24079-9781475580303.Pdf

SUMMARY PROCEEDINGS 1984

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©International Monetary Fund. Not for Redistribution INTERNATIONAL MONETARY FUND

SUMMARY PROCEEDINGS

OF THE THIRTY-NINTH ANNUAL MEETING

OF THE BOARD OF GOVERNORS

SEPTEMBER 24-27, 1984

WASHINGTON, D.C.

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©International Monetary Fund. Not for Redistribution CONTENTS

PAGE Introductory Note xi Address by the President of the United States of America, Ronald Reagan 1 Opening Address by the Chairman of the Boards of Governors, the Governor of the Fund and the Bank for Japan, Noboru Takeshita 8 Presentation of the Thirty-Ninth Annual Report by the Chair- man of the Executive Board and Managing Director of the International Monetary Fund, J. de Larosiere 19 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 Sys- tem, Willy De Clercq 30 Statements by the Governors for Ireland—Alan M. Dukes* 35 United States—Donald T. Regan 39 France—Pierre Beregovoy 44 Dominican Republic—Jose Santos Taveras* 48 Korea—Mahn-Je Kim 53 Indonesia—Radius Prawiro 56 Canada—Michael H. Wilson 60 Discussion of Fund Policy at Third Joint Session Statements by the Governors for Italy—Giovanni Goria 67 India—Pranab Kumar Mukherjee 75 United Kingdom—Nigel Lawson 80 Zambia—L.J. Mwananshiku* 90 Germany, Federal Republic of—Gerhard Stoltenberg ... 97 Tunisia—Ismail Khelil* 101 Netherlands—H.O. Ruding 104 Australia—Paul J. Keating 108 Israel—Moshe Y. Mandelbaum Ill

Speaking on behalf of a group of countries.

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PAGE Discussion of Fund Policy at Fourth Joint Session Statements by the Governors for South Africa—B.J. du Plessis 114 Luxembourg—Jacques Santer 117 China—Wang Bingqian 119 Argentina—Bernardo Grinspun* 122 Belgium—Willy De Clercq 133 Pakistan—Ghulam Ishaq Khan 137 Norway—Knut Getz Wold* 143 Sri Lanka—Ronnie de Mel 147 Discussion of Fund Policy at Fifth 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 Com- mittee), Ghulam Ishaq Khan 152 Statements by the Governors for St. Lucia—John G.M. Compton* 155 Thailand—Sommai Hoontrakool 158 Egypt—Mahmoud Salah el din Hamed 160 Austria—Franz Vranitzky 162 Bangladesh—M. Syeduz-Zaman 164 Nepal—Prakash Chandra Lohani 170 Greece—Gerasimos Arsenis 173 Romania—Petre Gigea 176 Western Samoa—Tofilau Eti Alesana* 179 Spain—Mariano Rubio Jimenez 182 Iran, Islamic Republic of—Mohammad J. Vahaji 186 Discussion of Fund Policy at Sixth Joint Session Statements by the Governors for Bolivia—Oscar Bonifaz Gutierrez 191 Afghanistan—Mehrabuddin Paktiawal 193 Yugoslavia—Vlado Klemencic 196 St. Christopher and Nevis—Kennedy Simmonds 200 Mozambique, People's Republic of—Rui Baltazar dos Santos Alves 202 Fiji—Mosese Qionibaravi 203 Lao People's Democratic Republic—Kikham Vongsay .. 206 Malaysia—Abdul Daim bin Haji Zainuddin 209 Malta—Wistin Abela 212 New Zealand—R.O. Douglas 216

Speaking on behalf of a group of countries.

©International Monetary Fund. Not for Redistribution CONTENTS Vll PAGE Papua New Guinea—Phillip Bouraga 219 Paraguay—Oscar Jacinto Obelar 221 Viet Nam—Nguyen Duy Gia 224 Concluding Remarks Statements by The Governor of the Fund for Senegal, Mamoudou Toure 227 The Chairman of the Executive Board and Managing Director of the International Monetary Fund, J. de Larosiere 227 The Chairman of the Boards of Governors, the Governor of the Fund and the Bank for Japan, Noboru Takeshita 231

DOCUMENTS AND RESOLUTIONS OF THE BOARD OF GOVERNORS

Schedule of Meetings 237 Provisions Relating to the Conduct of the Meetings 238 Agenda 239 Reports of the Joint Procedures Committee 240 Report I 240 Reportll 242 Annex I Regulations for the Conduct of the 1984 Regular Election of Executive Directors 244 Annex II 251 Attachment 1. Rules and Regulations Amended Since the 1983 Annual Meeting 253 ReportIV 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 268 Annex B. Organizational and Administrative Aspects 270 Annex C. IBRD and IMF Resolutions Establishing the Development Committee 273 Annex D. Agendas and Press Communiques of Meetings Held in September 1983 and April 1984 273

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PAGE Resolutions 39-1 Membership for St. Christopher and Nevis 278 39-2 1984 Regular Election of Executive Directors 280 39-3 Forthcoming Annual Meetings 280 39-4 Membership for the People's Republic of Mozambique 281 39-5 Financial Statements, Report on Audit, and Ad- ministrative Budget 283 39-6 Amendments of the Rules and Regulations 284 Interim Committee of the Board of Governors on the Inter- national Monetary System Press Communique (September 22, 1984) 285 Composition (as of September 22, 1984) 289 Joint Ministerial Committee of the Boards of Governors of the Bank and the Fund on the Transfer of Real Resources to Developing Countries Press Communique (September 23, 1984) 290 Composition (as of September 23, 1984) 292 Press Announcement (September 26, 1984) 293 Composition (as of September 26, 1984) 293 Attendance Members of Fund Delegations 294 Executive Directors, Alternates, and Advisors 318 Reference List of Principal Topics Discussed 321 List of Abbreviations Used 326

