—Albert Reynolds 115 Spain—Carlos Solchaga 119 Netherlands—W. Kok 123 Canada—Monique Landry 127 Discussion of Fund Policy at Fourth Joint Session Statements by the Governors for South Africa—B.J. du Plessis 131 Honduras—Benjamin Villanueva 133 Belgium—Philippe Maystadt 139 Sri Lanka—D.B. Wijetunga 143 Dominica—Mary Eugenia Charles* 147 Korea—Yung-Euy Chung 152 Pakistan—Sartaj Aziz 155 Denmark—Niels Helveg Petersen* 158 Bangladesh—Mohammad Abdul Munim 160 Portugal—Luis Miguel Couceiro Pizarro Belaza 163 Nepal—Devendra Raj Panday 165 Bulgaria—/. Dragnevski 169 Afghanistan—Mohammad Hakim 171 Discussion of Fund Policy at Fifth Joint Session Statements by the Governors for Chile—Alejandro Foxley Rioseco 175 Peru—Juan Carlos Hurtado Miller 179 Poland—Leszek Balcerowicz 187 Iraq—Abdul Moneim Othman 190 Viet Nam—Cao Si Kiem 192 Romania—Theodor Dumitru Stolojan 194 Western Samoa—Tofilau Eti Alesana 196 El Salvador—Mirna Lievano de Marques 198 Fiji—J.N. Kamikamica 201 Lao People's Democratic Republic—Sisavath Sisane 204 Malaysia—Daim Zainuddin 207

*Speaking on behalf of a group of countries.

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Page Malta—George Bonello du Puis 210 Namibia—Otto Herrigel 215 New Zealand—Richard Prebble 216 Papua New Guinea—Morea Vele 220 Paraguay—Carlos Alberto Knapps 224 Tonga—James Cecil Cocker 227 Yugoslavia—Branimir Zekan 228 Concluding Remarks Statements by The Governor of the Bank for Ecuador, Jorge Gallardo Zavala 232 The Chairman of the Executive Board and Managing Director of the International Monetary Fund, M. Camdessus 233 The Chairman of the Boards of Governors, the Governor of the Fund and the Bank for Kenya, George Saitoti 235

DOCUMENTS AND RESOLUTIONS OF THE BOARD OF GOVERNORS Schedule of Meetings 241 Provisions Relating to the Conduct of the Meetings 242 Agenda 243 Reports of the Joint Procedures Committee 244 Report I 244 Report III 245 Report IV 246 Annex I Regulations for the Conduct of the 1990 Regular Election of Executive Directors 248 Annex II 255 Attachment. Rules and Regulations Amended Since the 1989 Annual Meeting 256 Report VI 257 Annex 258 Attachment. 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 259 Annex A. Members of the Committee 269 Annex B. Agendas and Press Communiques of Meetings Held in September 1989 and May 1990 272

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Page Resolutions 44-5 Increases in Quotas of Members—Ninth General Review 280 45-1 Increases in Quotas of Members—Ninth General Review 281 45-2 Increases in Quotas of Members—Ninth General Review 282 45-3 Proposed Third Amendment of the Articles of Agreement 286 Attachment to Resolution No. 45-3. Proposed Third Amendment of the Articles of Agreement of the International Monetary Fund 287 45-4 Direct Remuneration of Executive Directors and Their Alternates 290 45-5 Benefits of Executive Directors and Their Alternates 290 45-6 Membership for the Czech and Slovak Federal Republic 291 45-7 1990 Regular Election of Executive Directors 294 45-8 Membership for the People's Republic of Bulgaria ... 294 45-9 Membership for the Republic of Namibia 297 45-10 Forthcoming Annual Meetings 299 45-11 Financial Statements, Report on Audit, and Administrative Budget 299 45-12 Amendments of the Rules and Regulations 300 Interim Committee of the Board of Governors on the International Monetary System Press Communique (September 24, 1990) 301 Composition (as of September 23-24, 1990) 304 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) Press Communique (September 24, 1990) 306 Composition (as of September 24, 1990) 312 Press Announcement (September 27, 1990) 314 Attendance 315 Executive Directors, Alternates, and Advisors 338 List of Abbreviations Used 339

©International Monetary Fund. Not for Redistribution STATEMENTS BY GOVERNORS Listed in Alphabetical Order by Country

Page Afghanistan—Mohammad Hakim 111 Australia—Simon Crean 109 Austria—Ferdinand Lacina 61 Bangladesh—Mohammad Abdul Munim 160 Belgium—Philippe Maystadt 139 Brazil—Zelia Maria Cardoso de Mello 91 Bulgaria—/. Dragnevski 169 Canada—Monique Landry 127 Chile—Alejandro Foxley Rioseco 175 China—WANG Bingqian 52 Côte d'lvoire—Kablan D. Duncan 46 Czech and Slovak Federal Republic—Vaclav Klaus 102 Denmark—Niels Helveg Petersen 158 Dominica—Mary Eugenia Charles 147 El Salvador—Mirna Lievano de Marques 198 Fiji — J. N. Kamikamica 201 France — Pierre Beregovoy 38 Germany, Federal Republic of — Karl Otto Poehl 79 Greece — Efthimios Christodoulou 67 Honduras — Benjamin Villanueva 133 India — Madhu Dandavate 87 Indonesia — J.B. Sumarlin 33 Iran, Islamic Republic of — Mohsen Nourbakhsh 76 Iraq — Abdul Moneim Othman 190 Ireland — Albert Reynolds 115 Israel — Michael Bruno 63 Italy — Guido Carli 29 Japan — Ryutaro Hashimoto 40 Korea — Yung-Euy Chung 152 Kuwait— Sheikh Alt Al-Khalifa Al-Sabah 58 Lao People's Democratic Republic — Sisaveth Sisane 204 Malaysia — Daim Zainuddin 207 Malta — George Bonello du Puis 210 Namibia — Otto Herrigel 215 Nepal — Devendra Raj Panday 165 Netherlands— W. Kok 123 New Zealand — Richard Prebble 216 Pakistan — Sartaj Aziz 155

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Page Papua New Guinea — Morea Vele 220 Paraguay — Carlos Alberto Knapps 224 Peru — Juan Carlos Hurtado Miller 179 Philippines — Jesus P. Estanislao 56 Poland — Leszek Balcerowicz 187 Portugal — Luis Miguel Couceiro Pizarro Belaza 163 Romania — Theodor Dumitru Stolojan 194 Somalia — Abdirahman Jama Barre 99 South Africa — B.J. du Plessis 131 Spain — Carlos Solchaga 119 Sri Lanka — D. B. Wijetunga 143 Thailand — Virabongsa Ramangkura 106 Tonga — James Cecil Cocker 227 Turkey — Gunes Taner 112 United Kingdom — John Major 83 United States — Nicholas F. Brady 96 Viet Nam — Cao Si Kiem 192 Western Samoa — Tofilau Eti Alesana 196 Yugoslavia — Branimir Zekan 228

©International Monetary Fund. Not for Redistribution INTRODUCTORY NOTE

The Forty-Fifth Annual Meeting of the Board of Governors of the International Monetary Fund was held in Washington, D.C., from Septem- ber 25 through September 27, 1990, jointly with the Annual Meetings of the Boards of Governors of the World Bank Group. The Honorable George Saitoti, Governor of the Fund and the Bank for Kenya, served as Chairman. These Summary Proceedings include statements, or portions of statements, relating to the work of the Fund presented by Governors during the Meetings, resolutions adopted by the Board of Governors of the Fund over the past year, reports, recommendations, or communiques issued by the Committees of the Board of Governors at the time of the Meetings, and other documents relating to the Meetings. Statements, or portions thereof, relating to the work of the World Bank Group are omitted from these Summary Proceedings; the insertion of dots (...) within statements indicates where passages have been omitted. Statements not reproduced in these Summary Proceedings may be found in the Summary Proceedings of the Annual Meetings of the World Bank Group, issued separately by the Bank. Statements by the Governors are listed in alphabetical order by country on pages vii and viii, and a list of abbreviations used in the statements and documents is given on page 339.

LEO VAN HOUTVEN Secretary International Monetary Fund

Washington, D.C. November 30, 1990

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©International Monetary Fund. Not for Redistribution ADDRESS BY THE PRESIDENT OF THE UNITED STATES1

George Bush

It really is a pleasure to be back with you this year, to welcome you all to Washington for this important work. And it is a particular pleasure today to welcome the new members from Bulgaria, the Czech and Slovak Federal Republic, and Namibia, and, of course, the special invitees from the Soviet Union. Your presence here reminds us all of how events of the past year are producing a new partnership of nations—a fundamental, indeed inspiring, change in the world's political and economic order. The movement toward democratic rule, already strong throughout the 1980s, accelerated during what I call the Revolution of 1989. The rights of the individual have been reaffirmed, with greater adherence to the rule of law. The freedom to choose political leaders—and even political systems—has triumphed in countries that only a year ago were ruled by single-party regimes. And hand-in-hand, new economic freedom has begun to emerge as well. Today, leaders around the world are turning to market forces to meet the needs of their people. Of course, change has not come easily. But as I said last year, at this same meeting: "The jury is no longer out. History has decided." And today, the results of global experiment are unmistakable. Today, the consensus is this: Governments by themselves cannot deliver prosperity. Rather, the key to economic growth is setting individuals free—free to take risks, free to make choices, free to use their initiative and abilities in the marketplace. We are seeing this, for example, in the restoration of private ownership in countries where the state once controlled every aspect of economic life. And for efficient production, private ownership is still the most powerful incentive known to man. Matched by the rejuvenation of markets, the ability to make individual economic choices is the fastest, most effective way to achieve and sustain broad-based economic growth. And that is why leaders everywhere are undertaking difficult economic reforms, building stronger, more versatile private sectors, improving efficiency, and making governmental decision making more rational. That process takes time. Economic adjustment is often difficult. And in recent months, a new challenge has arisen that could hinder this process of change: Iraq's illegal and unprovoked aggression against the sovereign nation of Kuwait.

1 Delivered at the Second Joint Session, September 25, 1990. 1

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Clearly, the greatest harm is to Kuwait and its people. And when the Saudi border was opened, Kuwait's newest refugees brought fresh tales of the cruelty and horror inflicted on the Kuwaiti people and foreign nationals by the occupying forces of Saddam Hussein. And today, other countries already facing painful economic and political transformations must now deal with added hardships. Serious challenges have emerged for countries rocked by unpredictable tides in the flow of oil, trade, displaced workers, and refugees. This staggering burden, which is pressing upon these most seriously affected countries, calls for a generous response from the world community. Toward that end, we have already begun to mobilize financial resources for the front-line states and to ensure responsible sharing among creditors. The initial response to that effort has been impressive. Now, in order to transform commitments into concrete contributions, I am pleased to announce the formation of a Gulf Crisis Financial Coordination Group, under the chairman- ship of Treasury Secretary Brady, with the aim of achieving effective, timely, and sustained financial support to these most seriously affected countries. But let us not forget, an even larger group of countries represented here will suffer from higher oil prices and other economic dislocations. While world attention has rightly focused on those countries closest to the situation and bearing the heaviest economic burden, I can tell you that the rest of the world is certainly not forgotten, and never will be. This gathering of world financial leaders gives us an opportunity to discuss how we can work together to address the special financial burden of this crisis and do so in a way that will sustain the dramatic, worldwide transition to free markets. The IMF and World Bank—given their central role in the world econ- omy—are key to helping all of us through this situation by providing a combination of policy advice and financial assistance. The political leadership of the United Nations must be matched by the economic leadership of the IMF and the World Bank. Secretary Brady will be making some specific suggestions in his remarks for possible means of utilizing current IMF and World Bank programs more effectively. But let me say it again: We are determined not to allow the brutal behavior of one aggressor to undermine the historic process of democratic change or to derail the movement toward market-oriented economic systems. Let me continue, more broadly, with a vision of the role of the United States and of a world economy we can all share. First, we believe that the United States should contribute to economic stability and growth. And perhaps the greatest contribution the United States can make to the health of the international economy is to get our own house in order. Our budget deficit must be brought under control and reduced. Second, the United States is strongly committed to promoting development and growth in the newly emerging democracies of Latin America, Central

©International Monetary Fund. Not for Redistribution ADDRESS BY PRESIDENT OF THE UNITED STATES 3 and Eastern Europe, Africa, and Asia. We are working in all four regions to ease debt burdens under the Brady Plan. In this hemisphere, where debt- overhang impedes progress, we announced the Enterprise for the Americas Initiative to promote economic growth by expanding trade and investment, to reduce debt owed to the U.S. Government, and to provide funds for needed local environmental projects. In Eastern Europe, where massive restructuring is needed, we are working with other nations to provide billions of dollars in assistance to the newly emerging democracies. And in Africa, where underdevelopment hangs on so stubbornly, many of the lowest-income countries have already benefited from reductions in debt owed to the United States. Third, the United States is committed to the central role of the IMF and World Bank in helping bring about economic reforms. Reform efforts can only be successful if countries carry through on their responsibilities. And that means regulatory reform and privatization, sound macroeconomic and structural policies, and open borders for trade and investment. This is why your work here in Washington this week is so important. For more than forty years, the Fund and the Bank have been quietly enlisting the talents and the energies of the developed and developing world in a global struggle against poverty. And today, in a world where ideology no longer confronts, and big-power blocs no longer divide, the Bank and the Fund have become paradigms of international cooperation. Indeed, we especially appreciate your efforts in carrying out a study of the Soviet economy that is unprecedented in its scope. This study will produce recommendations for economic, financial, and structural reform. As the coming week unfolds, part of your task will also be to plan for the future of your two great institutions. And I pledge the continued support of the United States for an IMF and World Bank that so clearly advance our common struggle to improve the quality of life for all people everywhere. For this reason, we strongly support the IMF quota increase and the strengthening of the IMF arrears policy. And we would also like to challenge both institutions to intensify their focus on building dynamic private sectors in member countries—one of the most important stimulants for energizing these new market economies. And we would also ask the World Bank to place a high priority on three other issues vital to sound and sustained growth. First is protecting the environment. As I said here last year: Environmental destruction knows no borders. Second, eradicating poverty must continue to be a central mission of the Bank. And third, we strongly support greater efforts to integrate women into the developmental process. Finally, as we plan for the future, we must work together for success in another important international economic institution—the GATT. As we meet today, less than seventy days remain in the four-year Uruguay Round of global trade talks. Lasting reform is essential for developed and

©International Monetary Fund. Not for Redistribution 4 SUMMARY PROCEEDINGS, 1990 developing countries alike. It is the key to a successful Round which establishes new rules and opportunities for all countries. These negotiations are one of the world's greatest economic opportunities of the decade. But much remains to be done. The Round is not just a trade issue, it is a growth issue. And it's not just an exercise for bureaucrats in Geneva. The trade talks are the "last train leaving the station," and countries throughout the world must jump aboard. It can be the engine of economic growth that carries us into the twenty-first century. The Round promises to remove barriers in four crucial areas, areas untouched in previous rounds: services, investment, intellectual property, and agriculture. As a matter of fact, agricultural reform remains a major stumbling block. Indeed, it threatens to bring down the rest of the Round. We must let farmers compete with farmers, instead of farmers competing with the deep pockets of government treasuries. We need a successful resolution of the agricultural issues if we are to have an agreement. If countries around the globe do not muster the political courage to face these tough issues in the time remaining, we will forfeit new markets for our businesses, impose higher prices on our consumers, and forgo new jobs and higher incomes for workers in all countries. Worst of all, we will endanger a vital, proven framework of international cooperation. A collapse of the Round will inevitably encourage increased protectionist pressure and political instability. That is something we can ill afford as we forge a new partnership of nations against aggression in the Persian Gulf. I urge you to work actively within your governments to ensure success. And I urge my counterparts around the world, as we did at the Houston economic summit, to instruct your negotiators to bring all the components of the Uruguay Round to a successful conclusion by December. In all these efforts, there is much at stake. Almost thirty-five years ago President Eisenhower first appeared at an IMF-World Bank meeting. He spoke of the lessons he learned while waging a war that brought together so many different soldiers from so many different lands. Ike noted, as I do now, that there were people in the audience who were our allies in that grand effort. He said: We early found one thing: Without the heart, without the enthusiasm for the cause in which we were working, no cooperation was possible. With that enthusiasm—subordinating all else to the advancement of the cause—cooperation was easy. As the unity of the United Nations has demonstrated in the past two months, the worldwide enthusiasm for today's noble "cause"—the cause I've described as a "new partnership of nations"—is not only unprecedented, but truly remarkable. And I urge you to seize that enthusiasm in your meetings this week, to forge the new levels of cooperation needed to succeed.

©International Monetary Fund. Not for Redistribution OPENING ADDRESS BY THE CHAIRMAN OF THE BOARDS OF GOVERNORS, THE GOVERNOR OF THE FUND AND THE BANK FOR KENYA1

George Saitoti

It is a great honor for me to welcome you to these Forty-Fifth Annual Meetings of the International Monetary Fund and the World Bank Group. All of us present here join together in extending a warm welcome to our newest member, the Czech and Slovak Federal Republic. We also extend a hearty welcome to the delegates from Bulgaria and Namibia, both of which we expect will become members of our institutions during these Annual Meetings. I am also happy to note that Mongolia and Switzerland are currently in the membership process, and that we have with us special invitees from the U.S.S.R.

World Economic Outlook The past year has been marked by extraordinary political and economic events, all of which have significant implications for the world economy. Three of these developments stand out as particularly important at this juncture. First, one year ago the Berlin Wall stood tall, a symbol of intense world divisions. Today we meet on the eve of the reunification of Germany. I am sure that all of you will join me in warmly welcoming the German unification and the restructuring and move toward liberalization of countries in Eastern Europe. These countries are already beginning to attract significant amounts of capital, which we hope will not take place at the expense of developing nations, and this points to what may be a central theme of these meetings, namely, the growing imbalance between the demand for and the availability of capital. We welcome the increase in investment in Eastern Europe and hope that it does not take place at the expense of the developing nations. Second, we are also happy to note the continued and rapid progress toward a united Europe, a development that could have important economic and political implications, particularly for the access to world markets of developing countries. We are indeed living in times when it can be claimed that history is being made. Third, I must, however, strike a more somber note on account of the recent developments in the Middle East, and of their adverse impact on the world economy. Economic growth will likely slow down in 1990, after seven years of global expansion, even though the prospects for specific regions differ

1 Delivered at the Opening Joint Session, September 25, 1990. 5

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widely. As a whole, the industrial countries, which were expecting a moderate growth and a slight decrease in inflation in 1990/91, will experience an economic slowdown while inflation and interest rates may rise. Within this group, Japan and the Federal Republic of Germany are still expected to post significant gains, but relatively slow growth is projected in North America, the United Kingdom, and a number of smaller industrial countries. The scenario for oil importing developing countries is even less encouraging. As a result of the increase in oil prices, growth is expected to slow down and inflation may remain very high in 1990. They will experience a fall in income as a result of the deterioration in their terms of trade; their exports are expected to decline as a result of reduced demand in industrial countries; and the increase in world interest rates will raise debt burdens. Within the group of developing countries, Asia as a whole is projected to enjoy continued rapid growth rates, but for those in Europe and the Western Hemisphere, the need to tackle large imbalances will likely result in almost stagnant output in the short term, except perhaps in the major oil exporting countries. Many of the Middle Eastern countries will suffer from the loss of export markets and a sharp drop in workers' remittances. The worst-affected region will be Africa. Lower exports, increased costs of oil imports, and higher debt-service payments are a vicious combination. Most countries will need substantial net inflows of additional resources, combined with the strong implementation of growth-oriented adjustment programs to overcome the crisis and improve living standards for their peoples. Let us hope that these gloomy predictions will not materialize and that the new spirit of international cooperation that has been established will soon restore peace and order in the region and normalcy in the oil market. Meanwhile, I am happy to note that the multilateral financial organizations are engaged in imaginative efforts to support those countries that are worst affected by this crisis. In a brief review of the world economy, the urgent and continuing problem of poverty in a number of countries has to be mentioned. The World Bank has once again sharply focused on this issue in this year's World Development Report. Poverty remains a daunting problem in a large part of the world. It is "shameful," to quote the World Bank, that "more than one billion people in the world are living in poverty." The eradication of poverty has to be an important theme for our deliberations this week.

An Action Agenda

How can we work together to face the challenges ahead, to consolidate the gains of the recent past, and to spread these gains more evenly? This is a demanding goal. I will single out four areas on which to focus our attention: First, there is a need to coordinate more effectively economic policies

©International Monetary Fund. Not for Redistribution ADDRESS BY CHAIRMAN OF BOARDS OF GOVERNORS 7 among the large industrial nations in order to avoid a global recession. The mechanisms for policy coordination have improved considerably during the past decade, and the political willingness to adjust national economic policies to the demand of the world community is increasing. Right now, the economic outlook is particularly cloudy. The recessionary tendencies in some countries are now added to the uncertainties flowing from the crisis in the Persian Gulf. Governments around the world will have to exercise considerable international statesmanship to steer successfully through the uncertain seas that lie ahead. Second, the need to improve international cooperation through a freer international trade system remains high on the agenda. The benefits to be derived from freer international trade in goods and services are well known. Time is now rapidly running out for the completion of the Uruguay Round of trade liberalization under the auspices of GATT. I urge all participants in the Round to work toward its prompt and successful completion and to move forward and boldly dismantle the multitude of special agreements, such as those for agricultural products and textiles. These restrict the trading opportunities for developing countries. The inequality of nations at the bargaining table can, so easily, give rise to a perpetuation of poverty. Third, the problems of poverty remain acute in large parts of the world. The solutions are complex, politically and economically. Actions to reduce poverty must largely start at home, but the active financial support of the international agencies and industrial countries is also required. Specific and imaginative actions, such as buy-back or exchanging debt for environmental action or forgiving debt, as certain creditors have generously already done, are needed to alleviate the debt problem, which in many countries has aggravated poverty. At the same time, poor countries need to design their policies more deliberately to reduce the incidence of poverty and to enhance the potential for more widespread employment opportunities for income generation. I am happy to note that the design of adjustment programs is now beginning to take into account their social aspects, especially the impact of these programs on the vulnerable sections of the population. Further progress along these lines is called for. Fourth, we are all now beginning to grasp the complex problems of protecting the environment from exploitation, but we are far from any solution. This is a global problem, but it is more acute and somewhat intractable in the developing world. Nevertheless, we know that it is imperative to preserve the environment, so that our children can inherit a better world. For us in Kenya, President Moi has been in the forefront and actively involved in various international forums to help focus world attention on these issues. The awareness of these problems is therefore growing in Kenya, and we are spending increased resources to protect and reserve our environment, often with technical and financial assistance from a number of friendly nations. However, I would like to point out that poor countries often

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find it hard to bear the costs of these measures and I urge increased resources to tackle these fundamental issues. The four issues that I have raised embrace some of the more urgent problems facing the world today. I would urge you to focus attention on these problems, all of which are of a global character, requiring international cooperation among governments and within international institutions such as the Fund and the Bank.

Developments in Sub-Saharan Africa

Let me now turn for a moment to the economic situation in sub-Saharan Africa. The region is currently experiencing a modest recovery, after years of stagnation; yet it is fragile at about 3 percent a year, barely the population growth rate and nowhere near what is needed to raise meaningfully per capita incomes. And this modest recovery may well be jeopardized by the increase in oil prices. Africa's predicament is characterized by weak agricultural growth, declining industrial output, poor export performance, climbing debt burdens, and deteriorating social indicators. Although many of the problems of the region have been externally generated, we, as Africans, recognize that the primary responsibility for our development rests with our people and their leaders. We cannot afford to borrow foreign ideologies and models for our own development. We know that if Africa is to avert hunger and provide productive employment to its growing labor force, our economies must grow at a much faster rate, the initial source of which must come from agriculture. We also need a sustained growth in our exports, more savings, increased investment, and indeed enough foreign exchange to pay for the essential imports. Two thirds of the countries in sub-Saharan Africa have embarked upon the difficult, trying, and risky process of structural adjustment aiming to achieve a much faster rate of growth of their economies. They have demonstrated their willingness and capacity to undertake demanding reform programs that have, at times, threatened the already fragile fabric of their societies. In a number of countries the last three or four years have seen a dramatic and welcome change in the pattern of incentives in their economies, appropriate exchange rate, trade and other macroeconomic policies geared to economic stability, and improved production and productivity. All these measures require domestic commitment and consensus. Above all, to be successful, adjustment measures, and in fact more rapid economic growth, in Africa are critically dependent on adequate financial and technical assistance from the international financial institutions and the international donor community. This is vital in order to ensure a net inflow of real resources to the region, a requirement more acute now than ever before. The external resource requirements for those countries that adopt and implement sound economic policies in sub-Saharan Africa will only be met

©International Monetary Fund. Not for Redistribution ADDRESS BY CHAIRMAN OF BOARDS OF GOVERNORS 9 if the donor community increases gross official development assistance by at least 4 percent annually in real terms. Concessional debt relief mechanisms are necessary so that debt-service payments are not worse than in recent years. Looking ahead, I would like to single out three issues that I believe are essential for the future of sub-Saharan Africa. The first is the need to build capacity, human and institutional. This requires a substantial increase in investment in Africa's human resources, so that the great potential that lies therein can be realized. Indeed, it may be the main key to raising the productivity in many countries. Emphasis must be placed on improving the quality of basic education. We should prepare our children for a more rigorous and demanding postsecondary educational regime which will equip them with the skills necessary for a broader participation in the economy. A second crucial need is to increase the participation of women in economic activity. Programs and policies that focus on increasing women's productivity in agriculture and promoting income-generating opportunities for them must be given very high priority. They should be encouraged and assisted to learn skills that enable them to engage more effectively in commercial enterprises. To benefit from these, they must have easier access to credit. Third, African nations need to encourage more private investment and venture capital from abroad. The economic adjustment measures have already started sending the right signals to the investors, at least in my own country, Kenya. However, we need to continue our efforts to put our economies in shape so as to encourage capital repatriation and become more attractive to international business. We must also recognize that, in the longer run, the flow of financial resources into Africa will increasingly have to be commercial.

Developments in Kenya Allow me as a practitioner to dwell for a brief moment on Kenya's recent experience. There is indeed some merit in sharing our experience with my fellow Governors from the region. Beginning in 1985 we put together a set of policies and strategies to deal with our growing employment needs and to strengthen the growth processes in the country. We have the full support of our people for the implementation of these policies. Today, I am indeed proud to say that Kenya's real GDP growth rate averaged over 5 percent between 1985 and 1989. Kenya is in fact one of the very few African nations where per capita incomes rose steadily in real terms in the second half of the 1980s. We also managed to reduce inflation from a peak of over 22 percent in 1982 to about 10 percent in 1989. No doubt, the unique political stability we have is a critical factor that has contributed to economic stability and growth. The trade policy reforms of 1988 along with the decontrol of prices for a number of commodities and reduction of tariffs have helped our manfacturing

©International Monetary Fund. Not for Redistribution 10 SUMMARY PROCEEDINGS, 1990 sector by reversing the decline in investment witnessed in the early 1980s and spurring gross fixed capital formation. Furthermore, Kenya's agriculture has provided for food security while growing by over 4 percent in real terms between 1985 and 1989, mainly as a result of provision of market incentives. On the population front, we are beginning to witness the fruits of decades of development and education. Demographic transition is already in place in Kenya, long regarded as having the world's highest population growth rate. Recent data indicate that that rate has declined by about 15 percent in the last five years. Reforms are also under way in the financial sector and in capital markets to deepen the financial base and encourage domestic savings. We have also taken several steps to promote exports in the medium and the long term and are putting together an outward-looking, export-oriented strategy that is essential to achieving an even faster rate of growth of the economy and improved welfare for the majority. Let me draw some important lessons from our experience. First is the need to build a national consensus for reform and widespread political commitment. Here we have been fortunate to enjoy the full backing of our President, H.E. Daniel Arap Moi, who has given consistent and clear backing to the reform process. Second, the reform process must be formulated by those who will be affected by it. There is a price for reform. There are indeed losers in the process and the social aspects of adjustment must be very carefully evaluated right from the beginning. Third, reform processes should be gradually implemented, giving the right signals to the public and the private sectors and avoiding sudden changes in policy. Fourth, countries need able professionals and technical specialists and supportive institutions to design, implement, and evaluate reform strategies and programs. Finally, and most important, a critical factor for success in adjustment measures is the inflow of substantial resources to the economy. Unless such resources are forthcoming, particularly of the right quality and with adequate flexibility, reform programs run the risk of reversal within a short period of time. This is particularly important for countries implementing trade reform while facing simultaneously a significant drop in earnings from traditional exports.

Role of the Fund and the Bank

I do not wish to elaborate on the roles of the Fund and the Bank in facing the emerging challenges in the world economy. I leave this task to the Managing Director and the President. Let me, however, state that the two institutions must now demonstrate increased flexibility and be responsive in their search for answers to the issues to which I have alluded. The Bank has just had a greatly needed capital increase. The $15.5 billion replenishment of IDA's resources is welcome and

©International Monetary Fund. Not for Redistribution ADDRESS BY CHAIRMAN OF BOARDS OF GOVERNORS 11 the donor countries' contributions—particularly the special contributions made by several donors—are greatly appreciated. A similar increase is also being sought by IFC, and I urge members to agree promptly to such an increase. Finally, it is essential for member countries to move speedily toward the ratification of the just agreed 50 percent increase in Fund quotas. This, as you know, will also require acceptance of the proposed Third Amendment to the Articles of Agreement. Some of us have had our reservations and these have been duly recorded, but the time has come to demonstrate statesmanship. The Fund requires the quota increase to deal with the emerging crisis.

Conclusion We are meeting at a time of tensions and new difficulties. Global events are rushing ahead at a dramatic pace. But a new sense of international cooperation is being established. We are meeting at a time indeed when world history is being made. If the outlook for the 1990s is to be promising and if we are to build on this new spirit of international cooperation, action by both industrial and developing countries is required. The developing countries must show their commitment to growth by implementing strong programs adapted to their own particular circumstances. Industrial countries must both ensure their own growth and create a favorable international economic environment for such progress in the developing world. We have much to discuss in the few days that we are here. I am confident about these meetings, and I hope that all of you do share this confidence. Let us work together to build a better world.

©International Monetary Fund. Not for Redistribution PRESENTATION OF THE FORTY-FIFTH ANNUAL REPORT1

BY THE CHAIRMAN OF THE EXECUTIVE BOARD AND MANAGING DIRECTOR OF THE INTERNATIONAL MONETARY FUND

M. Camdessus

I welcome you to our Annual Meetings, and in particular I would like to extend a warm welcome back to Czechoslovakia, which played an important role in the early years of the Fund. I welcome also the delegations of Bulgaria and Namibia, which will become members during these Meetings, and the delegations of Mongolia and Switzerland which have applied for membership. Welcome, also, to our special invitees from the Soviet Union. The prospects for the world are cloudy, at the end of this summer, but let us pause a moment and join the celebration of the people of Namibia, who have reached the end of their long road to independence; express our whole- hearted readiness to support the Eastern European countries in their efforts to reform and participate more actively in the world economy; and congratulate our German friends for creating the vision of a peaceful and unified Germany, by the momentous step they will take on October 3rd. The extraordinary developments in Europe, the recent spread of democracy in every continent, and the progress by many countries in their economic strategies, had led us to look forward confidently to the future. But the crisis in the Middle East has reminded us all that peace is fragile and that economies are always vulnerable. So let us address three questions this morning: How to face the crisis? What policies are needed to keep the world economy on a trend of sustainable growth? How to improve the trade and monetary system?

I. The Fund must be prepared for the unexpected, and give confidence to its members that it is ready to help meet the financing needs associated with their efforts to adjust to new circumstances. The impact of the Middle East crisis will be adverse for most of the Fund's

1 September 25, 1990. 12

©International Monetary Fund. Not for Redistribution ADDRESS BY MANAGING DIRECTOR 13 membership. They will experience both lower growth and higher inflation this year and next, than would otherwise be the case. Provided the situation does not deteriorate further, our best estimate is that it will remain manageable for all of the industrial countries and most of the developing countries. While we should not overreact to the crisis, we have to recognize that a number of countries are especially harmed by the crisis. They deserve special attention. They include some of the least developed countries, several developing countries that are heavily dependent on oil imports, and the countries of Eastern Europe that are at a particularly vulnerable stage as they embark on major systemic reforms and will be affected simultaneously by the shift to world prices for intra-CMEA trade. These groups of countries are expected to feel a severe adverse impact, compounding seriously their existing difficulties and reinforcing their need for strong policies. They cannot cope with the additional burden on their own. This is a time when the international community of nations, in a spirit of solidarity, should come together to extend and coordinate its assistance. The Bretton Woods institutions will do their share. For the Fund, I do not propose the creation of any new oil facility. The Fund has the adaptability needed to cope with a situation of this sort, with its existing facilities. Our resources are, at present, adequate to enable us to look after the expected needs of the bulk of our members; they will remain so for some time when the agreed quota increase comes into effect. Nevertheless, some strengthening of existing instruments could enhance the speed and flexibility of the Fund's response and make more effective its assistance to the membership. I am particularly concerned about a limited number of countries for whom the regular credit facilities of the Fund are too costly. Common sense suggests that we should be prudent about extending such financing to countries that might experience difficulties in servicing such new debt. I am satisfied that the Interim Committee has invited the Executive Board to develop expeditiously the modalities of "adaptations of its existing instruments." And they have asked us "to take account of the requirements of current circum- stances in tailoring members' access to Fund resources, including ways to address the problems of certain members in servicing such debt." I share the Committee's hope that all members that are in a position to do so will collaborate in these efforts. For these hopes to be translated into action, we will need financial contributions from each of these members, and urgently. It is with some hesitation that I once again request their contributions, especially since they are subject to other demands. But how could we do otherwise? The IMF has been created to help avoid situations in which members are obliged to restrict drastically their imports or, to quote the Articles of Agreement, to resort to measures "destructive of national or international prosperity." In the absence of such financing, what else could these countries do? Therefore I am confident that the Governors of countries that are able to contribute will bear in mind the high leverage of their

©International Monetary Fund. Not for Redistribution 14 SUMMARY PROCEEDINGS, 1990 contributions, both in promoting good policies and in catalyzing financing from other sources.

Our collective response to the present crisis will produce only short-lived benefits, however, unless it is accompanied by an unflinching resolve by members, particularly the major industrial countries, to maintain sound economic policies. This is the essential precondition for restoration of a healthy global environment. The industrial countries face this heightened challenge at a sensitive time— when concerns are being expressed in some of them about both a possible recession and an upsurge of inflation. In the immediate future, their objective must be to resist inflation and to improve the prospects for sustained noninflationary growth. The developments of recent weeks give increased importance and urgency, not less, to the implementation of a strategy to contain inflation and raise national and global saving and investment. In these circumstances, a relaxation of monetary policy would yield neither an enduring reduction in interest rates nor a lasting improvement in employment. Instead, the market's concerns should be allayed by providing clear and credible signals that the authorities are determined to reduce inflation. Market confidence in the authorities' medium-term strategy can help the recovery. This is the surest way to improve the prospects for growth. This being said, the increased demand for resources associated with unification in Germany and reform in Eastern Europe, together with the pressing needs of the indebted countries, underscores the importance of increasing world saving. Serious consideration should be given to the removal of distortions that discourage private saving. However, the most effective way to boost national saving would be fiscal consolidation, particularly in those countries where fiscal deficits remain high, such as the United States, Canada, Italy, and several of the smaller industrial countries. A particular urgency attaches to the decisions to be taken in the U.S. budget summit in the next few days that should make credible and lasting reductions in the fiscal deficit and strengthen the budgetary process. A reduction in the absorption of saving by governments of industrial countries would tend to lower interest rates, thereby encouraging private investment and helping to reduce the debt-service burden of developing countries. This must be a key component of a medium-term strategy to reduce and reverse the net transfer of resources from the developing to the industrial world.

II. I am struck by the similarity of economic strategies followed by the more successful developing and industrial countries. The following main elements are commonly found:

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• Policies are pursued steadfastly within a medium-term framework and with the focus on producing sustainable growth, low inflation, and a viable balance of payments. The government seeks to create and maintain a sound economic and legal framework that is conducive to growth. • Financial policies maintain firm discipline at both the macroeconomic and microeconomic levels. In particular, fiscal policy aims at controlling expenditure effectively, at raising revenues in ways that minimize distortions, and at avoiding troublesome fiscal deficits. Monetary policy strives consis- tently to bear down on inflationary pressures. • Governments attempt to control expenditures effectively, and to allocate resources in accordance with society's priorities. Increased attention is given to the quality of expenditure. By this I mean that more value is given to expenditures on health and education, for example, that help develop that most precious of resources, human capital. More scrupulous care is given to protection of the most vulnerable members of society, through provision of adequate safety nets. Preservation of the environment is increasingly recog- nized as essential to the future of our planet and all who live on it. And the citizens of many countries are becoming more critical of expenditures that are clearly wasteful or counterproductive. • Structural policies are designed to enhance the productive capacity and efficiency of economies. Here the range and diversity of measures is very wide, reflecting the special circumstances of each country. But we see recurrent themes: reform and simplification of tax and subsidy systems to create an incentive structure that encourages work, saving, and productive investment; a removal of excessive regulation, and a reduction of bureaucratic red tape; in many cases, privatization of state enterprises and removal of the government from direct participation in commercial activities that can be more efficiently performed by the private sector; and a greater exposure of the economy to international trade and competition. • Governments of many countries have been pursuing reforms of the financial sector, to raise saving, improve intermediation, and allow a higher level of investment. Deregulation of the financial sector can produce major benefits, but it can also pose serious dangers. It should not be implemented in ways that allow unsound practices to flourish. Therefore deregulation should be accompanied by active supervision to enforce proper standards of behavior, transparency of transactions, disclosure requirements, and adequate prudential standards of capital adequacy. Taken together, these elements amount to a substantial change in the role of government to give more scope to market forces. In some cases it results in a reduced role of government, but in all of them the emphasis is on better government.

©International Monetary Fund. Not for Redistribution 16 SUMMARY PROCEEDINGS, 1990

Let me comment now on policies in three groups of countries that at present face challenges of historical magnitude—those undertaking systemic reforms, the heavily indebted, and the least developed. First are the countries in Eastern and Central Europe and elsewhere that are introducing systemic reforms. These countries are still at the early stages of transforming their societies. Their reforms hold out the promise of a better life for their peoples. Yet they are fraught with dangers and difficulties, not least because their starting point is a weak one and the required adjustment is considerable. Their task is daunting. Success is by no means certain. They will need financial help and technical assistance in the transitional period. And, in particular, it is now more important than ever for the international community to open its markets to imports of the goods from those countries that show a comparative advantage in producing them. And the efforts by these countries to raise their domestic savings must be accompanied by an adequate inflow of foreign capital. The initial results of the programs being implemented in Eastern Europe are encouraging. They testify to the wisdom of a comprehensive and bold approach in transforming an economic system. Comprehensive, in the sense that reforms have to be broad based to put in place all the main interconnected elements of a market system. And bold, because governments have to break new ground, while avoiding two traps—a half-hearted gradualism or the excesses of simplistic shock therapies. These countries are not making either of these mistakes. Nor are they aiming to return to a crude old-fashioned system of laissez-faire. Rather they wish to create a system for themselves that works, by implementing their reforms in a pragmatic way, and in directions consistent with the model, which many other countries are reaching toward, of a limited and better role for government. The Soviet Union is not a member of the Bretton Woods institutions. Yet we are all watching with interest, and sympathy, the efforts of the Soviet Union to move toward a market-oriented and more efficient economy. As you know, the heads of state or government of the Group of Seven major industrial countries have requested a detailed study of the Soviet Union's economy to make recommendations for its reform and to establish the criteria under which Western economic assistance could effectively support these reforms. The IMF has been asked to convene this work, which is being undertaken with the World Bank, the OECD, and the designated president of the European Bank for Reconstruction and Development, in collaboration with the EC. We hope that this work will contribute constructively to a sustained economic dialogue between the Soviet Union and its partners. Second are the heavily indebted developing countries. The collaborative debt strategy is producing favorable results for those countries that were quick to introduce strong programs and have persevered in implementing them

©International Monetary Fund. Not for Redistribution ADDRESS BY MANAGING DIRECTOR 17 firmly. But the overall record has been mixed. A number of countries were slow to accept the necessity of reforms. Others were half-hearted in implementing their programs. Opportunities were lost. But I am happy to note that more and more countries have recently introduced major programs, and are tackling their problems decisively, with our assistance. I am optimistic that we will be able to report more successes in the coming year. The strengthened debt strategy has the potential to make debt a manageable problem, and no longer an obstacle to growth. But it will require considerable leadership from each of the partners who share responsibility for the strategy. Each of them faces tough challenges: • Tough challenges for debtor governments. In the face of increased difficulties, they have to implement strong and comprehensive growth- oriented structural adjustment programs. Such programs should lead to a strengthening of confidence, a return of flight capital, a reduction in interest rates, and in so doing contribute to their eventual success. This is the sort of virtuous circle that can be started by a careful design and implementation of programs that will attract support, at home and abroad. It is time now to build on the potential for sustained and vigorous growth over the medium term that is made possible by these strong programs—and with it the restoration of a credible capacity for debtors to make regular payments on a debt that has been renegotiated in a realistic way. • Tough challenges also for the banks. Their interests have become more divergent with the passing of time. While the development of a wide menu of options is helping to make the debt strategy workable, it increases the complexity of the negotiating process. This is not, however, a valid reason for long delays, which can lead to derailment of a program and loss of an opportunity to resume normal business relations. These delays are not in the best interests of any of the parties. It is time for debtors and banks to find new ways to negotiate, expeditiously, debt agreements that are mutually acceptable and realistic, that underpin adjustment, and that restore creditworthiness. Official creditors have continued, within the framework of the Paris Club, to develop techniques for assisting in the debt strategy, including a variety of steps to help ease the burden of external debt on low-income and lower middle-income debtors. I welcome very much the various proposals that have been advanced, including the most recent ones by France, the Netherlands, and the United Kingdom to address better the problem of official bilateral debt. I am confident that these ideas will be considered carefully and will contribute to solutions that are durable and that support adjustment and growth in the debtor countries. Third are the least developed countries. We need to create a supportive environment for growth in all developing countries. Sustainable growth for all members is the central objective of the Fund's activities and conditionality. This applies particularly to the poorest countries.

©International Monetary Fund. Not for Redistribution 18 SUMMARY PROCEEDINGS, 1990

In promoting growth in the low-income developing countries, the IMF's main financial instruments are our concessional facilities, the SAP and the ESAF. A particular virtue of the SAP and ESAF arrangements is that they involve especially close collaboration with the World Bank. It is most encouraging that 26 countries are now implementing such programs. Many of them are doing so in the face of severe difficulties, with rising interest rates and deteriorating terms of trade. Despite this, they are achieving positive real growth per capita, thus reversing the tragic downward trend over the previous two decades. But their progress remains uneven and insecure. One cannot make up for many years of negative growth in only a few years. Their per capita income growth is fragile, and still insufficient. Even relatively minor external shocks, or a relaxation of their efforts, could easily threaten their modest gains. More must be done to put these countries solidly on the path of sustained vigorous growth and reduction of poverty. The IMF's latest medium-term scenarios for these countries show clearly that sustained strong growth will require a bolder effort by these countries. This should be matched by a proportionate increase in support by the international community. Forgiveness or alleviation of part of their public debt, in conjunction with internationally supported and monitored programs, would be desirable. A demonstration of international solidarity is especially needed for a small but important subgroup of countries that are trying to normalize relations with the Fund and other international institutions. Some of them will be taking advantage of the "rights" approach, which the Interim Committee endorsed last spring, to secure support for those countries that are in a particularly distressed situation, and which have accumulated financial arrears to the Fund. I trust that the necessary support will be forthcoming for these countries.

III. One common feature that these three groups of countries share with the rest of the members is that they would benefit greatly from a strong and open international trading and monetary system. I do not need to remind Governors that the international trade and monetary system evolved during the 1980s in ways that have worked to the advantage of the world community. The system has permitted a healthy expansion of world trade and has underpinned the long phase of economic expansion. It has shown itself to be resilient, by weathering several storms, including the debt crisis, the problem of exchange rates between major currencies which led to the Plaza Agreement of 1985; the stock market crises of 1987, which had no lasting adverse effects thanks partly to a speedy policy response; and most recently the Middle East crisis, to which the system is responding quickly, and we hope effectively.

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But each of these shocks has demonstrated the vulnerability of the international system and the value to all of a quick and cooperative approach in responding to threats. In view of the Fund's role in this process, you will not be surprised if I suggest some additional ways to reinforce the system. The first is in foreign trade. The last decade witnessed a resumption of rapid growth in world trade. This contributed substantially to sustained economic growth in the industrial and many developing countries. Yet trade remains distorted by restrictive practices in many countries. Pressures to restrict market access remain strong. This is harmful to all countries. Restrictions work to the disadvantage of those who impose them: vested interests are protected and perpetuated, consumers pay higher prices for a smaller choice of goods and services, and the efficiency of their economies is eroded by continued rigidities. And, of course, restrictions harm the countries against whom they are aimed, because they are prevented from producing according to their comparative advantage. The resilience of the world economy, and the success of countries' market- oriented reforms, hinges on a liberal and open trading system. The international trading system is now at an important crossroad. Its future is tied to the outcome of the Uruguay Round of multilateral trade negotiations. It is the most ambitious Round in recent history, and rightly so. Trading rules need to be clear, predictable, and nondiscriminatory. They need to support the worldwide move to allow market signals to allocate resources. And they must cover all major sectors of economic activity that in the past have largely escaped the multilateral framework. The Uruguay Round seeks to devise trading rules and disciplines that will take the GATT into the twenty-first century. A successful conclusion of the Round would have far-reaching favorable consequences. It would significantly enhance the efficiency of agriculture production. It would improve market access. And it would improve existing multilateral disciplines and extend them to important new areas, such as services, intellectual property rights, and trade-related investment measures and make trade in textiles and clothing subject to normal GATT disciplines. This would unlock new trading opportunities, to the benefit of all countries. It is therefore of concern that much remains to be resolved in the negotiations, in a very short time. Member governments have it in their power to make the necessary political commitment and provide their negotiators with the guidance needed to complete the Uruguay Round successfully by the end of this year. It is of high importance that they do so. Second, the international monetary system has been improved. We have established, over time, a more effective set of arrangements for policy consultation and coordination between countries. This is most noticeable in the improved collaboration among the main industrial countries, including the policy coordination within the Group of Seven, to which the Fund contributes: this is a complement to, not a substitute for, the Fund's broader

©International Monetary Fund. Not for Redistribution 20 SUMMARY PROCEEDINGS, 1990 surveillance role. If one reviews the evolution of the policy consultation process, including the Plaza Agreement of 1985 and the Louvre Accord of 1987, one can see it as a series of pragmatic steps toward more meaningful and effective collaboration on such issues as exchange rates, interest rates, adjustment of external imbalances, and the structural policies of the major industrial countries. The world is moving gradually toward an international monetary system that will be different and hopefully better: • It will be reinforced by the move toward monetary unification in Europe; • It will be more truly universal, thanks to the expected progress of the Eastern European countries and the Soviet Union toward convertibility of their currencies. The IMF will, of course, assist this important transition, in accordance with our basic mandate. • It will be a system that gives sufficient emphasis to the correction of excessive exchange rate volatility, by careful monitoring. And, by making better use of the techniques of surveillance and policy coordination, it will help to establish a "low inflation club" among the major industrial countries. This movement toward a monetary system with a growing area of stability should help to sustain world growth. • It could be further strengthened by a more careful monitoring of the creation and distribution of international liquidity and of international capital flows2 and a more effective coordination of policies to allow the world to benefit more fully from greater freedom of capital movements. This outline of some of the emerging features of the international monetary system of the 1990s also suggests an agenda for the future work of the Fund itself. The role of the Fund, as the central institution of the system, must be to ensure that the efforts of the member countries are mutually compatible and complementary. The Fund must maintain a constant vigil so as to be able to respond to possibly disruptive movements. It must promote a cooperative response to the major problems of any members, or to unexpected global shocks. These functions are as essential today as when the Fund was established. Governors, when you approved the quota increase for the Fund, you demonstrated again the importance you attach to the Fund as the guardian of the stability of the international monetary system. The timing of each of the last three quota increases has been fortuitous. Each of them was soon followed by an unexpected challenge to the global system which gave rise to exceptional demands on the Fund's resources. To help us face the present challenge, it is important that all Governors do all that is needed to expedite the legislative and other processes in their own countries, so that the quota increase and the associated Third Amendment of the Articles will come into effect as soon as

21 am most grateful to former Governor Godeaux for agreeing to chair a high-level task force to investigate the problems of the measurement of international capital flows.

©International Monetary Fund. Not for Redistribution ADDRESS BY MANAGING DIRECTOR 21 possible, and preferably before next spring, when our provision of assistance to countries affected by the present crisis will probably be reaching its peak.

Mr. Chairman, I would like to close on a personal note. One year ago, just after addressing the Governors, I had a visit from a friend—a friend of mine and indeed of all of us, Alfred Herrhausen. He wanted to share his enthusiasm for, and his vision of, a new Europe in the making. He was putting his heart and soul into it. He was acutely conscious of the need for action. I was impressed by what he told me, and I immediately wrote, in this notebook, a few of his words. Let me share these with you: "never refrain from telling the world what you think we need to hear." And then, as he was about to leave he added, "Let us continue working as good trustees of the Universal Good." Let us remain faithful to the friendship of this great man and to his message.

©International Monetary Fund. Not for Redistribution DISCUSSION OF FUND POLICY AT SECOND JOINT SESSION1

REPORT TO THE BOARD OF GOVERNORS OF THE INTERNATIONAL MONETARY FUND BY THE CHAIRMAN OF THE INTERIM COMMITTEE OF THE BOARD OF GOVERNORS ON THE INTERNATIONAL MONETARY SYSTEM

Michael H. Wilson

I am pleased to have this opportunity to report to Governors on the work of the Committee at its last two meetings. The issues dealt with at these meetings have been well covered by the two communiques, and I would propose to touch only on the more important ones. Let me refer first to the review by the Committee of the world economic outlook. The Committee observed that, after several years of rapid expansion, growth is continuing, albeit at a slower pace. External imbalances among industrial countries have narrowed. Inflation has picked up in some industrial countries and remains very high in many developing countries. Uncertainties have increased on account of recent developments in the Middle East, and have unsettled financial and exchange markets. Though the situation should generally remain manageable, the Committee agreed that much would depend on countries following stability-oriented monetary policies and sound fiscal policies in order to avoid the twin risks of higher inflation and lower growth. For this to happen, fiscal and monetary policies would have to resist accommodating the domestic adjustments of oil prices required by the changes in the terms of trade, and these policies would need to be buttressed by a commitment not to compensate for those price corrections by increasing nominal wages. Fiscal consolidation more than ever remains a priority in countries with budget deficits, not only to support the adjustment process, but also to raise saving at a time when investment demand is picking up— especially in Eastern Europe and developing countries—and to lower real interest rates by lessening the burden on monetary policy. Structural measures also are required to raise potential output growth, bring downward pressure on prices, and encourage saving and investment. Measures to enhance

1 September 25, 1990. 22

©International Monetary Fund. Not for Redistribution CHAIRMAN OF INTERIM COMMITTEE 23 domestic competition and liberalize external trade regimes should be a cornerstone of these structural adjustment efforts. Committee members welcomed the Fund's continuing evaluation of major issues in the evolving international monetary system. The Committee stressed the Fund's central responsibility for assessing the functioning of the interna- tional monetary system and identifying possible improvements. The Committee underscored the vital importance of a successful conclusion of the Uruguay Round by the end of 1990. Committee members strongly urged all the participants in the negotiations to make every effort to resolve quickly the many remaining issues that are crucial to an overall agreement. The Committee also welcomed the progress made by Central and Eastern European countries in the process of structural change. It stressed that the Fund must continue to provide financial and technical assistance as these countries move their economies further toward a market system and integrate their economies into the world economy. The Committee encouraged interna- tional cooperation in support of these members' programs. However, Commit- tee members clearly were mindful that further support to these countries must not be at the expense of other countries in need of similar assistance. The Committee welcomed the undertaking by the Fund, in cooperation with the World Bank, the OECD, the EBRD, and the Commission of the European Communities, of a detailed study of the economy of the Soviet Union. With the recent adverse changes in the international economy, many Fund members are again facing serious short-term payments difficulties. The Committee was of the view that the Bretton Woods institutions should play a central role in supporting the necessary mix of adjustment and financing that these countries would require to restore sustainable growth. The Committee did not see a need for new facilities in the Fund, which has an array of instruments that can be used effectively and flexibly to deal with a variety of situations. It was recognized, nonetheless, that some modifications could usefully be introduced in some of these instruments such as the CCFF and ESAF. The Executive Board was asked to work expeditiously on such possible adaptations and to take account of the requirements of current circumstances in tailoring members' access to Fund resources, including ways to address the problems of certain members in servicing such new debt. The Committee welcomed the progress made so far under the strengthened debt strategy. The successful cases that we are witnessing are clear evidence that the debtor countries themselves must create the conditions for sustained growth, and a return to creditworthiness, by adopting policies that raise efficiency and foster saving, investment, and private capital flows, including the return of flight capital. At the same time, such policies have to be supported by prompt and adequate external financing. In the case of the middle-income countries, the Committee urged all parties concerned to speed up the negotiations between members and commercial

©International Monetary Fund. Not for Redistribution 24 SUMMARY PROCEEDINGS, 1990 banks and called for a prompt resolution to outstanding arrears problems. The Committee welcomed the recent decisions of the Paris Club regarding debt owed to official creditors by lower middle-income countries. It also noted that several creditor countries had forgiven ODA obligations of low- income countries. The Committee encouraged the review of additional options and invited the Paris Club to consider further initiatives that might help enlarge the scope of official debt relief. It welcomed the U.S. Enterprise for the Americas Initiative. Governors will recall that, by the spring of 1990, the Executive Board had reached agreement in the context of the Ninth Review of Quotas on the method of distribution of quotas, the size of the participation requirement, and the period for consent to and payment for the increase in quotas. It remained for the Committee to reach conclusions on the percentage by which the total of Fund quotas should be increased and on the timing of the next review of quotas. It was agreed by the Committee that the present total of Fund quotas should be increased by 50 percent and that another review of quotas should be conducted by March 31, 1993. The Committee also devoted much of its attention at the Spring 1990 meeting to the arrears strategy. Fully supporting the intensification of cooperative efforts to reduce and eliminate existing overdue financial obliga- tions to the Fund, the Committee also emphasized the importance of enhancing the instruments available to the Fund to prevent the accumulation of further arrears. The Committee invited the Executive Board to propose to the Board of Governors the text of an amendment of the Articles providing for suspension of voting and related rights of members that do not fulfill their obligations under the Articles. The Committee came to a consensus that, as part of the overall quota increase package, no increase in quota would become effective before the effective date of such an amendment. On June 28, 1990, the resolution on the proposed Third Amendment was approved by the Board of Governors, together with the Resolution on Quotas under the Ninth General Review. The Committee agreed at its September meeting that, given recent events and uncertainties in the world economy, it is now of the utmost importance that the quota increase be ratified and the Third Amendment accepted by the requisite majorities as soon as possible. This completes my report. The Committee agreed to hold its next meeting on April 29, 1991.

©International Monetary Fund. Not for Redistribution ITALY 25

STATEMENT BY THE GOVERNOR OF THE FUND FOR ITALY

Guide Carli

Since Italy currently holds the Presidency of the Council of the European Communities, I have the honor of addressing this meeting on behalf of the member states. After enjoying an expansionary phase for eight consecutive years, the world economic climate remained quite satisfactory in the first half of this year. This outcome—which is due to both the success of the anti-inflationary monetary policies being pursued in most industrial countries and progress in structural reforms—has contributed to the establishment of the underlying conditions needed to foster sustainable and balanced noninflationary growth in the medium term. On the positive side, it should also be noted that the pattern of growth has contributed to support internal and external adjustment. This should be given fresh impetus by the adoption of further policy measures in the countries most concerned. The Community economy is expected to remain strong during the period ahead, with the gradual completion of the internal market and German reunification. These will help to stimulate activity in other countries, thereby promoting adjustment and prolonging the expansion. The recent developments in the Middle East, if persistent, may adversely affect the outlook for growth and inflation. Meanwhile, the uncertainty of the situation has already been reflected in financial markets, and to a lesser extent in foreign exchange markets, worldwide. The new crisis in the Gulf region emphasizes the fundamental policy prescription of fighting inflation, fiscal consolidation, and structural reforms, including energy conservation required to maintain sustainable growth in the world economy over the medium term. Past experience has shown that we should accept the consequences for nominal incomes rather than trying to offset the adverse effects of a higher oil price level. At the global level, the generation of savings adequate to fulfill the strong investment demand is a major objective. In this context, it is urgent that those countries running substantial fiscal deficits, such as the United States, Canada, and Italy, bring these down; and that industrial countries generally take measures aimed at fostering adequate levels of private saving. This would help to ease the burden currently borne by monetary policy and to reduce the upward pressure on world interest rates, to the particular benefit of the developing countries. At the same time, and within the constraints just mentioned, surplus countries should contribute to a further reduction of external imbalances, in particular by accelerating the pace of structural reforms. As far as inflation is concerned, the stance of monetary policies should remain prudent, in view of emerging cost pressures in a number of industrial

©International Monetary Fund. Not for Redistribution 26 SUMMARY PROCEEDINGS, 1990 countries and in particular the risk of escalating oil prices. It is clear from experience that the pursuit of noninflationary growth is essential to the proper functioning of the international monetary system. New perspectives and challenges are being opened up for the world economy by the epochal changes that are occurring in the international economic and political system. Most of the Eastern and Central European countries are now undertaking important reforms of their economies in order to introduce market principles. Output is expected to decline in these countries in the near future but, beyond the short term, economic performance should improve significantly, with positive effects for the world as a whole, as market-based incentives, including trade at world-market prices, become more widespread. The European Community is playing a vital role in supporting the transition process in Central and Eastern Europe, as demonstrated by its coordination of G-24 support, both technical and financial, for Poland and Hungary, which has now been extended to cover other countries in this area. The member states welcome the creation of the European Bank for Reconstruction and Development, which will provide technical and financial support in close cooperation with international institutions active in this area. The Community, furthermore, agreed at the European Council meeting in Dublin in June to study measures of financial assistance to the Soviet Union. In order to boost sustainable growth over the longer run, structural reforms complementing macroeconomic policies are strongly needed. The construction of the single market in the European Community will strengthen market forces and thus the technological and economic competitiveness of the European Community. It also demonstrates the commitment of member countries to further liberalize and deregulate their markets. In this context, a successful conclusion of the Uruguay Round would have wide-ranging favorable consequences. It is, therefore, particularly important that the objectives of these negotiations, including the liberalization of financial services with a view to ensuring effective market access, are achieved within the prescribed deadlines. Major concessions will be required of all parties concerned in the next few months. The newly industrializing economies are also urged to acknowledge their responsibilities in a world trade system managed according to the GATT principles. Other developing countries should increasingly do the same. The member countries of the European Community are now in the first stage of the process leading to economic and monetary union. Our experience in the European Monetary System shows that a system of stable exchange rates and close coordination of economic policies, based on a common objective of noninflationary growth, gives valuable results in terms of the stability of the economic environment, and in particular in terms of price stability. With capital movements close to full liberalization and growing exchange

©International Monetary Fund. Not for Redistribution ITALY 27 rate stability, increased coordination of economic and monetary policies with a view to bringing down inflation rates to a low level in all member states will, in the context of economic and social cohesion, help to create the conditions for the successful transition to economic and monetary union. Far from being an obstacle, the economic and monetary reunification of Germany will provide fresh impetus to the integration process. In turn, European economic and monetary integration can be welfare-improving only if it takes place in the context of open markets and a strengthened economic relationship with the rest of the world. At the end of a decade of unsatisfactory results, economic perspectives for the developing world remain uncertain. Only some Asian countries have been able to take full advantage of several years of undisrupted growth of the industrial world, while a number of unfavorable factors, including a deterioration of the terms of trade, rising interest rates, and increasing debts have, in combination with unsatisfactory economic policies, hindered prospects in other developing countries. The cooperative debt strategy, which has recently been strengthened, is yielding encouraging results. A growing number of developing countries are now implementing strong macroeconomic and structural adjustment programs, being aware that the creation of a favorable economic environment is an essential prerequisite for mobilizing domestic saving, attracting investment, and stimulating the repatriation of flight capital. All industrial countries must remain strongly committed to supporting those adjustment efforts through the provision of adequate financing and the implementation of trade liberalization measures. The renewal of the Lome agreement clearly demonstrates the willingness of the Community to act positively in these areas. The forthcoming increase of IMF quotas and the earlier increase in the World Bank's capital will enable these institutions to continue to meet members' requests for financial assistance and to catalyze assistance from other sources. The commercial banks, too, have an important role to play by responding in a timely and adequate way to debtor countries' needs. As to environmental matters, an important result was achieved last June in London, when it was agreed to set up a financial mechanism to assist developing countries in complying with their obligations under the Montreal Protocol. In this context, we strongly support the initiative of the World Bank—in cooperation with the United Nations Environment Program and the United Nations Development Program—to establish a Global Environmental Facility to finance pilot projects in areas of particular interest. The poorest countries, particularly the severely indebted ones in sub- Saharan Africa, continue to depend heavily on the availability of concessional flows. They are benefiting from official debt reschedulings by the Paris Club under Toronto terms and from the cancellation of overseas development aid debt by an increasing number of creditor countries. They will have available

©International Monetary Fund. Not for Redistribution 28 SUMMARY PROCEEDINGS, 1990 the resources of the Ninth Replenishment of the International Development Association. Negotiations have also been launched for the refinancing of the World Bank's Special Program of Assistance into 1991-93 and for the replenishment of the African and Asian Development Funds. As major contributors to these initiatives, the countries of the European Economic Community are looking forward to a timely and positive conclusion of the related negotiations. We also support the Paris Club's continuing review of additional options to address the specific problems of those of the poorest and the lower middle- income countries, which are highly indebted to governments and which are implementing strong adjustment programs. We also welcome the recent decision by the Paris Club as regards the lower middle-income countries to lengthen further the repayment of their debts and introduce a debt-swap option. The contribution of both the Fund and the Bank has been instrumental in the progress achieved so far in the strengthened debt strategy. The relevant guidelines approved by the two institutions remain valid and should be implemented prudently and with the necessary degree of flexibility. The IMF should continue to play its irreplaceable surveillance role and to support the correction of domestic and external imbalances in all member countries. In addition, the Fund and the Bank should further intensify their efforts to encourage structural reforms. The recent increase of oil prices and its consequences could be damaging to the many developing countries that are net oil importers and are vulnerable at present to outside shocks. It is, therefore, important that the IMF and the World Bank stand ready to assist the countries most affected in their efforts to deal with the problems that have arisen. Furthermore, the member states of the Community are studying the possibilities of assistance to certain of the countries most affected by the Gulf crisis. The design of economic reforms in the economies of Central and Eastern Europe will require particular attention. In this respect we welcome the Czech and Slovak Federal Republic. We also note with satisfaction the invitation given by the Houston summit to the IMF and to other international organizations for a joint study of the Soviet economy. In addition to the mandate on this subject given to the Commission by the European Council, the Community is cooperating fully with the IMF and the other organizations in these endeavors. We also welcome the adoption of the resolution by the Board of Governors of the Fund on the Ninth General Review of Quotas and the amendment of the Articles of Agreement providing for the suspension of the voting and related rights of members that are not fulfilling their obligations. Continuous efforts are required to tackle the problem of arrears to the Fund, which threatens the cooperative nature of the institution and its monetary character. We call on members still in arrears to put in place measures to restore viable growth in their countries and become current with the Fund and the Bank.

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In order to foster the necessary adjustment, it is important that the Fund's "rights approach" be rapidly implemented in all its parts. All members are urged to ensure that both the quota increase and the amendment to the Articles are made effective as early as possible in 1991 so that the Fund will be provided with additional resources to execute its mandate in the coming years. The question of a resumption of SDR allocations during the remainder of the fifth basic period from 1989 to 1991 should be kept under examination. Finally, I warmly welcome Bulgaria and Namibia. By enlarging their geographic coverage, the world character of the Fund and the Bank is enhanced, together with our common responsibility for effective international cooperation.

STATEMENT BY THE GOVERNOR OF THE FUND FOR ITALY

Guido Carli

First of all, I welcome as a new old member the Czech and Slovak Federal Republic. Later in the day, Bulgaria and Namibia will also join the Bretton Woods institutions. By enlarging their geographic coverage, the Fund and the Bank are enhancing their world character, together with our common responsibility for effective international cooperation. As these meetings take place, the world situation is still imbued with the sense of epochal changes that brought about the momentous developments of the past year. These events, which indeed open a new era in modern history, are marked by the bold decisions of the Eastern and Central European countries and the U.S.S.R. to change radically their political and economic systems. In this context, German reunification is to be seen as the natural outcome of the long-awaited removal of the artificial barriers placed between East and West. The most important developments of the last few months are the threatening events in the Middle East, which endanger peace and bring a sense of urgency to our meetings. The oil price hike ensuing from the Gulf crisis complicates the short-term management of the global economy and poses new difficulties to most countries bearing a heavy debt burden and to countries undertaking the transition from a planned to a market economy. In facing this adverse circumstance, we can be reassured by the positive results obtained during the noninflationary cyclical expansion that spanned the past nine years. Yet, chances of success in coping with present difficulties depend to a large extent on the cooperative nature of our policy response to the Gulf crisis. Cooperation remains paramount, since imbalances are still

©International Monetary Fund. Not for Redistribution 30 SUMMARY PROCEEDINGS, 1990 large, signs of financial fragility have appeared, and global markets make for an instant transmission of turbulence. Our past experience has taught us four policy lessons that are crucial to manage the present situation. First, all countries should allow a prompt and full adjustment of domestic energy prices. This is especially important in those economies in which the presence of administered energy prices induces excessive energy consumption. Second, strong emphasis should be given to internal adjustment, thus avoiding an excessive reliance on external financing. In this respect, the International Monetary Fund and the World Bank will continue to play their roles both through direct provision of funds and policy advice, and by mobilizing concessional resources from donors. Third, the persistence of large international payments deficits, coupled with the increasing global scarcity of saving, calls for a resolute curtailment of fiscal imbalances in a number of countries. Fourth, an increasing degree of coordination of monetary policies is desirable in order to maintain exchange rate and financial market stability. Mindful of this, the European Community is making a strong effort to ensure the appropriate conditions for the achievement, by stages, of the Economic and Monetary Union. Synchronism, nervousness, and, to some extent, fragility have come to characterize financial and stock markets. Recently, they have been sparked by uncertainties stemming from the Gulf crisis, which requires international cooperation and the firm steering of national monetary authorities. This would consolidate our success in developing more efficient and stable financial markets. The progressive deregulation has resulted in a growing integration of major offshore and domestic financial markets but has introduced new elements of risk. The access to larger private capital sources, while making it easier for deficit countries to finance their external imbalances, has enhanced the overall risk of domestic financial instability owing to changes in expectations or economic conditions abroad. The speed, magnitude, and complexity of financial transactions, today, create powerful links of a truly global nature that demand of national authorities a greater sense of collective responsibility and the use of appropriate control instruments. First and foremost, monetary policy should avoid fueling an asset price inflation, which even if it does not affect the goods market in the short run, makes for a swelling bubble, which may burn many should it burst. Second, what has been agreed internationally to preserve the stability of financial intermediaries should be reinforced and enlarged to cover as many markets as possible. The supervisory activities of the financial authorities should encompass bank and nonbank financial operators; international stan- dards should be strengthened to impose limits on risk-taking and maturity transformation activities of financial operators; minimum bank capital require- ments should be integrated by including market risks; and the tax treatment

©International Monetary Fund. Not for Redistribution ITALY 31 of financial transactions to avoid international misallocations of saving flows and counterproductive tax competition remains a challenging issue to be tackled someday. All this, of course, cannot but rest on the willingness of governments to cooperate. Tighter international collaboration and the governments' determina- tion to frame major national problems within an international perspective will strengthen competition on solid ground. Recent developments in Eastern and Central European countries have brought a unique and inspiring challenge to our institutions. After almost half a century during which international, political, and economic relationships have evolved in a context of rigid separateness, a precipitous sequence of events has dismantled the artificial barriers that have prevented Eastern and Central Europe from benefiting from the economic progress experienced in the Western world. These countries are now undertaking historical changes that will have a profound beneficial impact on their economies and on the world. I want to express my complete support and encouragement for the huge efforts their governments and peoples are convincingly making. There are, indeed, no historical precedents to guide policymakers in such difficult tasks and, besides some common features, there are relevant differences among countries undertaking the reform process. However, the most recent developments in Central and Eastern European countries unveil aspects and problems of the transition process. The success so far achieved confirms the benefits of a quick stabilization of the economy, through a combination of liberalization measures and firm demand-management policies. The restoration of basic internal and external equilibriums through macroeconomic management sets the stage for imple- menting structural measures. But it is becoming, now, more evident that stabilization is only the first, and perhaps the easiest, phase of the overall program. The costs of stabilization efforts could be high if the supply response, the ultimate goal of reform, is slow. Price liberalization, freer trade, and a more productivity-related system of wage fixing are the preconditions for any structural adjustment. While the progress already made is encouraging, sectoral distortions and technological backwardness, which are the main limits to a prompt supply response, should be removed through courageous structural adaptations of which privatization of firms and banking reform should be the backbone. Indeed, privatization and banking reform can only succeed if implemented together. The latter unaccompanied by the former would only perpetuate the accumulation of nonperforming loans in the portfolios of banks. This, in turn, would, de facto, force the central banks to keep afloat banks burdened by bad credit, thus endangering the effectiveness of monetary policy. On the other hand, privatization without banking reform would fail to ensure that capital is allocated efficiently to firms, or to provide capital at all.

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An improved operation of the banking system, in the context of the present privatization efforts, would decisively enhance the much needed mobilization of financial resources for productive purposes and increase financial saving. The legislative, regulatory, and supervisory framework requires strong political will and an active participation of the international financial community. I, therefore, warmly welcome the World Bank and IMF efforts in this field. Both institutions can offer a decisive contribution not only by helping to prepare comprehensive structural programs, but by fostering the concrete support of the world financial community, whose participation they can catalyze and incite. To make current efforts in Eastern and Central Europe fully successful, we need to rely on deeply felt conviction and prompt implementation of international cooperation. Since the inception of the strengthened debt strategy, some progress has been made in a number of countries to alleviate the external debt problem. Adjustment efforts coupled with debt relief are paying off in a number of cases and the return to market access—although limited—by a few highly indebted countries indicates that external viability appears a less elusive goal than just a few months ago. However, the large size of the debt problem continues to call for strong efforts from all parties concerned. In this context, due attention should be given to the suggestions made in the Craxi Report on Debt commissioned by the UN Secretary General. The financial situation of middle-income countries appears less uncertain after the decision taken by Paris Club creditors to consent to longer repayment periods and to limited swaps of official debt on a voluntary basis. However, this group of countries should continue to implement far-reaching structural reforms and comprehensive medium-term adjustment programs aimed at attracting foreign direct investments. Severely indebted low-income countries have continued to benefit from official creditor assistance, as well as from generous treatment in accordance with the Toronto terms, which are to be further reviewed by the Paris Club. Significant efforts have also been made by the Bretton Woods institutions to grant concessional credits. Still, in spite of adjustment efforts, medium-term balance of payments viability remains doubtful in a significant number of cases. To ease the official debt burden of low-income countries, a bill allowing the conversion of ODA loans into grants is under consideration by the Italian Parliament. Debt is not the only scourge: poverty and environmental degradation are not less worrying from the political, economic, and social points of view. The alleviation of poverty is an area in which the leading role of the World Bank is particularly needed. Growth plans should be promoted to intensify the access of the poor to health and education services, thus allowing them to increase their productivity and react fully to economic incentives. We also praise the Bank for the increased attention it is providing to the environmental issues within the framework of its activity. We must recognize the strong interdependence between growth and environment; in a world

©International Monetary Fund. Not for Redistribution INDONESIA 33 characterized by a high rate of depletion of nonrenewable resources, care for the environment should increasingly become part of the efficient allocation of resources.

STATEMENT BY THE GOVERNOR OF THE BANK FOR INDONESIA

J.B. Sumarlin

As I reviewed the data on global trends at the beginning of August, I came to the same conclusion as that with which I opened my remarks a year ago. On that occasion I noted that "the prospects for the world economic situation are a little less bright, but basically the same as those we faced a year ago." Developments over the intervening year more or less validated that expectation. Unfortunately, the sudden eruption of the crisis in the Persian Gulf calls into question even those weak expectations. Uncertainty has increased sharply. Clearly, the ensuing military buildup and the need to meet the urgent needs of the refugees flowing out of the area will give rise to a significant diversion of the world's resources into nonproductive uses. The magnitude and duration of these claims on resources can only be guessed at for the moment, but already that diversion is large. A tabulation in the New York Times of last week already identifies approximately $20 billion in pledges of financial support from various national governments and the European Community. To figures like this must be added the additional resources that will be needed for extra economic assistance to countries adversely affected by the embargo of Iraq and higher oil prices. Currently, resources on the order of $7 billion or $8 billion are being discussed for this purpose, with the Bank and the Fund playing a central role. Prudent planning must assume that the Gulf crisis will reduce global economic prospects. The pace at which the roles of important participants in the world economy are changing has quickened since we last met. To the changing roles of Japan and the newly industrializing economies and Europe's further integration, which were noted a year ago, must now be added the wholly unforeseeable implications of the changes in Eastern Europe and the U.S.S.R. German reunification and the imminent integration of several Eastern European countries into the global market economy also contribute to the uncertainties of future developments. Against the background of these uncertainties now facing the global economy there are a number of issues that I believe require our careful attention. Among these I would list the developments in the international monetary and financial system, developments in the global trading system,

©International Monetary Fund. Not for Redistribution 34 SUMMARY PROCEEDINGS, 1990 the continued problems of the heavily indebted developing countries, the integration of Eastern Europe into the market system, the ultimate impact of the Gulf crisis, the persistent problem of widespread poverty, and the protection of the global environment. Let me say a few words on each of these topics. The world's monetary and financial system has shown impressive ability over the last two decades to weather severe pressures. Nevertheless, unhealthy fiscal imbalances persist and policy coordination among the major economies is still inadequate. Even before the impact of higher oil prices there was mounting evidence that inflationary pressures were on the rise. Moreover, today the system is faced with challenges that will put its strength to the test anew. The Fund therefore should continue to assert its influence in support of better and more effective policy coordination among the members. Fiscal consolidation measures should be undertaken, especially by countries with significant imbalances. These measures should be supplemented where appropriate by the removal of structural elements in tax systems that are an impediment to savings or that encourage consumption. Together these measures should aim to generate a level of global savings consistent with the prospective demands of Eastern Europe, the U.S.S.R., and a united Germany, while at the same time meeting the continuing needs of the developing countries. The current exogenous shocks, such as the Gulf crisis, the costs of German reunification, and the rehabilitation of Eastern Europe's economies, come at a time when the soundness of major segments of the financial system is called into question by rising levels of nonperforming loans and inadequate capitalization. The high cost, and the impact on confidence, of dealing with such problems as those of the savings and loan industry in the United States, the impact of weak real estate markets in a number of important economies, and the rising default rate of so-called junk bonds are all placing further strains not only on the banking system but also on insurance companies and pension funds. It is a measure of the seriousness of these developments that the major credit rating organizations are progressively downgrading the securities of major financial institutions; recently, this has even included the major banks in Japan, now the leading financier of the world economy. Perhaps more fundamental, the weakness of the worldwide savings performance in the face of increased demands for finance from expanding economic activity and trade complicates the fight against inflation. Inadequate levels of savings also make the efforts to strengthen the capital base of the financial system more difficult. It is to be hoped that fiscal policies will increasingly be designed to encourage higher levels of savings consistent with the demand for finance. It is crucial to the future health of the world economy that the larger trade groupings—Europe post-1992, possibly enlarged by part of Eastern Europe in the foreseeable future, North America, perhaps extended to the entire

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Western Hemisphere, along with Japan—become outward-looking, open participants in world trade, not self-sufficient blocs of protectionism. Which way these blocs go—expanded trade or greater protection—will depend to an important degree upon the outcome of the Uruguay Round. Among the most important unresolved issues still facing the negotiators in those discussions are the reduction of non-tariff barriers represented by the Multifiber Arrangement (MFA) and the pervasive subsidies and barriers that characterize trade in agricultural products. Unless the issues now covered by the MFA can be rolled into the provisions of the GATT and agricultural protectionism can be significantly reduced—especially as applied to tropical products of importance to many developing countries—we place expanding world trade and development at risk. Moreover, failure on this score can complicate the role of the Fund in prescribing sound adjustment programs for countries in need of such programs. Clearly, barriers to trade in agricultural products and labor-intensive manufactures could be expected to close off many benefits from sound adjustment policies. We recognize the importance of bringing services within the scope of a more liberal trading system and the case for protection of intellectual property rights. However, we feel strongly that agreement on these issues should not be linked to a resolution of the issues in commodity trade. All major areas should be dealt with on their merits or else there will be serious risk that satisfactory results will elude us in all key areas. From present readings one cannot be fully confident that those negotiations will have a constructive and trade expanding conclusion. We must all try to reassert our political will to achieve the desired outcome of those discussions. The empirical evidence on the welfare gains that would accrue to all parties from significant liberalization of trade is now overwhelming. Such gains could go a long way toward redressing many of the problems of debt and development that currently seem so daunting. Unfortunately, many developing countries are still laboring under unre- solved debt burdens that are sharply limiting their efforts to restructure and resume growth. There have been more imaginative initiatives and there has been some access to new money for a few countries previously denied access to the markets. No remedial actions to date, however, have had a significant impact measured against the total problem, and access to new money has been quite sporadic at best. Much satisfaction is expressed that the international financial system has weathered the impact of the debt crisis on the banking systems' capital structure. This, of course, is good. Any significant collapse among the institutions of the banking system would have very undesirable repercussions extending far beyond the debt issue itself. This point notwithstanding, it is important to point out that the ability of the banking system to cope with the impact upon itself of the debt problem still leaves the debtor countries in an extremely unsatisfactory situation. It must also be noted that, in quantitative

©International Monetary Fund. Not for Redistribution 36 SUMMARY PROCEEDINGS, 1990 terms, other threats to the financial system loom as large as or larger than does developing country debt. An increasing number of the debtor countries are adopting adjustment programs based on sounder economic principles. Yet their problem shows discouragingly little improvement. The debt-servicing burden is compounded by falling terms of trade, an unacceptable level of nontariff and tariff barriers to their trade, and now, for the majority of these economies, the impact of sharply higher energy prices. A satisfactory solution to the debt crisis will entail resolution of all these issues. Finally, I feel compelled to repeat a point I made last year: a comprehensive solution to the debt problem should include facilities to assist the heavily indebted but performing countries. They have been able to continue to honor their debts through sacrifice on their part and by adopting sound adjustment policies. If they are "forgotten" in the provision of facilities and reduction of debt, it would reflect ill on the prescription of sound adjustment polices and reduce the creditability of the advice recommending such policies. Politically, one can only welcome the political changes that have swept through Eastern Europe and the U.S.S.R. The concomitant rapprochement between the super powers can be expected to bring many benefits to the world community—economic as well as political. Nevertheless, prudence requires a recognition that the transformation in individual countries will be difficult and requires careful consideration of possible negative effects from these developments, at least in the short run. Politically, while a desire for change seems to be almost universal throughout Eastern Europe and the U.S.S.R., there are very divisive attitudes as to how to go about reform in each individual country. Debates about the specifics of political decentralization and the means of achieving private ownership of the means of production are already heated in several countries. Historic ethnic and national feelings should not be allowed to give rise to civil turmoil or strife within or between the countries of Eastern Europe. Economically, restructuring the economies of Eastern Europe is likely to require heavy infusions of capital, most of which will need to come from outside the region. Thus, a new and sizable claim on international financial resources has been created that will compete for those resources with both the investment needs of the industrial countries and the development and debt alleviation needs of the developing countries. Orderly evolution of the world economy will require careful and equitable balancing of these competing claims. Moreover, to be successful in meeting their economic goals, the countries of Eastern Europe will need to greatly expand their international trade. While this creates opportunities for their potential trading partners, it also requires an increasingly open and liberal international trading system. Thus, Eastern Europe, as well as the developing countries, requires success in the Uruguay Round negotiations. The recent decision of the COMECON countries to

©International Monetary Fund. Not for Redistribution INDONESIA 37 conduct their future trade in hard currencies will have to be accommodated within the available world liquidity. This could place yet another strain on international liquidity. Speaking even as an oil exporter, we recognize the problems created by the current oil price developments. We do not welcome the present high level of prices. First, they are based more on speculation and political accident than on market factors. Therefore they are an unsound basis upon which to base business decisions in this sector. Second, they are likely to have undesirable effects. While these effects are likely to be less severe than the impact of the two oil shocks of the 1970s, they may still be serious, especially the longer it takes to resolve the crisis. Abrupt price changes of the magnitude that we are witnessing can push the industrial countries toward recession, and they greatly add to the debt and trade problems of the vast majority of developing countries. While a few developing countries, 11 according to the World Bank, will benefit from higher oil revenues, all of the remaining developing countries—a far higher number—will suffer adverse effects. Moreover, the impact will be larger for them than it was in the 1970s, since the developing countries now account for a higher share of oil consumption—28 percent now compared with 18 percent in 1973. It must also be noted that the continuance of prices at their current level for any length of time can give rise to disruptive international flows of funds at a time when the world's financial system is already stretched by inadequate capitalization of financial institutions and increasing failures in important segments of the system. Recycling petro-dollars may be more difficult for an already weakened financial system still dealing with the debt implications of the last round of recycling. Finally, prices that are too high can lead to long-term fuel choice and consumer investment decisions that are not in the interests of the oil producers. Unfortunately, the crisis in the Persian Gulf that has led to these developments looks less and less like a flash in the pan. One can only hope that good sense on the part of all parties and a firm political will on the part of the international community will produce a resolution of the crisis. I am pleased to note that, while the process of approval and acceptance of the Fund's quota increase and the Third Amendment has not been completed, the overall liquidity position of the Fund is at a comfortable level that should permit the Fund to meet the claims upon its resources arising from the Gulf crisis and global economic developments. I welcome the Fund and Bank response to increase the flexibility of their facilities in order to meet the needs of member countries arising from the Gulf crisis. The main continuing challenge will be to find new modalities that will allow both the Fund and the Bank to play an effective role as new developments require new actions. . . . In closing, let me again underscore the fact that seldom in the life of these

©International Monetary Fund. Not for Redistribution 38 SUMMARY PROCEEDINGS, 1990 two organizations have opportunities and challenges been mixed to such a high degree. The winding down of the Cold War, the opening up of Eastern Europe, the reunification of Germany, and more recently the revitalization of the United Nations and what we hope is a significant breakthrough on the Cambodian issue all auger well for the future. But on the other side of the ledger, the Gulf crisis strains on the international financial system, the continuing debt burden, and potential deterioration of the global trading system are important factors promising trouble in the future, if we fail to address them effectively. Both care and imagination will be necessary in our deliberations and our actions.