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

PAGE Afghanistan—Mehrabuddin Paktiawal 193 Argentina—Bernardo Grinspun 122 Australia—Paul J. Keating 108 Austria—Franz Vranitzky 162 Bangladesh—M. Syeduz-Zaman 164 Belgium—Willy De Clercq 133 Bolivia—Oscar Bonifaz Gutierrez 191 Canada—Michael H. Wilson 60 China—Wang Bingqian 119 Dominican Republic—Jose Santos Taveras 48 Egypt—Mahmoud Salah el din Hamed 160 Fiji—Mosese Qionibaravi 203 France—Pierre Beregovoy 44 Germany, Federal Republic of—Gerhard Stoltenberg 97 Greece—Gerasimos Arsenis 173 India—Pranab Kumar Mukherjee 75 Indonesia—Radius Prawiro 56 Iran, Islamic Republic of—Mohammad J. Vahaji 186 Ireland—Alan M. Dukes 35 Israel—Moshe Y. Mandelbaum Ill Italy—Giovanni Goria 67 Korea—Mahn-Je Kim 53 Lao People's Democratic Republic—Kikham Vongsay 206 Luxembourg—Jacques Santer 117 Malaysia—Abdul Daim bin Haji Zainuddin 209 Malta—Wistin Abela 212 Mozambique, People's Rep. of—Rui Baltazar dos Santos Alves 202 Nepal—Prakash Chandra Lohani 170 Netherlands—H.O. Ruding 104 New Zealand—R.O. Douglas 216 Norway—Knut Getz Wold 143 Pakistan—Ghulam Ishaq Khan 137 Papua New Guinea—Phillip Bouraga 219 Paraguay—Oscar Jacinto Obelar 221 Romania—Petre Gigea 176 St. Christopher and Nevis—Kennedy Simmonds 200

©International Monetary Fund. Not for Redistribution X STATEMENTS BY GOVERNORS PAGE St. Lucia—John G.M. Compton 155 South Africa—B.J. du Plessis 114 Spain—Mariano Rubio Jimenez 182 Sri Lanka—Ronnie de Mel 147 Thailand—Sommai Hoontrakool 158 Tunisia—Ismail Khelil 101 United Kingdom—Nigel Lawson 80 United States—Donald T. Regan 39 Viet Nam—Nguyen Duy Gia 224 Western Samoa—Tofilau Eti Alesana 179 Yugoslavia—Vlado Klemencic 196 Zambia—L.J. Mwananshiku 90

©International Monetary Fund. Not for Redistribution INTRODUCTORY NOTE

The Thirty-Ninth Annual Meeting of the Board of Governors of the International Monetary Fund was held in Washington, D.C. from September 24 through September 27, 1984, jointly with the Annual Meetings of the Boards of Governors of the International Bank for Reconstruction and Development, the International Finance Corpo- ration, and the International Development Association. His Excellency, Noboru Takeshita, Governor for Japan, 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 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 Bank and its affiliates, issued separately by the Bank. Statements by the Governors are listed in alphabetical order by country on pages ix and x. A reference list of principal topics discussed in the statements is given on pages 321-25, and a list of abbreviations used in the statements and documents is given on page 326.

LEO VAN HOUTVEN Secretary International Monetary Fund

Washington, D.C. November 28, 1984

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

Mr. Chairman, Mr. de Larosiere, Mr. Clausen, Governors of the International Monetary Fund and the World Bank, and distinguished guests. On behalf of the American people, we are delighted to welcome you to the United States for your Thirty-Ninth Annual Meeting. I am honored, once again, to address the leaders of your institutions. Your quest to improve the condition of humankind, to offer opportunities for fulfillment in our individual lives and the life of our national and world communities, places you in a position of responsibility and leadership second to none. You are true missionaries for a more prosperous world and a more peaceful world. We who are public servants in this international economic community know well the daily problems and pitfalls that obstruct our path to progress. Sometimes the immensity of these challenges, and the attention they receive, seem all but overwhelming to us. But in these moments let us remember and draw strength from the most powerful, enduring truth in human history: Free men and women are not destined to be powerless victims of some capricious historical tide; free men and women are themselves the driving force of history. Our future is never trapped in the hands of fate. Our future will depend on our own freedom, courage, vision, and faith. When I first spoke to you three years ago, I asked that we examine the terrible shocks inflicted upon the world economy during the 1970s, that all of us face up to the origins of those problems, and also recognize our ability to withstand and surmount them. For our part, we said one conclusion seemed both undeniable and universally true. The societies whose economies had fared best during these tumultuous times were not the most tightly controlled, not necessarily the biggest in size, nor even the wealthiest in natural resources. What united the leaders for growth was a willingness to trust the people—to believe in rewarding hard work and legitimate risk.

Delivered at the Third Joint Session, September 25, 1984.

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So the United States made a new beginning—one based on our conviction that we could only meet the challenge of contributing to world economic growth, and of assuring that all countries, especially the poorest, participate fully in that growth, by renouncing past policies of government regimentation and overspending, and by taking decisive action to get our domestic house in order and restore incentives to liberate the genius and spirit of our free people. And while we would not impose our ideas or our policies on anyone else, we felt obliged to point out that no nation can have prosperity and successful development without economic freedom. Nor can it preserve personal and political freedoms without economic freedom. Only when the human spirit can dream, create, and build, only when individuals are given a personal stake in deciding economic policies and benefiting from their own success—only then do societies become dynamic, prosperous, progressive, and free. We invited all of you to join us, and walk with us on this new path of hope and opportunity. Some of you have. We knew this endeavor would be neither short nor easy; we knew it would require great effort and patience. But we were confident that once our people saw it through, the rewards would be far greater than anticipated. I believe that confidence has been justified. As I said yesterday to the United Nations, we can speak again, and we should, of a future that is bright and hopeful; a future of prosperity that I believe is far nearer than most of us would ever dare to hope. By working together, we can make it happen. Our own economy is dramatically changed from only three years ago. Rewarding hard work and risk taking has given birth to a U.S. renaissance. Born in the safe harbor of freedom, economic growth gathered force, and rolled out in a rising tide that has reached distant shores. We are heartened that the strength of the U.S. economy is helping lead the world from recession toward a new period of lasting economic expansion, with lower rates of inflation in many countries. And we're convinced we can continue to offer this leadership in the future. Permit me to elaborate. The United States has enjoyed 21 straight months of economic growth—the strongest growth since 1950. We've witnessed the creation of 6 million jobs and seen our expansion sustained by exceptionally low inflation. Consumer prices are rising by only about 4 percent now, compared with over 12 percent in 1980. And let me emphasize that we are determined to make another change from past policies—we intend to bring inflation down even