STATEMENT BY THE GOVERNOR OF THE FUND FOR FRANCE

Pierre Beregovoy

In the history of the twentieth century, 1989 will go down as a decisive year for the economies of Eastern Europe and the Union of Soviet Socialist Republics. Breaking with decades of central planning and management, they have decided to adopt the rules of the market and engage in international trade. A symbol of the acceleration of history, German reunification will become effective on October 3, 1990. This is a new opportunity for potential growth and a stirring challenge for the European Economic Community. For the immediate future, the world economy must face the uncertainties born out of the Gulf crisis and the slowdown of the U.S. economy as well as certain European economies. During the coming months, our economies are going to have to navigate between two risks: a resumption of inflation and a slowdown of activity. Both represent threats to the stability of the financial markets. The firmer our resolve on these two fronts, the better we shall be able to safeguard noninflationary growth and hence employment. In these circumstances, the attitude of governments will be decisive. The invasion and subsequent annexation of Kuwait by Iraq were vigorously condemned by the international community. Nowhere can it be accepted that might makes right. We must be firm. An unshakable embargo against Iraq is the condition for returning to a normal situation based on respect for international law. The spirit of solidarity demonstrated in the political arena must also extend to economic matters. For its part, France will work toward greater international cooperation. The IMF and World Bank, whose actions I salute, have in this regard a major role to play. We are not starting from zero. As regards debt, progress has been made for the poorest countries as well as for the middle-income ones. Some of the impetus provided by the heads of state in Houston has already been turned

©International Monetary Fund. Not for Redistribution FRANCE 39 into reality by the Paris Club. We fully expect to reach in the near future a new, more diversified menu incorporating, along with conventional reschedul- ing, debt-reduction and debt-service options, not to mention the vital option of new money. Our meetings this week have shown us that an international consensus is building on all these issues. The promptness with which the international community has responded to the opening of the centralized economies of Eastern Europe is also remarkable; the courageous reforms initiated by these governments, Poland and Hungary in particular, were immediately supported by substantial flows of aid and technical assistance. The establishment of the EBRD was accomplished in record time. We are gratified to note that the Czech and Slovak Federal Republic and Bulgaria have completed the procedures for joining the IMF. Other countries, like Namibia, have joined the Bretton Woods institutions and I welcome them. I am thinking in particular of Switzerland, whose quota we hope will be consistent with its role in the international economic and financial system. The Fund and the World Bank will then be better able to fulfill their universal role. These institutions are based on cooperation, and each country must play by the rules; hence, no effort should be spared in securing compliance with them. That is the objective of the cooperative strategy that we introduced in 1988 to resolve the problem of arrears, and which we strengthened last spring. It can now be applied to countries in arrears that are willing to cooperate. This is particularly the case of Viet Nam, whose efforts we intend to support. Finally, last spring's increase in quotas is a credit to the international community because it will give the Fund the resources appropriate to its new tasks. It must be implemented without delay, to allow the IMF to support the adjustment efforts of countries affected by higher petroleum prices. To that end, the IMF must rapidly proceed with the necessary amendments to its instruments. What direction should we take in the years ahead? I suggest that we examine and take action in four areas:

1. Draw long-term lessons from the Gulf crisis. Our economic history has already shown on three occasions that petroleum prices exert considerable influence on the world economy and that their volatility undermines sound and durable growth. It also shows that neither producers nor consumers gain over the long run from excessive price fluctuations. The leading industrial countries have been committed since 1985 to systematic management of exchange markets so that the value of currencies is consistent with economic realities. It should be possible to apply this approach to the petroleum markets. These are still insufficiently transparent, and the rules of competition—a prerequisite for the smooth running of the market economy—are rarely applied, leading to sharp fluctuations that seriously disturb the world economy. The IMF, which is mandated to monitor

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the key determinants of economic activity, cannot ignore this issue, and I thank Mr. Michel Camdessus for having agreed to study it. 2. The fight against poverty. I already indicated to the Development Committee the priority accorded by France to this goal. The recent Conference on the Least Developed Countries in Paris adopted an action program that advocated increased aid to those countries and the cancellation, by those creditors that have not yet done so, of all debt contracted as official assistance. 3. Ensure environmental protection. The establishment of a special fund to protect the ozone layer is a first step in this regard. Last year, France proposed a new financial instrument to coordinate and mobilize funds allocated to specific projects. I hope it becomes operational as soon as possible under the form of a global environmental facility. 4. The integration of the U.S.S.R. into the world economy. I am delighted that, following the Houston summit, the International Monetary Fund, the World Bank, OECD, and EBRD undertook to carry out, in close cooperation with the EEC, an in-depth study on the Soviet economy, of which we have high expectations. That study could be the prelude to the Soviet Union's joining the international monetary institutions.

The world economy is today in a better position than it was during the oil shocks of the 1970s. However, we must react quickly and resolutely to restore the favorable expectations of economic agents and prevent the increase in oil prices from wiping out the efforts made by the developing countries and unsettling the economies of the industrial countries. The difficulties must stimulate our imaginations. Economists must reduce uncertainties; politicians must reduce social inequities everywhere and bridge the gap between the North and the South in order to give the human race the opportunity to reconcile its differences.

STATEMENT BY THE GOVERNOR OF THE FUND AND THE BANK FOR JAPAN

Ryutaro Hashimoto

It is a great pleasure to have the opportunity to address the Forty-Fifth Annual Meetings of the International Monetary Fund and the World Bank as Governor for Japan. With the global tide toward market-oriented economies, the Annual Meetings are important occasions for reviewing the tasks ahead for the world economy in the 1990s as well as for addressing the very urgent question of

©International Monetary Fund. Not for Redistribution JAPAN 41 the economic consequences arising from the Gulf crisis in collaboration with Fund and Bank management.

The Gulf Crisis and the World Economy

I would like first to elaborate on our measures to respond to the crisis in the Gulf, which is the most serious problem we are now faced with. The Gulf crisis is not only disrupting world peace and security, it is also casting a dark shadow over the prospects for world economic development and prosperity. Mindful of the importance of peace and stability in the Gulf region and of the restoration of international law and order, Japan announced active measures to contribute commensurate with its standing in the international community. On August 29, Japan decided to provide $1 billion in assistance for the multinational security efforts in the Gulf region, which included the provision of materials and transportation support. In addition, on Septem- ber 14, we announced that we were prepared to provide additional funds amounting to a maximum of $1 billion, paying due regard to subsequent developments in the Middle East. We are also in the process of assisting refugees waiting in Jordan and other nations to return to their home countries. Moreover, Japan decided to extend economic assistance in the total amount of $2 billion to those front-line nations such as Egypt, Turkey, and Jordan, which have suffered severe economic damage. Of the $2 billion, $600 million will be provided expeditiously as untied emergency commodity loans, with extremely low interest rates, to Egypt, Turkey, and Jordan to meet their urgent needs during 1990. The remaining $1.4 billion will be provided to assist those affected Middle Eastern countries in the medium term, taking into account their needs through 1991. The concrete uses for this $1.4 billion will be determined in such a manner as is consistent with the coordinated efforts in the multilateral support structures, including the Bretton Woods institutions, to assist those countries. The Fund and the Bank have extremely critical roles to play in international support for the front-line states, as well as for the non-oil producing developing countries and the Eastern European nations hard hit by higher oil prices. The Fund and the Bank, as the dual foci of the international financial system, now are being called upon to display sufficient flexibility and adaptability in the face of this crisis. By mobilizing its lending facilities as a catalyst for international assistance, the Fund is expected to promote the adjustment efforts of its member countries and thus play an active role as a core of support to those countries faced with difficulties. We believe that it is most opportune that the Fund is deliberating to allow a greater degree of flexibility in the use of its resources in situations such as the present one. In this connection, we believe that it is particularly important to augment access to the Fund's resources for these countries and to activate

©International Monetary Fund. Not for Redistribution 42 SUMMARY PROCEEDINGS, 1990 the compensatory and contingency financing facility in a positive way with a great amount of flexibility. . . .

The Present State of the World Economy

I would like next to move on to the present state of the world economy. The world economy is performing well overall, entering the eighth year of its current expansion. We recognize that the efforts by the industrial countries for greater policy coordination and structural adjustment have contributed greatly to this process. While the industrial countries are now less affected by the rise in oil prices than they were during the first and second oil crises, the effects of these price hikes on price movements and economic growth require vigilance, thus mandating even greater efforts in policy management and cooperation for economic stability. For the non-oil producing developing countries and the countries of Eastern Europe, higher oil prices are expected to worsen their trade balances and foreign currency reserve positions. It is thus imperative that even greater care be taken in our support for these countries to ensure the success of the market- oriented economic reforms now taking shape in Eastern Europe and the developing countries. Turning to the Japanese economy, noninflationary growth led by domestic demand has been sustained since 1986, and steadfast progress has been made in reducing our external imbalances. The current account surplus has dropped from 4.5 percent of GNP in fiscal 1986 to 1.9 percent in fiscal 1989. For fiscal 1990, while higher oil prices will unavoidably affect prices and economic growth to some extent, the Japanese economy, still being robust, is expected to sustain noninflationary growth led by domestic demand, with appropriate policy management. The rise in oil prices, in the meantime, will accelerate the pace of decline in the current account surplus.

Market-Oriented Economic Reforms

I would next like to touch upon the worldwide tide toward market-oriented economic reforms. Looking back at Japan's own economic history, it has been our experience that privatizing state-owned enterprises enhances economic efficiency, which in turn contributes to economic growth. In the 1980s, for example, we successfully privatized three public corporations. We find it most gratifying that the countries of Eastern Europe, Latin America, and Asia have become increasingly aware of the need to privatize state-run enterprises, to support private sector development, and to strengthen market mechanisms in their endeavors for structural adjustment. In promoting

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that process, we believe it is also beneficial to utilize the catalytic function of the international financial institutions. Looking especially at Eastern Europe, for which international support structures such as the European Bank for Reconstruction and Development (EBRD) have been established, we hope that the Fund and the Bank will continue to extend their support to the countries of that region. In this context, the participation of the Czech and Slovak Federal Republic and the People's Republic of Bulgaria, whose membership we have just voted for, is most welcome. At the same time, I would like to extend a sincere welcome to the third new member, the representative from the Republic of Namibia. The Fund, the Bank, the OECD, and the EBRD are expected to complete a detailed study of the Soviet economy by the end of 1990 as agreed upon at the recent Houston economic summit, so as to make their due contributions to the reform efforts in the Soviet Union. In addition to the demand for resources in the developing countries, economic reforms in Eastern Europe and other developments are expected to generate additional massive demand for capital. If we are to meet this demand, it is highly advisable that every country foster savings while discouraging dissavings, in order to avoid higher interest rates to the utmost and to ensure steady development of the world economy. Furthermore, if we are to facilitate the smoother functioning of market economies worldwide, it is imperative that every effort be made to maintain and strengthen the liberal and multilateral trading system. It is crucial that the Uruguay Round be successfully concluded by the end of this year.

Currency Stability

Next I would like to say a few words about currency stability. The foreign exchange market is currently in a relatively stable situation, and it is felt that exchange rates among the major currencies have come to reflect the economic fundamentals more accurately. We believe that we owe this to the accumulation of efforts by the major industrial countries for policy coordination and coordinated actions on exchange markets during the late 1980s. The outlook for the future points in the direction of greater international interdependence, which will further expedite globalization of the world economy. Under the circumstances, and given both the achievements we have attained in the process of accumulated cooperation, and the accelerated movement for economic and currency integration in Europe, I wonder if it might not be possible, in a longer perspective, to explore a more stable international monetary system that solidly substantiates the spirit of coopera- tion thus far. In that endeavor, avenues could emerge to secure more stable relations among the currencies in the triad of the United States, Japan, and the EC.

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Debt and Development Issues Japan's Basic Position I would next like to explain Japan's basic position on debt and development issues. First of all, it is essential that support for the developing countries be considered and implemented on a case-by-case basis in accordance with each country's situation. Second, international support cannot succeed unless the developing coun- tries themselves endeavor to reconstruct their economies through structural adjustments. On the other hand, international support will surely be forthcom- ing for countries that do undertake the appropriate policies and structural adjustments. Third, in order to finance growth in the developing countries, it is essential to ensure that the necessary new money is available, whether from official or commercial sources. Japan, for its part, has made active efforts to provide new money through its program to recycle at least $65 billion over a five- year period to 1992. Fourth, while it is true that there are some lower middle-income countries where the accumulation of official debt casts a shadow over reconstruction, these countries need, at the same time, to aim for structural reform and growth through the inflow of new money with appropriate conditionalities. It would not contribute to the country's bright future if, with overemphasis on the immediate problem of debt accumulation, concern for large-scale compulsory official debt reduction led to a cutoff of new money to that country now and in the future. We hold these concerns as the largest donor of official new money to the developing countries, and we would like to emphasize once again the need to treat the issue of official debt reduction in a cautious and prudent manner. I would next like to touch upon some new contributions that Japan is initiating in line with this basic approach. Last year, I stated that Japan was prepared to contribute about $300 million to the Bank over a three-year period to establish a special fund for technical cooperation to the developing countries and for the development of human resources for policy planning and implementation. This July, we contributed about $100 million as the first year's installment on this pledge, and I am pleased to report that the fund is already in operation. Through this fund and other measures, we would like to continue to contribute in a number of important areas. First, Japan intends to play a fair role in support of the Bank's African Capacity Building Initiative to develop human resources in Africa. Second, recognizing the importance of private sector development in the developing countries, Japan intends to step up its technical cooperation for identifying and formulating projects for Bank financing.

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Third, in order to give more consideration to the environment in develop- ment, Japan has been making special and voluntary contributions to the Bank for the last two years to facilitate technical cooperation relating to the environment. We intend to continue this cooperation for global environmental protection. Fourth, on the role of women in development, it was our own experience, during the early postwar years when Japan was still subject to food shortages, that educational programs on nutrition, health care, and other areas of interest to the female farming population improved their standards of living and contributed to sharp increases in agricultural production. Building upon this experience, Japan intends to take an active part in providing technical assistance and other educational programs, so as to identify and formulate projects supporting the role of women in development. The Role of the Fund and the Bank in Debt and Development Issues Finally, I would like to address the role of the Fund and the Bank in debt and development issues. While we have the highest regard for the contribution that the Fund and the Bank have made in international endeavors on debt and development issues, we very much hope that the Fund and the Bank will continue to play a key role in promoting economic structural adjustment in the developing countries. We are, therefore, grateful that, following the Bank's General Capital Increase, agreement has been reached on the Fund's Ninth General Review of Quotas to strengthen its financial resources. We hope that all countries will move quickly to bring the Ninth General Review of Quotas into effect along with the prerequisite Third Amendment to the Articles of Agreement embodying the strengthened arrears strategy. . . .

Closing Last year, Japan became for the first time the world's largest donor of official development assistance. Moreover, with the recent Ninth Quota Review, Japan will take on increased responsibilities in the Fund as it already has in the Bank. We very much appreciate the cooperation extended by the member countries and the efforts made by Fund management toward agreement on the Review. Recognizing our renewed responsibilities in the international community, we would like to stress our determination to make every possible effort to meet these responsibilities. At the very time that the world economy seemed to be moving toward greater convergence around market-oriented economies, a crisis has arisen in the Gulf to try our resolve. Will we be able to cope with this crisis through international cooperation? This is the first hurdle that we must overcome on the way to global economic integration centered on market mechanisms and

©International Monetary Fund. Not for Redistribution 46 SUMMARY PROCEEDINGS, 1990 is also a touchstone as to whether we will be able to sustain the international regime of cooperation led by the Fund and the Bank now in its forty-fifth year. Thus it is that we are gathered today in Washington in an effort to bring our collective wisdom and courage to bear on the issues before us and to develop policy responses in conjunction with the Fund and the Bank to surmount this crisis.

STATEMENT BY THE GOVERNOR OF THE FUND AND THE BANK FOR COTE D'IVOIRE

Kablan D. Duncan

I feel deeply honored to address this distinguished international gathering on behalf of the African Governors of the International Monetary Fund and the World Bank. At the outset, may I welcome the new members of our institutions, Bulgaria, Namibia, and the Czech and Slovak Federal Republic. Despite some improvements in the global economy, the gap between the developed and developing countries has widened significantly. The slowdown in economic activity in some industrial countries, the rise in interest rates, and the decline in non-oil commodity prices will have a catastrophic impact on the balance of payments and the growth prospects of several developing countries. Between 1983 and 1989—a period characterized by one of the longest economic expansions in the global economy—the average rate of growth of per capita income in the industrial economies was higher than in developing countries, leading to a more pronounced disparity in the standard of living between the richer and poorer countries. This gap is even wider if the newly industrializing Asian economies are excluded from this comparison. That situation is unlikely to change in the near future, especially for the heavily indebted countries where there is much uncertainty over the prospects for improvement in their economic growth over the medium term. In this respect, it should be noted that high interest rates in industrial countries, resulting from, among other things, excessive reliance on monetary policy to fight inflation, continue to aggravate the debt-servicing problem, against the background of the projected deterioration in the terms of trade of developing countries and the decline in export earnings. These problems have been exacerbated with the onset of the current Gulf crisis. The impact of this crisis will certainly weigh more heavily on the low-income, non-oil exporting countries. We, therefore, urge the Fund and the Bank as well as the international community to develop as quickly as possible an adequate response to help countries cope with the additional financial burden. In sum, the economic horizon continues to pose major challenges for policymakers

©International Monetary Fund. Not for Redistribution COTE D'lVOIRE 47 in both the industrial and developing countries—challenges that must be approached collectively with foresight and imagination. The major industrial countries have a pivotal role to play in this regard by ensuring that their policies are consistent with long-term growth and stability, not only in their respective economies but also in the developing countries. In this connection, the importance of strengthening the surveillance role of the Fund for all members cannot be overemphasized. Therefore, we urge the continuation of efforts in the Fund to enhance its monitoring procedures, such as the development and refining of indicators and also to keep better track of the process of adjustment in industrial countries. However, in the final analysis, the effectiveness of Fund surveillance is subject to the willingness of the major industrial countries to accept the Fund's role as the key institution for the coordination of their economic policies. The tendency on the part of these countries to decide on economic matters that affect the global economy outside the Fund cannot but tarnish its credibility as the centerpiece of the international monetary system. The situation in Africa is particularly grave: many countries have experi- enced the longest period of economic decline on record. While acknowledging that domestic policies have contributed to the problem in some instances, the adverse effects of natural disasters and an unfavorable external environment have, in general, been the major causes of that decline. In particular, the terms of trade of the African region declined by about 5 percent a year on average between 1982 and 1989, while the region's indebtedness grew to unmanageable proportions, rising from about 154 percent of exports of goods and services in 1982 to more than 226 percent in 1989. The stock of debt for sub-Saharan Africa grew even faster to more than 320 percent of exports of goods and services in 1989 and to about 69 percent of GDP, the highest among the developing regions. The economic crisis in Africa is brought into focus by the sharp decline in per capita income in the 1980s, with the drop in some countries being well over 40 percent. The implications are quite alarming and are compounded by the fact that Africa accounts for the large majority of the world's least- developed countries and a highly disproportionate share of global poverty. We are concerned that in spite of the strenuous efforts made by African countries over the years to carry out policy reforms and implement structural adjustment programs, the general socioeconomic deterioration has continued unabated. Lack of resources has severely constrained the region's ability even to maintain existing infrastructure, arrested, and in many cases, even reversed progress toward reducing infant mortality and illiteracy, which are the highest among developing regions, constrained human resource development, and frustrated efforts toward combating widespread disease and malnutrition. In the United Nations Development Program's recent Human Development Report, most African countries are ranked at the lowest end of its human development index. Not only is this situation intolerable and unacceptable

©International Monetary Fund. Not for Redistribution 48 SUMMARY PROCEEDINGS, 1990 from a human perspective, but it also severely constrains Africa's economic potential. Adequate infrastructure and a healthy, literate, and well-trained population are indispensable to enhancing productivity, which remains the bedrock for sustained improvement in living standards. The conclusion is clear: Africa needs a more imaginative, forward-looking strategy to revive the process of development in the region. Taking stock of the 1980s, it is obvious that our economic problems cannot be solved by short-term financial programming. This is not to minimize the importance of policy measures aimed at achieving price and financial stability; rather, the point is to duly recognize that there is no automatic link between the achievement of this goal and growth with social progress. African Governors, therefore, call on the international community to commit itself to a Special Agenda for Africa in the 1990s, emphasizing increased productivity, the transformation of the primary commodities sector through, among other things, increased processing, the creation of new opportunities for investment, employment, and higher levels of economic growth and social development, while giving particular attention to the reduction of poverty. In essence, therefore, we are making the point that short-term stabilization targets should be consistent with long-term developmental objectives because the former will remain elusive in the absence of fundamental changes in the structure of our economies. This is the challenge of the 1990s: to ensure that Africa does not relive the experience of the "lost decade of the 1980s" and moves with determination along the road to progress and sustained growth. We are convinced that the agenda for Africa in the 1990s, for which we seek the full support of the international community, should focus, among other things, on the following three broad areas: (1) Full internalization of the development process through the design and implementation of structural adjustment programs and policy reforms that fully take into account the human condition, the need for real and significant social and economic transformation, particularly in the rural areas where the majority of our people live, as well as increased popular participation in the adjustment and development process. (2) Acceleration of the measures toward regional economic cooperation and integration leading to the establishment of an African Economic Community as decided by the Assembly of the Heads of States and Government of the Organization of African Unity (OAU) held in July 1990, including the rationalization and strengthening of existing subregional economic groupings to form the building blocks for such a community. (3) In light of the above, the development of intensive programs for capacity building through the development of a strong base for effective management of our economies and more public accountability. It is recognized that the primary responsibility for economic reform in Africa rests with the Africans themselves and their governments. We have already taken major steps to ensure greater accountability in the public sector,

©International Monetary Fund. Not for Redistribution COTE D'lVOIRE 49 reduced impediments to private sector initiative, and implemented policies to increase domestic savings and attract direct foreign investment. We recognize that efforts must continue to strengthen our institutions in order to make them more effective tools for improved economic management. Not only will this reduce our reliance on outside technical assistance, but it will also place us in the position to truly "own" the adjustment programs that we have to implement. For these reasons, we welcome the Bank's initiative to establish a capacity-building program aimed at upgrading national and regional institutions. The international community should be aware that the drastic fall in per capita income in Africa, which characterized the 1980s, is a major constraint to the extent to which domestic savings can be increased in response to new policy measures and incentives. Our development efforts, therefore, must rely heavily for now on concessional external financing from both bilateral and multilateral sources. It is in this context that we urge the international community to support our efforts by increasing the flow of real resources in Africa, which in the past several years has fallen far short of what was needed. Recent events in other parts of the world should not divert the attention of the donor community from the need to make a special effort to assist Africa. For this reason, we call upon the donor community to support the global coalition for Africa. The International Monetary Fund and the World Bank have been supportive of our reform efforts, as evidenced by the financial and technical assistance to a large number of African countries. The two institutions should be adequately endowed with resources to be able to carry out effectively their mandate, while serving as catalysts for mobilizing finance from other sources, including direct foreign investment. We would like to emphasize the determination of our countries, during the decade of the 1990s and beyond, to promote local core industries through regional cooperation in order to meet Africa's requirements for essential factor inputs, including equipment for farm operations, food processing, building, and construction. . . . Africa's need for development finance underscores the crucial role of the World Bank in helping our countries to implement and sustain economic reforms supported by policy-based adjustment lending and investment finance. There is still an enormous need for investment in infrastructure, health, education, and manpower development in Africa. Of course, the structural adjustment facility and the enhanced structural adjustment facility will continue to be an important channel for Fund assistance to low-income countries, given their focus on growth-oriented adjustment in a stable macroeconomic environment and the concessional nature of their resources. Once again, we urge renewed efforts to make programs supported by the Fund and the Bank more supportive with respect to the promotion of economic growth, social progress, and the alleviation of poverty. In this connection,

©International Monetary Fund. Not for Redistribution 50 SUMMARY PROCEEDINGS, 1990 we draw attention to the recent World Bank report—Sub-Saharan Africa: From Crisis to Sustainable Growth—that makes the point that a sustained 4-5 percent annual growth rate is essential to provide for even moderate increases in per capita incomes and consumption in Africa. The report also underlines that an appropriate share of that growth should be geared to meeting social development needs as a basis of achieving progress in both economic and human terms. This orientation should be the motive power for African adjustment and development programs in 1990. We also reiterate our call for greater flexibility in program design, especially with regard to (1) the pace of adjustment, including the timing and sequencing of policy measures; (2) contingency financing, given the high degree of uncertainty in primary commodity markets on which African economies are highly dependent; (3) the role and magnitude of debt relief, with a view to materially reducing the constraint of the debt burden on the adjustment process over the longer term; and (4) the social cost of adjustment, bearing in mind the importance of developing adequate safety nets as well as promoting human resource development. Our emphasis on flexibility is an attempt to draw on the lessons of experience to find more feasible scenarios to tackling the problem of economic growth and development. The enormous debt burden facing African countries calls for strong and specific action. Although the level of debt is small, in relation to the total outstanding debt of developing countries, the burden is quite heavy. As the Development Committee noted in its communique of May this year, despite the concessional debt rescheduling by the Paris Club and the partial cancellation of ODA debt of many low-income countries, they still face uncertain prospects for an early return to external viability. There is an obvious need to re-evaluate the existing debt relief measures for the low- income countries. We also welcome the recent proposals of the British Chancellor of the Exchequer, Mr. Major, calling for further improvements on debt relief under the Toronto initiative. The debt-service problem facing lower middle-income countries also needs to receive high priority. Evidence shows that they will also need concessions similar to those accorded the low- income countries. Against this background, we applaud the French initiative announced in June by President Mitterand to reduce the interest rate on the official debt of some lower middle-income African countries and to extend grants rather than loans in the future to the poorest African countries. We welcome the outcome of last July's conference in Maastricht, and, in particular, we welcome the massive support expressed there for measures to mobilize external assistance to bolster development activity in sub-Saharan Africa. We strongly urge other industrial countries to follow suit. Besides, we strongly recommend that the now unworkable distinction drawn between low-income and middle-income countries be abandoned, since it tends to deprive the latter of debt relief initiatives, even though they suffer just as much from a heavy debt burden. In line with the recommendation of the

©International Monetary Fund. Not for Redistribution COTE D'lVOIRE 51 heads of state of the OAU, we reiterate the need for an international conference on the African debt situation, in order to find an effective solution to this problem. The Bretton Woods institutions need to keep in mind one cardinal principle as they devise proposals to strengthen their policies and practices on arrears. It is that the major aim should be to assist countries falling into arrears to become current. The question of arrears is complex and calls for understanding and flexibility in dealing with the countries concerned. Emphasis should be laid not on punitive measures, but on constructive and cooperative solutions by assisting members to become current and to put their economies on the path of sustained growth and development. Only through cooperative measures can the two institutions carry out their full mandate in all member countries. The linkage between poverty and environmental degradation is now better understood. Moreover, it is clear that sustainable development in Africa, as elsewhere, is also dependent on sound population policies as well as on proper management of the environment. We support the establishment of well-balanced programs to address environmental problems, such as deforestation and desertification. Properly conceived debt-for-nature swaps may also help to protect the environment. . . . There are, however, some environmental problems that are of a global character, such as proper disposal of toxic wastes and chlorofluorocarbons. Therefore, we urge the speedy conclusion of negotiations on establishing a Global Environmental Facility. We must emphasize, however, that resources put at the disposal of the facility should be concessional and in addition to the assistance allocations that would have otherwise been available. The facility should also not be used as yet another vehicle for imposing further conditionality on developing countries. We remain committed to promoting the contribution of the private sector to the development process. However, the circumstances in most of our countries leave no doubt that the public sector has to continue to play an appropriate role. Liberalization should promote complementarity between the public and private sectors, to ensure a balanced development of our economies. . . . In conclusion, we believe that the 1990s must become a decade of recovery and progress in Africa. We recognize that the restoration of economic growth will require determination as well as a joint and sustained commitment from ourselves and our development partners. There is abundant diagnosis of the problems facing our continent. The challenge is to energetically and systematically implement, in a concerted manner, the programs for Africa's recovery and growth. The IMF and the Bank Group can and should be of immense assistance in the realization of our goals. As none of us can accept the cost of failure, we all need to collaborate more closely to meet the challenges of the 1990s.

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STATEMENT BY THE GOVERNOR OF THE BANK FOR CHINA

WANG Bingqian

Mr. Chairman, first of all, please allow me, in the name of the Chinese delegation, to express our sincere congratulations on your assuming the chairmanship of this assembly. We believe that the present Annual Meetings will achieve great success under your leadership. And I would also like to take this opportunity to warmly welcome new members of the Bretton Woods institutions. Mankind has entered the 1990s. In retrospect, the development of the world economy over the past decade has been very disappointing for the developing countries as a whole. Notwithstanding the continuous economic growth of the developed countries, which has lasted longer than any cycle in the postwar period, most of the developing countries have not derived the growth impetus as predicted. To the contrary, their development efforts have been repeatedly frustrated by the increasingly unfavorable external environment—worsening terms of trade, mounting protectionism, declining flows of resources, volatile financial markets, and higher interest rates. With the exception of Asia, all the developing regions have had a disturbing tendency to stagnate or even decline in terms of their GDP per capita growth. The developing countries account for an ever-decreasing share, whether in the total increase in global wealth or in the annual volume of world trade. This serious imbalance in the development pattern of the world economy has resulted in a widening rather than in a narrowing of the disparity between the North and the South. For the near term, the slowdown in world economic growth and the occurrence of tension in the Gulf have created additional uncertainties for the prospects of the world economy, which are bound to increase difficulties for the development efforts of many developing countries, particularly low- income oil importing countries. The present-day world constitutes an integrated whole in which countries are interdependent and interact with one another. Maintaining balanced growth in all regions is a prerequisite for the sound development of the world economy. It is a narrow-minded and short-sighted view that only the developing countries need the developed countries, and not vice versa. As a matter of fact, the developed countries are inevitably dependent on the developing countries for access to commodity markets, more opportunities for capital investment, and supply of raw materials. It is inconceivable that the developed countries would be able to maintain the required economic growth rates while four fifths of the world population is bogged down in increasing poverty and lasting backwardness. Unless efforts are made to reverse the trend of polarization between the North and the South in a timely

©International Monetary Fund. Not for Redistribution CHINA 53 fashion, the peace and stability of the whole world will be very hard to maintain. Therefore, reversing this trend is essential not only to improving the living standard of approximately four billion people but also to guaranteeing the peace for more than five billion people. China hopes that the 1990s— the last decade of the twentieth century—can be a new era to strive for the reinvigoration of the world economy and the attainment of common prosperity. We have been hampered by the debt problem for more than eight years. During the past 18 months, the international community has taken some new measures to reduce the official debt burden of low-income countries and the commercial debt of the heavily indebted middle-income countries. The multilateral financial institutions have also made substantial contributions in this respect. All of these are positive steps. It should be pointed out, however, that the overall debt situation remains serious; the implementation of debt and debt-service reduction is moving very slowly, and the scope of debt relief is very limited. We have yet to find sustainable, just, and comprehensive solutions. The Chinese Government has always maintained that persistence of the debt issue is, in essence, a manifestation of the stunted growth of the debtor's economy. Therefore, any effort or program aimed at debt and debt-service reduction must give priority to revitalizing the economies of the indebted countries rather than put debt service before development. In our opinion, to address the debt problem, it is imperative to create an external environment in favor of development of the debtor countries, to provide them with adequate new money, to expedite effectively the implementation of various programs of debt and debt-service reduction, and to broaden the scope of debt relief initiatives. China supports the international financial institutions for their continued role in this respect; we, however, urge all the more strongly that the creditor countries and the commercial banks make substantial contributions commensurate with their status, capacity, and interests. About one third of the world population in many developing countries is struggling in dire poverty for a minimum livelihood. The international community should be seriously concerned about this situation. The ultimate solution to the reduction and eventual elimination of poverty lies in economic development. We agree that the countries concerned should adopt correct policies, including those to control excessive population growth and to strengthen their own capability to reduce poverty. However, we are of the view that the international community is also duty-bound to provide financial and technical assistance, as well as to foster an environment that will permit development. The economic growth of the low-income countries depends on stable commodity prices, access to world markets, and inflows of concessional funds, which in turn are to a great extent determined by the policies and actions of the developed countries. China is appreciative of the many efforts of the international financial institutions in recent years to make the reduction

©International Monetary Fund. Not for Redistribution 54 SUMMARY PROCEEDINGS, 1990 of poverty one of their priorities. It is hoped that the international financial institutions will take into consideration the situations of different countries, rely on indigenous capabilities, and always strive to achieve practical results. We have noted with appreciation the progress made by the World Bank in environmental protection and its follow-up action programs. In this connec- tion, the crucial point is the proper treatment of the relationship between environmental protection and economic development. Given the fact that the environmental degradation in the developing countries has its root causes in poverty and underdevelopment, we should not talk about environmental protection simply as an end in itself or treat environmental protection and economic growth as two aspects mutually exclusive, but rather make them an organic and mutually reinforcing combination. We maintain that to impose environmental consideration in operational practice as a condition for lending is neither desirable nor acceptable. We hope that the Global Environmental Facility will be set up as soon as possible, and that it will genuinely add to the World Bank's existing environmental protection activities in terms of concessional financial flows and technology transfer. The vitality of the IMF and the World Bank lies in their role in helping to stabilize the international currency system and promote economic development in their member countries. The history of more than forty years has proved that the independent decision-making power, as stipulated in their Articles of Agreements, is a fundamental condition as well as an important guarantee for these international institutions to adhere to their objectives faithfully and fulfill their mandates effectively. It is regrettable, however, that for more than a year the World Bank's lending to China—a developing country that meets all the criteria for borrowing and has earnestly fulfilled all of its obligations—has been obstructed by external forces. Like most of the member countries, we could not but feel greatly concerned over the future of this institution. We hope that this international institution will overcome external interference as soon as possible and continue with its efforts to execute its mandate. As far as China is concerned, the present decade is a crucial phase for achieving the overall strategic objectives of its modernization program. We plan to redouble the GNP by the end of this century, raising the living standard of the people to a level of modest prosperity. At the end of 1988, we adopted the policy of rectification and deepening reforms to redress the overheated economy. Thanks to the efforts made over the past two years or so, encouraging changes have taken place in the Chinese economic situation. At present, agriculture has registered a bumper harvest in summer crops; industrial production is accelerating its upturn; absorption of excess liquidity in circulation is proceeding normally; inflation has been further controlled; foreign trade has achieved a surplus; the international balance of payments continues to improve; adjustment in industrial structure and product mix has made some progress; the output of energy and raw materials has increased

©International Monetary Fund. Not for Redistribution CHINA 55 in varying degrees; resource allocation is being gradually rationalized; and township and village enterprises, which serve as the mainstay of rural economy, have also had further development through adjustment. All in all, the Chinese economy is heading in the direction of continuous improvement. Of course, we are not free of difficulties. Many deep-rooted problems accumulated over the years in the national economy remain to be resolved. Some new issues, which cropped up in the course of cooling down the overheated economy, have yet to be addressed. In order to meet the targets of economic development strategies for the 1990s, we are stepping up the designing of the Eighth Five-Year Plan and the next Ten-Year Program. One of the objectives of this task is to seek, from the medium- and long-term perspective, a systematic and organic integration of all the aspects regarding future development of the economy and the deepening of reforms. From our experiences gained over the past four decades, neither economic construction nor reform could be pursued in disregard of the actual situation of the country, in a hasty attempt to achieve results beyond possibility. Therefore, while concentrating every effort on economic constructions, we will firmly adhere to the fundamental principle of promoting a sustained, steady, and well-coordinated development of the national economy. The Chinese people have further realized from the success achieved during the 1980s that China will have no future without adherence to the socialist road, nor will she have hope without further reforms and opening to the outside world. Therefore, whatever may happen in the international arena, we in China will press ahead with the economic and political reforms in a steady and coordinated manner, and actively develop contacts and cooperations with the outside world. We are also willing to further expand cooperation with the IMF and the World Bank. China will never close its door already opened. And we firmly believe that through the arduous efforts of the Chinese people, together with international cooperation based on equality and mutual benefits, China will surely be able to achieve the established development goals. Looking ahead, the future of the world is bright. We may have different political, economic, and social systems, but we all cherish peace and seek development. As a member of the international community, China's economic development cannot be insulated from that of the world economy. We are willing to make our contribution to the strengthening of international cooperation and the promoting of common prosperity.

©International Monetary Fund. Not for Redistribution 56 SUMMARY PROCEEDINGS, 1990

STATEMENT BY THE GOVERNOR OF THE BANK AND ALTERNATE GOVERNOR OF THE FUND FOR THE PHILIPPINES

Jesus P. Estanislao

On behalf of my delegation, let me join in welcoming the new members of our institutions—Bulgaria, Namibia, and the Czech and Slovak Federal Republic. Events are at times dramatic reminders of basic truths. In the Philippines, the drought, a massive earthquake, and now the floods of 1990 have been reminders of how small human undertakings are beside the acts of nature and of its creator. For the world, the latest developments in the Middle East bring forth the basic truth once again: that we are a family of nations, with a code of conduct that needs to be enforced for the common good of all. It is at times such as these when conviction is deepened that nationalism is too narrow, even regionalism is too limited, and internationalism becomes a necessity. In the 1990s, more than in any previous decade, no one can escape from the interdependencies being woven ever more tightly within the global community. Due to these intricate and complex interdependencies, all of us are confronted with the continuing need to respond to challenge and with the pressing demand to undertake reforms. Responses and reforms may appear more quickly under other political circumstances. But in an open society, driven by people power, authorities must listen and take heed of peoples' opinions and sentiments. Procedures must be followed. Negotiations, which often seem too protracted, petty, and partisan, must be undertaken. Consensus must be gathered and built up. Indeed, democracy may seem to be so much slower and messier. But for the Philippines, it is the surer and safer way of getting results. Our experience during the almost two decades since 1972 has shown that fourteen years of authoritarian rule had brought economic destitution and that more than three years in an open, democratic regime enabled the economy to recover. Hobbled by debt, besieged by antidemocratic forces from the right and the left, daily criticized by sectors that had confused freedom with licentiousness, we have managed within the democratic process to make the economy grow in real terms at 6 percent a year, to bring annual inflation down to below double digits, and to reduce the absolute level of our foreign debt stock, as well as the relative burden of servicing our foreign debt. Since December 1989, however, external shocks have been endlessly hitting the Philippine economy. Growth has consequently slowed down. Inflation rates have gone up to slightly more than 12 percent a year. Imbalances have built up and are now causing considerable concern, especially since they are making the task of carrying out fundamental reforms so much more difficult. We, however, cannot use the external shocks as an excuse for delaying

©International Monetary Fund. Not for Redistribution PHILIPPINES 57 reforms. Indeed, it is with a deep sense of urgency that we must bring our macroeconomic balances back on track so as to move forward decisively to make the Philippine economy more outward oriented, more internally dynamic, and more externally competitive. It is precisely when the odds get to be longer and when problems seem to be mounting that we should not sacrifice long-term objectives for short-term gains. We should never lose sight of our long-term vision, even while frontally addressing short-term imperatives. As we fix immediate problems, we should take care not to create structural problems. It is in this context that I wish to call attention to the common concerns we have about the Philippine economy. We have been able to fix the absorptive capacity problem. We are now able to manage increased capital flows for public infrastructure. We suffer from a higher public sector deficit as a result. Consequently, instead of looking through the traditional narrow lens at the bigger public sector deficit, we must begin to appreciate this positive change behind it and to respond to it differently. Previously, with the absorptive capacity problems, the Philippine economy may not have been grossly underfinanced. Now it definitely is, and the net negative flow of financing has now become a definitive restraint on growth. It has forced us to supplement inadequate external resource flows with heavier domestic borrowings, and these have now reached levels that should not be further breached. Against this background, our people have found it increasingly difficult to understand why we should be held to rigid rules. We had an opportunity to further reduce our debt stock through cash buy-backs. Until now, we have not been able to take advantage of that opportunity because the rigid rules on fungibility have not been relaxed. A case-by-case approach is supposed to be taken. But until now, there has been a refusal to draw a circle around the Philippine case, despite the external shocks we have been subjected to and the revealed market preferences that are supposed to drive the current debt alleviation program. In the current environment, when debt-stock condonation and debt-service condonation have been formally presented before the U.S. Congress and other forums, and when other innovative debt- alleviation schemes have been initiated at the official level, the Philippine people are confused and frustrated that despite our good record of foreign debt management, we are unable to proceed on the second round of our debt- reduction initiative because the rules have not been relaxed. Our domestic rhetoric and internal political dynamics oftentimes cause confusion and exasperation even among friends who are supposed to understand democratic complexities. Let me assure my fellow Governors, however, that no responsible sector of Philippine society—be it the executive branch or the legislative branch, be it church or business—seriously advocates unilateralism in our foreign debt management. We still believe confrontation to be the wrong way and negotiation to be the smartest route toward the best

©International Monetary Fund. Not for Redistribution 58 SUMMARY PROCEEDINGS, 1990 results. We are staying on course, arguing for our cause through reason and appeal to the moral principles of justice and solidarity. We are not measuring the strength of our position by the intransigence of our stand, nor by the stridency of our statements. But we cannot hide our impatience nor can we rein in our earnest efforts toward faster movement, greater flexibility, and effective, immediate maximum debt relief. Flexibility is a requirement for effectiveness. We cannot merely impose conditionalities, disregarding concessionalities. We cannot mechanically project numbers, disregarding the human face of reforms, because, if we want reforms to succeed, they have to be sold with their costs accepted and their gains widely understood. The Philippines, together with the rest of the world, stands at an important crossroad. Either we go uphill toward full reform, or we slide right back to where we were in the crisis period at the beginning of the previous decade. Our choice is as clear as that made by people power everywhere. We are willing to pay the price of that choice. Our prayer is that we will find more than token understanding as we persist in hanging on to that choice, price and all.

STATEMENT BY THE GOVERNOR OF THE FUND AND THE BANK FOR KUWAIT

Sheikh All Al-Khalifa Al-Sabah

On August 2, Kuwait, an active member of the Bretton Woods institutions, a member of the United Nations and the Arab League, fell victim to a naked act of brutal aggression committed by the Iraqi regime. With no provocation or justification, a ruling tyrant in Iraq invaded our country, shattered and looted our economy, inflicted untold hardships on the people of Kuwait and rendered homeless hundreds of thousands of innocent people. This wanton act of aggression has no precedent in the annals of Arab history. Never before has an Arab country done to a sister country what Saddam Hussein did to the people of Kuwait. The crude and calculated invasion of Kuwait by Saddam Hussein violates the most basic principles of international law, tramples on all norms of human decency, and makes a mockery of Arab brotherhood and solidarity. At this difficult time, we are heartened by the fact that the aggressor stands isolated and condemned by the world community. For the first time, all nations of the world—East and West, North and South—are unanimous, not only in their condemnation of aggression but in their determination that the aggressor must not benefit from his aggression. No words can express the

©International Monetary Fund. Not for Redistribution KUWAIT 59 gratitude of the Government and people of Kuwait to all those who stood up in defense of law, justice, and world order. Since its independence in 1961, Kuwait has always endeavored to be a responsible member of the world community. Our oil policy has reflected the need for stability of oil prices at levels which are conducive to sustained growth in the world economy. Our investment policy has reflected our confidence in the international financial markets as well as the emerging markets of the developing countries. It has demonstrated our long-term commitment to foster the development of our country through technology, management, and the promotion of export markets in an increasingly competitive environment. Last but not least, our aid policy—and I want to emphasize this—has reflected our resolve to contribute to the development of other developing countries and to work closely with Arab regional organizations, the World Bank Group, and the IMF toward stable and sustainable economic growth. It is a matter of pride for us that the Kuwait Fund for Arab Economic Development was the first development institution created by a developing country to help other developing countries. Over the last twenty-eight years, the Fund has been actively involved in development assistance. By the end of June 30, 1990, Fund commitments had reached a level of KD 1.7 billion ($5.8 billion), benefiting 65 developing countries. As I already indicated, the Fund will continue its development operations and will save no effort to pursue the realization of its objectives through close cooperation with beneficiary countries. Kuwait also took the initiative in establishing both the Arab Fund for Economic and Social Development and the Inter-Arab Investment guarantee corporation and played an instrumental role in the creation of the Arab Bank for Economic Development in Africa and the OPEC Fund for International Development. We are also proud to have been the first developing country on IDA's donors list. Soon after independence, our country adopted a constitution based on democratic principles, freedom and security of the individual, and freedom of the press. Our people will remain united and committed to continue the evolutionary process after the end of the occupation. During those years, we emphasized education, institution building, and management skills. Many of our institutions and those in partnership with other Arab countries are well established in international markets. These include, apart from the Kuwait Fund, the Kuwait Investment Authority, Kuwait Petroleum Corporation, Kuwait Institution for Scientific Research, the Arab Fund for Economic and Social Development, and a number of other banking and investment institutions. In all of them, development is a joint effort between Kuwaitis and other nationalities who have made Kuwait their home. Our citizens also realize that with prosperity comes responsibility. At the time of the invasion, there were more than 70 Kuwaiti nongovernmental

©International Monetary Fund. Not for Redistribution 60 SUMMARY PROCEEDINGS, 1990 organizations contributing substantially toward clinics, schools, and emer- gency relief in the poorest countries of the Middle East, Asia, and Africa. Today, in spite of the occupation, the legitimate and recognized government of Kuwait, headed by His Highness the Amir of Kuwait Sheikh Jaber Al Ahmad Al Sabah, and its major institutions continue to function. While there is extensive damage to physical assets inside Kuwait, external assets are safe. By the end of the second week after the invasion, the Kuwait Investment Authority was in full control of all foreign assets. The Kuwait Petroleum Corporation continued its activities of exploration, production, refining, and marketing operations. The Central Bank continues to support foreign operations of the Kuwaiti banks. Kuwait Airways remains in operation through charters and leases and it is shortly expected to begin regular services out of Cairo. The Kuwait Fund and the Arab Fund have re-grouped skeleton staff and are expected to begin operations soon. Our priority has been to keep as many institutions as possible in operation and to function normally in the international market. On the other hand, it is so essential for us to emphasize the necessity of the Kuwaiti banking system to meet unconditionally its foreign obligations pertaining to the interbank and foreign exchange transactions. The Central Bank of Kuwait is working in this direction and the banks are in the process of reconstructing their books, and in a matter of weeks, we hope to solve this issue to the utmost satisfaction of the world banking community. This would not have been possible without the close cooperation and coordination of the countries in which Kuwaiti assets are located and the dedication and loyalty of our multinational staff. The invasion of Kuwait is expected to precipitate a severe economic crisis in countries whose economies are strongly linked to the Gulf. The international community should respond positively by providing additional concessional assistance to countries most immediately affected by the crisis. We also expect the Fund and the Bank to assist member countries in developing policy responses, adjusting their lending programs to meet each country's changed circumstances, and mobilizing and coordinating donor support. The Fund and Bank also should continue to monitor the impact of the crisis, particularly with respect to a large number of developing countries that have adopted strong adjustment programs that remain vulnerable to a deteriorating external environment. Many of the countries affected by the crisis continue to be burdened by debt, making it difficult for them to put their economies on a sustainable growth path. The international community has, over the past two years, developed several initiatives to reduce the debt burden of both the low-income and middle-income countries. We would urge the donor community to widen the debt-reduction options for the countries affected to include substantial reduction of official debt. Kuwait has always stood ready to bear a fair share of the burden, and

©International Monetary Fund. Not for Redistribution AUSTRIA 61 more, because of our strong commitment to development. Today, that commitment remains the same, but with even greater resolve. We have allocated $2.5 billion to assist countries immediately affected by the crisis in addition to some assistance toward food, shelter, and transport of evacuees through international organizations such as the Red Cross and the Red Crescent. This is besides the assistance of the Kuwait Fund. We also intend to increase our contribution in IDA-9 to support the efforts of the poorest members and have indicated a willingness to generously support further IBRD and IMF efforts to help in the adjustment process of those countries most affected by implementation of UN resolutions. We will also actively support and participate in the Gulf Crisis Financial Coordination Group announced this afternoon by President Bush, a leader whose commit- ment to peace is only matched by his determination to resist aggression and defend international law. With respect to debt, we plan to pursue His Highness, the Amir's debt initiative more vigorously to ease the burden on the poorer highly indebted countries. The initiative calls for: First, debt and debt-service reduction by official and commercial creditors and in some cases total forgiveness, on a case-by-case basis, to allow sustainable adjustment and growth. This excludes national, regional, and multilateral development institutions. Second, flexible programs with realistic conditionalities by the World Bank and the IMF to include appropriate measures, such as social funds to alleviate the effects of adjustment on the poor. Third, expansion of technology transfer, human resource development, and technical assistance with the aim of conserving national resources and protecting the environment in a joint effort between industrial and developing countries. It is our unshakable faith and hope that Kuwait will rise again to take its place as a full and honored member of the world community. To achieve this noble goal, no sacrifice is too great for the people and Government of Kuwait.

STATEMENT BY THE GOVERNOR OF THE BANK FOR AUSTRIA

Ferdinand Lacina

First, let me express my warm welcome and best wishes to our new members and guests participating in the Annual Meetings, especially to the Czech and Slovak Federal Republic, since that country is not only our neighbor but has also become a fellow member of our constituency. We take

©International Monetary Fund. Not for Redistribution 62 SUMMARY PROCEEDINGS, 1990 great satisfaction in seeing this country, one of the founding members, rejoining the Bretton Woods institutions. The joining of these countries carries our organizations a step further toward the founding fathers' vision of them as global instruments for promoting the sound development of the world economy. As the scope of their actions comes ever closer to the truly global, the Bretton Woods institutions will meet new challenges and shoulder much greater responsi- bilities. Given the performance of the Fund and the Bank over the past forty- five years, I am confident that they will be equal to their new task of shepherding and supporting countries through their ardently desired process of transforming their centrally planned economies into market-oriented economies. The first requirement for enabling the Fund and the Bank to play the role assigned to them is to provide them with resources adequate to the task. For this reason, the Ninth General Review of Quotas of the Fund, on which we agreed a few months ago, should be ratified by all members so that it can enter into force as soon as possible. Another task adding to the great urgency of adequate funding is the recent crisis in the Persian Gulf region. The adverse effects of the oil price hike will damage the adjustment programs of both the developing countries and the Central and Eastern European countries. I acknowledge the immense efforts and great flexibility shown by both the Bank and the Fund up to now; there can be no doubt that in the future the Bank and the Fund will have to make full use of their existing instruments to cope with the pressing problems of both groups of countries. I wish to stress that the provision of technical assistance, on both the macroeconomic and microeconomic levels, is espe- cially important. To help with the transition of the countries of Central and Eastern Europe, another important multilateral assistance organization, the European Bank for Reconstruction and Development (EBRD), was created some months ago. I hope that this new institution can begin operations as soon as possible and that it will be able to work in close cooperation with the Bretton Woods institutions. The multilateral efforts to support the economies in transition will need to be supplemented by the donor community on a bilateral basis. Austria has created various instruments for its support of the transition process in Central and Eastern Europe, notably the East-West Fund, which supports investors who are willing to make direct investments in Eastern Europe. Besides this, my country has been very active in providing technical assistance, either on a multilateral or on a bilateral basis. Another serious consequence of the Gulf crisis is its damage to the economic prospects of the oil importing, debt-distressed developing countries. We have to find efficient ways of easing the extra debt burdens now imposed on these countries. Austria supports all multilateral initiatives for debt and debt-service reduction, especially for the poorest countries. Therefore, I intend to propose to the Austrian Parliament that it examine the possibility

©International Monetary Fund. Not for Redistribution ISRAEL 63 of reducing or canceling official Austrian claims on the sub-Saharan countries that are eligible under the Special Program of Assistance. Just before these Annual Meetings began, there was another meeting of the group discussing the Global Environmental Facility. I hope the negotiations for its creation can be successfully concluded in the next few months, for I am convinced that this facility is urgently needed to solve our global environmental problems. Austria will be ready, when the time comes, to make an appropriate contribution to the Global Environmental Facility. Finally, I come to the most salient issue of these last months of 1990: the successful conclusion of the Uruguay Round. An open multilateral trading system is even more important than aid flows for sound long-term develop- ment. In their adjustment programs, many developing countries have included import liberalization on a unilateral basis, knowing that trade barriers hurt both the importing and the exporting countries. It would be highly desirable for the industrial countries to use these last weeks of Uruguay Round negotiations to match the willingness of the developing countries by providing access to their own markets on a generous basis. Let me conclude by once more expressing our thanks to the Bretton Woods institutions for their valuable contributions to economic development and my conviction that they will be able to address the new challenges of the future with the same success they have achieved in meeting the challenges of the past four and a half decades.

STATEMENT BY THE GOVERNOR OF THE BANK FOR ISRAEL

Michael Bruno

It is an honor and a privilege to address this distinguished gathering on behalf of the State of Israel. We wish to welcome Bulgaria, the Czech and Slovak Federal Republic, and Namibia to the Fund and the World Bank. The Annual Meetings of the Fund and the World Bank provide an opportunity to reflect on the pertinent problems of the world economy as well as on the common lessons of reform processes going on in individual countries. Much has been and will be said during these meetings about the issues of international economic policy, be it the need for the enhanced flow of financial resources from the developed economies to the less-developed ones, the need to keep more open and liberal trading systems, the impact of rising oil prices, or the problems of coordination among the industrial countries, which in turn determine the growth and stability of the world economy as a whole. We would like to reflect here mainly on the lessons that can be derived from both the successes and the failures of adjustment

©International Monetary Fund. Not for Redistribution 64 SUMMARY PROCEEDINGS, 1990 and structural change that have been going on in several semi-industrial economies in the West and more recently started also in the East. During the past decade, several countries have gone through rather extreme inflationary experiences, largely as a result of international crises reflecting failed responses to external shocks or mounting debt problems. External causes apart, these crises can almost always be attributed to common internal roots, notably large and sustained budget deficits. Yet the nature of the inflationary process across countries and over time has varied and so has the mix of stabilization cures. Both the common features as well as the differences form an important lesson for future policy formulation. The inflationary process in some of these cases, such as Bolivia (and more recently, Yugoslavia, Poland, and, through failure of earlier stabilization attempts, also Argentina and Brazil), has reached hyperinflation at more than 50 percent per month. This process is bound to be of relatively short duration (say, no more than two to three years), because it is highly explosive. Its shock cure—no gradualist approach could ever work—rests on the orthodox measures involving sharp fiscal (and monetary) reform. Cumulative recent experience has also drawn attention to the somewhat different phenomenon of high (chronic) inflation, which is a prolonged and more stable process. It may last from five to eight years and show monthly rates of, say, between 5 percent and 25 percent. This, for example, characterized the inflationary process in Argentina, Brazil, and Israel up to 1985 and in Mexico up to 1987. The quasi-stability of that process comes from an inherent inflationary inertia, which in turn is strongly tied with a high degree of indexation or accommodation of the key nominal magnitudes (wages, the exchange rate, and the monetary aggregates) to the lagged movements of prices. It is the obvious way in which an inflation-prone system attempts to protect itself from the evils of inflation, thus giving it a longer lease on life and delaying its more fundamental cure. The origin of the latter, as in the case of hyperinflation, comes from government finances. Its cure by necessity must involve the same sharp orthodox fiscal (and monetary) measures. Similarly, the very high rate of inflation makes a gradualist approach too costly, if not impossible. Yet, there is one major difference in such chronic inflation cases. When there is inflationary inertia, the orthodox cure, although necessary, is not sufficient in and of itself. The correction of fundamentals may not, by itself, remove inflationary inertia, as the Mexican example in the mid-1980s has shown. Supplementary direct intervention in the nominal process, such as a temporary synchronized freeze in wages, prices, and exchange rates, may be extremely important, because it can substantially reduce the initial cost of disinflation and thus make it socially and politically more palatable. This two-pronged approach to stabilization, applied to Argentina, Israel, and Brazil in 1985-86 and later on to Mexico, came to be known as the heterodox program. Two of these

©International Monetary Fund. Not for Redistribution ISRAEL 65 countries, however, Argentina and Brazil, failed to stabilize, mainly because their fundamentals were not set in place, and the two countries subsequently went into hyperinflation, which is being attacked by orthodox measures. The lesson of that experience is that the exercise of wage-price controls with insufficient, or only temporary, fiscal correction will inevitably lead to an inflationary explosion. In the other two countries, Israel in 1985 and more recently Mexico in 1988, the heterodox stabilization program has been successful, while structural adjustment is still going on. Successful adjustment inevitably involves real unemployment costs. In Israel, the cost of disinflation appeared with some delay. Two years after a seemingly costless transition from 500 percent to 20 percent annual inflation, the economy went into a deep two-year slump, leading to a substantial rise in unemployment during 1989. While some unanticipated events may have deepened the recession, its main cause was rooted in the slow recuperation from the distortive effects of a long (15-year) inflationary era as well as real wage overshooting, excessively high initial real interest rates, and a heavy tax burden on the business sector. Since then real interest rates have come down sharply, real unit labor costs have recently started falling in the wake of rising unemployment, and output is beginning to grow again. One of the lessons seems to be that without a temporary cost in rising unemployment, it is hard to establish government credibility in following a stable exchange rate policy immediately after the initial shock of stabilization. In contrast to Israel, Mexico's recent example shows that early awareness by a determined political leadership of the depth of the crisis—before annual inflation hits 200 percent—can save some of the more painful adjustments afterward. A more severe external crunch, motivating quick fiscal action, and a more flexible labor market, cushioning the internal shock in Mexico, have certainly helped a lot. Implementation of a bold structural adjustment program, including the privatization of state-owned enterprises and vigorous deregulation and liberalization of external trade, may explain why, in spite of relatively high real interest rates and a real appreciation, private investment and renewed growth can take place during an ongoing stabilization process. High inflation, after all, is but one manifestation of an underlying deep crisis in the real economy. Even successful stabilization of prices is in most instances no more than a necessary first step in a more protracted structural reform process, almost like anesthesia preceding the more serious real surgery. This is borne out in many of the more successful recent adjustment efforts. While Chile's stabilization, for example, was lengthy and painful, its very recent history is especially illuminating, since it represents a stage that has probably not yet been reached in other successful stabilization experiences. Well-functioning goods markets, a competitive real exchange rate, a restora- tion of basic macroeconomic balances—all of these have been conducive to a resumption of the noninflationary growth of exports, investments, and GDP. The structural reform process in my own country, which was slow to come

©International Monetary Fund. Not for Redistribution 66 SUMMARY PROCEEDINGS, 1990 about, has very recently received an extra push. Two weeks ago, the Israeli Government decided on a series of further liberalization measures to open up the labor, capital, and foreign exchange markets. This forms part of a market- oriented reform strategy, the need for which was reinforced by the massive influx of immigrants. At the same time, it will help prepare the economy for the new Europe of the 1990s. Recent dramatic developments in Eastern Europe have turned our interest in the direction of the economic reform process going on in that part of the world. It is interesting that in spite of the vast difference in structure and political-economic regime, the first adjustment stage of a deep reform process closely resembles the above shock therapy. Yugoslavia's and Poland's reform programs are the most recent fresh examples. In spite of the institutional differences there are many lessons to be learned from the Western experience and many pitfalls to be avoided. One common lesson is that a strong political leadership that credibly expresses its preference for stabilization and structural change as well as a social consensus on the key economic issues (even if divided on other political issues) are important prerequisites for the success in both Western and Eastern groups of countries. Their absence explains much of the recent failures of stabilization. The structural reform in Eastern Europe poses great challenges to our way of thinking on economic policy, since neither theory nor previous experience tells us how one should go about moving from a highly centralized, collective property, command economy to a decentralized, private property, market- oriented economic system. Partially liberalized markets may give the wrong signals about pertinent prices for business planning. One example of that is the irrelevance of a free-market-determined exchange rate for export planning when foreign exchange is the only means of saving in an otherwise distorted economy. In a case like this, domestic currency becomes grossly undervalued because the demand for foreign exchange is then dominated by portfolio investment considerations and not by the supply and demand for tradable goods. Another likely mistake is to believe that moving from a centrally controlled system to a market-oriented one may mean that everything, including fiscal and monetary policy instruments, should be decentralized. One of the main problems of a centrally controlled system is the existence of hidden public sector deficits originating in the quasi-fiscal, cheap credit allocation functions of central banks as well as in the collectivization of losses stemming from lack of financial accountability at the individual enterprise level. It is important to stress that even in the best run and most liberal market-based industrial economies, monetary and fiscal policy must always remain under very strict central control. In my own country, although it is primarily a market-oriented economy, there have been trade-union-owned as well as collectivized subsectors of the economy, which were run on the basis of a mutual guarantee and a soft

©International Monetary Fund. Not for Redistribution GREECE 67 budget constraint. These are now undergoing very tough and painful reform processes with an emphasis on establishing microfinancial accountability. Having to do this for the whole economy, as is the case in Eastern Europe, must be a very tall order indeed. The role of the Fund and the World Bank in promoting and monitoring the adjustment and structural change of the Eastern European countries will be central in the coming years. Another very important agent in promoting and financing the reform process will be the newly established European Bank for Reconstruction and Development, of which my country is proud to be one of the founding members. If there is one central lesson that has been learned from all recent country adjustment programs, both the failed and the more successful ones, it is the absolute necessity of supporting the internal reform with the variety of sustained, even if temporary, external financing arrangements through, or with the help of, our international institutions. Without these, the internal economic and social costs of adjustment will make the task insurmountable. One example of such need, in the context of Eastern Europe, may be the use of foreign loans to finance the reconstruction of individual enterprises in the process of liberalizing and privatizing the production and distribution systems. Another role will be to support joint ventures and foreign private investment. To sum up, based on recent experience, one can be confident that a determined and forward-looking government, if supported by internal social consensus and prudent economic support from outside, can successfully transform even the most ailing economic system.

STATEMENT BY THE GOVERNOR OF THE BANK FOR GREECE

Efthimios Christodoulou

Before I begin, I would like to welcome the representatives from Namibia, the Czech and Slovak Federal Republic, and our neighbors from Bulgaria, as well as the special invitees from the Soviet Union, to this meeting. I hope that these last will soon be counted among our members. The state of the world economy reflects the effects of policies pursued over the last year, but it is also influenced by the crisis in the Persian Gulf and extraordinary events and developments in Europe. In 1989, world output growth decelerated while consumer prices increased at a faster pace. However, the slowdown in economic activity was not universal. In certain low-inflation European countries, output growth in 1989 was the highest of the 1980s, while in most other European countries it remained at the high 1988 levels. The acceleration of inflation in the industrial countries in 1989, particularly in the first half of the year, reflected higher U.S. dollar prices for oil and

©International Monetary Fund. Not for Redistribution 68 SUMMARY PROCEEDINGS, 1990 non-oil commodities, high rates of capacity utilization, and inclement weather in some countries. Projections made by the IMF staff prior to the Gulf crisis, on the assumption of unchanged policies, envisaged a deceleration of both world output growth and of inflation in 1990, while projections for 1991 suggested that economic activity would pick up and inflation would stabilize. These projections have recently been adjusted in light of the anticipated likely effects of developments in the Gulf. According to IMF staff projections, the rise in oil prices is expected to produce a moderate decline in GDP growth and a moderate increase in the inflation rate of industrial countries. It is evident, however, that the new oil shock will be a major challenge for the oil importing developing countries and Eastern Europe, which are going through a difficult phase of transition, facing serious external debt problems and trying to implement wide-ranging structural reforms. The crisis in the Gulf poses a threat to the world economy. Although conditions in the world oil market are less tight today than in 1973/74 and 1979/80, when the two oil price shocks occurred, a continuation of the present crisis could destabilize markets. To limit the stagflationary effects of such an event, the policy mix should be adjusted appropriately. If estimates about the duration of the crisis warrant it, putting strategic oil reserves of OECD countries on the market should be seriously considered. According to some estimates, after production adjustments the anticipated actual reduction of oil exports from the Gulf will amount to only 5.5 percent of the world oil supply, and if this is true, it should not be allowed to destabilize markets with detrimental effects on production and inflation. The effects of persistently higher oil prices could be very serious for a number of oil importing countries, like my own, that are already engaged in stabilization and structural reform efforts. Their situation will be aggravated by lower external demand, higher inflation, and higher interest rates; in many cases, the required import adjustment may be difficult to achieve in the short run without major dislocations. A careful reassessment of the adjustment and financing needs of these countries is required on a case-by-case basis, if past mistakes are to be avoided. It is unavoidable that real resources be transferred from the oil importing industrial and developing countries. We must make sure, however, that this does not entail the abandonment or postponement of long-term strategies aimed at redressing macroeconomic imbalances, increasing efficiency, emphasizing market mechanisms, and raising capital formation. This calls for the coordinated action of every agent and mechanism involved. Oil importing developing countries, particularly some low-income coun- tries, will bear the brunt of the crisis, in terms of reduced growth and deterioration of their external accounts. Coordinated action by the countries themselves, the IMF, the World Bank, and the international community must therefore be strengthened. Leaving aside the frontline countries—for which

©International Monetary Fund. Not for Redistribution GREECE 69 an international donor program is already being developed—assistance schemes must be quickly devised for those oil importing countries that are in the middle of applying strong macroeconomic measures and structural adjustment programs. In 1989 and 1990, the world witnessed a series of extraordinary events that are bound to change the shape of the world economy. One set of events is related to the sweeping changes that are taking place in the political and economic systems of Eastern European countries. Another concerns the increased momentum toward European integration. The restructuring and opening of the economies in Eastern Europe will have positive effects for the world economy in the long run. However, the introduction of sweeping reforms could have adverse consequences for these countries in the short run. The European Community is playing an active role in assisting the process of restructuring by providing financial and technical assistance. The European Bank for Reconstruction and Development, which will provide technical and financial support to Eastern Europe, in cooperation with the IMF and the World Bank, is expected to play an important role in this process. In 1989 and 1990, the process of European integration gained momentum. Two intergovernmental conferences will convene before the end of the year to negotiate a revision of the Treaty of Rome, as required for the realization of two fundamental objectives: economic and monetary union, and political union. The first stage of economic and monetary union started on July 1, 1990, and by its end all currencies of the member states will join the exchange rate mechanism of the European Monetary System, all capital controls will be abolished, and all remaining obstacles to the free movement of persons and goods will be removed. The process of European unification will have obvious beneficial effects, in terms of world political, economic, and monetary stability. Its success, however, depends on a number of conditions that must be fulfilled. The process must be completed in the minimum possible time, so that the expected benefits show up as soon as possible to counter the unavoidable costs of transition. The process of economic and monetary union must move in parallel with the process of political union, since no progress can be achieved in one without the other. Furthermore, for monetary union to be accomplished, economic union must proceed at an equal pace, since it would be impossible to establish irrevocably fixed exchange rates and a single currency, without having attained all the economic goals explicitly set in the Single European Act. This calls for enhanced fiscal discipline, as well as more efficient mechanisms for economic and social cohesion. For the success of the whole assignment, it is imperative that all EEC member countries fully participate in all stages of the process involved. The successful transition to the final stage of economic and monetary union, with a single monetary policy and a single currency, depends on

©International Monetary Fund. Not for Redistribution 70 SUMMARY PROCEEDINGS, 1990 rapid nominal convergence among the member economies and increased coordination of policies. Without rapid nominal convergence, a regime of fixed exchange rates combined with free capital movements might produce serious imbalances and tensions in financial markets. The European Community remains committed to open markets and to the strengthening of economic relationships with the rest of the world. The renewal of the Lome agreement demonstrates the willingness of the Community to maintain and broaden its trading relations with the rest of the world, in particular with the developing countries. The Community also urges other countries to make efforts to meet the deadlines regarding the objectives of the Uruguay Round. The implementation of trade liberalization measures will help the developing world. In this connection, it is encouraging to see that the cooperative debt strategy is yielding certain, albeit limited, results and that many over-indebted developing countries are now implementing suitable structural adjustment policies. The need for direct financial assistance is more obvious in the case of the poorest, heavily indebted countries. It is hoped that the negotiations for the refinancing of the World Bank's Special Program of Assistance and the replenishment of the African and Asian Development Funds will come to a timely and positive conclusion. In this connection, if I may point out, it is satisfactory that the recent conference of the UNCTAD in Paris was marked by convergence, despite existing differences on some aspects of debt, public aid to development, human rights, and the environment. The program of action for the next decade, compared with that of the 1980s, is certainly more concrete and susceptible to synergies and coordinated efforts. Proper weight must be given to restoring productive apparatus, promoting private sector initiative, and freemg market mechanisms, as well as to coordinating the mobilization of all partners involved, including all social partners and nongovernmental organizations. Let me now refer to economic policy in my country. During most of the 1980s, a policy based on extensive government intervention, ever-increasing public and external borrowing, and unrealistic price and incomes policies, brought the Greek economy to the verge of a breakdown. At the end of 1989, major problems facing the economy fell into two categories: sizable macroeconomic imbalances and serious structural rigidities, which had accumulated over the years. At the beginning of 1990, the public debt/GDP ratio was projected to be about 110 percent, growth and investment prospects were deteriorating, inflation was accelerating, and the current account deficit was widening. High interest rates, required for monetary stability, exerted downward pressure on capital formation and boosted public debt-servicing outlays. Imports were growing at an accelerated pace, while exports deceler-

©International Monetary Fund. Not for Redistribution GREECE 71 ated owing to the slowdown in world demand and to deteriorating relative price competitiveness. Dealing with macroeconomic imbalances and promoting sustainable nonin- flationary growth had become increasingly difficult, as structural inefficiencies prevented rapid expansion and diversification of the resource base. It was clear to the new government, which was elected last April, that in these circumstances proper solutions should be sought only within the framework of a comprehensive medium-term adjustment program aimed at both redressing imbalances and initiating extensive structural reform. Such a program is currently in force, covering almost a four-year period (1990-93) during which the inflation rate is targeted at one-digit figures from the current 20 percent average annual rate. A central element of this medium-term program is fiscal consolidation that will reduce the net PSBR/GDP ratio by 11.5 percentage points. The primary deficit is expected to be reduced to around 5 percent of GDP in 1990, from 9.4 percent last year, and will gradually evolve into a 4 percent surplus by 1993. Fiscal consolidation will ease the task of monetary authorities. A downward trend of interest rates is expected as inflationary expectations subside and government borrowing diminishes. The medium-term program combines macroeconomic stabilization with far-reaching structural reforms, including tax reforms and the privatization of publicly controlled enterprises. The four-year strategy aims at tackling major structural deficiencies, such as overregulated output and factor markets, antiquated public administration structures, a financial structure subject to serious constraints, and selective subsidization; incomes policies that discour- age work effort and the acquisition of skills, labor-market regulations that reduce private employment opportunities and induce the public sector to act as a substitute for unemployment benefits; and insufficient economic and social infrastructures, especially in education, health, transport, communica- tions, and utilities. In the last five months, important tranches of measures initiating the medium-term program have already been introduced. A first stabilization package, in April, provided for increases in public utility and value-added tax rates and in excise taxes on oil, tobacco, and alcohol, as well as for substantial cuts in government subsidies and in the wage bill of the public sector. Soon after, a package of privatization and liberalization measures was introduced, whereby monopoly privileges of some public enterprises were abolished, and trade intervention agencies were closed down. Procedures are now under way for the privatization of publicly controlled manufacturing firms. A new Law for Modernization and Development was passed last summer introducing major changes in labor-market legislation measures to modernize public administration, provisions for the development of the stock exchange, and a more efficient system of investment incentives. A bold social

©International Monetary Fund. Not for Redistribution 72 SUMMARY PROCEEDINGS, 1990 security bill is now before Parliament, introducing major reforms in pension schemes, that will rationalize the system and reduce its substantial deficit. The Greek Government is firmly committed to fully implement its program, especially in view of the serious implications of the recent oil crisis. As an EEC member, Greece counts on the full support of the European Community, which has already provided explicit assurance that problems facing the Greek economy will be confronted within and by the "European family." With the Community's support, the firm implementation of the reconstruction program will soon lead to positive results, which, besides being desirable in themselves, will allow the Greek economy to participate fully in the ongoing process of Europe's economic and monetary union.

©International Monetary Fund. Not for Redistribution DISCUSSION OF FUND POLICY AT THIRD JOINT SESSION l

REPORT TO THE BOARDS OF GOVERNORS OF THE FUND AND THE BANK BY THE CHAIRMAN OF THE JOINT MINISTERIAL COMMITTEE OF THE BOARDS OF GOVERNORS ON THE TRANSFER OF REAL RESOURCES TO DEVELOPING COUNTRIES (DEVELOPMENT COMMITTEE)

B.T.G. Chidzero

The Annual Report on the work of the Development Committee for the year ended June 30, 1990 has been formally submitted to the Chairman of the Boards of Governors. I will, therefore, only highlight the major issues discussed and conclusions reached by the Committee. The main focus of the Committee's attention this year was on the following broad range of problems and issues.

Problems and Issues in Structural Adjustment The Committee reviewed the experience with structural adjustment pro- grams. It identified the essential ingredients for the achievement of successful programs including, in particular, strong political commitment, broad public support, adequate and timely financing, and an enabling external economic climate. The Committee particularly emphasized the primary role of adjusting countries in the design of their reform or adjustment programs. At the same time, members urged industrial countries to adopt macroeconomic and trade policies supportive of developing countries' adjustment efforts. In this connection, the Committee decided to discuss the impact of industrial countries' trade, agricultural, and industrial policies on developing countries in the spring of 1991.

Debt Strategy and Development Prospects of Severely Indebted Countries The Committee reaffirmed its support and welcomed the progress achieved so far in the implementation of the strengthened debt strategy for the severely indebted middle-income countries. The importance of adjustment programs as a basis for debt and debt-service reduction was also stressed. The Bank and the Fund were asked to continue to provide support for debt and debt-service reduction packages, with the necessary flexibility under their

1 September 26, 1990. 73

©International Monetary Fund. Not for Redistribution 74 SUMMARY PROCEEDINGS, 1990 established guidelines. In the case of the lower middle-income countries, largely indebted to bilateral official creditors, members welcomed the recent arrangements by Paris Club creditor countries and the decisions by a number of creditor countries that would contribute to alleviating the burden of bilateral debt of some of these countries. The Committee invited all creditor countries to consider taking further measures on a coordinated and case-by-case basis. The Committee welcomed the debt relief that creditor countries have provided to an increasing number of low-income countries implementing Bank- and Fund-supported programs. Members also welcomed the request made to the Paris Club in the Houston Declaration to review the implementation of the existing options that apply to the poorest countries and encouraged the concerned creditors to complete this review rapidly. The Committee called for early consideration through the Paris Club of the proposals made by France, the Netherlands, and the United Kingdom for further bilateral official debt relief to these countries.

Development of Sub-Saharan Africa The Committee reviewed the World Bank's report, Sub-Saharan Africa: From Crisis to Sustained Growth, and endorsed the approach of the strategic agenda outlined in that report. In this context, members emphasized that sustained growth and development required firm commitment and good governance on the part of the concerned sub-Saharan African governments, given their primary responsibility in the design and implementation of their development strategies. The complementary roles 6f the World Bank and the IMF were also stressed. It was agreed that the need to mobilize additional financing for sub-Saharan Africa's reforms and development remained pressing. Members called on donor countries to pledge sufficient amounts of assistance to ensure the full financing for the second phase of the Special Program of Assistance to Africa. The Committee welcomed the outcome of the Conference on Africa held last July in Maastricht at the initiative of the Dutch Government.

Private Sector Development Noting the growing emphasis given by a number of developing countries and the countries in Eastern Europe to the role of the private sector and to market-oriented policies in their development strategies, the Committee recognized the complementarity that exists between the public sector and the private sector. The Committee especially encouraged the World Bank Group and the IMF to give a very high priority to private sector development in their operations and to strengthen their activities in this area. The Committee also urged the IFC Board of Executive Directors to complete by the end of the year its review of the operational policies and adequacy of the capital of the Corporation.

©International Monetary Fund. Not for Redistribution CHAIRMAN OF DEVELOPMENT COMMITTEE 75

Poverty Reduction and Women in Development The Committee agreed that the objective of effective reduction of poverty is a matter of the highest priority. It was recognized that governments of developing countries have the primary responsibility and the objective of poverty reduction would be most effectively achieved through the adoption of national development strategies based on sound macroeconomic and structural policies. It was stressed that developing countries' efforts should be supported by industrial countries. To this end, members agreed that aid donors and multilateral development agencies should examine their aid programs to make them more supportive of the goal of poverty reduction. Members also welcomed the commitment by the President of the World Bank to submit to the Board of Executive Directors, for its early consideration, proposals for fully translating the conclusions of the 1990 World Development Report into the Bank's operational framework. Recognizing the critical contribution of women to economic growth and development, the Committee encouraged governments and bilateral and multilateral development institutions to further integrate women in develop- ment objectives in their programs. Members also urged the World Bank to increase further the resources it devotes to women in development activities and to strengthen its institutional capacity for this purpose.

Other Issues The Committee reiterated its call on the World Bank and the IMF to keep under study, in close consultation with the GATT, the implications of regional trading arrangements for developing countries' economic prospects. In respect of the Uruguay Round, members expressed with concern that major uncertainties remained in areas of particular interest to developing countries. The Committee reiterated its call on all parties concerned to reach an agreement by December 1990, noting that this was essential to support the adjustment programs pursued by many countries. The Committee welcomed the progress made toward the establishment of a program, including funding mechanisms, to address global environmental problems and urged the donors and the World Bank, working in collaboration with UNEP and UNDP, to complete their work before the next Development Committee meeting.

Concluding Remarks As stressed in the World Development Report, poverty remains a major challenge for all of us in this decade. The implications of the Middle East crisis and economic slowdown in the industrial countries will aggravate poverty and debt problems while making it more difficult for developing countries to pursue their reform and growth programs. Indeed, there is a need

©International Monetary Fund. Not for Redistribution 76 SUMMARY PROCEEDINGS, 1990 more than ever for concerted and action-oriented measures to meet the immediate or short-term problems as well as the long-term objectives of growth, poverty eradication, and sustained development. After serving as Chairman for four years, I have become even more convinced of the critical role of the Development Committee and I am confident that the Committee will continue to play an important and central role in discharging its mandate. I would like to take this opportunity to place on record my sincerest appreciation and gratitude to all members of the Committee, to the President of the Bank, the Managing Director of the Fund, and their staffs, as well as to the Secretariat of the Committee for their support and cooperation during my tenure as Chairman.

STATEMENT BY THE GOVERNOR OF THE BANK FOR THE ISLAMIC REPUBLIC OF IRAN

Mohsen Nourbakhsh

O' You men! Surely, We have created you of a male and a female, and made you tribes and families that you may know each other; surely the most honorable of you with Allah is the one among you most careful (of his duty); surely Allah is Knowing, Aware. (Holy Qur'an, Chapter 49, Verse 13)

At the outset, I wish to express my appreciation to the organizers of these joint Annual Meetings for their efforts and hope that these important gatherings will effectively lead to a lasting solution of the existing global problems. I also welcome Namibia, Bulgaria, and the Czech and Slovak Federal Republic, who are attending these meetings for the first time as the new members of these institutions, and wish them success in their development efforts. We are on the brink of a new decade marked by profound developments and challenges for the international community, stemming from greater regional integration, economic and political unification, and the march toward greater market orientation. The lessons drawn from our experience of the past decade should form an appropriate basis for our policies and strategies for the future. Experience has demonstrated that without effective international cooperation, a lasting solution to the many problems and challenges that confront the world today will be as elusive as ever. Developing and developed countries should work together in a spirit of international cooperation in order to enhance global development and avoid economic crises. The Persian Gulf crisis that has overshadowed the recent events has

©International Monetary Fund. Not for Redistribution ISLAMIC REPUBLIC OF IRAN 77 different dimensions, one of which is the developments in the international oil market that are going to raise the import bills of many oil consuming countries, including the developing nations. While we fully sympathize and share these concerns, based on past experience, the temporary and reversible nature of such developments should be noted, adding to the uncertainty that surrounds the future trend of the international oil market. As far as we are concerned, a stable international oil market will be beneficial for both the oil producers and consumers. To achieve stability, an effective and meaningful cooperation between consumers and producers is of utmost importance. To this end, the industrial countries are expected not only to refrain from further increasing their prevailing high levels of strategic oil reserves but also to use their current reserves to relieve the current pressure on the international oil market and to restore market stability. For many oil producing countries in the region, including the Islamic Republic of Iran, this crisis has imposed additional costs relating to the necessity of taking defensive precautionary measures and the costs involved in the settlement of refugees. Tens of thousands of refugees have fled Kuwait and are now settled in the various provinces of Iran, where the reconstruction process had already started, thus disrupting the reconstruction operations. It is unfortunate to note that, shortly after the beginning of the crisis, the price of the industrial countries' manufacturing exports had risen, resulting in erosion of any increase in the oil export earnings of oil producers and fueling global inflation. Turning to the world economic situation, 1990 is the second consecutive year in which the global economic growth slowed down, especially in the developing countries. Economic growth in these countries will fall to 2.4 percent in 1990, and, considering their population growth, their per capita income will experience a real decrease. The global slowdown in economic growth was accompanied by inflationary expectations and increased interest rates in the industrial countries, with significant negative effects on the Third World. The growth of world trade, an important factor in economic development, slowed down in 1989 and is expected to fall further during 1990 and 1991. Developing countries' terms of trade deteriorated during the past decade, with adverse effects on their economies. Concerning the debt problem, the rising stock of external debt, as well as the heavy debt burden, significantly contribute to intense poverty and economic problems in many developing countries. Although recent interna- tional measures supported by the Fund and the Bank have somewhat alleviated the debt burden of the indebted developing countries, the progress achieved so far is quite limited. In the area of international trade, the Uruguay Round of multilateral trade negotiations, in which the developing countries have participated for the first time, is drawing to a close, with still many unresolved issues. In this

©International Monetary Fund. Not for Redistribution 78 SUMMARY PROCEEDINGS, 1990 connection, we share the concerns expressed by the General Secretary of the GATT in his remarks in the Development Committee meeting of Septem- ber 24, 1990, regarding the serious repercussions that may arise if the current negotiations fail. Moreover, we emphasize the position taken by the developing countries as reflected in the September 22, 1990 ministerial communique of the Group of Twenty-Four on International Monetary Affairs, regarding the importance of a successful Uruguay Round for the global economy, particu- larly the developing countries. In this regard, it is to be noted that protectionist trade policies of the industrial countries run counter to their policy proclamations regarding trade liberalization and openness expected from developing countries. Obviously, continuation of such practices may result in countermeasures by other countries, thus aggravating the international trade system. The industrial countries, commensurate with the greater size of their economies, should contribute significantly to enhance global savings and economic growth, and reduce interest rates as well as inflation. Needless to say, the developing countries will also continue with the necessary adjustments and policy reforms to enhance savings, attract investments, and restore normal international financial relations. The incidence of poverty has increased in many developing countries of the world during the past decade, so much so that a third of the population of the developing countries—more than 1 billion persons—now live in conditions of poverty. Poverty alleviation, which is now a focal issue on the agenda of international development organizations, cannot come about while there are negative transfers of resources from the developing countries. In fact, effective alleviation of poverty in the world requires greater financial support by donor countries, as well as multilateral development institutions, through greater debt relief, including debt cancellation and the granting of highly concessional financial assistance. I shall now briefly review the economic developments in the Islamic Republic of Iran over the past twelve months. Upon victory of the Islamic Revolution in 1979 followed by the outbreak of the imposed war, most sectors of the economy faced recession, and production fell considerably, to the extent that the economy experienced negative GDP growth for a number of years. However, in 1989, upon the adoption and implementation of new economic policies by the Government, the rate of growth of the GDP turned positive. The preliminary estimates and projections indicate that, based on improved economic prospects, the GDP will increase significantly in 1990 compared with 1989. The industrial sector has experienced marked expansion, and gross capital formation and investment volumes have been within the planned targets. New economic policies resulted in an increase of 52 percent in government revenues in 1989, which is about twice the figure projected in the Five-Year Economic Development Plan. The budget deficit in 1989 was halved compared with the preceding year, while most of the development projects have received adequate funding. According to the reports prepared by the Fund consultation mission that

©International Monetary Fund. Not for Redistribution FEDERAL REPUBLIC OF GERMANY 79 visited the Islamic Republic of Iran in February 1990, the budget deficit was contained to between 4 and 8 percent of GDP during most of the war years, a remarkable figure compared with those countries that have not even been involved in a war. The budget deficit is expected to be limited to 4 percent of the GDP in the current year. The report also adds that the defense budget increased by less than 4 percent annually during the 1980s, when the war was still raging. The new economic policies in Iran aim to increasingly revitalize the various economic sectors, reduce restrictions, enhance people's participation in economic activities, sell government-owned shares in various state companies and institutions to the public, activate the stock market, establish free trade and industrial zones, and engage in joint investments with foreign firms. Considerable progress was made during the past year in further deregulating the foreign exchange and trade system and reforming the monetary and banking sectors. In this connection, new exchange rates reflecting economic fundamentals were announced, and, in the area of banking, higher rates of returns on bank deposits, based on Islamic modalities, were introduced. It is noteworthy that through implementation of the First Five-Year Development Plan of the Islamic Republic of Iran, the budget deficit is expected to be eliminated, inflation brought under control, and distribution of income improved toward greater equity. Government revenues will increase through tax reform, and dependency on oil exports will ease. Improved economic conditions have set the stage for continued expansion. Support and participation of our people in the task of development is encouraging. During eight years of the war, our people accepted hardship and showed great sacrifice and dedication, contributing significantly toward the cost of the war. As a result, our country relied on its own domestic resources and did not resort to foreign borrowing to conduct the war. These prudent financial policies, together with public support and enthusiasm, have now set the stage for our reconstruction drive. Finally, the recent earthquake that occurred in the north of Iran inflicted heavy human casualties, as well as significant material damages. However, through public participation and government efforts, reconstruction operations have been under way. Meanwhile, I take this opportunity to express our gratitude to all those countries that rendered humanitarian assistance to the victims of this earthquake.

STATEMENT BY THE GOVERNOR OF THE FUND FOR THE FEDERAL REPUBLIC OF GERMANY Karl Otto Poehl

First of all, I should like to extend a warm welcome to the new members and the special invitees of the U.S.S.R. We are now rapidly approaching the state of true universality of our two institutions.

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The IMF and World Bank Group can look back on the period since our last Annual Meetings with satisfaction. Their policy advice and financial support has helped a substantial number of member countries in their pursuit of economic, financial, and structural policies that have improved the prospect for better internal and external economic balance and more solidly based economic growth. Ever so often, such improvements only become apparent after a period of painful adjustment. There is often a temptation to blame these adjustment pains on the unwillingness of the Fund or the Bank, or both, to provide more financial support under less onerous conditions. Faced with large outstanding claims against many highly indebted countries and often difficult negotiations with them, bank creditors also often wish for more generous help from the Fund and the Bank, as from other public sources. But neither the Fund nor the Bank through their support can eliminate the need for appropriate adjustment efforts on the part of borrowing countries and for private capital flows. We strongly feel that both institutions must adhere to the principles under which they have operated successfully in past years: the IMF as the institution at the center of international monetary cooperation; the World Bank Group as the institution at the center of economic development. Both institutions have evolved over time, their fields of action have expanded in various directions in response to emerging needs, moving them closer together. Closer contacts and cooperation between the managements and staffs have become necessary and are now well established. This cooperation should help assure the complementarity of their efforts, but should also help them retain their separate identities. Our two institutions are well equipped to meet the calls of the years ahead. The adoption by the Board of Governors of the Resolution to increase the IMF's quotas has set the stage for providing the financial resources it needs to fulfill its role. I also welcome the progress made in tackling the arrears problem. The expeditious resolution of the remaining arrears cases will be essential for the Fund's financial integrity and its ability to attract the necessary resources to finance its activities. The history of the existing arrears does, of course, provide important lessons for the Fund; in particular, the need to pay due regard to the repayment capacity of borrowing countries and the medium- term viability of their adjustment strategies. . . . Turning to developments in my own country, we certainly can look back on an eventful year. The economy of the Federal Republic of Germany fortunately has been in a strong position to face up to the new challenges. Growth of real GNP has continued strong and unemployment has declined in spite of massive inflows of new labor, above all from Eastern Germany and Eastern Europe. Both developments have occurred in an environment of low inflation. And I hope that this can be continued in spite of the very recent events in the Middle East and the steep increase in oil prices. The unification process has led already to a substantial reduction of our

©International Monetary Fund. Not for Redistribution FEDERAL REPUBLIC OF GERMANY 81 large current account surplus. This is clearly in the interest of better balance in international payments generally. The adjustment has come about, primarily, through increased imports in response to higher domestic demand in both West and East Germany. It has been helped by a strengthening of the deutsche mark on the exchange markets vis-a-vis a number of currencies. The positive results of our fiscal and monetary policies over the past few years are a sound point of departure for dealing with the challenges confronting us. We have no illusions about the magnitude of the task. The need for adjustment in the productive sectors as well as in the institutional and "technical" infrastructure in Eastern Germany is very substantial. The unavoidable frictional losses in the course of the changeover and the magnitude of the transfer of resources required are likely to be larger than originally anticipated. In any event, nobody should be surprised to find that decades of economic mismanagement cannot be put right overnight. Substantial changes are under way, and they are, I believe, quite impressive: — The currency conversion as from July 1 was effected very smoothly. No "buying spree" has occurred. The supply situation has improved instantly. Free market prices have caused many consumer goods to become cheaper; on average, the price level seems not to be higher than before. — The establishment of many small- and medium-sized enterprises and substantial recourse to investment credit are evidence of a dynamic response to the new environment. — The unification of Germany, which will actually be finalized next week, will complete the legal and institutional framework for an efficient market economy including radically new rules for private ownership. Revitalizing the East German economy can be expected to run along orderly lines. The transfer of real and financial resources will be substantial, but it will not overtax our capabilities within the limits of financial integrity. It will not be brought about by any concessions as far as monetary stability is concerned. The challenge of German unification will not only test our own performance and political skills. It will, of course, also have an impact on our partners and on the international community as a whole. The conversion of Eastern Germany into a market economy should serve as an encouragement to other countries in Central and Eastern Europe to persevere on the difficult road to reform. It will promote progress toward economic and political freedom and higher living standards, and this certainly not only in Germany. It will thus enhance international political stability and also contribute favorably to the promotion of economic prosperity throughout the world. Let me quote from the last World Economic Outlook of the IMF: "The overall effect of unification on the world economy would be clearly positive as it would raise output in the industrial countries in the short run and would have favorable effects on the productive capacity of the world economy in

©International Monetary Fund. Not for Redistribution 82 SUMMARY PROCEEDINGS, 1990 the longer run." The opportunities offered are surely greater than the risks involved. The doors are open to enterprises from all other countries to make use of the new business and investment opportunities, and they are welcome. There will be no change in the role played by Germany in the international community and in the multilateral institutions. Our commitment to the task of development will remain strong. In 1989, the Federal Republic's official development assistance (ODA) was again increased markedly. Also, in the current year and in the years ahead we will contribute our fair share toward assisting the developing countries, the burden of unification notwithstanding. The commitment to European integration at all levels—economic, mone- tary, social, and political—will also remain at the top of our agenda. The project of the European Economic and Monetary Union (EMU) entered its first stage on July 1, 1990. In December, the Intergovernmental Conference will be convened to negotiate the necessary treaty changes for the further stages, including the establishment of a European Central Bank System. This will be the centerpiece of EMU. It is not surprising that the substance and timing of future steps are hotly discussed between the partner countries. The EMU involves the permanent fixing of exchange rates between member countries and the disappearance of their currencies eventually when a common currency is introduced. The ability of individual countries to act independently of each other has already been reduced substantially as integration of their economies and financial markets has progressed and as exchange rates have been tied together in the European Monetary System. EMU will carry this process to its final stage, depriving individual countries of any remaining scope for independent action, especially in monetary policy. A key part of national sovereignty will have to be transferred to the Community level if EMU is to come about. In our view the European Central Bank System must be fully committed to price stability as the priority objective of monetary policy; it must be independent of political influence from national governments and EC institutions; it must be comprehensively and solely responsible for monetary policy; and it must be furnished with all the instruments necessary to this end. It will be the goal of the coming Inter-Governmental Conference to create the legal basis for the establishment of such a system. This is a very ambitious political objective. It deserves all the enthusiasm brought to it by its most fervent supporters. But enthusiasm is not all that is required. Reason and realism are also needed to guide us in the design of a European Central Bank System and of the other key features of EMU, as well as in decisions on the timing of the further steps to move forward to EMU. Allow me to conclude with a brief word of gratitude addressed to our host country and its people. Within another week the two Germanys will be fully reunited, only 11

©International Monetary Fund. Not for Redistribution UNITED KINGDOM 83 months after the breakdown of the Berlin Wall last November. This event and what followed aroused great sympathy and support all over the world. Speaking here in Washington today on behalf of my Government, I may be permitted a word of special thanks to our American friends. We have reason to be forever grateful to the American people and Government—and especially to President Bush—for their encouragement and active role over the past year. This is yet another example of the generosity and pioneering spirit that motivate the American people. Without their understanding and support, which could by no means be taken for granted even forty-five years after World War II, all this might have proved impossible.

STATEMENT BY THE GOVERNOR OF THE FUND FOR THE UNITED KINGDOM

John Major

IMF-World Bank Issues I should like first to extend a very warm welcome to the Czech and Slovak Federal Republic, Bulgaria and Namibia as the newest members of the Fund and Bank. And I look forward to Switzerland and Mongolia becoming members before long. They will all be very welcome. To existing members I wish to say that I hope they will all soon be able to ratify the Third Amendment to the IMF Articles, so that the Ninth Quota Review can be brought speedily into effect. I know some countries have had doubts about introducing a power to suspend members in arrears, but I hope they will agree that those doubts should now be set aside in the interest of providing the Fund with the additional resources we have agreed. That is important and should not be delayed.

World Economy It is no surprise that our meetings this week have been dominated by the invasion of Kuwait by Iraq. Our discussions have tended to focus on the economic impact. But there are wider implications we should not overlook. If we allow Iraq to profit from the invasion and annexation of her neighbor, no small country will feel secure. We must not let that happen. And together, I am sure we will not. As a signal of our resolve, nothing could have been clearer than the unprecedented cooperation in the United Nations to impose mandatory sanctions. It was impressive and welcome. And that spirit of concern and cooperation has been readily evident at these meetings too.

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But there has naturally been concern over the economic implications of events in the Gulf, and particularly the impact of higher oil prices. I will turn later to the developing countries. But for the industrial countries, higher oil prices will inevitably bring higher inflation and slower growth. It is too early to judge how big a problem we will have to face and how long oil prices will stay high. But whatever the scale of the problem it is crucial to respond to these pressures with nonaccommodating monetary policies. We cannot avoid an initial impact on inflation. But we can—and we must—prevent it from becoming embedded in higher core inflation. If this means that interest rates in some cases have to be raised, or in others, have to be kept high for longer than would otherwise have been necessary, then that is what we must do. There is no other sensible policy. There is no scope for easing monetary policy to offset the contractionary effect of oil prices on activity. I am greatly encouraged by the number of speakers at these meetings who have endorsed this view. We must also back up a tight monetary policy with appropriate fiscal policies; there must be no relaxing the effort to reduce excessive budget deficits. The apparent imbalance between available savings and intended investment remains considerable and the developments in Eastern Europe and the Gulf can only add to the pressures. Governments must play their part in reducing them. Fortunately the industrial countries today are better able to face an oil price rise than they were in the 1970s. They have substantially reduced their dependence on oil over the last twenty years. The United Kingdom, for example, has seen a fall since 1973 of some 30 percent in energy consumption when measured relative to GDP. And the underlying strength of our economies is greater. Furthermore, these days we have a better understanding of each other's economies and better policy coordination. While that has been widely acknowledged, the extent of the progress we have made will now be put to the test. As yet we don't know how severe that test will be.

Monetary Debate in Europe

I would like to turn for a moment to the question of economic and monetary union about which there is great debate in Europe. It began in earnest last year, and has been gathering momentum in recent months. There is much common ground between the member states of the Community. Not least in our ultimate objectives. Together, we have already taken substantial steps toward economic and monetary union, and there are further important changes to come. The questions at the heart of the current debate are how we should move forward to monetary union and at what pace. The Delors Committee blueprint

©International Monetary Fund. Not for Redistribution UNITED KINGDOM 85 looks to an early commitment to a single currency and a single monetary authority. I have recently offered a more evolutionary approach. Rather than sweeping away our traditional system of national currencies and replacing it with a single Community currency, I would prefer to see the development of a common currency, the hard ecu, alongside existing currencies. If in the long term it was the wish of governments and of their citizens, this could itself become a single currency. But that is a decision best left for the future. Whatever the precise decisions we ultimately take, I am clear that if the Community attempted to move prematurely toward monetary union, without greater economic convergence, the strains and stresses on our national economies would be intolerable. I was interested to see that the Bundesbank last week endorsed that view very clearly. In recent years the European Monetary System has operated as a powerful force for convergence. The performance of those countries within the Exchange Rate Mechanism (ERM) has been impressive. They have manifestly benefited from the framework of monetary discipline provided by the mechanism. Success did not come overnight. Nor by magic. And it has certainly not eliminated the pain involved in bringing down inflation. But I doubt if this pain can ever be avoided. In time, low inflation will lead to stronger growth and lower unemployment. The more credible the anti-inflation artillery, the sooner this will happen. It is that credibility of purpose that has been one of the hallmarks of the ERM. Increasingly it has functioned like a modern day gold standard with the deutsche mark as the anchor. It is true that conflicts can emerge between the obligations of ERM membership and the evidence from domestic monetary indicators; but these occur less often and for shorter periods than is often claimed. And they need to be weighed against those problems faced by countries outside the mechanism. Reading the domestic monetary tea leaves has become a tricky business that is made still more difficult by the effects of financial liberalization. I am, therefore, in no doubt that joining the ERM is the right policy for the United Kingdom, and we will join when we are in a position to make a success of it. The most important reason for delay has been the differential between inflation in the United Kingdom and other ERM countries. But what matters here is less the difference between headline figures, which measure what has happened over the last twelve months, than the prospective movements in price levels from now on.

U.K. Economy

The origins of the upturn in U.K. inflation have been extensively analyzed and discussed. As we know, to some degree this upturn has been shared by other industrial countries—but not to the same extent. Since mid-1988 we have had an extended period of monetary tightening.

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Interest rates were raised to 13 percent in November 1988, 14 percent in May 1989, and 15 percent in October 1989. The effects of this policy have been frustratingly slow to come through. But now the evidence that it is working is unambiguous. As usual, inflation itself is proving slow to turn down. But it is now only a matter of time before it begins to fall. The headline inflation rate will probably peak soon and diminish noticeably through next year. And before long the tight monetary policy stance should deliver a lower underlying rate of inflation. For us, as for other countries, the picture is now complicated by the unwelcome increase in oil prices. In some ways the United Kingdom will be less affected than many since we are more or less self-sufficient in oil. The Government's finances benefit from higher oil prices while the current account is relatively unaffected. But the United Kingdom is by no means immune. Indeed, in the short run, higher oil prices are likely to feed more quickly into the measured inflation rate in the United Kingdom than elsewhere because we have not sought to prevent or delay the proper market response to events in the Gulf. Higher world oil prices will also contribute to the weakening of economic activity. We now face the likelihood of some months of low growth. It is not possible to say how low. Or, precisely, for how long. That will depend in part on how far businesses and employees raise other prices and wage costs to compensate for higher oil prices. Such action can only add to the weakness of activity and increase unemployment. I have no doubt that we face the most difficult few months in the cycle. Whatever happens now we are bound to see inflation continuing high while activity weakens and unemployment rises. But we know from past experience that this discomfort will be temporary as long as policy continues to be focused on reducing inflation.

Developing Countries: Debt, Etc.

So far, I have focused primarily on the impact of higher oil prices in the industrial countries. But our discussions here must be equally concerned with the implications for developing countries. Although some parts of the developing world stand to gain from higher oil prices, most lose out. And there are some who suffer more directly from the conflict in the Gulf, not least from the suspension of trade with Iraq. Just as industrial countries must adjust to higher oil prices, so too must developing countries. For them, the lessons of the 1970s are just as clear. Piling up debt in an attempt to avoid adjustment proved far more painful in the long run. And with real interest rates now higher, it makes even less sense to add to their existing debt burden. But there is a group of very poor, very heavily indebted countries,

©International Monetary Fund. Not for Redistribution INDIA 87 particularly in sub-Saharan Africa, which have no realistic prospect of being able to service their debts, even taking account of the relief already available under the Toronto terms. The overhang of debt and the inevitable recourse to annual Paris Club reschedulings places a heavy burden on these countries. That is why I have proposed a four-point plan to help such countries, including doubling the relief available under the Toronto terms and rescheduling all their eligible official debt at the same time, rather than requiring annual reschedulings. I hope all creditor governments will support these proposals when the Paris Club reviews the options for the poorest debtors.

Trade One important step that the industrial countries can take to help developing countries is to open up our markets and pursue a liberal trade regime. The cost to the developing countries of protectionism by the industrial countries greatly exceeds the total value of aid flows. It is a real problem. It is clearly absurd that industrial countries should with one hand encourage developing countries to build up their export potential, and with the other hand deny them access for their goods. We meet at a crucial time in the Uruguay Round with much still to do if we are to complete the negotiations by the end of this year. It is vital that everyone recognizes the urgency of reaching agreement, and stands ready to make compromises.

Conclusion Mr. Chairman, 1989 and 1990 have been momentous years. We have seen changes in Eastern Europe, Southern Africa, and elsewhere more radical than any of us imagined just two years ago. More recently we have seen the nations of the world unite to confront a stark challenge to peace and international order. Rightly, we have focused in recent days on the immediate economic effects and our policy response. But we should not forget the clear long-term message of these events: that economic and political freedom, good government, and respect for the individual are not only ends in themselves but the best means to security and prosperity. That, I hope, is the message all of us will take away from these meetings.

STATEMENT BY THE GOVERNOR OF THE FUND AND BANK FOR INDIA

Madhu Dandavate

At the outset I would like to welcome Bulgaria, the Czech and Slovak Federal Republic, and Namibia as new members, and special invitees from the U.S.S.R.

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As we enter the last decade of the twentieth century, the world economy is at a difficult juncture. There were signs of fatigue at the end of the 1980s as economic growth slowed down. The recent developments in the Middle East, which have introduced a serious element of uncertainty into the situation, are bound to accentuate the problems in the industrial countries and even more so in the developing world. The implications and consequences for the developing world, particularly the oil importing developing countries, would be far reaching. The crisis will increase import bills, reduce workers' remittances and affect exports to the Middle East. In addition to the economic costs of evacuation and rehabilitation, the human cost in terms of hardship imposed on migrant workers would be enormous. Further, the economic slowdown in the industrial countries would have an adverse effect on export prospects, and higher interest rates would in- crease the burden of debt servicing. Taken together, these factors would dampen growth and fuel inflation, thereby affecting the living conditions of millions in the developing countries. The task before us is twofold. In the short term, we have to adopt immediate measures which would minimize the economic and social costs of adjustment for people and countries who can afford it least. In the medium term, we must endeavor to return to the path of sustained growth and price stability in the pursuit of equity and justice in international economic relations. It was only right that both the Development Committee and the Interim Committee devoted a substantial part of their deliberations to the task of devising a proper international response to the immediate crisis. I was also happy to hear from President Conable and Managing Director Camdessus of the measures that both their premier multilateral institutions propose to take in order to respond effectively to the need for additional financing. . . . So far as the International Monetary Fund is concerned, the Interim Committee has already given directions to the Executive Board to expeditiously work out the modalities for adapting its existing instruments, including access to its various facilities, such as the CCFF and ESAF. I would urge the Executive Board to get down to this business immediately and to respond quickly and effectively to the needs of all affected countries. A multipronged effort may be needed as the magnitude of the impact, as well as the eligibility of different countries for different kinds of financing, is not the same. In this connection, we welcome the widespread support in favor of modification of the CCFF for the purposes of providing assistance to cover the impact of oil price increases. We must remember that the oil shock is sudden, unexpected, large, and its duration is uncertain. In this situation, in devising the modifications to the CCFF, attention is to be paid to the need to ensure that access is not reduced because of unrealistic assumptions. In our view, in addition to modification to the existing facility, it is also necessary to review the other facilities to ensure that they can be quickly modified to meet the needs of those countries that cannot be adequately served by the modified

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CCFF. Mr. Camdessus was quite right in drawing our attention to the fact that the cost of IMF charges is now very high and not within the capacity of many developing countries to bear. High-cost financing of high-priced oil imports will not foster an environment conducive to orderly adjustment. Thus, an interest subsidy scheme should be an indispensable companion to a modified CCFF and other mechanisms. In the medium term, the importance of a transfer of resources and its far- reaching implications for the world economy cannot be stressed enough. This issue, already of critical importance, has assumed even greater significance in the light of recent events. We are of the view that this issue should once again become the focal point of deliberations in the multilateral financial institutions. For any reasonable international effort in this area, it is necessary to find ways and means to halt and reverse the recent negative trend in international resource transfers. Our mandate must be to ensure transfer of real resources to developing countries; we seem to be accomplishing quite the opposite. The present trends have to be reversed. The fundamental objective of development is the removal of mass poverty. Experience shows that poverty reduction cannot be tackled in isolation. For any meaningful and durable assault on poverty, an integrated development strategy is essential. We need growth, but we also need programs that address directly the problem of poverty and unemployment. This is because the backlog of unemployment is so large that economic growth, by itself, cannot suffice to solve the problems within an acceptable time frame. There is evidence of gains made in some productive sectors being eroded by losses in terms of trade. There is also evidence of the process of development and poverty alleviation being stalled due to a sluggish supply response because of infrastructure bottlenecks. I do not wish to take up more of your time in elaborating on these issues, which have been discussed at length in the Development Committee. I would, however, like to make a few suggestions on the role of the World Bank Group in poverty alleviation. . . . We share fully the global concerns about the environment. In fact, environmental issues are not only an important concern of the Government in my country but also involve a large number of voluntary organizations and people at the grassroots level. We welcome the progress made toward establishment of the Global Environmental Facility. We are glad that it has been recognized that the funding for this facility must be both genuinely additional and concessional. In fact, it would be more appropriate if these funds were to be passed on as an outright grant to facilitate adoption of a program for safeguarding our common environmental heritage. Coming to issues concerning the international monetary system, we must recognize that the global context is one of dynamic change. Our responses

©International Monetary Fund. Not for Redistribution 90 SUMMARY PROCEEDINGS, 1990 should not, therefore, spring from beliefs which do not take adequate account of reality. The specificities in time and space, the diversity of economic conditions, the different stages of development, and the imperatives of protection of the environment require a qualitatively different response from the one we have given so far and which has resulted in periodic eruptions of disorder in the world economy. The challenge has to be met squarely by revitalizing the whole concept and the institutional structure of international cooperation. Unilateral or bilateral efforts to reshape the world should give way to a genuinely cooperative effort. Neither unipolar nor tripolar arrangements will ensure a smooth and orderly growth of a multipolar world economy. It is in this perspective that we should approach the role of the International Monetary Fund. In the first place, the Fund has to be financially strong. The spring meeting of the Interim Committee has to some extent strengthened the Fund through its decision on the Ninth Quota Review. We must recognize that the quota increase, welcome as it is, is not sufficient to address resource needs of developing countries confronted with the challenges of adjustment. We need to do more. The next item on the agenda has to be the strengthening of the role of the SDR as a reserve asset. The unabated turbulence of the financial markets drives home the lesson that without an international reserve asset, the international monetary system will remain inherently unstable. The central role of the SDR as a reserve asset was recognized long ago. There has been no progress in implementing this objective. In fact, the reverse has happened. SDRs today are a smaller proportion of total reserve assets than they were at the beginning of the 1980s. A fresh issue of SDRs is an urgent necessity, and I hope that the Executive Board of the IMF will return to this subject as early as possible. Resources are one part of the problem. The other part relates to strengthening the surveillance policies of the Fund in relation to surplus and capital-rich countries. The original role, envisaged by the founding fathers of the Bretton Woods institutions, was to ensure that the IMF plays an equally active role in relation to both surplus and deficit countries. This, however, has not happened as the surveillance role has been largely confined to countries that borrow from the Fund. As a result, a mutually reinforcing network of rights and obligations has not emerged and the fundamental asymmetry in relation to surplus and deficit countries continues. The Fund has an important role in advising countries in their adjustment programs. While advice and expertise based on international experience are most useful, it has to be remembered that authorities in developing countries have to design and implement sound policies in consonance with their specific circumstances and social priorities. We also have to learn from experience, and to ensure that stabilization and adjustment programs do not suffer from rigidity. The past experience has been that a number of programs have had

©International Monetary Fund. Not for Redistribution BRAZIL 91 to be abandoned midway simply because the complexity of the adjustment process was not fully appreciated, and the necessary flexibility in implementa- tion was not observed. I would therefore urge that in devising and implement- ing adjustment programs, their impact on the people, particularly the poor, is specifically taken into account. Adjustment cannot succeed if it fails to respond to the needs of the people. We have many challenges to face. The international community has to respond speedily and decisively in order to lay the foundation for a stable, sustained, and equitable growth in the world economy. Those of us who come from the developing countries feel that despite some progress, our planet continues to be divided into the rich and the poor. Let us endeavor to ensure that through peoples' involvement and resources and cooperation of the multilateral financial institutions, our cherished dream of building one world without poverty and ignorance is accomplished.

STATEMENT BY THE GOVERNOR OF THE FUND AND BANK FOR BRAZIL

Zelia Maria Cardoso de Mello

I am honored by the privilege of addressing you in the name of Argentina, Bolivia, Chile, Colombia, Costa Rica, the Dominican Republic, Ecuador, El Salvador, Guatemala, Haiti, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, Spain, Suriname, Trinidad and Tobago, Uruguay, Venezuela, and my own country. Our countries have a particular perception of the world economic situation. For the past ten years they have witnessed from afar a decade of continuing growth in other parts of the world, mainly in the industrial countries. Our stagnation or slow growth was partly due to the cumulative effect of past domestic policies that, although generating development in the short run, created the seeds of macroeconomic disequilibria, economic inefficiency, and social inequality. There is no denying, however, that the international economic environment played an important role in the process of stagnation and decline of the Latin American countries. Contrary to widespread common wisdom, it was not isolation from the world economy that characterized previous developments in the region, but our inability to change past forms of integration in the international economy combined with a new phase in our relation with the international financial community marked by overborn)wing and, of course, its counterpart, overlending. These factors introduced new rigidities in our economies so that when the international economic situation abruptly changed, countries in the region were plunged into a period of recurrent crises. The prevalence of a negative external environment and the lack of durable solutions to the region's problems,

©International Monetary Fund. Not for Redistribution 92 SUMMARY PROCEEDINGS, 1990 mainly on the debt front, aggravated internal problems and hindered stabiliza- tion efforts and structural reforms. Throughout the decade the region seemed to be cast apart from world economic development. The beginnings of major changes were being felt in the area through the re-establishment of democratic institutions, thus laying the foundation for structural reforms, for a redefinition of our region's role in the international economy, and for a new partnership for growth between our countries and the international financial community. It is our firm intention to join this process and to proceed to recover lost ground. New and stronger stabilization programs are being applied with the common aim of defeating inflation and restoring fiscal equilibrium. Structural reforms are under way in tune with worldwide developments to redefine the role of the public sector, reduce its presence in the productive sector, recover the regulatory role of the state, and gradually open our economies to competition from abroad. And, what is more significant, all this is being accomplished in free societies and through the functioning of democratic institutions. It is in this context that we are determined to find from the international community the support we need to put our economies in order and to solve our common problems, especially the debt overhang. To relaunch growth we need a supportive, more predictable, international environment, in particular a well-coordinated multilateral trading and financial system. This is especially important at a time when the international economy and the economies of most developing countries again face serious risks. Coupled with the uncertainty generated by recent events in the Gulf area, there is the prospect that the limited progress achieved so far in dealing with some of our problems can be set back. In these circumstances, we must come forward with appropriate contingency measures of support for affected countries and address our common problems in a coordinated way. We are determined not to waiver in our efforts at stabilization and the resumption of growth. In particular, we urgently need to solve the debt overhang in a way compatible with our stabilization programs and our ability to pay. Special assistance in the financial, technical, and administrative areas must be provided for the poorest countries to permit them to revitalize their economies. At the same time, official lenders and commercial banks must have special regard for those countries that have managed to avoid rescheduling and are implementing adjustment programs but require new money and refinancing of amortization installments. All these initiatives must be under- taken in a multiyear framework, so that governments can dedicate themselves to taking and carrying out decisions, instead of spending so much time on protracted negotiations. In another three months the Uruguay Round will come to a close. Latin

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America has indicated its interests and priorities. It has reaffirmed that the Round must yield balanced results. The trading system emerging from this multilateral exercise must immediately benefit every participant, including developing countries. In order to increase their participation in world trade, these countries need positive results regarding agriculture, textiles, tropical products, and safeguards. Needless to say, an open and more stable trading environment will help internal efforts for structural adjustment under way in Latin America, through trade expansion and increased efficiency. In agriculture, the time has come to define the exact coverage of the negotiations and to adopt measures conducive to the elimination of export subsidies and internal support. In textiles, if no decision is taken now on the modality for the phasing out of the Multifiber Arrangement, there will be no time to complete the negotiations before December. Results of negotiations on tropical products should not be held back by difficulties in other areas. It must be made clear that results concerning these products are not only needed but essential to a final package. A more discriminatory discipline on safeguards is essential to guarantee the stability of concessions. Latin America has contributed to the successful outcome of the negotiations. It has shown flexibility and understanding and has offered alternatives, particularly in the new areas, to advance the process. Other parties must also take their share of responsibility and show the same willingness to compromise. Latin America wishes fully to participate in the decisions leading to the conclusion of the Round, in every area of negotiations, to be in a position to share their benefits and to implement their results. The best trading system cannot support growth if the working of the international monetary system interferes with trade. It is incumbent upon this institution to see to it that the policies of all member countries promote reasonable exchange rate stability. This is not to be sought by exotic methods that would interfere with the free flow of goods, services, and capital. Rather, it is to be achieved by all countries promoting stable underlying conditions and engaging in appropriate exchange market intervention. The Fund must be able to make its advice effective in all member countries; today, only debtor countries obliged to borrow from the Fund need follow its recommendations. In defending a strengthened IMF role one must also give the institution the resources it needs to accomplish its tasks, in particular in the present circumstances. That is why we support the increase in IMF quotas. The debt problem is one of the most significant factors explaining the economic stagnation of Latin America in the 1980s. It contributed to budgetary problems, to escalating domestic indebtedness, to the inflationary process, and to the poor overall macroeconomic performance of the region. Since the beginning of the debt crisis, Latin America has transferred roughly $250 billion to creditor countries, whereas it has received only $50

©International Monetary Fund. Not for Redistribution 94 SUMMARY PROCEEDINGS, 1990 billion in financial resources. The figures are eloquent enough: the region exported resources in amounts several times greater than those contemplated in the Alliance for Progress and the Marshall Plan. Creditors and debtors alike should work together to avoid the 1990s being a mere repetition of the 1980s, when an enormous transfer of resources was accomplished at the cost of neglecting basic human needs. We must recognize the exceptional circumstances of the present indebtedness crisis. We shall, therefore, look for negotiated solutions that are also exceptional in nature, going beyond palliative or temporary relief. In this context, careful attention should be given to the Latin American and Caribbean proposal on external debt as presented by the Secretary General of the Latin American Economic System (SELA) and approved by the Latin American and Caribbean Council. If the political will is present, there will be a definitive solution to the problem of indebtedness. Such a solution must be inspired solely by the future of economic and political relations with the region, and should envisage the well-being of its people. It has to allow for increased foreign investment, since the region's share in global foreign investment fell from 13 percent in 1980 to not more than 5 percent in 1989. It has to create a new momentum for domestic investment, which decreased sharply in the 1980s in parallel with the outflow of capital. It has to take into account the need to balance our budgets and to bring domestic indebtedness to a reasonable level. In fact, the need for the public sector to buy from the private sector the foreign currency required to service the foreign debt has obliged us to greatly increase our internal indebtedness. The Brady Plan must be strengthened urgently. To this end, an even more active participation is required from the Bretton Woods institutions in the mobilization of substantial additional resources to support growth-oriented adjustment. Instead of focusing largely on the monitoring of domestic policies of individual debtor countries, these institutions should adopt a more comprehensive, systematic approach that takes all aspects of the debt problem into account. It should be said that the International Monetary Fund, under the guidance of its Managing Director, Mr. Michel Camdessus, has been moving in that direction. There is an increasing understanding of the links between sound economic reforms and genuine efforts to solve the debt problem. A strengthened debt strategy must also rely upon a greater participation of governments of creditor countries. The negotiations with commercial bank creditors would benefit from their broader view of their own interests. Governments can adopt adequate legal and regulatory measures and give incentives that contribute to more meaningful negotiating results. Debt relief is also important for official bilateral debt. In this regard, we welcome the statements made by France, the Netherlands, the United Kingdom, and the United States, which openly acknowledge the possibility of reducing official debt. It is desirable that these initiatives be broadened and lead to similar

©International Monetary Fund. Not for Redistribution BRAZIL 95 initiatives by other creditor countries. The decision of the Japanese Govern- ment to earmark a portion of its trade surpluses for a parallel fund for debt reduction operations is also a precedent for other governments. The sooner a definitive solution to the debt problem is found, the better not only for Latin America, but for all those who can benefit from increased economic relations with our region, particularly in the areas of investment and trade. Let me now add a few words on my own country. In the face of a monthly inflation rate that had reached more than 80 percent when the present administration took over, we adopted a plan addressed to the rapid and decisive reduction of monetary expansion and price rises and to the recovery of growth. Considerable results have already been attained so far. Inflation has declined to a monthly rate of somewhat over 10 percent per month and is expected to fall further until the end of the year. Part of the success must be ascribed to the attainment of an operational fiscal surplus of the public sector, in contrast with a deficit of nearly 8 percent in terms of GDP last year. The legal framework compatible with our modernization and privatization objectives has been established. Foreign trade has been radically liberalized. Our industrial policy is directed at fighting monopolistic practices and other market imperfections. The difficulties that remain are largely due to the persistence of inflationary expectations after almost eight years of unrelenting price rises. We have shown no hesitation in using all instruments at our disposal to convince society that the Government will not yield in its anti-inflationary purpose. Just recently a major tightening of monetary policy has been undertaken. This policy will continue until the back of inflation has been broken. We have signed a letter of intent addressed to the IMF as the basis for a 17-month stand-by arrangement. We expect that this letter will soon be submitted to and approved by the Executive Board of this institution, opening the way for negotiations with the Paris Club. We have informed the commercial bank creditors of our intention to meet with them in the first days of October and to proceed with expeditious and constructive negotiations with them in order to achieve a long-lasting agreement. One point, however, is crucial to us and should be clearly understood by all involved. We are only going to accept commitments we can be sure to fulfill in the context of our stabilization program and in the light of our growth objectives. The possibility of overcoming the serious problems the Latin American region has faced since the beginning of the 1980s will depend partly on the countries themselves. The processes of economic integration open the door for the establishment of stronger markets and economies. The policies of trade liberalization adopted throughout the region will increase efficiency and productivity. They are in line with the efforts toward modernization. The

©International Monetary Fund. Not for Redistribution 96 SUMMARY PROCEEDINGS, 1990 reforms now under way in the region will also increase the potential for the already complex and diversified economies of Latin America to absorb greater amounts of investment resources. The better integration of Latin America in the world economy should rely upon domestic economic health and social justice. Democracy has been the political means we have chosen to attain our economic and social goals. In sum, we do not have problems only. The changes that are taking place in our region are the basis for the hope and optimism with which we look toward the increasing role that our region can play in the world economic system. Before closing I should like to extend our warm welcome to our new fellow members, the Czech and Slovak Federal Republic, Bulgaria, and Namibia.

STATEMENT BY THE GOVERNOR OF THE FUND AND BANK FOR THE UNITED STATES

Nicholas F. Brady

I would like to welcome the newest members of the International Monetary Fund and the World Bank: the Czech and Slovak Federal Republic, Bulgaria, and Namibia. I would also like to welcome the special invitees from the Soviet Union. We meet amid dramatic change in the world economy—change that presents both important challenges and opportunities. Eastern Europe is undergoing a fundamental transformation to pluralism and market economies. The forces of democratization and economic reform are sweeping through Latin America. Most recently, we have been confronted with the political and economic challenge of the Gulf crisis. The world's response has been unprecedented. We have forged a powerful political and diplomatic front within the United Nations, and are giving it tangible support with a multinational military deployment in the Arabian Gulf. And we are building a united economic front as well. The economic strength represented by all of you in this room must be mobilized to demonstrate collective resolve and make clear our intention not to yield to aggression. Over the years, some have questioned the value of these Annual Meetings, saying that they are little but the perambulations of bankers, ministers, and governors. This is not the case. The IMF and the World Bank have a long tradition of confronting, sorting out, and overcoming global economic challenges. We now have a unique opportunity to extend this tradition. As President Bush stated yesterday, the world relies on these institutions for economic leadership, during the Gulf crisis and beyond.

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In response to the Gulf crisis, President Bush announced the formation of a multilateral coordination group to assure an effective distribution of the free world's financial resources to the front-line states. Now, the IMF and the World Bank also must extend their hands to assist these and other affected countries. We suggest that the Fund consider the following measures: —Adjust access policy for the countries most seriously affected by the Gulf crisis. —Disburse more quickly assistance from the compensatory and contingency financing facility (CCFF). —Widen the coverage of the compensatory window to include such costs as pipeline, transit, transportation, and construction fees. —Permit immediate introduction of contingency financing into existing programs and increase members' access to such financing. —Ensure that either through the compensatory or contingency windows of the CCFF, members can receive financing to compensate for the higher costs of oil. The World Bank should also provide major assistance to those countries seriously affected by the events in the Gulf. This could take the form of: —immediate grant and loan assistance to transport and resettle worker refugees; —expansion of the Bank's lending programs; —acceleration of disbursements; and —strengthening of lending to the energy sector. The Gulf crisis has also posed new economic challenges for the industrial world. The oil price increase will make it harder to steer between the twin risks of higher inflation and slower growth. We need to maintain a careful balance between continued growth—which is essential to achieve our shared objectives—and price stability, which is essential to protect the gains we have made and to ensure that the growth process is not illusory. Recognizing that we live in a world that must pay attention to both risks is half the battle. The other half is to navigate successfully between these risks. The Gulf crisis has complicated this task, and it will test our ability to steer a course that was already narrow. Nevertheless, I believe we are well positioned to meet this challenge and to move ahead through this important decade on a path of durable and broadly shared growth. For our part in the United States, we must reduce our fiscal deficit on a lasting basis. President Bush has shown strong leadership in the budget summit process, and we remain committed to achieving a meaningful, enforceable five-year deficit reduction package. The job is not yet done, but our determination is firm and unshakable. On another front, we have been inspired by Eastern and Central Europe's courageous rejection of statism and their embrace of democratic and free market principles. Here again, the Bretton Woods institutions need to play a

©International Monetary Fund. Not for Redistribution 98 SUMMARY PROCEEDINGS, 1990 central role in helping to develop sound market systems and attract the resources necessary to do so. Recent efforts of the Fund and Bank in supporting Poland, Yugoslavia, Hungary, and others illustrate the importance of their contributions. We also look forward to the completion of the Soviet country study requested at the Houston summit. There is a real thirst in the Soviet Union for knowledge about how a market system works. We should not disappoint them with anything short of our best advice. We have also been inspired by the ascendance of a new generation of leaders in Latin America, born of increasingly vibrant democracies, and dedicated to the market-oriented economic reforms that will bring economic revival and prosperity. President Bush's Enterprise for the Americas Initiative will encourage and deepen the political and economic transformation of Latin America. By building on the successes of the strengthened debt strategy, this initiative will reduce the debt that has burdened and distracted reform efforts in the past. With the full participation of the Bank, the Fund, and the IDB, the Enterprise Initiative will serve to promote investment reform and trade liberalization and enable substantial debt reduction on obligations to the U.S. Government. Other important projects proceed with force. In the poorest countries, especially of sub-Saharan Africa, the Fund and the Bank must continue their commendable work to provide concessional resources toward sustained growth and the alleviation of widespread poverty. At the same time, the Bank must strengthen its efforts to deal effectively with environmental problems, especially in protecting tropical forests and developing environmental impact assessments and action plans. The Fund and the Bank can best serve the future by adapting to the changing needs of the world economy, and we must support them by providing adequate resources and policy guidance. In May, we took an important step when we agreed to a substantial increase in IMF quotas. The quota agreement, and the associated strengthening of the IMF arrears strategy, is a strong package that merits our support. Funding for the World Bank Group also remains a first priority. The founders of the Bretton Woods institutions drew on the lessons of the past to create dynamic, forward-looking institutions. They envisioned the IMF and World Bank as living institutions that would channel the energies and hopes of the world community into a collective response to new opportunities and challenges. Perhaps this spirit was best captured by Secretary of the Treasury Morgenthau, who said:

The Conference at Bretton Woods has erected a signpost—a signpost pointing down a highway broad enough for all men to walk in step—and side by side. If they will set out together, there is nothing on earth that need stop them.

We have set out together, and we remain united. You have my congratula-

©International Monetary Fund. Not for Redistribution SOMALIA 99 tions for the important progress that has been made, and my assurance of firm U.S. support for the mission that lies ahead.

STATEMENT BY THE GOVERNOR OF THE BANK FOR SOMALIA

Abdirahman Jama Barre

It is a great honor for me to speak to this distinguished gathering on behalf of Arab Governors of the International Monetary Fund and the World Bank. I would like to take this opportunity to welcome the new members to the Bretton Woods institutions, as well as those who are on their way to becoming members. The international character of our two institutions will no doubt be enhanced by these important additions to their memberships. The Iraqi invasion of Kuwait and the ensuing uncertainty in the international oil market have, no doubt, complicated the task of global economic management. The Fund and the Bank are called upon to respond to the needs of the current situation. We welcome the efforts being made in the Executive Boards of the two institutions to explore adaptations to their policies that would facilitate a timely and appropriate response. This is particularly crucial for those members who are most directly and seriously affected. For some countries in our region, the adverse consequences of recent events, particularly those associated with the interruption of trade and the loss of income from workers' remittances and tourism, are certain to be quite staggering. The current circumstances in the countries in question call for immediate and adequate external support, including finding permanent solutions to the severe external debt difficulties that they face. The urgency of the situation in these countries has been recognized by the international community, and the Bretton Woods institutions should act with the speed and imagination that current circumstances require. In addition to the recent unfortunate events in the Gulf region, a great deal has happened since our last meeting a year ago. During this period we have witnessed momentous changes in East-West relations, which all but ended the state of polarization that had characterized the international order for decades. The dramatic changes that have occurred in Central and Eastern Europe are a clear indication that we are indeed stepping into a new era in the world's modern history. These developments are, in our view, part of a broader historical process that is not confined to Europe. Indeed, we view the unmistakable trend toward reform in the developing countries as a manifestation of the same sense of pragmatism as that shown in the search for ways to fulfill people's aspirations everywhere for a better quality of life, materially and otherwise. The challenge, however, is to ensure that this process of systemic

©International Monetary Fund. Not for Redistribution 100 SUMMARY PROCEEDINGS, 1990 reorientation will succeed in bringing about the desired objectives. If central planning and public sector control of resources have often inhibited the productive and efficient use of resources, it does not follow that a reorientation of the system would automatically ensure that the totality of social and economic objectives will be attained. This should be kept in mind in formulating programs of structural and systemic change in which the Fund and the World Bank are playing an important role. The recent unfortunate developments in our region are a stark reminder of the high degree of interdependence that characterizes today's world economy. It is our strong hope that stability will soon be restored to our part of the world so that energies and resources will be redirected back to meeting the needs and aspirations of our people, which are the same as those of people everywhere. As you know, the Arab countries represent a broad cross-section of the developing world. As such, we understand the problems and challenges facing the various groups of developing countries. Among us, we have low- income countries, including my own country, which are striving to reverse the alarming decline in their standards of living that has occurred in recent years. We also include indebted middle-income countries, who are struggling to put their economies on a path of noninflationary growth and external viability. Among us also are oil exporting countries, which are making great efforts to diversify their economies while adapting to the sharp fluctuations in their income associated with oil market developments. Despite their dependence on one nonrenewable resource, the oil exporting Arab countries have provided generous external assistance to other developing countries inside and outside our region. Development and balance of payments assistance from Arab donors has amounted to more than $100 billion during 1973-87. I mention all this only to underscore the fact that the Arab countries, in their diversity, face the same challenges and responsibilities as the rest of the world, particularly the developing world. The developments of the past year and the more recent events in the Gulf region, important as these may be, have not changed in any fundamental way the task facing the international community over the medium term. Indeed, it remains essential that a sustained and cooperative approach be followed to achieve progress in resolving the major difficulties facing the world economy. This continues to require that industrial and developing countries, as well as international institutions, play consistent and mutually reinforcing roles. Industrial countries need to adopt macroeconomic policies that ensure noninflationary growth in the world economy. This requires, among other things, that deficit countries reduce their excessive absorption of global savings. Structural distortions in industrial countries, particularly those that affect global resource allocation, should be eliminated. An open and multilateral trade system remains of paramount importance to global growth

©International Monetary Fund. Not for Redistribution SOMALIA 101 and external adjustment. We therefore attach great importance to a successful conclusion of the current Uruguay Round of trade talks. In addition to adopting policies conducive to global growth and adjustment, major creditor countries will need to strengthen the existing mechanisms for bringing down the debt burden of developing countries to a more sustainable level. The framework that has been established to facilitate debt and debt- service reduction for countries whose debt is owed mainly to commercial banks is beginning to show some positive results, but efforts should be sustained to ensure that the framework is effective in easing the debt burden for all the countries that had been targeted by the 1989 debt initiative. During the past few years, a number of welcome steps have been taken by the official creditor community to help the low-income countries deal with their especially difficult situation. This notwithstanding, and given the continued deterioration of their economic performance and in their standards of living, the effort to assist these countries should be sustained and strengthened. Creditor countries also have an important role to play in easing the debt burden of middle-income countries, and especially the lower middle-income countries, which are heavily indebted to official creditors. This is one aspect of the global debt problem that has not received adequate attention in the past. We therefore welcome the more recent indications that major creditors are indeed considering ways of providing the type of debt relief that is consistent with the debt-servicing capacity and external viability of these countries. It goes without saying that a favorable external environment and external financial support are only necessary conditions for developing countries to be able to put their economies on a path of noninflationary growth and external viability. It is the responsibility of developing countries themselves to adopt and implement the policy changes needed to achieve these objectives. The pragmatic approach to policymaking that one observes in the developing world today is an indication that developing countries are ready to do their part. But to help sustain the adjustment process, the international community needs to assist in mitigating the short-term costs associated with policy reform. The Bretton Woods institutions have a crucial role to play in this regard. First, they need to ensure that adjustment programs are designed and phased in a way that takes into account the particular circumstances of each country. Concern about the short-term costs of adjustment, particularly for the more vulnerable segments of the population, is justified not only in its own right but also because of its implications for the sustainability of adjustment. Second, the direct financing role of the two institutions remains crucial. We therefore consider it essential that they be provided with enough resources to enable them to respond to members' needs in a timely and adequate

©International Monetary Fund. Not for Redistribution 102 SUMMARY PROCEEDINGS, 1990 manner. In this regard, it is our strong hope that the coming into effect of the Fund's quota increase will not be unduly delayed. . . . Third, the two institutions play a vital role in coordinating and catalyzing financial support to members from other sources. We see it very much in line with this role that the Fund and the Bank draw the attention of the international community to the particular needs and problems of various groups of their memberships, including the financing needs of the lower middle-income countries, which I referred to earlier. Fourth, through its surveillance function the Fund is uniquely placed to view the economic and financial policies of the major countries from a truly international perspective. An enhanced role for the Fund in the process of policy coordination should help major countries base their policy choices on the broad range of implications for the world economy as a whole. As shareholders in the Fund and the Bank, we want these two institutions to maintain their financial soundness. The problem of arrears continues to be of concern to us. Therefore, we welcome the significant efforts that have been made to resolve this problem since our last meeting. We are heartened by the progress achieved in a number of cases. But a full resolution of this problem should remain the objective. This can be achieved only through the cooperation of all parties concerned and through assurances to countries in arrears that when they do their part on the policy front, the necessary international support will indeed be forthcoming.

STATEMENT BY THE GOVERNOR OF THE BANK FOR THE CZECH AND SLOVAK FEDERAL REPUBLIC

Vaclav Klaus

As you know, Czechoslovakia was one of the founding fathers of the Bretton Woods institutions. We were then, and are now, very proud of this. We expected at that time to remain conscientious and reliable members and partners, but circumstances soon dictated otherwise. After the 1948 triumph of a totalitarian regime and its economic counterpart—central planning—it very soon became clear on all sides that there was no way for Czechoslovakia to participate in the International Monetary Fund and the World Bank. Our country renounced its membership in 1954, with the result that finally, early this year, we had to apply for membership all over again. We now have a chance to reverse the developments of the past four decades: more than forty years of Communist dogma, intolerance, and rigidity, of irrational economic arrangements and disastrous economic policies. History will never forgive us if we do not seize this unique opportunity with all our might. We strongly believe our membership in the Bretton Woods institutions will help us in this

©International Monetary Fund. Not for Redistribution CZECH AND SLOVAK FEDERAL REPUBLIC 103 endeavor. The decision, at the end of 1989, to reapply for membership was one of the first decisions made by the new Czechoslovak Government. We wish to express our gratitude to all of you who have helped make the time between our first letter and last week's signing of all the necessary documents so short. In the past decades, the citizens of Czechoslovakia have experienced a gradual but substantial loss of illusions about the potential of a centrally planned economy (and society). With each passing day it has become clearer to Czechs and Slovaks that the only practical and realistic way of improving their standard of living will be to abolish totally the institutions of central planning; to dismantle controls over prices, wages, the exchange rate, and foreign trade; and to radically transform the existing system of property rights. This is exactly what we started to do a year ago, and what we intend to complete soon. To put it differently, the newly formed Government now has a unique opportunity to transform the wasteful and irrational economy of Czechoslovakia into a normally functioning market system. Our task is not a centrally orchestrated shift in our economy's sectoral structure, nor even a massive transfer of modern technology; it is larger, and consists of the full- scale replacement of the entire economic system. Of course, there is a real danger that the short- or medium-term costs of the transformation process—in terms of output, employment, and inflation— will be so heavy and so painful that there will be attempts to postpone the necessary systemic changes and to recentralize the economy again, or once again to look for untried, intellectually challenging, but in principle dirigistic and interventionist solutions. The Czechoslovak transformation strategy, called the scenario for economic reform, recently prepared by the Government and approved by the Parliament a week ago, is a plan for implementing several crucial reform steps in the proper sequence. The strategy can be briefly summarized as follows: 1. Sound macroeconomic policy is vital if the transformation is to succeed. Restrictive monetary and fiscal policies introduced already this year, will continue in the future: —we do not want to unleash inflation, with its debilitating effects on economic decision making and resource allocation; —we are very pessimistic about the short-term growth potential of the unreformed economy and about the speed of the supply response in a reforming economy; —we want to squeeze out the least efficient parts of the economy as soon as possible, which cannot be done when there is excess demand and easy sales of any product; —we want to start the real restructuring without being crippled by the burden of repaying a "reform-neutral" foreign debt. We know that reasonable macroequilibrium is a fundamental requirement for a market economy to operate effectively. Our analyses indicate that to

©International Monetary Fund. Not for Redistribution 104 SUMMARY PROCEEDINGS, 1990 achieve this, we do not need anything resembling a monetary reform; it will suffice to impose strong limits on further monetary expansion while allowing the price level to grow up to the money supply. 2. The early and rapid transformation of property rights—the "wholesale privatization" of the economy—is absolutely crucial. First of all, the old- style enterprises do not react and do not respond to new incentives, new signals, or new changes in the environment. In addition, with the reform already under way, chaotic, extremely inefficient, and extremely unjust privatizations are taking place that in no way fulfill our intentions as architects of the transformation. There is no time to wait. The final draft of the Transformation Act was to be discussed within the Government of Czechoslovakia during the week of this Annual Meeting and will be sent—with minor modifications—to the Parliament for its approval in the next few days. The privatization process will be divided into two parts—the privatization of small-scale businesses, based on standard privatization techniques, and the privatization of large enterprises using a mixture of standard and nonstandard methods. Because of the lack of domestic capital, we plan to augment the wealth of the population by distributing a part of the state's property in the form of free (or nearly free) vouchers to the public at large. The vouchers will be used as claims for shares of state- owned companies. 3. Prices, foreign trade, and foreign exchange rates will be liberalized starting January 1, 1991. Relative prices must be changed at an early stage of the reform process. Most of the changes must be, and will be, accomplished by the invisible hand of the market, rather than by administratively orchestrated actions. If prices are not free to adjust to changing market forces, they cannot perform their basic functions, with the result that other means of allocation— well known to us for decades—will take over. The price liberalization process cannot be partial or gradual because either way the economy will remain trapped in a state of macro-disequilibrium. A consensus is growing in Czechoslovakia on this need to work quickly in dismantling controls. Because we understand that gradualism does not work, it is a road we do not intend to travel. By this stress on the fundamentals of the transformation process, we hope to avoid the danger, later on, that we might be required, under pressure, to make a series of ad hoc decisions that could lead us far off our course. And we are well aware that there will be such pressures: that there will be social unrest and populist opposition. This is all the more certain because our reform measures will coincide with dramatic external changes and external shocks of unknown kinds and unforeseeable magnitudes. This brings me to my final point. We know that there have been cases where major financial assistance caused the deceleration, not the acceleration, of the necessary systemic changes which we consider of the utmost importance. We do not intend to postpone the institutional and structural steps we have

©International Monetary Fund. Not for Redistribution CZECH AND SLOVAK FEDERAL REPUBLIC 105 already announced toward a rationally functioning market economy, nor to delay putting an end to the paternalistic behavior of the Government; and we are determined not to prolong either the life of the extremely inefficient "nonsystem," which exists now, once central planning has gone and the markets are still underdeveloped and severely constrained, or the interval during which various interest groups (including the bureaucracy and black or shadow marketeers) will be able to extend and strengthen their positions. At the same time, however, we do need a very specific kind of financial assistance: we need a macroeconomic stabilization package to function as a necessary buffer, absorbing, for a very limited period of time, some large short-run fluctuations of various economic variables that have been and will be brought about by the drastic domestic measures and by external shocks. The stabilization package is important because we need time to be able to distinguish between activities that are temporarily uneconomic and activities that are permanently unviable; a distinction must be made between price increases based on short-run supply rigidities and relative price adjustments based on long-run demand and supply relations in the world economy. All truly reforming countries need to have this form of macroeconomic stabilization assistance at their disposal while the real transformation is under way. Without the recent changes in the world economy, we would have needed a stand-by arrangement, as well as a standard stabilization (or transformation) program, to mitigate short-run economic hardships affecting large social and economic groups in our truly reforming country. But the last oil shock, coinciding for us with the demise of COMECON and the dissolution of its protected, mutually debilitating trade area, is expected to greatly alter our economic outlook and the impending costs of adaptation. The synergic effect of all the recent external changes will be extremely severe: practically speaking, we are facing the three oil shocks of the last two decades all at the same moment. It will far exceed our limited capacity to absorb such shocks, and the standard methods of macroeconomic stabilization assistance will not be sufficient. It seems clear to me that some additional, extra financing will be necessary. The expansion of the compensatory and contingency financing facility is one potential step in the right direction: it would provide a flexible response to the continuing uncertainties surrounding the political and military situation in the Middle East. Extra financing is not an acceptable remedy for inappropriate economic policies, but some additional economic assistance will be necessary, and the urgency of the matter should not be underestimated. In the case of Czechoslovakia (and the other Eastern European countries as well), the extra need poses a serious threat to the success of our economic reforms. Some Western observers, considering the conversion of centrally planned economies into market-organized ones to be this century's most important, most difficult, and most challenging issue of economic policy, looked into the annals of history for an era of comparable significance. But

©International Monetary Fund. Not for Redistribution 106 SUMMARY PROCEEDINGS, 1990 that was before the advent of the Middle East crisis. My English does not offer me adjectives for describing the problem now. It will not be solved by external financing, but external financial assistance can help a great deal. It is especially by giving us time to adapt that our reform program's chances of success will be improved.

STATEMENT BY THE GOVERNOR OF THE BANK FOR THAILAND

Virabongsa Ramangkura

It gives me great honor to have the privilege of addressing these Annual Meetings of the International Monetary Fund and the World Bank for the first time. On behalf of the Government and the people of the Kingdom of Thailand, I wish to extend our warmest greetings to my fellow Governors, distinguished delegates, guests, and staff members of the World Bank Group and the International Monetary Fund. I look forward to welcoming all of you to Bangkok for the 1991 Annual Meetings. Permit me also to join my fellow Governors in welcoming Bulgaria, the Czech and Slovak Federal Republic, and Namibia as members of our Bretton Woods institutions. The 1980s showed a mixed picture of the world economy. Industrial countries, to a large extent, succeeded in maintaining sustained economic growth, whereas many developing countries encountered serious difficulties in their attempt to promote the well-being of their peoples as a result of an absolute decline in incomes. According to the World Development Report 1990, the 1980s was a lost decade for many of our colleagues in the developing world. We are alarmed and dismayed by the unfortunate disruptions in the Middle East. The sudden rise in oil prices has placed a severe burden on all developing countries and may trigger greater distress for the heavily indebted countries. The fear of triggering recession in major developed economies, rising inflationary pressures, and higher interest rates will lead to a decline in international trade and greater restrictions in capital flows in the short term. We fervently hope that the international community will find some solutions and ensure its nonrepetition. We have entered the decade of the 1990s with new hope and aspirations of enhancing and improving the quality of life for the less fortunate in our member countries. As in the past, the reduction of poverty and hunger, and the development of human resources, are the major and truly long-term challenges facing most of the Third World countries. In this context, it is gratifying, but mystifying, to learn that the issue of poverty, which is the sole raison d'etre behind their establishment, has once more become the central priority in the Bank Group and the Fund agenda. Providing social

©International Monetary Fund. Not for Redistribution THAILAND 107 services has also become an integral part of the poverty reduction strategy. I earnestly hope that under the able leadership of our President, Mr. Conable, and our Managing Director, Mr. Camdessus, the strategies for poverty reduction and, more important, the adequate provision of capital resources will bring about the desired objectives. Recently, it has been increasingly accepted by the developing countries that an effective and dynamic private sector is the most effective engine for economic growth and development. Eastern Europe is a prime example. There is still much to be done in terms of removing administrative constraints, encouraging both domestic and foreign private investments, and divesting or permitting the commercialization of public enterprises. . . . While welcoming the Brady Plan and acknowledging the efforts made by the Fund and the Bank in addressing the debt problems of the developing countries, we would continue to urge the donor community to give urgent attention to this problem, as the progress achieved so far has not been sufficient to make a major impact toward the resumption of growth and development. As the countries in the world have become increasingly interdependent, finding a prompt and lasting solution to the debt issue will be in the best interests of both developed and developing countries. It must be emphasized that the burden should not be transferred to these two institutions, and that the developing countries which have been financially prudent should not be burdened or punished. We concur with the current thinking that economic development must be consistent with a sound and sustainable environment. The present state of global environmental degradation caused by rapid development in the West is a matter of serious concern to all countries, and it is only appropriate that all countries should henceforth be committed to environmental protection and development. But as the industrial countries were and still are the major source of global environmental degradation, the primary responsibility for taking appropriate actions rests with them. Developing countries, too, have a role to play, but they will need additional financial resources—if possible, on concessional terms—to assist them on issues of the environment. Given the specter of recession in major developing economies, rising inflation, and disruption in the Gulf, there remains growing concern about the restrictive nature of international trade. The Uruguay Round of trade negotiations remains to be completed; it is hoped that an outcome will emerge that does not narrowly serve the interests and concerns of only a few but balances the interests of all countries, and, in particular, protects and allows improved fair access for the developing countries. A substantial negative transfer of resources to developing countries has been recorded in the past decade despite various promises and attempts to increase the flow of resources to these countries. If we are to move ahead toward revitalizing the world economy, substantial resources will be required

©International Monetary Fund. Not for Redistribution 108 SUMMARY PROCEEDINGS, 1990 by the developing countries so as to reverse the current trend in net flows of resources and thus enable them to cope with the challenges of the 1990s, in particular the elimination of absolute poverty. We in Thailand are truly convinced that enabling women to raise their own productivity and income would enhance overall national economic development. This could be achieved, as we have done, by providing them with equal access to education, comprehensive family planning and health care services, credit facilities, and opportunities to expand their access to labor markets. The rapid pace with which the changes in Eastern Europe are occurring is welcomed, as are changes that we are observing with much interest. While their integration into the world economy will also benefit peace and harmony, we do hope that the high priority attached to restoring sustained growth in developing countries in Asia and Africa will not be altered or compromised. On issues specifically related to the Fund, first, we welcome the long- overdue conclusion of the Ninth Quota Review. On the other hand, we find it most regrettable that the coming into effect of members' quota increases under the review has been made contingent on the proposed Third Amendment of the Fund's Articles of Agreement coming into effect. This should in no way be allowed to become a precedent for future quota increases. We urge the Fund's Executive Board to start work on the Tenth Review early enough to avoid another delay. Second, it is heartening to see that a few members that had been overdue in their payments have already become current with the Fund in the past few months, and that prospects are good for a continuation of this trend. We therefore take this opportunity to urge the Fund—and all its members—to do all they can to eliminate any barriers that hinder remaining overdue members from overcoming their problems, and to prevent new cases from emerging. In conclusion, our objective is to achieve a sustainable and expanding world economy. To achieve this goal, the efforts of all parties concerned must be mutually reinforced. Developed countries must open up their markets to developing countries by reducing all forms of trade barriers. Furthermore, their growing budget deficits must be significantly reduced and inflation controlled, while maintaining a real growth in aid levels and the facilitation of private sector investments of developing countries. Without these positive actions, the developing countries will be deprived of the much needed resources for their development. The developing countries, for their part, must ensure the establishment of a conducive macroeconomic environment by adhering to sound economic and financial measures and by undertaking the necessary reforms that would contribute to such an enabling environment. The Fund and the Bank, as well as other international organizations, must be ready to play their part in helping the developing countries to undertake investment and adjustment policies that can be sustainable over time. The commercial banks must also be more forthcoming in their lending to the developing countries.

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Finally, on behalf of the Government of the Kingdom of Thailand, I look forward to welcoming all of you in Bangkok at the next Joint Annual Meetings, and I can assure you that we will spare no effort to make the meetings a success, and your stay a very pleasant and memorable one.

STATEMENT BY THE GOVERNOR OF THE FUND AND BANK FOR AUSTRALIA

Simon Crean

I welcome this my first opportunity to participate on behalf of the Australian Government in the Annual Meetings of the International Monetary Fund and the World Bank. To those new member countries attending their first Annual Meetings, the Czech and Slovak Federal Republic, Bulgaria, and Namibia, I wish to extend a warm welcome. Substantial growth has occurred over the past eight years owing to the greater willingness of governments to set fiscal and monetary policies in a medium-term context and to undertake structural reforms. Recent developments in the Gulf region and increases in the price of oil have added a considerable degree of risk to inflation and output growth. Such risk, however, needs to be placed in some perspective. If oil prices remain at around present levels, the increases in price would be much lower than those experienced in the oil price shocks of the 1970s. In addition, many economies are now more flexible and most industrial countries are now less reliant on oil than in the past. The present situation clearly entails risks of a breakout in world inflation. Even before the oil price increases, inflationary pressures were strengthening in a number of countries. It is therefore essential that policies continue to promote price stability in a medium-term framework. Australia recognizes that external imbalances between the major economies have narrowed in recent years and have been financed relatively smoothly thus far, although more progress is required in order to limit the possibility of disruption to activity and the emergence of protectionist pressures. More effort needs to be made in improving savings in those countries with external deficits. The trend toward fiscal consolidation needs to be maintained; we also need to continue pressing ahead with structural reforms and measures to remove rigidities and to improve the responsiveness of markets. Australia is able to demonstrate its own commitment to fiscal responsibility by posting its fourth consecutive budget surplus, a trend that has seen a turnaround from a central government deficit of 4 percent of GDP six years ago to a surplus today of over 2 percent. We are also placing renewed emphasis on achieving better responses to adjustment by implementing labor-market reforms and tackling particular

©International Monetary Fund. Not for Redistribution 110 SUMMARY PROCEEDINGS, 1990 rigidities in sectors of the economy through substantial microeconomic reform programs, particularly in transportation and telecommunications. Wages policy through the accord with the trade union movement has continued to contribute to appropriate macroeconomic settings and noninfla- tionary wages growth, but is now also being used to drive efficiencies in the workplace by linking reward to training, multiple skills, and changes in work organization. In all economies the challenge to develop policies for adjustment must, however, be judged against their social viability as well as their economic, financial, and technical viability. Governments must therefore confront the difficult challenge of ensuring that adjustment policies and the need for them are widely understood. This in turn highlights the value, in our view, of strengthening consultative mechanisms to involve the parties directly affected by structural changes necessary for national development in an attempt to gain broad-based support for these policies. No greater is the extent and consequences of market-oriented structural reforms likely to be evident in the period ahead than in the economies of Eastern Europe and the U.S.S.R. Significant injections of capital will be required for Eastern European countries to reform and restructure. However, the availability of such financing will critically depend upon both the appropriateness of the policies pursued by the reforming governments and their political stability. The Bretton Woods institutions must play a responsible role in this. They must also remain cognizant of their original charters as they relate to members' development needs and to the needs of members experiencing external account difficulties. No issue is more crucial to the course of the world economy over the next decade than achieving a successful outcome to the Uruguay Round. A successful outcome would help sustain growth in trade and activity, enhance the effects of structural reforms, ease debt problems, and contribute to the relief of poverty in many developing countries. On the other hand, failure of the Round would bring severe risks for renewed protectionist pressures. A successful outcome for the Round cannot be achieved without a substantial outcome on agriculture. This must involve concrete and agreed proposals for substantial and progressive reductions in specific trade-distorting agricultural support and protection measures (including export subsidies) over an agreed time frame. Significant reductions in tariffs and barriers to trade in the area of textiles, and progress on services, intellectual property rights, and trade-related investment measures will also be important. Australia is therefore very concerned that the negotiations in agriculture, and in the Round as a whole, have fallen further behind schedule. It is worry- ing that so much remains to be done in the limited time which is available between now and December. It is of greater concern that there is a lack of political will in the major economies to consider seriously the substantial reductions in nontariff barriers that have affected agricultural trade.

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It is a disappointment that several major participants have not shown the leadership in tackling trade barriers that their positions in the trading system warrant—indeed, some have proved obstructive. Australia and other efficient agricultural producers in the Cairns Group will continue to push hard for liberalization and to oppose obstructions that continue to be tolerated by the major economies. The time for paying lip service to trade liberalization is well over. Governments in major economies must provide fresh and flexible mandates to their GATT delegations to resolve quickly the impasse in agriculture and other key areas. The timetable agreed to by the Trade Negotiations Committee meeting—all offers, including on agriculture, on the table by October 15— must be strictly adhered to. We then have only a month or so to reconcile the substantive differences. If this Round fails, we face an uncontrollable retreat into economic fragmentation and disharmony. The preservation of an open multilateral trading system is one necessary step for addressing the enormous and complex problem of world poverty. During the 1990s, a major test facing the community of nations and international organizations will be their ability to reduce substantially the numbers of people living in absolute poverty. The main responsibility lies with the governments and peoples of developing countries themselves, as they recognize. They can draw on the collective development experience of the past thirty years, as distilled in this year's World Development Report. But their efforts deserve a supportive external environment, including increased volume and quality of official development assistance and a fair and open international trading environment. Environmental problems also pose a major challenge for the world economy in the years ahead. Australia has fully supported the Bank's efforts to integrate the consideration of environmental issues into its policy and operations work, and welcomes the progress made so far. However, we consider that the Bank's environmental work will not be fully effective until at least the substance of environmental impact statements is publicly released early enough for public response before discussion of projects in the Board. Australia has been active in promoting initiatives to deal with global environmental problems and has ratified the Montreal Protocol. At this stage, however, we have a number of questions about the desirability of the proposed Global Environmental Facility and how it would operate relative to other funding mechanisms directed toward global environmental issues. . . . Australia is very aware of the difficulties of countries with severe debt- servicing problems. We applaud the efforts of those countries that have managed, by their commitment to sound economic policies, to maintain creditworthiness while continuing to grow. Such countries should not be disadvantaged by measures to assist others that have not followed this course. Australia recognizes that debt restructuring and debt-service reduction negotiations may be justified for some most heavily indebted states: we

©International Monetary Fund. Not for Redistribution 112 SUMMARY PROCEEDINGS, 1990 welcome the various recent proposals that have been put forward in this regard. Any such arrangement must, of course, be based on a real commitment to economic reform by the countries concerned. Care also needs to be taken that such arrangements should not result in the undue transfer of private risk to the official sector. Australia notes with concern that improvement in the position of women in developing countries is often hindered by factors such as legal and regulatory constraints, or social, cultural, and religious traditions. Development policies and programs that have a bias toward men exacerbate the problem. Women have particularly suffered the negative impacts of structural adjustment programs and Australia therefore supports the Bank's intention to give more explicit attention to women's issues in policy dialogue with governments, including structural adjustment and other macro issues. . . . Australia remains confident that, by working together through the Fund and the Bank, our solutions to these problems will help benefit the world as a whole.

STATEMENT BY THE GOVERNOR OF THE FUND FOR TURKEY

Gunes Taner

I join other speakers in welcoming the new members—the People's Republic of Bulgaria, the Republic of Namibia, and the Czech and Slovak Federal Republic, which very recently has reclaimed its membership in our institutions—and in greeting the representatives of the Soviet Union, who are attending these meetings for the first time, in a special status. In our view, 1990 continues to be a year filled with extraordinary events. Among the most positive, to my mind, have been the developments in the Eastern European countries, especially their choice of free market principles as the new basis for their economies. I also find the unification of Germany exciting. I welcome these events not least because I believe their demonstration of the failure of the centrally planned model of development will make a great and long-lasting impression on the developing countries. Just when hopes for a peaceful world were highest, we were shocked by the unexpected developments in the Middle East. We find the Iraqi invasion of Kuwait intolerable in every way. Its repercussions are already being felt throughout the world and will surely continue to be felt as long as this problem lasts. Solving this crisis is a real challenge for the international community: overcoming the difficulties will require a great degree of international solidarity. The crisis erupted at a time when many industrial and developing countries, which had made various degrees of progress with their implementation of the

©International Monetary Fund. Not for Redistribution TURKEY 113 structural adjustment strategy, had begun to harvest its rewards. Efforts to promote a more efficient use of resources, including trade liberalization, the elimination of industrial and agricultural subsidies, and the creation of employment opportunities, had borne some fruit and seemed to promise us a better vision for the 1990s. At this critical stage, I believe that the formulation of future stabilization measures should give particular attention to preventing the emergence of recessionary trends, which could eventually undo the hard-won gains already achieved by growth policies. The instabilities and uncertainties now appearing in the world markets definitely bring dark risks rather than promising prospects. Elimination of these risks will require the effective pursuit of conceited actions by the international community. We must now be quick to take the measures necessary to limit the damage that the crisis can inflict on our economies. Turkey is one of the countries hardest hit by the Gulf crisis, due to its unique location and its extensive trade and business relations with the countries involved in the crisis. You will all appreciate that Turkey faces the certainty that the crisis will have some negative effects on its economy. Turkey has immediately taken measures to alleviate the financial impact. The 64 percent increase in domestic oil prices now fully reflects the increases in international oil prices, and the central bank rediscount rate has been increased. Fiscal discipline has been improved, and additional revenue- increasing measures, such as raising the rates of the value-added tax, and the excise tax on cigarettes and alcoholic beverages, have been implemented. Additional sales of land and state corporations have been organized to offset the swelling costs of the crisis. We expect that our implementation of these measures, assisted by favorable external economic circumstances and supported by appropriate external financing, will enable Turkey, during 1991, to continue to have a viable balance of payments position, reduce inflation, and maintain relatively high real income growth. Notwithstanding the impact of the crisis on our economy, Turkey is determined to pursue its pre-crisis adjustment program. However, the presence of a favorable international financial and trade environment is crucial for our attainment of these targets. I am confident that the developments in the Gulf region will not affect Turkey's access to the international financial markets. I would like to hope that Turkey's efforts and achievements in the area of trade liberalization will be matched by other countries. On this issue, let me quote Professor Stanley Fischer: Recent Uruguay Round developments have been disappointing. The obligations of the industrialized countries are clear. At many fora— including this (assembly)— they have for long, and rightly, preached the virtues of an open trading system and open economies to the developing countries. Many developing countries, many with the help of the Bank and the Fund, have significantly reduced trade barriers and opened their economies. But the time has come for the industrial countries to

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practice what they preach. More is at issue than consistency and good faith. The phenomenal prosperity of post-World War II was fueled by the growth of trade in a gradually liberalizing international economy. The growing resort to nontariff barriers has stopped that progress, and can easily lead to a system of managed trade between regional trading blocs. It would be a tragedy if the industrial countries destroy the international economic system set up at Bretton Woods at this time of its triumph. We need more vision (and wisdom) in the Uruguay Round negotiations than we have seen so far. Let me now make a few remarks on the policies of the Fund and the Bank. If the Annual Meetings serve a purpose, it is to give us an opportunity to ask ourselves whether our institutions can successfully continue to meet the challenges of the times. They are put today to their most severe test since their creation: can the Bretton Woods institutions effectively assist Central and Eastern Europe in its transition from a command to a market economy? Can the Fund foster the appropriate blend of adjustment and financing imposed by the ongoing shock and obtain among the industrial countries sufficient coordination of economic policies to allow the current expansion to continue? Does the Fund have resources appropriate in amount and quality to further assist the alleviation of the debt burden, and have our reflections on the changes needed in the international payments system been sufficiently straightforward? The reorientation of policies recommended by the Fund's Managing Director and the Bank's President is undoubtedly the first step in the right direction. Let me submit, however, that this first step falls far short of the needs of the day. Considered from a global viewpoint, the Fund's liquidity is already high and will be raised still further by the upcoming quota increase, but countries' access, even under the more liberal approach, will still be determined by the size of each member's quota. The Fund's interventions in the debt situation have already demonstrated that the amount of collateral that can be financed out of Fund resources will hardly be large enough to substantially alleviate the debt burden of the beneficiary countries. The impact of the crisis on some countries is once more demonstrating the inadequacy of quotas for meeting the liquidity needs of some members. A similar conclusion may one day emerge concerning the intervention needs of money centers in a tripolar system based on more stable exchange rates. All these considerations lead me to ask that serious consideration be given to our Constituency's proposal for an allocation of SDRs whose excess proceeds would be retransferred by the industrial countries to the Fund. The Fund would then use these new resources to finance countries' needs that cannot directly be met out of the quotas. The compensatory and contingency financing facility, which still operates within the limited framework of the Fund's quotas, was originally devised to meet some of those specific needs but now requires a thorough overhaul in order to make it more easily comprehended and more accessible to members. As an immediate response

©International Monetary Fund. Not for Redistribution IRELAND 115 to the shock, and pending the results of more fundamental reforms,, the foreign exchange losses due to oil price increases should be dealt with under a separate facility, whose limits are linked more directly to countries' needs than to their quotas. With respect to the cost of access to Fund resources, it seems imperative to find ways of reducing the level of charges to be paid by countries severely hit by the recent shock. Would it not be reasonable to pursue this goal by putting some of the Fund's gold to a profitable use, and using the profits to subsidize part of these charges? In conclusion, today's increasingly globalized world makes the 1990s a decade of opportunities. It offers an opportunity for ensuring that world economic growth will be sustained; and because no country can thrive while remaining isolated in a globalized world, it offers both an opportunity and an imperative for seeking multilateral solutions for the shared problems stemming from short- and medium-term constraints. I feel confident that the IMF and the Bank Group will continue to fulfill their roles, by catalyzing resources, by channeling funds to support the growth and development prospects of our countries, and by directly addressing the problem of maintaining the momentum of the structural adjustment process worldwide.

STATEMENT BY THE GOVERNOR OF THE FUND AND BANK FOR IRELAND

Albert Reynolds

I too would like to join with my fellow Governors in welcoming the new members, Bulgaria and Namibia and, of course, the return of Czechoslovakia, and a special welcome to a special invitee, the U.S.S.R., to participate here in our deliberations. As we reflect on the past decade, we can conclude, with good reason, that useful progress has been made in the management of the world economy. Our common objective is to provide prosperity for all peoples and, to this end, we support institutions such as the International Monetary Fund and the World Bank. We must work together toward a fairer distribution of the world's resources and this implies a readiness to make compromises, to give second place at times to national interests, and to recognize that individual nations have differing priorities. It implies that the rich and the powerful will have due regard at all times to their obligations toward the poorer members of the world community. After much hesitation, a consistent program for the gradual resolution of the debt problem has been initiated. There has been a belated response to the destruction of the environment, and we have learned to appreciate the importance of proper conservation of energy resources. On the downside, we must acknowledge the uneven rates of progress and the huge inequalities that

©International Monetary Fund. Not for Redistribution 116 SUMMARY PROCEEDINGS, 1990 persist. The single greatest achievement of the past decade, however, is the growing appreciation of the importance of coordination in all aspects of economic and social development.

World Economy

Balanced economic growth is the key to progress, and the news on the world economy is reasonably good. Growth in the industrial countries has been buoyant, prices have been, in general, relatively stable, and there has been a steady increase in the volume of world trade. So far, the modest slowdown this year is not a cause of undue concern and we hope that the crisis in the Gulf area will not lead to a serious downturn. Some adjustment will probably be required but, provided we do not repeat the mistakes of the 1970s, the world economy should continue on the path of sustainable growth. Undoubtedly, a further deterioration in the present crisis could destroy this prospect. We hope that such an outcome can be avoided. Inflation remains a persistent threat to the global economy, and we look to the stronger nations, in particular, to ensure that this threat is kept in check. There is reason for concern about the global adequacy of savings, particularly in view of the expected increase in demand for investment funds. It is disappointing that unemployment continues at an unacceptably high level in many countries and that there are no concerted efforts to find adequate solutions. While the problem of external imbalances has eased to some extent, it still remains a barrier to economic expansion and to continuing financial stability. Greater adjustment is needed on the part of the major surplus and deficit countries. The problem of inflation must be tackled using the widest possible range of policy instruments. Undue reliance on monetary policy will lead to an excessively high level of international interest rates. It is especially important just now not to add to the difficulties facing the world economy, when growth is already slowing down and events in the Gulf area are causing concern about the future. Undue reliance on interest rates to fight inflation can also give rise to economic imbalances across sectors. Small business enterprises and personal borrowers, particularly those with large mortgages, suffer disproportionately. High interest rates also have a devastating effect on the heavily indebted countries. The Uruguay Round is now in its final and most difficult phase. Our negotiators face the difficult task of achieving agreement on a package that is extensive, difficult, and ambitious. The Director-General of the GATT has wisely laid down a strict timetable to ensure that the deadline of December is respected and we will honor this deadline. Although we have serious difficulties with certain aspects of the negotiations, notably agriculture, we see the successful completion of the negotiations as vital to the good development of the world economy in the next few years. Apart from the

©International Monetary Fund. Not for Redistribution IRELAND 117 increased access to markets that will result, the strengthening of the authority of the GATT will be a major contribution to ensuring that trade can be carried out in predictable and secure conditions. For a country such as Ireland, heavily dependent on trade and on the increased investment that results from business confidence, the importance of a successful conclusion cannot be exaggerated. One of the biggest challenges facing the world economy in the 1990s will be the integration of the centrally planned economies of Eastern Europe. They face a fundamental transformation over a short period. While the job of creating the proper framework for a market economy is their own responsibility, they will need considerable assistance, and the International Monetary Fund and the World Bank are already at the forefront in providing help. The agreement on a new European Bank for Reconstruction and Development in such a short time is a practical demonstration of what is possible where there is a consensus about the need for urgency.

Debt The huge debt problem is still with us but the new initiatives of the debt strategy are working reasonably well and can be improved with experience. In most countries, the debt crisis is only a symptom of deeper economic problems. It is not enough, therefore, to manage the debt; it is essential at the same time to correct the underlying economic weaknesses and distortions. There has been a positive international response to those heavily indebted countries who have demonstrated their commitment to implement necessary economic policies and, hopefully, this will encourage others to follow their example. I very much welcome the positive approach by the Houston summit to the debt problem and, in particular, the recognition that relief on debt of low- income countries to official creditors needs to go further than at present. The Gulf crisis and the attendant rise in oil prices has painful implications for indebted, oil importing developing countries. I would support any measures which the Fund and the Bank could take to counter these adverse effects in countries that are implementing adjustment programs with Fund or Bank support.

Poverty The devastating effects of poverty are all too familiar. It is depressing to see the income gap widening sharply in the developing countries and to see conspicuous waste on prestige projects in the midst of poverty. It is a sobering thought that one third of the world's population lives below the poverty line. Progress toward greater prosperity should be biased in favor of the poor. The poor countries need more generous assistance from the rest of the world and there must be, in turn, a genuine commitment from them to good management

©International Monetary Fund. Not for Redistribution 118 SUMMARY PROCEEDINGS, 1990 of their economies, the elimination of distortions, and the maintenance of a healthy climate for investment. This can be very difficult because the process of economic restructuring is often slow and uneven. We must be patient and persistent in our efforts to achieve a better distribution of the world's resources. We cannot afford to be patient, however, in the face of abject poverty and destitution which is still so widespread, and I would ask whether our ability to respond to desperate situations is sufficient. There is a genuine desire to help; it is more difficult to translate good intent into practice. . . .

Environment Concern about environmental degradation wrought by economic progress is now entrenched in modern thinking. We have finally realized that care for the environment is important, both for its own sake and because it is vital to sustainable economic progress. Indeed, some would redefine the very concept of development, in view of the pressures on the earth's resources. Despite the greater awareness, however, serious abuse is still a fact of life even in the developed countries. We cannot expect otherwise until we integrate economics more fully into efforts to protect the environment; nor can we expect poorer countries to give high priority to the environment if we do not lead by example. Pollution knows no borders. National boundaries do not count. I welcome the initiative now being taken to establish a Global Environmental Facility to help the poorer countries. We are fortunate in Ireland that so far we have escaped the worst effects of destruction of the environment, and the bad experiences of some other countries have alerted us to the need to be ever vigilant.

European Developments It is an exciting time in Europe and European developments have dominated the headlines over the past year. The movement toward economic and monetary union in the European Community, the dramatic changes in Central and Eastern Europe, and the unification of Germany have released new dynamic forces that will transform the economy. There will be greater integration of European markets generally, and Europe will emerge as a much more powerful influence in the world economy. The emphasis in Europe is on the liberalization of capital movements and the removal of barriers, and this is the only way forward if the world economy is to continue to develop to its true potential.

The Irish Economy Events in Europe will have a big impact on the future development of the Irish economy, and we welcome the movement toward greater integration.