©International Monetary Fund. Not for Redistribution ADDRESS BY PRESIDENT OF UNITED STATES 3 more, and we are determined to keep it down, by continuing to restrain the growth of our government spending. We have already cut the rate of that spending growth by more than half, and we are pushing hard for an amendment to our Constitution placing mandatory limits on Government's power to spend. Fueling economic growth has been the record increase in venture capital and business investment, both results of new incentives in our tax structure. This surge in risk taking and innovation holds out the promise for continued strength in productivity growth and new break- throughs in advanced technology. We believe we have taken only the first small steps into the newest frontier—the technological revolution. By reaching for great gains in productivity we can create a bounty of new jobs, technologies, and improvements in the quality of life surpassing anything we have ever before dreamed or imagined. I tell you today from my heart: We in America want to share our knowledge and the blessings of progress with you and your citizens, because together, and only together, can we build a better world—a far better world. So just as we must do more to restrain public spending, we believe more can and must be done to increase personal incentives. We will not be satisfied until the United States challenges the limits of growth. We want to enact a historic simplification of our tax system that will enable us to significantly increase incentives by bringing personal income tax rates further down, not up. We have noted the increased recognition given to the central role of incentives in promoting economic growth. The Wall Street Journal recently cited surveys published by the Organization for Economic Cooperation and Development, as indicating governments can best spark economic growth by spending less and cutting tax rates, not by planning an elaborate industrial policy. This is our strategy for growth, and it will allow us to keep the U.S. deficit on its current downward path. And as we continue moving forward, we are heartened to see that recovery abroad is gaining momentum. Growth of well over 3 percent is being projected for other industrial countries in 1984 and 1985. And we're seeing a rise in developing country growth rates, led by those aggressively pursuing outward-looking and market-oriented policies. This broadening economic growth has had a significant impact on stimulating world trade. Your 1984 IMF Annual Report pointed out: "With the progress of economic recovery in the industrial countries, the volume of world trade began to expand quite strongly in 1983, and

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the prolonged deterioration in the terms of trade of non-oil developing countries came to an end/' Expansion here in the world's largest single market has meant increased trading opportunities for other nations. Total U.S. imports rose 32 percent in the first half of this year, and for the full year, our imports are expected to exceed 1983 imports by over 25 percent. U.S. imports from the non-oil developing countries rose about 14 percent in 1983; and they're up by nearly 30 percent for the first half of 1984. We sometimes hear complaints about U.S. interest rates, particularly by debtor nations, which are legitimately concerned about the additional debt service costs they must bear. But not enough mention is made of trade and the far greater benefits developing countries receive from renewed economic growth and open market policies of the United States. For the United States alone, imports from the non-oil developing countries during the first seven months of this year increased by more than $12 billion over the amount during the same period last year. By comparison, a 1 percent increase in interest rates would increase net interest payments by the non-oil developing countries by only about $2!/2 billion. But we're not seeing an increase in interest rates. There has been a slight drop in the last several days and I believe there will be more of that ahead. So, we can be pleased at the improving outlook for the world's economy. But we can't be complacent. At the Williamsburg and London Economic Summits, my colleagues and I agreed that, if we are to make the strength of the international economy stronger still, the sound domestic policies underlying current progress must be preserved. I think we've all learned from bitter experience that quick fixes don't solve deep-seated problems. The more difficult path is to resist the temptation of politically expedient solutions, or the pressure of powerful interest groups, and to instead make the hard choices necessary to advance the long-term good of all the people. But we must persevere. But, once the corner has been turned, once economic growth and financial health are built on a foundation of granite rather than playing cards, we will have opened the door to a new future of opportunity for our children, and our children's children. For their sake, as well as ours, we must not only go forward with domestic policies that encourage growth, we must staunchly resist policies that destroy it. Let me underscore the special importance that the United States attaches to resisting protectionist pressures.

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All of us know how crucial world trade is to the health of our economies, and how fiercely competitive trade is nowadays. Few of our industries are unaffected by the pressure of foreign goods and services, whether competing for sales at home or abroad. Our common challenge is to pursue policies permitting freer and fairer trade. I know there has been concern, especially among debtor countries, that pressures for trade protectionism in the United States could lead us to run up the flag, erecting new import barriers, and harming prospects for their export growth. We believe our record should put those doubts to rest. Requests for protection on tuna, stainless steel flatware, shoes, and copper have all been turned down. Only last week I reaffirmed the U.S. commitment to an open world trading system by rejecting protectionist quota and tariff relief for the steel industry. I have decided instead to take vigorous action against unfair trade practices in steel which will prove to be in the best long- term interest of consuming and supplying nations alike. But we're not just fighting protectionism, we want to go forward toward more open markets. At the London Summit, we pressed for new efforts to liberalize and expand international trade. Consultations are continuing among GATT countries on the possible objectives, arrangements, and timing for a new negotiating round. For the millions around the globe who look to us for help and for hope, I urge all of you today: Join us. Support with us a new, expanded round of trade liberalization, and, together, we can strengthen the global trading system and assure its benefits spread to people everywhere. This is not just my challenge, this is our challenge. It can only happen if we make it happen. But if we do, if each of us is prepared to give a little, the people of the world will gain a lot. Our sensible five-part debt strategy, endorsed at Williamsburg and strengthened in London, has shown itself to be sufficiently flexible and dynamic to meet the diverse needs of debtor nations. These nations in partnership with the International Monetary Fund are charting a course of renewed prosperity and stability which can serve as a guidepost for others to follow. The international financial system is the ultimate beneficiary of these individual country success stories and is stronger today than when we met here last year. Providing an environment to foster lasting, noninflationary growth requires financing from both internal and external sources. It has become clear that a variety of capital inflows in the developing countries will be necessary. Countries will have to rely less on external debt and more on direct private investment—both foreign and domestic.

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Policies that attract foreign investors are identical with those policies that encourage domestic savings and investment and contribute to the efficient use of scarce capital resources: positive real interest rates; a realistic exchange rate; free convertibility of currency; and a respect for property rights—in short, an economic environment that allows investors to earn a fair, real after-tax rate of return. At the last economic summit in London this June, we also urged our finance ministers to: "consider the scope for intensified discussion of international financial issues of particular concern to developing countries in the Development Committee, an appropriate and broadly representative forum for this purpose." I welcome the decision by the members of the Interim Committee and the Development Committee to accept the U.S. proposal announced by Secretary Regan to sponsor an enhanced dialogue on ways in which the industrial and developing countries can better pursue our common goal of achieving sustained noninflationary economic growth throughout the world. Your institutions represent the best means of cooperatively addressing the obstacles to realizing that goal. As we go forward, we will support our two great institutions, the International Monetary Fund and the World Bank, which have been the cornerstones of the international economic and monetary systems since World War II. The United States remains honored to be one of the "founding fathers" of both organizations. Besides their enormous contributions to individual freedom, prosperity, and initiative, these multilateral organizations are effectively handling even greater responsibilities as the technological revolution ushers in an increasing velocity of human transactions and greater global economic interdependence. . . . The IMF has always had a central role in assisting members facing serious balance of payments problems, and it has assumed leadership in helping debtor countries to design economic adjustment programs that seek to restore economic and financial balance and creditworthiness. For our part, considerable effort went into negotiating and obtaining the necessary legislative concurrence for U.S. participation in the quota increase that provided resources for the Fund to deal with this difficult problem. We don't want a world in which some nations go forward while others are left behind. We want a world in which all go forward together. And we can go forward together if our governments give up spending what need not be spent and leave more in the hands of all the people who work and earn. Let them plant the seeds of wealth, and we will see the smallest dreams awaken and grow into golden dreams for all humankind.

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Permit me to take a brief moment to speak about a subject of special interest and concern to our Government: the particularly severe economic problems besetting sub-Saharan Africa. The Bank issued the third in a series of excellent reports on this subject, and we look forward to working with the Bank, the Fund, other donors, and African countries in developing a joint response. Last January I submitted to the Congress legislation called the Economic Policy Initiative for Africa. This initiative closely parallels the recommendations of the World Bank concentrating on flexible donor response to African economic policy reform initiatives. Our plans call for a U.S. contribution of $500 million over five years. And this would be in addition to ongoing U.S. economic assistance programs that are expected to run roughly at the $1 billion level in the coming year—a 30 percent increase over such assistance levels a few years ago. I look out at all of you this morning, people from so many different cultures and countries, speaking so many different tongues, and I think, of course, how our nations spring from separate pasts, how many of us live at opposite ends of the Earth. But, all of us, I'm convinced, have been brought together in this place by aspirations that bind us like friends and family: I'm talking about our determination to help people build a better life, to climb from the shadows of want into the sunlight of prosperity. That's what this job of ours is all about. We are a little like climbers who begin their ascent from opposite ends of the mountain. The harder we try, the higher we climb, and the closer we come together—until that moment we reach the peak and we are as one. What I am describing actually did happen in real life. One American and two Japanese groups began climbing Mt. Everest—the Japanese from the side of Nepal and the Americans from the side of Tibet. The conditions were so difficult and dangerous that, before it ended, two climbers tragically lost their lives. But, before that tragedy, these brave climbers all met and shook hands just under the summit. Then, they climbed to the top for their magnificent moment of triumph. Distinguished colleagues, good friends, we are not asked to face the kind of perils those climbers did. Yet, we do share the risks affecting the future economic well-being of our nations and the world. But if those mountaineers could join hands at the top of the world, imagine how high our people can climb if all of us work together as powerful partners for the cause of good. Together, with faith in each other, and with freedom as our guide, there is nothing that we cannot do.

©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 JAPAN1

Noboru Takeshita

I expect that in these meetings, which mark the fortieth anniversary of the Bretton Woods Conference, constructive discussions will take place and that the aim of these discussions will be to continue the progress of the world economy. On this occasion, I should also like to express our sincere gratitude to the President and people of the United States for the warm courtesy and hospitality that have been extended to us in this beautiful capital for two consecutive years of Annual Meetings. At this time, I want to extend a cordial welcome to the representatives of St. Christopher and Nevis, which became the newest member of the Fund and the World Bank on August 15 of this year. I also wish to welcome the representatives of the People's Republic of Mozam- bique, on whose membership application we shall vote later today. This continuing growth in the membership of our institutions from 44 countries at the outset at Bretton Woods to 148, when the People's Republic of Mozambique joins, testifies to the significant role that the Fund and the World Bank Group have played in the past and the expectations for their future. I wish to highlight that role today.