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I am happy to report steady economic growth in Ireland and an improving financial environment. Following several difficult years through the 1980s, the process of financial adjustment, begun in 1987, is continuing successfully. Inflation, expected to be in the region of 3!/4 percent this year, is low by general European standards, and the prospects for employment are getting better. As a small and totally open economy, our prosperity depends to a large degree on continuing growth in world trade and the ongoing integration of national economies into the global economy. We welcome very much the efforts being made to remove barriers and to develop more open systems of trading. The International Monetary Fund and the World Bank continue to demon- strate a great professionalism and sense of purpose in fulfilling their mandates, and we must ensure that they have adequate resources to look ahead with confidence. After difficult negotiations, final agreement has been reached on the Ninth Quota Review for the Fund and an increase of 50 percent is a reasonable compromise. The apprehension expressed by some of the develop- ing countries about a possible shift of scarce resources to Eastern Europe is, I believe, misplaced. I welcome the new strategy to deal with arrears owed to the Fund. It is of fundamental importance that members comply with their obligations, and it is proper that sanctions be invoked in the face of persistent default. Prevention and early warning are the best deterrents but, for those countries that have already gone too far, we must be ready to implement practical arrangements to bring them back on course. There are great challenges and opportunities as we move into the new decade. In managing the international economy, we have learned well from the mistakes of the past, and real progress has been made in improving coordination. There is a greater discipline than before and a willingness to tackle effectively problems such as debt accumulation and arrears which threatens the very foundations of international cooperation. There is a greater realization than before of the fact that the interests of all members are interdependent. There are still great impediments to progress and sometimes too much rhetoric and too little real commitment to solving difficulties. We are very much indebted to the Fund and the Bank for their contributions to development, and we have the utmost confidence in their abilities to maintain their high standards.

STATEMENT BY THE GOVERNOR OF THE FUND FOR SPAIN

Carlos Solchaga

Allow me to begin by thanking this assembly for having agreed that Madrid will host the Forty-Ninth Annual Meetings of the IMF and the World Bank

©International Monetary Fund. Not for Redistribution 120 SUMMARY PROCEEDINGS, 1990 in October 1994. In addition, I should like to take this opportunity to extend the warmest greetings to Bulgaria, the Czech and Slovak Federal Republic, and Namibia as they join the Bretton Woods institutions, and I think we can all take pride in the fact that these meetings are being attended by special invitees from the U.S.S.R. The new memberships, as well as those now in the offing, are a tribute to the fundamental intellectual strength of the multilateral approach personified by our two institutions and a reflection of the dramatic and heartening political changes that have occurred since our last meetings. Significant changes have also emerged in the economic arena. In our statements to these meetings over the last seven years, we, the Governors of the industrial countries, have sought to emphasize the positive aspects of economic trends in our countries. Since 1982, we have with increasing optimism drawn attention to the high rates of growth and job creation achieved in the developed countries, the remarkable achievements in the fight against inflation, and the acceptable results achieved in the efforts to reduce the financial imbalances in our public sectors. With rare unanimity, we subscribe to the view that the duration and intensity of this expansionary phase has been attributable to a highly effective economic policy mix. On the one hand, there have been supply policies designed to give the market a stronger role in resource allocation and to introduce greater flexibility into our respective systems of production. In addition, there have been demand policies intended to promote a well-established, balanced, and noninflationary macroeconomic environment, capable of accommodating rates of economic growth that are both significant and sustainable in the medium term. The economic bonanza of recent years did not enable us to realize that we could be facing international imbalances that pose risks and uncertainties that could well put an end to this expansionary phase. The disappointing balance of international payments for developing countries in the last decade—a consequence of these countries' unsustainable policies and the constraints imposed by their exceedingly high levels of external indebtedness, the repeated and increasingly sophisticated threats to the multilateral commercial system, the volatility and arguably flagrant maladjustment of exchange rates on international currency markets, the buildup of external imbalances among the world's leading industrial countries, and the downward resistance of the U.S. budget deficit—have lately been a cause of considerable concern to these meetings. The recent developments in the Gulf and the subsequent rise in the price of crude oil have resulted in an economic climate dominated by uncertainty. If the prevention of declining expectations and worsening imbalances used to be a necessity during the period of expansion, it has now become an urgent priority for our economic policy. Fortunately, the lessons of the two oil crises in the 1970s provide us with unequivocal guidance as to the broad policy outlines to pursue, and especially

©International Monetary Fund. Not for Redistribution SPAIN 121 as regards the errors that must never again be repeated. First, we know that failure to react promptly to genuine upheavals of this nature has irremediable and potentially heavy costs in terms of GDP, employment, and welfare. For all of these reasons, and notwithstanding the fact that the present oil crisis seems liable to prove less disruptive than its predecessors, it is vitally important for economic policies to be promptly adjusted to reflect the new international situation. The required policy changes are reasonably self-evident. For one thing, recorded increases in prices must be rapidly passed on to consumers, both in order to prevent distortions in the structure of relative costs of factors of production and to prevent inappropriate demand patterns from taking root. At the same time, it is imperative for all economic transactors—-the public sector, business people, and workers—to recognize that the outward transfer of resources entailed by the rising price of oil has caused an impoverishment which society as a whole cannot circumvent. It is crucial for each of these economic groups to acknowledge that attempts to pass off the costs of the crisis onto other economic transactors will merely lead to higher inflation, reduced economic growth, a fall in investment, and reduced job creation; in short, behavior of this nature will lead to further, persistent economic impoverishment. In our opinion, it is also imperative for society to perceive burden sharing as something that has both fairness and credibility. Although the extent to which such a goal is achieved will basically depend on the particular industrial relations model prevailing in each country, the Spanish experience causes us to look favorably upon the possibility of concluding a Social Progress Pact with workers and employers, as a means of minimizing the anticipated costs of a temporary crisis and reinforcing solidarity in this area. The heavy losses in terms of welfare and employment that resulted from earlier crises have assuredly convinced our economic transactors of the dangers inherent in any sort of wishful thinking as regards increases in their nominal incomes. In any event, it must be made clear that without moderation in nominal wages and in unit profit margins, the market will ultimately exact a penalty by forcing up unemployment, inducing a fall in investment, and reducing the economy's medium-term potential rate of growth. Given that the ultimate objective of economic policy in the coming months must be the achievement of a rate of increase in nominal spending that prevents the onset of inflationary pressures and intolerable deterioration in external accounts, moderation in nominal incomes will be instrumental in determining the degree of adjustment that monetary and fiscal policies will require. The less the moderation in wages and business profit margins, the greater the deflationary dose that will need to be administered through interest rates, public expenditure cuts, and accelerated fiscal consolidation. It would be highly desirable both for the response to the crisis to consist of a balanced contribution from each of the economic policy instruments for

©International Monetary Fund. Not for Redistribution 122 SUMMARY PROCEEDINGS, 1990 managing demand, and for there to be no faltering in the process of market streamlining, as in this way the restoration of internal and external equilibrium would be easier, the slowdown in growth would be of shorter duration, and the burden sharing would have fewer pernicious distributional effects. Yet adjustment will occur one way or another, whether in terms of prices, or in terms of quantities. In the interrelated world in which we live, the economic policy guidelines I have just mentioned cannot be treated in isolation from the international response to the crisis. Once again, the experience of the 1970s conclusively indicates that an internationally coordinated response is the preferred economic policy option. This is so, first, because in an international environment dominated by the use of orthodox policies, international markets are thus less likely to suffer from excessive volatility that would amplify the adverse effects of the actual upheaval; and second, because a uniform and orthodox international response would leave no doubt as to the heavy price that a country would have to pay if it decided to deviate from the agreed course of action. This "discipline" argument is by no means insignificant, particularly if one is prepared to recognize that the current international monetary system may lack the means necessary to accelerate the process of economic convergence. With their well-nigh unlimited access to international capital markets, the developed countries are able for prolonged periods of time to finance financial policies that until very recently would have been quite untenable. For a very large group of developing countries embroiled in external debt, their virtual estrangement from international capital markets prevents them from taking rapid advantage of the benefits of orthodox macroeconomic behavior. This asymmetry in the incentive system, coupled with the absence of binding and irreversible codes to govern an increasingly wide spectrum of international transactions, serves to weaken any resolve to implement virtuous economic policies in the short term, notwithstanding the undeniable advantages that accrue from such policies in the long term. Action must be taken now to remedy this shortcoming in the existing international economic framework, and while it might be unrealistic to imagine that such a goal can be accomplished immediately, we should waste no opportunity to begin eliminating the least desirable features of that economic framework. Beyond any doubt, the first priority must be to strengthen our multilateral and open trading system through the satisfactory completion of the Uruguay Round. Nor would it be inappropriate to seek to derive benefit from a number of regional attempts to establish institutions and rules designed to ensure the collective achievement of economic stability. The Economic and Monetary Union in the European Economic Community is the most sophisticated and well-developed example of this. As a member of the EC, Spain supports such a program unreservedly,

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given that we are fully convinced of the benefits accruing to member countries and the international community from the establishment of an Economic Union in Europe, and the emergence—at the end of a multistage process, each stage with its own particular objectives and special content—of a monetary union characterized by a single currency, a European central bank, and a common monetary policy for the 12 members of the EEC. Although such a community-oriented approach might today seem to resist replication on an international scale, it should not be forgotten that what seems reckless today might cease to be reckless in a very short time. Any world such as ours, which has witnessed dramatic political and economic changes over the last year, is at least entitled to be optimistic.

STATEMENT BY THE GOVERNOR OF THE BANK FOR THE NETHERLANDS

W. Kok

One World First of all, I wish to welcome our new members, the Czech and Slovak Federal Republic, Bulgaria, and Namibia and I look forward to the membership of Switzerland and Mongolia. I also note with pleasure that we have the U.S.S.R. delegation as special invitees with us. This interest in the Bretton Woods institutions illustrates that the world is growing toward unity, a process that has gathered momentum during the past year. Indeed, the past year has brought the demise of the East-West political divide. The consensus is growing on how to run economies and on their link with political freedom. The rapid growth of international trade and financial flows, and the international spillovers of domestic policies, make "splendid isolation" illusory. Policy coordination in a multilateral framework should therefore come more and more to the forefront.

Gulf Crisis We meet at a moment of political and economic uncertainty due to the Gulf crisis. The uncertainty and the rise in oil prices resulting from the crisis occur at a time when economic growth in North America is tapering off, and many developing countries are still tackling the consequences of an excessive debt burden. Fortunately, economic growth is strong in Europe and Japan. Regarding the economic policy reaction to the recent oil price increases, a clear signal should be given in industrial countries, the developing world, and Eastern Europe alike, that policy shall remain aimed at containing inflation and government deficits, and that structural adjustment shall be pursued. This implies that no new distortions should be introduced into the

©International Monetary Fund. Not for Redistribution 124 SUMMARY PROCEEDINGS, 1990 economy through attempts to insulate it from the rise in oil prices. Governments should step up their efforts to make their economies more flexible, so that they will be able to absorb external shocks more easily. The one-off increase in domestic prices as a consequence of the oil price increase should not be translated into a cost-price spiral. This would give rise to a recurrence of stagflation. Recent developments should not distract us from fundamental issues such as the transformation of the planned economies into market economies, the stability of the international monetary system, the threat of protectionism, the unbalanced distribution of prosperity in the world, and the degradation of the environment. On each of these, I would like to say a few words.

Eastern Europe The transition in Eastern Europe from a planned economy to a mixed, market-oriented system has led us into terra incognita. One thing is certain: such an economic reform can be successful only if it is comprehensive, consistent, purposefully executed, and presented clearly enough to acquire democratic legitimation. It requires a change in economic, social, and political attitudes, organization, and institutions. Comprehensive reforms are a precondition for attracting the necessary foreign capital and techniques. The blessing of the existence of the multilateral institutions has seldom been more clear. The IMF, the World Bank Group, the OECD, and, in due course, the European Bank for Reconstruction and Development stand ready to assist these countries in a conceited effort in the design and implementation of programs, projects, and financing schemes. Additional efforts may be called for. As an example, I draw your attention to the Dutch proposal to create an "energy community for Europe," in which Western Europe would supply the technology and capital that would enable Eastern Europe to exploit its natural resources more efficiently and to develop its energy infrastructure.

International Monetary and Trade System In a world with highly integrated capital markets, stability of exchange rates needs to be achieved through stable domestic policies and careful coordination. Ill-balanced policy mixes can give rise to perverse exchange rate movements. The International Monetary Fund should continue to address this subject in its surveillance of the international monetary system and the policies of member countries. Countries large and small would be well advised to heed the IMF's recommendations. A stable international monetary system provides a good environment for international trade and investment. However, our efforts will be in vain if protectionism is allowed to rear its ugly head. The GATT provides the proper framework for freeing trade. The next

©International Monetary Fund. Not for Redistribution NETHERLANDS 125 months will be critical for the successful completion of the Uruguay Round. Economic analysis is clear about the benefits for all that stem from liberalization. The necessary effort is of a political nature: the setting aside of short-term interests and pressures. Clear examples are agriculture and fibers. If nations, among them the industrial nations like my own, continue to give preference to the protection of their sectoral interests, they are not only damaging their own consumers, wage earners, and tax payers, but they are, more particularly, robbing the poor in the world of a livelihood.

Developing World

The changed international situation requires a coordinated response in support of developing countries. The outlook for many of these, quite uncertain even before the present crisis, has now become gloomy. Although there are wide variations among individual countries, the majority of oil importing developing nations is severely affected. Contrary to previous oil shocks, commercial financing is now far less available, and for many heavily indebted countries it will be very difficult, if not impossible, to attract financing from other sources. This gives quite a different dimension to the reform process that is currently under way in many developing countries. For developing countries themselves a rapid domestic adjustment is needed in order to avoid the emergence of unsustainable external and internal imbalances. External creditors as a group would be well advised to support these reforms in order to maintain the momentum of adjustment. The IMF and the World Bank have a key role to play in coordinating assistance to developing countries. For debtor countries with large amounts of commercial debt it is important that the implementation of the strengthened debt strategy be stepped up. However, the negotiations with the commercial banks are still long and drawn out. These negotiations can be expected to remain difficult in the future. The IMF and the World Bank have an important role in providing the right incentives. The IMF could locus the negotiations by presenting a medium- term framework for adjustment and financing that would pave the way for a return to external viability. For the severely indebted lower-income countries, the strengthened debt strategy can offer but limited relief, owing as they do the bulk of their debt to official creditors. The prospects for these countries of returning to normal debtor-creditor relationships have been bleak for many years already. The Netherlands was among the first to forgive concessional ODA-debt. Many other donor countries were to follow suit. Regrettably, this has not proved to be sufficient to restore viability. The Netherlands, therefore, now proposes that the community of creditor nations be prepared to start a program of gradual cancellation of bilateral official debts of the poorest developing countries facing severe debt problems. I note with satisfaction that other

©International Monetary Fund. Not for Redistribution 126 SUMMARY PROCEEDINGS, 1990 creditor countries are indicating their willingness to think and act along the same lines. The Netherlands would favor the elaboration of joint proposals and is willing to take an active part in discussions in the appropriate forums in order to create a broad basis for consensus and progress. Such a scheme should be considered seriously and constructively by the Paris Club. Cancellation could be part of a gradual process that is made conditional on the implementation of sound economic policies in the context of IMF programs. Otherwise, it would only give temporary relief, with no prospect whatsoever of a return to financial viability for these countries. For the creditor countries, the budgetary consequences of implementing the Nether- lands proposal could be met by charging development aid budgets with a reasonable but limited percentage of the amounts involved, so as to secure true additionality. The international community should stand ready to support those countries especially heavily hit by the Gulf crisis through a coordinated approach to alleviate their loss. In principle, the European Community decided two weeks ago to offer financial assistance to Jordan, Egypt, and Turkey as part of a wider international effort. The IMF and the World Bank should play a leading role by helping to assess financing needs and by supporting their adjustment programs. . . .

Environment Growing interdependence in the world is clearly demonstrated by the environmental problems. The continuing degradation of the environment is truly universal. The solution of global environmental problems must remain a top priority for all of us. The future of mankind is at stake. Developing countries have to play their role too. But, if developing countries are to contribute to solving global environmental problems, and they incur additional costs, or are confronted with a scarcity of resources, the industrial nations should be prepared to give financial support; support that should be truly additional. The Netherlands supports the World Bank proposal for the establishment of the Global Environmental Facility. This facility, although operating in the first phase as a pilot scheme, should reflect the joint responsibilities of all nations. The Netherlands, therefore, strongly feels that this global character calls for a fair and multilateral burden sharing. The Gulf crisis again proves the point that there is a universal need for energy conservation and for alternative energy sources.

Conclusion In conclusion, I have advocated a more coordinated approach in a multilateral framework to the problems we are facing today. The developments in the last year may mark the dawn of a new era, in which the countries of

©International Monetary Fund. Not for Redistribution CANADA 127 the world will draw closer together. Coordination is possible only if we can agree on its objective. This objective should be an open international economy that combines equity, freedom, and efficiency. Ultimately, coordination will be sustainable only if it is supported by the people. Since World War II the right to self-determination of nations has swept through the world and changed its face. I hope that present movements toward freedom in the various regions will leave their mark upon the world to a similar degree.

STATEMENT BY THE TEMPORARY ALTERNATE GOVERNOR OF THE FUND AND BANK FOR CANADA

Monique Landry

In recent years, the major industrial countries of the world, and an increasing number of developing countries, have pursued their national economic policies within a common framework. This framework, which emphasizes the need for a medium-term policy, is based on three interdepen- dent and complementary elements. The first is the need to make steady and credible progress in reducing fiscal deficits, thereby freeing resources in support of private sector investment and growth. The second is a monetary policy aimed at establishing a noninflationary environment in which decision making is not distorted by inflationary expectations. The third element consists of structural reforms aimed at strengthening market forces and encouraging a more efficient allocation of resources, both domestically and globally. Together, these three elements form a consistent policy "package" that is contributing to sustainable growth and rising living standards in both industrial and developing countries. This framework has been the basis of the policy program that we have been implementing in Canada since 1984. We have sought to follow a policy path that takes the medium- to long-term view. Canada's economic performance over the past six years provides strong evidence that this policy approach works. Since 1983, real output in Canada has grown at an average annual pace of over 4 percent. This sustained expansion has translated into a significant gain in prosperity for the average Canadian. On a per capita basis, personal incomes, after correcting for inflation, are 16 percent higher than in 1983. But, achieving these results has required tough decisions. We have had to deal with a well-entrenched budgetary deficit and have introduced structural reforms, despite strong resistance by vested interests. Recently, as the economy has reached capacity limits, we have also had to take strong action to counter rising inflationary pressures. As difficult as these decisions

©International Monetary Fund. Not for Redistribution 128 SUMMARY PROCEEDINGS, 1990 have been, without them our performance would have deteriorated, not strengthened. Canada is, of course, not the only industrial country to have benefited from this policy framework. Indeed, the strong sustained growth of industrial countries since the early 1980s is testimony to the validity of a policy approach that emphasizes the three elements I have referred to. But all of us continue to face ongoing challenges. We face the challenge of containing and then reducing inflation. We face the challenge of increasing global savings to meet the needs of developing countries and the adjustments in Central and Eastern Europe. We face the challenge of making substantial progress in liberalizing world trade. And finally, we face the challenge of the recent run-up in oil prices and the increased volatility and uncertainty in financial markets that has resulted from developments in the Middle East. Meeting these challenges successfully will require that we in the industrial countries remain firmly committed to our policy framework and intensify our efforts. It will require a similar commitment on the part of developing countries. A number of developing countries have been following this policy framework with considerable success. Others, including Central and Eastern European countries, have more recently recognized the need for such a policy approach and are moving rapidly to introduce market-oriented reforms. Indeed > we have all been impressed by the commitment of countries in Eastern Europe to adopt our policy framework and implement the necessary stabilization and structural reforms. Allow me to very briefly refer now to the invasion of Kuwait by Iraq and the consequences that invasion has had on the world economy and on macroeconomic policies. First of all, we must marshal our resources to restore sovereignty in Kuwait. And such resources must necessarily be subtracted from our domestic expenditure. Then, simultaneously, we are going to have to resist the recent increase of inflationary pressures as best as we possibly can. If we fail to stand by our principles and the measures we have agreed to implement, buckling under to the prevailing pressures and the burden of increased prices, we would be jeopardizing the progress so painfully achieved in the last decade. Recent developments in world financial markets support this conclusion. It seems to me that much of the volatility of asset prices and the increase in long-term interest rates can be attributed to concern that industrial countries might change their policy direction. In an environment of uncertainty it is absolutely critical that we pursue the policies that will lead to the achievement of noninflationary growth. In Canada, and in some other industrial countries, growth has now begun to slow. This is a natural consequence of an extended period of strong growth that has finally pushed spending beyond our capacity to produce. While the slowing will be difficult, it will, nevertheless> bring a better balance of

©International Monetary Fund. Not for Redistribution CANADA 129 demand and supply and lay the foundations that are essential for a reduction in inflation and interest rates and a return to solid economic growth. Just as we need to bring into better balance the supply and demand for output, we need to bring into better balance the supply and demand for savings. There is no doubt that, despite some temporary slowing of growth, there has been, and will continue to be, a growing demand on global savings. All of us have a responsibility to intensify efforts to increase global savings. This means that deficit countries, including developing countries, must make further progress in correcting their fiscal imbalances, and surplus countries must continue to sustain noninflationary growth. This brings me to the third element of our policy framework. In previous IMF and World Bank meetings we agreed on the importance of structural adjustment policies to increase the productive capacities of our economies and reduce underlying inflationary pressures. Over the past several years, many countries have moved to reduce the structural impediments to the efficient allocation of resources. But, there is still more we can do, both individually and multilaterally. In this context, I would like to comment on the singular importance of the current Uruguay Round of multilateral trade negotiations. With only some 80 days remaining before the Round is scheduled to conclude, it is clear that the negotiations are now at a critical stage. Maximum efforts must be made to ensure that they achieve the greatest possible results. We must strengthen the multilateral trading system and ensure that developing countries are integrated more fully into it. We should, therefore, ensure in these final weeks that our negotiators are given the necessary mandates to achieve the greatest liberalization possible. It is encouraging to note that there is a growing appreciation in many developing countries and in Central and Eastern Europe of the need to establish a framework of market-oriented institutions and sound policy to stimulate private savings and investment. I firmly believe that the best way we can assist these countries is by fostering an open and prosperous international economic environment while encouraging them to pursue market- based solutions to their economic problems. However, the experience of the early 1980s clearly demonstrated that international trade and development depend critically on stable economic growth. Sustained, long-term growth is within the reach of all countries. For that to happen, we must remain committed to the broad range of structural initiatives and macroeconomic policies we know are appropriate. As in previous situations of rapid change and unexpected turns of events, we are today in the unenviable position of having to make hard policy choices. We must maintain our resolve to pursue policies consistent with long-term sustainable growth in an environment characterized by price pressures and a temporary slowing of world growth. Ultimately, each country is responsible

©International Monetary Fund. Not for Redistribution 130 SUMMARY PROCEEDINGS, 1990 for its own fate and must make its own decisions. But, our integrated world demands that we recognize the external linkages that constrain us. It also puts a particular responsibility for good domestic policies on the major industrial countries. Fortunately, in coping with the challenges that the current situation presents, we can turn to the International Monetary Fund and the World Bank to play their supportive and often vital role in helping countries while serving to secure an open and dynamic international economy. By providing financial support and, more important, policy guidance and technical advice, the Fund and the Bank can help their members to make the right choices. We will all benefit from the resulting collective improvement in economic performance.

©International Monetary Fund. Not for Redistribution DISCUSSION OF FUND POLICY AT FOURTH JOINT SESSION1

STATEMENT BY THE GOVERNOR OF THE FUND FOR SOUTH AFRICA

B.J. du Plessis

It is a pleasure to associate myself with fellow Governors in welcoming the Republic of Namibia, the People's Republic of Bulgaria, and the Czech and Slovak Federal Republic to this year's Annual Meetings. Their association with these institutions will no doubt benefit their people. Our best wishes in particular go to our neighbor, Namibia, where, apart from other involvements over many years, we contributed to its economic development, particularly by way of infrastructure. As elsewhere in the developing world, all the countries in the Southern African region, including South Africa, still fall far short of fulfilling the basic needs and the aspirations of their people. Indeed, dealing with the problems of the developing world is a daunting task that calls for inspired leadership, original thinking, and the cooperation and support of the world community. The plight of the African continent and the need for concerted action have been highlighted by the World Development Report 1990, which singles out sub-Saharan Africa as the one region that has not shared in economic progress and the reduction of poverty. A clarion call for constructive action emanates from the Report's finding that per capita consumption is no higher in the region now than it was twenty-five years ago, and that by the end of the century sub-Saharan Africa may account for more than 30 percent of the poor of the developing world against 16 percent in 1985. In past years we have emphasized from this platform, the interdependence of the sub-Saharan region and the need for those countries to stand together to meet future challenges. With the emergence of a democratic and just new South Africa, the time has never been more opportune for us to reaffirm our understanding of this reality. As part of the family of African nations, we reiterate that we have both the potential and desire to play a meaningful role in addressing the particular and pressing problems of our region. Regrettably, and not entirely of our own making, our resources of finance and trained manpower are still limited. There are nevertheless many areas in which we are willing and able to assist. Indeed, the rapidly changing internal political

1 September 26, 1990. 131

©International Monetary Fund. Not for Redistribution 132 SUMMARY PROCEEDINGS, 1990 situation in South Africa and the general acceptance of the irreversibility of the process of change should greatly facilitate closer and more visible cooperation. The momentous changes and events of the past twelve months on a wider canvas have also significantly influenced Southern Africa. Former adversaries are not only identifying and developing common objectives elsewhere, but also both inside my country and in our region. Countries and regions are moving away from strife and armed conflict toward more representative political systems and constitutional structures. These new conditions are clearly more conducive to supporting productive economic activities. Our region already benefits from no longer being an arena for international power play. I hope many other developing countries will now also no longer need to devote substantial portions of their national budgets to maintaining large security establishments. This is certainly happening in South Africa. As the peace dividend increases, and to the extent that prudent economic policies take effect, South Africa and other countries in our region will be able to spend progressively more on the alleviation of poverty by providing shelter, basic health services, and appropriate education. These advantages will be attainable only through the consistent application of sound fiscal and monetary policies, involving a fundamental economic restructuring. Since these adjustments normally take a long time to implement, this will be no easy task. It will demand courageous leadership and the understanding and tolerance of the population. Over the past few years, South Africa has worked at restructuring its economy on the principles of a socially responsible, market-oriented system. In this effort, firm control over public sector spending necessitated drastic changes in budget priorities in favor of socioeconomic expenditure. Despite these growing demands, we also had to apply strict monetary policy in order to create and maintain a stable financial environment conducive to long-term growth and development. This clearly is the only sound manner in which to meet these legitimate demands in the long term. The developing world is already feeling the effects of donor fatigue. In addition, it has to contend with the imminent potential for a weakening in world demand, new problems with inflation, an international shortage of development capital, rising interest rates, declining demand, and lower prices for their exports of primary products. All of these factors are likely to be exacerbated by the consequences of the Gulf crisis and soaring oil prices. Indeed these countries, as innocent bystanders to this particular event, will pay the heaviest penalty, and a special and generous provision to address this issue, as referred to by President Bush, is a welcome and essential development. In Africa, including South and Southern Africa, people are moving in large numbers to urban centers in search of jobs, often for the sake of trying to secure their very survival. Without adequate employment opportunities, these

©International Monetary Fund. Not for Redistribution HONDURAS 133 migrants will face stark deprivation and even starvation. Hungry people without proper shelter, amenities, and fuel are also unlikely to appreciate such lofty aspirations as the long-term benefits of environmental protection. In addition, the welcome evolution toward more representative government could be severely undermined in those countries in which economic develop- ment and growth fall short of providing for basic needs. The current and prospective setbacks for developing countries occur after difficult years of dealing with the pressures of the reverse flow of capital to the first world. Disinvestment in whatever form or for whatever reason affects the poor first—and overwhelmingly. South Africa, and consequently to a marked extent our whole region, knows firsthand the severe penalties this process incurs—this despite our country's good record and its low debt ratios. Like other developing countries that were compelled to become capital exporters, we could achieve the surpluses needed to service the outflow on the capital account only by severely and consistently restricting the growth of the domestic economy. This has obviously led to the destruction of many potential and actual job opportunities and an inability to generate sufficient revenue for essential social expenditure. As the World Development Report 1990 correctly acknowledges, economic growth and stability are primary conditions for alleviating and reducing poverty. Poverty, rather like trade, knows no boundaries, especially in the regional context—and this is so in Africa. The World Development Report paints a somber picture of the extent of poverty in its many facets but also provides convincing evidence that significant progress can be made in pushing back its boundaries through the consistent application of appropriate policies. I can only echo President Conable's words that the reduction of poverty should be one of the international community's fundamental objectives in the 1990s. South Africa, with its present rather limited means, and its own urgent need to address the problems of poverty and socioecortomic development within its boundaries, is nevertheless prepared to play its particular part in dealing with the related economic problems of Southern Africa, and even further afield on our own continent; and all that in a spirit of cooperation and interdependence.

STATEMENT BY THE GOVERNOR OF THE BANK FOR HONDURAS

Benjamin Villanueva

It is a great honor for me to address this meeting on behalf of Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Ecuador, El Salvador, Spain,

©International Monetary Fund. Not for Redistribution 134 SUMMARY PROCEEDINGS, 1990 the Philippines, Guatemala, Guyana, Haiti, Mexico, Nicaragua, Panama, Para- guay, Peru, the Dominican Republic, Suriname, Trinidad and Tobago, Uruguay, Venezuela, and my own country, Honduras, at the dawn of a new decade in which the governments of our countries, firmly resolved to make their mark on history, have already undertaken, within a democratic framework, profound economic and social changes. The countries of Latin America are facing, with ever greater prospects of success, a series of challenges, although the international environment is still totally unfavorable. The first great challenge is to restore the GDP per capita that Latin America lost over the last decade. The current state of things is such that we have to run fast merely in order to stand still. The second challenge is how to deal with the inevitable social costs of adjustment. The third is to reverse the process whereby Latin America has become a persistent net exporter of capital and to find ways to service an external debt that requires ever larger external transfers of resources. The concerns of the Latin American countries are still almost the same as those we described last year, with the further difficulty that a new international situation, of extreme gravity for some of our countries, is developing as a result of the political and military conflicts in the Middle East. Therefore, I would like to retrace the proposals that Latin America made in this forum last year, so that we can identify areas in which progress has been made, the obstacles still in front of us, and the new actions that we must take in light of the latest developments in the world economy. Maintaining a policy of constant external transfers of funds entails a compounding of the sacrifices and uncertainties of the 1980s. The most significant negative feature of recent years, apart from the stagnation and high inflation of the past decade, is this massive external transfer of funds. Indeed, as the distinguished Governor for Brazil noted, since the beginning of the debt crisis, Latin America has transferred some $250 billion to creditor countries, whereas it has received only $50 billion in return, a most eloquent indication of the fact that the region has exported resources in amounts several times greater than it obtained through the Alliance for Progress or than were involved in the Marshall Plan. We have still not found a concrete solution to this basic problem and we must do so as a matter of urgency. We cannot allow the economic agenda for the 1990s to continue being obstructed by the external debt problem, thereby absorbing energies in bilateral and multilateral forums that ought to be devoted to tackling the problems of the future, rather than focused on the negative inheritance of the past. The governments of the industrial countries and the multilateral institutions that they largely control must play a much more active role in approaching the debt question as a real problem of international development and an essential issue in international public policy. In recent years there has been a significant decline in net financial flows both from the International Monetary Fund and the World Bank. As a result,

©International Monetary Fund. Not for Redistribution HONDURAS 135 we have already proposed that the role of both institutions should be reconsidered, particularly in light of the serious crisis that we foresee in the 1990s. The response we have received to date is that conditionality in both organizations has been expanded and strengthened and growing efforts are being made to increase their influence on the process of national economic policy formulation and implementation. On previous occasions we observed that, where Latin America is concerned, the performance of the multilateral organizations was proving to be inappropri- ate for the new reality of democratic societies in which the elected congresses of representatives of the people now play a much more significant role in the definition of national policies. In our view, the Bretton Woods institutions must urgently develop a more positive approach designed to provide effective support for the economic efforts made by member countries, and according to priorities defined by these countries themselves rather than by priorities that aim to resolve the problems of those institutions. We continue to stress that new themes, such as the environment, the role of women in development, a renewed concern for social issues, and especially the fight against poverty, ought to provide new opportunities for a positive approach in the 1990s. An examination of the adjustment programs of the various countries on whose behalf I am speaking today, including my own country, Honduras, which is currently engaged in a comprehensive program of structural economic reorganization, reveals a common emphasis on restoring domestic and external financial stability through the reduction of imbalances in the public finances and exchange rate adjustment. At the same time the role of the state is being redefined through the privatization of various activities which, once transferred to the private sector, can increase productivity and raise the international competitiveness of our countries. A key issue on the agenda for the 1990s is how the benefits of growth are to be distributed. The urgent need in our countries to find rapid solutions to short-term problems generated by financial imbalances frequently results in the impact of adjustment policies on income distribution receiving less than due attention, although in general such policies have greatly reinforced social inequity. To mitigate this impact on the most vulnerable social sectors, targeted social programs have been designed which, through income supplements and by creating temporary and permanent employment opportunities, have somewhat reduced the costs of adjustment. It is nonetheless generally recognized that such programs are marginal in nature, and their effects cannot solve the problems of millions of Latin Americans who are still living on incomes that put them below the poverty line. Unquestionably, bolder measures are required in order to deal with this issue effectively in a broader context of economic and social development programs. In the short and medium term, adjustment is imposing major sacrifices on

©International Monetary Fund. Not for Redistribution 136 SUMMARY PROCEEDINGS, 1990 our populations and is sharpening social and political tensions. While we firmly believe that the adjustment process is necessary to alleviate economic problems, it is not sufficient if the necessary ingredients of external debt relief and greater net flows of external funds are not forthcoming. The dead weight of external debt service on public finances has increased the costs of adjustment, in that the scarce resources required for development have to be applied to servicing the external debt, as the first step in the enormous task of restoring our relations with the international financial community. Notwithstanding the progress made in the negotiations on financial programs in some countries in the region, flows of external funds to Latin America are still insufficient, particularly when it is borne in mind that the greater part of the external financing obtained has taken the form of the involuntary accumulation of arrears. . . . We welcome the reforms introduced by some industrial countries as regards the restructuring of the external debt. However, at the present juncture, the countries of Latin America are in favor of a global strategy that includes relief not merely on debts to the commercial banks and bilateral official organizations, but also debts to the multilateral financial agencies. We therefore support in their entirety the conclusions of the Group of Twenty-Four regarding the debt strategy and the role that the Bretton Woods institutions ought to play at the present time. We see a clear need to increase organized multilateral cooperation. Although some progress has been made along the right lines, we are convinced that much remains to be done. Immediate action must be taken to alleviate the impact of the Gulf crisis on the developing countries. We believe that there is a need for increased access to IMF and World Bank resources, for expansion of the compensatory financing facility, and for broader access to, and coverage by, the concessional financing windows of both institutions. Given the present situation it is clear that new official initiatives are required. We therefore congratulate the Government of the United States for its initiative on behalf of the Americas, which we trust will be translated into concrete actions in the short term, and the Governments of the United Kingdom and the Netherlands for their recent proposals regarding the official debts of low-income countries. We believe, however, that these initiatives should be extended also to the severely indebted middle-income countries, which will only be able to resume their development process if they receive support in the form of partial cancellation of their debts and additional resources on concessional terms. We are also gratified by the decision of the Government of Japan to allocate part of its trade surplus to a parallel fund for debt-reduction operations, a precedent that ought to be followed by other governments. I would like to take this opportunity to raise certain questions that, while vital for Latin America in general, are even more urgent for the countries of Central America in the present international economic context. The natural

©International Monetary Fund. Not for Redistribution HONDURAS 137 desire for integration of our economies is again being pursued with renewed vigor. We regard integration as an important instrument that will enable us to exploit our limited resources, but we also see it as an effective means of securing new and dynamic links with the international economy. Opening our economies, strengthening our vocation as exporters, and pursuing economic liberalization are not necessarily incompatible with the construction of complementary production systems that can generate comparative advan- tages through efficient utilization of resources at the regional level. The Antigua Declaration issued by the presidents of the Central American nations last June, and the intensity with which these presidents have been working, indicate the political desire of peoples and governments to achieve peace and to embark on major political reforms. Although there is still a long way to go, we have made significant progress in strengthening and consolidating the democratic process. At the present time all the countries in Central America have democratically elected governments and to a large extent armed conflict has ceased. These are clear signs of the significant progress made in strengthening citizens' rights, establishing the legitimacy of state authority, and pacifying the region, which are necessary conditions for attaining new levels of development. Central America has now reached a particularly delicate and sensitive stage. The fragile social and political structure of our economies is seriously threatened by the impact of the increase in oil prices on our already precarious balance of payments situation. We have projected that paying these new prices would increase our already very heavy external debt burden by the equivalent of somewhat more than 9 percent of our export earnings. The Central American countries wish to call the attention of this important multilateral gathering to the paradoxical situation in which we find ourselves. On the one hand, the absolute amount of our debt is small in relation to the sums owed by the large debtors and to the volumes of funds handled by the international financial system, but, on the other hand, the normal financial ratios are higher in relative terms than for most of the countries in Latin America. It should furthermore be borne in mind that in Central America most of our commitments are either bilateral or to multilateral organizations. These are precisely the areas in which the least progress has been made in alleviating the external debt situation. We believe that to tackle this new crisis the International Monetary Fund ought, as an emergency solution, to increase substantially the access to its resources, and that the World Bank should immediately expand its operations so as to provide significant additional amounts of quick-disbursing sectoral loans on concessional terms. The uncertainties currently affecting both the domestic and international context and the differing estimates of external financing needs clearly call for wider use of contingency mechanisms that take into account the risks involved if foreign exchange earnings are lower and foreign exchange payments higher than estimated.

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The experience of the Central American countries with the Bretton Woods institutions indicates that the role of the latter is to provide enhanced and timely assistance to our countries, and not to demarcate areas of influence, seek uniformity in economic policy advice or, still less, exert coordinated pressure on our countries. The Central American countries join the rest of Latin America in opposing the three kinds of cross-conditionality that are a continuing feature of the operations of these institutions. Given current world economic conditions and the social situation in Latin America in particular, we should put aside any strengthening of conditionality and concentrate instead on far more positive approaches that can truly solve the basic problems facing our economies. We are convinced that the question of arrears to the Bretton Woods institutions is merely one manifestation of a much larger problem of external indebtedness and production structures that must be tackled in its broader context. In this new phase we hope to have the firm support of all those present here, since it is now that we need it most if we are not to give up our legitimate aspirations. We wish to express our total support for the initiatives proposed by the Regional Conference on External Debt sponsored by the Permanent Secretariat of the Latin American Economic System in June 1990 for solving the external debt problem, based on the premise that no remedy can be found that does not incorporate a substantial reduction in principal and interest and does not drastically reduce external transfers of funds. We are sure that these proposals, strengthened by the official initiatives now circulating, will be accepted by the international financial community. All our efforts to transform our economies will be useless if we cannot achieve a consensus on the part of the international financial community to provide the external resources our development requires. We must stress the importance of reaching agreement in the Uruguay Round to further reduce the obstacles to international trade, establish rules and discipline in trade matters for the future, and incorporate in the multilateral trade system those areas that to a large extent have been excluded from it. Finally, I would like to appeal to all those present, who represent the core around which our hopes for the economic and social development of our peoples revolve, that we boldly face the challenges of the future to which the new economic thinking of the 1990s is leading us, and that we include in this thinking innovative, constructive, and realistic ideas that will resolve not only the debt problem but also the short-term and structural problems of poverty, the environment, and the lack of foreign exchange to recover the real income lost over the past decade, and, even more important, to confront the crises now facing the international economy. Before ending, I would like to join in congratulating the Czech and Slovak Federal Republic, Bulgaria, and Namibia on becoming new members of the Bretton Woods institutions. We hope to be able to extend the same welcome in the near future to Switzerland and Mongolia.

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STATEMENT BY THE GOVERNOR OF THE BANK FOR BELGIUM

Philippe Maystadt

This year our Annual Meetings are dominated by the economic conse- quences of the events in the Gulf region, and by the responses that together we would like to set into motion with the support of the Bretton Woods institutions. Whatever actions we take in response to these challenges will be more effective if we are careful not to lose sight of the fundamental problems, systemic in nature, to whose solution the Bretton Woods institutions will have to make an essential contribution.

Responses to the Gulf Crisis The Gulf crisis calls for us to respond on three levels: —our macroeconomic policies must limit the inflationary consequences of the oil price increase; —we must help the developing countries most directly affected by the crisis; and —we must ensure that the International Monetary Fund will have the resources needed to fulfill the role we would like to see it play. First, during our preparatory meetings, and particularly during the meeting of the Interim Committee, I was impressed by a strong desire for continuity; the countries in deficit must keep their budgetary policies restrictive while continuing to aim their monetary policies at price stability. In addition, I noted the consensus that has emerged on the danger of attempting to block the internal price effects of the resurgence of the price of energy, or to offset this price hike by raising wages; such actions would only aggravate the situation by fueling inflationary expectations and would lead later on to a hardening of budgetary and monetary policies. Second, we must manifest our solidarity with the developing countries that suffer the most direct effects of the Gulf crisis and the embargo decreed by the Security Council of the United Nations. Belgium has already agreed to participate, in the framework of the European Community, in a global scheme of medium-term financial assistance to the most directly affected countries. In addition, we support the proposals of the Managing Director of the Fund and the President of the World Bank for preventing the adjustment programs of these countries from being disrupted by sudden change in their international environment. For this purpose, the Fund will be able, after a few necessary modifications, to use various mechanisms that are already available, notably its compensatory and contingency financing facility. The Fund will also have to display imagination in seeking ways of limiting the costs of its existing mechanisms for member countries that are affected by the Gulf crisis but that at present have not been admitted to the enlarged access of the structural

©International Monetary Fund. Not for Redistribution 140 SUMMARY PROCEEDINGS, 1990 adjustment facility. I hope that to limit these costs, the Fund will be able to count in the first instance on support from the oil exporting countries for which the increase in the price of oil represents a very large windfall. Finally, to ensure that the Fund will have at its disposal all the resources it will need, we must undertake, as Mr. Camdessus has suggested, to get under way all the arrangements necessary for the Ninth Quota Review to become effective before the next meeting of the Interim Committee, scheduled for April 29, 1991. This will require the simultaneous ratification of the Third Amendment of the Fund's Articles of Agreement, which is an important element of our strategy for eliminating arrears to the Fund. The Gulf crisis must not be permitted to make us forget the more fundamental systemic problems that the Bretton Woods institutions must act decisively to help solve. I am thinking essentially of the following three problems: —strengthening the coordination of macroeconomic policies; —the debt problem; and —the transition of the countries of Central and Eastern Europe toward a market economy.

Coordination of Macroeconomic Policies

I see three areas where adjustment policies can be made more effective to the extent that they can be implemented through a clearly defined process of international coordination, aimed at medium-term goals. The first is the level and orientation of savings. Especially because of the financial requirements of German unification and of Central and Eastern European reform, the problem of the international distribution of savings flows has become more acute: will savings flows from Japan and Europe still be available in the same proportions for financing the twin deficits of the U.S. balance of payments and the U.S. budget? Is there not a serious risk of an imbalance between the financing needs and the available savings? Resolving these tensions solely by raising interest rates could have negative effects on growth and weaken financial systems that already face other challenges. For the United States, the confidence of the markets could be secured if the U.S. authorities announced a medium-term program for reducing the budget deficit and increasing household savings. Within the European Community, the Federal Republic of Germany is also in a position to reduce future interest rate tensions by means of a harmonious blend of monetary and fiscal policy tools. Second, now more than ever we need to center our deliberations on the essential contribution that a stabilization of exchange rates could make to the coordination of macroecononiic policy. The exchange rate, instead of being treated as a simple residual variable, should be an object of international cooperation. The experience of the European Monetary System demonstrates

©International Monetary Fund. Not for Redistribution BELGIUM 141 the key role that exchange rate discipline can play in promoting a greater convergence of macroeconomic policies and creating a more stable and favorable environment for economic growth. I was especially pleased to hear my Japanese colleague in the Interim Committee express the hope for the coopertive establishment of an international monetary system ensuring more stable relationships among the currencies of the troika composed of the United States, Japan, and the European Community. The Fund could play a central role in the establishment of such a system. Finally, a sustained coordination of balance of payments policies is indispensable for the success of the great commercial negotiations now under way in the framework of the Uruguay Round, which we hope to see completed during the Brussels meeting scheduled for next December. Coordination of balance of payments policies is needed to ensure that the commercial tensions that arise among the three major zones will not be settled bilaterally but will continue to be resolved in a multilateral context leading to improved resource allocation for all, including the developing countries.

New Initiatives for Dealing with the Debt Problem

It cannot be denied that a certain number of heavily indebted countries have made remarkable progress with the implementation of measures aimed at restoring their macroeconomic equilibrium and regaining the road to durable growth. Their progress has been greatly aided by financing from the Fund and the World Bank, including financing intended to facilitate operations for the reduction of commercial debt and debt service. This is in contrast to some other heavily indebted countries, which continue to struggle against great difficulties and have apparently not yet managed to find satisfactory solutions within the framework of the debt strategy as it has developed up to now. These consist principally of low-income countries, and countries in the lower rank of the middle-income countries, whose debt is mostly owed to official creditors. With regard to the second point, the problem of debt, I would like to remind you of two proposals I made during last May's meeting of the Development Committee. First, I am an advocate of the systematic use of contingency clauses permitting the financial obligations of indebted countries to be modified from year to year on the basis of fluctuations in exogenous variables—such as exchange rates and the level of interest rates—which affect their ability to meet their debt-service obligations. These contingency clauses would permit, in some years, a postponement of principal repayment or a partial capitalization of interest. I am glad that this idea of contingency clauses has been revived by my British colleague in his recent proposals. Second, I share the belief of Chancellor of the Exchequer Major that the menu of options established pursuant to the Toronto agreement for low- income countries, heavily indebted countries, and countries implementing

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adjustment programs supported by the Fund or the World Bank falls short of what is needed to put most of these countries back on the road to development and external viability. The proposal I made last May was for the industrial countries to place in a common "pool" or fiduciary fund ("Trust Fund'), all or part of their claims on countries meeting the Toronto conditions, in other words, undertaking an adjustment program supported by the Fund and the Bank. On the basis of the analyses of a country's payments capacity made by the Fund and the Bank in the course of its adjustment, the Trust Fund would be able to authorize adjustments of principal and interest obligations of a larger size than those provided under the Toronto options. Moreover, the Trust Fund could accept all or part of the debt-service payments in a country's own currency, which would then be reinvested in local development projects mutually agreed on. I hope that this proposal, despite having attracted less attention, could also be the object of an in-depth study by the Paris Club.

The Transition of Central and Eastern Europe Toward Market Economies

Belgium was particularly gratified by the decisive change of course made by the countries of Central and Eastern Europe toward democracy and market economics, and by the fact that the reunification of Germany could occur in the context of a European Community that is on the threshold of decisive choices for economic and monetary union and toward political union. However, the transition period will not be without peril for the Central and Eastern European countries, and the Bretton Woods institutions will have an essential role to play. First, as was emphasized by both Mr. Conable and Mr. Camdessus, the profound reforms that these countries must accomplish will have a much better chance of succeeding and of gaining wide popular support if a safety net is provided from the very start to cope with the harshest social costs of the transition. The zeal of the newly converted must not make the new leaders of these countries forget that the economic model that makes the countries of the European Community appear so attractive to the countries of Central and Eastern Europe is that of the social market economy. Second, for reform plans to succeed, their structure must be both coherent and comprehensive. Partial reforms run the risk of getting stalled. The Bretton Woods institutions, like all the rest, have only limited experience with this kind of truly systemic adjustment. This limited experience makes it all the more important that all institutions participating in the dialogue with the reforming countries should share their experiences and coordinate their actions closely. Third, we must not underestimate the magnitude of the external financing that will be required for the reconversion of the Central and Eastern European economies to succeed. These needs will be aggravated by the double shock

©International Monetary Fund. Not for Redistribution SRI LANKA 143 of the oil price hike and of the obligation to correct the foreign currency exchange patterns that prevailed within COMECON. The Bretton Woods institutions, like other sources of public funds, must vigilantly maximize their catalytic effects on private flows, especially those resulting from direct investments that will make an equally decisive contribution.

Toward a New System for Distributing International Liquidity The extraordinary financing requirements stemming from the integration of the Central and Eastern European countries into the world payments system bring me to one last important reflection. We cannot, in fact, exclude the possibility that an exceptional combination of circumstances might produce an outcome where the resources of the Fund over the next five years will turn out to be inadequate. I am thinking of the conjunction of the following elements: —the financing needs of Central and Eastern Europe; —the supplementary resources required by the reinforced debt strategy; —the balance of payments difficulties that are sure to arise if the Gulf crisis lasts long enough to bring about a significant reduction of world economic activity; and —the exchange market interventions that will be needed to establish more stable relations among the currencies of the United States, Japan, and the European Community. The combination of these eventualities I have just mentioned emphasizes, I think, a double need: first, that of doing everything possible to ensure that the Ninth Increase of Quotas can effectively come into effect as soon as possible; if possible, indeed, before the next meeting of the Interim Committee in April 1991; and then the need perhaps to re-examine this Belgian proposal, which would be to combine with the current quota system an allocation of SDKs, in the context of which the industrial countries could retransfer to the Fund all or part of this allocation. Now that the political model of democracy and the economic model of the market economy appear to prevail decisively throughout the world, it is more important than ever for us to organize, at both the international and the national level, the common body of rules that will enable economic agents, competition, and the initiative of enterprises to make their full contributions to the prosperity of all.

STATEMENT BY THE GOVERNOR OF THE FUND AND BANK FOR SRI LANKA

D.B. Wijetunga

On behalf of His Excellency R. Premadasa, President of the Democratic Socialist Republic of Sri Lanka, the Government, and the people of Sri

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Lanka, let me express our warm felicitations and good wishes to all of you. At the outset, we warmly welcome into our membership fold the Czech and Slovak Federal Republic, Bulgaria, and Namibia. The resiliency of our Bretton Woods institutions stood us in good stead in the 1980s even though crises management demanded too much of our attention. At first, we grappled with the 1979-80 oil price shock and then it was the debt crisis. But we closed the decade in a sense of eager anticipation. The Fund and the Bank both gave operational content to some of our primary concerns through financial facilities tailored to the circumstances and needs of low-income countries. For the crises-ridden heavily indebted developing countries, the strengthened debt strategy provided a light at the end of the tunnel. The exercise of the Fund's surveillance function contributed, through international policy coordination, to reduced tensions in financial markets and, in particular, to greater stability in the exchange markets. These building blocks, together with the windows of opportunity provided by the Uruguay Round on the trade front, and the World Bank's thrust on poverty alleviation and the global environment, provide a strong foundation and the framework to close the final decade of this century on a note of achievement—to prove that human ingenuity is also capable of halting and firmly reversing these man-made problems. Yet, at this time, our attention is pre-empted by another crisis: the economic and financial fallout from political tensions in the Gulf region. The Fund's World Economic Outlook concludes that the non-oil heavily indebted developing countries will be affected more than the industrial countries. Per capita income growth, thus far elusive to many heavily indebted developing countries, now takes another beating. The broad statistical aggregates conceal wide country disparities. Compliance with the mandatory sanctions of the United Nations is associated with extreme hardship in particular cases. Output, employment, income, and balance of payments effects arise from substantially higher prices for oil and from disruptions to export markets and to migrant labor. Face as we should this new crisis, we cannot, however, ignore some impediments in the external environment that were already evident before the latest crisis. The world economy was slowing down by another notch. The overreliance on monetary policy in the industrial world to stamp out any hint of inflation, together with the expected larger demand from Eastern Europe on world savings, was already driving interest rates up. The reduced world growth prospects, of course, will depress commodity markets. These trends were already undermining one of the prerequisites for satisfactory performance of developing countries, namely, a favorable international economic envi- ronment. Many heavily indebted developing countries are currently making heroic efforts at generating higher savings even at their low income levels as part of an economic adjustment strategy. The industrial countries have to accept

©International Monetary Fund. Not for Redistribution SRI LANKA 145 responsibility for a better savings performance in a way that the needs of Eastern Europe are harmonized with the pressing needs of other developing countries at a level of interest rates consistent with their debt-servicing capacity. Multilateral institutions, as well as the commercial creditor commu- nity, have complementary roles to play in promoting this objective, namely, that investment should flow where economic and social returns are greatest. In this context, we welcome the recent bilateral initiatives to cancel some of the ODA debt. Such actions provide much-needed cash flow support to the balance of payments, as do new inflows. The proposals made last week by Chancellor of the Exchequer Major are well timed. We urge that it would be fully consistent with the spirit of the proposal to include, therein, those low- income countries that serviced debt on time despite the debt burden. Without detracting from the underlying imperatives, we have to find solutions to the economic problems of the Gulf crisis. Such solutions should emphasize the financing element in our response and thus reflect the temporary character of the problem. For, to do otherwise, as for instance through sharp adjustments, would unduly weaken our economies while also undermining our cooperative commitment to solve the political problem. In a situation arising from violent conflict and tension, it is natural that a high level of visibility is attached to countries in the immediate vicinity of the conflict. This is rightly so. However, on a more sober and balanced assessment, the higher oil prices and disruption to some export markets have economic effects that permeate a wider range of countries, the vast majority being developing countries. For migrant labor, an economic shock is compounded by a social trauma, and national governments will be in the front line in accepting responsibility for their welfare. The international community has responded strongly to the UN directive to impose economic sanctions so as to speed up settlement of the issue. In recognition of the adverse impact that such actions have on participants, certain initiatives are being developed. We would urge that these be suitably coordinated to ensure that the multilateral endeavor reflected in the UN- mandated economic sanctions is matched by a multilateral focus in the disbursement of assistance to the severely affected countries. A speedy response from the International Monetary Fund and the World Bank is called for in the light of the risks posed to the world economy. While underscoring the multilateral character of the problem, it could help catalyze additional support from other sources. The creation of a facility along the lines of the 1974 oil facility would be a courageous first step. At the same time, existing financial facilities should be reviewed with respect to procedures and practices. Having in mind, particularly, those members having or about to have Fund-supported programs, the actual access to financial facilities should be increased. The Fund's compensatory and contingency financing facility deserves special mention for adaptation to the exigencies. To be truly effective for the low-income countries, such financing should be at

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concessional interest rates. Earlier in the year at its spring meeting, the Interim Committee endorsed the maintenance of maximum access limits to Fund facilities until the Ninth Quota Review becomes effective. The present and prospective comfortable liquidity position should provide the required latitude for the Fund to bring forward, as well as raise, actual access beyond the conservative averages of the last few years. As it is the low-income countries that are most in need of a safety net, the structural adjustment facilities of the two institutions should be closely examined to permit a larger financing role in particular cases. Needless to add, the situation of arrears countries that are cooperating with the Fund and the Bank deserves special consideration. Despite these setbacks—and we should never be complacent about the future—our ultimate objective of higher living standards, poverty alleviation, and a better environment should be kept in perspective. We commend the World Bank for focusing on these issues through analyses and recommenda- tions so as to prod the international community. These are interrelated subjects and should be tackled in a comprehensive framework, and, because the benefits therefrom would spill over national and geographical boundaries, should be of central concern to the international community. The World Bank's World Development Report 1990 on poverty comes out at a time when Sri Lanka has substantially strengthened its economic policies, is making quantum jumps in restructuring the economy, and is implementing a multifaceted poverty alleviation program. After a major revamping under the direction and guidance of President Premadasa, the Sir Lanka strategy has essentially moved away from general commodity subsidies on to direct transfers to the poor. This has vastly improved the efficiency of the scheme through better targeting. An emphasis on community participation is an important supplement to determine eligibility thresholds, and thereby both targeting and administration have been facilitated. While upgrading unaccept- ably low consumption levels, the program is linked to generating productive rural and urban employment. Together with fiscal policies that seek to provide for the development of social infrastructure, the poverty alleviation program will provide a powerful impetus to human resource development in Sri Lanka. We are greatly encouraged by the increasing emphasis placed by the international community on policies that tackle poverty. We would note that the Sri Lanka strategy is implemented within the broad framework of macroeconomic stabilization, structural reform, and investment in human capital. This setting will greatly facilitate the absorption and efficient utilization of donor support with a minimum of further effort needed on the part of donors to ensure that the resources pledged reach the intended beneficiaries. It is hoped that these characteristics will bring forth greater flexibility in donor support as, for example, through general balance of payments financing. While poverty alleviation is central to the mandate of the World Bank,

©International Monetary Fund. Not for Redistribution DOMINICA 147 like the donor community, an active complementary role should be played by the Fund in this area. The Fund, like a central bank, is a monetary institution set up to provide temporary balance of payments financing. The evolution of the international monetary and trading system has been such that policy reform and adjustment are taking longer than anticipated to yield the desired results. Long before the Baker proposals on debt, we agreed that Fund-supported adjustment programs should provide for a reasonable growth rate. Economic adjustment involves hardships to some, and, without offsets, the domestic consensus to sustain policy reform would not exist. The program will fail. It is this same need for domestic consensus that drives us to insist that poverty alleviation and social concerns be given closer attention in Fund programs. In recommending the adoption of policy tools, considerations of economic efficiency should be tempered by social and equity concerns. As social structures vary across countries, the standard policies should be capable of adaptation to suit differing circumstances. Through our recent decisions on the Fund's Ninth Quota Review and the Bank's capital increase, we have substantially strengthened the finances of the two institutions. Putting these resources to optimum use with due regard to their security calls for a parallel effort at improving the capacity for designing effective programs and timely policy advice. We would urge the respective Executive Boards and managements to intensify their efforts in this direction. Fund and Bank policies have converged in a number of areas. We trust that this trend will yield effective programs whose benefits will reach a much wider circle and at an earlier stage of implementation than we have been accustomed to in the past.

STATEMENT BY THE GOVERNOR OF THE BANK FOR DOMINICA

Mary Eugenia Charles

It is my honor and pleasure to speak on this occasion on behalf of the members of the Caribbean Community and Common Market (CARICOM), namely Antigua and Barbuda, The Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Jamaica, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, and Trinidad and Tobago. We welcome Namibia, Bulgaria, and the Czech and Slovak Federal Republic to membership of the Fund and the Bank. Their accession to membership heralds a new phase of global cooperation. The theme of my speech today is that this new phase presents us with exciting prospects for world development in the 1990s and that the developing countries should be assisted to take advantage of the new opportunities that will be offered. These new developments require fresh thinking, and bold

©International Monetary Fund. Not for Redistribution 148 SUMMARY PROCEEDINGS, 1990 approaches are necessary to uplift the millions in the developing world in particular from the degradation of poverty and hopelessness during the new decade. Yet the evidence suggests that while the developments in Europe and Africa could create enormous opportunities for expansion, the economies of the developing countries are likely to contract unless immediate action is taken to secure for them continued and increased flows of resources, both in terms of a fair share in world trade and financial assistance. In addition, the crisis in the Gulf region will make permanent changes in the pattern of Middle East and world economic activity no matter how it is settled. The impact on the countries of the Caribbean will be particularly severe because of their openness and vulnerability and the acute debt problems of two of the largest territories, Jamaica and Guyana. Apart from Trinidad and Tobago, all the other Caribbean countries are importers of oil and will be faced with higher import bills and a further deterioration in their external balance that will require further adjustments. We agree with the emphasis that is being put at this meeting on prudent policies to minimize the impact of an extended oil crisis, but we see a danger in further contraction of our economies. What we need is expansion to enable us to take advantage of the new opportunities and prospects arising from the new phase of global cooperation and to surmount the shocks that will spread from any steep rises in the price of oil. We are not confident that policies prescribed for the developed countries will help us in the developing countries to gain a larger share of the growth in world trade and investments, especially if any reduction in deficits will be at the expense of the commodity exports and tourism earnings of the poor countries. Moreover, the obligations of the United States in the present crisis in the Gulf region and the cost of the unification of Germany could further reduce the supply of capital and consequently apply increased pressure on interest rates. This clearly points to the need for appropriate fiscal and monetary policies in the developed countries. Since we were here last year, we in the Caribbean have seen considerable activity from the Fund and the Bank. In this respect, we welcome the success of the Guyana Support Group and commend the efforts of the Fund and the Bank, which have seen the return of Guyana to eligibility and borrowing status in the Fund and the Bank, and also in the Caribbean Development Bank. Jamaica continues to meet its obligation to the Fund and the Bank and has been taking bold measures in liberalizing the exchange rate regime to enhance the prospects for success in the long run. However, initiatives such as that taken by MIGA to help Jamaica host an investment conference in 1991 are being threatened by short-run difficulties. Many of the smaller countries in the Caribbean have been beneficiaries of assistance from the Fund and the Bank. A blend of IDA and IBRD loans helped St. Lucia to finance an imaginatively conceived water project. A blend

©International Monetary Fund. Not for Redistribution DOMINICA 149 of IDA and IBRD funds has also been made available to the Caribbean Development Bank to assist its poorest members. . . . We are also pleased with the concern, of the Bank in particular, about the effect of adjustment on poverty, and we look forward to an imaginative collaborative approach by both the Fund and the Bank to devise effective strategies to bring relief to the distressed millions, whose condition of life has been made worse by the slow and insignificant response to adjustment policies in terms of job opportunities and improvements in social amenities. We are also pleased with the intentions of the Fund to provide resources under the compensatory and contingency financing facility to finance some of the cost of the increases in oil prices. But while these prospects are exciting, the support of these institutions in the Caribbean has been far from enough. None of the policies of the Fund and the World Bank make explicit reference to the small size and vulnerability of small island states, especially those that are exposed to frequent natural disasters. The competition that takes place in large economies does not exist in microeconomics, where just a few firms control the market. The fact that the effectiveness of otherwise sensible macroeconomic policies is hindered by inefficient markets and undeveloped financial services in small developing countries is too often ignored. There is the need, therefore, to develop programs that address these deficiencies and that provide longer-term assistance, a higher level of concessional flows, and more flexible conditions, which will allow for a more gradual process of adjustment than that now contained in current Fund and Bank packages. There is also the need to design special arrangements for those small countries that are most vulnerable to natural disasters and that incur considerable debt in repeatedly replacing lost assets, especially social and economic infrastructure, destroyed by hurricanes, volcanoes, or floods. Similarly, special arrangements need to be made for small island states that are exposed to man-made disasters, such as oil spills, to mitigate the economic consequences of such disasters that could cause a major setback for tourism- dependent countries. Despite these obvious weaknesses, the graduation polices of the World Bank and the conditionalities associated with loans of both the Bank and the Fund do not distinguish between large and small countries. The international communities should not accept that per capita income alone is a satisfactory criterion for graduating countries from IDA and IBRD lending. We all know that there must be many more considerations for small island economies. We all know that per capita income alone is no measure of the sustainability of the level of development of countries that have to rely almost entirely on external markets (including capital markets). The Fund and the World Bank will need to rethink the conditions that they

©International Monetary Fund. Not for Redistribution 150 SUMMARY PROCEEDINGS, 1990 apply to small states. The World Development Report itself acknowledges that the strategy choices that all governments make reflect both economic and political factors. It is true that trade should be liberalized and that income tax burdens should be reduced. Yet care has to be taken to do so without increasing the propensity to import and thereby weakening the balance of payments. Similarly, agricultural development programs are designed as if farmers in the Caribbean have the assets and the technology to compete on a global scale. The fact of the matter is that they do not. And even if the Uruguay Round went well and stopped subsidization of agriculture in the main OECD countries, that will not be the end of the matter. Farmers in the Caribbean need credit, and they will need technical assistance. This is why we will welcome a regional agricultural research project and a human resource development project. Preparation of both projects should be accelerated if we are to gain from the likely beneficial impact of liberalized world trade, of Europe after 1992, and of the Canada/USA free trade areas of President Bush's Enterprise for the Americas Initiative. We note with concern that while some middle-income countries have remained current in their debt obligations and are pursuing structural adjustment within the context of Fund arrangements, these countries have not benefited in any substantial way from the current debt strategy, particularly with respect to debt relief. We, therefore, urge the international community to show a greater degree of flexibility and imagination in providing adequate solutions to the debt and debt-service burdens of these countries. In this respect we are grateful for the initiatives already taken by Canada to forgive significant amounts of debts owed by less-developed countries, and for the recent decision by the United Kingdom to write off a substantial part of Guyana's debts. We welcome also the new initiative of Chancellor Major, referred to as the Trinidad and Tobago Terms, which will enhance the present Toronto Terms and offer greater relief to debt-distressed countries. More important, we would like to seet his new initiative implemented with greater urgency than we have seen in the past with other debt initiatives. In addition, we hope that the Caribbean countries may soon benefit from the new terms proposed by Chancellor Major. We further urge that serious consideration be given to providing resources to reduce the interest burden of debt to multilateral institutions. This is extremely necessary in the present situation, where real interest rates are already so high and are likely to increase further and capital is so expensive. For countries that are undertaking major adjustment programs involving debt rescheduling and balance of payments support, the composition and timing of support become critical. The experience of Guyana under the Paris Club, structural adjustment loans, and ESAF arrangements indicate the following:

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—Too high a proportion of commodity support does not permit timely conversion into export earnings and could lead to a mismatch with cash obligations. —The logistics of negotiating SAP and ESAF programs are far too complex and drawn out, so that the impact of adjustment is considerably diminished as a result of delays in disbursing funds. In fact, just as actions concerning macroeconomic policies must be swift and decisive, so too must the release of financial support for adjustment programs be quick and consistent with their needs. The present bold and far- reaching adjustment program that Jamaica is undertaking needs the fullest cooperation of the Fund and the Bank. Finally, we wish to emphasize the importance of the development of the appropriate financial institutions and the associated dialogue, which are as important as the other forms of assistance. We do need to review the various aspects of the incentive framework in our countries with the staffs of the Bank, the Fund, and the IFC. There should be a greater investment in dialogue with our countries than has been the experience so far. . . . If I may summarize, first, the major task rests with the Managing Director of the Fund and the President of the World Bank to help lower the cost, and increase the availability, of capital. Fund surveillance should be strengthened to achieve this end. Second, small states need to receive appropriate analyses, and appropriate conditionalities should be devised for them. Third, graduation should be associated more with sustainability than with per capita income. Fourth, poverty reduction will require greater flexibility in program design and more research into poverty conditions in the Caribbean. Fifth, consider- ation should be given to subsidizing high interest rates. Sixth, support for adjustment involving debt relief and balance of payments financing must be quick and consistent with the needs of the programs. Negotiating procedures need to be improved to reduce the time required for implementation. Seventh, the Fund and the Bank should spend more time talking with us about the incentive framework that will trigger investments in our very small states. To ensure the survival of the small states in the Caribbean and in other parts of the world, these tasks must be given the highest priority. I am confident that I can leave them in the capable hands of the Managing Director of the Fund and President of the World Bank.

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STATEMENT BY THE GOVERNOR OF THE FUND AND BANK FOR KOREA

Yung-Euy Chung

It is a great pleasure for me to have this opportunity to address the Forty- Fifth Annual Meetings of the Fund and the World Bank here in Washington. I truly believe this year's meetings will be of particular significance since 1990 marks the beginning of a crucial decade with new hopes and challenges for the world. Before proceeding with my remarks, I would like to extend my warm welcome to the delegates of the new member countries, the Czech and Slovak Federal Republic, Bulgaria, and Namibia, and the participants from Switzerland, Mongolia, and the Union of Soviet Socialist Republics, who are attending these meetings as observer, special guest, and special invitee, respectively. I would also like to thank the Fund's Managing Director, Mr. Camdessus, the World Bank's President, Mr. Conable, and all the staff members who, through their efforts, have made these meetings both possible and successful. My thanks also go to the citizens of Washington, D.C. for their warm hospitality.

The World Economy While the growth rate in 1989 subsided from that of 1988, the world economy has maintained modest growth for eight consecutive years. This is due to a relatively steady and gradual increase in industrial production and foreign trade in the midst of overall commodity price stability. This year, however, there is a growing concern that inflationary pressures stemming from the rise in oil prices, combined with an economic slowdown and a decline in world trade, may result in a turnaround from the present trend of sustained growth to one of stagflation. In particular, the recent crisis in the Middle East, which has caught the world unprepared, is fueling fears of a third oil crisis and poses a grave threat to the world economy. This sudden turn of events is not only likely to have extremely adverse effects on oil importing developing countries, but may also cause severe disturbances for the world economy as a whole. This unforeseen crisis comes at a time when the world economy is suffering from various structural imbalances. For instance, almost one third of the population of the developing world still lives in poverty, and many developing countries are burdened with the servicing and restructuring of excessive foreign debts. In the midst of these difficulties, some positive trends are also emerging. The transformation of the economic landscape in Europe—most notably the historical reunification of Germany, the consolidation of the European

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Community, and the economic reform efforts of Eastern European countries— is of significant importance and will surely alter the world economic order. In addition, the rapid pace of liberalization and globalization of world economies is adding momentum to the restructuring of the international economic environment.

Vision for the 1990s The 1990s will undoubtedly be a critical decade for the rectification of the many structural problems plaguing the world economy, which had become aggravated in the 1980s despite sustained growth. In order to maintain growth in the 1990s in the midst of these problems and changes in the world economy, active cooperation between East and West and between North and South is needed now more urgently than ever before. In particular, close policy coordination among major developed countries is extremely vital. Accordingly, all nations must avoid the temptation of reverting to national- ism to further their own narrow self-interests and should rather pursue the ideal of cosmopolitanism, since working toward global prosperity is the only sure way to national prosperity. In this regard, the Uruguay Round ought to be concluded in such a way as to gain the full support of both industrial and developing countries. In addition, international financial organizations should also strengthen their roles in the world economy in order to support the framework of multilateral cooperation.

The Korean Economy The Korean economy has been, since last year, experiencing difficulties, such as high inflation and a deterioration in the balance of payments situation. The current economic slowdown seems to be part of a cyclical adjustment after three consecutive years of high growth. It also seems to have resulted from the process of structural transformation of the Korean society during the transition to a mature democracy. External factors, such as the rippling effects of sluggish growth in world trade, rising protectionism, and instabilities in the international foreign exchange and financial markets, have also become burdens on the Korean economy. In spite of these internal and external problems, Korea will forge ahead with appropriate and practical liberalization and internationalization policies to fulfill its role and responsibilities as a member of the international community. Internally, we will also intensify our efforts to promote structural adjustment as well as to enhance productivity and technological development in order to respond effectively to the adverse changes in the domestic and global economic environment. In keeping with this policy direction, Korea has already liberalized imports and foreign exchange transactions substantially. In addition, for the

©International Monetary Fund. Not for Redistribution 154 SUMMARY PROCEEDINGS, 1990 liberalization of the capital market, Korea has also announced "The Mid- Term Plan for Capital Market Liberalization" and has been implementing this plan on a gradual basis to prepare for full deregulation of the capital market. Furthermore, to contribute to the common goal of world prosperity, Korea has been making efforts to enhance relationships with other developing countries. As part of this endeavor, Korea has made significant contributions to the ESAF and IDA. Moreover, Korea perceives the market-oriented reforms of the Eastern European countries as a historic development and actively supports the establishment of the European Bank for Reconstruction and Development (EBRD) and will strengthen cooperative economic ties with these nations.

The International Monetary Fund and the World Bank Turning to the activities of the Fund and the Bank, the continued efforts and accomplishments of these two institutions in achieving balanced world economic growth and reducing the debt burden of developing countries deserve the highest praise. I would like to take this opportunity to propose several recommendations for the activities of the Fund and the Bank in the 1990s. The Fund and the Bank First, the Fund and the Bank should place special emphasis on stabilizing exchange rates and interest rates and expediting a smooth flow of funds. To do so, they must strive to prevent excessive fluctuations of the exchange rates of major currencies as well as instabilities in the world financial markets, which have intensified uncertainties in the world economy and hindered the management of economic policies of the developing countries. Second, the recent rise in oil prices arising from the current crisis in the Middle East will possibly lead to lagging economic growth and surging inflationary pressures among developing economies, which can ultimately result in economic stagnation. It may also cause further deterioration in the debt situation of oil importing developing countries. Accordingly, the Fund and the Bank should commence a comprehensive review of the current strategies for dealing with the debt problem. At the same time, the Fund and the Bank ought to support actively the economic reform efforts of the Eastern European countries together with the EBRD now being established to ensure that the transition to a market-oriented economy is smooth and successful, but not at the expense of other developing countries. . . . The Fund To achieve the Fund's primary goal of balanced and sustained economic growth, the Fund's surveillance role ought to be intensified with greater

©International Monetary Fund. Not for Redistribution PAKISTAN 155 emphasis on efficiency. For instance, the Fund's symmetric surveillance over trade surplus and trade deficit countries must be especially strengthened, in addition to the surveillance over trade deficit countries that do not rely on resources from the Fund. Policy research with respect to the effectiveness of surveillance must be further reinforced. While it is indeed fortunate that the Ninth Review of Quotas was concluded without further delay, we find it regrettable that Korea was not given a quota that is proportional to its relative position in the world economy. Therefore, it is hoped that the actual quota will be reconsidered in future rounds of quota review negotiations so as to achieve a balanced quota for all member countries. To this end, we hope that the next round of the quota review will be held as early as possible. I should also mention that the continuation of the problem of arrears could be harmful to the credibility of the Fund. In this regard, we support the Third Amendment of the Articles of Agreement and the introduction of the rights approach in the hope that these new instruments will successfully alleviate the problem.

Closing In the first year of this decade, the world has been witnessing a tremendous transformation of the international economic order, through such events as the unification of Germany, the consolidation of the EC, and the reform movements in the Eastern European countries. At the same time, however, overall imbalances in world development still exist, and uncertainty over the future seems to be growing. Therefore, the 1990s call for closer global cooperation than ever before. In this connection, the roles of the Fund and the Bank have also become more critical. I would like to close with a small reminder that the key to our success in making a smooth adjustment to the historical changes occurring in the world and in achieving global prosperity lies in cooperation rather than conflict, and in compromise rather than confrontation. I hope that all nations of the world will display the proper wisdom and resourcefulness in meeting the challenges of the 1990s through cooperation and conciliation.

STATEMENT BY THE GOVERNOR OF THE BANK FOR PAKISTAN

Sartaj Aziz

I congratulate the Chairman on presiding over these Annual Meetings at a most challenging time. Kenya stands out as a model of sustained growth and stability. Your inspiring address has been a source of guidance and hope in

©International Monetary Fund. Not for Redistribution 156 SUMMARY PROCEEDINGS, 1990 our deliberations. I also welcome Namibia, Bulgaria, and the Czech and Slovak Federal Republic as new members of the Fund and the Bank. I also join previous speakers in expressing my appreciation for the excellent arrangements made for these meetings. While the world was still in the midst of celebrating the end of the Cold War, while the applause to herald far-reaching reforms in Eastern Europe was still ringing in the air, and while the first few steps on the path of sustained growth and stability were being taken, the world was overtaken by a gigantic crisis arising from developments in the Middle East. The adverse impact of this crisis on oil importing countries has been severe. For countries like Pakistan, the balance of payments has been affected not only by a sharp increase in prices of oil and oil products but also by a substantial decline in home remittances and loss in exports to these countries. The Gulf crisis will impose on Pakistan a minimum additional burden of $1.1 billion owing to the expected increase in the oil import bill, loss in workers' remittances, and loss in exports from enforcement of sanctions. This estimate is based on an average oil price of $24 a barrel. If the price of oil exceeds $30 a barrel, the adverse impact may be between $1.7 billion and $2 billion. The majority of developing countries are net oil importers and face a sharp deterioration in their terms of trade. These countries have little elbow room. Most of them are in the midst of an adjustment process. While these countries have to take all feasible measures to face the new situation, their capacity is limited in relation to the magnitude of the adverse impact. Therefore, it is imperative that supportive arrangements are put into effect to help developing countries overcome the adverse impact of this crisis. Intensive consultations are in progress this week to explore the scale and modalities of this assistance within a coordinated framework. May I offer some suggestions on the role that the Fund and the World Bank can usefully perform in these circumstances.

The International Monetary Fund First of all, the most important need is to enable the IMF to lower the cost of its financial assistance through a special subsidy account. The Fund has the resources, but the interest rates are relatively high and are likely to impose further strains on the debt-servicing capacity of the recipient countries. Facilities like the compensatory and contingency financing facility (CCFF) have to soften their terms, such as interest rates and period of repayment to enable countries to overcome this crisis. Simultaneously, there is a need to introduce greater flexibility in the conditions attached to facilities like the CCFF to ensure that the Fund can respond more promptly, flexibly, and on an expanded scale. If access under this facility remains dependent on fulfilling stringent conditions or ceilings, it will be difficult for many countries to meet them because the margins available under an ongoing adjustment program are seldom large enough to accommodate additional burdens of the kind arising at present.

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Third, while an independent oil facility may be difficult to establish at this stage, thought might be given to creating a separate "oil window" within the CCFF, which can deal with the current situation over, say, the next three years in a more flexible manner and on more reasonable terms. In this context, it will be important not to cancel the impact of higher import burden against larger exports, as is done under the food financing facility. Fourth, the present emergency clearly highlights the need to augment the flow of resources to developing countries on more reasonable and sustainable terms. At present, repayments have been higher than gross disbursements; therefore, net disbursements from the IMF have been negative for the fourth successive year. Even if overall access to the coming years is enhanced, it will take some time before the overall flow of resources from the IMF becomes positive on an adequate scale. In the medium term, the objective of a larger transfer of resources from the Fund can be achieved promptly if a special issue of SDRs is allocated over a three-year period, both as a means of transferring additional resources and of strengthening the SDR's role as a reserve asset. As the Managing Director of the Fund said in his opening statement yesterday, this institution was created precisely for the purpose of assisting its member countries to deal with such shocks and emergencies. We hope it can meet this challenge in a spirit of partnership. . . . Finally, may I say a few words about Pakistan's efforts at structural reform to improve the efficiency of resource allocation and to attain the viability of the economy over the medium term. In recent years, Pakistan has not only achieved impressive growth with relative price stability, but has also been implementing a broadly based program to liberalize the economy. More specifically, the program has emphasized wide-ranging financial reforms to make the sector market-oriented, liberalization of sanctioning investment, lifting of controls on domestic trade, decontrol of prices, and maintenance of a flexible exchange rate regime. In addition, a program to privatize nationalized enterprises has been initiated. While this has been a difficult process, the resultant improvement in policy environment has started paying dividends. Although much of the gains of adjustment have been clouded by the Gulf crisis, the achievements are by no means unimpressive. It is also encouraging that we have developed a bipartisan political approach toward economic reforms. The structural adjustment programs finalized with the IMF and the World Bank have not been affected by the political changes that occurred in 1988 and 1990. However, we need the continued understanding and support of international financial institutions to carry this program forward to attain the desired objectives in full measure. In conclusion, may I express the hope that the strong measure of solidarity shown in the recent Gulf crisis by countries of the North and the South will lead to what President Bush called "a new partnership of nations" for sustainable and equitable growth in the world economy in the coming decade.

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STATEMENT BY THE GOVERNOR OF THE FUND FOR DENMARK

Niels Helveg Petersen

I have the honor of addressing this meeting on behalf of Denmark, Finland, Iceland, Norway, and Sweden. First of all, the Nordic countries would like to express their heartfelt welcome to Namibia, the Czech and Slovak Federal Republic, and Bulgaria as members of the International Monetary Fund. Let me begin with a brief discussion of the present world economic setting. Looking at developments so far, there are several positive signs to be registered. Economic growth has been rather satisfactory in many parts of the world. External imbalances among the major trading nations have been reduced and in Eastern Europe large-scale reforms in the direction of market- based economies are under way. On the other hand, there are still a number of important issues to be dealt with. Inflationary pressures persist in many countries. Debts are a heavy burden for the majority of developing countries and necessary economic adjustments are often too slow and inadequate. This difficult situation may well take a turn for the worse if oil prices remain at a high level. In most European countries there are still relatively high levels of unemployment, which point to the need to address this problem more effectively through structural reforms. One major source of uncertainty is, of course, the future developments in oil prices. It is essential to maintain the credibility of policies aimed at reducing inflation. Only by doing so will there be realistic possibilities for sustained long-term growth. Consequently, we must resist the temptation to make short-term accommodating adjustments undermining anti-inflationary policies. A general policy response along these lines will also help to avoid a new, deep recession similar to the one we experienced in the early 1980s. Our experience from the 1970s has taught us that we must maintain—or rather strengthen—economic and structural policies. There is no room for what one might call "an oil excuse." The only certain result of postponing necessary measures is that, far from easing economic difficulties, it will actually increase them, except in the very short term. The recent changes in oil markets remind us once more in a dramatic way of the continuing need for energy saving. All economies will clearly have to adjust to meet these changing conditions, but all do not have the same ability to do so. If oil prices remain at a high level, the situation of the net fuel importers among the developing countries will become even more difficult. This will certainly also be the case for most Eastern European countries, which face even higher relative oil price increases. The increased financing needs of these countries can only, to a limited

©International Monetary Fund. Not for Redistribution DENMARK 159 extent, be met by the Fund. Therefore, the Fund's catalytic role assumes increased importance. The Fund itself must once again stand ready to apply its existing facilities and policies in a flexible manner while emphasizing the need for continued adjustment efforts. In this context, I believe that lately we have been provided with encouraging evidence by some of the major debtor countries. They have demonstrated that sticking to strong macroeconomic and structural adjustment policies is the only way of securing progress toward both medium-term balance of payments viability and renewed access to international capital market financ- ing. As regards the low-income countries, we agree that there is a need to review the existing options being applied to this group. The Paris Club should examine without delay recent proposals for additional debt relief. Let me turn to the issue of Fund policies. The Managing Director put it very appropriately when he recently stated that the prime objective for the Fund's programs is the achievement of "high-quality growth." This was defined as growth that is sustainable economically, ecologically, and socially. Policies that only produce short-term benefits must be avoided. Such policies are characterized by excessive borrowing, growth for the privileged few, and growth achieved through disorderly exploitation of natural resources. This is true for developed as well as developing countries. Specifically, as regards developing countries, well-designed macroeco- nomic adjustment programs will benefit also the poor. Still, recognizing that economic adjustment may have adverse social consequences in the short run, the Nordic countries welcome that the Fund, in its advice and design of programs, is paying attention to ways to alleviate the burden on the poor segments of the populations. In this connection we should acknowledge that the Fund alone cannot provide a full-fledged cure. The Fund's task has been, and should continue to be, to assist member countries in working out adjustment programs designed to restore a viable balance of payments situation. This will lay the necessary foundation for long-term development, for which, among others, the World Bank provides its assistance. I will now turn to another important problem that will have a major impact on the quality of growth for many years ahead. The progressive liberalization of trade over the past forty years has been a major factor—perhaps the most important one—behind the unprecedented economic growth and prosperity in countries with market-oriented economic systems. The open, multilateral trading system is, however, now threatened on two fronts: first, the GATT system needs to be strengthened and brought up to date in areas covering services, agriculture, textiles, trade-related areas such as intellectual property rights and investment measures, the stricter use of the balance of payments clause and reversal of the trend toward unilateral and bilateral trade-restrictive measures. All these are important areas. We must seek substantial and ambitious results on all fronts in the Uruguay Round.

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Thus, the negotiators in the Uruguay Round have a tremendous task in front of them. Regrettably, the growing acknowledgment in most countries of the economic merits of a fully liberalized multilateral trading system does not seem to have sufficient impact on some of the trade negotiators of the Contracting Parties. The political message must therefore be: There is no acceptable alternative to substantially improved trade discipline and effective trade liberalization in all areas under negotiation. Second, large economic imbalances should not be used as a pretext for trade-restrictive measures. Such measures lead to a misallocation of resources and to even more intractable economic problems. Tendencies of that nature must be halted and reversed. Many countries need a better coordination of economic and trade policies. Therefore, on the international front the coordination and cooperation between the Fund, the Bank, and the GATT must be improved and strengthened, of course, within their respective mandates. The Nordic countries hold the view that the activities of the Fund remain central to the international community. For instance, the Fund has a unique role in assisting centrally planned economies in their transformation into market-oriented economies. Therefore, in addition to the Fund's advice and technical assistance to its member countries, the institution must have an adequate amount of resources at its disposal. The Nordic countries firmly believe that the agreed increase in quotas is the minimum required for the Fund to fulfill its future tasks. We, therefore, fully agree that the implementation of the quota increase must be given top priority.

STATEMENT BY THE GOVERNOR OF THE BANK FOR BANGLADESH

Mohammad Abdul Munim

It is both a great honor and a pleasure for me to represent the Government of Bangladesh in the Annual Meetings of the World Bank Group and the Fund. Let me start by congratulating you, Mr. George Saitoti, on your election as Chairman of the Annual Meetings. I join my fellow Governors in extending my hearty welcome to the Czech and Slovak Federal Republic, Bulgaria, and Namibia to the Bretton Woods family. I also welcome Mongolia, Switzerland, and the U.S.S.R. to these meetings. We are meeting at a very crucial time; the international economic climate is uncertain and volatile. The momentum of growth in the developing countries is slackening due to a slowdown in the industrial countries, decline in the transfer of financial resources, rising trend of interest rates and inflation,

©International Monetary Fund. Not for Redistribution BANGLADESH 161 deteriorating terms of trade, and increasing protectionism in the industrial countries. The global economic outlook now appears much more dismal due to recent events in the Middle East. The aggregate real GDP growth of the developing countries is likely to decline to 2.25 percent in 1990 from 3 percent in 1989 and 4 percent in 1988. Higher oil prices, trade disruptions with Iraq and Kuwait, and loss of workers' remittances have already severely affected some of the developing countries. If the Gulf crisis continues, the growth-oriented structural reforms and poverty reduction programs of the net oil importing developing countries will be disrupted. This extraordinary situation calls for a quick and flexible response both from the Bank and the Fund, and from the international donor community for additional economic assistance for countries hard hit by the crisis. Apart from setting up a new special facility for oil and making the enhanced structural adjustment facility a permanent feature with additional resources, the Bank and the Fund should take a flexible approach toward conditionalities to accelerate disbursement of funds. Bangladesh is one of the worst sufferers of this crisis. Our estimate shows that in fiscal year 1991, Bangladesh will incur a loss of $500 million by way of higher oil prices at $25 a barrel, and a loss in export earnings and workers' remittances; this constitutes about 2.5 percent of our GDP. In addition, the country will face a serious fiscal burden; revenue receipts will suffer, and a considerable amount shall have to be spent on repatriation and resettlement of returning workers. We have launched the Fourth Five-Year Plan in July 1990. During the Third Five-Year Plan, Bangladesh undertook major structural reforms and achieved substantial progress, particularly in agriculture and infrastructure development with an annual GDP growth of nearly 4 percent, despite unprecedented floods and other natural calamities. Our experience shows that structural adjustment, though necessary, is not a sufficient condition for economic growth with social justice, unless it promotes the growth of the real sector by utilizing the inherent dynamism of the poor and the disadvantaged who in Bangladesh constitute the majority. The Fourth Plan objectives are to achieve an annual GDP growth of 5 percent, poverty alleviation, employment generation, women's involvement in development, and increased self-reliance. These objectives are to be achieved through human resource development, decentralized participatory planning, community involvement, and substitu- tion of scarce capital for abundant labor, and by adopting group-based planning along with desirable structural adjustment. The Plan also seeks to develop a dynamic private sector through liberalization, deregulation, and privatization. We are well aware of our development constraints. Unfortunately, Bangla- desh is also a victim of serious environmental degradation. We need to make significant investment to save ourselves from recurring flood devastations. This has made our development process more complex and painful. We are

©International Monetary Fund. Not for Redistribution 162 SUMMARY PROCEEDINGS, 1990 required to achieve an annual growth rate of 5 percent to make any meaningful dent on poverty alleviation. In this gigantic task, we seek the active support of the international community. The structural adjustment policies of the developing countries, though pursued with determination, have not produced the desired results, due mainly to the absence of a favorable international economic environment and a more symmetrical adjustment and effective coordination of macroeconomic policies by industrial countries and inadequate inflows of external resources. The debt overhang is still a major impediment to development for many developing countries. Although some progress—much less than initially expected—has been made in reducing the commercial debt of the highly indebted middle- income countries, the problem is still far from being resolved, due to reluctance of the commercial banks to participate in the financial packages that require new money. For heavily indebted lower middle-income countries with debts mainly to official creditors, reduction of official debt and debt- service burden is imperative for their return to normal debtor-creditor relations. Under the Toronto terms, considerable debt relief has been provided to low- income countries of sub-Saharan Africa; these terms are required to be extended to other low-income countries outside Africa that are implementing strong adjustment policies. We also strongly endorse the British Plan unveiled at the Commonwealth Finance Ministers' Conference for writing off up to $18 billion of debt owed by the world's poorest nations to Western governments. The declining share of the developing countries in world trade in the face of their persistent trade liberalization process is disquieting. We urge industrial countries to roll back their protectionist measures and improve market access to exports of finished and semifinished goods as well as primary commodities from developing countries. We look forward to a successful completion of the negotiations of the Uruguay Round that will take into account the special interests of the developing countries. . . . We are increasingly concerned at the continued decline of aggregate net flows in the 1980s and the consistently negative aggregate net transfer of resources to developing countries. The President of the Bank in his report to the Development Committee clearly stated that stagnation in aid flows is totally inconsistent with the need to restore growth and reinvigorate development, and he underscored the need for a substantial expansion in aid flows. For low- income countries, the greater concern is the stagnation in the net disbursements of official development assistance (ODA), which is their main external resource for development and poverty reduction. We endorse the Development Committee's call on donor countries, particularly those with assistance levels below the 0.7 percent ODA/GDP target, to make further efforts to secure financial flows to developing countries. In this connection, I would like to call on the rich nations to fulfill their pledge of aid commitments to the least developed countries in the present decade in order to realize the targets of

©International Monetary Fund. Not for Redistribution PORTUGAL 163 the Plan of Action adopted in the Second UN Conference on Least-Developed Countries held in September 1990 in Paris. We welcome the recent agreement on the IDA-9 Replenishment for the period fiscal years 1991-93 at $15.5 billion, which would maintain the real value of ID A-8. The 1980s was a lost decade for the poor. The new decade commenced with high hopes and aspirations, but the Gulf crisis has cast a long and deep shadow on our future prospects. The crisis has already affected many of the developing countries, and they need additional assistance on an emergency basis and without any delay to sustain their growth. Economic growth and poverty reduction in the developing countries, as well as global environmental protection, are important issues vitally affecting all of us. It is imperative therefore that both developed and developing countries address these issues jointly. I hope we will not fail in this.

STATEMENT BY THE GOVERNOR OF THE BANK FOR PORTUGAL

Luis Miguel Couceiro Pizarro Beleza

It is a great honor and a pleasure for me to address these Annual Meetings of the World Bank and the International Monetary Fund. Allow me also to join in extending a warm welcome t the new as well as the hopefully soon- to-become members of the Bretton Woods institutions. The world economy is entering the ninth consecutive year of uninterrupted growth. This historical performance was made possible by a mix of monetary policies oriented toward financial stability and structural reforms aimed at strengthening the efficient functioning of market mechanisms. As was rightly stressed in last year's World Development Report, financial stability, especially in the context of unrepressed financial markets, is the right environment for steady growth and social development. I would add that the evidence for my country is, if anything, stronger than suggested by the World Bank. The European Communities assume these goals as fundamental in the context of the just-born Economic and Monetary Union. When the full union is achieved, there will be a single currency and a single monetary policy carried out by a central monetary authority that will have the unequivocal mandate of ensuring price stability, and, of course, the single market, including perfect capital mobility, is just around the corner. We are fully committed to this integration process and, in particular, to full economic and monetary union. I believe that both the challenges from, and the opportunities afforded by, the EMU are the greatest for a country such as mine. In the long run, given sound monetary and fiscal policies, the prospects

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for the Portuguese economy are very good. The fact that growth has been based primarily on the sustained expansion of investment and exports, strongly suggests the long-run sustainability of recent trends. In fact, our growth is widely forecast to be one of the strongest of the EC through the 1990s. The recent events in the Persian Gulf have introduced an important element of uncertainty in the outlook of growth and price stability for the world economy. It is important to recognize that the sharp rise in oil prices is basically the consequence of the effect on demand of the increased uncertainty. It is not the result of a structural shift in supply. Nevertheless, these reactions may well have lasting effects, as the so-called shock of 1979-80 testifies. The experience with the previous oil shocks shows that it is completely futile to try and offset the decline in real incomes derived from the terms of trade loss. It is therefore important, first, to pass the increase in crude oil prices on to final users, that is, consumers and firms should be given the appropriate price signals; second, to ensure that the change in relative prices is not offset by nominal increases in other prices and incomes; and third, to pursue tight, nonaccommodating budgetary and monetary policies. One possible, unfortunate consequence of this policy reaction may be, hopefully, a temporary rise in world interest rates given, in particular, the scarcity of world savings relative to investment at current rates. But our common experience is eloquent enough. There is no alternative if conditions for steady growth are to be preserved. There is a very substantial role to be performed by the International Monetary Fund and the World Bank in supporting the appropriate policy responses. The availability of stabilization assistance associated with positive conditionality could be the most appropriate. I would like to welcome the ongoing considerable efforts in this direction by both organizations. The proposals put forward by the United Kingdom, France, and the Netherlands ought to be considered in this light. Our current involvement in development assistance will reflect these principles. One of the most important points of our policy agenda is a broad privatization program. This is a crucial part of Portugal's overall strategy to reduce the weight of the state in the economy and strengthen the role of the private sector and of market mechanisms in resource allocation. Privatization is also important as a means of reducing the debt burden. By law, the proceeds from the sale of state-owned enterprises are to be used to reduce the public debt. Allow me to suggest that our experience in this field may be useful for other countries initiating or considering such a program. But let me make clear that I am not suggesting that we have discovered something new. In fact, as Alfred Marshall once said, "It is all in Adam Smith," and in this light, Mr. Chairman, allow me to quote from the Wealth of Nations:

In every great monarchy of Europe the sale of Crown lands would produce a very large sum of money, which, if applied to the payment of public debts, would deliver from mortgage a much greater revenue than any which those lands have ever afforded to the Crown. . . .

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When the Crown lands had become private property, they would, in the course of a few years, become well improved and well cultivated.

STATEMENT BY THE GOVERNOR OF THE BANK FOR NEPAL

Devendra Raj Panday

It is a great pleasure and privilege for me to address these joint Annual Meetings of the International Monetary Fund and the World Bank as the representative of the government formed after a successful people's movement for the restoration of democracy in Nepal. At the outset, I take this opportunity to express our sincere gratitude to the President of the United States, Mr. George Bush, for his inspiring and eloquent address. I also join other fellow Governors in extending our hearty welcome to the Czech and Slovak Federal Republic, Bulgaria, and Namibia as new members of the Bretton Woods institutions. Recent experiences worldwide seem to confirm the synonymy between democracy and economic development. Development efforts cannot be sustained without the establishment of democratic institutions to enforce public accountability and to give a definite purpose and direction to economic management. At present, the Nepalese Government is engaged in bringing about full democratization of Nepal's polity and this, in turn, should form the basis for improved economic management and performance. The 1990s seem to be a challenging decade for the world. The fundamental changes taking place in Eastern Europe, the reunification of Germany, and the European market unification by 1992 will all have a profound impact on the international economic environment. The recent happenings in the Gulf region have also cast a shadow over the sustainability of world economic growth, at least in the immediate future, not to speak of the human misery these events have entailed. There is a genuine concern in the developing countries that they may be left out of this new and fast-changing scenario, especially in relation to access to external resources and markets for exports. The enormous resources necessary to supplement market-oriented reforms in the centrally planned economies, we hope, would not affect the developing countries' access to external finance. The world economy continues to face the problems of large payments imbalances among major industrial countries, large fiscal deficits in the United States, volatile exchange rates, external indebtedness of developing countries, and the negative transfer of resources from these countries. The tight monetary policy stance adopted by the developed countries to combat inflation has accentuated the problems for the less developed countries through higher

©International Monetary Fund. Not for Redistribution 166 SUMMARY PROCEEDINGS, 1990 interest rates. The recent happenings in the Gulf region have also cast a shadow over the sustainability of world economic growth, at least in the immediate future, not to speak of the human misery these events have entailed. Nepal is one of the least developed oil importing countries hardest hit by the present crisis. And this has happened to us at a time when we are facing the daunting task of finding our way out of the legacy of an era of economic mismanagement under the old political regime where, in a period of thirty years, there was little or no growth in per capita GDP. As a result of a popular national movement, Nepal went through a major political change in April 1990 that brought a democratic political order to the country. The present government is now mainly involved in the twin tasks of institutionalizing the democratic polity, on the one hand, and preparing a sound economic framework for the future, on the other hand. Our efforts in the latter will be concentrated in stabilizing the economy and in streamlining strategies and policies to meet our development objectives by taking good cognizance of our resources and capabilities. For us, therefore, there is an urgent need for strengthening international cooperation to face the challenges ahead. The role of the Fund and the Bank in fostering a more conducive global economic environment, in addressing development issues, and in facilitating resource transfers to the developing countries assumes extra urgency. May I say that the theme of these meetings, which emphasizes economic growth and poverty reduction, is a heartening development for us since the objective of our own development endeavors cannot but be on the same lines. "A decade of economic growth and poverty reduction," in the words of Mr. Conable, is starting happily at a time when we are commencing our own first decade of democratic government in Nepal, and, now, we hope to have institutions and policies necessary to respond to this challenge. We will pursue the objective of poverty alleviation through a strategy of increasing labor absorption and enhancing labor productivity. The essential component of this strategy is to organize and empower the people—the poor and the deprived, including the women, in conformity with the spirit and principles of democracy—so that they can participate and take the lead in their own development. In this broader context, we see the role of a dynamic private sector including, what I may call, the rural household sector in our economy. These are the policy areas around which there is national consensus in Nepal—a fact that will assure the future continuity of the policies and programs of the present government. The success in tackling poverty largely depends, in addition to adequate resource flows, on our ability to pursue the program of poverty alleviation in the context of adjustment while generating technological and institutional choices appropriate for efficient and sustainable growth. This entails more attention to the potential trade-offs between macroeconomic stability and

©International Monetary Fund. Not for Redistribution NEPAL 167 equity. We are happy to note that greater attention is now being given to the distributional aspects of economic growth by the Fund and the Bank, including measures to mitigate the transitory adverse effects of economic reforms on the poorest segment of the society. In the area of debt and debt-service relief, we take note of the positive developments and emphasize that parallel efforts are needed at a much higher level to restore external viability to the severely indebted low-income countries and to prevent the structurally handicapped countries like Nepal from falling into the debt trap. Equally important is the environmental concern that will continue to dominate as another international development issue through the 1990s or perhaps even beyond. Though world attention is gradually shifting to the affluence-related environmental problems, we, the developing countries, are also much concerned with the poverty-related problems of environment. Let me state here that we welcome the initiative on the setting up of the Global Environmental Facility, while we look forward to working with the international community in the management of our own fragile environment and ecological system that is under pressure from conditions of poverty and rapid population growth. In the changed context marked by political liberalization and economic reforms, more attention is being paid to the issues of market and private sector development and enhancing the role of women. In our view, there is no alternative to private sector development matched by the efforts of a good government. The related financial sector reforms should proceed in a gradual manner, consistent with a country's administrative capacity and stage of development, and in a broader perspective with full awareness of essential trade-offs and balances. While developing countries continue to implement painful adjustments and reforms, there is an equal need for the developed economies to create a more conducive external environment by reducing trade barriers and by maintaining stable exchange and interest rates. We firmly believe that greater policy coordination among developed countries would contribute toward this goal. While the Fund and the Bank are to be commended for their collaborative efforts to reduce the debt burden of some heavily indebted countries, as well as in their support to countries undergoing structural reforms, it is, however, disappointing that net resource transfers to developing countries have remained negative. This calls for greater efforts, especially by the Bank, to increase disbursements. A country like Nepal needs to do its share in reforming its own management to facilitate this process. . . . On the operations of the Fund, we welcome the increase in quotas under the Ninth General Review. We are in favor of making the quota increase effective within the specific time frame. Nepal has been implementing the structural adjustment program with Fund and Bank support. The economic situation calls for the continuation of the

©International Monetary Fund. Not for Redistribution 168 SUMMARY PROCEEDINGS, 1990 adjustment efforts. The Government is committed to maintain the internal and external balances with judicious use of fiscal and monetary instruments as well as by undertaking institutional reforms to enhance the efficiency of resource allocation. As we move ahead in preparing and implementing our policy program and reform packages for rapid, sustainable, and equitable development, we need external assistance more than ever before in this crucial transitional phase of Nepal's history. The fact that an accountable Government is committed to deploy both domestic and external resources efficiently and responsibly to the cause of the poor should make the case of Nepal special and all the more appealing for external support. It will be difficult for the people of Nepal to understand that the lending institutions and other members of the donor community do not owe us consideration and some respite in respect of preconditions and conditions attached to projects for financing, when we are trying to consolidate democratic gains and begin an era of economic development after freeing ourselves from a political system that, with all the resources at its command, was able to contribute very little to economic growth, poverty reduction, or, for that matter, respect for human rights and human dignity. The factors that contributed to this dismal record are primarily internal, as indicated, including the consequences of a somewhat unfavorable resource endowment. But will it not be helpful if the Bank and the other important donors also make an assessment of their own perception, judgment, and performance of the past in respect of our development problem as we move ahead to an era of more productive partnership? In the recently concluded Second UN Conference on the Least-Developed Countries, we discussed multifaceted problems of this group of countries, Nepal included, and the serious setbacks that they suffered in the 1980s. We took several important decisions, which culminated in the adoption of an action program for the 1990s that aims at bringing these countries onto the path of sustained growth and development. We, in particular, were overwhelmed and encouraged by the solidarity demonstrated by the world community to the cause of the least-developed countries wedded to pluralism, democracy, and development. In view of the urgent need to concentrate the efforts of the world community on uplifting the living conditions in the least developed countries where the poorest among the poor live, there is a need to group these countries separately in the World Economic Outlook analysis and in various types of studies and analyses for the programming purposes conducted by the Bank. A separate grouping will show clearly the effects of development efforts and their inadequacies over a certain period of time in these countries. This will also permit meaningful discussion on conditions and criteria for graduation of countries in this group out of the status of least developed to a more advantageous position. I want to repeat here what I said at the Paris Conference of least-developed countries that Nepal hopes that it will not have to participate

©International Monetary Fund. Not for Redistribution BULGARIA 169 as a least-developed country in yet another such conference ten years hence. To this end, we will commit all our resources and political will, and we hope to continue receiving goodwill and support from our development partners.

STATEMENT BY THE GOVERNOR OF THE FUND FOR BULGARIA

/. Dragnevski

I have the pleasure to express our appreciation for granting full membership to Bulgaria in the International Monetary Fund and the International Bank for Reconstruction and Development. We are convinced that by becoming a member of the Fund and the Bank, Bulgaria will set up a solid basis for broadening and deepening the mutually advantageous cooperation in the different aspects of financial activities. Bulgaria's accession to these international institutions, among other things, is clear evidence of the intention of the People's Republic of Bulgaria to follow the policy of opening its economy and integrating it with the world economy and the international trading and financial system. It is, as well, a basic international prerequisite for implementing the process of democratiza- tion in my country through rule of law, multiparty parliamentary democracy, and transition to a market economy. We consider our accession to these organizations to be recognition of our policy by the international community. Allow me to express our gratitude to the missions of the Fund and the Bank who visited our country and contributed to the necessary procedures so that our membership could become a fact within a reasonable time. Despite the current difficulties, we feel encouraged that this international support will assist our efforts aimed at overcoming the structural imbalances and speeding up the transition to a market-oriented economy. It is well known to you that the crisis in our economy manifests itself in an increasingly difficult macroeconomic situation, a drop in production, an increase of foreign debt, a shattered consumer market, a rising budget deficit, deteriorating financial problems in the enterprises, and growing inflationary pressures. The difficulties in our economy are sharply aggravated by the recent developments in the international environment: —The threat of a permanent rise in the oil price where the country depends on imports for 80 percent of its energy consumption. —The consequences of the Gulf crisis and our strict observation of Resolution 661 of the Security Council, resulting in direct damages to Bulgaria, which just for the rest of 1990, amount to $1.4 billion. —The decrease in oil deliveries and other primary and raw materials from our traditional foreign trading partners.

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—The expected decline in CMEA trade as a result of the transition to convertible currency payments and world market prices. To be able to take the economy out of this situation, it is necessary to carry out a radical economic reform that will ensure a rapid transition to a market-oriented economy. The dynamization of economic life and the restructuring of the national economy can and should be done in accordance with the demands of the market, both at home and abroad. The essence of the economic reform under way at present is the realization of a transition from a centrally planned economy to a market economy supported by an active social policy. I would like to mention the main characteristics of this transition: —The introduction of different forms of property, and in this connection, the intensification of the processes of privatization. —The transformation of the market into the main regulator of production, exchange of goods, and consumption. —The social orientation of economic development and integration with the world economic structures. The first steps toward a market economy are already being implemented. Equal conditions for the development of all types of ownership have been created. A series of measures to deregulate economic activity have been taken. A partial liberalization of prices has been undertaken in line with the conditions of the present stage of economic reform. The system of obligatory state orders has been abolished. A unified exchange rate was introduced for all enterprises for buying and selling convertible currency by using the market rate of the currency auctions. A new reform of interest rates has been developed envisaging a considerable increase in the average level of interest rates on deposits and credits. The transition of our country to the principles of the market economy necessitates widening the scope of our cooperation with other countries and international financial organizations. Under these circumstances, the international factor and the international support for the reforms under way are vitally important. Being aware of these realities, our country has also applied for membership in the organizations affiliated with the International Bank for Reconstruction and Development—the International Finance Corpo- ration and the Multilateral Investment Guarantee Agency. At the same time, I would like to stress that we do understand the necessity of doing our own job, and of finding our own way, bearing in mind the economic realities of the country and its historical and cultural traditions. The expected sharp aggravation of the economic crisis through external factors reinforces the urgency of concerted internal mobilization of efforts and puts forward the issue of the needs of large-scale international assistance. In this process, we would like to have the support of the Fund and the Bank in implementing the economic reform, and at the same time establishing a closer contact with other countries and the international financial community.

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I would like to believe that the challenges that the changes in the countries from Central and Eastern Europe call forth will create an expanded environment and added possibilities for the two global financial organizations, the Fund and the Bank, to look for means and instruments for the faster integration of those countries in the world economy.

STATEMENT BY THE GOVERNOR OF THE BANK FOR AFGHANISTAN

Mohammad Hakim

First of all, I would like to extend a warm welcome to Bulgaria, Namibia, and Czech and Slovak Federal Republic, as new members, and the special invitees from the Soviet Union. On behalf of my Government, I wish to express my appreciation to the organizers of the Forty-Fifth Annual Meetings of the International Monetary Fund and the World Bank, and for their careful preparation and sincere efforts, which will undoubtedly contribute to the success of the ensuing consultations among the member states of the Bretton Woods family. The forum provides an appropriate opportunity to review economic and financial events since the last meeting, in September 1989, which leaves one with mixed feelings. There has been a growing expansion in the volume of world trade, which exceeds the 7.5 percent predictions of the IMF. This is not the general trend in most of the developing countries for which the Annual Report of the IMF gives a remarkable decline of 4.6 percent in the average growth rate of those countries in 1989, together with a decline in per capita income, continuous inflation, a deficit in the trade balance, and a decline in living standards. Unfortunately, the number of the least-developed countries also increased in the last decade, from 31 to 42, encompassing more than 400 million people who suffer illiteracy, poverty, hunger, disease, homelessness, and a high mortality rate. Of this total, 10 out of 42 less-developed countries, including Afghanistan, are landlocked and have enormous transit problems. The special problems and inherent disadvantages of being landlocked, especially the adverse effect on socioeconomic development efforts, have long been discussed and recognized by all the members of the United Nations. With the single exception of the Land-Locked Fund for Developing Countries, which was unfortunately abolished a few years ago, no viable additional measures in favor of the landlocked countries have been put into effect. On the other hand, in the past twelve months the general growth of world trade was accompanied by relatively large fluctuations in the value of major convertible currencies and by problems of marketing. However, there has also been a gradual but significant "opening of doors" to market economies in almost half of the world, including the U.S.S.R. and Eastern Europe. This

©International Monetary Fund. Not for Redistribution 172 SUMMARY PROCEEDINGS, 1990 has been accompanied by a new arrangement of economies, price reforms, privatizations, stock companies, and the creation of an organizational shell of the future market economy. This rejoicing to the world of free markets shall certainly bring forth drastic changes and deep re-evaluation of financial and monetary policies, which according to some economists will bring a boost of 10 to 15 percent in the world trade volume in the initial stages. In trade, protectionist and other trade-distorting measures, especially nontariff barriers, continue to have a severe adverse impact on the export earnings and national incomes of developing countries, especially the least developed. This impact could be quite substantial in relation to the level of official development assistance. My delegation supports the recommendations 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, which emphasize the responsibility of the industrial countries in reducing trade barriers and promoting a more liberal multilateral trading system so as to enhance and ensure sustained, export-oriented economic growth and development. Our world has also gone, in recent months, through a critical situation that caused, and is still going to cause, unbearable disorders in international economic transactions, particularly in normal stock exchanges and pricing systems. The recent Gulf crisis and the dire fuel supply prospects will continue in 1990-92 to top the list of serious concerns of financial and trade planners, who virtually foresee the upcoming constraints in economic development, particularly in the developing countries. In this connection, my delegation appreciates the timely and highly essential external shock-absorbing mechanism that was recently put in place by the IMF: the new compensatory and contingency financing facility was devised to protect the economic programs of member countries against unforeseen external developments that might interrupt their implementation. We hope and are certain that this new facility will prove to be of immeasurable benefit to all developing countries, especially the least developed whose economies are the most vulnerable to unforeseen contingencies. In viewing the extraordinary events as regards real prices in the oil and commodity markets—which by themselves require special scrutiny—we have not witnessed any return to order and stability in international currency markets, through the structural adjustments and macroeconomic policy coordination, as recommended at last year's Annual Meetings. This year, there has been no stop in the increasing uncertainty of export revenues in the developing countries whose budgets are already pressed by a huge debt-service burden totaling $1,370 billion, scarcity of resources, external financial constraints and financial outflows, regional disputes, high military expenditures, increasing population—by 4 percent this year—in the least-developed countries, and a decline in official development assistance. An austerity program is urgently needed as is far greater and far more serious

©International Monetary Fund. Not for Redistribution AFGHANISTAN 173 financial assistance to the developing countries, especially to the least developed, in the form of substantially strengthened resources. The need is felt for the Fund to review its assistance and lending capacity quotas, so as to redress macroeconomic imbalances. According to the current report of the World Bank, owing to the relaxation of tensions in the world, if the major industrial countries add 10 percent of their military expenses to their official development assistance, the volume of assistance would be doubled. It is hoped that the special consideration for the plight of these developing countries, embodied in the documents of the ministerial conference on the developing countries held in Dacca in February 1990 and the Paris conference of September 1, 1990, may attract the attention of this meeting, too. At this stage, it is essential to point out that lending to the developing countries, especially the least developed, should be devoid of political consideration. In this context, the suspension of pending loans, amounting to $71-97 million, to the Republic of Afghanistan on the basis of political considerations is most deplorable. We hope that the IMF and the World Bank will utilize their influence toward the eradication of this undesirable trend and negative policy. Afghanistan is one of those countries that is moving toward national reconciliation, for which this year the prospects are very visible. A new atmosphere of confidence, vitally needed for attracting foreign assistance, is appearing. The new government of Mr. Khaliqyar—70 percent of its composition is nondependent on any political grouping—is a symbol of an end to the party's monopoly of administration and economic centralization. A positive reorientation toward a decentralization of the country's economy is practically beginning. We have already embarked on a comprehensive socioeconomic endeavor based on privatization and a multisectoral economy where superfluous government controls are being drastically reduced. The Constitution of the Republic of Afghanistan, which was amended this year, not only guarantees and encourages private and foreign investment in almost all fields, such as industry, commerce, construction, transport, and agriculture and agro-economic services, but also has permitted private investment in forestry, pastureland, energy supplies, mines, and sales of communication devices. In Afghanistan, during last year's constitutional readjustment, besides state-owned banks and insurance institutions, stock banks and mixed and private land and air transport enterprises have been privatized. The state has also been bound by the Constitution to encourage and attract foreign investors, as foreign investors can share more than 50 percent of the total capital according to the law on foreign investment. It is to be mentioned that the privatization of state-run enterprises is under study and will soon be decided upon. We have undertaken a well-analyzed rehabilitation plan for two five-year

©International Monetary Fund. Not for Redistribution 174 SUMMARY PROCEEDINGS, 1990 periods during the 1990s. The first stage will be devoted to the repatriation of millions of displaced persons and the revitalization of normal life. Thus, as was declared by H.E. President Dr. Najibullah in the Paris conference of September 1990, we shall remain dependent on foreign assistance. The country will need, according to preliminary estimates, over $6 billion from foreign sources to cover its program. There have been new criteria for the types of taxation and duties, and scope for better and beneficial utilization of international assistance and credits has been widened. There is a considerable move toward the desirability of a liberal economic order and the elements of reform that would induce such an order. But, owing to the war, my country faces huge financial losses and devastation, a drastic budget deficit, and imbalance of payments with almost a stop in socioeconomic development. Owing to the reduction of domestic production, the deficit in foreign trade amounts to over $530 million, which is equivalent to 137 percent of annual export earnings. As a result, GNP has declined by 1.2 percent annually, and owing to population growth, per capita real income has fallen by 3 percent. Agriculture GNP decreased from Af 61.9 billion to Af 47.3 billion (23 percent) in the last ten years. There is also much dissension about the proper sequence of our drastic economic reforms, which warrants close attention. Afghanistan, as a landlocked developing country, is an integral part of the world economy. My country is facing the most difficult task of postwar reconstruction, which is to catch up with its share in the economic transactions of the world. This can never be carried out in the absence of an especially high level of international assistance, of which the Fund's share is pivotal. I consider this an appropriate place to call for the revitalization of a virtually halted financial, technical, and humanitarian aid package to Afghanistan, which totaled $2.5 billion in 1979, but of which not more than a very small percentage has been channeled. Expressing my deep appreciation for the recent UN initiatives on humanitar- ian assistance, as the representative of Afghanistan, I also feel proud of the fact that my country has been a long-time member of the Fund and the Bank, and I reassure our full compliance with, and loyalty to, all principles and decisions adopted. In conclusion, while planning great hopes for the deliberations and decisions of the Annual Meetings to alleviate the problems that stand in the way of our country's prosperity and well-being, I sincerely wish that under your able chairmanship, Mr. Chairman, we may move toward fulfillment of these expectations in a more fruitful and comprehensive way.

©International Monetary Fund. Not for Redistribution DISCUSSION OF FUND POLICY AT FIFTH JOINT SESSION1

STATEMENT BY THE GOVERNOR OF THE BANK FOR CHILE

Alejandro Foxley Rioseco

I would like to thank the Governors of the International Monetary Fund and the World Bank for my selection as Chairman of the Development Committee. I consider that selection an honor and a privilege. I hold the unshakable belief that the new world that is being forged day by day before our eyes affords an opportunity for developing and industrializing countries to join a virtuous circle of better integration into the world economy, macroeconomic stability, and better employment and welfare opportunities for those entering the labor force. Economic globalization can be an efficient instrument for generating that virtuous circle, if countries support the process by investing heavily in their human capital, their people. This is the way to overcome at the root the dilemma between growth and redistribution. Investment in people is a prerequisite for successful integration into the international economy. I accept the Chairmanship of the Development Committee with a message of optimism, an assertive message: Our countries can—as the countries of southern Europe have demonstrated earlier—strengthen their democracies and their economies through this process of opening up to an expanded economic field and an international economic system, which offers unthought of opportunities if only we do things well. I represent a country that after a long period has regained democracy—a country proud of its freedoms, of the civilized manner in which it resolves its conflicts, and of the enthusiasm with which it looks toward the future. Chile's economy is a market economy, open as few others are to international trade. It today exports 30 percent of its GDP. In 1995 Chilean exports will account for 35 percent of the national product, a degree of economic openness equivalent to that now found in the economies of the Scandinavian countries. There are no subsidies or exemptions in Chile's economy. We have a balanced budget, with a deficit equal to zero. Public spending goes heavily for investment in human capital, investment in people. We are proud to say that the budget that the Government will send to Congress for approval in early October calls for expenditures in the social sectors—such as education,

1 September 29, 1990. 175

©International Monetary Fund. Not for Redistribution 176 SUMMARY PROCEEDINGS, 1990 health, housing, and social security—equivalent to 65 percent of total public outlays. We thus have an economy that is open internationally and an economy that is increasingly shared. The economic policies of President Ay 1 win are based on three principles: first, an unshakable commitment to macroeconomic stability as the best way to achieve sustained growth; second, efforts to internationalize the economy, both commercially and financially; and third, increasing social efforts in the areas of health, housing, and education, duly placed within a framework of balanced public expenditure.

Maintaining Macroeconomic Equilibria

All of us here today know the intensity with which inflation and balance of payments crises have affected Latin America in recent years. Chile also fell victim to that experience, having experienced hyperinflation in the early 1970s and major recessions in 1975-76 and 1982-83. In the past five years, and at high cost to many Chileans, Chile has corrected many of the imbalances experienced at the start of the decade. Since 1985 output has recovered, rising significantly, while inflation has remained among the lowest in the region. Between 1985 and 1988, growing trade surpluses made it possible to make punctual external debt payments. These trends partially reversed in 1988 and 1989 when expansionary policies, especially in the monetary area, heated up the economy again, threatening to undermine stability. Domestic spending increased alarmingly, reaching growth rates of 12.7 percent in 1989 and 22.8 percent for 1988-89. As a result, imports rose by 35 percent in 1989, and inflationary pressures mounted. Annual inflation in the last quarter of 1989 was 30 percent and rising. We have had to support an adjustment process, a basic requirement on the road to sustained growth and moderate inflation. Using primarily a contractionary monetary policy, rooted in absolutely unchanged public spending in real terms during the first seven months of 1990, we sought to lower growth in domestic spending, hold back growth in imports, and curb inflation. The results of these measures can be seen today. Adjustment has cooled down the economy, leading to an annual GDP growth rate of 2.6 percent during the first half of the year. The inflationary trend has been slowed, and we hope to finish the last quarter of the year with an annualized rate lower than the annual rate of 30 percent inherited from the previous government, despite the negative impact of the rise in petroleum prices in a country that imports 85 percent of its oil needs. For 1990 we expect the overall situation in the balance of payments to be sound. The boom in direct foreign investment this year should be reflected in net inflows of some $1.2 billion, which is substantially higher than in

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1989.The climate of confidence enjoyed by the economy has prompted a major inflow of financial capital, which in the first half of the year helped increase the Central Bank's international reserves by over $1.2 billion. This situation is projected to persist for the year as a whole. Once the adjustment of 1990 is completed, we may expect the Chilean economy to resume sound economic growth. Adjustment has not compromised the foundations of growth. Investment this year will be the largest in the last twenty years, exceeding 20 percent of GDP. The Government has set sensible targets that can be reached without future costs. This is why we expect the economy to start growing again during the last quarter of 1990 and to attain a growth rate of 4-5 percent in 1991. In the longer term, and in light of investment trends, it may be said conservatively that Chile is ready for sustained growth at an annual rate of 5 percent.

The Internationalization Strategy

Over recent years Chile has achieved a high rate of growth in its trade, based on the creation of a climate of enterprise and sound export activity, particularly in mining, agriculture, fisheries, and forestry. Nontraditional exports are the most dynamic; comparing the first half of 1989 and 1990, we note that total non-copper exports increased by 17 percent. Maintaining and improving this performance will require persisting with policies to ensure a competitive, stable real exchange rate within a climate conducive to interna- tional trade. If trade is to be a significant source of growth for Chile, Chilean exports like those of all developing countries must enjoy broad access to foreign markets. Protectionism is especially dangerous for small, open nations. This is why we are actively participating in the Enterprise for the Americas Initiative proposed by President Bush, and next week we will sign a basic trade and investment agreement with the United States, which we hope will open the U.S. market even further to our products. Chile is also engaged in trade negotiations with several Latin American countries, including Venezu- ela, Argentina, and Brazil, with a view to establishing reciprocal zero tariff arrangements within five years. In the case of Mexico, our president will sign a commitment next week that will lead to a broad economic complementation agreement within four months. Foreign investment is a further central component of the internationalization strategy for our economy. Chile has flexible foreign investment laws, a stable economy, and a legitimate popular government. This situation is already yielding fruit. Foreign investment fund placements on the Santiago mercantile exchange have grown and prospered. These and other approaches, in conjunction with other, more traditional forms of direct investment, have led to a remarkable surge in foreign investment in Chile.

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The Social Effort The third link in the chain of policies is the emphasis placed on social aspects. The observation that economic growth by itself does not necessarily bring greater welfare to all groups, especially the poorest ones, is almost an axiom in development theory. This axiom has been confirmed in Chile in the last few years. High rates of growth have coexisted with a deterioration in the quantity and quality of public services and serious problems in housing, education, and especially health. The World Bank's World Development Report 1990 has the following proposition as its central theme: in all recent cases of successful development, sustained growth has been accompanied by a strong component of investment in people, provision of services, and accumulation of human capital. Something of this kind is what we are trying to do in Chile today. President Ay 1 win's program envisages a significant increase in social expenditure and the creation of new technical education and labor training programs. Just in this last area, we hope to train 160,000 young people in the next three years. Our social expenditure policy contrasts with the populist policies—with unsustainable fiscal deficits or excessive external indebtedness—that are traditional in our countries and ultimately cause inevitable damage to the very sectors they proposed to help. Six months after the inauguration of President Ay 1 win's administration, Chile has a balanced budget—an achievement we will maintain in coming years. This means that no additional social outlays can be made until the resources to finance them have been collected in a noninflationary manner. This rule was implemented in a recently approved tax reform that moderately increased the value-added tax and raised corporate taxes. Not until this reform was approved by Congress—by a vast majority that included most opposition congressmen—did we propose a supplementary budget allocating nearly $500 million in additional resources to health, education, housing, and other social headings. These resources have meant that real social outlays this year have been the highest ever in Chilean history to yield new revenues over the next four years for use to finance our social program.

A Valuable Experience We are modestly moving forward in Chile with economic policies that democratically join fiscal prudence with a greater social effort as they seek to move us into a new stage of our export development. Results so far are promising, but a long road still remains ahead. Along this path, we have received cooperation from the international financial community. We have an ever broader and deeper relationship with the World Bank and the Inter-American Development Bank, and we hope that it will be reflected in over $4 billion in project financing in coming years. We are completing a sucessful stand-by arrangement with the International

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Monetary Fund, all of whose targets have been strictly complied with. We are currently studying ways to adapt our relationship with the Fund gradually in line with developments in the Chilean economy. We have also recently concluded a voluntary collaborative agreement with international commercial banks, which constitutes a practical confirmation of everything that has been said about our economy in the last few years. Our creditors and the Chilean negotiating team have agreed to a significant extension in the maturity of our entire commercial debt, thereby eliminating all repayments on this debt between 1991 and 1994. We have also agreed to maintain the annualized interest payments system and to make existing contracts more flexible in order to facilitate future debt conversion operations. Finally, a club of international commercial banks has agreed, on the basis of a voluntary arrangement, to purchase a Chilean bond issue for a total of $320 million at a moderate cost in keeping with the country's financial circumstances. This financing is an important step forward along Chile's return to the voluntary capital markets from which it had been absent since 1982. All these are indications of the attractive prospects offered by the Chilean economy. They are also indications of what can be achieved when countries and members of the international community—multilateral organizations, financial entities, investors—try to work together in a cooperative spirit. In the increasingly interdependent world we are entering, such instances of international cooperation will be ever more crucial, especially for countries such as Chile that have decided to adopt the approach of internationalizing their economies. We are convinced that with this cooperation, but mainly through the efforts of all Chileans, we shall attain a highly productive economy, an economy that responds adequately to the needs of its people.

STATEMENT BY THE GOVERNOR OF THE BANK FOR PERU

Juan Carlos Hurtado Miller

I am addressing this meeting at a time when my country, Peru, is involved in a traumatic process of economic and political change. On the outcome depends, perhaps, our survival as a democratic nation. In August, as a result of the disaster inherited from the previous government, inflation was about 400 percent a month, an unprecedented figure on this continent. Under the stabilization program introduced by the new government, inflation has been reduced in September to around 5 percent. The department that I manage eliminated in a single day the entire public sector cash deficit.

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This required drastic adjustments to the prices of controlled products and to public service tariffs. To give but a single example, fuel prices had to rise by more than thirty times, I repeat, more than 3,000 percent, a sacrifice that no government has ever been compelled to demand from its people. But despite all predictions, the men and women of Peru, although distracted by recent rhetorical excesses and threatened by terrorist groups, have not just stoically accepted their portion of this effort, but, as independent public opinion surveys demonstrate, are supporting the government of President Fujimori, which, despite the inevitable pain caused by such a drastic adjustment, has restored hope of a better future. I hope you will therefore allow me to focus this brief address on the current situation in Peru. When we have brought the effort now begun to a successful conclusion we, the Peruvian authorities, will be able to contribute to the debate on the vital issues that have brought us together here today. However, at the present time our entire effort is concentrated on the enormous challenge facing us: to ensure that we put behind us, and forever, the second longest hyperinflation in world history, and to ensure that we are fighting with the best possible weapons to reduce the poverty of our people. There are numerous indicators of the disaster that we inherited as a result of the application of mistaken ideas. In recent years the Peruvian state could not maintain order, guarantee public security, or provide basic services, especially to the poorest groups. Per capita incomes fell to levels comparable with those of 30 years ago; real wages are now half what they were 5 years ago, and financial intermediation has fallen by four-fifths. Public investment is only 1 percent of GDP; only 1 kilometer of every 5 kilometers of roads is in good condition; oil production has fallen by 40 percent; our infant mortality rate is 50 percent higher than in neighboring countries, and at the present time only one out of every five Peruvians is properly employed. This year's World Development Report focuses on the urgent and dramatic issue of poverty. More than half of all Peruvians are currently living in conditions of extreme poverty. The crisis is reflected not merely in the economic and social indicators referred to above; it has also dramatically affected the moral character and effectiveness of many of our institutions. Peru today needs a cultural transformation if it is to recover the full exercise of the values that are essential for proper civil coexistence; the government of President Fujimori, of which I am honored to be a member, is committed to leading this process. Concepts such as justice, honesty, truth, and social solidarity require a new social and political interpretation so that they can serve as the foundation for the development of an efficient economy and effective state. The 1980s in Latin America saw a succession of fiscal crises, and the nonperformance of external obligations, for reasons that have been thoroughly discussed at previous meetings. In this new decade the region must rediscover the lost path of growth. To this end, it is essential that the state act honestly,

©International Monetary Fund. Not for Redistribution PERU 181 practice austerity, and provide the conditions in which our firms can prosper, develop technology, and generate abundant jobs in a competitive and flexible environment, taking into account the enormous changes now going on in the world. This means that we must restore macroeconomic stability and ensure that it is sustained over time. It also means that structural reforms must be initiated to generate sufficient confidence so that Peruvians and foreigners begin to invest again in Peru, in projects that owe their competitive advantage not to state incentives, subsidies, or privileges, but to the appropriate exploitation of Peru's natural resources, the imagination and leadership of its creative spirits, and the efforts and preseverance of its workers. To stabilize the economy and to reduce inflation from last month's 400 percent to prevailing international levels, the internal financing of public expenditure has been eliminated. Significant reforms have also been made in custom duties by eliminating all nontariff barriers and retaining only three levels of duty: 15 percent, 25 percent, and 50 percent. These measures will be refined over time in order better to meet our objectives. I would also like to inform these meetings that, because of the bankrupt nature of the tax administration we inherited, we must still have recourse to inefficient emergency taxes. In order to correct this problem, we have requested legislative powers from the congress, already approved by the senate, to alter completely the taxation system. A tax reform will come into effect in January 1991. We are going to simplify the tax system considerably and eliminate preferential treatment in order to obtain larger yields, greater equity, and an appropriate degree of efficiency in combatting tax evasion. In commercial matters we aim to achieve a uniform customs tariff of 25 percent within two years. It should also be noted that the Government has initiated action with a view to distributing and guaranteeing property titles, simplifying administrative procedures, and reducing the cost of access to the legal system. We shall also undertake a comprehensive reform of the state, which entails restoring the capacity to deal effectively with the scourge of drug traffic and with terrorism. We shall also set in motion a program to rationalize and privatize state enterprises. I would like to acknowledge the good will shown by the managements and staffs of the World Bank and the International Monetary Fund toward our government. The efforts recently made by the missions sent to Lima by these organizations and by the Inter-American Development Bank demonstrate how technical discussions can enrich proposals for stabilization and structural reforms. We look forward to working closely with the multilateral organiza- tions in the analysis of the reforms contained in our medium-term economic program, the objective of which is, I repeat, to improve the well-being of Peru's population through policies which, by ensuring fiscal equilibrium and macroeconomic stability, guarantee the growth of GDP per capita, and raise the percentage of the population properly employed, while also increasing

©International Monetary Fund. Not for Redistribution 182 SUMMARY PROCEEDINGS. 1990 the real value of wages and improving the quality of life. Our struggle and our unstinting efforts are aimed at eradicating poverty. We are especially grateful for the assistance of the Managing Director of the International Monetary Fund and the President of the World Bank in helping us to obtain the resources necessary both to pay off Peru's arrears to the multilateral organizations and support our medium-term economic program. On behalf of the Government of Peru, I am pleased to announce to the international financial community that, in light of projections of our fiscal and external resources, Peru will in the second half of October resume prompt payment of its current obligations to the multilateral organizations. We also intend to agree on a reference program with the IMF and the World Bank in order to obtain the external resources needed to support the medium-term reforms. Next January, the Government intends to participate in a meeting of the Paris Club in order to re-establish a dialogue with Peru's official creditors. Immediately afterward, formal conversations will resume with the Advisory Committee of the commercial banks. I would also like to inform you that some creditor banks that had started legal proceedings against Peru have dropped these actions as a result of a legal agreement between the parties. As a representative of Peru I bring to this meeting not complaints but news of achievements that, although fragile, represent an historic advance in the attempt to restore the minimal stability in our economy that would enable us to return to the path of growth. The performance of Peru's economy in recent years shows the folly of the notion that, on the threshold of the twenty-first century, a country can live by turning its back on the huge changes now occurring in world finance and international trade. The result was a cumulative inflation of 2,000,000 percent from July 1985 to July 1990. The changes in Peru's economy over the next five years should show the world what can be done by the effective application of sound policies and by international assistance to a nation currently experiencing what are perhaps some of the most difficult and dramatic moments in its entire history. The achievements of President Fujimori's government in a mere 60 days since taking office testify not to the qualities of its members but to the courage and patience of the people of Peru, who have not only understood but endorsed an adjustment of such magnitude that, in the opinion of some analysts, it could risk the very foundations of our future survival as a democratic nation. Peru today is once again standing up to adversity and has declared war on poverty. Now we need your understanding and support.

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The Inherited Situation

The previous government's use of misguided policies led to a period of hyperinflation that, until the recent stabilization program began, was the second longest in world history. When the new government took over, inflation in the preceding twelve months was running at more than 3,000 percent. Inflation in the last month on an annual basis was over 300,000 percent, and during the previous administration inflation was more than 2,000,000 percent. During that time the price system collapsed as a result of price controls, multiple exchange rates, and tariff, nontariff, and tax policies that were haphazard and complex. The plunge in tax revenue generated a chronic deficit for the central government beginning in 1986, owing primarily to tax exemptions, the reduction in key taxes and rates, cumulative delays in collection, and a growing lack of control. Tax revenue fell from 14 percent of GDP in 1985 to 4 percent of GDP in the first half of 1990, destroying the financial viability of the public sector. At the same time, the average real interest rate in the first half of 1990 was greater than 100 percent annually. Spending by the central government was also down sharply, as the government could not provide minimum health and education services. Social expenditure fell from $45 per capita at the beginning of the 1980s to $15 in 1989. Furthermore, the prices and tariffs of the largest public enterprises were subject to political manipulation, and their administration, inefficient in itself, was hampered by a massive increase in employees who were members of the government's party. Subsidies for these prices and tariffs—gasoline, water, electricity, and telephone—rose to $2.5 billion annually (12.5 percent of GDP). The subsidies had a regressive impact because they primarily benefited those in the high-income brackets. This very damaging situation caused a marked deterioration in income distribution and the quality of public services. The social debt that mounted is now reflected in infant mortality 50 percent higher than in neighboring countries. Real wages fell by half between 1985 and 1990, during which period per capita GDP declined by 12 percent. Social services fell to unprecedented levels. The hospitals did not have medication or food for their patients, and schools lacked basic educational materials. Tuberculosis and illiteracy have increased to record levels. That social debt with the low-income sectors, perpetrated by the previous adminis- tration, requires immediate attention and a budget larger than Peru can meet using tax revenue; thus, the urgent need for donations and external assistance for our Emergency Social Program. Basic infrastructure for transportation, communications, and energy has also suffered terribly. For example, solely to rehabilitate the roads infrastructure existing in 1985 would cost more than $1 billion. The automotive fleet, railways, port infrastructure, and communication systems cannot sustain the

©International Monetary Fund. Not for Redistribution 184 SUMMARY PROCEEDINGS, 1990 level of production they did five years ago and are severely undermining international competitiveness. Peru has been accumulating arrears in its payments on its external debt since 1983. That year, natural disasters and the economic crisis triggered a 12 percent fall in GDP. In 1985, the government of Alan Garcia publicly declared unilateral withholding of external debt payments. In addition, the previous government withdrew from the negotiating table, a move that caused Peru to be isolated financially, commercially, and diplomatically from the international financial system. As a result of nonpayments on Peru's total external debt of approximately $20 billion, arrears of more than $10 billion have accumulated. This makes the position of the new government especially difficult. The arrears affect Peru's debt both with the international banking system and with suppliers, multilateral agencies, and governments. In order to recover macroeconomic stability and sustain a growth rate that would permit an improvement in the well-being of its people, Peru needs a substantial reduction and restructuring of its international obligations, as well as structural reforms that enable it to increase efficiency in its productive sectors and the rate of return on future investments. This would enable the country's economy to return to a long-term horizon that restores hope among its people, especially the poorest.

The Stabilization Program The stabilization program launched by the government of President Fujimori is the first step in attacking the root causes of the macroeconomic disequilibria that characterized Peru's economy at the end of July this year. Taxes and the rates charged by state-owned enterprises have been increased to eliminate the public deficit. It is expected that the tax burden will double in the next three months, with the real income of the government having risen by more than 40 percent in the first month following the start of the program, despite tremendous inflation and recession at the outset. The price of gasoline rose more than thirty-fold and most public services more than ten times. The exchange market was unified and a floating system introduced. The Central Bank accumulated international reserves in the process, and net international reserves rose from less than $105 million at the end of July to $320 million in the third week of September. Even though wages are low, stringent restrictions have been placed on wage increases in the public sector. The legal minimum wage has been adjusted to reflect projected inflation and economic forecasts. As regards monetary policy, the decision not to make loans of any type to the public sector has been adhered to faithfully. The only source of new money has been external, a process that the Central Bank has been prudently overseeing. There are already marked signs of remonetization in the economy,

©International Monetary Fund. Not for Redistribution PERU 185 and it is hoped that by the end of September liquidity will return to its levels prior to the stabilization program. Sweeping tariff reform has begun. The many prohibitions and requirements regarding import licenses have been eliminated, along with all duty exemp- tions. Three duty levels of 15 percent, 25 percent, and 50 percent have been established (with an average actual duty of about 20 percent), in comparison with the almost 50 percent rates that existed before, which meant a maximum duty of 120 percent. Until December 31, 1990, an additional surtax of 10 percent will be charged for fiscal reasons. These measures are the first step toward tariff unification, which will be gradually adopted. All price controls (with the exception of the legal minimum wage mandated by the Constitution) have been eliminated, and prices are now subject to the free interplay of supply and demand. Last, an Emergency Social Program has been launched to compensate the lower income for the impact of the difficult social situation inherited from the previous administration and the recessive effects of the stabilization program. The program is being implemented with the active participation of the more than 700 nongovernmental organizations in Peru. And, despite the difficulties inherent in the program's increase in coverage, it is bearing fruit, although additional resources are needed to meet its basic objectives in full. The achievements are admittedly fragile. Fiscal equilibrium is based on emergency taxes, and public spending is lower than it has been in the past. The Government's party does not have a majority in Congress. Fortunately, the Senate has already approved powers so that the Executive Branch can legislate in tax matters before November 30, 1990. However, the technical teams needed for successfully implementing the reforms described below are still insufficient.

The Development Program

In order to consolidate the stabilization program, the Government considers it necessary to begin immediately a development program consisting of both structural reforms and infrastructure rehabilitation. The goal is to ensure a dynamic process of investments in projects that are socially and financially profitable, in the context of an institutional framework that allows Peruvians to look forward to a brighter future. In the five years of its term, the current government will introduce tax reforms, restructure the public sector, expand external trade, rebuild the financial system and ensure its solvency, make the labor market more flexible, deregulate production, and simplify administrative red tape. In the fiscal arena, the number of taxes will be reduced, exemption eliminated, rates streamlined, and tax administration improved in order to make collection more transparent, equitable, and efficient. This is expected

©International Monetary Fund. Not for Redistribution 186 SUMMARY PROCEEDINGS, 1990 to result in a tax burden equivalent to 13 percent in 1991, which will be raised gradually to 18 percent in 1994. Public spending will have to be restructured in order to both strengthen the managerial capacity of its administration and concentrate its functions in providing adequate security, rendering services, and meeting the minimum needs of the poorest. In order to revitalize external trade, prior to December 1992 duty rates will be unified. At the same time, temporary import arrangements will be strengthened, taxes and subsidies to exports eliminated, and the customs operating system will be restructured and strengthened. In rebuilding the financial system, the Government will repeal the law on nationalization of the banking system. Likewise, the gradual liberalization of interest rates and cash reserves will continue, together with the strengthening of banking supervision and reform of the deposit guarantee system. The functions of the Development Bank and especially the Agrarian Bank will be concentrated so that they meet only the specific needs of the most depressed sectors. The labor market will be made more flexible in the context of the mandate by the Constitution. The state will not interfere in the setting of wages in the private sector and will be moderate in determining minimum wages in line with the objective of price stability. Public sector wages and salaries will reflect the payment capacity of the central government. The Government will increase cooperation with the Liberty and Democracy Institute presided over by Economist Hernando de Soto, in order to affirm the right to land ownership, deregulate production, and simplify administrative procedures. In the productive sectors, the Government will focus its efforts on the rehabilitation and strengthening of infrastructure projects such as mining, fishing and the creation of markets, energy, potable water and drainage, roads, and storage facilities. Efforts will be made to involve the private sector in the development and administration of the rehabilitation works and the productive sectors and infrastructure. Public investments will be properly planned and assessed so that they produce the expected benefits. The framework for the role of the state as an entrepreneur will be rethought so as to concentrate state action on works associated with the provision of services and rehabilitation of infrastructure. In this process, enterprises that are not financially viable will be liquidated, and those that do not rightfully belong in the public sector will be privatized. Social security will be reformed to improve health care services and guarantee that pensions maintain their real value over time. The Emergency Social Program, which provides assistance to the low- income sectors during stabilization, will be gradually converted and integrated over the medium run into stable education, health, nutrition, and housing

©International Monetary Fund. Not for Redistribution POLAND 187 policies that make it possible to meet the objectives without resorting to direct forms of assistance.

Reintegration into the International Financial System The Government will seek to rejoin the international financial system by resuming in the second half of October debt-service payments to the World Bank and the Inter-American Development Bank. The Government hopes to coordinate its program with the IMF, Inter- American Development Bank, and World Bank so that it can be used as a basis for an upcoming meeting in December or January with the Consultative Group of the Paris Club. The Government is counting on substantial support from the multilateral agencies in technical assistance, funds needed for structural adjustment and rehabilitation, the Emergency Social Program, and strengthening of public administration, as well as for the financing of new projects. From member countries of the Paris Club, the Government will seek the favorable Toronto terms that will both provide relief on the accumulated debt and lead to the granting of new lines of credit for external trade and cofinancing with the multilateral institutions for new investment projects. Likewise, the necessary financial cooperation will be sought for settlement of the unpaid outstanding debt with the multilateral agencies. With the Advisory Committee of the creditor commercial banks, the Government will begin formal talks in the first quarter of 1991 on finding a mutually acceptable formula for the payment of its obligations.

STATEMENT BY THE GOVERNOR OF THE FUND FOR POLAND

Leszek Balcerowicz

A year ago I spoke here of Poland's extreme economic difficulties. The country was besieged by a vicious combination of hyperinflation, declining output, and acute shortages. Decades of central planning had severely distorted the price structure and resulted in an inefficient, state-dominated economic system. It was a dramatic situation that required fast, bold, and imaginative action by the newly elected Solidarity Government. We accepted the challenge and carried out a thorough diagnosis, with the expert assistance of the IMF and the World Bank, for which we are profoundly thankful. We then embarked on a crash legislative program to form a strong legal foundation for the unprecedented operation of reversing a centrally

©International Monetary Fund. Not for Redistribution 188 SUMMARY PROCEEDINGS, 1990 planned economy to a market economy. That reform program, enormous in both its scope and intensity, was launched on January 1, 1990. We are very well aware of the high stakes. There are no ready, tested, and proven models to be followed. Everything must be introduced, tested, and corrected while being implemented. These operations require unflinching resolve on the part of the Government and great sacrifices on the part of our society. We have both, but we know that the political tolerance of society may be brittle. We are proud of the strong resolve of the Polish people to put their house in order and to accept the costs of economic reform. But the results must show prospects for a better life. We are doing our best to continue the bold economic reform program essential to the future of Poland and also important to the global reversal toward a market economy that we all praise. We need strong, unflinching, sustained, and innovative support as well as the cooperation of the international economic community. The Polish reform program consists of two interrelated parts: a stabilization program designed to stifle hyperinflation and balance the market, and a program of systemic changes designed to produce a modern, competitive, free-market economy. The stabilization strategy, which is being constantly reviewed to ensure that it achieves its objectives, consists of the following basic elements: (a) reduction of the budget deficit, achieved mainly by cutting subsidies; (b) maintenance of a tight monetary policy based on positive real interest rates; and (c) implementation of a tough, tax-based wage restraint policy. At the same time, we initiated a number of important systemic changes: —We have liberalized prices. The proportion of prices freely determined by the market has risen from 50 percent to 90 percent. —All administrative rationing of goods and services has been abolished. —We have reformed the banking system. The Central Bank has been separated from the budget, and a two-tier banking system has been set up. A liberal policy of concessions has allowed for the formation of private banks, and some state banks are being prepared for privatization. —Competition has been invigorated by a sweeping liberalization of foreign trade, the breaking up of monopolies, and the introduction of a unified and stable exchange rate, as well as convertibility of the zloty for current account transactions. Poland was the first Eastern European country to achieve this. —Privatization of small companies is progressing. Road transport, which used to be almost totally state-owned, is now 50 percent in private hands. Some 15,000 shops have passed into private ownership, and there are 20,000 more private firms than existed a year ago. So far, the economic reform program has been progressing encouragingly. The following are just a few positive signs that we are on the road to full recovery. Inflation has dropped from a monthly level of 80 percent in January

©International Monetary Fund. Not for Redistribution POLAND 189 to 1.8 percent in August. The budget deficit has been reduced from the equivalent of about 8 percent of GDP in 1989 to only 1 percent, and by the end of the year we shall probably have a balanced budget. Massive and widespread shortages that were part of Polish life for decades have been eliminated, and a balanced market is well established. The exchange rate has remained rock-steady for almost nine consecutive months. And, foreign trade has performed well, particularly in hard currency exports that rose by almost 25 percent in the first eight months of this year. We are most encouraged by the achievements outlined above. Regrettably, there are painful costs to be borne. Polish society is paying a heavy price for the transition to the market economy. The price of stifling inflation has been recession and a substantial fall in production, though I am pleased to add that the preliminary data for August show a welcomed reversal of this trend. There has also been a significant fall in living standards, with average real incomes down by about 30 percent this year. And unemployment has grown to a current level of about 6 percent. The society accepted the hardships with understanding. Poles understand that things must get harder before they get better. However, in our work we have to consider the necessity of maintaining the confidence of society in the reforms and its tolerance for harsh measures. We are very apprehensive that just as the Polish economy seems to be showing the first faint signs of recovery, unexpected world events have unfavorably influenced our situation. I am referring first to the Gulf crisis. Poland was active in trade with Iraq, and loss of that export market will bear heavily on our economy. We will also be deprived of oil supplies from Iraq, and the increased world oil prices are a severe blow to our recovery. We are also very unfavorably influenced by the decomposition of the CMEA. The sharp decline of Soviet oil supplies to Poland will also deal a severe blow to the Polish recovery and impose a massive new burden on Poland's foreign exchange. Severe disruptions will also cripple the industries traditionally geared to supply the U.S.S.R. Finally, we welcome the unification of Germany; however, we cannot help but notice the related decline of demand for Polish exports, especially in the engineering industry. All of these obstacles compound our difficulties now just when Poland is at the crossroads. We are prepared to respond to these new challenges with resolve and determination, but we will need international assistance and understanding, particularly expressed in a lasting and satisfactory solution of the Polish debt burden. We experienced international solidarity in the past, and we sincerely hope this will be the case in the future. The interests of Poland and the world require it.

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STATEMENT BY THE TEMPORARY ALTERNATE GOVERNOR OF THE FUND AND BANK FOR IRAQ

Abdul Moneim Othman

I would like to join other speakers in welcoming the new members to the Bretton Wood family and to wish them all the best. It should be quite obvious that what is going on in our region goes well beyond being a dispute over ordinary economic and border matters. That is partly why it was not originally the intention of the Iraqi delegation to make a statement at these meetings. Of course, ordinary economic and political matters cannot be easily disentangled, and we believe it was entirely appropriate for these meetings to address issues relating to the economic impact of what has become known as the Gulf crisis. Iraq—an original Bretton Woods signatory—indeed welcomes the consideration that is being given by the Fund and the World Bank to the introduction of adaptations in their facilities and lending policies, with a view to ameliorating the impact of the crisis on the economies of a large portion of the membership. Unfortunately, however, some of the references to the recent developments in the Gulf that have been made at these meetings involved, in our view, a great deal of misrepresentation and downright distortion. Iraq has, therefore, found it necessary to have its firmly held views on the Gulf question reiterated. What has taken place on August 2, 1990 is nothing but a reintegration into Iraq of a dear part of it that had for long been artificially and unlawfully separated from its motherland through deliberate colonial design and manipula- tion. Let there be no mistake about this. Iraq's boundaries extend from the town of Zakho in the north to the Gulf in the south, and the Iraqi Government is the only legitimate representative of this land. Indeed, a fair-minded examination of well-documented events since the latter part of the nineteenth century would reveal beyond any doubt that the artificial boundaries that were drawn in southern Iraq, and the tireless and vicious efforts to perpetuate them, were nothing but a manifestation of a wanton desire on the part of the colonial powers to deprive Iraq—a country ancient in its civilization and rich in its heritage—from access to the waters of the Gulf, an access that it had possessed throughout history. A simple look at the map can confirm that. This is an important sense in which Iraq considers the recent events in the Gulf as more than a dispute over ordinary economic and border matters. There are, no doubt, other senses in which that is so. For one thing, and this is something that is often conveniently overlooked, Iraq has been, well before the events of August 2, becoming increasingly a target for relentless attacks from quarters well known for their extreme sensitivity to the revival of Arab nationalism. This, at least in part, explains the reaction to the events of August 2, which to say the least, was disproportionate. Indeed, it is not at all an exaggeration

©International Monetary Fund. Not for Redistribution IRAQ 191 to suggest that it was not the events of August 2 that led to the present crisis, but rather the disproportionate and completely unjustified reaction to those events. Clearly, and given its magnitude, that reaction cannot be explained in terms of apprehension about the security of oil supplies. Although access to Arab oil has become considered de facto by the West as a birthright, apprehension about the steady flow of that oil cannot explain the disproportion- ate reaction to the events of August 2. That reaction has to be seen for what it really is. And that is a wicked attack aimed at crippling Iraq, a country that is seen as a threat to the so-called new world order, because of the inspiration it stands to provide to countries that are guided in their aspiration to realize their full potential by homegrown values. It is indeed the homegrown "can-do" attitude in the Third World countries that is under attack. It has been said at this forum that at no point in history has the kind of isolation that is being imposed on Iraq been experienced. To this, let me say that fair-minded people everywhere know very well how the UN sanctions, which are presumed to be a gauge of that isolation, came to pass. Beyond this, let me assure you that Iraq does not feel isolated. For it sees its stance vis-a-vis the present crisis as a genuine reflection of the desire of the vast majority of the Arab people to restore their self-esteem, which the colonial powers have for centuries tried to undermine. Before closing, let me say that Iraq is fully prepared to do what it can to ameliorate the adverse impact of the present crisis on the economies of the developing world. In this regard, Iraq would reiterate its offer of free oil to developing countries that have been adversely affected by the present crisis. Iraq's offer of free oil is a serious offer and is one that indeed was made in good faith. And it is indeed most unfortunate that, like other Iraqi initiatives since the onset of the Gulf crisis, this offer has not received the attention it deserves. In fact, it should not come as a surprise that Iraq's offer is a serious and genuine one. After all, Iraq's record is well known in extending financial assistance to developing countries both within and outside the region. And it is Iraq's earnest hope that the present crisis will soon be resolved peacefully so that it can attend to the task of rebuilding its economy and resume its financial assistance to other developing countries. Finally, a lot is being said these days about the new world order. Let me say that Iraq cannot but support the emergence of a just world order that truly reflects the aspirations of people everywhere. But, it should be emphasized that for the new world order to be really new, the world has to consist, and indeed it has to be perceived as consisting, of true partners and not of masters and obedient surrogates.

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STATEMENT BY THE GOVERNOR OF THE FUND AND THE BANK FOR VIET NAM

Cao Si Kiem

On behalf of the Government of the Socialist Republic of Viet Nam, I warmly welcome the admissions of the Czech and Slovak Federal Republic, Bulgaria, and Namibia to the International Monetary Fund and the World Bank. Since the last Annual Meetings, the world has witnessed many important changes that will have considerable effects on the economies of member countries in the future. Over the past year, the Fund and the Bank have participated in this process through the formulation of stabilization, as well as development, policies. Notably, the Fund has approved a number of programs under the structural adjustment and enhanced structural adjustment facilities. We hope that the Ninth General Review of Quotas will soon be approved so as to provide new resources for the Fund to assist member countries in their efforts to implement economic adjustment and reform programs and to regularize their external debt situation. We are of the view that in the immediate term, the Fund should strengthen its facilities further to help member countries to improve their balance of payments positions and promote sustainable economic growth. We also appreciate the Bank's efforts in addressing other issues, such as poverty, environmental deterioration, and protection of less-favored social groups. These efforts have brought about encouraging results. Yet, in order to solve these problems successfully, the Bank should take specific measures and solutions on a case-by-case basis. In this connection, we welcome the Ninth IDA Replenishment. Over the last year, Fund-Bank collaboration has expanded significantly. The main instruments of that collaboration have been the preparation of policy framework papers and joint Fund-Bank missions to deal with problems relating to arrears vis-a-vis international creditors. Allow me to highlight Viet Nam's recent developments in the context of these major world changes. The Vietnamese Government has started implementing a comprehensive economic program for almost the past two years. The objective is to shift away from a highly subsidized bureaucratic economy to a market-oriented economy. The major policies and measures are aimed at strengthening the public sector while developing private sector economic activities. In pursuit of these objectives, policies were implemented in the major sectors of the economy. In the agricultural sector, a piecework contract system was introduced to individual farmers, which was accompanied by a reform of the land tenure system. In the industrial sector, budgetary subsidies to state enterprises were eliminated, while they were given complete financial and management autonomy. In the financial sector, the official exchange rate was adjusted to a level more consistent with market forces, and interest rates were increased considerably—to 12 percent a month in

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April 1989. Considerable efforts were also made to improve both budgetary and monetary policies. These policies and measures have produced encouraging results. In 1989, agricultural output increased considerably. For the first time, Viet Nam became not only self-sufficient in food, but it also became a major rice exporter. Output in the light industry, construction, and services sectors increased significantly. Inflation decreased from an annualized rate of 14.2 percent a month in 1988 to 2.3 percent a month during the year. The Vietnamese authorities have also managed the official exchange rate in a flexible manner. Exports in convertible currencies doubled those of the previous year, allowing an improvement in the balance of payments position. International reserves increased from the level of one week of imports in 1988 to four weeks at the end of 1989. At the same time, Viet Nam's economic relations with the international financial community have improved greatly. In June 1989, the Vietnamese Government signed an agreement on economic, cultural, scientific, and technological cooperation with the French Government. Similar agreements were reached with the Governments of Italy, Sweden, and Finland. Economic and commercial relations between Viet Nam and the members of the Association of Southeast Asian Nations (ASEAN), as well as Southwest Asian countries, have widened. During 1990, the Vietnamese Government continued its reform effort through promulgation of a number of laws aimed at strengthening the basic economic structure. These included an amendment to the Foreign Investment Law, three tax laws, and several decree-laws, the most important of which are decree-laws on the central bank and commercial banks. We are now preparing a Commercial and Company Law, decree-laws on ownership and bankruptcy, and other regulations aimed at creating a strong legal framework for economic reform and foreign investment in Viet Nam. As regards relations with the Fund, the Vietnamese Government has strongly responded to the intensified collaborative approach strategy formulated during the September 1988 Annual Meetings in Berlin. We have also discussed with the Fund and agreed on a solution to Viet Nam's overdue obligations. Viet Nam has carried out many of the Fund's policy recommendations and has met all its current financial obligations to the Fund. Unfortunately, the Fund has not yet approved the economic adjustment program that Fund missions discussed with Viet Nam. We request the Fund to fulfill its obligations to a member country that has so closely collaborated with the Fund in solving the arrears problem. . . . The Vietnamese Government is committed to continue the economic policy reform and will undertake stronger and more comprehensive policies. With this view, we warmly welcome international financial institutions, foreign countries, and investors to cooperate with and invest in Viet Nam under the Foreign Investment Law. The economic reform in Viet Nam, which is

©International Monetary Fund. Not for Redistribution 194 SUMMARY PROCEEDINGS, 1990 continuing and developing in the right direction, is in urgent need of financial assistance from the international community, especially since this reform has already caused considerable social difficulties. In the context of development in the world, in the region, and domestically, we strongly wish the Fund and the Bank to express its support of Viet Nam's efforts. Such financial assistance would permit Viet Nam to complete successfully its economic reform, solve its arrears problems, and normalize its relations with the international financial community.

STATEMENT BY THE GOVERNOR OF THE FUND AND BANK FOR ROMANIA

Theodor Dumitru Stolojan

I welcome the opportunity to address this distinguished gathering and would like to welcome the new members of the Bretton Woods family, the Czech and Slovak Federal Republic, Bulgaria, and Namibia. Even in the darkest moments of our existence, our membership in the Fund and Bank still left us feeling that we were part of the civilized world. Now, for the first time, we are free to express our gratitude to the staff and management of these two institutions for their support to us. We are firmly resolved to do our best to improve our relations with these two institutions. In line with this, I am pleased to announce that Romania has just joined the International Finance Corporation. We are expecting substantial technical and financial support from IFC to help develop the emerging private sector of our economy. Also, we come here with hope that our problems and the great challenges that we are now facing will be well recognized and understood. Romania is currently pursuing its economic reform program with a view to shortening the period of transition to a market-oriented system in the broad framework of a multiparty democracy. The firm commitment of the Romanian Parliament and Government to a market economy, in the context of a general policy of stability and structural adjustment, is illustrated by the following main measures that have already been taken: —The totally rigid command system of planning has been abolished. Market institutions and a market-based approach to the distribution of physical and financial resources are also being introduced. —A framework of incentives has already been created in Romania, allowing for up to 100 percent ownership by foreign investors. —State enterprises are being converted to commercial companies and, with a view to privatizing these companies, one third of the state's ownership

©International Monetary Fund. Not for Redistribution ROMANIA 195

is being freely given to the people. For the remaining two thirds, shares will be issued and sold to Romanian and foreign investors. —Reform of the banking and tax system is under way. Starting on September 5, 1990, the National Bank of Romania was split into a central issuing bank and a commercial bank, as a first step toward creation of a two-tier system. We are now facing the crucial problem of speeding up implementation of the reform program, with emphasis on stability and structural adjustment. To this end, new measures are to be taken in the coming months with a view to the following: —completion of tax and banking reforms; —promotion of a tight fiscal and monetary policy; —introduction of a social security safety net; —liberalization of prices; and —preparations to make the national currency convertible. We are aware that implementation of such comprehensive, market-oriented reform policies is doubly difficult for us for both domestic and external reasons. First of all, we have to change the old mentalities of the people with respect to property, the management of the economy, and incentive mechanisms. Second, the Gulf crisis will deeply affect our external position because of the increases in the price of crude oil, as well as the losses we have to bear in joining the international embargo against Iraq. Apart from this, Romania will suffer another important shock due to the restructuring of COMECON relations and the forthcoming change in the conduct of our economic relations with this group of countries, on a freely convertible currency basis, starting next year. We are also aware that, even though at the present time Romania has no external debt, this was achieved at huge social and economic cost. The most harmful aspect is the isolation of our economy from technological advances in the rest of the world. Despite these difficulties, the present Government of Romania is fully committed to the goals of democracy and market economics. There is no turning back. However, we realize that, even if we mobilize all of our domestic resources, economic reform cannot be successfully implemented without technical and financial support from the Fund, the World Bank, and the international financial community at large, because of the far-reaching and comprehensive nature of the changes involved. Therefore, we expect that the IMF will be prepared to extend financial support to us through a stand-by arrangement in order to sustain our economic reform program, as well as through other facilities as needed to achieve convertibility of our currency. At the same time, we need the support of the World Bank Group to finance our structural adjustment and a number of investment projects. In presenting this overview of the problems that confront us, I simply

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wanted to bring to your attention our difficulties and to express the hope that our efforts will benefit fully from international financial support. In concluding, I should like to make my message as clear as possible: Romania is fully committed to moving toward a market-oriented economy. It depends to some extent on the international financial community as to how short our journey toward this goal can be made.

STATEMENT BY THE GOVERNOR OF THE BANK FOR WESTERN SAMOA

Tofilau Eti Alesana

On behalf of the countries in our constituency, Kiribati, Solomon Islands, Vanuatu, and my own country, I wish to join previous speakers in welcoming the Czech and Slovak Federal Republic, Bulgaria, and Namibia, and also our special invitees from the U.S.S.R. to the Annual Meetings. I would also like to express our appreciation for the excellent arrangements for these meetings. Our wannest thanks to the President of the United States, Mr. George Bush, for his welcoming address and to the American people for hosting this year's Annual Meetings in Washington, D.C. The pace of world economic activity, which decelerated last year from a very rapid growth in 1988, is projected to taper off further during 1990. World trade, which also fell in 1989 from the high level of the year earlier, is expected to decline further this year. These trends have produced and will continue to produce adverse effects on many developing countries, especially our small island economies. The small island countries of our constituency are characterized by a limited resource base, a high degree of vulnerability to inclement weather, and weak infrastructure. These countries rely heavily on the export of limited primary products. The international prices of these commodities have been on a downward trend over recent years, and this has contributed to a widening of our external trade deficits. Except for Vanuatu, which was able to offset its trade deficit with a larger surplus from its services account, other countries like my own rely heavily on a net inflow of funds from abroad to meet imbalances in our external accounts. Moreover, the wide fluctuations in international foreign exchange markets since mid-1989 and in early 1990 have made the management of our economies much more difficult. The continued acceleration of interest rates in major industrial countries has tended to raise the cost of funds for development financing that will further hamper our own development efforts. A further common characteristic of our small island countries is a heavy dependence on imported fuel, which is the major input in our production of electricity. The recent increase in the price of oil and the likelihood of further

©International Monetary Fund. Not for Redistribution WESTERN SAMOA 197 increases will have significant adverse effects on our island economies, particularly in the areas of tourism, fishing, transportation, and industrial production. In this connection, we would ask for the inclusion of the small island countries in any program of assistance established to counteract the detrimental effects of the oil price increases. A greater volume of external funds is needed by many developing countries not only for longer-term structural adjustment requirements, but also for meeting balance of payments needs. The transition of countries in Eastern Europe, from centrally planned to open market economies, will raise the external financing needs of those countries. Furthermore, with the impact of monetary and economic unification in Germany, total capital outflows from a unified Germany are likely to decline. The recent decision to move ahead with the process of the Fund's quota increase is therefore a welcome step. It is important that the Fund continue to take into account the special needs and conditions of the small island countries and, in this regard, we would urge the Fund to be flexible in the application of its conditionality requirements when considering further financial assistance to these countries. We ask the World Bank Group not to overlook our financial requirements during the coming decade of larger global needs for development finance. Our needs are relatively small, but meeting them could produce large catalytic effects on structural economic adjustments. IDA, in particular, needs to increasingly take into account the prevailing social and economic structure of recipient small island countries when designing financial conditions to be attached to project loans. Greater flexibility within the general framework of varying conditions for different project loans should be more in conformity with the actual situation of those small island countries and would thereby generate greater beneficial results. The IFC initiative of combining its financing measures with technical assistance for project identification and formulation would help meet the needs of those countries, where the level of evaluation of project design is not yet well developed. Our constituency will continue to need help under the technical assistance programs of the Fund and the Bank. We would, therefore, strongly recommend that financial resources earmarked for these programs be either maintained at current levels or increased. One new development during 1989 is the Fund's involvement in the Financial Action Task Force on Money Laundering. There is an increasing worldwide concern over the laundering of money derived from drug distribu- tion and other serious crimes. We, in the small island countries, share this concern and are determined that our institutions will not be used for this purpose. However, with the present system of advanced communications, it is difficult for any individual country to state categorically that its banks, nonbank financial institutions, and businesses are never used for laundering drug money. Hence, multilateral efforts to combat the laundering of drug money, such as the 1988 UN Vienna Convention and the 1988 Basle Statement

©International Monetary Fund. Not for Redistribution 198 SUMMARY PROCEEDINGS, 1990 of Principles, are now to be supplemented by the Financial Action Task Force, and we are glad to note the Fund's recent report on this subject. We would be very grateful for any technical assistance that could be extended to us that would allow for detection of this practice. I would like to turn now to the issue of the environment, which is one of the major concerns of our constituency. The small island countries, especially the low-lying atolls, are particularly vulnerable to adverse changes in the environment resulting from pollution and global warming. In this regard, we welcome the proposed establishment of the Global Environmental Facility, and we urge the Fund and the Bank to continue to give priority to environ- mental protection. In conclusion, I wish to express our appreciation to you, Mr. Chairman, for the admirable way in which you have conducted the Annual Meetings. I also wish to thank Mr. Camdessus and Mr. Conable, as well as the Fund and Bank staffs, for their untiring work over the past twelve months to enhance economic and social development, especially in small island countries.

STATEMENT BY THE GOVERNOR OF THE BANK FOR EL SALVADOR

Mima Lievano de Marques

I join those who preceded me here in welcoming the new members of the International Monetary Fund and the World Bank Group, Bulgaria, the Czech and Slovak Federal Republic, and Namibia, and I thank you, on behalf of the Government of El Salvador, for the opportunity to present to this meeting the most significant advances of our Economic and Social Development Program. When President Cristiani took office in June 1989, El Salvador was deeply mired in the most profound economic and social crisis in its history. Ten years of terrorist aggression, misguided economic policies, adverse terms of trade, and the earthquake of 1986 had plunged one third of the population into extreme poverty, encouraged the emigration of 1 million Salvadorans to other lands, and widened the gaps between social sectors. In the economic sphere: —Domestic output stagnated. —The public sector deficit represented some 4.5 percent of output and was largely financed with resources from the Central Reserve Bank. The Central Government's domestic arrears amounted to almost $240 million (4.8 percent of GDP). —Approximately 40 percent of the financial sector's portfolio, or roughly $520 million, was in arrears. —The trade deficit approached $620 million (12.5 percent of GDP) in

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1989; the Central Bank had no foreign exchange reserves, while the country's external payments arrears reached $160 million. The situation was equally critical in the social area: —One third of the population was in absolute poverty and could not meet its basic food needs. The infant mortality rate stood at 56 per thousand. —Thirty percent of the adult population was illiterate. —The average educational level was 4.5 grades for the nation as a whole and only 3.1 grades in rural areas. In response to this situation, an economic and social program was implemented with a view to eradicating gradually extreme poverty and achieving sustainable economic growth. This program was designed to complement the effort to strengthen democratic institutions, the national judicial system, human rights, and the search for peace through a negotiated solution. Acknowledging that the living conditions of its citizens could hardly be improved in the absence of economic growth, the Government gave priority in its Economic and Social Program to reducing the grave macroeconomic imbalances in order to lay the foundations for economic revitalization and re-establish El Salvador's creditworthiness. Accordingly, it set in motion a stabilization program, together with structural reforms aimed at replacing an economic system characterized by privilege, protection, and inefficiency with a competitive, open system. In addition, the Salvadoran Government recognizes that all citizens must share in the benefits of growth if economic reform is to be successful and domestic peace more attainable. Hence, the design of the economic and social strategies sought to ensure their correspondence and consistency in both approach and implementation. The Economic Stabilization Program for 1989-90 includes a set of measures in several areas: Government Finance: Effective budgetary control was established with a view to reducing government expenditure, including spending by public enterprises. Efforts are also being made to change the expenditure structure by increasing social outlays while beginning to cut military expenses, despite the present situation. A reform of the tax system was also begun to simplify it, reduce evasion, and abolish tax exemptions. It is expected to raise the tax burden from 7.6 percent of GDP in 1989 to 9 percent in 1990 and roughly 12 percent of GDP in 1994. Moreover, electricity, transportation, water and telecommunications tariffs were increased in order to reduce the operating deficit of the state enterprises. These measures are expected to lower the fiscal deficit from 4.8 pecent of GDP in 1989 to 3.5 percent in 1990. Money and Credit: Central bank credit to the Government was significantly reduced, most special lines of credit and portfolio ceilings were abolished, and interest rates were increased to positive real levels.