The Economy of Industrial Countries In our meetings last year, we were able to discern clear signs of recovery from the worldwide recession. A year has gone by and steady recovery has been established in the industrial countries as a whole. The real rate of growth in 1984 is expected to approximate 5 percent. In particular, the economies of North America, which turned upward early last year, are continuing with their robust expansion. The employment situation is also showing improvement. The Japanese economy is on a satisfactory, full-scale expansionary trend. The recovery of Western Europe is generally picking up, though there are

Delivered at the Opening Joint Session, September 24, 1984.

©International Monetary Fund. Not for Redistribution ADDRESS BY CHAIRMAN OF BOARDS OF GOVERNORS 9 differences in speed and unemployment is high. In general, price increases in the industrial countries have been slowing down. This is due to prudent monetary and budgetary policies and the recent stability of oil prices. Paralleling the economic recovery in the industrial countries has been the recovery in world trade which has moved from stagnation to vigorous growth. This economic recovery of the industrial countries is more soundly based than previous ones because it is based on the firm and mutual efforts of these countries. For several years, they have worked together to reinvigorate the economy and to curb inflation. Our biggest challenge is to find the way to sustain and strengthen this recovery throughout the 1980s. This can be achieved through increased productivity, lower interest rates, and free trade. Let us look at the major driving forces behind the present recovery. These are private economic activities such as consumption and investment in housing and plant and equipment. In order to promote these favorable factors, it is important to establish a positive cycle of self-generating economic expansion which is centered around improvements in productivity. It is crucial to press forward forcefully to establish the groundwork for this increased productivity. First, the unbridled expansion of the public sector needs attention because it can undermine the vitality of the private sector. Huge fiscal deficits compete with private demands for credit. In doing so, they push up interest rates and can exert adverse influence on private capital formation. In view of these detrimental effects, governments must make their best and persistent efforts to curtail public expenditures and to reduce fiscal deficits. The next step to increasing productivity is to remove the structural rigidities in various economies. These include such factors as inelastic labor-management relations, rigid interest rates, and excessive government intervention, all of which restrain the creative responses of private economic activities. Fostering this creativity is especially critical at this present juncture in the face of the demands of the twenty-first century. To achieve the necessary flexibility, we must improve working relationships and wage-settlement mechanisms, liberalize capital markets, and relax governmental restrictions. Through these measures we can draw out the vitality of the private sector in a competitive climate and can better foster technological innovation and transform the industrial structure. The major responsibility for achieving these common goals rests with countries with economic weight because of the influence and impact they have on the global community.

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The second critical factor in building sustained growth is coping with high interest rates. Despite the progress against inflation in industrial countries, interest rates remained relatively high and have even increased in some countries since the spring of this year. In addition, substantial interest rate differentials still exist among major countries. These high interest rates suggest that inflationary expectations have not been laid to rest. High interest rates not only threaten to undermine economic recovery, but also are increasing the interest payments burden of the debtor countries. Moreover, movement of capital is induced by interest rate differentials and causes shifts in exchange rates. These conditions magnify the current account imbalance. This situation, in turn, is producing uncertainties in the exchange market. Furthermore, these shifts in exchange rates are constraining the monetary policy of the countries with relatively low interest rates. Under these circumstances, the need to lower the level of interest rates and to reduce interest rate differentials is becoming more and more critical. These can be achieved by diminishing fiscal deficits and also by suppressing inflationary expectations through an appropriate control of monetary growth. The third critical factor in sustaining growth is free trade. Here, there is cause for grave concern because protectionist pressures are continuing and even increasing in some cases. Protectionist measures not only prevent the optimal allocation of resources, they hinder sustainable noninflationary economic growth. Protectionism is especially damaging to the economic growth of the developing countries. Accordingly, there is an urgent need for each country to make a concerted effort to prevent or roll back protectionist measures. Toward this end the OECD forum reached an agreement on short-, medium-, and long-term programs of work. It is important to produce fruitful results in line with these programs. Furthermore, we strongly hope that the preparations for a new round of multilateral trade negotiations will be agreed upon at an early stage, within the framework of the GATT. These efforts are for the mutual benefit of all economies, both industrial and developing. Since the world economy is in recovery, this is the opportune time to start a new action for strengthening the free trade system.

The Economy of Developing Countries In general, the picture in the developing world is substantially brighter than it was a year ago. Major contributing factors include the recent self-efforts of the developing countries to adjust their economic

©International Monetary Fund. Not for Redistribution ADDRESS BY CHAIRMAN OF BOARDS OF GOVERNORS 11 structures and the economic recovery of the industrial nations. In many developing countries, we can see accelerated economic growth, curbs on inflation, and remarkable improvements in balance of payments. There are still serious problems, however, in a number of countries. For example, many countries have been experiencing a substantial decline in their per capita income for the past several years. Still others are suffering from triple-digit inflation. Within the framework of interdependence, sound economic performance of developing nations is essential for a healthy global economy. I believe, therefore, that an improvement of developing economies is an issue critical to the whole world. Addressing this situation will require an extraordinary effort by developing nations and this, in turn, will require concurrent financial and technical assistance from industrial countries on a multilateral and bilateral basis. It will also require acceleration of investments and loans from private sources. Eliciting these private sector involvements will need further efforts of coordination between developed and developing countries. I firmly believe that mutual dialogue is indispensable to achieve effective coordination. In this context, I fully support the latest initiatives of the Interim Committee and the Development Committee to discuss at the next meeting, within the context of a medium- to long-term framework, financial and development aspects of the problems of developing countries in their efforts to achieve sound economic growth. I earnestly hope that constructive and fruitful dialogue between industrial and developing countries will be further promoted through such efforts. Basically, there are two types of urgent problems that need to be addressed in a concerted manner: the debt problems and the development needs of sub-Saharan Africa. Two years ago the debt problem became acute, but since then a disruption in international financial markets has been averted through the appropriate actions of debtor countries, governments and commercial banks of creditor countries, and international organizations. It should be noted that in the process, the Fund and the Bank, from their respective standpoints, have played important roles in dealing with the situation. They provided the financing to support adjustment programs of debtor countries and also served as catalysts in assembling comprehensive financing packages. However, because of the size and composition of the outstanding debt, there is no cure-all or instant solution to the problem.

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Constructive remedies will require the cooperation of all parties concerned and will continue to demand a serious, flexible, and case- by-case approach. Other basic requirements include medium-term efforts to transform the economic structure of debtor countries and to increase their ability to adjust, which will take a considerable amount of time. We emphasize the following points in dealing with this problem: First, debtor countries, when necessary, should consult with the Fund or other international organizations and carry out adjustment policies that will reduce fiscal deficits, restrain domestic credit, make use of price mechanisms, and adjust exchange rates. Through these measures, they should be able to realize and sustain an appreciable reduction in their current account deficits. By so doing they would restore the confidence of the creditors. The Fund should support these efforts at the macroeconomic management level and the Bank should support these efforts by helping to improve development programs. Both should strengthen their mutual collaboration. Second, to improve the economic environment of debtor countries, the industrial countries should implement policies that ensure sustained growth and lower interest rates. Third, the industrial countries should avoid protectionist measures that affect the products from debtor countries, and they should strive to improve the export opportunities of debtor countries' products by expanding market access. At the same time, the promotion of further liberalization of capital markets is expected to provide debtor countries with smoother access to funds. Fourth, to lessen the immediate debt burden, parties concerned should explore through consultation feasible measures such as rescheduling of existing debts. It is important, in cases where debtor countries are making progress in economic adjustments, to encourage a more extended, multiyear rescheduling of their commercial bank debts. As we have already indicated, the problems of the sub-Saharan countries are extreme in comparison with those of other developing countries. The per capita income has fallen to the level of the 1960s. This depression has been aggravated by a serious food crisis. A drought has beset the region for the past decade and has taken a dramatic toll. Obviously, we have to give special attention to countries living in absolute poverty. Suffice it to say that immediate and effective actions including food aid are required. It also goes without question that a long-term, multifaceted strategy is essential to restructure the economic framework of these countries.

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In order to serve the region's developmental requirements, we should be prepared to provide a more concessional flow of development assistance. We should also assure that the region receives appropriate technical support to match its needs.

The Japanese Economy Despite the fact that the Japanese economy has undergone two oil shocks and encountered various difficulties, its industries have responded positively. On the whole, Japanese industries have been flexible and adaptable. In particular, they have promoted resource- saving and energy-conserving efforts and streamlined management, and, as a result, attained high productivity growth. In addition, the nation's flexible wage-settlement mechanism has kept wage increases to a modest level. The Government also has played a constructive role. It placed administrative and fiscal reform as one of its most important objectives. It has tried to invigorate the private sector by simplifying and rationalizing its administration and reviewing its public regulations. The Government also has been prudent in its monetary and budgetary policies; especially, it has held down government expenditures and curtailed budget deficits. Because of these public and private efforts, the Japanese economy has been achieving real growth rates of over 3 percent a year since the second oil shock. For fiscal year 1984, Japan's real growth rate is expected to surpass substantially the 3.7 percent attained in fiscal year 1983. In the first half of 1984, the unemployment rate was 2.8 percent. Consumer prices were 2.2 percent above those for the same period last year. Both figures are the lowest among the industrial countries. The interest rates are also at a relatively low level. In addition, administrative reforms continue to move forward dynamically. In the near future, the Nippon Telegraph and Telephone Public Corporation and the Japan Tobacco and Salt Public Corporation are scheduled to become stock corporations. However, Japan's budgetary situation is exceptionally severe; we see it from the fact that in fiscal year 1984 the general account budget had to rely on bond issues in the amount of 25 percent of its total expenditure. Therefore, the Government has set the goal to free itself by fiscal year 1990 from the characteristics of being dependent on bonds to finance current expenditures. It also intends to lower the overall dependency on government bonds by fiscal year 1990, and has been doing the utmost toward these goals. To this end, on the

©International Monetary Fund. Not for Redistribution 14 SUMMARY PROCEEDINGS, 1984 expenditure side, the Government will actively continue reviews and retrenchment, such as continuous fundamental reforms of existing systems and policies. It will do this from the perspective of clarifying the roles and responsibilities of the government and the private sector. It will clarify the roles and responsibilities also of the central and the local governments. On the revenue side, the Government needs to study what the fair and appropriate tax burden ought to be, taking into account changes in social and economic conditions. Since last year, Japan's balance of payments current account has continued to show a considerable surplus, but I should like to point out that this is due mainly to factors beyond its control, such as the fall in oil prices, recovery of the world economy centered on the United States, and a strong dollar. On the other hand, Japan's long- term capital account shows a net outflow exceeding the current account surplus. This means that Japan, by providing capital abroad, is contributing to the vigor of worldwide investment activities and to the lessening of upward pressure on interest rates. In particular, out of Japanese commercial banks' medium- and long-term external lending and yen-denominated bonds issued in the Japanese capital market, those related to the developing countries and international organizations amounted to about $14 billion in 1983. Japan is taking the initiative in making active efforts to maintain and strengthen the free trade system and to form harmonious external economic relations. This April, Japan arranged external economic measures to carry forward more vigorously the policies to open up its domestic market and to promote imports and investment flows. When the various measures that were announced in May to liberalize the Japanese capital market, to internationalize the yen, and to improve access by foreign financial firms to the Japanese capital market are implemented, they are expected to yield many results. Specifically, they are expected to help enable the yen to reflect more fully Japan's importance in trading and financial transactions, to result in an increase in the yen's international usage and holding, and to improve the efficiency of the Japanese and world capital markets. Japan will make continued efforts toward these ends. With respect to the debt problem, Japan has been sharing an equitable burden, whether for official credit or commercial bank loans. The parties concerned are acting in concert from the standpoint of international cooperation. In order to further mitigate the interest burdens of debtor countries, Japan will support conversion by its commercial banks of dollar-denominated credits into yen-denominated credits.