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Foreign Exchange: The exchange system was decontrolled, exchange markets were unified, and the Exchange House was authorized to operate, thus significantly reducing the marked overvaluation of the colon. Foreign Trade: Most quantitative restrictions on trade were abolished, and export and import procedures were simplified. Prices: Price controls were lifted on 230 items. The stabilization program is being supported by a stand-by arrangement approved by the Fund's Executive Board in August. In addition, El Salvador renegotiated a portion of its external debt with the Paris Club last week and is engaged in negotiations with other countries to lighten its debt-service burden. The economic stabilization effort has been accompanied by profound structural reforms aimed at creating a more efficient and more competitive economic system. Trade Reform: The Government has abolished the foreign trade monopolies in coffee, sugar, and cotton and begun a tariff reform, the first stage of which includes a maximum duty of 35 percent and a minimum of 5 percent. The objective is to work together with other Central American countries to establish as uniform a rate as possible, in the 15-20 percent range, by 1994. Tax Reform: The Government of El Salvador is preparing preliminary studies for introducing a value-added tax in 1992 and is implementing a program to modernize tax administration and budgetary information and control systems with support from the Fund and other agencies. Financial Sector Reform: Priority has been given to strengthening the Superintendency of the Financial Sector and to rehabilitating banks and savings and loan associations, and the first steps have been taken to privatize these institutions. Prices: Price range systems are being introduced for essential grains in order to prevent excessive fluctuations and encourage their production. As a result of this policy, maize producer prices increased by more than 11 percent in real terms, while consumer prices remained below the previous year's levels. Land Reform: Peasants qualifying for land reform who are organized into cooperatives have been given the option between individual or collective ownership. In either case, the Government will deliver property titles to encourage efficient land use and rural investment. Institutional Reform: Efforts are under way to privatize state enterprises and functions and to decentralize and debureaucratize the public administration. . . . The Government of El Salvador, aware that the process of stabilization and structural adjustment imposes high social costs, particularly on the lower income sectors, has established four Compensatory Social Programs, involving direct subsidies, community works, employment generation, and household income enhancement. Direct subsidy programs include public transportation and basic housing purchase subsidies and special food distribution programs for mothers and infants (through health care stations) and for school children

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(through school lunches). Community works programs are being carried out through joint efforts in the municipalities and the direct participation of the poorest communities. Employment generation programs include reconstruction programs using resources available but unused since the 1986 earthquake and food-for-work programs in environmental protection projects, housing construction, and projects in communities of displaced persons are also among the employment generation programs. In addition, in order to offset in part the drastic fall in real wages, the Government exempted wage earners with monthly incomes below $200 from income tax. Also, the minimum salary for civil servants and other workers was raised by 15 percent, on average, during the last months of this year. World Bank support has been instrumental in implementing the structural reforms in social sectors, particularly education and health. Aware, on the one hand, that the immense needs of the population require immediate solutions and, on the other, that the structural reforms under way in the social area need time to mature and yield the expected results, the Government has been working over recent months on the establishment of the El Salvador Social Investment Fund (FISS), which will channel resources for social projects identified by communities and voluntary private organiza- tions. This project has already obtained financial support from the IDE and the U.S. Agency for International Development and is expected to start operations in October 1990. To rescue El Salvador from its critical economic and social situation and improve its international credit standing, President Cristiani's administration has implemented a far-reaching program of stabilization and structural adjustment. The process of stabilization and adjustment, in itself difficult, has had to face unforeseen external developments, such as declining external bilateral aid, falling coffee prices, the FMLN offensive of last November, and, lately, rising petroleum prices. In spite of this, the Government of El Salvador has persevered with the dialogue for peace and the structural adjustment program, whose first results can now be discerned. This domestic effort has been backed by the IMF and the World Bank and other international organizations and friendly countries. The challenges of the future are enormous, and we hope to have your continued support.

STATEMENT BY THE GOVERNOR OF THE BANK FOR FIJI

J.N. Kamikamica

I welcome this opportunity to address these Annual Meetings and to thank our hosts for the reception and hospitality. We shall share our views and also listen to and learn from the experiences and observations of fellow Governors

©International Monetary Fund. Not for Redistribution 202 SUMMARY PROCEEDINGS, 1990 as we face some of the most pressing development issues confronting the international community today. I also wish to express, on behalf of the Government of the Republic of Fiji, our greetings to the Czech and Slovak Federal Republic, Bulgaria, and Namibia on having joined the membership of our two Bretton Woods institutions this year. Your statement, and, similarly, those made earlier by the Managing Director of the Fund and the President of the Bank have hit the nail on the head. Your statements have all dealt with the current issues in a forthright, frank, and urgent manner. At the outset, I should wish to highlight the severe repercussions that we in the developing world, and especially in our case, the economically fragile small island nations, are having to bear as a direct consequence of the recent and regrettable crisis in the Gulf region. The immediate impact of this crisis will only serve to further compound the extreme difficulties that already beset our small economies and, in many instances, jeopardize the economic growth strategies and policies that may have just been adopted and are currently being implemented. It is thus with cautious optimism and much uncertainty that we view our social and economic prospects for the future. Undoubtedly, a conducive international economic environment is essential if we are to make any headway in dealing capably with the important issues before us today. The past decade, in general, was a most difficult period for many developing countries, including not just those in the sub-Saharan region in Africa and low-income countries in Asia, but, particularly, the many small island economies such as those we find in the South Pacific region. Many countries in the developing world have experienced consistent periods of stagnant or declining per capita GDP growth rates, coupled with rapid increases in inflation, and associated problems of high interest rates and a weakening in their terms of trade. In this regard, we note the recent projections for a slowing down in world economic growth this year, reflecting a moderation of growth in both industrial and developing countries. As we have already noted, prospects for world economic growth in 1991 are very much an uncertainty at this time, although there were, prior to the Gulf crisis, more encouraging signs for a resurgence in growth next year. In the light of the current turn of events in the Gulf region, it is all the more important that developing countries put in place sound macroeconomic policies in support of structural adjustment programs they may be implement- ing. The roles played by the Bank and the Fund in their respective support of these adjustment efforts are recognized and appreciated. We would also urge the two institutions to continue their support and, in addition, examine methods of expanding the adjustment operations to other countries, with a view to improving confidence and the prospects for investment flows. We are particularly cognizant of these linkages, for, as I had mentioned last year, our strong economic growth in the past two years has enabled Fiji to institute certain deregulation measures and policies that we will continue to pursue in the foreseeable future. It is our expressed hope that the recent promulgation

©International Monetary Fund. Not for Redistribution FIJI 203 of our new Constitution will engender further increases in confidence in the economy both at home and abroad and generate further private sector investments. We believe that our membership in the Multilateral Investment Guarantee Agency (MIGA) will indeed support our investment promotion in Fiji. The problems of severe indebtedness faced by a number of developing member countries continue to thwart their adjustment and growth efforts. While several initiatives for debt and debt-service reductions have been put in place, in which both the Fund and the Bank have had supportive roles to play, we are of the view that much more could be done and that progress in the overall debt strategy is moving somewhat slowly. In this regard, I would like to commend the proposal by the United Kingdom for greater debt relief for poorer countries, as was recently announced in Trinidad and Tobago. It is critical that such initiatives be supported, for while some relief has already been obtained through the Paris Club reschedulings, the prospects of returning to capital market access remain highly uncertain. Similarly, while it is crucial that urgent attention ought to be given to severely indebted countries, we have continually stressed that due recognition should also be given to the several indebted middle-income countries that have not had to resort to a restructuring of their external debt obligations and are duly facing up to their debt problems. It is only proper that the Bank, the Fund, and other development assistance agencies ensure that there is sufficient flow of financial resources to these countries. I touched earlier on the need for a conducive international economic environment as being a prerequisite for growth in developing countries. Underscoring the urgent need for bringing about such an environment is the need to establish a more open multilateral trading system. We support continuing efforts in that direction. Strategies for the effective reduction of poverty in the 1990s, which formed the basic theme of this year's World Development Report, are timely and ones we need to continue to emphasize and remind ourselves of as being the top-most priority in our development endeavors, particularly during this coming decade. The need for environmental enhancement strategies and the promotion of women's role in development are vital considerations also. Fiji is fully committed to supporting private sector investment and initiatives that will facilitate the strengthening of this sector. Manufacturing, particularly of garments and other value-added, resource-based products, continues to attract overseas private investors. Progress is also being made in enhancing the sector's already heavy involvement in the tourism and sugar sectors in the economy. In the public sector, selected enterprises have been identified for a phased program of privatization, and we are particularly appreciative of the role that the Bank has played in strengthening this sector in Fiji, through both technical and financial assistance. . . . Last year we expressed concern over the increase in Fund quotas and over

©International Monetary Fund. Not for Redistribution 204 SUMMARY PROCEEDINGS, 1990 a resumption of SDR allocations. We are pleased to note that a consensus was finally reached on the much-needed increase in Fund quotas, although given the international situation we would have preferred a much larger increase than the 50 percent that was agreed upon. Nevertheless, we fully support the increase and are pleased to note that the Tenth General Review of Quotas is due to take place in 1993 as scheduled. I should like to reiterate our view that a resumption of SDR allocations is now overdue, and that unless some action is taken on this front soon, the possibility of the SDR becoming the principal reserve asset of the international monetary system will never be achieved. In closing, I should like to record our gratitude to the Fund and the Bank for the various kinds of financial and technical assistance that we have received through the provision of experts and the work of various missions. We are encouraged by the new spirit of international cooperation, which has been enhanced by developments in Eastern Europe over the past year, and which augurs well for the future. We recognize that as we enter the decade of the 1990s, the international financial system faces many challenges. Fiji, for its part, will continue to support the various initiatives being developed and pursued by the Bretton Woods institutions to address and seek solutions to these issues now and in the future.

STATEMENT BY THE GOVERNOR OF THE BANK FOR LAO PEOPLE'S DEMOCRATIC REPUBLIC

Sisavath Sisane

It is indeed a great pleasure and honor for me to lead the delegation of the Lao People's Democratic Republic in attending the Annual Meetings of the International Monetary Fund and the World Bank, which are taking place in Washington, D.C. May I, first of all, on behalf of the Lao Delegation, express my deep appreciation and sincere thanks to the organizers of the meetings and the host government for the usual smooth arrangements made to ensure the success of our meetings. May I also express sincere congratulations to the staffs of the Fund and the Bank who have worked with me and my colleagues in the Lao People's Democratic Republic to produce data, initiate projects, and arrange facilities and credits and whose understanding of our problems has furthered our efforts to hasten the pace and direction of change in our economy. As is well known, the Government of the Lao People's Democratic Republic has worked out objectives of national economic development aimed at transferring the economy from one of subsistence to a market economy.

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The small agriculturalist, the individual entrepreneur, and the larger capitalist shall participate fully in the agricultural, commercial, and industrial life of the country. An end to multiple price practices, more autonomy to business management without surrendering accountability, and a recognition by government of the economic laws that determine our future shall provide further stimulants for sustained economic growth. We shall improve the living conditions of the people without destroying the world around them. The people must abandon the practice of slash-and-burn cultivation that damages our forests and cooperate in our forest resource management program by careful logging and active reforestation. We are restructuring our economy, a process started in mid-1986. I mentioned some of these measures and the early successes in my statement to the Annual Meetings in Berlin (West) in 1988 and again here last year. We are now in the second year of our Fund- and Bank-supported structural adjustment program. The fundamental macroeconomic objectives of the adjustment process are to: —achieve an average growth rate of 5 to 6 percent; —reduce inflation to that prevailing in trading partner countries in the convertible area by the end of 1992; and —make further progress to balance of payments viability. There are four principal constraints that hinder our economic development: —structural obstacles in agriculture and forestry; —a narrow and weak export base; —the pitiful state of our roads and the consequent limited access to both domestic and foreign markets; and —the extreme shortage of skilled labor in the key sectors. I add a fifth, the weakness of our financial sector, and a sixth, over which we have no control, the weather. Several years of drought pushed up our inflation rate and slowed our growth. The international institutions support our efforts to restructure our economy. Our many donors offer tangible support, as witnessed by the numerous projects under way and in the planning stages. Many donor countries, also members of the United Nations, that support our development and restructuring efforts are not yet members of the Fund and the World Bank. Our target for growth in 1989 was modest. The actual growth rate was slightly over 9 percent. This remarkable performance is mostly due to the hard work of our farmers, who took full advantage of favorable weather to produce around 1.4 million tons of paddy, almost 40 percent more than in 1988. Our inflation rate in 1989 was also high—over 50 percent. The Government took a number of measures in the second half of the year to slow the growth of credit. The measures were successful. For a number of months toward the

©International Monetary Fund. Not for Redistribution 206 SUMMARY PROCEEDINGS, 1990 end of the year the consumer price index did not rise. Fears of hyperinflation abated. The good rice harvest had a significant effect on prices. Seasonal factors pushed the consumer price index upward toward the end of the first quarter of 1990 and again during the second quarter. Lower inflation in the second half of the year will enable us to meet two important economic targets for 1990. One is to experience real growth of around 6 percent and the other is to keep inflation below 25 percent for the year. The World Bank approved a structural adjustment credit of SDR 30.8 million on June 9, 1989. The initial drawdown took place last year. The Executive Board approved the second tranche in July of this year. The Fund approved our request for a structural adjustment facility (SAP) on September 18, 1989. The amount of the facility is SDR 20.51 million. It represents 70 percent of quota. SDR 5.86 million was made available immediately, and the balance in two installments (SDR 8.79 million and SDR 5.86 million) in 1990 and 1991. I expect the second release of SAP funds to be approved by the Board in October. As of June 30, the Lao People's Democratic Republic's use of Fund facilities was limited to the SAP drawing of SDR 5.86 million. The Lao People's Democratic Republic shall repay the small remaining balance of its Trust Fund loan this year, in accordance with the repayment schedule. Last year I spoke of our efforts to restructure our banking, financial, and commercial systems. A key element in our economic adjustment process is the restructuring of our banking system. In the past twelve months, we have made positive progress toward a more responsive system, attuned to the needs of the customer. The State Bank created two commercial banks in 1988 from its Vientiane branches. In November last year, I signed the protocol that gave autonomy to the country's largest commercial bank, Banque pour le Commerce Exterieur Lao. A joint venture bank between Thai investors and the Government of the Lao People's Democratic Republic opened its doors to the public in October, and, in December, a Thai bank opened a representative office in Vientiane. The State Bank created an autonomous commercial bank, the Phak Tai Bank, from four of its provincial branches in the South in April this year. Yet another autonomous bank, the Lao May Bank, was created from the provincial branches in Savannakhet and Khammouane shortly before these Annual Meetings. In June, our Supreme People's Assembly enacted the Bank of the Lao People's Democratic Republic Act. The Act gives central bank functions to the new bank. Assets and liabilities of the State Bank pass to the Bank of the Lao People's Democratic Republic. I acknowledge the contribution of the Legal and Central Banking Departments of the Fund to the original draft of the law. Our regional development institution, the Asian Development Bank (AsDB), has continued its technical assistance to the State Bank. An IMF central banking expert is working alongside the AsDB team. Following a financial sector review in the third quarter, we have discussed with AsDB officials the scope and direction of a large financial sector program

©International Monetary Fund. Not for Redistribution MALAYSIA 207 loan. The loan will give us the opportunity to remedy the deficiencies and correct the weaknesses of the banking sector. The deficiencies are structural and technical. Personnel at all levels lack experience of international markets and modern financial practices. Before I conclude, let me express my support to strategies of the World Bank and the Fund on poverty reduction, debt, role of women in development, privatization, human resources development funds, and structural adjustment. In conclusion, I wish that our Annual Meetings be crowned with brilliant success.

STATEMENT BY THE GOVERNOR OF THE FUND AND BANK FOR MALAYSIA

Daim Zainuddin

As we take our first strides into the decade of the 1990s, the scenario ahead holds both opportunities and dangers. The liberalization and integration of the Eastern European economies in the world economy, sustained technological change, and economic globalization point to enhanced opportunities for the 1990s. At the same time, however, reduced resource flows, the deepening of poverty, and uncertainties regarding the Uruguay Round are negative developments that require our urgent attention. More recently the Gulf crisis has imposed an additional burden on the oil importing developing countries as they continue to grapple with the continuing problems of poverty, debt, and reduced resource flows. The crisis may also affect some of the progress achieved by developing countries that had successfully undertaken structural adjustment. In this situation, we welcome the initial steps taken by the IMF and the Bank to mitigate the adverse effects of the oil price increase on developing countries. As the situation develops and more data become available, we hope the Fund and the Bank will work out appropriate special loan and financial arrangements that could give short- term financial support to developing countries as they face this additional economic hardship. While the Gulf crisis is currently of immediate concern, we should not lose sight of the underlying economic problems that continue to plague the developing countries. The debt problem continues to be a matter of serious concern. While we can note with some satisfaction the continued efforts undertaken by all parties concerned since the last Annual Meetings, and, in particular, welcome the efforts of the Paris Club in rescheduling the official bilateral debts and lengthening repayment periods for debtor countries, we remain concerned about the somewhat slow progress achieved in negotiations on financing packages between a number of middle-income countries and

©International Monetary Fund. Not for Redistribution 208 SUMMARY PROCEEDINGS, 1990 their creditor banks. We, therefore, urge the creditor banks to undertake a more realistic and flexible stance, since the debtor countries would only be able to undertake adjustment efforts successfully if they are less burdened with debts. On the part of the debtor countries, the central element in their efforts should be a reorientation of their economies to attract non-debt- creating flows of funds through the liberalization of domestic regulations to encourage direct foreign investment, privatization, and financial sector reforms. At the same time the developed countries can play a critical role by fostering a more stable and predictable financial and economic environment for the developing countries. The magnitude of the debt problem requires mutually supportive policies on the part of all concerned to ensure a successful resolution. The issue of resource flows to developing countries is another matter of continuing concern. It is disheartening to note that resource flows from both private and official sources have declined and have remained stagnant over the past few years. It is also appropriate at this point to voice the concern of many developing countries that the financial support and commitment by developed countries to the nations of Eastern Europe can be at their expense. While we naturally applaud this financial support, we would continue to emphasize the need for the developing countries to be assured of a continuous flow of resources. The inadequacy of resource flows to developing countries may be mitigated through increased trade. The successful conclusion of the Uruguay Round of trade negotiations is therefore all the more important. However, the progress of the negotiation is far from satisfactory. The principal interest of developing countries, including Malaysia, lies in improved market access, as well as a reduction in tariff escalation. Changes in current trade policies of the industrial countries will make important contributions to the international economic environment more conducive to development. In particular, we wish to draw attention to several areas. First, the tariffs applied by the industrial countries to trade with developing countries are on average higher than those on trade between industrial countries. Second, the tariffs are generally higher on processed products than on raw materials, with the result that processing industries in developing countries face high rates of effective protection in industrial countries' markets. Third, the rapid growth of nontariff barriers over the past two decades has tended to be more pronounced for products exported by developing countries. The incidence of nontariff measures is particularly high in agriculture and textiles, both sectors of major importance to many developing countries, including Malaysia. We share the views of other members of the Cairns Group that export subsidies on agriculture are the most distorting of all trade measures. The developing countries would also like to see progress being made in assimilating the textiles and clothing trade into the GATT from the regulation of the Multifiber Arrangement (MFA). Most of all we believe it is essential that negotiations

©International Monetary Fund. Not for Redistribution MALAYSIA 209 in all areas proceed at the same pace and give rise to mutually beneficial concessions. In reality, however, we observe that negotiations in areas that are of interest to developed countries have reached a more substantive and advanced stage than the negotiations in areas of interest to developing countries. Although developing countries, being weaker, have more to fear from the failure of the Uruguay Round—as such failure could encourage the search for unilateral and bilateral solutions and contribute to the crea- tion of protectionist blocs—its success is in the long-term interest of all of us. As the deadline for agreement approaches, we urge a renewed commit- ment on the part of all concerned—particularly the developed countries, whose decisions make a difference—in order to ensure its meaningful completion. . . . On the operations of the Fund, we are pleased to note that the Fund has been supportive of member countries' strong structural adjustment programs, as reflected in the substantial increase in commitments of Fund resources in 1989/90 (to SDR 11.4 billion, compared with SDR 4.6 billion the previous year). We hope the proposed increase in quotas, by 50 percent under the Ninth General Review of Quotas, will enable the Fund to provide more resources in support of growth-oriented balance of payments adjustment and thereby promote stability and growth in the world economy. In view of the catalytic role of the Fund in the financing of members' balance of payments needs, we would also like to urge the Board of Governors to conduct a timely Tenth General Review of Quotas to enable the Fund to meet the increased need for resources in the 1990s. Malaysia supports the Fund's proposal to increase the flexibility of the use of the compensatory and contingency financing facility (CCFF) and the enhanced structural adjustment facility (ESAF) to mitigate the adverse impact of the oil price increase on oil importing countries. The increased flexibility will provide members with the necessary resources, in a timely manner, to maintain their import capacity. The decade of the 1990s will see increased concern with the issues affecting the environment and the quality of life. In this connection, it is heartening to note that the Bank has taken action and will continue to integrate environmental considerations in all stages of the project cycle. However, it cannot be denied that the integration of environmental considerations into development projects could result in increased cost. While developing countries are ready to play their role in ensuring a better environment, the additional financial support required to meet the environmental criteria must be made available. The establishment of a fund to compensate developing countries for compliance with the Montreal Protocol is indeed an important first step in the right direction. As we understand it, the Bank and the United Nations have mooted suggestions for setting up financing facilities to cover other areas of environmental concern such as biodiversity, water pollution, and global warming. Such facilities would indeed be welcome, but the success

©International Monetary Fund. Not for Redistribution 210 SUMMARY PROCEEDINGS, 1990 of these funds and other activities to improve the environment requires the commitment especially of the developed countries, since they are financially in a position to provide the necessary support. It must be added that such facilities, if they are to be meaningful, must be made accessible to developing countries without stringent conditionalities. While we are rightly concerned with environmental issues, and while we seek to encourage and facilitate the role of the private sector, we cannot forget that the objective of all our policies is the reduction, and ultimately the eradication, of poverty. It is sad indeed to note that 1 billion people in the developing countries continue to live in poverty. In this connection, this year's World Development Report, which focused on poverty and related issues, is a very useful and timely document that could be used as a guide for policy formulation. The report highlights the need to contain the number of poor in Africa and reduce the number elsewhere by almost 400 million by the end of the century. These are targets we believe can be achieved. Additional resources that could become available for development as defense expenditures are reduced; well-conceived and well-implemented policies, a supportive international economic environment, and strong and continuing commitment on the part of all concerned are critical ingredients for success. We trust these will be forthcoming in the current hopeful international climate. The hopeful, even optimistic, note on which the decade of the 1990s began has been tempered somewhat by the Gulf crisis. The dangers posed by current developments in the Middle East, however, should not blind us to the fundamental issues affecting growth and development, such as debt, resource flows, and trade. If the hopeful signs represented by the liberalization of Eastern Europe, technological change, and economic globalization are to be meaningful to the developing member countries, these issues, which affect them more immediately, require the commitment and support of the interna- tional community. It is in the joint interest of us all to provide such support.

STATEMENT BY THE GOVERNOR OF THE BANK FOR MALTA

George Bonello du Puis

It is a great pleasure and honor for me to address once again the Annual Meetings of the IMF and the World Bank. I would like, first of all, to take this opportunity to extend a warm welcome to the Czech and Slovak Federal Republic, the newest member of the Fund and the Bank, as well as to Namibia and Bulgaria. I am sure that other countries will, in the very near future, accede to the Bretton Woods institutions, as prospects for further global economic integration improve significantly in light of the momentous develop- ments that have taken place in Eastern Europe over the past year, especially

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following the historical meeting between President Bush and President Gorbachev in Malta last December. Unfortunately, the dramatic but positive changes in the Central and Eastern European region have been overshadowed recently by the serious crisis in the Gulf area. This has already resulted in a surge in oil prices that is bound to have adverse effects on world economic activity. Before the recent turmoil in oil markets, current projections were already pointing to some easing in world economic growth after the rapid expansion of recent years. The moderation was expected to be experienced by both industrial and developing countries. Although it may be premature to assess the precise effect of higher oil prices on the world economy, it is certain to have a more severe impact on the non-fuel exporting developing countries. In this regard, it is also relevant to point out that notwithstanding the fact that the decline in the overall level of growth in the developing countries is expected to be moderate, the sharp diversity in regional growth patterns is expected to persist. Thus, while in the newly industrializing economies of Asia, expansion, though decelerating from previous levels, is expected to remain robust, in the indebted countries of the Western Hemisphere and in most of Africa output growth is still expected to stagnate. In the developing countries of Europe, as well, current projections of growth point to a negative outturn, although this is mostly attributable to the performance of Eastern European countries that are undertaking macroeconomic adjustment programs in addition to structural reforms. The uncertain economic outlook as a result of the latest developments in the Gulf may lead to a worsening of the external environment to the detriment of the developing countries, particularly those that are facing external debt problems. There is a strong possibility that industrial countries may overreact to an intensification of inflationary pressure generated by an upsurge in oil prices by tightening their financial policies further. While it is recognized that an acceleration of inflation in a number of industrial countries has justified the introduction of counterinflationary measures, an overreliance on monetary policy has led to a prolonged rise in international interest rates, which has the potential of undermining the stability of the international financial system and jeopardizing prospects for world economic growth. Higher interest rates compound the already severe problems of developing countries in servicing their debts and have negative consequences for investment. Fiscal restraints should therefore play a more effective role, especially in certain industrial countries. In this regard, we are glad to note that Fund and Bank studies continue to emphasize the need for industrial countries to raise their savings ratios by fiscal consolidation and by the removal of distortions affecting private saving. Such changes in domestic policies, which contribute positively to a more supportive external environment, can be achieved only by continued policy coordination among the major industrial countries. We therefore continue to urge the Fund to exert more influence in surveillance

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exercises by the Group of Seven in order to ensure that the policy decisions of the industrial countries do not render the external environment more hostile. Of course, global economic cooperation is not a one-sided affair, and developing countries have recognized that they too have to play their part in improving the international climate by implementing economic policies that enhance the potential for longer-term noninflationary growth and macroeco- nomic stability. Notwithstanding adverse economic circumstances, many developing countries have in recent years adopted more cautious financial policies. They have also implemented fundamental reforms to remove structural rigidities from their economies. These measures have been aimed at liberalizing trade, reorganizing public sector enterprises, and deregulating the financial sector. Most of all, there is a growing awareness of the importance of creating a domestic environment that is favorable to private sector activities. In this regard, I am glad to say that the development strategy pursued by my Government continues to lay emphasis on private sector investment and market-oriented policies. Over the past year, we have continued to adopt legislation and administrative practices that are compatible with private sector development. These have focused on the trade, fiscal, and financial systems. Thus, while we have continued to ease trade restrictions to make the domestic market more accessible to imports, we have stepped up our efforts to promote exports by introducing an export credit guarantee scheme to cover commercial and political risk. We have also introduced a radical tax reform involving a sharp cut in the marginal rate of income tax. Further tax reforms are expected to be introduced in coming years; the ultimate objective is the adoption of a broadly based consumption tax aligned with EC tax systems in anticipation of Malta's membership in the European Community. In late July, in fact, my Government presented a formal application for membership in the European Community. In matters pertaining to the financial system, we have taken steps to restructure the longer-term lending institutions. We have also encouraged the commercial banks to strengthen their capital base by the issue of equity for public subscription. Our efforts to involve more private participation in the development of the country are also expected to be boosted by the setting up of a stock exchange, which we hope will come into operation by the end of the year. Recent World Bank reports highlight the fact that private sector development depends to a large extent on public sector provision of a supportive infrastructure and social services that include investment in human resources. The important role of the public sector in this regard has been recognized by my Government, which has embarked on a vast program to upgrade the country's infrastructure, particularly in the fields of power and water supplies, telecommunications, and airport facilities. We have also set up an employment

©International Monetary Fund. Not for Redistribution MALTA 213 and training agency to enable workers to obtain and develop new skills and provide them with employment opportunities. At the same time, we are striving to improve the efficiency of the government civil service by gradually implementing the reforms recommended by a commission set up for this purpose. In considering the subject of foreign investment flows, we note with some concern that, although net financial flows to developing countries have increased slightly in recent years, they still remain significantly below the levels of the early 1980s. There is now the threat that, given the vast investment requirements of Eastern Europe, official assistance may be diverted from the rest of the developing world. We must, of course, emphasize that we strongly support the political and economic changes that have taken place in Eastern Europe and have demonstrated our readiness to assist, in a small way, in the reintegration of these countries in the global economy by subscribing to the capital of the recently established European Bank for Reconstruction and Development (EBRD). We do hope, however, that the much-needed official assistance to the Eastern European countries will not be forthcoming at the expense of other equally deserving countries. Developing countries also need increasing access to the markets of the industrial countries. This is a vital prerequisite for further economic progress. It is therefore worrying to note that notwithstanding the determined efforts of developing countries to adopt outward-oriented trade policies, the multilateral trading system continues to be undermined by protectionist tendencies in a number of industrial countries. Nontariff barriers aimed at trade in manufac- tures have proliferated, and these have negative repercussions for the growth prospects of those developing countries implementing structural adjustment programs. Trade restrictions by industrial countries also prevent smaller developing countries from establishing a strong manufacturing base. A successful outcome to the Uruguay Round negotiations is therefore essential to prevent a renewed drift toward protectionism. We believe that the Fund and the Bank should continue to play a central role in the debt strategy. We also support the policies involving the use of Fund and Bank resources for debt-reduction and debt-service-reduction mechanisms. However, since the resources of the Fund and the Bank are for the benefit of all member countries, including those that have striven to maintain financial integrity, we believe that availability of such resources should not be jeopardized by the excess allocation of funds to debt-reduction and debt-service-reduction facilities. The economic plight of the lower-income developing countries, particularly those of sub-Saharan Africa, is also a matter of grave concern to the international community, and this has been most effectively brought out in the World Bank's World Development Report 1990 entitled "Poverty." It is obvious that financial assistance to these countries should continue to include a high degree of concessionality combined with additional debt relief based

©International Monetary Fund. Not for Redistribution 214 SUMMARY PROCEEDINGS, 1990 on the arrangements established at the Toronto summit of Western leaders in 1988. The deep structural weaknesses of these countries make it incumbent on the Fund and the Bank to design adjustment programs that focus more on long-term development objectives rather than short-term needs. We feel that it is the duty of all other countries, including relatively better off developing countries, to contribute to facilities established by the Fund for the specific needs of the poorest developing countries. I am glad to say that despite limited resources and urgent investment needs, my Government has made a contribution to the Fund's enhanced structural adjustment facility (ESAF). Malta also contributes to Fund resources in the form of interest forgone on the creditor position it has consistently maintained with the Fund over the years. Our support for the poorest countries is also manifested in the fact that we are subscribing to the World Bank's general capital increase even though our country is not eligible for financial assistance from the Bank. Malta also continues to support calls for the resumption of SDR allocations in view of the continuing fall in the ratio of SDRs to non-gold reserves and in the light of the Fund's efforts to promote the SDR as the principal reserve asset. Turning to environmental issues, it is a point of satisfaction to note the active role the World Bank is playing in this area. The Bank's decision to integrate environmental consideration into its projects should continue to create a new awareness of the need for environmental protection measures in many countries. Its initiative in launching a Mediterranean environmental technical assistance program earlier this year contributes to a solution of environmental problems at the regional level. I am pleased to say that my Government has also continued to participate actively in UN forums on the conservation of the global climate. Malta is a member of the Inter- Governmental Panel of Climate Change. It has also proposed the establishment of a Euro-Mediterranean center to deal with regional aspects of environmental problems. My Government recognizes that a cooperative effort by both the industrial and the developing countries is required in order to address the essential problem of environmental degradation. However, for this strategy to be successful, developing countries should be assisted in developing environmen- tally benign technologies. Since both funds and technology are very scarce in the developing countries, in contrast to the position in industrial countries, my Government fully supports the proposal to establish a Global Environmen- tal Facility by the World Bank in collaboration with the UNEP and the UNDP. At this stage, I would like to express my gratitude to the Fund for its continued cooperation in providing my country with technical missions and experts to advise us on matters pertaining to the fiscal and banking fields. This is the only assistance that Malta has derived over the years of its membership in the Fund. Given my country's limited resources, technical

©International Monetary Fund. Not for Redistribution NAMIBIA 215 assistance remains an important contributing factor to its development, and, in coming years, I anticipate that further calls will be made on the Fund for such assistance. We sincerely hope that our requests will continue to receive the prompt attention they have received so far. Training facilities provided by the IMF Institute have also contributed positively to the development of our human resources, and we hope that courses and seminars organized by the Institute will continue to feature prominently in the Fund's program of activities. In concluding, I would like to express my Government's continued support for the Fund and the Bank in their unstinting efforts to establish an external economic environment conducive to growth and development.

STATEMENT BY THE GOVERNOR OF THE FUND FOR NAMIBIA

Otto Herrigel

It is my honor and pleasure to address you as my country's representative on the occasion of our first attendance at the Annual Meetings as a full member of both the International Monetary Fund and the World Bank. But, first of all, I would like to thank you all for the special words of welcome that have been extended to Namibia, and I would also like to express my appreciation to the Fund and Bank staffs, who have made Namibia's membership possible within a relatively short preparation period. Namibia brings with it a rather unique experience and a vivid awareness of the necessity and reality of international collaboration. Since the acceptance of Namibia's Constitution and subsequent independence on March 21, 1990, the policy of national reconciliation has indeed taken ground throughout the country and this demonstrates that the people of Namibia and its Government have realized that economic progress can only be achieved in a democratic and peaceful environment. In a similar spirit, Namibia will also honor its newly acquired responsibility of international cooperation. We are convinced that, in contemporary times, economic interdependence among member states is a growing necessity. The future economic develop- ment and financial strength of our young nation will invariably depend upon the orderly and equitable flow of trade and financial resources between ourselves and our trading partners. While this phenomenon is crucial for Namibia and other developing countries, we firmly believe that it is also in the interest of advanced economies to facilitate and promote such equitable trade and financial arrangements to the mutual advantage of us all. To break from its isolation and to ensure a smooth transition, Namibia decided to become a signatory of certain regional economic treaties, such as

©International Monetary Fund. Not for Redistribution 216 SUMMARY PROCEEDINGS, 1990 the Southern African Development Coordination Conference, the Southern African Customs Union, and agreements relating to the Common Monetary Area. The Southern African region is undergoing important fundamental changes and Namibia is prepared to play a positive role in the constructive framework of cooperation. Independence for Namibia has brought forward various prospects and, naturally, also new responsibilities for the Namibian economy. As a sovereign entity, there is increased hope for material foreign capital inflows and for opening up new markets for Namibia's exports. The lifting of pre-indepen- dence trade sanctions has reopened markets that had been blocked for some time. Namibia is now in full command of its natural resources and this could unfold many new opportunities in the country. In many of the restructuring and adjustment efforts, we recognize that Namibia will require extensive technical expertise and assistance from both the Fund and the World Bank. Thus far, we have received substantial technical aid and hope that this formal acceptance of our membership will afford even greater opportunities in this regard in the future. The Government is aware that the Namibian economy offers great potential arising from its spare production capacity and vastly untapped resources. The Government, therefore, is anxious to harness these resources in order to create a more conducive climate for economic progress, growth, and employment. To give momentum to this process, private investments locally and from abroad are keenly encouraged. In this regard, we also look forward to collaboration and assistance from the Bank and its associates, IFC and MIGA. In conclusion, I would like, once again, to express my deep appreciation to you, Mr. Chairman, and all members of the International Monetary Fund and the World Bank for the warm welcome accorded my delegation and myself. Namibia looks forward to a fruitful and productive relationship as a member of these great institutions. I also take this opportunity to welcome and congratulate the Governments and people of Bulgaria and the Czech and Slovak Federal Republic on the occasion of their countries' membership in the two Bretton Woods institutions. I wish Switzerland and Mongolia well as they complete the membership process.

STATEMENT BY THE GOVERNOR OF THE FUND FOR NEW ZEALAND

Richard Prebble

It is a pleasure and an honor to be able to address these Annual Meetings. There are a number of major challenges facing the international economic community. Foremost in our minds must be the recent events in the Middle

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East. Whatever the outcome of these developments, they are already having an impact on world interest rates and inflation outcomes. The world economy has been subjected to unexpected pressures that may have ramifications for economic growth in the immediate future. The predicted slowing of world economic growth during 1990, coupled with the uncertainty about oil prices, cannot help but cause concern to all countries. Let us take this opportunity to learn from the experiences of the 1970s. The results of the economic mistakes made at the time of the earlier oil shocks are still with us. Many countries, including New Zealand, which borrowed heavily in an effort to cocoon themselves from higher prices, are still laboring under the resulting debt burden. Those countries that recovered quickly from the shocks were those that implemented policies such as allowing higher prices to flow through to oil users and keeping monetary policy firm. Although the initial effects were painful, these policies led to positive growth in their economies. Dearer oil is not deadly: The failure to respond to it appropriately, however, can be very costly. The world economy cannot afford to ignore the lessons of the past. The lesson from the oil shock of the 1970s is that higher oil prices need not lead to either inflation or recession. In New Zealand, the oil shock in the 1970s led to double-digit inflation for a decade because the Government loosened monetary policy to accommodate higher fuel prices. The effect of the relaxed inflation targets was that higher oil prices led to higher prices generally. In other countries, such as the Federal Republic of Germany, where monetary policy was not relaxed, higher oil prices did not lead to inflation. Inflation destroys jobs, industries, exports, and economies. Inflation creates the illusion of growth but, like an addictive drug as the high wears off, the user then feels even worse. It has taken five years of pain to get rid of inflation. The New Zealand Government has learned from the 1970s and is sticking to its inflation target of 0 to 2 percent. New Zealand notes that there is no country in the OECD that is advocating a relaxation of monetary policy. Such policies are now recognized as irresponsible populism. Any country that deliberately creates inflation is destroying its own people's jobs, savings, and its own economy and exports. The latter part of last year saw a number of exciting international developments that were just starting to appear on the world stage at the time of the 1989 Annual Meetings. The imminent union of Germany and the reappraisal of much of the basis of economic management by countries in Eastern Europe are two that come to mind. It is pleasing to see the interest being shown by those Western European countries in reactivating their passive membership in these institutions. We welcome the expressed interest in membership in the International Monetary Fund and the World Bank by the nonmember European countries. In particular, New Zealand was pleased to support the application of the Czech and Slovak Federal Republic for

©International Monetary Fund. Not for Redistribution 218 SUMMARY PROCEEDINGS, 1990 membership in the Fund. New Zealand looks forward to moves that will achieve universal membership in these institutions and the participation of all nations. In 1942, New Zealand was one of a number of countries participating in a program of separate but interrelated discussions under the Mutual Aid Agreement to consider what could be done about postwar reconstruction efforts, especially in Europe. Included in these discussions was the complex question of postwar monetary and economic policy. The discussions eventually led, after several years, to the establishment of these two institutions meeting here today, which have played such an important part in the stabilization and development of the world economy throughout the decades since the war. New Zealand is a small country, both geographically and economically, but it remains committed to working for the ideals that these two institutions were established to uphold. New Zealand is ready to play its part again in international efforts to assist the countries of Eastern Europe in their move from relatively inefficient production and distribution systems based on central planning to more market- oriented ones. The small size of our economy limits our ability to contribute financial assistance. However, we can offer expertise and insights on some of the aspects of the changes needed. Since 1984, New Zealand has adopted a wide-ranging set of microeconomic reforms. We have spent the last six years removing a large amount of inefficient regulation and establishing more market-based incentives. It has not been an easy task. The process of reform has not been accomplished without painful adjustment by the various sectors involved, as well as by the country as a whole. During the past six years, New Zealand has moved to abolish import licensing and has substantially reduced tariffs, as well as removed government subsidies. Government assistance to agriculture, which had reached high levels in the early 1980s, was subjected to major reform, resulting in the termination of a number of assistance schemes. The removal of agricultural assistance has inevitably imposed many difficult adjustments on the sector. These have been compounded by last year's severe drought in many areas of the country, which led to a steady decline in stock numbers. However, there are encouraging signs that the adjustment process is paying off in terms of a stronger and more diversified, and thus more resilient, agricultural sector. Our manufacturing sector has also faced major policy changes, the most important of which is the reduction in import protection. Import licensing has been removed for almost all products and what licensing still remains is scheduled to go by the end of 1992. At the same time, tariffs have been reduced unilaterally; further reductions will take place on a planned schedule through 1996, when almost all tariffs will be at a level of 10 percent or less. Not surprisingly, the reductions in import protection have reduced the price and improved the range of imported goods available in the domestic market.

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They have also meant that New Zealand exporters now have access to more competitively priced inputs, which is leading to the development of a more open manufacturing sector with higher levels of both imports and exports. Since 1984, the financial sector has been completely overhauled. Interest rate controls, credit growth guidelines, government security ratios, and foreign exchange controls were all removed in 1984/85. Other reforms, including the liberalization of bank registration, were also implemented to increase competition and efficiency in the financial system. The stock market collapse in October 1987, which mirrored other international collapses, put added strain on many companies and some have not survived. Nevertheless, as a result of the adjustment process, we now have a far more open and competitive private sector, which will be better placed to respond to developments in the world economy in the future. New Zealand was fortunate to have an established infrastructure from which to make its changes, but it has been a challenge that protectionism in other countries has made more difficult. Protectionism in the world economy disadvantages those countries whose economies are undergoing structural adjustment. The developing countries rely on their exports to provide the funding basis for their economic growth, but barriers prevent them from obtaining adequate compensation for these exports. There is some evidence of an increasing trend toward protectionist attitudes throughout the world— a trend that greatly concerns New Zealand. I would like to urge participant countries in the Uruguay Round of the GATT to make every endeavor to bring those negotiations to a positive and satisfactory conclusion. There is still much to be done in the few months remaining to the negotiators. Failure to reach agreement would have significant adverse effects on international trade. Various studies of multilateral trade liberalization indicate that large benefits would result from a successful conclusion to the Uruguay Round. It was recently estimated, for example, that a 50 percent reduction in all tariff and nontariff barriers in the United States, the European Community, and the Asia-Pacific region would raise GDP in these three regions by 5 percent. It is now recognized that the benefits from free trade include not only the traditional "static" gains from improved allocation of resources. There are also important "dynamic" benefits that flow from increased incentives to innovate and compete. The benefits from opening trade could be more advantageous for developing countries than many of the assistance programs currently in existence. There are strong arguments for providing favorable conditions for commodity- producing countries to gain wider markets for their goods and, in so doing, to help alleviate their balance of payments problems. The New Zealand Government welcomes the statement of President Bush at these Annual Meetings. As an agricultural exporting country, we fully endorse the President's call—"we must let farmers compete with farmers,

©International Monetary Fund. Not for Redistribution 220 SUMMARY PROCEEDINGS, 1990 instead of farmers competing with the deep pockets of government treasuries." The President's reminder that the world has but seventy days to conclude a new agreement on trade is timely. Much needs to be done. The GATT talks are "the last train leaving the station" if the world economy is to grow. If the train is left at the station, it is possible that the world's trade will be disrupted by a trade war. There is no reason why the 1990s cannot be a decade of growth and prosperity. But there will be no economic growth without growth in trade. There will be no growth in trade until agricultural protectionism is rolled back. So a successful GATT round must be the financial community's number one priority. Freer trade will lead to free people. Free trade is the key to world prosperity and, ultimately, world peace. In two years' time, the integration of the economies of Western Europe will present further challenges to small economies such as New Zealand's. The degree to which this integration will include other European countries in the future is open to speculation at the moment, but regardless of the composition of the European Community, it will have an immense impact on the world economy. It will be in the interest of both the Community and the international community as a whole to ensure that the policies of the Community retain an outward-looking orientation. The international economic community is becoming increasingly aware of the interrelated nature of the problems facing the world. It is encouraging to see that international problems are not being addressed in isolation, but as part of an integrated whole. We must not let national considerations overrule our duty to the rest of the world. I believe that the larger and more prosperous countries can do more to foster greater cooperation in creating a better climate for trade and commerce in which the poorer countries have a better chance. Organizations such as the Fund and the World Bank have a central role in creating greater awareness among us of our obligations and in implementing policies for improvement. We must give them the necessary support to fulfill their responsibilities.

STATEMENT BY THE GOVERNOR OF THE BANK FOR PAPUA NEW GUINEA

Morea Vele

I am greatly honored to have the opportunity to address these Forty-Fifth Annual Meetings of the International Monetary Fund and the World Bank on behalf of the Government and people of Papua New Guinea. On behalf of my delegation, I would like to take this opportunity to congratulate you, Mr. Chairman, on your appointment to preside over these

©International Monetary Fund. Not for Redistribution PAPUA NEW GUINEA 221 meetings and also to thank the host country for the warm hospitality extended to my delegation here in Washington. This year's Annual Meetings are being held against a background of many significant developments in the global economy. These changes include the ongoing process of European integration, the sweeping economic and political reforms in Eastern Europe and the U.S.S.R., and, more recently, the Middle East crisis. These changes will affect many of our economies in different ways. It is therefore timely for this year's Annual Meetings to address the impacts generated by these developments in general, and particularly the effects on those developing countries that already are either struggling to alleviate poverty or are in debt crisis. While these changes are taking place, various countries have continued to pursue domestic policies to improve their welfare and strengthen their economies within the world community. It is inevitable that some of these efforts will be aggravated by the global developments noted above. Like other developing country members, Papua New Guinea is highly vulnerable to changes in the international environment and needs to prepare itself to minimize or absorb some of these impacts. Papua New Guinea is experiencing the most challenging period since attaining independence in 1975. This situation has been caused by severe shocks generated by the closure in May 1989 of the country's largest copper mine and the sharp and persistent declines in the prices of most of Papua New Guinea's major export commodities. These shocks have resulted in a fall in both export earnings and gross domestic product, and in increased unemployment. In addressing the problems, the Government sought assistance from the Fund and the Bank to restore economic stability and internal and external balances. Since the latter part of 1989, the Government has been implementing an economic adjustment program with vigor and determination. Since this is Papua New Guinea's first structural adjustment exercise with the Fund and the Bank, there are a few observations we would like to make. Structural adjustment programs are a necessary and imperative course for steering economies toward removal of economic distortions and constraints, improving efficiency in the allocation and utilization of resources for enhanced output performance. In developed countries, structural adjustment programs that have been undertaken include major tax and financial reforms, privatiza- tion, and measures to enhance labor market flexibility. These policy reforms have been introduced to adjust to rapid technological development and the need to maintain competitiveness. In developing countries, efforts in structural adjustment are often slow because of the general state of development in these countries in which inherent and prevailing institutional rigidities render considerable resistance to change. The respective roles of the Fund and the Bank in economic adjustment programs are critical and should be supported.

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The Fund is a monetary institution that has primary responsibility for providing short-term balance of payments support to those member countries in need, and also for ensuring that the international monetary system works effectively. The Bank, however, is a development institution that is responsible for encouraging capital investment for economic development and addressing long-term structural problems in member countries. We believe that the two institutions have clearly defined roles that should be recognized and respected to avoid any possibility of undue duplication and competition with each other when dealing with structural adjustment efforts. We fully endorse the need for implementation of appropriate and suitable macroeconomic policies by the member country concerned as an absolute prerequisite. Because of the close working relationship between the Fund and the Bank in assisting a member country in need, it is absolutely essential to ensure that the requirements of structural adjustment that have long-term implications are not too compressed into the short-term framework of the Fund's involvement, as this could plunge an economy into recession. The responsibilities and responsiveness of the public and private sectors should be carefully analyzed in the context of the program to ensure that the burden of adjustment is appropriately distributed between these sectors. Papua New Guinea's Government supports the rationale and economic necessity for structural reform and recognizes that there is a marked trade-off between short-term social and economic displacements caused by adjustment and the long-term efficiency and productive benefits to be gained by a country. The two Bretton Woods institutions must be commended for their continued and ongoing assistance to member countries in efforts to improve economic welfare and maintain stability. Indeed, the development of economic adjust- ment programs provides the opportunity, and makes imperative, the necessary structural changes that are not normally forthcoming under ordinary circum- stances. A major concern that arises, however, is that of the social costs of adjustment. The social costs of adjustment can adversely affect the welfare of the people and may raise concern for wider political ramifications, which, if excessive, would prove counterproductive to the spirit of reform. . . . Events in the global economy, which include the process of European integration and economic unification in Eastern Europe as well as reforms within the Soviet bloc, are an encouraging and positive development for greater international cooperation and progress toward more market-oriented systems. This clearly implies the increased importance of trade and aid policies in the world economy, especially from the point of view of developing countries. On the trade front, it is now more imperative that the existing multilateral trading system be totally open and nondiscriminatory. We support the growing

©International Monetary Fund. Not for Redistribution PAPUA NEW GUINEA 223 international commitment for a speedy conclusion of outstanding trade issues under GATT and the Uruguay Round. In addition, the interest of developing countries must be given due consideration, especially their continued participa- tion in, and maintenance of, markets and trading partners in light of European integration and the participation of new market-oriented economies in the international economic system. On the aid front there must be assurances that any rechanneling of funds toward assisting the new democratic countries does not jeopardize development programs undertaken with cooperation from multilateral institutions in devel- oping countries. This is a particular concern in light of recent declines in aid flows from developed to developing countries. In addition, the debt crisis has been a concern to many developing countries. There has been some progress over the past few years on the global initiatives to absorb the debt issue, and the Brady Plan is a course of action in the right direction. However, the recommendations put forward in that report to alleviate this problem require greater international cooperation. The more recent Gulf crisis has already seen a significant increase in the price of crude oil. This is a new challenge to the global economy, which, no doubt, will threaten the economic performance of many countries. We commend the urgent response by the international community and in particular the announcement by President Bush on the establishment of the Gulf Crisis Financial Coordination Group to provide timely and effective financial assistance to the three states immediately affected by the Gulf crisis. While we recognize that the arrangement will cater to the interests of the most immediately affected countries, a similar arrangement, with the cooperation of the Bank and the Fund, should be put in place for countries in the most seriously affected category, in particular the developing island countries such as Papua New Guinea. Similarly, it is now more imperative that the member countries involved in international policy coordination make a concerted effort to ensure that world economic growth continues to be sustained in the face of shocks such as the Gulf crisis. The success of this initiative and others will require close cooperation of the international community, especially the developed countries and existing multilateral financial institutions. Finally, my delegation is confident that the appropriate initiatives and measures taken to date in addressing the various difficulties arising from world developments will produce successful results. This would certainly protect those countries that are currently undergoing structural adjustment programs, including Papua New Guinea, from further economic imbalances.

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STATEMENT BY THE ALTERNATE GOVERNOR OF THE FUND FOR PARAGUAY

Carlos Alberto Knapps

On behalf of the Government of the Republic of Paraguay, I have the honor to present my most cordial greetings to the President of the joint Annual Meetings and the President and Executive Directors of the World Bank Group, the Managing Director and members of the Executive Board of the International Monetary Fund, as well as the Governors and delegates of the member countries of the participating institutions. We welcome into our fold the Czech and Slovak Federal Republic, Bulgaria, and Namibia as new members of our two institutions. Our attendance at this gathering bears witness to our gratitude for international cooperation and solidarity and the renewed hope that the Fund and the Bank will continue to be the main players in overseeing the international financial system and the channeling of sufficient resources to the developing countries. In grappling with instability and stagnation, the developing countries have made great efforts to take up the challenge of economic adjustment. The results are for the most part modest, and have meant high social costs. Most of the developing countries continue to suffer from inflation or, in seeking to consolidate stabilization, face stagnation or recession, despite the favorable results of efforts in the export arena. Specifically, economic conditions deteriorated in Latin America in 1989 despite its large trade surplus, owing to generally modest expansion in the value of exports and a contraction of imports in countries where the activity declined. Despite that surplus, the number of countries with arrears in servicing their external debt increased. The scenario of stagnation and high inflation that the region faced was shaped largely by a phenomenon that characterized the decade: the transfer of financial resources abroad. Beleaguered by external debt service and with limited access to new external financing, most of the regional countries continue to manifest the symptoms of a complex syndrome of structural imbalances, fiscal deficits, and low levels of investment, which are reflected in prolonged stagnation, often accompanied by rapid inflation and a marked erosion of real wages. This year saw the imminent danger of an international outbreak of hostilities, which seriously threatened the stability of international markets and the possibilities for the developing countries to make greater headway in their recovery efforts. Under the circumstances, it is vital that international attitudes continue to change and commit further to improving the external economic environment that we borrower countries face, namely, the financial and world development situation. In this respect, we support the initiatives aimed at reducing or eliminating barriers to international trade for products from the developing

©International Monetary Fund. Not for Redistribution PARAGUAY 225 countries, as well as measures to reduce significantly the burden of external financial commitments on the most vulnerable economies. The international financial organizations play a key role in supporting the stabilization and economic adjustment programs of the member countries, contributing funds and acting as a catalyst and beacon for other sources of financing, especially commercial. The stabilization and adjustment programs should provide for longer terms and be based on sufficiently flexible criteria that respond to the structural constraints on the development of each country.

Paraguay's Economy

The economic policy changed significantly in February 1989, when the new government took office, with the introduction of corrective measures to combat internal disequilibrium. The exchange and price systems were liberalized. Greater control of public spending was introduced and ceilings placed on public credit, along with an end to exchange subsidies and other trade restrictions. The establishment of the free exchange system in February 1989 brought transparency to external and fiscal accounts and eliminated the heavy quasi-fiscal deficits. The tariff system was simplified, the result being an improvement in fiscal receipts generated by external trade. Tax increases helped finance the increase in expenditure and resulted in a surplus in the current accounts of the Central Government. Inflation was curbed with a more rigorous monetary policy. The economy grew in 1989 at the reasonable rate of 5.8 percent, with a substantial expansion in exports. Economic growth occurred in all sectors such as agriculture, the manufacturing industries, trade, and basic services. Arrears in servicing the external public debt and income from short- term capital prevented a negative transfer of capital. The Central Bank's international reserves rose significantly, in contrast to the losses experienced during the previous eight years. The external debt with Brazil was renegotiated on favorable terms, for a period of 20 years with 8 years' grace, at the LIBOR rate and with a fee of 13/i6 of 1 percent a year. A mechanism whereby Brazilian debt instruments are swapped for Paraguayan debt instruments was approved, sparking the possibility of a considerable reduction in the actual amount of the debt, given the quotation for Brazilian paper in the secondary market. The partial cancellation of the debt with Brazil in 1989 and total cancellation in 1990, via a swap of debt instruments, substantially reduced Paraguay's debt with that country and at the same time its total public external debt. Nevertheless, arrears mounted significantly with Paris Club creditors. A sharp increase in exports reduced the relative share of income that external debt service represented from sales abroad.

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Monetary expansion was affected by gains in international reserves and a larger volume of domestic lending by the Central Bank to the private sector. Rises in the consumer price index were squelched by greater credit and monetary discipline in the second half of 1989. Inflation for the year was 28.5 percent. In 1989, the Central Bank introduced a system of more realistic interest rates with regard to inflation, liberalizing the borrowing rate on savings deposit certificates, a new instrument in the financial market, and raising the lending rate of the banks to 28 percent. In 1990 Paraguay's Central Bank introduced new measures aimed at the gradual reform of the financial system. In order to stimulate domestic savings, all bank borrowing rates were liberalized and the rediscount rate to the banks raised. The liquidity of the banks was raised carefully, using marginal cash reserve requirements on demand and term savings deposits. With a view to exercising greater control of domestic liquidity and making the financial operations of the banks and financial entities more efficient, the issuance of monetary regulation certificates and establishment of a Monetary Board were approved. The Central Bank is now studying new mechanisms and instruments with a view to the modernization of the financial system and more efficient control of the country's money market. These would include the liberalization of the lending interest rate. The National Congress has before it a draft law that would authorize the banks to make loans in foreign exchange to finance operations associated with foreign trade. Closely linked to the financial reforms is a draft law now undergoing final review that would provide the Central Bank with a new charter designed to make its administrative and functional structure more flexible and responsive. Equally far along is another draft law that would amend the Law on Banks and Financial Entities consistent with the necessary control and supervision that a more competitive market would require. As for public sector reforms, government authorities and the public in general are considering a proposed tax reform aimed at giving the tax system the necessary elasticity so that it can automatically benefit from the effects of economic growth and the general price level; streamlining the tax system and concentrating collection into a few wide-based taxes; avoiding duplication of taxes on the same tax base time and time again; limiting and defining exemptions and avoiding inequity; redistributing the tax burden; and including sectors now unjustifiably excluded. This brief report on the measures adopted, progress made, and projects in the works shows the resolve and efforts of the Government of Paraguay to reform its economic system and recover self-sustainable growth, as a necessary ingredient for the embryonic process of democratization in the never-ending pursuit of the country's well-being and progress.

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In concluding these comments, I would hope that the future action taken by the International Monetary Fund and World Bank meets with success.

STATEMENT BY THE GOVERNOR OF THE BANK FOR TONGA

James Cecil Cocker

I am honored to represent the Kingdom of Tonga at the Forty-Fifth Annual Meetings of the International Monetary Fund and the World Bank Group. I join other Governors in expressing thanks to the Chairman, Mr. Saitoti, to President Conable, Managing Director Camdessus, the management of the Fund and the Bank, and the Government of the United States for the excellent arrangements under which we meet. May I take this opportunity to welcome new members, the Czech and Slovak Federal Republic, Bulgaria, and Namibia. We meet in troubled and uncertain times. The best case scenario projects increasing international interest rates, a slowing of growth in the industrial countries, and increasing inflationary pressures. Tonga, although small and relatively isolated, will not be immune to these developments. We are almost totally reliant on imported energy. I would now like to make some comments on domestic economic policies in Tonga. In the 1980s, Tonga embarked on a strategy to promote growth of the private sector to broaden the base of the economy. Our 1990/91 budget policies continue to place emphasis on the development of the private sector. The Government has provided additional incentives to farmers and fishermen through income tax exemptions and additional support for the manufacturing sector, as well as ensuring continued lines of credit specifically for develop- ment in all sectors in the economy. Tourism is considered an area with potential for providing employment and foreign exchange earnings in the 1990s; an extension of income tax holidays to 15 years has been implemented for hotel development. Through the assistance of various bilateral aid donors, as well as multilateral agencies, the Government has been able to improve air transport infrastructure, thus facilitating significant growth in tourist arrivals. The Government intends to improve supporting infrastructure further by extending street lighting to rural areas, upgrading roads, and providing additional incentives to tourist operators to enable them to compete effectively in the international arena. While placing emphasis on measures to foster economic growth and provide employment, the Government will continue to pursue its social policies of alleviating rural and urban poverty through programs to improve health

©International Monetary Fund. Not for Redistribution 228 SUMMARY PROCEEDINGS, 1990 facilities and to provide access to education and to basic shelter, particularly in the isolated northern islands of the kingdom. Tonga welcomes the approval of the Ninth General Review of Quotas, although the increase finally agreed falls somewhat below that hoped for, and, given recent developments, may well prove insufficient. It is important, therefore, that the increase in quotas becomes effective in 1991. The flexibility proposed for the use of existing Fund facilities to support adjustment efforts is welcomed as an appropriate response in the current situation. We await with hope, therefore, a successful conclusion of the Uruguay Round of negotiations under the GATT. The expansion of world trade is critically dependent on this. We urge the Contracting Parties to consider the common good as negotiations proceed, especially in view of the projected decline in aggregate growth rates for low-and middle-income countries. . . . Tonga is very conscious of the value of its membership in both the Fund and the Bank. Apart from the obvious benefit of access to Bank resources, the regular consultations and technical missions help us to focus on areas of concern in the economy. We are also grateful for the long-term technical assistance provided by the Fund in the establishment of our central bank; we hope this assistance can be continued until the reorganization of our financial sector has been completed to enable the Bank to play its role in the development of a more market-oriented economy in Tonga. In conclusion, may I wish the Fund and the Bank success in the coming year in meeting the difficult challenges ahead.

STATEMENT BY THE GOVERNOR OF THE BANK FOR YUGOSLAVIA

Branimir Zekan

At the very beginning I wish to welcome Bulgaria, the Czech and Slovak Federal Republic, and Namibia to the International Monetary Fund and the World Bank. Since our last meeting, economic and political events in the world have taken a dynamic turn, which was sometimes unexpected and dramatic. Countries of Central and Eastern Europe are carrying out political democratiza- tion with admirable speed and have already embarked upon, or are preparing, large-scale programs of economic reforms. At the same time, the world is faced with the new Gulf crisis, whose resolution is uncertain and will require much wisdom and the efforts of all the UN member countries. Coupled with the long-standing problem of the poverty of the least-developed countries and a high level of external indebtedness, which in many countries has caused stagnation, it becomes clear that we live in times of change, which require

©International Monetary Fund. Not for Redistribution YUGOSLAVIA 229 the full participation and effective contribution of all international community members. The Fund and the World Bank are, therefore, facing obligations that are certainly among the most complex in their history. The nature of the issues is such that new policies and approaches have to be defined as we go along and immediately applied. Hesitancy and the failure to take proper actions are bound to disrupt the initiated positive moves toward market economy and cause great political, economic, and social uncertainties. The two institutions should, therefore, take immediate actions to ensure the following:

—Strong support of the economic program of member countries, especially those whose programs are already yielding positive results. —Urgent assistance to countries hardest hit by the Gulf crisis, either directly or indirectly. —The bridging of the gap in the development level between industrial and developing countries, with a special emphasis on measures to reduce poverty in the world.

It is no longer disputable that positive results in the countries that have been facing long-standing economic crisis can be achieved solely by a consistent implementation of stringent programs of stabilization and structural adjustment, whose ultimate aim would be the introduction of an efficient and competitive economic structure. It is also clear that countries that are currently implementing these programs must make efforts to finance the implementation from their own resources, despite their limited possibilities. Full success of the program is not possible, however, without a favorable international environment as well as without financial and technical assistance of the broader international community. I will try to illustrate this by citing the example of Yugoslavia, whose Federal Government began implementing a comprehensive program of economic reforms in December 1989. In the relatively short period since the launching of this program, a number of substantial and encouraging results were achieved: —Inflation was brought down from 64 percent in December 1989 to 0 percent in April 1990, whereas in August it stood at only 1.9 percent despite the unfreezing of prices of 15 percent of goods and services, which were frozen in the first half of this year, and a certain easing of monetary policy. —Yugoslav national currency, the dinar, was made convertible and its stability maintained. —Foreign exchange reserves are larger than ever, totaling more than $10 billion. —External debt was reduced to about $16 billion. —The number of agreements on foreign investments increased. —The rehabilitation of the financial sector was initiated, as well as the

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change in the economic structure resulting in the setting up of more than 40,000 new small and medium-size private enterprises in seven months alone. —The reform of the political system runs parallel to the economic reforms. A total of 119 political parties were registered by August 24. Free multiparty elections will be held in the entire country by the end of 1990. In the elaboration and implementation of the economic reform program, we have enjoyed significant support from the Fund and the World Bank. With the use of a wide range of consultant services, the Fund approved a standby arrangement amounting to SDR 460 million, whereas the World Bank approved a $700 million loan in fiscal 1990, which represents the largest annual loan ever granted to Yugoslavia. Furthermore, the World Bank is already preparing a number of new sectoral loans designed to finance structural adjustment, as well as concrete projects. Despite encouraging initial results from the implementation of the program of economic reforms, we are aware of the fact that it is now in a critical stage of its implementation, that is, that the achieved results must take hold so as to ensure a solid basis for the more difficult next steps. They encompass the restructuring of banking and enterprises' sectors, with special focus on the transformation of social ownership and a stronger development of small and medium-size private enterprises, and the completion of the process of providing the necessary infrastructure and mechanisms for realizing the process of restructuring (development of labor and capital markets, strong social programs, improvement of accounting systems, etc.). In order for these targets to be met, adequate and timely international support, both financial and technical, is needed along with domestic resources and know-how. All countries that are implementing, or are about to begin the implementation of, comprehensive economic, political, and social reforms are faced with identical or similar problems. These countries need wide- ranging international support in which the Fund and the World Bank play a key role. These institutions should, therefore, provide the following: —A larger volume of balance of payments/structural and project loans under terms and conditions that allow faster disbursement of these loans, without affecting the consistent implementation and targets of the agreed action programs. —Assistance in providing cofinanciers along with their loans. —Assistance in attracting foreign capital through direct foreign investments, including the development of the private sector. —Support in ensuring favorable conditions for debt rescheduling and reduction from both public and private sources. —Further increase in technical assistance, including the support for grants and concessional funds for these purposes from bilateral sources.

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The Gulf crisis, which has already had negative effects, will most certainly affect the economic situation worldwide. The largest portion of the burden will be borne by developing countries, already facing severe economic difficulties, some of which are fighting poverty. Unless the international community undertakes urgent steps to offset the negative effects caused by the crisis by providing urgent economic assistance, developing countries will be facing serious, new impediments in implementing their stabilization and adjustment programs, which may even jeopardize the results they have achieved so far. It is therefore necessary for the Fund and the Bank to urgently prepare special assistance programs to provide assistance proportionate to the extent of the direct and indirect losses suffered. These programs, apart from an increased volume of loans approved by the Fund and the Bank and a greater flexibility in their disbursement, should also contain innovative forms of support that would ensure a greater inflow of "fresh" capital of these institutions to the countries affected. Furthermore, the Fund and the Bank should ensure greater support of other creditors and donors. It is obvious that the Fund and the Bank should pursue their unrelenting efforts aimed at offering increased concessional funds and grants to the poorest developing countries; develop new models of development support and new modalities of the strategy designed to settle the debt crisis; directly link economies, investments, and trade to narrow the gap between developing countries; further open up the world market and improve the terms of trade for developing countries; improve coordination of macroeconomic policies of developed countries; stop negative net flows in developing countries; and strengthen the role of women in development. We are living in times fraught with difficulties, but also in times of challenges that demand prudent and constructive actions. These actions must include all of us: developing and developed countries, international, financial, and other organizations. Each one has to identify its own obligations and interests. Developed countries have had stable and inflation-free growth for a number of consecutive years, which they will be able to maintain with greater certainty if they contribute to the efforts aimed at transforming the developing countries into equal partners in the world market by providing adequate support to the well-defined economic programs of developing countries. The Fund and the Bank, apart from providing direct assistance to developing countries, should also act as coordinators in the overall efforts of the international community to create conditions for more humane and better living conditions on the entire planet. These institutions are better prepared financially for this serious and responsible task: the Bank has increased its capital, the Ninth General Review of Quotas of the Fund was adopted, the Ninth Replenishment for IDA was approved, and there is general readiness to increase the IFC's capital.

©International Monetary Fund. Not for Redistribution CONCLUDING REMARKS1

STATEMENT BY THE GOVERNOR OF THE BANK FOR ECUADOR

Jorge Gallardo Zavala

As a founding member of the International Monetary Fund and the World Bank, Ecuador is honored to accept the chairmanship of the Forty-Sixth Annual Meetings of the two institutions in Bangkok in 1991. This is an honor to our country, our people, and our region. Ecuador will strive to carry out the duties of the Chairman with the same courtesy, responsibility, and efficiency that have characterized these meetings under the distinguished chairmanship of Mr. Saitoti, the Governor for Kenya. The ongoing efforts by the International Monetary Fund and the World Bank to aid global economic growth and development have been joined in the past twelve months by new initiatives, such as the Enterprise for the Americas Initiative, announced by President Bush, for promoting economic growth in Latin America by expanding trade and investment, while reducing external debt and providing funds for local and environmental aspects. Efforts are also under way to respond to the remarkable transformation now taking place in Eastern Europe. We hope the international community will find ways to facilitate this process while continuing with the ongoing efforts elsewhere in the world. In addition, we must now also formulate our response to a new and unexpected challenge. I am referring to recent developments in the Middle East. Because of the Gulf crisis, the oil importing countries, especially in the developing world, will be facing significantly greater difficulties in the short run, and the front-line states in the Middle East are facing severe disruption of their economies. The list of issues facing us remains large. The debt crisis is still with us. Poverty alleviation needs renewed world attention. Continuing attention is also needed to policy and regulatory changes in a great many countries. In our interdependent world, solutions to these and other problems must be sought as part of a global cooperative effort. Managing Director Camdessus and President Conable deserve our gratitude for their leadership and vision in guiding this global effort. I would also like to take this opportunity to extend our thanks to the Executive Directors and the staff of the two institutions for their excellent work and dedication. It will be a great pleasure to work with them in the year ahead.

1 Delivered at the Closing Session, September 27, 1990. 232

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I am looking forward to welcoming all of you at our next Annual Meetings in Bangkok, Thailand, in October 1991.

STATEMENT BY THE CHAIRMAN OF THE EXECUTIVE BOARD AND MANAGING DIRECTOR OF THE INTERNATIONAL MONETARY FUND

M. Camdessus

Mr. Chairman, Governors, I mentioned in my opening address that the prospects for the world are cloudy. But our meetings have shown that there is a silver lining—in the strong sense of shared responsibility that has been reflected in Governors' remarks and in the membership's reaction to the present challenges. From this, I conclude that there is a high degree of consensus on the following principal issues that face the membership: I. The Response to the Middle East crisis. I am heartened by the collective determination that the situation will be managed. A recurrent theme of Governors' interventions is that the membership will not repeat the mistakes of the 1970s. Hence, the consensus that the challenge demands a firm policy response from all members, and the widespread acceptance of the view that oil price increases should be passed through to consumers. I welcome also the widespread acknowledgement of a shared responsibility to assist two groups of members—the front-line states, and the developing countries that are especially harmed by higher oil prices, a loss of workers' remittances, the disruptions and costs of re-absorbing workers from the Middle East, and by a curtailment of some export markets. The international community is extending assistance to these countries in a variety of ways. As part of the collective effort there is widespread support for the broad outlines of proposed IMF support: agreement that the existing facilities and access to Fund resources provide adequate scope for financial assistance to members, but that some appropriate modifications of existing Fund policies and practices would enhance the effectiveness of Fund assistance. The call was for the Fund to show what I understand to be responsible flexibility. I have been encouraged by some members to explore further a way to assist the limited group of non-ESAF countries for whom charges on the regular resources are very costly. I can confirm that the initial indications of support from some potential contributors to a subsidy mechanism are encouraging, while I fully share the Interim Committee's hope that all countries that are in a position to contribute will do so. Armed with this reinforcement of our mandate, the Executive Board will work swiftly to complete work on all these initiatives. II. Policies of Industrial Countries. There is a widely-held consensus that

©International Monetary Fund. Not for Redistribution 234 SUMMARY PROCEEDINGS, 1990 the industrial countries have a special responsibility to maintain a sound and supportive global economic environment. They face the twin threats of recession and higher inflation. A steady policy response is essential. To borrow a nautical term, what is needed is a steady hand on the tiller. This means there must be no premature easing of monetary policy, no accommodation of the inflationary pressures resulting from higher oil prices. Governors have stressed also the importance of further fiscal consolidation to support investment, and a perseverance with structural reforms to make economies more efficient. In sum, they have reaffirmed that the medium- term economic strategy of recent years is on the right track, and should be reinforced. I am confident that the industrial countries will not allow themselves to be derailed by the current problems. By persevering with sound policies, their clear signals should reinforce confidence in the prospects for renewed growth with stability. Everybody knows that confidence is essential. III. The strengthened debt strategy is clearly on track. I am encouraged by the endorsement of the existing strategy by so many speakers. There is also a realistic understanding, however, of the difficult challenges ahead for all parties to this process, including especially the debtors and bankers. It is time to negotiate acceptable financial packages, and to move progressively to a resumption of normal business relations. These Annual Meetings have been characterized by the exceptional number of constructive initiatives to alleviate the burden of official debt on the poorest countries. This is a most encouraging feature of these meetings. I am confident that the Paris Club will continue to develop its policies pragmatically in support of countries implementing Fund and Bank adjustment programs. A number of Governors referred to the difficult problems of the small number of members that are in arrears to the Fund. They urged the countries concerned, and the international community, to do all that is necessary to enable these countries to return to a normal relationship. In this respect the new "rights" approach is playing a crucial role. It was gratifying that Governors of several countries that had reservations about the Third Amendment of the Articles have now suggested that it is time to set aside their hesitations and to accept the necessity of the amendment in order to expedite an early coming into effect of the quota increase. No one, I think, disagreed with this. IV. Economic Reforms. Governors welcomed wholeheartedly the movement toward market-oriented reforms in several countries, particularly in Eastern Europe and elsewhere. They confirmed their support for these reforms and for the assistance that the IMF is extending to a growing number of countries that are undertaking the major effort to transform their societies and economic systems. This is, I dare to say, a challenge to us of historic importance. V. Foreign Trade. Governors of industrial and developing countries alike reiterated their sense of the importance of an early and successful finish to the Uruguay Round. As President Bush reminded us, it is a growth issue, not just a trade issue. Success is a must, and the time for action has come.

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VI. Last, on the role of the Fund and the future of the international monetary system. I welcome the reinforcement of the Fund's mandate in each of its main fields of responsibility, and the fact that so many Governors endorsed the call to expedite the quota increase, whose timeliness is reinforced by the new demands on Fund resources. We are evolving toward a monetary system that is more stable, in which policy coordination between countries is more effective, and which should help to ensure that the global economic environment supports the sound economic strategies of members. Several Governors noted that exchange rate relationships among the major currencies are now more closely in line with the underlying fundamentals, and that this should contribute to the reduction of their external imbalances. I noted with special interest the suggestion by Governor Hashimoto that we explore, in a longer-term perspective, the scope for a more stable international monetary system and the support for this idea, in particular, from Governor Maystadt. The Fund will continue to work on improving the system, in the light of experience, and in accordance with the expressed wishes of the membership. I can confirm that, while facing the immediate problems posed by the Middle East crisis, we will not lose sight of our continuing, and in some aspects unfinished, agenda. In so many parts of the world, the mere fact that the problems are of a long-term nature does not, in the slightest, reduce their tragic impact in human terms. Nor does it reduce the urgency of support from the international community to match the courageous efforts of so many governments. As Governor Estanislao of the Philippines reminded us, "we are a family of nations, with a code of conduct that needs to be enforced for the common good"—the Universal Good. We can all leave this Annual Meeting with a strong sense of a need for steadiness of purpose. I was pleased to hear President Bush refer to the Bank and the Fund as paradigms of international cooperation: a phrase that has particularly stuck in my mind. It is gratifying, but it reminds me that we have a serious responsibility in the difficult period ahead. In assisting member countries to meet their challenges, the Fund will be buoyed by the Governors' confirmation of our shared responsibility and solidarity.

STATEMENT BY THE CHAIRMAN OF THE BOARDS OF GOVERNORS, THE GOVERNOR OF THE FUND AND THE BANK FOR KENYA

George Saitoti

It is now my duty as Chairman of the Boards of Governors to bring these Annual Meetings of the Fund and the Bank Group to a close. I must thank

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Mr. Camdessus, Mr. Conable, and my fellow Governors for their thoughtful and valuable contributions to our discussions.

Recent Developments

We all deplore that just before these Meetings were convened, the world economic outlook was overshadowed by developments in the Middle East. Our discussions over the past few days have therefore been heavily influenced by those events. Since we meet each year, not just to review past developments and achievements, but also to try and chart a credible and feasible path for our economies, individually and collectively, the uncertainties ahead have meant that our deliberations this week have been particularly important. I am encouraged by the resoluteness with which Governors have agreed that the recent events should make us double our efforts to control inflation, reduce payments imbalances, and improve the conditions for sustainable growth through mobilization of savings and investment. Governors have agreed that monetary policy must remain tight and nonaccommodating of the necessary oil price adjustments; that fiscal correction must continue, where needed; and that structural policies aimed at raising the efficiency of resource use must be intensified. While countries do their part by adopting the correct policies, the Fund and the Bank have been called upon to make active use of, and to adapt as necessary, their instruments to provide stability to the system. Governors therefore welcomed the proposals put forward by Mr. Camdessus and Mr. Conable to enhance the responsiveness of our institutions to the new circumstances. The facts that the Bank has already embarked on a program of emergency assistance and that the Fund has the flexibility to adapt access to its facilities are welcome signs of our institutions' ability to cope with the unforeseen.

Debt

While developing countries implement appropriate policies, including structural reforms, the industrial countries and the international financial institutions need to adopt those endeavors. In this context, Governors stressed the catalytic role of the Fund and Bank in raising the necessary financial resources to support members' adjustment programs. Governors welcomed the forgiveness by certain creditor countries the ODA obligations of low-income countries, as well as the recent decisions of the Paris Club regarding official debt owed by lower middle-income countries. They encouraged further initiatives toward official debt relief. Despite progress on the reduction of debt and debt service, such steps are now more urgent given that the oil importing developing countries will be hardest hit by the increase in oil prices.

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Need for Resources For our institutions to maintain their central role, as well as to meet their other responsibilities, they must be equipped with sufficient resources. I am, therefore, pleased to note that Governors have followed the urging of my opening statement and called for prompt ratification of the quota increase, with its implied acceptance of the Third Amendment to the Articles of Agreement, together with an early agreement of the capital increase for the IFC.

Eastern Europe Excitement about the movements in Eastern Europe countries toward market-oriented economies has been contagious. Such developments are the very essence of the work at the Fund and the Bank—countries taking steps that allow them to help themselves, while taking their rightful place as players in the world economy. In this context, Governors stressed the importance of continued Fund and Bank technical and financial support to these countries. By the same token, they welcomed the study of the Soviet economy that is being undertaken in cooperation with others by the Fund and the Bank.

Trade If the countries of Eastern Europe are making such dramatic efforts to move to market reform, it seems only fair and logical that the international trading system should also move toward greater liberalization as soon as possible. Governors stressed that the successful resolution of the Uruguay Round is a unique opportunity that cannot be allowed to slip away, and they urged the firm political determination of all to bring negotiations to a successful conclusion.

Environment In discussing the environment, it was noted that the poorest countries suffer the most from environmental damage, and yet it is the industrial countries that are primarily to blame for it. Governors stressed the interdependence between environmental protection and economic growth. In this context, they welcomed the progress achieved to date toward the establishment of the Global Environmental Facility.

Poverty I mentioned in my opening remarks that poverty would be an important theme of our discussions, and indeed it has been. Governors pointed out that the Fund, the Bank, and the international financial institutions must aim at facilitating not only higher economic growth, but a better quality of growth.

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Programs to improve health and education, for example, not only help the poor's earnings capacity but also greatly enhance their welfare. Poverty is therefore not only an issue for the Bank, but, on the macroeconomic level, is also one the Fund must not ignore. Raising the living standard of all people, while working toward a more even distribution of the fruits of growth, has to be the primary goal of our efforts and of the support of these efforts by our institutions.

Conclusion While these meetings began under the cloud of uncertainties, we leave with a sense of reassurance. We now know that we are united in our ambitions for growth and equity and our determination to cope with adverse developments. Let us use this unity as an inspiration when we return to our countries and work to put into practice the advice that we have given and received over these past three days. This sense of reassurance and renewed commitment is due, in no small measure, to the efforts and initiative of Mr. Camdessus and Mr. Conable, and I would be remiss if I failed to convey our gratitude to them. In closing, I wish you all a safe and pleasant journey to your homes, and I congratulate, and wish all success to, Ecuador, which will succeed Kenya in the Chairmanship of the Boards of Governors. I hereby adjourn the 1990 Annual Meetings of the Boards of Governors of the International Monetary Fund and the World Bank and its affiliates.

©International Monetary Fund. Not for Redistribution DOCUMENTS

and

RESOLUTIONS OF THE BOARD OF GOVERNORS

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©International Monetary Fund. Not for Redistribution SCHEDULE OF MEETINGS1

Sunday 9:30 a.m. —Interi m Committee2 September 23 3:00 p.m. —Interi m Committee2

Monday 7:35 a.m. —Interi m Committee2 September 24 9:00 a.m. —Join t Development Committee 3:30 p.m. — Joint Development Committee

Tuesday 10:00 a.m. —Openin g Ceremonies September 25 Address from the Chair Annual Address by Managing Director, International Monetary Fund Annual Address by President, World Bank Group

Following conclusion of Joint Procedures Committee Opening Ceremonies MIGA Procedures Committee

2:45 p.m. — Annual Discussion

Wednesday 9:30 a.m. — Annual Discussion September 26 3:00 p.m. — Annual Discussion IMF Election of Executive Directors IBRD Election of Executive Directors MIGA Election of Directors 6:15 p.m. — Joint Procedures Committee 6:30 p.m. — MIGA Procedures Committee

Thursday 9:00 a.m. — Joint Development Committee September 27 9:30 a.m. — Annual Discussion Following conclusion Procedures Committees Reports of the Annual Comments by Heads of Discussion (approximately Organizations 11:30 a.m.) Adjournment

1 Meetings of the Joint Development Committee were held jointly with the Board of Governors of the Bank. The sessions of the Annual Meetings were held jointly with the Boards of Governors of the World Bank Group. 2 Fund only.

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©International Monetary Fund. Not for Redistribution PROVISIONS RELATING TO THE CONDUCT OF THE MEETINGS

Admission 1. Sessions of the Boards of Governors of the Fund and the World Bank Group Organizations 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, Executive 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 proceedings of the Boards of Governors and the Joint Procedures Committee. 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 World Bank Group and the Secretaries. 6. Reports of the Joint Procedures Committee shall be signed by the Committee Chairman and the Reporting Member.

Public Information 7. The Chairman of the Boards of Governors, the Managing Director of the Fund, and the President of the World Bank Group will communicate to the press such information concerning the proceedings of the Annual Meetings as they may deem suitable.

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©International Monetary Fund. Not for Redistribution AGENDA

1. 1990 Annual Report

2. Report of the Chairman of the Interim Committee (Fund Document No. 4)

3. Annual Report of the Joint Development Committee (Fund Document No. 5)

4. Applications for Membership (Fund Documents Nos. 6 and 7)

5. 1990 Regular Election of Executive Directors (Fund Document No. 8)

6. Forthcoming Annual Meetings (Fund Document No. 9)

7. Financial Statements and Audit Report (Appendix IX of 1990 Annual Report and Fund Documents Nos. 10 and 11)

8. Administrative Budget for Financial Year ending April 30, 1991 (Appendix VIII of 1990 Annual Report and Fund Documents Nos. 11 and 12)

9. Amendment of Rules and Regulations (Fund Document No. 13)

10. Selection of Officers and Joint Procedures Committee for 1990-91

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©International Monetary Fund. Not for Redistribution REPORTS OF THE JOINT PROCEDURES COMMITTEE Chairman Kenya Vice Chairmen Denmark Indonesia Reporting Member Morocco Other Members: Chile, Costa Rica, Djibouti, France, Gabon, Germany, India, Japan, Nepal, Nigeria, Paraguay, Portugal, St. Kitts and Nevis, Saudi Arabia, Turkey, United Kingdom, United States, Republic of Yemen

Report I1

September 25, 1990 Mr. Chairman: At the meeting of the Joint Procedures Committee held on September 25, 1990, items of business on the agenda of the Board of Governors of the International Monetary Fund were considered. The Committee submits the following report and recommendations: 1. Membership of the People's Republic of Bulgaria The Committee considered the Report by the Executive Board on the admission of the People's Republic of Bulgaria to membership in the International Monetary Fund, set forth in Fund Document No. 6. The Committee recommends that the Board of Governors of the Fund adopt the draft Resolution attached to the said Report.2 2. Membership of the Republic of Namibia The Committee considered the Report by the Executive Board on the admission of the Republic of Namibia to membership in the International Monetary Fund, set forth in Fund Document No. 7. The Committee recommends that the Board of Governors of the Fund adopt the draft Resolution attached to the said Report.3 Approved: /s/ GEORGE SAITOTI /s/ MOHAMMED DAIRI Kenya—Chairman Morocco—Reporting Member

1 Report I and the Resolutions contained therein were adopted by the Board of Governors of the Fund in Joint Session with the Boards of Governors of the Bank, IFC, and IDA, on Septem- ber 25, 1990. 2 Resolution No. 45-8; see pages 294-97. 3 Resolution No. 45-9; see pages 297-99. 244

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Report III1

September 25, 1990

Mr. Chairman:

The Joint Procedures Committee met on September 25, 1990 and submits the following report and recommendation:

Places and Dates of Forthcoming Annual Meetings The Committee considered the Reports of the Executive Boards of the Fund and the Bank on forthcoming Annual Meetings and recommends that the invitation extended by the Government of Spain be accepted, and that the Resolutions proposing that the 1994 Annual Meetings be convened in Madrid, Spain on October 4, 1994 and that the 1995 and 1996 Annual Meetings be convened, respectively, on October 10 and October 1, in Washington, D.C. be adopted (Fund Document No. 9, Bank/IFC/IDA Document No. 5).2

Approved:

/s/ GEORGE SAITOTI /s/ MOHAMMED DAIRI Kenya—Chairman Morocco—Reporting Member

'Report II dealt with the business of the Boards of Governors of the Bank, IFC, and IDA. Report III and the Resolutions contained therein were adopted by the Boards of Governors of the Fund and of the Bank in Joint Session, on September 25, 1990. Resolution No. 45-10; see page 299.