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The International Monetary Fund We welcome the several developments that have been made in this past year to strengthen the Fund's resources and enable it to meet increased demands on the Fund caused by the debt problem. First, the Eighth General Review of Quotas has come into effect, providing the Fund with an approximately 50 percent increase in its ordinary resources. Agreement on a threefold increase in the resources available to the Fund under the General Arrangements to Borrow and also on its amendment and under an associated arrangement with Saudi Arabia have also come into effect. More recently, new credit arrangements have been concluded between the Fund and industrial member countries and Saudi Arabia. We need to continuously re-examine what the access to the Fund's resources should be in response to existing circumstances. We should concentrate on assuring effective use of Fund resources and preserving the original function of Fund lending as mutually supportive short-term financing. The agreement on the enlarged access to the Fund's resources of 1985 concluded at the Interim Committee as part of this on Septem- ber 22, 1984 is welcomed. The adjustment programs of major debtor countries are moving on the right track with the Fund's support; we look to their continued smooth implementation. At the same time, appropriate economic management is needed in the medium term which goes beyond the adjustment period to reconstruct the economies of debtor countries. In this regard, the Fund's surveillance is expected to play a particularly important role. In order to prevent the occurrence of a new debt problem, the Fund is playing a significant role in monitoring the medium-term prospects for the balance of payments of member countries, monitoring international banking activities, and monitoring the state of bond issuance. At the present time, a return by major currencies to a generalized system of fixed parities is unrealistic. More appropriate is an improvement in the management of the existing floating exchange rate system. Under these circumstances, greater convergence of economic performances and better compatibility of sound noninflationary policies are indispensable to realize stable exchange rates. As a way to promote this, strengthening of surveillance of the Fund is hoped for. At present, finance ministers are conducting an examination among industrial countries on ways to improve the operation of the international monetary system. The present phase of this work is scheduled to be completed in the first half of 1985, and subsequent discussion at an early meeting of the Interim Committee is anticipated.

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World Bank Group The problem of developing countries has served to emphasize the important role of the World Bank Group and other international development financial institutions. The present difficulties of developing countries include structural characteristics that cannot be properly addressed through simple short-term demand management policies alone. We should, therefore, be prepared to provide medium-term and long-term comprehensive support which we have designated country assistance. Since each developing country has its own particular needs, the World Bank Group must provide this country assistance on an individual basis. Sub-Saharan countries, for example, need basic development assistance, while heavily indebted middle-income countries need assistance that focuses on adjusting their balance of payments. In addition, we anticipate greater demands on the policy advice function of the World Bank Group, especially from countries with satisfactory progress in economic adjustments. I believe that the World Bank Group and the International Monetary Fund should strengthen their cooperative relations and constructively share roles in various phases of development. I also believe we need to strengthen the effectiveness of structural adjustment loans as an instrument for country assistance and subsequently raise the limit of lending. Keeping these points in mind, it is important for us to be flexible in developing future functions for the World Bank. I hope many member countries will express their views on this subject. In this context, I welcome the fact that the future role of the Bank was discussed at the Development Committee yesterday. It is, of course, essential for the World Bank Group to strengthen its financial base in order to continue functioning as an effective development finance institution. Accordingly, all the major donor countries will be expected to cooperate as much as possible. Toward this end, the Seventh Replenishment of IDA and the selective capital increase for the World Bank that were authorized earlier should be mobilized as soon as possible through the various internal procedures of the contributing countries. It is also important to authorize the scheduled general capital increase for IFC and to start preparations for a general capital increase for the World Bank.

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We should emphasize, however, that strengthening the financial base of international development finance institutions cannot be achieved by a capital increase alone. Donor countries are facing difficult fiscal situations of their own. Therefore, to meet the enormous assistance demands of developing nations, the limited resources of the World Bank Group must be used as efficiently and effectively as possible. For this purpose, we must emphasize the World Bank's role as a catalyst for mobilizing private funds. Along these lines, I place particularly high regard on the new methods of cofinancing initiated by the World Bank which have been successfully implemented in the pilot stages. It is my earnest hope that these programs will spur future growth of cofinancing. I also expect IFC to play a more active role in promoting private investment. At the same time, we should acknowledge the critical importance of transferring the technical and intellectual know-how of the World Bank Group to developing countries.

Concluding Remarks Since the 1970s, which was known as the decade of "shaking of the world economic order," the world economy has faced various economic difficulties. We have had to cope with simultaneous maladies of high inflation and serious recession, large fluctuations in exchange rates, the debt problem, and aggravated trade friction. We have continued to explore our future courses. Through our combined wisdom and relentless efforts we have somehow managed to overcome these difficulties. We did it by promoting international cooperation, working to remove the rigidities in the economy, and executing prudent monetary and budgetary policies. These efforts are now bearing fruit. Notwithstanding the existence of regional disparity, the world economy is expanding. Our goal now is to try to sustain and spread this economic growth. We must also make further efforts to resolve the debt problems and strengthen the free trade system. When we look ahead at the world economy from the 1980s through to the twenty-first century, we see dramatic changes. The development of new means of transportation and communication and the interna- tionalization of capital markets will, whether we like it or not, lead to homogenization in international economic transactions. At the same time, however, there is a danger that innovative advances in technology, along with population changes and inherent differences in historical and natural conditions, will widen the gap in living standards among countries.