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September 27, 1990

Mr. Chairman:

At the meeting of the Joint Procedures Committee held on September 26, 1990, items of business on the agenda of the Board of Governors of the International Monetary Fund were considered. The Committee submits the following report and recommendations:

1. 1990 Annual Report The Committee noted that provision had been made for the annual discussion of the business of the Fund.

2. Report of the Chairman of the Interim Committee The Committee noted the presentation made by the Chairman of the Interim Committee.2 The Committee recommends that the Board of Governors of the Fund thank the Interim Committee for its work.

3. 7990 Regular Election of Executive Directors The Committee noted that the 1990 Regular Election of Executive Directors of the Fund [Annex I] had taken place and that the next Regular Election of Executive Directors will take place at the Annual Meeting of the Board of Governors in 1992.

4. Financial Statements, Report on Audit, and Administrative Budget The Committee considered the Report on Audit for the financial year ended April 30, 1990, the Financial Statements contained therein (Fund Document No. 10 and Appendix IX of the 1990 Annual Report), and the Administrative Budget for the financial year ending April 30, 1991 and the Capital Budget for capital projects beginning in financial year 1991 (Fund Document No. 12 and Appendix VIII of the 1990 Annual Report). The Committee recommends that the Board of Governors of the Fund adopt the draft resolution set forth in Fund Document No. II.3

1 Report IV and the Resolutions contained therein were adopted by the Board of Governors of the Fund, in Joint Session with the Boards of Governors of the Bank, IFC, and IDA, on September 27, 1990. 2 See pages 22-25. 3 Resolution No. 45-11; see pages 299-300.

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5. Amendments of Rules and Regulations The Committee has reviewed and noted the letter of the Managing Director and Chairman of the Executive Board to the Chairman of the Board of Governors, dated September 25, 1990, reproduced as Fund Document No. 13, regarding amendments of the Rules and Regulations set forth in Attachment I to that document [Annex II]. The Committee recommends that the Board of Governors of the Fund adopt the draft resolution set forth in Attachment 2 of Fund Document No. 13.4

Approved:

/s/ GEORGE SAITOTI /s/ ABDELMALEK OUENNICHE Kenya—Chairman Morocco—Reporting Member

4 Resolution No. 45-12; see page 300.

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Annex I to Report IV Regulations for the Conduct of the 1990 Regular Election of Executive Directors 1. Definitions: In these Regulations, unless the context shall otherwise require:

(a) "Articles" means the Articles of Agreement of the Fund.

(b) "Board" means the Board of Governors of the Fund.

(c) "Chairman" means the Chairman or Vice-Chairman acting as Chair- man of the Board.

(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 Fund.

(f) "Election" means the 1990 Regular Election of Executive Directors.

(g) "Eligible votes" means the total number of votes that can be cast in an election.

2. Date of Election: The election shall be held during a plenary session of the Annual Meeting to be held Wednesday, September 26, 1990.

3. Eligibility: The Governors eligible to vote in the election shall be all of the Governors except those of the members that:

(a) are entitled to appoint an Executive Director pursuant to Arti- cle XII, Section 3(&)(i);

(b) have notified the Managing Director, in accordance with the procedure established by the Executive Board, of their intention to appoint an Executive Director pursuant to Article XII, Section 3(c).

4. Schedule E: Subject to the Supplementary Regulations set forth herein, the provisions of Schedule E of the Articles shall apply to the conduct of the election.

5. Number of Executive Directors to be Elected: Sixteen Executive Directors shall be elected. "Sixteen persons" shall be substituted for "fifteen persons" in paragraphs 2, 3, and 6, and "fifteen persons" shall be substituted for "fourteen persons," and "sixteenth" shall be substituted for "fifteenth" in paragraph 6 of Schedule E.

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6. Proportion of Votes Required to Elect: In paragraphs 2 and 5 of Schedule E "four percent" and in paragraphs 3,4, and 5, "nine percent" shall not be changed. 7. Nominations: (a) Any person nominated by one or more Governors eligible to vote in the election shall be eligible for election as an 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 before the day on which the election is scheduled to be held. The Secretary shall post and distribute a list of the candidates. 8. Supervision of the Election: The Chairman shall appoint such tellers and other assistants and take such other actions as he deems necessary for the conduct of the election. 9. Ballots and Balloting: (a) One ballot form shall be furnished, before a ballot is taken, to each Governor eligible to vote. On any particular ballot only ballot forms distributed for that ballot shall be counted. (b) Each ballot shall be conducted by the deposit of ballot forms, signed by Governors eligible to vote, in a ballot box. (c) When a ballot has been completed, the Chairman shall cause the ballots to be counted and the names of the persons elected to be announced promptly after the tellers have completed their tally of the ballot forms. If a succeeding ballot is necessary, the Chairman shall announce the names of the candidates to be voted on and the members whose Governors are entitled to vote. (d) If the tellers shall be of the opinion that any particular ballot is not properly executed, they shall, if possible, afford the Governor concerned an opportunity to correct it before tallying the results, and such ballot form, if so corrected, shall be deemed valid. (e) If a Governor does not vote for any candidate when entitled to do so, he shall not be entitled to vote on any subsequent ballot and his votes shall not be counted under Article XII, Section 3(/)(iii) toward the election of any Executive Director.

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(f) If, at the time of any ballot, a member does not have a duly appointed Governor, such member or its Governor shall be taken not to have voted on that ballot.

(g) If a second or subsequent ballot would be required under Sched- ule E, but the number of remaining candidates is equal to the number of vacancies to be filled, those candidates shall be deemed to have been elected on the preceding ballot, provided that paragraph 14 of these Regulations shall apply.

10. If on any ballot there are more candidates than the number of Executive Directors to be elected and two or more candidates tie with the lowest number of votes, no candidate shall be ineligible for election in the next succeeding ballot, but if the same situation is repeated on such succeeding ballot, the Chairman shall eliminate by lot one of the candidates from the following ballot.

11. If any two or more Governors having an equal number of votes shall have voted for the same candidate and the votes of one or more, but not all, of such Governors could be deemed under paragraph 4 of Sched- ule E to have raised the total votes received by the candidate above nine 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.

12. When on any ballot the number of candidates is the same as the number of Executive Directors to be elected, and no candidate is deemed to have received more than nine percent of the eligible votes, each candidate shall be considered elected by the number of votes received even though a candidate may have received less than four percent of the eligible votes.

13. If the votes cast by a Governor raise the total votes received by a candidate from below to above nine percent of the eligible votes, the votes cast by the Governor shall be deemed under paragraph 4 of Schedule E not to have raised the total votes of the candidate above nine percent.

14. Any member whose Governor has voted on the last ballot for a candidate not elected may, before the effective date of the election, as set forth in section 16 below, designate an Executive Director who was elected, and that member's votes shall be deemed to have counted toward the election of the Executive Director so designated.

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15. Announcement and Review of Result:

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

(b) The Board of Governors, at the request of any Governor, will review the result of the election in order to determine whether, in light of the objectives set forth in Chapter O, Section 2 of the Report by the Executive Directors to the Board of Governors on the Proposed Second Amendment to the Articles of Agreement, an additional Executive Director should be elected to serve for the term of office commencing November 1, 1990.

16. Effective Date of Election of Executive Directors: The effective date of election shall be November 1, 1990, and the term of office of the elected Executive Directors, and of any Executive Director appointed under Article XII, Section 3(c), shall commence on that date. Incumbent elected Executive Directors shall serve through October 31, 1990.

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 question shall be put without identifying the members or Governors concerned.

As approved by Board of Governors Resolution No. 45-7, August 28, 1990

STATEMENT OF RESULTS OF ELECTION, SEPTEMBER 26, 1990

Members Whose Votes Candidate Elected Counted Toward Election5 Number of Votes G. K. Arora Bangladesh 3,125 Bhutan 275 India 22,327 Sri Lanka 2,481 28,208

C. Scott Clark Antigua and Barbuda 300 The Bahamas 914 Barbados 591

5 Democratic Kampuchea and South Africa did not participate in this election.

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Members Whose Votes Candidate Elected Counted Toward Election Number of Votes Belize 345 Canada 29,660 Dominica 290 Grenada 310 Ireland 3,684 Jamaica 1,705 St. Kitts and Nevis 295 St. Lucia 325 St. Vincent 290 38,709

DAI Qianding China 24,159

Jacques de Groote Austria 8,006 Belgium 21,054 Czechoslovakia 6,150 Hungary 5,557 Luxembourg 1,020 Turkey 4,541 46,328

E. A. Evans Australia 16,442 Kiribati 275 Korea 4,878 New Zealand 4,866 Papua New Guinea 909 Philippines 4,654 Seychelles 280 Solomon Islands 300 Vanuatu 340 Western Samoa 310 33,254

Renato Filosa Greece 4,249 Italy 29,341 Malta 701 Poland 7,050 Portugal 4,016 45,357

Mohamed Finaish Bahrain 739 Egypt 4,884 Iraq 5,290 Jordan 989 Kuwait 6,603 Lebanon 1,037 Socialist People's Libyan Arab Jamahiriya 5,407

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Members Whose Votes Candidate Elected Counted Toward Election Number of Votes Maldives 270 Oman 881 Pakistan 5,713 Qatar 1,399 Somalia 692 Syrian Arab Republic 1,641 United Arab Emirates 2,276 Republic of Yemen 1,455 39,276

Markus Fogelholm Denmark 7,360 Finland 5,999 Iceland 846 Norway 7,240 Sweden 10,893 32,338

J. E. Ismael Fiji 615 Indonesia 10,347 Lao People's Democratic Republic 543 Malaysia 5,756 Myanmar 1,620 Nepal 623 Singapore 1,174 Thailand 4,116 Tonga 282 Viet Nam 2,018 27,094

Alexandra Kafka Brazil 14,863 Colombia 4,192 Dominican Republic 1,371 Ecuador 1,757 Guyana 742 Haiti 691 Panama 1,272 Suriname 743 Trinidad and Tobago 1,951 27,582

Abbas Mirakhor Afghanistan 1,117 Algeria 6,481 Ghana 2,295 Islamic Republic of Iran 6,850 Morocco 3,316 Tunisia 1,632 21,691

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Members Whose Votes Candidate Elected Counted Toward Election Number of Votes L. B. Monyake Angola 1,700 Botswana 471 Burundi 677 Ethiopia 956 The Gambia 421 Kenya 1,670 Lesotho 401 Liberia 963 Malawi 622 Mozambique 860 Namibia 950 Nigeria 8,745 Sierra Leone 829 Sudan 1,947 Swaziland 497 Tanzania 1,320 Uganda 1,246 Zambia 2,953 Zimbabwe 2,160 29,388

G. A. Posthumus Bulgaria 3,350 Cyprus 947 Israel 4,716 Netherlands 22,898 Romania 5,484 Yugoslavia 6,380 43,775

Corentino Santos Benin 563 Burkina Faso 566 Cameroon 1,177 Cape Verde 295 Central African Republic 554 Chad 556 Comoros 295 Congo 623 Cote d'lvoire 1,905 Djibouti 330 Equatorial Guinea 434 Gabon 981 Guinea 829 Guinea-Bissau 325 Madagascar 914 Mali 758 Mauritania 589 Mauritius 786 Niger 587 Rwanda 688 Sao Tome and Principe 290

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Members Whose Votes Candidate Elected Counted Toward Election Number of Votes Senegal 1,101 Togo 634 Zaire 3,160 18,940

Angel Torres Costa Rica 1,091 El Salvador 1,140 Guatemala 1,330 Honduras 928 Mexico 11,905 Nicaragua 932 Spain 13,110 Venezuela 13,965 44,401

Alejandro Vegh Villegas Argentina 11,380 Bolivia 1,157 Chile 4,655 Paraguay 734 Peru 3,559 Uruguay 1,888 23,373

/s/ JENS THOMSEN /s/ SOEGITO SASTROMIDJOJO (Denmark) (Indonesia) Teller Teller

Annex II to Report IV

September 25, 1990

Dear Mr. Chairman:

In accordance with Section 16 of the By-Laws, the attached amendment of the Rules and Regulations adopted since the 1989 regular meeting (An- nex I) is submitted for review by the Board of Governors. A draft resolution for approval by Governors appears in Annex II. On December 27, 1989 the Executive Board decided to modify Rule N-12, which provides for notification to the Executive Board by the Managing Director of any action to appoint or dismiss any person "at or above the rank of division chief or receiving a salary equal to or exceeding that of a division chief." As a result of the Fund's new grade and salary structure, the same salary range is now attributed to two grades (A 15 and Bl), even though they are

©International Monetary Fund. Not for Redistribution 256 SUMMARY PROCEEDINGS, 1990 not equivalent in rank within the institutional structure of Fund positions. The salary structure approved by the Executive Board on January 30, 1986 recognizes the existence of a certain number of positions below the rank of a division chief, and therefore below the first managerial level, whose requirements and responsibilities justify the attribution of a salary range equivalent to that of a division chief. As the salary range of Grade A15 does not provide an indication of rank at least equal to that of a division chief, it was considered appropriate to replace the reference to salary range in Rule N-12 with a reference to the rank of division chief, which is the threshold managerial position in the institutional structure of the Fund. In addition, the modification of Rule N-12, by excluding reference to salary range, will ensure that possible future changes to the Fund's salary structure will not affect the determination of positions requiring such notification to the Board. The Executive Board has made no other changes in the Rules and Regulations since the last Annual Meeting.

Very truly yours, I si M. CAMDESSUS Managing Director and Chairman of the Executive Board

Chairman of the Board of Governors 1990 Annual Meeting International Monetary Fund

Attachment. Rules and Regulations Amended Since the 1989 Annual Meeting

1. Rule N-12. Text as amended December 27, 1989.

The Managing Director shall inform the Executive Board at least two weeks in advance of any action to appoint or dismiss any person to or from a position graded equal to or above that of a division chief. Such information shall not be necessary for other appointments or dismissals by the Managing Director.

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Report VI1

September 27, 1990

Mr. Chairman: The Joint Procedures Committee met on September 26, 1990 and submits the following report and recommendations:

1. Development Committee The Committee noted that the 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) 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 Bank, respectively (Fund Document No. 5 and Bank Document No. 3) [Annex]. 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 1990191 The Committee recommends that the Governor for Ecuador be Chairman, and that the Governors for Lesotho and the Netherlands be Vice Chairmen, of the Boards of Governors of the Fund and of the World Bank Group, 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: Bangladesh, Bolivia, Canada, Cameroon, Ecuador, France, Germany, Ghana, Grenada, Iceland, Japan, Lesotho, the Netherlands, Poland, Saudi Arabia, Syrian Arab Republic, Thailand, Togo, Tunisia, United Kingdom, United States, and Vanuatu. It is recommended that the Chairman of the Joint Procedures Committee shall be the Governor for Ecuador, and the Vice Chairmen shall be the Governors for Lesotho and the Netherlands, and that the Governors for Bangladesh shall serve as Reporting Member.

Approved:

/s/ GEORGE SAITOTI /s/ ABDELMALEK OUENNICHE Kenya—Chairman Morocco—Reporting Member

1 Report V dealt with the business of the Boards of Governors of the Bank, IFC, and IDA. Report VI and the recommendations contained therein were adopted by the Boards of Governors of the Fund and of the Bank, IFC, and IDA, in Joint Session, on September 27, 1990.

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Annex to Report VI

September 24, 1990

Sir: As Chairman of the Joint Ministerial Committee of the Boards of the Governors of the Bank and the Fund on the Transfer of Real Resources to Developing Countries (Development Committee), I have the honor to present herewith to the Boards of Governors the XVIth Annual Report by the Committee on the progress of its work for the period July 1989-June 1990. 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.

Yours sincerely, /s/ B.T.G. CHIDZERO Chairman Development Committee

Attachment

The Honorable George Saitoti Chairman Boards of Governors International Monetary Fund and the World Bank Group

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Attachment

Report of the Joint Ministerial Committee of the Board of Governors of the Bank and the Fund on the Transfer of Real Resources to Developing Countries

(July 1989-June 1990)

I. INTRODUCTION

The Committee held its 37th and 38th regular meetings during the period under review. Both meetings, chaired by B.T.G. Chidzero, Senior Minister of Finance, Economic Planning and Development of Zimbabwe, were convened in Washington, D.C., the first on September 25, 1989 and the second on May 8, 1990. The meetings were conducted on the basis of the usual format, with a morning plenary session for general statements and an afternoon plenary session for an in-depth discussion on selected aspects of the items on the agendas. A luncheon for members was held at each meeting for a private exchange on a specific topic related to an agenda item (the implications of the external environment for structural adjustment programs were discussed in September 1989 and the adequacy of official flows to severely indebted countries and the experience with official debt relief for those countries in May 1990). The Committee's discussions were assisted by a number of issues papers and reports prepared by the staffs of the IMF and the World Bank, as well as by the written opening statements of the Chairman and the reports of the President and the Managing Director. In addition, papers related to the agenda items were presented in advance by the following observers: African Development Bank Asian Development Bank General Agreement on Tariffs and Trade (GATT) Inter-American Development Bank International Fund for Agricultural Development Islamic Development Bank OPEC Fund for International Development United Nations Conference on Trade and Development (UNCTAD)

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II. INTERNATIONAL ECONOMIC SETTING

The Committee discussed several important international development issues aimed at promoting and sustaining growth and development in developing countries, against the background of a volatile and uncertain external economic climate facing them. The 1980s, in general, were very difficult years for most developing countries. At the end of the decade, apart from Asia, GDP per capita growth rates were stagnant or declining in all developing regions. The growth of real GDP in developing countries as a whole fell from 4 percent in 1988 to 3 percent in 1989. GDP per capita growth rates for the sub-Saharan African, Latin American and the Caribbean regions were negative in both 1988 and 1989. The GDP per capita growth rate was also negative for the region comprising the developing countries of Europe, the Middle East and North Africa in 1989 due to the absence of growth in Eastern Europe. These unsatisfactory trends coincided with the seventh consecutive year of expansion in the industrial countries. The weakness in the terms of trade, higher interest rates, as well as the persistence of protectionist agricultural, industrial and trade policies in many industrial and developing countries continued to influence adversely the economic prospects of many developing countries. The level of non-fuel primary commodity prices despite a recent modest rise, in real terms, remained a constraint to the ability of a number of developing countries dependent on commodity exports to adjust their balance of payments. At the same time, problems of severe indebtedness continued to affect the adjustment and growth efforts of many developing countries. In this connec- tion, the negotiations of debt and debt service reduction arrangements under the strengthened debt strategy announced in the spring of 1989 and the implementation of debt relief measures in favor of the severely indebted low- income countries were seen as important steps in addressing the debt problem. The above-mentioned developments and the sharp acceleration of inflation in many of the developing countries underscored the need for sound macroeconomic and structural policies and the need for the adoption and the implementation of adjustment programs. In fact, an increasing number of developing countries adopted growth-oriented adjustment programs supported by the World Bank and the IMF, thereby improving confidence and the prospects for investment flows and the repatriation of flight capital. The situation also underscored the importance of strengthening adjustment efforts underway as well as creating a supportive external environment through the adoption and implementation by all countries of appropriate monetary, fiscal as well as structural policies aimed at eliminating existing trade barriers. In spite of a number of positive developments regarding official development assistance flows, aggregate transfers of resources to developing countries continued to fall particularly as a result of the drying up of commercial flows to severely indebted middle-income countries. The reversed flow of resources

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III. INTERNATIONAL DEVELOPMENT ISSUES

The September 1989 and May 1990 agendas of the Committee were determined in the light of the current international development situation, macroeconomic trends and main problem areas outlined above. The Committee had discussions on the following issues confronting the developing countries:

(1) Structural adjustment. (2) The debt strategy and its impact on the development prospects of the severely indebted countries. (3) Long-term perspective for the development of sub-Saharan Africa. (4) The contribution of the private sector to development and the roles of the World Bank and the IMF. (5) Environmental issues. (6) Transfer of resources. (7) International trade developments.

1. Structural Adjustment The Committee had initiated its first global review of experience with growth-oriented structural adjustment programs assisted by the World Bank and the IMF by focusing mainly on the design and implementation of those programs at its April 1989 meeting. In the fall of 1989, the Committee reiterated that the essential ingredients in the design and implementation of successful structural adjustment programs were: (a) strong political commitment by developing countries to sound macroeconomic policies; (b) broad public support for programs; (c) integration of poverty-reduction objectives, environmental considerations, and contin- gency planning in the design of programs; (d) strengthening of administrative and institutional capacity; (e) adequate and timely financing to support programs; and (f) a favorable external economic climate enabling developing countries to implement structural adjustment programs. In reviewing the implications of the external macroeconomic climate for the adjustment process in developing countries members were of the view that, while growth-oriented structural adjustment could yield positive results even under unfavorable external conditions, the pace, scale and sustainability of benefits would be adversely affected by an unsupportive external setting. Accordingly, members generally considered that the adoption by industrial countries of economic policies, supportive of adjustment efforts of developing countries, would also help improve their own economic performance; moreover, it would assist the integration of developing countries into the

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world economy. The Committee requested the World Bank and the IMF to prepare a report on the impact of industrial countries' trade, agricultural and industrial policies on developing countries for its spring 1991 meeting. The Committee also asked the Bank and the Fund to keep under review the results of structural adjustment programs that developing countries undertake.

2. The Debt Strategy and Its Impact on the Development Prospects of the Severely Indebted Countries The Committee continued its review of the debt strategy and its impact on the development prospects of all severely indebted countries at its two meetings under review. It also agreed to continue this review process at its September 1990 meeting.

(a) Strengthened debt strategy In the fall of 1989, the Committee reaffirmed its support for the strengthened debt strategy it had endorsed at its spring 1989 meeting, based on a cooperative framework between the debtor countries, the commercial banks and official creditors. The Committee underscored the need for a flexible case-by-case approach to realistic commercial bank financing packages, including both debt and debt-service reduction and new financing as appropriate. It welcomed the rapid adoption of guidelines by the World Bank and the IMF for their support for voluntary debt and debt-service-reduction packages. Members encouraged debtor countries to develop strong economic reform programs in cooperation with the two Bretton Woods institutions. They also re-emphasized the importance of special efforts by debtor countries to attract foreign direct investment, promote the repatriation of flight capital and implement appropriate debt equity swap programs. They stressed that the implementation of officially supported debt and debt-service reduction should not divert World Bank and IMF financial support from countries which have performed well. The Committee also expressed its appreciation of the substantial financial support of the Japanese Government for adjustment programs by debtor countries and encouraged other countries in a position to do so to take similar action. In the spring of 1990, the Committee welcomed the progress achieved so far in the implementation of the debt strategy. Members reiterated the need to maintain the case-by-case approach and stressed again the central importance of the adoption of adjustment programs by debtor countries. They also noted that the combination of adjustment programs and commercial bank financing arrangements could help improve confidence in the economies of debtor countries. The Committee called on the World Bank and the IMF to continue to provide support for debt and debt-service reduction programs, with the necessary flexibility, under their established guidelines which they reaffirmed and to keep the strengthened debt strategy under review. The Committee also

©International Monetary Fund. Not for Redistribution COMMITTEE REPORTS 263 called on the World Bank and the IMF to emphasize measures to promote investment and capital repatriation in country reform programs.

(b) Severely indebted lower middle-income countries Members expressed their concern about the development needs of severely indebted lower middle-income countries whose debt is mainly to official creditors. In the fall of 1989, the Committee stated that special attention should be given to that issue. In the spring of 1990, members reiterated this concern noting that a number of lower middle-income countries had uncertain prospects for a return to external viability and sustained growth. The Committee, therefore, asked the World Bank and the IMF to continue to analyze the debt problems of these countries as well as those of severely indebted middle-income countries with significant official debt.

(c) Severely indebted low-income countries The debt issues of low-income countries has been one of the major concerns of the Committee since the mid-eighties. In this connection, the Committee welcomed the following measures: (a) concessional official debt reschedulings by the Paris Club under Toronto terms in favor of severely indebted low- income countries undertaking adjustment programs; (b) cancellation by an increasing number of creditor countries of official development assistance (ODA) debt owed by many low-income countries, particularly in sub-Saharan Africa; (c) utilization of IDA reflows for the benefit of IDA-only countries with outstanding IBRD debt; and (d) activation by the World Bank of a $100 million facility to assist eligible IDA-only countries to reduce their debt to commercial banks. Members, however, expressed their concern that despite efforts by the Paris Club and other debt relief measures mentioned above, a number of countries had uncertain prospects for an early return to external viability. The Committee, therefore, requested the World Bank and the IMF to undertake an evaluation of the benefits of debt relief and other measures taken so far in favor of the severely indebted low-income countries. Members also considered that, given the low debt-service capacity of these countries, their new commitments for assistance to them should be provided on highly concessional terms.

(d) Indebted countries which have avoided debt restructuring The importance of the needs of a number of indebted developing countries which had not restructured their external debt obligations and which had been implementing sound macroeconomic policies was also recognized by the members. The Committee urged that efforts be made to maintain adequate financial flows to these countries, including multilateral flows, to support their adjustment, development, and poverty reduction efforts.

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3. Long-Term Perspective for the Development of Sub-Saharan Africa In the spring of 1990, the Committee reviewed the World Bank's report 44Sub-Saharan Africa: From Crisis to Sustained Growth" and endorsed the approach of the strategic agenda outlined in that report. Members particularly emphasized the following points made in the report: (a) sustained growth and development required firm commitment and good governance on the part of the concerned governments of the sub-Saharan African countries given their primary responsibility in the design and implementation of their development strategies; (b) the need for adequate, effective, and well-coordinated funding from donors and multilateral institutions, noting that large ODA flows to those countries would continue to be required in the 1990s; and (c) resources should be channelled more selectively to countries implementing adjustment programs, thereby maximizing the effectiveness of external assistance. The Committee emphasized the complementary roles of the World Bank and the IMF in the long-term development process of sub-Saharan Africa, and requested that it be kept informed of the progress in implementing the long-term strategic agenda. In this respect, the initiative of the Government of the Netherlands to convene an international conference on sub-Saharan Africa in Maastricht in July 1990 was welcomed. The Committee also welcomed the agreement, in principle, of donors for an extension of the Special Program of Assistance (SPA) beyond 1990 and urged them to indicate their levels of adjustment assistance for 1991-93 at the SPA donor session to be held in the fall of 1990. Members also suggested that donors continue to consider steps to untie their commitments in the framework of the SPA and to further harmonize procurement and disbursement procedures.

4. The Contribution of the Private Sector to Development and the Roles of the World Bank and the IMF The discussion of this question at the spring 1990 meeting was a reflection of the growing emphasis given by a number of developing countries to the role of the private sector, including the promotion of domestic and foreign investment, and to market-oriented policies in their development strategies in order to increase efficiency in utilizing scarce resources and to mobilize higher levels of domestic resources. In the discussion, members noted that it was also a timely and important issue given recent developments in Eastern Europe. The Committee emphasized the importance of creating an enabling environment favorable to private sector activities through macroeconomic stability, structural adjustment, and appropriate price and investment policies. The need to adopt legislation and administrative practices compatible with sound private sector development was also stressed. At the same time the Committee underscored the complementarity of the roles of efficient and

©International Monetary Fund. Not for Redistribution COMMITTEE REPORTS 265 well-managed private and public sectors in developing countries, noting that infrastructure and social services, including investments in human resources, were needed to support private sector development and economic growth in general. The Committee also noted that the confidence of private investors could be enhanced through the adoption by all countries of open markets and sectoral adjustment policies and a supportive financial climate. In view of the drying up of private flows, particularly from commercial banks at the end of the 1980s and the continuous debt-servicing problems of developing countries, members recognized that foreign direct investment was a valuable non-debt-creating external resource. The Committee, therefore, stressed the need for developing countries to mobilize foreign direct investment and repatriate flight capital. It noted the importance of the role that such foreign direct investment can play in transferring technology, improving managerial skills, and facilitating market development. The Committee urged the World Bank and the IMF to assist developing countries' efforts to implement long-term institutional, regulatory and legal reforms, consistent with their socioeconomic situations. The Committee encouraged the World Bank Group agencies to give a very high priority to private sector development in their operations and to continue to expand the scope of their activities in this area. Members also emphasized the importance of close coordination within the World Bank Group so as to ensure that private sector considerations were better integrated into its operations while avoiding duplication. The Committee requested the World Bank to move expeditiously to implement its action plan for private sector development to help achieve this objective. Given the rapidly growing needs for private sector assistance, the Committee outlined the important roles of the International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA). Noting the need for IFC to have adequate means to fulfill its role in the coming years, the Committee encouraged the IFC's Board of Executive Directors to continue its discussion of the adequacy of the capital of the Corporation, including modalities of subscription. The Committee also emphasized the benefits that countries could derive from membership in the MIGA. The Committee requested that the implementation of the World Banks' action plan for private sector development be reviewed at the Fall 1990 meeting and that members be kept informed of progress in the discussion of the adequacy of the IFC's capital.

5. Environmental Issues

At both its meetings under review the Committee reiterated the importance it attached to environmental issues. The Committee had a special plenary session in September 1989 devoted to "World Bank support for the environ- ment" at which members welcomed the progress by the World Bank in

©International Monetary Fund. Not for Redistribution 266 SUMMARY PROCEEDINGS, 1990 integrating environmental issues into Bank activities, including the preparation and release of environmental impact assessment guidelines thus providing an opportunity for interested parties to comment. Members also expressed their satisfaction on the steps taken to increase public awareness of World Bank activities in the environmental area and encouraged the World Bank to increase public access to environmental information on projects and programs. The Committee noted that the integration of environmental considerations into development projects could result in increased costs as well as benefits and could require technological transfers to the developing countries. It was also recognized that additional external financial and technical support from donor governments and multilateral development institutions could help meet these costs and requirements. In this connection, the Committee requested the World Bank to prepare a study of mechanisms and financial requirements that might be needed to address the environmental challenges of the developing world. While it was recognized that the bulk of global environmental pollution so far stemmed from the industrial countries, the Committee agreed that a cooperative effort was required by both the industrial and the developing countries in addressing this critical problem. The Committee, therefore, urged all countries to take measures to penalize polluters and to check the flow of exports and imports of environmentally damaging materials. Members took special note of the importance of the global climate change issue. The World Bank's increasing emphasis on energy conservation and efficiency programs and on conversion to less environmentally damaging fuels was welcomed. The World Bank was encouraged to assist in the introduction of alternatives to chlorofluorocarbons. Members commended the World Bank's efforts in increasing its work in conservation and sustainable development of forestry resources and, more generally, in the promotion of environmental action plans. The World Bank was also encouraged to assist countries in the development of arrangements such as debt-for-nature swaps. In the spring of 1990, the Committee noted the progress being made by the World Bank on a number of environmental issues, such as the new Operational Directive on Environmental Assessment, the integration of environmental concerns into economic analysis, and the growth in lending for freestanding environmental projects. The World Bank was encouraged to continue its efforts to take environmental consideration fully into account in its operations. The Committee noted that there would be a comprehensive review of World Bank-related environmental issues in the World Bank's 1990 Annual Report on Environment in accordance with the request it had made at its September 1988 meeting in Berlin. The Committee stressed that the aforementioned report should include a review of the progress made in respect of Bank-related issues which had been discussed in its previous meetings, such as environmental impact assessment guidelines, environmental action

©International Monetary Fund. Not for Redistribution COMMITTEE REPORTS 267 plans, energy efficiency and conservation, forestry protection, and debt-for- nature swaps. Members considered a report prepared by the World Bank on funding global environmental protection. The Committee agreed that the World Bank should play an important role in this area and do further work to develop methods to assist developing countries to take actions which would contribute to the reduction of global environmental problems. Members also agreed that efforts should continue to be made to develop proposals for a pilot mechanism for this purpose, taking into account the Bank's existing programs. The Committee urged the World Bank to take steps to strengthen and expand its environmental programs and thus assist developing countries to contribute to the achievement of the same objective in accordance with their priorities. The World Bank was also urged to proceed with this work expeditiously in close collaboration with UNEP and UNDP and in consultation with other interested parties. The Committee underlined the need for sufficient flexibility to attract as wide support as possible. Emphasizing the importance it continued to attach to environmental issues, the Committee decided to consider those further at its fall 1990 meeting.

6. Transfer of Resources

Given the mandate of the Committee, the question of the transfer of resources to developing countries was considered by the members as a standing agenda item at both its meetings under review. In the fall of 1989, the Committee noted that net flows in real terms were well below the levels of the early 1980s. Although flows of official development assistance actually increased in 1988, reversing the earlier decline of the mid-1980s, the Committee nevertheless recognized that more needed to be done by all countries to support the objectives of growth and poverty reduction. The Committee again repeated its call on donor countries, particularly those with assistance levels below the 0.7 percent ODA/GDP target, to make further efforts to secure financial flows to developing countries. The Committee also made a special call for the international community to continue to support high-priority programs in sub-Saharan Africa. Since a sharp decline in private flows to heavily indebted countries and their debt-service difficulties had been noted, the Committee called for sustained efforts on the part of all countries to stimulate the flow of private direct investment and the repatriation of capital as well as to create an economic climate conducive to external and domestic investment. The Committee also stressed the need for strengthening the resources of the Bretton Woods institutions. The Committee particularly emphasized the urgency of completing negotiations by the November 1989 meeting of IDA

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Deputies and of achieving agreement on a substantial replenishment of IDA-9. In the spring of 1990, the Committee expressed its appreciation for a number of positive developments, such as the successful negotiations for the Ninth Replenishment of IDA which would begin on July 1, 1990, the signing of the Lome IV Convention, and a modest increase in official development finance in 1989. The Committee also welcomed the understandings reached by the Interim Committee on the Ninth General Review of Quotas that would allow the IMF to continue to play its role at the center of the international monetary system. In spite of these developments, the Committee noted with concern the significant decline in aggregate net flows to the severely indebted middle-income countries in 1989, reflecting a sharp drop in private flows. Members noted the implications of this negative trend on domestic investment in those developing countries at a time when many of them were struggling with severe poverty problems. Members also expressed their concern about the impact of the recent rise in interest rates on the cost of debt services of severely indebted countries. Members stressed that financial support for reforms in Eastern Europe called for adequate resources so that the requirements of this region could be met while also allowing increased financial flows on appropriate terms to developing countries. The Committee also welcomed the decision to create the European Bank for Reconstruction and Development (EBRD) and called on the World Bank Group and the IMF to work with the EBRD in assisting economic and political reforms and the transition to market economies in Eastern Europe. Since it is in the interest of all borrowers and shareholders to have overdues handled in a way which continues to allow these institutions to keep the costs of borrowed funds to the lowest level possible, the Committee asked the World Bank, in consultation with the regional development banks, to review the current policies and procedures for handling overdues and to present a report to the Committee at its next meeting.

7. International Trade Developments

Members were concerned with the impact of trade policies on developing countries and the uncertain prospects for a successful conclusion of the Uruguay Round of trade negotiations. They noted the adverse effects of industrial and agricultural protectionism on the effective implementation of structural adjustment programs of the developing countries. Therefore, the importance of an open multilateral trading system in improving the external economic environment for the success of such programs was stressed. Members heard from the GATT representative that the multilateral trade negotiations under the Uruguay Round were in their final phase and that, while much progress had been achieved, a number of key agricultural,

©International Monetary Fund. Not for Redistribution COMMITTEE REPORTS 269 industrial, and other issues remained unresolved. The Committee, therefore, called on all countries to reach an early agreement on these issues and to agree on a strengthened multilateral trading system based on predictable and uniform rules to promote trade liberalization by all countries. The Committee stressed that the successful conclusion of the Uruguay Round negotiations was essential to prevent the drift toward protectionism. Members also emphasized that an improvement in market access and greater participation by developing countries in GATT benefits were essential and, in many cases, more important than ODA flows or debt relief in facilitating the structural adjustment and growth-oriented efforts of developing countries. The Commit- tee reiterated its call on the World Bank and the IMF to keep under study, in close consultation with the GATT, the implications of regional trading arrangements for developing countries' economic prospects for consideration at a future meeting.

Annexes A. Members of the Committee B. Agendas and Press Communiques of Meetings Held in September 1989 and May 1990 Annex A

Members of the Development Committee

Member Countries 1. Mohammad Abalkhail Saudi Arabia Minister of Finance and National Economy Saudi Arabia 2. Ibrahim Abdul Karim Bahrain, Egypt, Iraq, Minister of Finance and Jordan, Kuwait, Lebanon, National Economy Socialist People's Libyan Bahrain Arab Jamahiriya, Maldives, Oman, Pakistan, Qatar, Somalia, Syrian Arab Republic, United Arab Emirates, Republic of Yemen 3. Pedro Aspe Costa Rica, El Salvador, Secretary of Finance and Public Guatemala, Honduras, Mexico, Credit Nicaragua, Spain, Venezuela Mexico 4. Pierre Beregovoy France Minister of State for Economy, Finance, and the Budget France

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Member Countries 5. Mohamed Berrada Afghanistan, Algeria, Ghana, Minister of Finance Islamic Republic of Iran, Morocco Morocco, Tunisia 6. Nicholas F. Brady United States Secretary of the Treasury United States 7. Guido Carli Greece, Italy, Malta, Minister of the Treasury Poland, Portugal Italy 8. B.T.G. Chidzero1 Botswana, Burundi, Ethiopia, Senior Minister of Finance, The Gambia, Kenya, Lesotho, Economic Planning and Liberia, Malawi, Mozambique, Development Nigeria, Sierra Leone, Zimbabwe Sudan, Swaziland, Tanzania, Uganda, Zambia, Zimbabwe, (Angola) 9. Madhu Dandavate Bangladesh, Bhutan, India, Minister of Finance Sri Lanka India 10. Jorge Gallardo Zavala Brazil, Colombia, Dominican Minister of Finance Republic, Ecuador, Guyana, and Public Credit Haiti, Panama, Suriname, Ecuador Trinidad and Tobago 11. Enrique Garcia Argentina, Bolivia, Chile, Minister of Planning Paraguay, Peru, Uruguay and Coordination Bolivia 12. Ryutaro Hashimoto Japan Minister of Finance Japan 13. Paul J. Keating, M.P. Australia, Kiribati, Korea, Deputy Prime Minister New Zealand, Papua New and Treasurer of the Guinea, Philippines, Commonwealth of Australia Seychelles, Solomon Islands, Australia Vanuatu, Western Samoa 14. Wim Kok Cyprus, Israel, Netherlands, Deputy Prime Minister Romania, Yugoslavia and Minister of Finance Netherlands 15. Mo'ise Koumoue Koffi Benin, Burkina Faso, Minister of Economy, Finance Cameroon, Cape Verde, and Budget Central African Republic, Cote d'lvoire Chad, Comoros, People's

1 Saihou S. Sabally, Minister of Finance and Trade, The Gambia, served as Alternate Member to permit B.T.G. Chidzero to serve as Chairman.

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Member Countries Republic of the Congo, Cote d'lvoire, Djibouti, Equatorial Guinea, Gabon, Guinea, Guinea-Bissau, Madagascar, Mali, Mauritania, Mauritius, Niger, Rwanda, Sao Tome and Principe, Senegal, Togo, Zaire 16. John Major United Kingdom Chancellor of the Exchequer United Kingdom 17. Philippe Maystadt Austria, Belgium, Hungary, Minister of Finance Luxembourg, Turkey Belgium 18. Pramual Sabhavasu Fiji, Indonesia, Lao Minister of Finance People's Democratic Thailand Republic, Malaysia, Myanmar, Nepal, Singapore, Thailand, Tonga, Viet Nam 19. Arne Skauge Denmark, Finland, Iceland, Minister of Finance Norway. Sweden Norway 20. WANG Bingqian China State Councillor and Minister of Finance China 21. Jiirgen Warnke Federal Republic of Germany Federal Minister for Economic Cooperation Federal Republic of Germany 22. Michael H. Wilson Antigua and Barbuda, Minister of Finance The Bahamas, Barbados, Canada Belize, Canada, Dominica, Grenada, Ireland, Jamaica, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines

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Annex B

Agendas and Press Communiques of Meetings Held in September 1989 and May 1990

Meeting of September 25, 1989

A. Agenda

1. Problems and issues in structural adjustment

2. Development prospects for severely indebted countries and the evolving debt strategy

3. World Bank support for the environment

4. Reports:

(a) Status of the negotiations for the Ninth Replenishment of IDA

(b) trends in the transfer of real resources

(c) current international trade developments

5. Annual Report of the Committee

6. Other Business

B. Press Communique (text published in Summary Proceedings, 1989, pages 238-42).

Meeting of May 8, 1990

A. Agenda

1. The contribution of the private sector to development, and the roles of the Bank Group and the Fund

2. The debt strategy and its impact on the development prospects for all severely indebted countries

3. Long-term perspective for development of sub-Saharan Africa

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4. Reports:

(a) Progress report on environmental issues

(b) trends in the transfer of resources

(c) current international trade developments

5. Other Business

B. Press Communique

1. The Development Committee met in Washington, D.C. on May 8, 1990 under the chairmanship of the Hon. B.T.G. Chidzero, Senior Minister of Finance, Economic Planning and Development of Zimbabwe.1 2. In the context of its broad mandate for the transfer of resources to developing countries, the Committee focused its discussion on three topics: (a) the contribution of the private sector to development and the roles of the World Bank Group and the IMF; (b) the debt strategy and its impact on the development prospects for all severely indebted countries: and (c) the long-term perspective for development of sub-Saharan Africa. The concept of a global environmental facility, trends in the transfers of resources, and current international trade developments were also considered. 3. The Committee welcomed the growing emphasis given by develop- ing countries to the role of the private sector, including the promotion of domestic and foreign investment, in their development strategies. It underscored the importance of creating an enabling environment favorable to private sector activities through macro- economic stability, structural adjustment, and appropriate price and investment policies. The need to adopt legislation and adminis- trative practices compatible with sound private sector development was also stressed. The complementarity of the roles of efficient and well-managed private and public sectors in development was emphasized. The Committee noted that infrastructure and social services, including investments in human resources, are needed to support private sector development and for economic growth in

1 Mr. Barber B. Conahlc. President of the World Bank. Mr. Michel Camdessus. Managing Director of the International Monetary Rind. Mr. Yves L. Fort in. Executive Secretary of the Development Committee, and Mr. S.M.A. Adeli. Chairman of the Group of T \\enty-Hour. participated in the meeting. Observers from Swii/erland and a number of international and regional organizations also attended.

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general. The Committee also noted that the confidence of private investors could be enhanced through the adoption by all countries of open markets and sectoral adjustment policies and a supportive financial environment. Recalling its earlier invitation to the Bank and the Fund to keep under review the impact of industrial countries' trade, agricultural, and industrial policies on developing countries, members requested a report on this topic for its spring 1991 meeting. 4. Members recognized that foreign direct investment is a valuable non-debt creating external resource for developing countries, and emphasized the need, particularly for severely indebted countries, to mobilize direct investment and repatriate flight capital. They also noted the role of such investment in transferring technology, improving managerial skills and facilitating market development. Members underscored the need for policies that would increase savings and could facilitate a greater flow of direct investment to developing countries. Such investment could best be attracted to developing countries through the adoption of sound macroeconomic and market-oriented policies. 5. The Committee urged the World Bank Group and the Fund to strengthen further their efforts to support private sector develop- ment. Members encouraged the Bank to give a very high priority to private sector development in its operations, to continue to expand the scope of its activities in this area, including new approaches and instruments as may be needed, as well as to assist developing countries' efforts to implement long-term institutional, regulatory, and legal reforms, consistent with their socio-economic situation. Members therefore emphasized the importance of close coordination within the Bank Group so as to ensure that private sector considerations are better integrated in its operations while avoiding duplication. To help achieve this, the Committee requested the Bank to move expeditiously to implement its action plan for private sector development. Considering the importance of the contribution of the private sector to development, the Committee requested that this issue be reviewed at its fall 1990 meeting. 6. The Committee noted the increasingly important role that the International Finance Corporation (IFC) and the Multilateral Invest- ment Guarantee Agency (MIGA) can play in assisting private sector development in developing countries, including through their policy advisory roles. It emphasized the benefits that countries can derive from membership in the Agency. Given the rapidly growing needs for private sector assistance, members noted the need for IFC to have adequate means to fulfill its role in the years ahead. In this respect, the Committee encouraged the IFC's

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Executive Board to continue its discussion on the adequacy of the capital of the Corporation, including modalities of subscription. Members requested that they be informed of progress on this issue at its fall 1990 meeting. 7. The Committee reaffirmed its support for the strengthened debt strategy as endorsed at its last meeting and welcomed the progress achieved so far. Members reiterated the need to maintain the case- by-case approach to commercial bank financing packages and underlined again the central importance of appropriate adjustment programs, including measures to encourage investment and the return of flight capital, as a basis for implementing the strategy. Members noted that the combination of growth-oriented adjustment programs and commercial bank financing arrangements which include debt and debt-service reduction can help improve confi- dence in debtor country economies. They commended the Bank, the Fund, and Japan for their early and substantial support for debt and debt service reduction packages negotiated by debtors and their creditor banks. The Committee called on the Bank and the Fund to continue to provide support for debt and debt-service- reduction programs, with the necessary flexibility, under their established guidelines, which they reaffirmed, and to keep the strengthened debt strategy under review. It also called on the Bank and the Fund to emphasize measures to promote investment and capital repatriation in country reform programs. 8. The Committee also recalled the concerns it had expressed at its last two meetings that the development needs of severely indebted lower middle-income countries whose debts are mainly to official creditors should be given special attention. Members noted that a return to external viability and sustained growth remained uncertain for a number of these countries. Members therefore asked the Bank and the Fund to continue to analyze the debt problems of these countries as well as those of severely indebted middle-income countries with significant official debt. 9. Members welcomed the various measures taken to alleviate the debt burden of the severely indebted low-income countries, in particular the concessional official debt reschedulings by the Paris Club, the cancellation of ODA debt of many low-income countries by an increasing number of creditor countries, the utilization of IDA reflows for the benefit of IDA-only countries with outstanding IBRD debt, and the activation by the Bank of its $100 million facility to assist eligible IDA-only countries to reduce their debt to commercial banks. Members noted that even with these arrangements a number of these countries have uncertain prospects for an early return to external viability. The Committee requested

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the Bank and the Fund to undertake an evaluation of the benefits of the debt relief and other measures taken so far in favor of the severely indebted low-income countries. In view of the low debt- service capacity of these countries, members also considered that their new commitments of assistance to the severely indebted low- income countries should be provided on highly concessional terms. 10. Members agreed that it was also important to recognize the needs of a number of indebted countries which have not restructured their external debt obligations and which have been implementing sound macroeconomic policies. The Committee urged that efforts be made to maintain adequate financial flows to these countries, including multilateral flows, to support adjustment, development, and poverty reduction. 11. The Committee welcomed the World Bank's report "Sub-Saharan Africa: From Crisis to Sustained Growth." It emphasized the complementary roles of the Bank and the Fund in the long- term development process in sub-Saharan Africa. The Committee endorsed the approach of the report's strategic agenda. It stressed that sustained growth and development required firm commitment and good governance on the part of the concerned African governments given their primary responsibility in the design and implementation of their development strategies. Members also agreed that there is a need for adequate, effective, and well- coordinated funding from donors and multilateral institutions, noting that large official development assistance flows to sub- Saharan Africa would continue to be required in the 1990s. They expressed their support for the recommendation in the report that resources be channelled more selectively to countries implementing adjustment programs, thereby maximizing the effectiveness of external assistance. The Committee requested to be kept informed of the progress in respect of the long-term strategic agenda. In this respect it welcomed the Dutch Government's initiative to hold a conference on sub-Saharan Africa next July in Maastricht. 12. Members recalled their earlier recommendation that the Special Program of Assistance to Africa (SPA) framework be extended beyond 1990. They welcomed the agreement in principle of donors for an extension of the Program and urged them to indicate their levels of adjustment assistance for 1991-93 at the SPA session scheduled for the fall of 1990. They also suggested that donors take that occasion to continue to consider steps to untie their commitments under the SPA and to further harmonize procurement and disbursement procedures. 13. The Committee reiterated the importance it attaches to environmen- tal issues and noted the progress being made by the Bank on a

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number of issues such as the new Operational Directive on environmental assessment, the integration of environmental con- cerns into economic analysis, and the growth in lending for freestanding environmental projects. It encouraged the Bank to continue its efforts to integrate better environmental considerations in its operations. The Committee noted that there would be a comprehensive review of Bank-related environmental issues in the Bank's 1990 Annual Report on Environment in accordance with the request made by the Committee at the September 1988 Berlin meeting. It stressed that this report should be comprehensive in its coverage of the progress made by the Bank, particularly in respect to Bank-related environmental issues discussed by the Committee at its recent meetings, including environmental assessments, Bank environmental action plans, energy efficiency and conservation, forestry protection, and debt for nature swaps. 14. Members considered a report prepared by the World Bank on funding global environmental protection and generally agreed that the Bank should play an important role in this area. Members agreed that further work was necessary to develop methods for the Bank to assist developing countries to take actions which contribute to the reduction of global environmental problems. Members agreed that efforts should continue to develop proposals for a pilot mechanism for this purpose, taking into account the Bank's existing programs. They also urged the Bank to take steps to reinforce and expand its existing environmental programs and thus assist developing countries to contribute to the achievement of the same objective according to their priorities. The Bank was urged to proceed with this work expeditiously in consultation with interested parties and close collaboration with UNEP and UNDP. Members underlined the need for sufficient flexibility to attract as wide support as possible. 15. The Committee expressed its appreciation for the successful conclusion of the negotiations for the Ninth Replenishment of IDA and called on all member governments to act swiftly to ensure that IDA-9 begins on July 1, 1990. Members also welcomed the signing of the Lome IV Convention. In spite of these positive developments and a modest increase in official development finance, members noted with concern the impact of the recent rise in interest rates on the cost of debt servicing and the significant decline in aggregate net flows to the severely indebted middle- income countries in 1989, reflecting a sharp drop in private flows. They noted the implications of this trend on domestic investment in these countries at a time when many of them were struggling with severe poverty problems. The Committee called on donor

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countries, particularly those with assistance levels below the 0.7 percent ODA/GDP target, to make further efforts to increase the transfer of resources to developing countries. The Committee welcomed the recent Policy Statement on Development Cooperation in the 1990s by OECD countries, including their commitment to work for a greater degree of coherence in their policies with regard to their impact on developing countries. 16. The Committee welcomed the understandings reached by the Interim Committee on the Ninth General Review of Quotas that will allow the Fund to continue playing its role at the center of the international monetary system. 17. The Committee welcomed the decision to create the European Bank for Reconstruction and Development (EBRD) aimed at assisting economic and political reforms and the transition to market economies in Central and Eastern Europe. It called on the Bank Group and the Fund to work with the EBRD in fulfilling these objectives. Members emphasized that financial support for reforms in Eastern Europe calls for adequate resources so that the requirements of this region can be met while also allowing increased financial flows on appropriate terms to developing countries. 18. The Committee also noted that among countries facing payment difficulties, there are some with overdues to the World Bank and regional development banks. Since it is in the interest of all borrowers and shareholders to have overdues handled in a way which continues to allow these institutions to keep the costs of borrowed funds to the lowest level possible, the Committee asked the World Bank, in consultation with the regional development banks, to review the current policies and procedures for handling overdues and to present a report to the Development Committee at its next meeting. The Committee recognized that there are other broader issues of coordination which needed to be considered. 19. The Committee heard from the Deputy Director General of GATT that the multilateral trade negotiations under the Uruguay Round were in their final crucial phase and that, while much progress had been achieved, a number of key agricultural, industrial, and other issues remained unresolved. Members called on both developed and developing countries to reach an early agreement on these issues and to agree on a strengthened multilateral trading system based on predictable and uniform rules to promote trade liberaliza- tion by all countries. They stressed that a successful conclusion of the negotiations was essential to prevent the drift toward protectionism. Members also emphasized that an improvement in market access and greater participation by developing countries in GATT benefits were essential and in many cases more important

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than official development assistance flows or debt relief in facilitat- ing the adjustment and growth efforts of developing countries. The Committee reiterated its call on the Bank and the Fund to keep under study, in close consultation with the GATT, the implications of regional trading arrangements for developing countries' eco- nomic prospects for consideration at a future meeting. 20. In view of its previous commitment to review periodically progress in addressing poverty issues, the Committee agreed to discuss at its next meeting strategies for the effective reduction of poverty in the 1990s in light of an issues paper based on the Bank's forthcoming World Development Report on poverty and on a contribution from the Fund. Given continuing major indebtedness problems, members agreed to continue at their September meeting their review of the debt strategy and its impact on the development prospects of all severely indebted countries with the assistance of documentation prepared by the Bank and the Fund. The Committee also reaffirmed its undertaking to give full consideration in September to the economic role of women in development and requested the Bank to prepare a paper on this subject. Emphasizing the importance it attaches to environmental issues, the Committee will consider these further at its next meeting. 21. The Committee agreed to meet again in Washington, D.C. on September 24, 1990.

©International Monetary Fund. Not for Redistribution RESOLUTIONS

Resolution No. 44-51

Increases in Quotas of Members—Ninth General Review

Article III, Section 2(a) of the Articles of Agreement provides in part that "The Board of Governors shall at intervals of not more than five years conduct a general review, and if it deems it appropriate propose an adjustment, of the quotas of the members." The five-year period since the completion of the Eighth General Review was due to end on March 31, 1988. The Board of Governors decided on April 22, 1988 to continue its review and requested the Executive Board to complete its work on this matter and to submit appropriate proposals to the Board of Governors not later than April 30, 1989. After further consideration of the substantive issues relating to the Ninth General Review, the Board of Governors decided on May 30, 1989, to continue its review and requested the Executive Board to complete its work with a view to a decision by the Board of Governors by Decem- ber 31, 1989. At the Interim Committee meeting held in Washington, D.C. in September 1989, agreement was reached on a number of the substantive issues, including the principles that could guide the distribution of an enlargement of the Fund among members. Following the guidance of the Interim Committee, the Executive Board continued its consideration of the outstanding substantive issues. In light of the need for further consideration, however, the Executive Board decided on November 28, 1989 to submit a report entitled "Increases in Quotas of Members—Ninth General Review" to the Governors, recommending adoption of a proposed resolution requesting the Executive Board to complete its consideration of the substantive issues relating to the Ninth General Review with a view to a decision by the Board of Governors by March 31, 1990.

In accordance with Section 13 of the By-Laws, the following Resolution was submitted to the Governors on November 29, 1989 for a vote without meeting:

RESOLVED: That the Board of Governors, having noted the report of the Executive Board entitled "Increases in Quotas of Members—Ninth General Review," hereby resolves to continue its review of quotas under Article III, Sec- tion 2(a), and requests the Executive Board to complete its work on the Ninth

1 Resolution No. 44-5 was inadvertently assigned a number in the series associated with the 44th (1989) Annual Meeting.

280

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General Review of Quotas with a view to a decision by the Board of Governors on the completion of the Ninth Review not later than March 31, 1990.

The Board of Governors adopted the foregoing Resolution, effective December 28, 1989.

Resolution No. 45-1

Increases in Quotas of Members—Ninth General Review

Article HI, Section 2(a) of the Articles of Agreement provides in part that "The Board of Governors shall at intervals of not more than five years conduct a general review, and if it deems it appropriate propose an adjustment, of the quotas of the members." The five-year period since the completion of the Eighth General Review was due to end on March 31, 1988. The Board of Governors decided on April 22, 1988 to continue its review and requested the Executive Board to complete its work on this matter and to submit appropriate proposals to the Board of Governors not later than April 30, 1989. After further consideration of the substantive issues relating to the Ninth General Review, the Board of Governors decided on May 30, 1989, to continue its review and requested the Executive Board to complete its work with a view to a decision by the Board of Governors by Decem- ber 31, 1989. At the Interim Committee meeting held in Washington, D.C. in September 1989, agreement was reached on a number of the substantive issues, including the principles that could guide the distribution of an enlargement of the Fund among members. Following further consideration of these and other substantive issues by the Executive Board, the Board of Governors decided on December 28,1989 to continue its review and requested the Executive Board to conclude its work with a view to a decision by the Board of Governors by March 31, 1990. While the Executive Board had concluded most of the technical aspects of its work, and had made considerable progress on many of the substantive issues, the Executive Board decided on February 26, 1990 to submit a report entitled "Increases in Quotas of Members—Ninth General Review" to the Governors, recommending adoption of a proposed Resolution requesting the Executive Board to complete its work on the Ninth Review in order to permit the Board of Governors to reach a decision on the completion of the Ninth General Review of Quotas before June 30, 1990.

In accordance with Section 13 of the By-Laws, the following Resolution was submitted to the Governors on February 28, 1990 for a vote without meeting:

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RESOLVED: That the Board of Governors, having noted the report of the Executive Board entitled "Increases in Quotas of Members—Ninth General Review," hereby resolves to continue its review of quotas under Article III, Sec- tion 2(a), and requests the Executive Board to complete its work on the Ninth General Review of Quotas with a view to a decision by the Board of Governors on the completion of the Ninth Review not later than June 30, 1990.

The Board of Governors adopted the foregoing Resolution, effective March 29, 1990.

Resolution No. 45-2

Increases in Quotas of Members—Ninth General Review

Article III, Section 2(a) of the Articles of Agreement provides in part that "The Board of Governors shall at intervals of not more than five years conduct a general review, and if it deems it appropriate propose an adjustment, of the quotas of the members." The five-year period since the completion of the Eighth General Review was due to end on March 31, 1988. The Board of Governors decided on April 22, 1988 to continue its review and requested the Executive Board to complete its work on this matter and to submit appropriate proposals to the Board of Governors not later than April 30, 1989. After further consideration of the substantive issues relating to the Ninth General Review, the Board of Governors decided on May 30, 1989, to continue its review and requested the Executive Board to complete its work with a view to a decision by the Board of Governors by Decem- ber 31, 1989. At the Interim Committee meeting held in Washington, D.C. in September 1989, agreement was reached on a number of the substantive issues, including the principles that could guide the distribution of an enlargement of the Fund among members. Following further consideration of these and other substantive issues by the Executive Board, the Board of Governors decided on December 28,1989 to continue its review and requested the Executive Board to conclude its work with a view to a decision by the Board of Governors by March 31, 1990. While the Executive Board had concluded most of the technical aspects of its work, and had made considerable progress on the substantive issues, the Board of Governors decided on March 29, 1990 to continue its review and requested the Executive Board to complete its work on the Ninth General Review with a view to a decision by the Board of Governors on the completion of the Ninth General Review of Quotas before June 30, 1990. Following the understandings reached by the Interim Committee at its meeting in Washington, D.C. in May 1990, and in

©International Monetary Fund. Not for Redistribution RESOLUTIONS 283 accordance with its own agreement, the Executive Board decided on May 21, 1990 to submit a report entitled "Increases in Quotas of Members— Ninth General Review" to the Governors, containing a proposed Resolution which was recommended for adoption.

In accordance with Section 13 of the By-Laws, the following Resolution was submitted to the Governors on May 25, 1990 for a vote without meeting:

WHEREAS, the Executive Board has submitted to the Board of Governors a report entitled "Increases in Quotas of Fund Members—Ninth General Review" containing recommendations on increases in the quotas of individual members of the Fund; and

WHEREAS, the Executive Board has recommended the adoption of the following Resolution of the Board of Governors, which Resolution proposes increases in the quotas of members of the Fund as a result of the Ninth General Review of Quotas and deals with certain related matters, by vote without meeting pursuant to Section 13 of the By-Laws of the Fund;

Now, THEREFORE, the Board of Governors hereby RESOLVES that

1. The International Monetary Fund proposes that, subject to the provisions of this Resolution, the quotas of members of the Fund shall be increased to the amounts shown against their names in the Annex to this Resolution.

2. A member's increase in quota as proposed by this Resolution shall not become effective unless the member has notified the Fund of its consent to the increase not later than the date prescribed by or under paragraph 4 below and has paid the increase in quota in full within the period prescribed by or under paragraph 5 below, provided that no member with overdue repurchases, charges or assessments to the General Resources Account may consent to or pay for the increase in its quota until it becomes current in respect of these obligations.

3. No increase in quota shall become effective before the later of:

(i) during the period ending December 30, 1991, the date of the Fund's determination that members having not less than eighty-five (85) percent of the total of quotas on May 30, 1990 have consented to the increases in their quotas, or, after December 30, 1991, the date of the Fund's determination that members having not less than seventy (70) percent of the total of quotas on May 30, 1990 have consented to the increase in their quotas; or

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(ii) The effective date of the Third Amendment of the Articles.

4. Notices in accordance with paragraph 2 above shall be executed by a duly authorized official of the member and must be received in the Fund before 6:00 p.m., Washington time, on December 31, 1991, provided that the Executive Board may extend this period as it may determine. 5. Each member shall pay to the Fund the increase in its quota within 30 days after the later of (a) the date on which it notifies the Fund of its consent or (b) the date on which the requirement for the effectiveness of the increase in quota under paragraph 3 above has been met, provided that the Executive Board may extend the payment period as it may determine.

6. When deciding on an extension of the period for consent to or payment for the increase in quotas, the Executive Board shall give particular consideration to the situation of members that may still wish to consent to or pay for the increase in quota, including members with protracted arrears to the General Resources Account, consisting of overdue repurchases, charges or assessments to the General Resources Account, that, in its judgment, are cooperating with the Fund toward the settlement of these obligations. 7. Each member shall pay 25 percent of its increase either in special drawing rights or in the currencies of other members specified, with their concurrence, by the Fund, or in any combination of special drawing rights and such currencies. The balance of the increase shall be paid by the member in its own currency.

Annex to Resolution No. 45-2

Proposed Proposed Quota Quota (In millions (In millions of SDRs) of SDRs) 1. Afghanistan 120.4 11. Barbados 48.9 2. Algeria 914.4 12. Belgium 3,102.3 3. Angola 207.3 13. Belize 13.5 4. Antigua and Barbuda 8.5 14. Benin 45.3 5. Argentina 1,537.1 15. Bhutan 4.5

6. Australia 2,333.2 16. Bolivia 126.2 7. Austria 1,188.3 17. Botswana 36.6 8. Bahamas 94.9 18. Brazil 2,170.8 9. Bahrain 82.8 19. Burkina Faso 44.2 10. Bangladesh 392.5 20. Burundi 57.2

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Proposed Proposed Quota Quota (In millions (In millions of SDRs) of SDRs) 21. Cameroon 135.1 61. Indonesia 1,497.6 22. Canada 4,320.3 62. Iran, Islamic Rep. of 1,078.5 23. Cape Verde 7.0 63. Iraq 864.8 24. Central African Republic 41.2 64. Ireland 525.0 25. Chad 41.3 65. Israel 666.2

26. Chile 621.7 66. Italy 4,590.7 27. China 3,385.2 67. Jamaica 200.9 28. Colombia 561.3 68. Japan 8,241.5 29. Comoros 6.5 69. Jordan 121.7 30. Congo, People's Rep. of the 57.9 70. Kampuchea, Democratic 25.0

31. Costa Rica 119.0 71. Kenya 199.4 32. Cote d'lvoire 238.2 72. Kiribati, Republic of 4.0 33. Cyprus 100.0 73. Korea 799.6 34. Denmark 1,069.9 74. Kuwait 995.2 35. Djibouti 11.5 75. Lao People's Dem. Rep. 39.1

36. Dominica 6.0 76. Lebanon 146.0 37. Dominican Republic 158.8 77. Lesotho 23.9 38. Ecuador 219.2 78. Liberia 96.2 39. Egypt 678.4 79. Libya 817.6 40. El Salvador 125.6 80. Luxembourg 135.5

41. Equatorial Guinea 24.3 81. Madagascar 90.4 42. Ethiopia 98.3 82. Malawi 50.9 43. Fiji 51.1 83. Malaysia 832.7 44. Finland 861.8 84. Maldives 5.5 45. France 7,414.6 85. Mali 68.9

46. Gabon 110.3 86. Malta 67.5 47. Gambia, The 22.9 87. Mauritania 47.5 48. Germany 7,241.5 88. Mauritius 73.3 49. Ghana 274.0 89. Mexico 1,753.3 50. Greece 587.6 90. Morocco 427.7

51. Grenada 8.5 91. Mozambique 84.0 52. Guatemala 153.8 92. Myanmar 184.9 53. Guinea 78.7 93. Nepal 52.0 54. Guinea-Bissau 10.5 94. Netherlands 3,444.2 55. Guyana 67.2 95. New Zealand 650.1

56. Haiti 60.7 96. Nicaragua 96.1 57. Honduras 95.0 97. Niger 48.3 58. Hungary 754.8 98. Nigeria 1,281.6 59. Iceland 85.3 99. Norway 1,104.6 60. India 3,055.5 100. Oman 119.4

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Proposed Proposed Quota Quota (In millions (In millions of SDRs) of SDRs) 101. Pakistan 758.2 127 Sunname 676 102. Panama 149.6 128 Swaziland 365 103. Papua New Guinea 95.3 129 Sweden 1,6140 104. Paraguay 72.1 130 Syrian Arab Republic 2099 105. Peru 466.1 131 Tanzania 1469 106. Philippines 633.4 132 Thailand 573 9 107. Poland 988.5 133 Togo 543 108. Portugal 557.6 134 Tonga 50 109. Qatar 190.5 135 Trinidad and Tobago 2468 110. Romania 754.1 136 Tunisia 2060 111. Rwanda 59.5 137 Turkey 6420 112. Sao Tome and Principe 5.5 138 Uganda 133 9 113. Saudi Arabia 5,130.6 139 United Arab Emirates 392 1 114. Senegal 118.9 140 United Kingdom 7,414 6 115. Seychelles 6.0 141 United States 26,526 8 116. Sierra Leone 77.2 142 Uruguay 225 3 117. Singapore 357.6 143 Vanuatu 125 118. Solomon Islands 7.5 144 Venezuela 1,951 3 119. Somalia 60.9 145 Viet Nam 241 6 120. South Africa 1,365.4 146 Western Samoa 8 5 121. Spain 1,935.4 147 Yemen Arab Republic 708 122. Sri Lanka 303.6 148 Yemen, People's Dem 123. St. Kitts and Nevis 6.5 Rep of 1057 124. St. Lucia 11.0 149 Yugoslavia 918 3 125. St. Vincent 6.0 150 Zaire 394 8 151 Zambia 3635 126. Sudan 233.1 152 Zimbabwe 261 3

The Board of Governors adopted the foregoing Resolution, effective June 28, 1990.

Resolution No. 45-3

Proposed Third Amendment of the Articles of Agreement

WHEREAS the Interim Committee of the Board of Governors has invited the Executive Board to propose an amendment of the Articles of Agreement of the International Monetary Fund providing for suspension of voting and related rights of members that do not fulfill their obligations under the Articles; and

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WHEREAS the Executive Board has proposed such an amendment and prepared a Report on the same; and

WHEREAS the Chairman of the Board of Governors has requested the Secretary of the Fund to bring the proposal of the Executive Board before the Board of Governors; and

WHEREAS the Report of the Executive Board setting forth its proposal has been submitted to the Board of Governors by the Secretary of the Fund; and

WHEREAS the Executive Board has requested the Board of Governors to vote on the following Resolution without meeting, pursuant to Section 13 of the By-Laws of the Fund;

Now, THEREFORE, the Board of Governors, noting the said Report of the Executive Board, hereby RESOLVES that:

1. The proposals for modifications (Proposed Third Amendment) that are attached to this Resolution and are to be incorporated in the Articles of Agreement of the International Monetary Fund are approved.

2. The Secretary of the Fund is directed to ask, by circular letter, telegram, or other rapid means of communication, all members of the Fund whether they accept, in accordance with the provisions of Arti- cle XXVIII of the Articles, the Proposed Third Amendment.

3. The circular letter, telegram, or other communication to be sent to all members in accordance with 2 above shall specify that the Proposed Third Amendment shall enter into force for all members as of the date on which the Fund certifies, by formal communication addressed to all members, that three fifths of the members, having eighty-five percent of the total voting power, have accepted the modifications.

Attachment to Resolution No. 45-3

Proposed Third Amendment of the Articles of Agreement of the International Monetary Fund

The Governments on whose behalf the present Agreement is signed agree as follows:

1. The text of Article XXVI, Section 2 shall be amended to read as follows: (a) If a member fails to fulfill any of its obligations under this Agreement, the Fund may

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declare the member ineligible to use the general resources of the Fund. Nothing in this Section shall be deemed to limit the provisions of Article V, Section 5 or Article VI, Section 1.

(b) If, after the expiration of a reasonable period following a declaration of ineligibility under (a) above, the member persists in its failure to fulfill any of its obligations under this Agreement, the Fund may, by a seventy percent majority of the total voting power, suspend the voting rights of the member. During the period of the suspension, the provisions of Schedule L shall apply. The Fund may, by a seventy percent majority of the total voting power, terminate the suspension at any time.

(c) If, after the expiration of a reasonable period following a decision of suspension under (b) above, the member persists in its failure to fulfill any of its obligations under this Agreement, that member may be required to withdraw from membership in the Fund by a decision of the Board of Governors carried by a majority of the Governors having eighty-five percent of the total voting power.

(d) Regulations shall be adopted to ensure that before action is taken against any member under (a), (b), or (c) above, the member shall be informed in reasonable time of the complaint against it and given an adequate opportunity for stating its case, both orally and in writing.

2. A new Schedule L shall be added to the Articles, to read as follows:

Schedule L

Suspension of Voting Rights

In the case of a suspension of voting rights of a member under Article XXVI, Section 2(b), the following provisions shall apply:

1. The member shall not: (a) participate in the adoption of a proposed amendment of this Agreement, or be counted in the total number of members for that purpose, except in the case of an amendment requiring acceptance by all members under Article XXVIIIO) or pertaining exclusively to the Special Drawing Rights Department;

(b) appoint a Governor or Alternate Governor, appoint or participate in the appointment of a Councillor or Alternate Councillor, or appoint, elect, or participate in the election of an Executive Director.

2. The number of votes allotted to the member shall not be cast in any organ of the Fund. They shall not be included in the calculation of the total voting power, except for purposes of the acceptance of a proposed amendment pertaining exclusively to the Special Drawing Rights Department.

3. (a) The Governor and Alternate Governor appointed by the member shall cease to hold office.

(b) The Councillor and Alternate Councillor appointed by the member, or in whose appointment the member has participated, shall cease to hold office, provided that, if

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such Councillor was entitled to cast the number of votes allotted to other members whose voting rights have not been suspended, another Councillor and Alternate Councillor shall be appointed by such other members under Schedule D, and, pending such appointment, the Councillor and Alternate Councillor shall continue to hold office, but for a maximum of thirty days from the date of the suspension.

(c) The Executive Director appointed or elected by the member, or in whose election the member has participated, shall cease to hold office, unless such Executive Director was entitled to cast the number of votes allotted to other members whose voting rights have not been suspended. In the latter case:

(i) If more than ninety days remain before the next regular election of Executive Directors, another Executive Director shall be elected for the remainder of the term by such other members by a majority of the votes cast; pending such election, the Executive Director shall continue to hold office, but for a maximum of thirty days from the date of suspension; (ii) If not more than ninety days remain before the next regular election of Executive Directors, the Executive Director shall continue to hold office for the remainder of the term.

4. The member shall be entitled to send a representative to attend any meeting of the Board of Governors, the Council, or the Executive Board, but not any meeting of their committees, when a request made by, or a matter particularly affecting, the member is under consideration.

3. The following shall be added to Article XII, Section 3(/):

(v) When the suspension of the voting rights of a member is terminated under Arti- cle XXVI, Section 2(7?), and the member is not entitled to appoint an Executive Director, the member may agree with all the members that have elected an Executive Director that the number of votes allotted to that member shall be cast by such Executive Director, provided that, if no regular election of Executive Directors has been conducted during the period of the suspension, the Executive Director in whose election the member had participated prior to the suspension, or his successor elected in accordance with paragraph 3(c)(i) of Schedule L or with (/) above, shall be entitled to cast the number of votes allotted to the member. The member shall be deemed to have participated in the election of the Executive Director entitled to cast the number of votes allotted to the member.

4. The following shall be added to paragraph 5 of Schedule D: (/) When an Executive Director is entitled to cast the number of votes allotted to a member pursuant to Article XII, Section 3(/)(v), the Councillor appointed by the group whose members elected such Executive Director shall be entitled to vote and cast the number of votes allotted to such member. The member shall be deemed to have participated in the appointment of the Councillor entitled to vote and cast the number of votes allotted to the member.

The Board of Governors adopted the foregoing Resolution, effective June 28, 1990.

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Resolution No. 45-4

Direct Remuneration of Executive Directors and Their Alternates

Pursuant to Section 14(e) of the By-Laws, the 1990 Joint Committee on the Remuneration of Executive Directors and Their Alternates on June 29, 7990 directed the Secretary of the Fund to transmit its report and recommenda- tions to the Board of Governors of the Fund. The Committee s report contained the following proposed Resolution for adoption by the Board of Governors.

In accordance with Section 13 of the By-Laws, the Executive Board on July 5, 1990 requested the Governors to vote without meeting on the above- mentioned Resolution which was submitted to them on July 6, 7990.

RESOLVED: That, effective July 1, 1990, the annual rates of remuneration of Executive Directors of the Fund and their Alternates pursuant to Section I4(e) of the By-Laws shall be as follows:

(i) As salary, $106,440 per year for Executive Directors and $88,940 per year for their Alternates;

(ii) As supplemental allowance (for expenses, including housing and entertainment expenses, except those specified in Section 14(/) of the By-Laws), $9,000 per year for Executive Directors and $7,200 per year for their Alternates.

The Board of Governors adopted the foregoing Resolution, effective August 20, 1990.

Resolution No. 45-5

Benefits of Executive Directors and Their Alternates

Pursuant to Section 14(e) of the By-Laws, the 1990 Joint Committee on the Remuneration of Executive Directors and Their Alternates on June 29, 7990 directed the Secretary of the Fund to transmit its report and recommenda- tions to the Board of Governors of the Fund. The Committee's report contained the following proposed Resolution for adoption by the Board of Governors.

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In accordance with Section 13 of the By-Laws, the Executive Board on July 5, 7990 requested the Governors to vote without meeting on the above- mentioned Resolution which was submitted to them on July 6, 1990:

RESOLVED: 1. That, effective November 10, 1988, the interim measures related to changes in U.S. estate tax legislation made applicable to the staff as of that date shall apply to Executive Directors of the Fund and their Alternates to the same extent as they apply to the staff.

2. That, effective May 1, 1990, the changes in the Staff Retirement Plan of the Fund made applicable to staff participants as of that date shall apply also to those Executive Directors of the Fund and their Alternates who are participants in the Plan.

The Board of Governors adopted the foregoing Resolution, effective August 20, 1990.

Resolution No. 45-6

Membership for the Czech and Slovak Federal Republic

On January 22, 1990, the Government of the Czechoslovak Socialist Republic, now the Czech and Slovak Federal Republic, applied for admission to membership in the International Monetary Fund. The Executive Board resolved on July 20, 1990 that action on the application should not be postponed until the next regular meeting of the Board of Governors.

In accordance with Section 13 of the By-Laws, the following Resolution was submitted to the Governors on July 23, 1990 for a vote without meeting:

WHEREAS, the Czechoslovak Socialist Republic, now the Czech and Slovak Federal Republic, on January 22, 1990 requested admission to membership in the International Monetary Fund in accordance with Section 2 of Arti- cle II of the Articles of Agreement of the Fund;

WHEREAS, pursuant to Section 21 of the By-Laws of the Fund, the Executive Board has consulted with the representative of the Czech and Slovak Federal Republic and has agreed upon the terms and conditions which, in the opinion of the Executive Board, the Board of Governors may wish to prescribe for admitting the Czech and Slovak Federal Republic to membership in the Fund;

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Now, THEREFORE, the Board of Governors, having considered the recom- mendations of the Executive Board, hereby resolves that the terms and conditions upon which the Czech and Slovak Federal Republic shall be admitted to membership in the Fund shall be as follows: 1. Definitions: As used in this Resolution:

(a) The term "Fund" means the International Monetary Fund;

(b) The term "Articles" means the Articles of Agreement of the Fund, as amended; and

(c) The term "SDRs" means special drawing rights of the Fund.

2. Quota: The quota of the Czech and Slovak Federal Republic shall be SDR 590 million.

3. Payment of Subscription: The subscription of the Czech and Slovak Federal Republic shall be equal to its quota. The Czech and Slovak Federal Republic shall pay 22.7 percent of its subscription in SDRs or in the currencies of other members selected by the Managing Director from those currencies that the Fund would receive in accordance with the operational budget in effect at the time of payment. The balance of the subscription shall be paid in the currency of the Czech and Slovak Federal Republic

4. Timing of Payment of Subscription: The Czech and Slovak Federal Republic shall pay its subscription within six months after accepting membership in the Fund.

5. Increase in Quota Equivalent to an Increase Under the Ninth General Review: The quota of the Czech and Slovak Federal Republic shall be increased to SDR 847 million, to which the Czech and Slovak Federal Republic may consent in accordance with the provisions of the Resolution of the Board of Governors No. 45-2 on the Ninth General Review of Quotas. This increase shall take effect in accordance with the terms of that Resolution and the Czech and Slovak Federal Republic shall pay the increase in accordance with Article III, Section 3 of the Articles.

6. Exchange Transactions with the Fund and Remuneration: The Czech and Slovak Federal Republic may not engage in transactions under Article V, Section 3, or receive remuneration under Article V, Sec- tion 9, until its subscription has been paid in full.

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7. Exchange Arrangements: Within 30 days after accepting membership in the Fund, the Czech and Slovak Federal Republic shall notify the Fund of the exchange arrangements it intends to apply in fulfillment of its obligations under Article IV, Section 1 of the Articles.

8. Representation and Information: Before accepting membership in the Fund, the Czech and Slovak Federal Republic shall represent to the Fund that it has taken all action necessary to sign and deposit the Instrument of Acceptance and sign the Articles as contemplated by paragraph 9(a) and 9(b) of this Resolution, and the Czech and Slovak Federal Republic shall furnish to the Fund such information in respect of such action as the Fund may request.

9. Effective Date of Membership: After the Fund shall have informed the Government of the United States of America that the Czech and Slovak Federal Republic has complied with the conditions set forth in paragraph 8 of this Resolution, the Czech and Slovak Federal Republic shall become a member of the Fund on the date when the Czech and Slovak Federal Republic shall have complied with the following requirements:

(a) The Czech and Slovak Federal Republic shall deposit with the Government of the United States of America an instrument stating that it accepts 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

(b) The Czech and Slovak Federal Republic shall sign the original copy of the Articles held in the Archives of the Government of the United States of America.

10. Period of Acceptance of Membership: The Czech and Slovak Federal Republic may accept membership in the Fund pursuant to this Resolution not later than six months after the effective date of this Resolution, which date shall be the date of its adoption by the Board of Governors; provided, however, that if the circumstances of the Czech and Slovak Federal Republic are deemed by the Executive Board to warrant an extension of this period during which the Czech and Slovak Federal Republic may accept membership pursuant to the Resolution, the Executive Board may extend such period until such later date as it may determine.

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The Board of Governors adopted the foregoing Resolution, effective Au- gust 20, 1990. The Articles of Agreement were signed by the Honorable Vaclav Klaus, Minister of Finance of the Czech and Slovak Federal Republic, on behalf of the Government of the Czech and Slovak Federal Republic, on September 20, 1990.

Resolution No. 45-7

1990 Regular Election of Executive Directors

The Executive Board resolved on July 27, 1990 that action in connection with the regulations for the conduct of the 1990 regular election of Executive Directors should not be postponed until the time of the next regular meeting of the Board of Governors, at which the election would take place.

In accordance with Section 13 of the By-Laws, the following Resolution was submitted to the Governors on July 30, 1990 for a vote without meeting:

RESOLVED: (a) That the proposed Regulations for the Conduct of the 1990 Regular Election of Executive Directors are hereby adopted; and (b) That a Regular Election of Executive Directors shall take place at the Annual Meeting of the Board of Governors in 1992.

The Board of Governors adopted the foregoing Resolution, effective August 28, 1990.

Resolution No. 45-8

Membership for the People's Republic of Bulgaria

WHEREAS, the People's Republic of Bulgaria on February 23, 1990 requested admission to membership in the International Monetary Fund in accordance with Section 2 of Article II of the Articles of Agreement of the Fund;

WHEREAS, pursuant to Section 21 of the By-Laws of the Fund, the Executive Board has consulted with the representative of the People's Republic of Bulgaria and has agreed upon the terms and conditions which, in the opinion of the Executive Board, the Board of Governors may wish to prescribe for admitting the People's Republic of Bulgaria to membership in the Fund;

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Now, THEREFORE, the Board of Governors, having considered the recom- mendations of the Executive Board, hereby resolves that the terms and conditions upon which the People's Republic of Bulgaria shall be admitted to membership in the Fund shall be as follows:

1. Definitions: As used in this Resolution: (a) The term "Fund" means the International Monetary Fund; (b) The term "Articles" means the Articles of Agreement of the International Monetary Fund, as amended; (c) The term "SDRs" means special drawing rights of the Fund.

2. Quota: The quota of the People's Republic of Bulgaria shall be SDR 310 million.

3. Payment of Subscription: The subscription of the People's Republic of Bulgaria shall be equal to its quota. The People's Republic of Bulgaria shall pay 22.7 percent of its subscription in SDRs or in the currencies of other members selected by the Managing Director from those currencies that the Fund would receive in accordance with the operational budget in effect at the time of payment. The balance of the subscription shall be paid in the currency of the People's Republic of Bulgaria.

4. Timing of Payment of Subscription: The People's Republic of Bulgaria shall pay its subscription within six months after accepting membership in the Fund.

5. Increase in Quota Equivalent to an Increase Under the Ninth General Review: The quota of the People's Republic of Bulgaria shall be increased to SDR 464.9 million, to which the People's Republic of Bulgaria may consent in accordance with the provisions of the Resolution of the Board of Governors No. 45-2 on the Ninth General Review of Quotas. This increase shall take effect in accordance with the terms of that Resolution and the People's Republic of Bulgaria shall pay the increase in accordance with Article III, Section 3 of the Articles.

6. Exchange Transactions with the Fund and Remuneration: The People's Republic of Bulgaria may not engage in transactions under Article V, Section 3, or receive remuneration under Article V, Section 9, until its subscription has been paid in full.

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7. Exchange Arrangements: Within 30 days after accepting membership in the Fund, the People's Republic of Bulgaria shall notify the Fund of the exchange arrangements it intends to apply in fulfillment of its obligations under Article IV, Section 1 of the Articles.

8. Representation and Information: Before accepting membership in the Fund, the People's Republic of Bulgaria shall represent to the Fund that it has taken all action necessary to sign and deposit the Instrument of Acceptance and sign the Articles as contemplated by paragraph 9(a) and 9(b) of this Resolution, and the People's Republic of Bulgaria shall furnish to the Fund such information in respect of such action as the Fund may request.

9. Effective Date of Membership: After the Fund shall have informed the Government of the United States of America that the People's Republic of Bulgaria has complied with the conditions set forth in paragraph 8 of this Resolution, the People's Republic of Bulgaria shall become a member of the Fund on the date when the People's Republic of Bulgaria shall have complied with the following requirements: (a) The People's Republic of Bulgaria shall deposit with the Govern- ment of the United States of America an instrument stating that it accepts 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 (b) The People's Republic of Bulgaria shall sign the original copy of the Articles held in the Archives of the Government of the United States of America.

10. Period of Acceptance of Membership: The People's Republic of Bulgaria may accept membership in the Fund pursuant to this Resolution not later than six months after the effective date of this Resolution, which date shall be the date of its adoption by the Board of Governors; provided, however, that, if the circumstances of the People's Republic of Bulgaria are deemed by the Executive Board to warrant an extension of this period during which the People's Republic of Bulgaria may accept membership pursuant to this Resolution, the Executive Board may extend such period until such later date as it may determine.

The Board of Governors adopted the foregoing Resolution, effective September 25, 7990. The Articles of Agreement were signed by the Honorable

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Belcho Belchev, Deputy Prime Minister and Minister of Finance of the People's Republic of Bulgaria, on behalf of the Government of Bulgaria, on September 25, 1990.

Resolution No. 45-9

Membership for the Republic of Namibia

WHEREAS, the Republic of Namibia on June 15, 1990 requested admission to membership in the International Monetary Fund in accordance with Section 2 of Article II of the Articles of Agreement of the Fund;

WHEREAS, pursuant to Section 21 of the By-Laws of the Fund, the Executive Board has consulted with the representative of the Republic of Namibia and has agreed upon the terms and conditions which, in the opinion of the Executive Board, the Board of Governors may wish to prescribe for admitting the Republic of Namibia to membership in the Fund;

Now, THEREFORE, the Board of Governors, having considered the recom- mendations of the Executive Board, hereby resolves that the terms and conditions upon which the Republic of Namibia shall be admitted to membership in the Fund shall be as follows:

1. Definitions: As used in this Resolution: (a) The term "Fund" means the International Monetary Fund; (b) The term "Articles" means the Articles of Agreement of the International Monetary Fund, as amended; (c) The term "SDRs" means special drawing rights of the Fund.

2. Quota: The quota of the Republic of Namibia shall be SDR 70 million.

3. Payment of Subscription: The subscription of the Republic of Namibia shall be equal to its quota. The Republic of Namibia shall pay 22.7 percent of its subscription in SDRs or in the currencies of other members selected by the Managing Director from those currencies that the Fund would receive in accordance with the operational budget in effect at the time of payment. The balance of the subscription shall be paid in the currency of the Republic of Namibia.

4. Timing of Payment of Subscription: The Republic of Namibia shall pay its subscription within six months after accepting membership in the Fund.

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5. Increase in Quota Equivalent to an Increase Under the Ninth General Review: The quota of the Republic of Namibia shall be increased to SDR 99.6 million, to which the Republic of Namibia may consent in accordance with the provisions of the Resolution of the Board of Governors No. 45-2 on the Ninth General Review of Quotas. This increase shall take effect in accordance with the terms of that Resolution and the Republic of Namibia shall pay the increase in accordance with Article III, Section 3 of the Articles.

6. Exchange Transactions with the Fund and Remuneration: The Republic of Namibia may not engage in transactions under Article V, Sec- tion 3, or receive remuneration under Article V, Section 9, until its subscription has been paid in full.

7. Exchange Arrangements: Within 30 days after accepting membership in the Fund, the Republic of Namibia shall notify the Fund of the exchange arrangements it intends to apply in fulfillment of its obligations under Article IV, Section 1 of the Articles.

8. Representation and Information: Before accepting membership in the Fund, the Republic of Namibia shall represent to the Fund that it has taken all action necessary to sign and deposit the Instrument of Acceptance and sign the Articles as contemplated by paragraph 9(a) and 9(b) of this Resolution, and the Republic of Namibia shall furnish to the Fund such information in respect of such action as the Fund may request.

9. Effective Date of Membership: After the Fund shall have informed the Government of the United States of America that the Republic of Namibia has complied with the conditions set forth in paragraph 8 of this Resolution, the Republic of Namibia shall become a member of the Fund on the date when the Republic of Namibia shall have complied with the following requirements: (a) The Republic of Namibia shall deposit with the Government of the United States of America an instrument stating that it accepts 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

(b) The Republic of Namibia shall sign the original copy of the Articles held in the Archives of the Government of the United States of America.

©International Monetary Fund. Not for Redistribution RESOLUTIONS 299

10. Period of Acceptance of Membership: The Republic of Namibia may accept membership in the Fund pursuant to this Resolution not later than six months after the effective date of this Resolution, which date shall be the date of its adoption by the Board of Governors; provided, however, that, if the circumstances of the Republic of Namibia are deemed by the Executive Board to warrant an extension of the period during which the Republic of Namibia may accept membership pursuant to this Resolution, the Executive Board may extend such period until such later date as it may determine.

The Board of Governors adopted the foregoing Resolution, effective September 25, 1990. The Articles of Agreement were signed by the Honorable O. F. C. Herrigel, Minister of Finance of the Republic of Namibia, on behalf of the Government of Namibia, on September 25, 1990.

Resolution No. 45-10

Forthcoming Annual Meetings

RESOLVED: That the invitation of the Government of Spain to hold the Annual Meetings in Madrid in 1994 be accepted;

That the 1994 Annual Meetings be convened on Tuesday, October 4, 1994; and

That the 1995 and 1996 Annual Meetings be convened, respectively, on Tuesday, October 10 and October 1, in Washington, D.C.

The Board of Governors adopted the foregoing Resolution, effective September 25, 1990.

Resolution No. 45-11

Financial Statements, Report on Audit, and Administrative Budget

RESOLVED: That the Board of Governors of the Fund considers the Report on Audit for the Financial Year ended April 30, 1990, the Financial Statements contained therein, and the Administrative Budget for the Financial Year ending April 30, 1991 and the Capital Budget for capital projects beginning

©International Monetary Fund. Not for Redistribution 300 SUMMARY PROCEEDINGS, 1990 in Financial Year 1991 as fulfilling the requirements of Article XII, Section 7 of the Articles of Agreement and Section 20 of the By-Laws.

The Board of Governors adopted the foregoing Resolution, effective September 27, 7990.

Resolution No. 45-12

Amendments of the Rules and Regulations

RESOLVED: That the Board of Governors of the Fund hereby notifies the Executive Board that it has reviewed the amendment of Rule N-12, which was made since the 1989 Annual Meeting, and has no changes to suggest.

The Board of Governors adopted the foregoing Resolution, effective September 27, 7990.

©International Monetary Fund. Not for Redistribution Interim Committee of the Board of Governors on the International Monetary System

PRESS COMMUNIQUE

September 24, 1990

1. The Interim Committee of the Board of Governors of the International Monetary Fund held its thirty-fifth meeting in Washington, D.C. on Septem- ber 23-24, 1990 under the chairmanship of Mr. Michael H. Wilson, Minister of Finance of Canada. Mr. Michel Camdessus, Managing Director of the International Monetary Fund, participated in the meeting, which was also attended by observers from a number of international and regional organiza- tions and from Switzerland. 2. The Committee noted that, after several years of rapid expansion, growth is continuing, albeit at a slower pace. The recent rise in the world price of oil, were it to continue, may contribute to cost-price pressures and moderate growth, especially in oil importing countries. It is therefore important that fiscal and monetary policies continue to focus on improving the conditions for strong, sustainable non-inflationary growth over the medium term. Attempts to insulate domestic energy prices through subsidies or price controls, or to compensate for higher oil prices by increasing nominal wages, would only serve to fuel inflationary expectations and require, at a later stage, tighter fiscal and monetary policies. While the consequences of recent developments in the Middle East are likely to complicate the task of fiscal consolidation in a number of countries, the need for credible actions to lower fiscal deficits remains urgent. Stability-oriented monetary policy has a crucial role to play in preventing a wage-price spiral. It is also essential that both industrial and developing countries continue to implement structural reforms aimed at fostering energy conservation, boosting saving and capital formation, and increasing efficiency through enhanced competition and liberalization of trade and domestic markets. Such a policy stance in the face of recent events would contribute to strengthening the medium- and long-term outlook for the world economy and would help to maximize the gains expected from the accelerated integration of the European Community, the German unification, and the far-reaching changes now taking place in Central and Eastern Europe. 3. The Committee stressed that the resilience of the world economy and the success of market-oriented reforms and adjustment efforts in Central and Eastern Europe and in developing countries all depend importantly on an open, transparent, and competitive trading system. In this context, it strongly emphasized the vital importance of a successful Uruguay Round in reducing

301

©International Monetary Fund. Not for Redistribution 302 SUMMARY PROCEEDINGS, 1990 further the barriers to trade, in establishing trading rules and disciplines for the future, and in bringing into the multilateral trading system areas that have largely remained outside its framework. While welcoming the progress that has been made in certain areas of the Round, the Committee expressed deep concern over delays and noted that differences have yet to be resolved on several issues that are crucial to an overall agreement. The Committee urged all participants in the negotiations to make every effort to ensure a timely and successful conclusion of the Round and thereby create the conditions for higher rates of economic growth worldwide. 4. The Committee welcomed the continuing examination by the Executive Board of major issues in the evolving international monetary system, including the implications of policies of major countries, the progress toward European Monetary Union and the prospects for further moves toward convertibility in Eastern Europe, as well as work on exchange rate systems and on the determinants and systemic consequences of capital flows. The Committee emphasized the central responsibility of the Fund for evaluating continuously the functioning of the international monetary system and identifying improve- ments that could be implemented, especially through its bilateral and multilateral surveillance activities, support for the process of policy coordina- tion, technical assistance, and its readiness to alleviate global liquidity shortages should they arise. 5. The Committee noted that once again unexpected events have adversely affected the world economy. The Committee welcomed the international efforts of individual countries to provide immediate and medium-term economic assistance to those countries seriously affected by the Persian Gulf crisis. It encouraged the Executive Board to continue to explore how the Fund can best support members' efforts to deal with recent developments, including the increase in oil prices. Committee members noted that the Fund is well equipped to help members formulate appropriate and strong adjustment policies and catalyze support from other sources. The Committee agreed that the Fund should respond on an expedited basis to present difficulties through use and, as appropriate, adaptations of its existing instruments, including access to stand-by and extended arrangements, the compensatory and contin- gency financing facility, and the enhanced structural adjustment facility. The Committee invited the Executive Board expeditiously to develop the modalities of these adaptations and to take account of the requirements of current circumstances in tailoring members' access to Fund resources, including ways to address the problems of certain members in servicing such new debt. The Committee hoped that all members that are in a position to do so will collaborate in these efforts to assist members that are severely affected by current developments in the Middle East. 6. The Committee welcomed the progress made by a number of heavily indebted countries in undertaking measures designed to restore macroeconomic balance and re-establish the conditions for sustained growth. The successful

©International Monetary Fund. Not for Redistribution INTERIM COMMITTEE 303 experience of these countries illustrates the central importance for members with debt difficulties of adopting policies to improve efficiency and to foster saving, investment, and private capital inflows, including a return of flight capital. It underscores also the crucial role of prompt and adequate external financing in support of such policies. The early and successful conclusion of financing arrangements in the context of the strengthened debt strategy has been a key element in fostering an improved economic performance in heavily indebted countries. The timely assistance of the Fund and the World Bank to these members in support of growth-oriented adjustment programs is of critical importance in their efforts to normalize relations with all external creditors and mobilize the necessary additional financial resources. In this light, the Committee noted with concern the difficult prospects facing many low-income and lower middle-income countries indebted mainly to official creditors, and the likely worsening of payments imbalances in many countries on account of the recent developments in the Middle East. The Committee urged those countries to adopt and sustain the necessary corrective policies. The Committee also noted with concern the slow progress of some negotiations between commercial banks and members. With respect to commercial bank financing packages, it called on all parties concerned to expedite negotiations and resolve outstanding arrears problems. As regards official bilateral debts, the Committee welcomed the continuing support of creditors for members' efforts to pursue adjustment and regain external viability. It noted in that connection the helpful actions taken by some creditor countries to provide new money or to reduce debt and debt-service burdens, including through cancellation of official development assistance obligations. It also welcomed the recent decisions of the Paris Club to permit debt/equity and other debt conversion in reschedulings and to extend longer repayment periods on a case-by-case basis to lower middle-income countries, as well as the continuing review of additional options. It invited the Paris Club to consider recent initiatives and proposals to enlarge the scope of official debt relief. The Committee welcomed the U.S. effort to implement the "Enterprise for the Americas Initiative" designed to promote investment, growth, and debt reduction in Latin America. 7. The Committee welcomed the progress achieved in some Central and Eastern European countries in reducing imbalances and observed that the process of structural change on which the region is embarking will require action in many fields—particularly in light of recent oil market developments— and over an extended period. Safety nets will be necessary to protect the vulnerable segments of society. It will be important for these economies to be opened to foreign trade and investment as rapidly as possible. While remaining mindful of the need to continue to address the needs of other countries facing similar difficulties, the international community should support the programs of stabilization and reform of these countries by improving the access of their exports to world markets and increasing its

©International Monetary Fund. Not for Redistribution 304 SUMMARY PROCEEDINGS, 1990 financial and technical assistance. In this connection, the support provided by national governments and regional and multilateral institutions, and its effective coordination, was welcomed. The Committee welcomed the entry of the Czech and Slovak Federal Republic and the prospective entry of Bulgaria and Namibia into the Bretton Woods institutions. Together with the membership applications of Mongolia and Switzerland, these developments enhance the universal character of the Fund and the Bank. 8. The Committee welcomed the role of the Fund in convening work, undertaken jointly with the World Bank, the OECD, and the designated President of the EBRD, and in close consultation with the Commission of the European Communities, on a detailed study of the economy of the Soviet Union. 9. The Committee stressed the importance of bringing into effect the quota increases under the Ninth General Review at the earliest possible date, particularly in view of recent events and uncertainties in the world economy. The Committee called upon all members to consent to the quota increase and accept the associated Third Amendment of the Articles of Agreement as soon as possible. 10. The Committee agreed to hold its next meeting in Washington, D.C. on April 29, 1991.

INTERIM COMMITTEE COMPOSITION

as of September 23-24, 1990

Michael H. Wilson, Chairman

Mohammad Abalkhail Saudi Arabia Abubakar Alhaji Nigeria Pierre Beregovoy France Nicholas F. Brady United States Zelia Maria Cardoso de Mello Brazil Guido Carli Italy Madhu Dandavate India Antonio Erman Gonzalez Argentina Abderrahmane Hadj-Nacer Algeria Ryutaro Hashimoto Japan Paul J. Keating1 Australia Wim Kok Netherlands Rolf Kullberg Finland LI Guixian2 China

Alternate attending for the member: 1 Simon Crean 2 CHEN Yuan

©International Monetary Fund. Not for Redistribution INTERIM COMMITTEE 305

John Major United Kingdom Philippe Maystadt Belgium Adrianus Mooy Indonesia Pay Pay wa Syakassighe Zaire Mohammed Mehdi Saleh3 Iraq Pedro R. Tinoco Venezuela Theo Waigel Germany, Federal Republic of Michael H. Wilson4 Canada

3 Abdul Malik Al Hamar, United Arab Emirates 4 John W. Crow

©International Monetary Fund. Not for Redistribution 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)

PRESS COMMUNIQUE

September 24, 1990

1. The Development Committee met in Washington, D.C. on Septem- ber 24, 1990 under the chairmanship of the Hon. B.T.G. Chidzero, Senior Minister of Finance, Economic Planning and Development of Zimbabwe.1 2. The Committee met at a time when the economic prospects of many developing countries were being affected adversely, particularly by the disruption of trade and workers' remittances and the increase in the price of oil resulting from the events in the Middle East as well as by the economic slowdown in some industrial countries, higher interest rates, and the weakening in non-oil commodity prices. It welcomed the efforts currently underway to coordinate the distribution of financial resources for those developing countries affected by the Middle East crisis. Members welcomed the recent suggestions made by the managements of the Bank and the Fund on the response of their respective institutions. They recommended that the Boards of Executive Directors at the Bank and the Fund commence, on an expedited basis, a comprehensive review of measures that would enable them to respond promptly, flexibly, and with expanded resources to the current situation. They agreed that experience shows that strong and rapid adjustment measures by affected countries are essential for maintaining internal and external balances. They also stressed that the impact of the Middle East crisis underlines the need to address development issues even more vigorously, including those considered at this meeting. 3. Noting the continuing severity of poverty problems in developing countries, the Committee agreed that the objective of a sizeable reduction in the incidence of poverty is the highest priority for the international development community. Members also agreed that a broad consensus is emerging on strategies to be pursued toward the achievement of this goal. They welcomed the contribution of the 1990 World Development Report and the work of the Bank and the Fund in support of this process. 4. The Committee agreed that governments of developing countries have

1 Mr. Barber B. Conable, President of the World Bank, Mr. Michel Camdessus, Managing Director of the International Monetary Fund, Mr. Yves L. Fortin, Executive Secretary of the Development Committee, and Mr. S.M.H. Adeli, Chairman of the Group of Twenty-Four, participated in the meeting. Observers from Switzerland and a number of international and regional organizations also attended. 306

©International Monetary Fund. Not for Redistribution DEVELOPMENT COMMITTEE 307 the primary responsibility for achieving the objective of poverty reduction. Members stressed that this objective would be most effectively achieved through the adoption of national development strategies, including sound macroeconomic and structural policies, which: (a) encourage sustainable growth that increases income earning opportuni- ties for the poor; and (b) develop the human resources of the poor, particularly through broad access to education, health, and family planning services. Members also stressed that the above strategies should be supplemented by social safety net programs, selectively targeted to those in need and consistent with growth-oriented adjustment and development policies. The Committee encouraged all parties concerned to discuss their poverty reduction approaches, programs, and goals in the framework of their policy dialogue. Members also agreed that good governance and involvement of the poor in the design and execution of development projects and programs are key elements for the effectiveness of poverty reduction efforts. 5. The Committee emphasized that the poverty reduction efforts of developing countries should be supported and complemented by developed countries in a consistent manner, through increased official flows, as well as through sound macroeconomic, structural, and open trade policies. Members agreed that aid donors and multilateral development agencies should examine their operational policies to ensure that their external assistance more fully supports the implementation of recipient countries' national development strategies aimed at lasting poverty reduction, thus improving the quality of aid. In this connection, members welcomed the commitment of the President of the World Bank to submit to the Bank's Board of Executive Directors, for its early consideration, proposals for fully translating the conclusions of the 1990 World Development Report into the Bank's operational practice. 6. The Committee reaffirmed its support for the strengthened debt strategy and welcomed the number of debt and debt-service reduction packages already concluded, or in the course of negotiation, between debtor countries and commercial banks. Members expressed concern, however, about the slow pace of negotiations on commercial bank financing packages in some cases. They called on the Bank and the Fund to continue to provide support for debt and debt-service reduction packages, with the necessary flexibility, under their established guidelines. The Committee emphasized the crucial importance for debtor countries to adopt appropriate growth-oriented adjustment programs as a basis for debt and debt-service reduction, thus creating the conditions favorable to domestic and foreign investment and the repatriation of flight capital. Members welcomed U.S. efforts to implement the "Enterprise for the Americas Initiative" designed to promote investment, growth, and debt reduction in Latin America. 7. The Committee expressed its concern that the prospects for external viability with sustainable growth remain difficult for some of the severely

©International Monetary Fund. Not for Redistribution 308 SUMMARY PROCEEDINGS, 1990 indebted lower middle-income countries, largely indebted to bilateral official creditors, even if a significant strengthening of domestic policies is assumed. Members welcomed the recent consensus by Paris Club creditor countries to lengthen repayment periods and to permit debt/equity and other debt conver- sion in reschedulings. The review of additional options should take into account the need for debtor countries to benefit from increased new financial flows. The Committee welcomed the recent bilateral decisions by a number of creditor countries which would contribute to alleviating the burden of bilateral debt of some severely indebted lower middle-income countries. Members invited all creditor countries to consider taking further measures on a coordinated and case-by-case basis in favor of those countries implementing adjustment programs. 8. The Committee welcomed the debt relief that creditor countries have provided, in particular through concessional official debt rescheduling and official development assistance debt cancellation, to an increasing number of severely indebted low-income countries implementing Bank and Fund supported adjustment programs. Members also welcomed the utilization of International Development Association (IDA) reflows for the benefit of IDA- only countries with outstanding IBRD debt. They encouraged the early use of the resources of the Bank's facility, financed from the Bank's net income, to assist eligible IDA-only countries to reduce their debt to commercial banks. Members noted that even with these arrangements and continued adjustment efforts, many of these countries have uncertain prospects for an early return to external viability with sustained growth. The Committee welcomed the request made to the Paris Club in the Houston Declaration to review the implementation of the existing options that apply to the poorest countries and encouraged the concerned creditors to complete this review in a timely manner. The Committee called for early consideration, through the Paris Club, of the proposals made at this meeting by some creditor countries, such as France, the Netherlands, and the United Kingdom, for further bilateral official debt relief to low-income countries implementing adjustment pro- grams. It invited creditor countries to ensure that debt relief measures and official development assistance flows are designed on a case-by-case basis to assist a timely return to external viability with sustainable growth. Members also reiterated that their new commitments of assistance to the severely indebted low-income countries should be provided on highly concessional terms. 9. Members reiterated that it was also important to recognize the needs of a number of indebted countries which have not restructured their external debt obligations and which have been implementing sound macroeconomic policies. The Committee urged that efforts be made to maintain adequate financial flows to these countries, including multilateral flows, to support adjustment, development, and poverty reduction. 10. The Committee welcomed the increasing recognition in both developed

©International Monetary Fund. Not for Redistribution DEVELOPMENT COMMITTEE 309 and developing countries of the critical contribution of women to economic growth and development. Members agreed however that there was a need for a major effort and a strong commitment to concrete action to strengthen the economic role of women in development. 11. The Committee stressed that governments have the primary responsibil- ity to promote women's economic potential within their own specific socio- cultural context. It encouraged them to design women in development policies and strategies in consultation with relevant groups. Members noted that enabling women to raise their own productivity and income is the best way to help them and thereby to contribute effectively to other national development objectives, including poverty reduction. They emphasized that the priorities are education, family planning and maternal health care, agricultural services, provision of credit facilities, and access to labor markets. The Committee urged governments to remove constraints affecting women by adopting or revising legal codes and regulations, as may be required, in order to guarantee women equal rights including ownership and use of productive assets, and opportunities to take part in all sectors of the economy. 12. The Committee welcomed the initiatives taken so far to give women in development issues a higher priority. It encouraged governments and bilateral and multilateral development institutions to further integrate women in development objectives in their activities. While noting the encouraging progress made by the Bank, members urged it to increase further the resources it devotes to women in development activities and to strengthen its institutional capacity to integrate these issues more effectively into its country strategies, economic and sector work, policy dialogue, and actual lending operations. The Bank's action plan in this area should include guidelines for monitoring implementation and evaluating its results. The Committee requested the Bank to prepare a progress report on its women in development activities for the 1991 fall meeting. 13. The Committee welcomed the World Summit for Children initiative that will focus international attention on the survival, protection, and development of children. Noting the strong emphasis placed by the Bank on poverty reduction in its lending program and operations, members urged the Bank to play a central role in helping realize the objectives of this Summit, including through the further expansion of its programs in the areas of primary education and health care. 14. The Committee reviewed progress made in the implementation of the World Bank Group's private sector development action program in light of the need to promote growth, employment opportunities, and poverty reduction. It welcomed the growing emphasis given to market systems and the role of private initiative by member countries in their development strategies. It noted the need to stimulate private foreign and domestic investment and the return of flight capital so as to encourage non-debt-creating private flows in the 1990s. Members welcomed the progress made to date under the Bank

©International Monetary Fund. Not for Redistribution 310 SUMMARY PROCEEDINGS, 1990

Group's action program to support the promotion of an enabling environment for private sector development, public sector restructuring including privatiza- tion, and the acceleration of the pace of financial sector reforms. They noted with satisfaction the important role of the International Finance Corporation (IFC) in providing financing and advice for new investment and the work of IFC and the Multilateral Investment Guarantee Agency (MIGA) in supporting the continued growth in the flow of resources to the private sector in developing countries. The Committee also stressed the role that the Bank Group can play in reaching small urban and rural private sector enterprises and encouraged it to increase its efforts to assist the development of indigenous entrepreneurship and a locally based private sector. 15. The Committee reiterated its call on the Bank Group to give a very high priority to private sector development in its operations and continue to expand the scope of its activities in this area, including new approaches and instruments as may be needed, as well as to assist developing countries' efforts to implement long-term institutional, regulatory, and legal reforms consistent with their socioeconomic situation. As the Bank Group implements and adapts its action program and strives to enhance further its catalytic impact, members emphasized the need to keep under review the roles, policies, and lending programs of the Bank and its affiliates, the balance between their advisory and operational functions and the need for systematic coordination within the Bank Group. The Committee requested the Bank to prepare a report on these issues and its efforts to strengthen further its activities in support of private sector development for consideration by its Board of Executive Directors. 16. Members recognized the important catalytic role of IFC in promoting sound private sector development. They underscored the need for the Corporation to have adequate resources to meet the growing demand for its services in a regionally balanced and financially prudent manner during the 1990s. In this context, the Committee urged the IFC Board of Executive Directors to complete by the end of the year its review of the operational policies and adequacy of the capital of the Corporation, including the modalities of subscription and payment. 17. Taking note of the recent events, the Committee urged all IMF member countries to take the necessary actions to ensure that the Fund quota increase and the associated third amendment of the Articles become effective without delay. 18. The Committee welcomed the Bank's first Annual Report on the Environment which it had requested at its Berlin meeting in September 1988. Members stressed that this comprehensive report clearly shows that the Bank is moving forward on a growing number of Bank-related environmental issues while improving the flow of information on these issues. They reiterated the importance of integrating environmental concerns into the Bank's operations, particularly environmental impact assessments and environmental action

©International Monetary Fund. Not for Redistribution DEVELOPMENT COMMITTEE 311 plans. They emphasized the importance of new initiatives to provide greater protection for tropical forests and promote energy efficiency and conservation in developed and developing countries. Members asked the Bank to increase its cooperation with governments making efforts in these two areas and to include an assessment of progress achieved in its second Annual Report on the Environment. The Committee also welcomed the creation of an Interim Multilateral Fund in support of the Montreal Protocol on the elimination of chlorofluorocarbons. The Committee welcomed the progress made toward the establishment of a program, including a funding mechanism, to address global environmental problems and urged the donors and the Bank, working in collaboration with UNEP and UNDP, to complete their work before the next Development Committee meeting. 19. The Committee emphasized that current developments and their eco- nomic impact make the strengthening of the international trading system more necessary than ever. Members heard from the Director General of the GATT that multilateral trade negotiations under the Uruguay Round were in their final phase and that the time had come for participants in the Round to reach basic agreements across the board, and in particular in such areas as agriculture, textiles and clothing, and tropical products which are of particular importance to developing countries. They urged all countries to roll back protectionist measures and to refrain from introducing new ones. The Committee reiterated its call on all parties concerned to agree on a global package by December 1990 in a way that would foster trade liberalization on the basis of uniform multilateral rules. The Committee further noted that successful completion of the negotiations was essential in order to support the reform programs in progress in a number of countries. 20. Despite an encouraging trend in the flow of foreign direct investment and NGO grants, the Committee noted with concern that net resource flows, particularly to low-income Asian countries and the severely indebted middle- income countries, had declined in 1989. Members agreed on the need to continue to mobilize adequate financing in support of developing countries' reforms and development efforts. The Committee called on donor countries to indicate their levels of assistance to ensure the full financing of the second phase of the Special Program of Assistance for Sub-Saharan Africa. Members welcomed the outcome of the Maastricht Conference last July and the wide support expressed for measures which could stimulate external assistance for sub-Saharan Africa's development efforts. They also welcomed the main conclusions of the Paris conference on the least developed countries. 21. The Committee agreed to focus at its Spring 1991 meeting on two aspects of the broad issue of transfer of resources to developing countries: first, the financial implications of development policies aimed at poverty reduction in the light of an issues paper to be prepared by the Bank in consultation with the Fund; and second, the role of foreign direct investment in development with the assistance of a joint Bank-Fund issues paper. The

©International Monetary Fund. Not for Redistribution 312 SUMMARY PROCEEDINGS, 1990

Committee will also discuss the impact of industrial countries' trade, agricultural, and industrial policies on developing countries on the basis of the joint Bank/Fund full report requested at its May 8, 1990 meeting. In addition, Members requested a report on progress in the discussion of IFC's capital adequacy as well as a detailed progress report from the two institutions on the implementation of the debt strategy and its impact on the development prospects of all severely indebted countries. 22. Members expressed their deep appreciation for the dedicated services of its Chairman, the Honorable B.T.G. Chidzero, Senior Minister of Finance, Economic Planning and Development of Zimbabwe, over the last four years. They underlined the special contribution he has made to the strengthening of the Committee as it gears itself to meet the challenges of the 1990s and in particular, the dignity, distinction, and judgment with which he had presided over the meetings of the Committee. They offered him their warmest good wishes for the future. 23. The Committee agreed to meet again in Washington, D.C. on April 30, 1991.

DEVELOPMENT COMMITTEE COMPOSITION

as of September 24, 1990

B.T.G. Chidzero, Chairman

Mohammad Abalkhail Saudi Arabia Ibrahim Abdul Karim Bahrain Pedro Aspe Mexico Pierre Beregovy France Mohamed Berrada Morocco Nicholas F. Brady United States Guido Carli Italy B.T.G. Chidzero1 Zimbabwe Madhu Dandavate India Kablan D. Duncan Cote d'lvoire Jorge Gallardo Zavala Ecuador Enrique Garcia Bolivia Ryutaro Hashimoto Japan Paul J. Keating2 Australia Wim Kok Netherlands John Major United Kingdom Philippe Maystadt Belgium

Alternate attending for the member: 1 Saihou S. Sabally (The Gambia) 2 Simon Crean

©International Monetary Fund. Not for Redistribution DEVELOPMENT COMMITTEE 313

Virabongsa Ramangkura3 Thailand Arne Skauge Norway WANG Bingqian China Juergen Warnke Germany, Federal Republic of Michael H. Wilson Canada

J Panas Simasathien

©International Monetary Fund. Not for Redistribution Press Announcement

September 27, 1990

At its fortieth meeting on September 27, 1990, in Washington, D.C., the Development Committee selected His Excellency Alejandro Foxley, Minister of Finance of Chile, as Chairman.

COMPOSITION

as of September 27, 7990

B.T.G. Chidzero, Chairman

Mohammad Abalkhail1 Saudi Arabia Ibrahim Abdul Karim2 Bahrain Pierre Beregovoy3 France Mohamed Berrada4 Morocco Nicholas F. Brady5 United States Guido Carli6 Italy Madhu Dandavate7 India Tekola Dejene Ethiopia Kablan D. Duncan8 Cote d'lvoire Alejandro Foxley Chile Jorge Gallardo Zavala Ecuador Ryutaro Hashimoto9 Japan P. J. Keating10 Australia Wim Kok11 Netherlands Allan Larsson12 Sweden John Major13 United Kingdom Philippe Maystadt14 Belgium J. B. Sumarlin15 Indonesia Miguel Rodriguez16 Venezuela WANG Bingqian17 China Jiirgen Warnke18 Germany, Federal Republic of Michael H. Wilson19 Canada

Alternate attending for the member: 1 Osama Faquih 1' Ian De Jong 2 Rasheed M. Al-Maraj 12 Sven-Olof Johansson 3 Philippe de Fontaine Vive 13 David Peretz 4 Mohamed Dairi 14 Jean-Pierre Arnoldi 5 Mark T. Cox, IV 15 Vibul Aunsnunta 6 Giovanni Sacco 16 Jose Angel Gurria (Mexico) 7 J.S. Baijal 17 Wang Liansheng 8 Andre Milongo 18 Eberhard Kurth 9 Junichi Yonezawa 19 Steve Cobrin 10 A. M. Hinton

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©International Monetary Fund. Not for Redistribution ATTENDANCE MEMBERS OF FUND DELEGATIONS

Afghanistan Hector Dalmau Eduardo Jose Del Amor Governor Edgardo C. Demaestri Mohamad Kabir H. E. Guido Jose Maria de Telia Alternate Governor Jorge Dominguez Khalilullah Zemar Eduardo J. Escasany Diego Estevez Algeria Ernesto V. Feldman Governor Anibal Forchieri Abderrahmane Hadj-Nacer Alieto A. Guadagni Alternate Governor Liliana Gurdulich de Correa Mouloud Mokrane Noemi La Greca Advisors Oscar Lamberto Boubekeur Adjali Jorge Osvaldo Lauria Ortus M. Attoui Daniel Marx Rachid Belbaki Monica Merlo O. Benderra Roberto A. Mori Ahmed Bennai Jesus Sabra H. E. Abderrahmane Bensid Maria Sanchez de Sereni All Benzerga Norberto Schor Mohamed Ali Hammoudi Jose Antonio Zapata M. Kashi A. Guillermo Zoccali Ahmed Tas Australia Angola Governor Governor Hon. Simon Crean H. E. Aguinaldo Jaime Alternate Governor Temporary Alternate Governor C.I. Higgins Maria Madalena Ramalho Temporary Alternate Governors Advisor Neil F. Hyden Clotilde da Silva Alves Mariano M. J. Phillips Advisors E. A. Evans Antigua and Barbuda Roger Q. Freney Alternate Governor Keith M.Hall Alphonsus C. Derrick A. M. Hinton Advisor Michael J. Kooymans Paul O. Spencer Michael McLeod Maryanne Mrakovcic Argentina Don Traynor K. Waller Governor Javier Gonzalez Fraga Austria Alternate Governor Rafael Iniesta Governor Advisors Maria Schaumayer Alberto Gustavo Albamonte Alternate Governor Roberto Luis Arano Thomas Lachs Heralio Arganaras Advisors Raul Baglini Helmut Brohs Felix Alberto Camarasa Andreas Ittner Jorge F. Christensen Johann Kernbauer

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Austria (continued) Belgium

Advisors (continued) Governor Alfons Verplaetse Klaus Muendl Alternate Governor Johann Prader J. Vanormelingen Adolf Wala Advisors The Bahamas Gregoire Brouhns Jacques de Groote Governor Anne Grootaert Rt. Hon. Sir Lynden O. Pindling Luc Hubloue Alternate Governor Frank Moss James H. Smith Guy Noppen Advisors Philippe Peeters Owen S. M. Bethel Jean-Jacques Rey Wendy Craigg Bernard Snoy Joseph R. Curry Edgar van de Pontseele David Davis Hon. Albert Grey Belize H. E. Margaret E. McDonald Governor Hon. Sean McWeeney Hon. Ralph Fonseca Bahrain Alternate Governor Alan David Slusher Governor Advisors H. E. Ibrahim Abdul Karim Keith Arnold Alternate Governor H. E. James V. Hyde Abdulla Hassan Saif Yvonne S. Hyde Advisors Ahmed Sayed Abdul Rahman Benin Sheikh Ahmed Saqer Al-Khalifa Governor Saeed Al Marzooq H. E. Idelphonse Lemon Bangladesh Alternate Governor Gilbert Medje Governor Temporary Alternate Governor Khorshed Alam Alassane D. Ouattara Alternate Governor Advisors Shegufta Bakht Chaudhuri Hekou Adougba Temporary Alternate Governor H. E. Candide Ahouansou Akbar Ali Khan Abou Bakar Baba-Moussa Advisors Osseni da Gloria A. Mahbubul Alam Joseph Fanou Quamrul Hai Andre Soungalo Fayama M. Nazimuddin Gilbert Houeto Issoufou Kanda Barbados Amadou Kane Governor Pascal Irenee Koupaki Rt. Hon. L. Erskine Sandiford Lategan Lawson Alternate Governor Corneille Mehissou Kurleigh D. King Mbaye Diop Sarr Temporary Alternate Governor Mande Sidibe Hon. Carl Denzil Clarke Nestor Wadagni Advisors Bhutan Anthony Cave Harold E. Codrington Governor H. E. Sir William Douglas H. E. Dorji Tshering Erskine Griffith Alternate Governor Margaret Cecile Hope Bap Kesang

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Bolivia Advisors Governor Jose Roberto N. Almeida H. E. David Blanco Zavala Carlos Alberto Amorim, Jr. Alternate Governor Eimar Andrade Avillez Raul Boada Rodriguez Nilo Barroso Neto Temporary Alternate Governor Pedro Bodin Edgar Schwarz Mauricio Eduardo Cortes Costa Advisors Pedro Luiz Carneiro de Mendonca Guido Antezana Vigano Sergio R. O. Nascimento Jose Alberto Arias Sartorelli Marcos Caramuru de Paiva David Ascarrunz Carvajal Joaquim Luis Cardoso Palmeiro Roberto Barbery Joao Almino de Souza Filho Beatriz Bedoya de Acha Julio Zelner Fernando Calvo Unzueta Roberto Capriles Bulgaria Juan Cariaga Osorio H. E. Jorse Crespo-Velasco Governor Eduardo Derksen Ivan Dragnevski Carlos H. Fernandez Mazzi Temporary Alternate Governor Luis Fernando Gonzalez I. Belchev Fernando Gutierrez Advisors Guido Edwin Hinojosa Cardoso E. Dimitrov Jose Justiniano M. Dimitrov Julio Leon Prado N. Neov Enrique Limpias P. Zhotev Carlos Alberto Lopez Ivan Maximov Gaston Pacheco Gonzalo Paz Pacheco Burkina Faso Carlos Quintela Erwin Reimers Arana Governor Fernando Ruiz H. E. Bintou Sanogoh Luis Eduardo Siles Vargas Alternate Governor Javier Zuazo Guebrila Ouedraogo Temporary Alternate Governor Botswana Moussa Kone Governor Advisors Christopher L. Hermans Jean Kotie Diasso Alternate Governor H. E. Paul-Desire Kabore Goldie John Stoneham J. K.Orleans-Lindsay Advisors Gaspard Jean Ouedraogo I. Mannathoko Guebrila Ouedraogo H. E. Botswelet;,e K. Sebele Bissiri Joseph Sirima Amadou Beba Sy Brazil Abdou Tahirou Governor H. E. Zelia Maria Cardoso de Mello Burundi Alternate Governor Ibrahim Eris Governor Temporary Alternate Governor Isaac Budabuda Marcos Gianneti da Fonseca Alternate Governor H. E. Jorio Dauster Magalhaes e Silva Evariste Nibasumba Clodoaldo Hugueney Filho Advisors Alexandre Kafka Gregoire Banyiyezako Antonio Kandir Athanase Budigi Pedro S. Malan Astere Girukwigomba Eduardo Marco Modiano H. E. Julien Kavakure Antonio Claudio Sochaczewski Willy Ntunzwenimana

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Cameroon Central African Republic Governor Governor Simon Bassilekin H. E. Dieudonne Wazoua Temporary Alternate Governor Alternate Governor Roger Tchoungui Alphonse Koyamba Advisors Advisors Daniel Astier Lucienne Darlan Mebara Atangana Jean-Pierre Gospodarovitch Jean-Baptiste Djoumessi Joseph Koyagbele Joseph Edou Ahmed Quid Daddah Andre-Blaise Kesseng a Mbassa Joseph Pingama Simon Mamba a Nyam H. E. Jean-Pierre Sohahong-Kombet Roger Ndine Mbassa Jean Philippe Njeck Chad Isaac Njiemoun Martin A. L. Okouda Governor Daniel Saha H. E. Ngarnayal Mbailemdana Alternate Governor Canada Madji Adam Governor Temporary Alternate Governor Hon. Michael H. Wilson Jean-Felix Mamalepot Alternate Governor Advisors David Dodge Lemaye Favitsou-Boulandi Temporary Alternate Governors Clabe Guile John W. Crow Pierre Moussa Hon. Monique Landry Augusta Tene-Koyzoa Douglas E. Smee Marcel Masse Chile Advisors Governor Bill Alexander Andres Bianchi Martin Bakker Alternate Governor C. Scott Clark Roberto Zahler Mayanz Steve Cobrin Temporary Alternate Governor Ferry de Kerckhove Francisco Garces G. Judith Gold Advisors Gerry Grant Carlos Abumohor Touma Robert Hage Julio Barriga Glen D. Hodgson Jose Borda Aretxabala Michael G. Kelly Leon Dobry Folkman Brenda Kulas Edward M. Dreyfus Michael Mackenzie Juan Guillermo Espinosa Don McCutchan Margarita Hepp Dorothy Powell Luis Cristian Hohlberg Robert L. Richardson Sergio Larrain Prieto Alister Smith Andronico Luksic Craig Philip Somerville Ricardo A. Massu M. Christopher M. Towe, Ricardo Matte Cape Verde Claudio A. Pardo Adolfo Rojas Gandulfo Governor Jorge Schneider Hernandez Amaro Alexandre da Luz Italo Traverse Natoli Alternate Governor Jose Maria Cardoso China Advisors Manuel Jesus Costa Governor H. E. Jose Luis Fernandos Lopes Chen Yuan

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Alternate Governor Temporary Alternate Governors Yang Weimin Oliver Castro P. Temporary Alternate Governor Alvaro Trejos F. Dai Qianding Advisors Zhang Zhixiang Manfred Amrhein Advisors Edgar Ayales Chen Minqiang Alfonso Campos Brenes Cui Tiankai Arturo Cuevillas Geng Jianyue Ricardo Longhan Shao Zhengkang Mario Maroto Wang Jun Rolando Ramirez Paniagua Wang Xiangyong Jorge Elias Ramirez Yi Xiaozhun Oscar Rodriguez Zhu Zhong Mario Rojas

Colombia Cote d'lvoire Governor Governor Francisco J. Ortega Hon. Kablan D. Duncan Temporary Alternate Governors Alternate Governor Hon. Luis Fernando Alarcon-Mantilla Charles Konan Banny Luis Jorge Garay Salamanca Advisors Hernan Mejia J. P.M. Adansi Advisors Jean Batigne Manuel Martinez R. Alioune Blondin Beye H. E. Victor Mosquera-Chaux J. Kofi Bucknor Graciela Palacios Meiresonne Alain Nicaise Coffie Enrique Umana Kouakou Desbhy E.M. Diarrassouba Lancina Dosso Comoros Ismael Gaspar-Martins Governor Tekalign Gedamu H. E. Tadjiddine Ben Said Massonde H.E. Charles Gomis Alternate Governor I.U. Iheme Mohamed Halifa Raymond Eby Kabran Amadou S. Loum Ferhat Lounes People's Republic of the Congo Philippe Jacques Mian Eliamon Noel Alternate Governor Delphin G. Rwegasira Gabriel Bokilo Albert Bra Saraka Advisors Wilson K. Tarpeh Jean Christophe Ackondjo Eugene Yai Joseph Baroung Tehi Yoro Ambroise Foalem Jean Jacques Ikama Cyprus Ikourou-Yoka H. E. Roger Issombo Governor Maurice Kitantou-Diamante A.D. Afxentiou Richard Noukelak Alternate Governor Guillaume Owassa E.G. Akhniotis H. E. Armand Razafindrabe Aboubakar Samory Czechoslovakia

Costa Rica Governor Josef Tosovsky Governor Alternate Governor Jorge Guardia Quiros Jiri Vetrovsky

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Denmark Temporary Alternate Governor Franklin Proano Peunte Governor Advisors Niels Helveg Petersen Miguel Babra Lyon Alternate Governor Javier Baquero Erik Hoffmeyer Danilo Carrera Drouet Temporary Alternate Governors Pablo Cordova Cordero Henrik W. Fugmann Gustavo Darquea-Espinosa Richard Mikkelsen Marcos Espinel Jens Thomsen Ramon L. Espinel Lars Tybjerg Pedro K. Gomez-Centurion R. Advisors Victor Manuel Hoyos S. Peter Barslund Roberto Isaias Mogens Camre Luis I. Jacome Bent A. Christiansen Guillermo Lasso Mendoza Henning Christophersen Oscar Loor Risco Kai Aaen Hansen H.E. Jaime Moncayo Garcia Marie Hansen Galo Montano Perez Laurids Mikaelsen Carlos J. Moreno C. Lone Neerhoj Rodrigo E. Moscoso Jan Host Schmidt Moises Tacle Jorge Yunes Djibouti Patricio Zuquilanda Governor Luc A. Aden Egypt Alternate Governor Ahmed Aden Omar Governor Advisor H.E. Mahmoud Salah el din Hamed H.E. Roble Olhaye Alternate Governor H.E. Mohamed Ahmed El-Razaz Dominica Advisors Youssef Boutros-Ghali Governor Sayed M. Elbous Alick B. Lazare Mostafa Kamel Hafez el Dib Temporary Alternate Governor H.E. El Sayed Abdel Raouf El Reedy Eustace Evans Liburd Alaa Khalil Advisors Mohammed Samir Salem Koraiem H.E. Hannelore Angela Benjamin Mohamed Awny Abdel Naby Jake A. Hansen Mahfooz Hamdy Metualy Dominican Republic Abdel Mouneim Aboul Saad Governor Luis F. Toral Cordova El Salvador Temporary Alternate Governor Eligio J. Bisono B. Governor Advisors Jose Roberto Orellana Milla Maritza Amalia Guerrero Alternate Governor Luis M. Piantini H.E. Rafael Eduardo Alvarado Cano Gladys Santana Advisors Mario Read Vittini Alberto Benitez Bonilla Carmen Elena Brizuela de Aleman Ecuador Jose Evelio Serrano Roberto Jimenez Ortiz Governor Nelly Lacayo-Anderson Eduardo Valencia Vasquez Jose Roberto Lopez Calix Alternate Governor Edgar Leonel Saballos Munguia Andres Vallejo Arcos H.E. Miguel Angel Salaverria

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Equatorial Guinea Claude Cambray Jean-Francois Cirelli Governor Philippe de Fontaine Vive H.E. Casto Nvono Akele Ludovic de Montille Alternate Governor Jean-Paul Fitoussi Enrique Manuel King Somo Andre Gauron Daniel Giroux Ethiopia Geraud Guibert Philippe Lagayette Governor Philippe Legris Bekele Tamirat Anne Le Lorier Alternate Governor Paul Lemerle Girma Seyoum Jean-Luc Menda Advisors Gerard Moulin Alemu Aberra Robert Ophele Tsegaye Asfaw Stephane Pallez Mitiku Jembere Pierre Pissaloux Amerga Kassa Amdetta Jeanne-Marie Prost Yitaferu Kassaye Georges Serre Getahun Terrefe Jean-Francois Stoll Michel Ungemuth Fiji Patrice Vial Governor Jone Y. Kubuabola Gabon Alternate Governor Sales! Savu Governor Advisor H.E. Paul Toungui Rajesh Prakash Sharma Alternate Governor Jean-Paul Leyimangoye Finland Advisors Yolande Assele Governor Eyamba Tsimat Rolf Kullberg Alfred Mabika Mouyama Alternate Governor Marius Nziengui-Moussodou Matti Vanhala Fabien Ovono-Ngoua Advisors Rene Ziza Markus Fogelholm Kerstin M. Heinonen Kaarlo Jannari The Gambia Kjell Peter Soederlund H.E. Jukka Robert Valtasaari Governor Hon. Saihou S. Sabally Alternate Governor France Abdou A.B. N'Jie Governor Advisors H.E. Pierre Beregovoy R.D. Asante Alternate Governor Edward E. Fillingham Jean-Claude Trichet K.D. Ouedraogo Temporary Alternate Governors Mamadou Saidi Jean-Pierre Landau Abdoulie M. Touray Denis Samuel-Lajeunesse Advisors Germany, Federal Republic of Philippe Adhemar H.E. Jacques Andreani Governor Jacques Attali Karl Otto Poehl Marc Antoine Autheman Alternate Governor Isabelle Bouillot H.E. Theo Waigel

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Germany, Federal Republic of (continued) A.Y. Kyei Temporary Alternate Governors K.N. Owusu Guenter Grosche Fred Quarshie Eckard Pieske Elie E. Saleeby Helmut Schlesinger Hans Tietmeyer Greece Advisors Alternate Governor Hans-Juergen Brueckner Loukas Papademos Enno Carstensen Advisors Sigrid Folz-Steinacker Petros Kontos Thomas Gierenstein Nikos Kyriazidis Michael Glos Spyros Papanicolaou Bernd Goos Constantinos Thanopoulos Claus Grobecker Guenter Gruber Detlev Hammann Grenada Hans-Dieter Hanfland Governor Annelies Keller H.E. George Ignatius Brizan Emil Wolfgang Keller Alternate Governor Claus Koehler Lauriston F. Wilson, Jr. Manfred J. Koerber Advisors Ursula Kugler Carl Mitchell Hagen Graf Lambsdorff H.E. Denneth Modeste Herbert Laubach Reinhard Meyer zu Bentrup Winfried Finger Guatemala Heinrich Pohlmeier Governor Walter Prax Lizardo Arturo Sosa Lopez Wolfgang Rieke Temporary Alternate Governor Horst H. Rinke Edin Homero Velasquez Escobedo Adolf Roth Advisors Gerd Saupe Josefina de Prera Heinz-Jurgen Scheid Julio Noriega Inge Segall Eugenia Oliva de Rodriguez Gerhard Sennlaub Jorge Papadopolo W. Wolfgang Sieler Wolfgang Solzbacher Guinea Michael von Harpe Stephan von Stenglin Governor Ernst Waltemathe H.E. Edouard Benjamin Manfred Weber Alternate Governor Ralf Zeppernick Kerfalla Yansane Bernhard Ziese Advisors Werner Zywietz Frederick Bangoura Saikou Barry Ghana Kabine Komara H.E. Moussa Sangare Governor Idrissa Thiam G.K. Agama Alternate Governor Guinea-Bissau M.T. Amoako-Atta Advisors Governor Daniel Yaw Adjei Pedro A. Godinho Gomes Kwaku Agyei-Gyamfi Alternate Governor Ernest K.A. Amoa-Awua Aguinaldo Embalo P.S.M. Koranteng Advisor Percival Alfred Kuranchie Alfredo Torres

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Guyana Iceland Governor Governor Hon. Carl Greenidge Johannes Nordal Alternate Governor Temporary Alternate Governor Patrick E. Matthews Ingimundur Fridriksson Temporary Alternate Governors Advisors H.E. Cedric Hilburn Grant H.E. Ingvi S. Ingvarsson Joseph A. Tyndall Indridi H. Thorlaksson Advisors India Cargill Alleyne Clarence Ellis Governor Hon. Madhu Dandavate Haiti Alternate Governor Ram N. Malhotra Governor Temporary Alternate Governors Charles A. Beaulieu G.K. Arora Alternate Governor Deepak Nayyar Jean-Marie Claude Pierre-Louis Advisors Advisors Ashok Chawla Jean-Philippe Elie S. Gurumurthi Marcel Leger Sundaram Krishna Anil Kumar Honduras Ahmad Raza Ananthanarayanan Seshan Governor Ricardo Maduro Joest Indonesia Alternate Governor Juan Ramon Medina Luna Governor Temporary Alternate Governor Hon. J.B. Sumarlin Rigoberto Pineda Santos Alternate Governor Advisors Soegito Sastromidjojo Guillermo Bueso Advisors Marta Julia Cox Boediono Maria Antonieta Dominguez Achmad Darsana H.E. Jorge Ramon Hernandez Alcerro Achjar Iljas Carlos Lopez Contreras J.E. Ismael Felix Martinez Dacosta Mulyanto Analia Napky Retno Rahajeng Siregar Carlos A. Urbizo S. Bartholomeus Sugiharto Paul Vinelli Sulastinah Tirtonegoro Richard Zablah Islamic Republic of Iran Jose Benjamin Zapata Governor Hungary Sayyed Mohammad Hossein Adeli Alternate Governor Governor Masoud Mozayani Gyorgy Suranyi Advisors Alternate Governor Ahmad Abdeliyeh Almos Kovacs Hossein Javaheri Temporary Alternate Governor Ali Kamyar Katalin Botos Mahnaz Khadempour Advisors Seyed Morteza Mirzoreh Frigyes Harshegyi Yahya Mofasser Piroska Horvath Ali Sabzalian Judit Marmoly Mohamad Sadeghi Pal Peterfalvy Mohammad Reza Shojaeddini Bea Szombati Ali Yasseri

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Iraq Salvatore Rebecchini Alessandro Roselli Temporary Alternate Governor Giovanni Sacco Abdul Moneim Othman Fabrizio Saccomanni Giro Schioppa Ireland Alessandro Sottosanti Carlo Trezza Governor Augusto Zodda Hon. Albert Reynolds Alternate Governor Jamaica Maurice F. Doyle Temporary Alternate Governor Governor Michael P. Coffey Hon. Seymour Mullings Advisors Alternate Governor Declan Ingoldsby G. Arthur Brown Adrian Kearns Advisors Gabriel C. Noonan Horace G. Barber Sharon R. Brown Israel Cecile Clayton H.E. Keith Johnson, O.J., C.D. Governor Jennifer Lester H.E. Yitzhak Modai Chevanne Powell Alternate Governor Locksley Smith Mordechai Fraenkel Shirley Tyndall Advisors Magen Altuvia Japan Oriel Ben Hannan Miki Eran Governor S. Liebes H.E. Ryutaro Hashimoto Raphael Meron Alternate Governor Amnon Neubach Yasushi Mieno Yair Seroussi Temporary Alternate Governors Freddy Wieder Tadao Chino Eliezer Yones Yoshiaki Kaneko Masaki Shiratori Italy Shigemitsu Sugisaki Makoto Utsumi Governor Mikio Wakatsuki Hon. Guido Carli Koji Yamazaki Alternate Governor Junichi Yonezawa Lamberto Dini Advisors Temporary Alternate Governor Mari Amano Francesco Papadia Toshihiko Amano Advisors Yasuharu Fushimi Francesco Alfonso Keizo Goto Biagio Bossone Hiroshi Hirabayashi Carlo Calia Motomichi Ikawa Francesco Cerulli Takayuki Kamoshida Pier Antonio Ciampicali Shigeo Kashiwagi Pierluigi Ciocca Shizuharu Kubono H.E. Raniero Vanni D'Archirafi Yasuhiro Maehara Claudio di Veglia Satoru Miyamura Antonio Fanna Zenbei Mizoguchi Renato Filosa Daikichi Momma Francesco Fransoni Kazuya Murakami Paolo Janni Akira Nagashima Francesca Manno Makoto Nakagawa Giuseppe Pasqua Osamu Shiozaki

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Rintaro Tamaki Chang-Yuel Lim Satoshi Watanabe Hyung-Sup Shim Ken Yagi Myong Hyun Sohn Yutaka Yamaguchi Advisors Shinichi Yoshikuni Young-Min Baang Yukio Yoshimura Kun-Ho Cho Kyong-Lim Choi Yeon-Jong Choi Jordan Noh-Choong Huh Governor Chi-Bon Ji H.E. Basel Jardaneh Jong-Jeong Kim Alternate Governor Yoo-Sung Kim Michel I. Marto Chang-Koo Lee Advisors Bong-Sung Oum Imad Badran Yoon-Jin Rhee Ismail T. El-Zabri Min-Ho Son M. Mumtaz A. Hamadah Il-Hyun Suk Taher H. Kanaan Zuhair Khouri Kuwait Governor Kenya H.E. Sheikh Ali Al-Khalifa Al-Sabah Alternate Governor Governor Sheikh Salem Abdulaziz Al-Sabah Hon. George Saitoti, M.P. Advisors Alternate Governor Abdullah A. Al-Gabandi T.C.I. Ryan Mohamed Abdulmohsin Al-Mershed Temporary Alternate Governors Fahad Al-Rajaan M.J.P. Kanga Ahmed A. Al Sabah Charles S. Mbindyo Sheikh Salem Abdullah Al-Ahmed Advisors Al-Sabah Shanti K. Chakrabarti Hisham Ibrahim Al-Waqayan Raphael Gitau Mohammed Haider Ghuloum Ben Kipkorir Abdul Karim Sadik G.K. Koech William N. Meda Philip Ndegwa Lao People's Democratic Republic Harry Njoroge Nahashon N. Nyagah Governor Michael A. Sergon Leuane Sombounkhan Alternate Governor Vannakone Phommasathit Kiribati Advisor Sommaly Sisa-ad Governor Hon. Teatao Teannaki Alternate Governor Lebanon Bateriki Baare Governor Edmond Nairn Korea Alternate Governor Raja Himadeh Governor Advisors Hon. Yung-Euy Chung Meguerditch Bouldoukian Alternate Governor Fouad Saadeddine Chebaklo Kim Kim Toufic Khalil Gaspard Temporary Alternate Governors Mounib Mustapha Hammoud Young-Tai Kim Abdul Hafiz Itani Seung-Woo Kwon Ali Abdallah Jammal

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Lebanon (continued) Madagascar Governor Advisors (continued) Leon M. Rajaobelina Adnan Kassar Alternate Governor Salim Kheireddine Blandin E. Razafimanjato Nadim Moukheiber Temporary Alternate Governors Assaad F. Sawaya H.E. Pierrot J. Rajaonarivelo Fuad A.B. Siniora Richard Randriamaholy Joseph Torbey Advisors Tantely Andrianarivo Henri Jean-Marie Lesoho Jocelyn Rafidinarivo Governor Mamy Ramanjatoson Thabo Louis Makhakhe Daniel Ramarokoto Alternate Governor Jean Clariel Ramasinaivo Anthony Morae Maruping Gaston Ramenason Advisors Henri Ranaivosolofo K.E. Lekaka Solofo Rasoarahona Jerry M. Letsie Roland Ratsimandresy C.S. Molelle Olga Ratsiraka H.E. William Thabo Van Tender Josiane Raveloarison Guy Razafinony

Liberia Malawi Alternate Governor Governor Thomas D. Voer Hanson Hans Joachim Lesshafft Advisors Alternate Governor Arthur S. Gedeo Gilton Bazilio Chiwaula H.E. Eugenia A. Wordsworth-Stevenson Advisors Ian Charles Bonongwe George Jay Honde Libyan Arab Jamahiriya C. Mandiza Harry M. Mapondo Governor George G.B. Masamba Mohammed Zarrough Rajab Alternate Governor Malaysia Mohamed Abdurahman Maghrabi Advisors Governor Nuri Abdussalem Baryun Hon. Daim Zainuddin Bashir M. El-Nahiese Alternate Governor Muftah Ali Sherif Tan Sri Dato' Jaffar Hussein Temporary Alternate Governor H.E. Albert S. Talalla Luxembourg Advisors Asiah Hashim Governor Jaafar bin Ahmad H.E. Jacques Santer Nafisah Mohamed Alternate Governor Raja Nazrin Pierre Jaans Tajudeen bin Dawood Sultan Advisors Christopher Bearne Maldives Lucio Izzo Roger Lavelle Governor Alain Prate Hon. Ismail Fathy Jean-Pierre Schoder Alternate Governor Jacques Silvain Adam Maniku

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Mali Mexico Governor Governor H.E. Tiena Coulibaly H.E. Pedro Aspe Armella Alternate Governor Alternate Governor Bakary Mariko Miguel Mancera Advisors Temporary Alternate Governors Hamidou Oumar Sy Ariel Buira Bassary Toure Fernando del Villar Moreno Younoussi Toure Oscar Espinosa Adama Seydou Traore Juan Jose Paramo Diaz Guillermo Prieto Fortun Malta Marco Provencio Advisors Governor Raul Avendano Anthony P. Galdes Manuel Cavazos Temporary Alternate Governor Jose Juan de Olloqui Gonzalez Alfred S. Camilleri Salvador Gonzalez Advisors Roberto Marino Lino Delia Ricardo Penaloza Webb Alfred Falzon Jesus Rodriguez y Rodriguez H.E. Salvatore J. Stellini Juan Manuel Romero Manuel Suarez Mier Mauritania Governor Ahmed Ould Zein Morocco Alternate Governor Sidi Mohamed Ould Biya Governor Advisors Mohammed Seqat Amadou Diaw Temporary Alternate Governors Boubou Farba Dieng Abdelmalek Ouenniche Ibrahima Gadio Mohammed Dairi Enis Mezghanni Advisors Ahmed Ould Abdessalam Mohamed Aboulfadl Mohamed Ould Amar Mohamed Aissaoui Ahmed Ould Boucheiba Omar Akalay H.E. Abdellah Ould Daddah Noureddine Bensouda Ahmed Salem Ould Hassen Fouad Benzakour Mohamed Ahmed Ould Lemrabott Abdellatif Jouahri Sidi el Moctar Ould Nagi Omar Kabbaj Sidi Mohamed Ould Nagi Abdellatif Loudyi Mohamed Ould Oumarou Mounkid Mestassi Abdellahi Ould Sidaty El Mostafa Sahel Bekaye Ould Sidi Mohamed Abdellah Salah Eddine Tazi Ali Tricha Mauritius Thami Yahyaoui Governor Indurduth Ramphul Alternate Governor Mozambique Rundheersing Bheenick Advisors Governor Jagnaden P. Coopamah Boaventura Celestino Langa Cossa H.E. Chitmansing Jesseramsing Alternate Governor J. Koonjul Tomas Salomao Rameswurlall Basant Roi Advisor Bipin Rudhee Francisco Fernandes

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Myanmar Temporary Alternate Governor Pat Duignan Governor Advisors U Maung Maung Han Les Gibson Temporary Alternate Governor Derek Gill U Aung Kow Michael J. Shaffrey Advisors H.E. U Myo Aung Hla Myint Oo Nicaragua Aung Pe Governor Francisco J. Mayorga Namibia Temporary Alternate Governors Governor Hon. Silvio de Franco H.E. O.F.C. Herrigel Haroldo Montealegre Alternate Governor Advisors W.L. Benard Arturo Cruz Marco Antonio Real Noel Sacasa Nepal Carlos E. Sanson Governor Jose Felix Solis Hari Shankar Tripathi Alternate Governor Niger Thakur Nath Pant Temporary Alternate Governor Governor H.E. Mohan Man Sainju H.E. Boukari Wassalke Advisors Alternate Governor Prafulla Kumar Kafle Mahamadou Gado Satyendra P. Shrestha Temporary Alternate Governor Mamadou Diop Advisors Netherlands Amani I. Baoua Governor Ibrahim Beidari Wim F. Duisenberg Adani Illo Alternate Governor Abdou Maidaji Cees Maas Malam Annou Mamane Temporary Alternate Governors Haboubacar Maman Pieter Stek Idrissa Samna Andre Szasz Saidou Sidibe Advisors D.H. Boot Nigeria Emile den Dunnen Frans J.F.M. de Neree tot Babberich Governor G.P.J. Hogeweg Alhaji Abdulkadir Ahmed H.E. Johan H. Meesman Alternate Governor Huib J. Muller Alhaji Abdulahi Maaji G.A. Posthumus Advisors Vimy A. Servage Y. Seyyid Abdulai Bernard ter Haar Buhari Abdullahi Jaap H. Weeda H.E. Alhaji Hamzat Ahmadu Jacobus C. Westerweel E.A. Ajayi M.A.B. Akpobasah New Zealand Alhaji Ibrahim Aliyu Shobowale Akanni Animashawun Governor Patrick E. Archibong Hon. Richard Prebble A.S. Arikawe Alternate Governor S.M. Baba Donald Brash Christopher Chima

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O.O. Coker-Ogbuehi Advisors Tony Ede Choudri Mueen Afzal K.E.O. Efretei Tariq Fatemi Ricky Enwere M. Ashraf Janjua R.N. Ezeife Nasim Qureshi Ayodele Fadare B.C. Ihekire Panama Shehu Usman Jibrin E.O. Ladejobi Governor R.O. Mowoe H.E. Guillermo Ford B. Chris E. Nemedia Alternate Governor M.O. Ojo Luisa de Soto B. Omomukuyo Advisors H.A. Oseni Juan Manuel Castulovich B.O. Tonwe Felix Armando Quiros Nonye Udo H.E. Eduardo Vallarino M.A. Uduebo Richard Uku Papua New Guinea Malam Ismaila Usman Governor Kila Ai Temporary Alternate Governor Norway Gerald Mwayubu Governor Advisors Hermod Skanland Matatia Saroa Alternate Governor Veali Vagi Trond R. Reinertsen Temporary Alternate Governors Paraguay Einar Magnussen Steinar Soerbotten Alternate Governor Advisors Carlos Alberto Knapps Anne Sofie Bjelland Temporary Alternate Governor Eivind Dingstad Juan J. Diaz Perez Audun Gronn Advisors Bjarne Hansen Elizabeth Cabanas Jannik Lindbaek Victor H. Cabanas Asbjoern Loevbraek Dionisio Coronel Enok Olsen Jorge Francisco Gulino Ferrari H.E. Kjeld Vibe Amado Martinez Cristina Martinez Pedro O. Montorfano Oman Mariana Munevar Governor Peru H.E. Ahmed Macki Alternate Governor Alternate Governor Abdul Wahab Khayata Augusto Bedoya Advisors Temporary Alternate Governor Fauziya Hamoud Alkindy Julio Velarde Flores Ali Hamdan Al-Raisi Advisors Marco V. Balarezo Augusto Blacker Pakistan Jorge Camet Bernardo Dolmos Vengoa Governor Elmer Evangelista Saeed Ahmad Qureshi Victor Joy Way Alternate Governor Joel Jurado Qazi M. Alimullah Jorge Valdez

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Philippines Qatar Governor Governor Jose L. Cuisia, Jr. Abdullah Khalid Al-Atiyyah Temporary Alternate Governors Advisors Guillermo N. Carague Ahmed Ebrahim Seddiqi Al Emadi Ernest Leung Emil Barood Hon. Vicente Paterno Maqbool H. Khalfan H.E. Emmanuel Pelaez Hon. Margarito Teves Romania Advisors Felix Enrico R. Alfiler Governor Rafael B. Buenaventura H.E. Theodor Dumitru Stolojan Roberto F. de Ocampo Alternate Governor Franklin Ebdalin Mugur Isarescu Evelyn M. Escudero Advisors Edgardo B. Espiritu Stanel Ghencea Jose R. Facundo Teodora Mioara lonescu William B. Go Irina Luca Benito Legarda, Jr. loan Petre Mada Vitaliano N. Nanagas II Adriana Marinescu Hon. Santanina Rasul Mircea Moisescu Renato C. Valencia Traian Munteanu Reginald S. Velasco Alexandru Orascu Valeria Pascariu Anton Preda Vladimir Soare Poland Alexandru M. Tanase Governor Vasile Voloseniuc H.E. Leszek Balcerowicz Alternate Governor Rwanda Witold Trzeciakowski Temporary Alternate Governors Governor Stefan Kawalec Augustin Ruzindana Janusz Sawicki Alternate Governor Advisors Joseph Ntamatungiro Jerzy Basiuk Jan M. Boniuk St. Kitts and Nevis Robert Leszek Konski Krzysztof Krowacki Governor Krzysztof Link Hon. Richard L. Caines Matthew Olex Alternate Governor Agnieszka Barbara Rudniak Calvin Edwards Bazyli Samojlik Advisors Errol N. Allen Erstein M. Edwards Portugal Irvin R. Sweeney

Governor St. Lucia Jose A. Vasconcelos Tavares Moreira Alternate Governor Governor Antonio Carlos Feio Palmeiro Ribeiro Rt. Hon. John G.M. Compton Advisors Alternate Governor Paulo Ernesto Carvalho Amorim Bernard LaCorbiniere Antonio dos Santos Labisa Advisors Antonio Jose Mendonca Pinto Bertram Clarke Jose Inacio Toscano H.E. Joseph Edmunds, O.B.E.

©International Monetary Fund. Not for Redistribution ATTENDANCE—MEMBERS OF FUND DELEGATIONS 331

St. Vincent and the Grenadines Zubair Iqbal Muhammad Saleh Jukhdar Governor Khalil Adbulfattah Kordi Rt. Hon. James F. Mitchell Abdulaziz O'Hali Alternate Governor Omar Abdullah Sajeeni Maurice Edwards Abdulhadi Ali Shayif Advisors Andre van Hove Burns Bonadie H.E. Kingsley Layne Senegal Dwight Vernier Hon. Burton Williams Governor Hon. Moussa Toure Sao Tome and Principe Alternate Governor Abdoul Aziz Diop Governor Temporary Alternate Governors Manuel de Nazareh Mendes H.E. Ibra Deguene Ka Temporary Alternate Governor Mamadou Lamine Loum Arlindo de Carvalho Papa Ousmane Sakho Advisors Advisors Epiphane Ayi Mawussi Papa Assane Diouf Alice Nkom Mamadou Gning Andrew K. Mullei Saudi Arabia Momar Kebe Ndiaye Moustapha Ngom Governor Mamadou Samb H.E. Sheikh Mohammad Abalkhail Bira Kane Sene Alternate Governor Mamadou Sene H.E. Sheikh Hamad Al-Sayari Temporary Alternate Governor Ibrahim A. Al-Assaf Seychelles Muhammad Al-Jasser Governor Jobarah Al-Suraisry Guy Morel Osama Faquih Alternate Governor Advisors Norman J. D. Weber Ahmed Abdullatif Advisors Adbullah Abulsamah Jean Weeling Lee Abdulrahman R. Al-Abdullatif Khalid Al-Aboodi Sierra Leone Mansour Al-Dalaan Muhammad Al-Gunaibit Governor Waslallah Al-Harthi A.R. Turay Mohammad Al-Mazyad Alternate Governor Suleiman Al-Ofi Sylvanus Taylor Sulaiman Al-Olayan Advisors Omran Mohammed Al-Omran Brimah Conteh Adbulaziz Al-Orayer Soule Funna Talal I. Al Qudaibi Sayo B. Kanu Ali Al-Raffa Francis Karemo Abdullah Sulaiman Al-Rajhi F.B.L. Mansaray Abdulaziz Alsaghyir S.B. Marah Fahad Muhammad Al-Saja Grahame J. Nathan Saud Al-Saleh Sidique Sesay Abdulaziz Al-Turki N.S.B. Wellington Adbulaziz Al-Wohayeb Wahib Binzagr Singapore El-Refai Kamel Eisa Abdullah El-Kuwaiz Governor Basil R. Fuleihan Hon. Richard Hu Tsu Tau

©International Monetary Fund. Not for Redistribution 332 SUMMARY PROCEEDINGS, 1990

Singapore (continued) Julio Duran Vicente J. Fernandez Alternate Governor Miguel A. Fernandez Ordonez Wong Yit Fan Valentin Laiseca Advisor Luis Maria Linde Hon. Chee-Won Luis Lopez Moreno Jaime Lorenzo Solomon Islands Manuel Lorenzo Pedro Mejia Temporary Alternate Governor Miguel Muniz de las Cuevas H.E. Francis Bugotu Maria Perez Ribes Jose Juan Ruiz Somalia Luis Ruiz Arbeloa Luis Sempere Governor Pilar Serret Mohamed Hassan Barre Alternate Governor Ali Abdi Amalow Sri Lanka Advisors Governor Abdi Aden Dahir Hon. D.B. Wijetunga Ahmed Abdulle Cure Alternate Governor Abdullahi Mohamed Jama H.N.S. Karunatilake Ghulam H. Jewayni Temporary Alternate Governor Mohamed Hajir Mohamed L. Eustace N. Fernando Mohamud Abdi Nur Advisors Jama Hussein Warsame Saravanamuthu Easparathasan N. Somaratne South Africa P.G. Wilson Governor Hon. B.J. du Plessis Sudan Alternate Governor Gerhard P. Croeser Governor Advisors El Sheikh Sid Ahmed El Sheikh Simon S. Brand Alternate Governor B. Cameron Salah Mohi Eldin Ali J.H. Cross Advisors P. Duminy H.E. Abdalla Ahmed Abdalla Martin R. Grote Isam Bashir Ibrahim H.E. Pieter G. J. Koornhof Agil El-Mannan Andre la Grange Mohamed Atta El Mannan El Ageid Francois le Roux Yahia Mohamed Mahmoud Elias Links Osman Ahmed Mekki Harry Heinz Schwarz Pieter van Huyssteen Suriname

Spain Governor H.E. Subhas Ch. Mungra Governor Alternate Governor H.E. Carlos Solchaga R.W. Braam Alternate Governor Advisors Pedro Perez Glenn A. Alvares Advisors Roy E. Vaseur Eduardo Aguilar Rocio Alberdi Swaziland Carlos Blasco Manuel de la Camara Governor Juan de la Mota Hon. Barnabas S. Dlamini

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Alternate Governor K.K. Ramadhan H.B.B. Oliver, C.B.E. H.K. Senkoro Advisors R.M. Shirima Prince Lonkokhela Dlamini Thailand Nomathemba Dlamini Lucy Goodhart Governor H.E. Absalom Vusani Mamba Chavalit Thanachanan Alternate Governor Rerngchai Marakanond Sweden Temporary Alternate Governors Governor Somsiri Devahastin Bengt Dennis Sin Ganjarerndee Alternate Governor Prapapim Sakuntabhaya Gunnar Lund Advisors Temporary Alternate Governor Umaporn Abhakorn Thomas J.H. Franzen Chakpet Chantaravisot Sven-Olof Johansson Kulthon Nakaprom Advisors Chalit Phaphan Gustaf Adlercreutz Tanya Sirivedhin Bengt Ake Berg Vichit Suraphongchai Christer Bjorklund Sathien Tejapaibul Eva Haghanipour Togo Jorgen Holmquist Ake Lonnberg Governor H.E. Komla Alipui Alternate Governor Syrian Arab Republic Tchotchovi Freitas Alternate Governor Advisors Mohamed Al-Sharif Issa Affo Advisors Yao-Messan Aho Ibrahim Adly David R. Ansell Khaled Al-Mallayh Michel R. Assielou Bourhan Chatti Barthelemy Drabo Omar El-Nass Mahenta Birima Fall Badie Khattab Kwassivi Kpetigo Farouk Muwakki Joachim W. Kratz Emmanuel C. Offokaja Kossi Rotimi Paass Tanzania Tonga Governor Governor Hon. Steven A. Kibona Alan Gee Alternate Governor Gilman Rutihinda Alternate Governor Advisors Joyce Mafi L.M. Chima Trinidad and Tobago P.L. Kamuzora Ali Karume Governor P.M. Kazaura Hon. Selby Wilson Charles C. Kimei Temporary Alternate Governor J.P. Kipokola Jerry Hospedales Philip Alfred Magani Advisors Gray Shwaibu Mgonja George Bindley-Taylor John M. Mugasha Terrence Farrell G. Mwaikambo H.E. Angus Albert Khan H.E. Charles M. Nyirabu Kamal Churaman Mankee S. Odunga Jagdesh Siewrattan

©International Monetary Fund. Not for Redistribution 334 SUMMARY PROCEEDINGS, 1990

Tunisia Advisors Hesham S.A. Al-Sayed Abdul Governor Rahman Mohamed El Beji Hamda Nariman A. Kamber Al-Awadhi Temporary Alternate Governor Salim Al-Hamadi All Chaouechi Ali Mohammed Ali Advisors H.E. Abdulla bin Zayed Al-Nahayyan Tarek Ben Hamida Obeid Saif Al Nasseri Tijani Chelly Sultan N. Al-Suwaydi Elyes Kasri Ali Ibrahim Mohamed Ismail Said M'Rabet Rory N. Keelan Sadok Rouai J.R.M. Lewis Mohamed Salah Tekaya Abd-Alla Usama Malki Eraser McKenzie Turkey James P. Steele Ebrahim Abudl Rahman Tahlak Governor Mohamed Ali Zayed H.E. Gunes Taner Alternate Governor United Kingdom Rusdu Saracoglu Advisors Governor Cetin Akbay Rt. Hon. John Major Tuncay Altan Alternate Governor Ibrahim Berberoglu Andrew D. Crockett Hasan Sukru Binay Temporary Alternate Governors Can Cangir A.C.S. Allan Sulun Guven David Peretz Ercan Kumcu R.G. Ware M. Bulent Ozgun N.L. Wicks Bahar Sahin Paul Wright Falih Selekler Advisors Dogan Sevim Roger Bone Perihan Ucer Sir Terence Burns J.A.L. Faint E.J.W. Gieve Uganda David H.A. Ingram Governor Sir Piers Jacobs Hon. C.W.C.B. Kiyonga Christopher J. Jarvis Alternate Governor Martin E.F. Jones Charles N. Kikonyogo A.T. O'Donnell Advisors Sir Peter Petrie Robert Bagota-Amooti Brian Quinn Louis Austins Kasekende Duncan Sparkes Abbas K. Mawanda United States Kiriba-Bonsu Mayende Simon George F. Mbowe Governor Eva N. Mukasa Hon. Nicholas F. Brady Ivan K. Mulindwa Alternate Governor Philip Odida Alan Greenspan James Odong Temporary Alternate Governors E. Tumusiime-Mutebile E. Patrick Coady Justin Zake Charles H. Dallara Thomas C. Dawson II United Arab Emirates David C. Mulford Barry S. Newman Alternate Governor John E. Robson Abdul Malik Al Hamar Ronald W. Roskens

©International Monetary Fund. Not for Redistribution ATTENDANCE—MEMBERS OF FUND DELEGATIONS 335

Advisors Sonia Perez R. Hon. Joseph W. Ban Oscar de Rojas Hon. W. Michael Blumenthal Advisors Laurence W. Bond Carlos A. Bivero Reginald J. Brown Jose Benjamin Escobar Robert L. Clarke Modesto Freites E. Gerald Corrigan Gustavo Garcia Mark T. Cox IV Mariano Gurfinkel Sam Y. Cross Victoria Manzano James H. Fall III Gina Montiel J. Michael Farren Gustavo Perez Ortega George A. Folsom Antonio Juan Sosa Hon. Henry H. Fowler Arturo Sosa Oscar M. Mackour Hollis S. McLoughlin Viet Nam Larry K. Mellinger Hon. G. William Miller Governor Hon. Richard E. Neal Cao Si Kiem John M. Niehuss Temporary Alternate Governor Charles Schotta Njuyn Quang Thep L. William Seidman Advisor Hon. William E. Simon Tran Trong Do Donald C. Templeman Edwin M. Truman Western Samoa Governor Uruguay Hon. Tuilaepa S. Malielegaoi Governor Alternate Governor Papalii Tommy Scanlan Ramon P. Diaz Temporary Alternate Governor Advisors William Keil Emilio Berriel Advisor Unasa Lanea Lio Carlos Steneri Hinauri Petana Hon. Fale Fatu Sapolu Sir Peter Tapsell Vanuatu Maiava lulai Toma George Tuiletufuga Governor H.E. Tuaopepe Fili Wendt H.E. Sela Molisa Alternate Governor Republic of Yemen Franklyn Kere Governor H.E. Alawi Saleh Al Salami Venezuela Alternate Governor Governor Mohamed Ahmed Al Junaid Pedro R. Tinoco, Jr. Advisors Alternate Governor Jamal Al-Sallal Roberto Pocaterra Omar Salim Bazara Temporary Alternate Governors Jalal Mohamed Mouwla Leonor Filardo Ahmed Ahmed Ghaleb Saeed Mauricio Garcia Araujo Francisco Garcia Palacios Yugoslavia Carlos Hernandez-Delfino Fernando Lauria Governor Edgard Leal Dusan Vlatkovic Moises Nairn Alternate Governor Nelson Ortiz Zarko P. Trbojevic

©International Monetary Fund. Not for Redistribution 336 SUMMARY PROCEEDINGS, 1990

Yugoslavia (continued) Zambia Governor Advisors Hon. Gibson G. Chigaga Milica Borlja-Gluvacevic Alternate Governor Ana Gligorijevic Jacob Mumbi Mwanza Gordana Hofmann Advisors Planinko Kapetanovic Jacques Bussieres Josip Kulisic Chris Chirwa Ljiljana Milqjevic-Borovcanin Benny Chundu H.E. Dzevad Mujezinovic Lazarous Kapambwe Borivoje Nikolic Austin Matale Milojko Popovic L.J. Mwananshiku E.D. Njobvu Martin G. Sakala Zaire Salvator Mambo Tembo David Matongo Governor Pay Pay wa Syakassighe Zimbabwe Alternate Governor Governor Mambulu-Makudia N'Siala Hon. B.T.G. Chidzero Advisors Alternate Governor Ongona Elongo K.J. Moyana Fikiri Alimasi Advisors Ngole Iliki Norman Chakanetsa Edi Didakumba Lemfu H.E. Stanislaus Chigwedere Lenga Usungu Ngandu Dinah Zvademoyo Guti H.E. Tatanene Manata V.S. Kumalo Matungulu Mbuyamo Alankir John P. Mangudya Momi Lingosa Rosemary Mazula Ngenyi Bungi Valerie Me Nicol Ngimbi Kalumvueziko Siboniso Mtema Tansia Molende Monkoy Joseph Mubika

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OBSERVERS, REPRESENTATIVES OF INTERNATIONAL ORGANIZATIONS, AND SPECIAL INVITEES

International Fund for United Nations Agricultural Development Rafeeuddin Ahmed Vera P. Gathright Kenneth K.S. Dadzie Bahman Mansuri Gert Rosenthal Tor Myrvang Enrique Ter Horst Christian D. Vanwert Yves Berthelot Goran Ohlin Switzerland Roger Lawrence Franz Blankart Carlos A. Massad H.E. Edouard Brunner William H. Draper III Monique Dubois Pierre-Claver Damiba Jean-Daniel Gerber Michael Gucovsky Ulrich Gygi Sarah Papineau Daniel Kaeser G. Faruq Achikzad Alexei Lautenberg H. Stephen Halloway Markus Lusser Stephan Nellen Union of Soviet Socalist Republics Carlos Orga Viktor V. Geraschenko Joerg Reding Thomas I Alibegov Jean-Pierre Roth Vadim B. Bakarinov Otto Stich Andrey E. Bougrov Juerg Von Arx Victor V. Rakov

©International Monetary Fund. Not for Redistribution EXECUTIVE DIRECTORS, ALTERNATIVES, AND ADVISORS

Alternate Executive Advisors to Executive Executive Directors Directors Directors

Muhammad Al-Jasser Zubair Iqbal O.K. Arora L. Eustace N. Fernando Ahmad Raza C. Scott Clark Gabriel C. Noonan Dorothy Powell DAI Qianding ZHANG Zhixiang Thomas C. Dawson II Barry S. Newman Jacques de Groote Johann Prader Pal Peterfalvy El Tayeb El Kogali L.B. Monyake John O. Aderibigbe J. Mills Jones Yasmin Patel E.A. Evans Seung-Woo Kwon Felix Enrico R. Alfiler Ernesto V. Feldman Ricardo J. Lombardo Pedro O. Montorfano Leonor Filardo Miguel A. Fernandez Analia Napky Renato Filosa Ordonez Mohamed Finaish Nikos Kyriazidis Jerzy Basiuk Abdul Moneim Othman Meekal A. Ahmed Mohamad B. Chatah

Markus Fogelholm Indridi H. Thorlaksson Audun Gronn M.R. Ghasimi Omar Kabbaj M. J. Mojarrad Guenter Grosche Bernd Goos I.E. Ismael Tanya Sirivedhin Satyendra P. Shrestha Alexandre Kafka Luis M. Piantini Felix Armando Quiros Jean-Pierre Landau Jean-Francois Cirelli Jean-Luc Menda MAWAKANI Samba Corentino V. Santos Abdel Rehman Ismael Jean-Christian Obame Bassirou A. Sarr Norbert Toe David Peretz Paul Wright G.A. Posthumus G.P.J. Hogeweg Alexandru M. Tanase Koji Yamazaki Shinichi Yoshikuni

338

©International Monetary Fund. Not for Redistribution List of Abbreviations Used

Development Committee Joint Ministerial Committee of the Boards of Governors of the Bank and the Fund on the Transfer of Real Resources to Developing Countries EBRD European Bank for Reconstruction and Development EC European Communities EEC European Economic Community EMS European Monetary System ESAF Enhanced structural adjustment facility GATT General Agreement on Tariffs and Trade GDP Gross domestic product GNP Gross national product Group of Twenty-Four Intergovernmental Group of Twenty-Four on International Monetary Affairs IBRD International Bank for Reconstruction and Development IDA International Development Association IFC International Finance Corporation IMF International Monetary Fund Interim Committee Interim Committee of the Board of Governors on the International Monetary System ICSID International Centre for the Settlement of Investment Disputes MIGA Multilateral Investment Guarantee Agency ODA Official development assistance OECD Organization for Economic Cooperation and Development UN United Nations UNCTAD United Nations Conference on Trade and Development

Note: Throughout the book, the $ symbol refers to U.S. dollars. Other dollar currencies are identified by a preceding initial.

339

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