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Our supreme task, therefore, is to build on the past to work toward a balanced growth of the world economy. For this purpose, we expect each country to press forward with a structural adjustment of its economy, draw upon the inherent strength of that economy, and make efforts to respond to the new age. These efforts include preparing a competitive environment according to each country's situation; maintaining appropriate balance between savings and investment; reviewing the role of the public sector; and consolidating its fiscal position. On the basis of these efforts, each country needs to heighten its awareness of interdependence of the world economy and expand its international cooperation to meet the needs of the times. Not only must we promote wider and more vigorous collaboration in the area of goods and capital, which have been the primary thrust of cooperation so far, but we must also improve cooperation in other areas as well. Specifically, we must cooperate in improving the planning and implementation of economic policies; cooperate in improving administration in public and private institutions; cooperate in transferring science and technology; and cooperate in promoting an active exchange of information. The tasks are immense, and their attainment is not easy. We should be ambitious in our goals, but pragmatic in their implementation. We must make steadfast but step-by-step efforts. These are tall marching orders. But considering our 40 years past experience, I am convinced that through our cooperative efforts within the framework of the Fund and the World Bank Group these goals are within our collective grasp and our future will be bright.

©International Monetary Fund. Not for Redistribution PRESENTATION OF THE THIRTY-NINTH ANNUAL REPORT1

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

J. de Larosiere

I would like to extend a particular welcome to the Governors of St. Christopher and Nevis who are present for the first time since their country became a member earlier this year. I understand, too, that delegates are present from the People's Republic of Mozambique whose application for membership will be taken up later in our proceedings. I am glad that they are with us today. Mr. Chairman, two years ago, our Annual Meetings took place in an atmosphere of gathering crisis in the world economy. The worldwide recession had brought economic activity to a low ebb, and the debt problems of several major developing countries threatened an unrav- eling of the international financial system. Recalling this underlines how far we have come since Toronto. Since early 1983, economic expansion has proceeded at a rapid pace in the United States, and there is increasing evidence that growth is reviving in the rest of the industrial world. International trade has rebounded strongly. Inflation has been substantially reduced. And the balance of payments situation of heavily indebted developing countries has improved dramatically. There are, however, important problems that continue to present difficult challenges to policymakers. Interest rates are still very high in real terms. Although they do not appear to have impeded recovery so far, high interest rates undermine its longer-term sustainability and compound the problems of heavily indebted developing countries. Many developing countries still have a long way to go before being able to combine balance of payments viability with their needs of domestic economic development. This is particularly true for many smaller developing countries and low-income countries. In the industrial world, unemployment remains at very high levels, especially in Western Europe.

September 24, 1984.

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In my remarks today, I will address these problems and how they must be tackled so as to consolidate the improvements that have recently taken place in the world environment. I will deal first with the issue of achieving stable expansion in industrial countries—a goal upon which so much ultimately depends. Next, I will assess the progress that has been made in strengthening the external position of developing countries, and moving toward a resumption in the momentum of their development. Lastly, I will turn to some issues of international cooperation that are crucial if full advantage is to be taken of the opportunities that now exist.

1. Sustaining Expansion in Industrial Countries 1984 is shaping up as the best year for economic growth in the industrial countries in at least eight years. The IMF staff expects output to be 5 percent higher than in 1983, with the majority of industrial countries recording an acceleration in their growth rate. Encouragingly, this strengthening in the economic situation has not been accompanied by an acceleration of inflation. Price increases in 1984 are expected to average about 4!/2 percent, a little less than in 1983, and the best performance in almost 15 years. Also encouraging has been the strength of fixed investment. Despite the high level of interest rates, business capital formation has been expanding more rapidly than in previous cyclical recoveries, even in some countries where recovery has been relatively subdued. A variety of factors have contributed to this improved outlook. First and foremost, the success of policy in reducing inflation and inflationary expectations has transformed the climate in which business and consumer decisions are made. A more stable financial environment enhances the willingness of savers and investors to make long-term commitments. Consumers have more confidence to spend out of current incomes if their accumulated savings are not being eroded by inflation. Other factors have been adding to the improved economic performance of the United States; in particular, flexibility in the functioning of markets, especially labor markets, has facilitated structural change and job creation, while .tax cuts have given a boost to business fixed investment. There are, however, difficult challenges to be met in broadening the basis of the present expansion and making it more durable. A particular problem lies in the geographically unbalanced nature of the upswing. In Europe, growth has not yet made much of a dent in the unemployment problem. In the United States, on the other hand, policies have to ensure that the growth of nominal demand is made consistent with the avoidance of a resurgence of inflation. In particular, continued and

©International Monetary Fund. Not for Redistribution ADDRESS BY MANAGING DIRECTOR 21 determined action to reduce the budget deficit is essential. This would also assist in bringing down reliance on foreign savings to a more sustainable level and relieve pressures on interest rates. In Europe, although the fiscal balance in several of the larger countries is improving, public sector spending generally remains much too high relative to GNP. This and other structural rigidities are keeping output and employment levels below potential. The economic strategy adopted several years ago to foster sustained growth remains valid. This strategy involves the restoration and maintenance of economic and financial balance, and an improvement in the functioning of markets. In this way, conditions would be created that are conducive to improved resource allocation and steadier growth of private sector investment and demand. What is needed in present circumstances is to preserve those aspects of the strategy that are bearing fruit while moving decisively to strengthen policy in areas where the strategy has been incompletely implemented. This means that the stance of monetary policy should continue to guard against any resurgence of inflation and to contribute to a further easing of price pressures. The lesson of the 1970s is that focusing monetary policy too narrowly on interest rates is dangerous and ultimately abortive. A steady policy with a medium-term focus, aimed at a gradual reduction in the underlying rate of inflation, is the only one that can command credibility and succeed. The improved price performance which such a policy has achieved in the past two years is a major factor underpinning the present recovery. In this connection, let me say that present rates of price increase, though vastly more satisfactory than those of a few years ago, do not provide grounds for complacency. In almost every country, there are advantages to be gained from bringing inflation down still further. Let us not forget that the 4!/2 percent inflation projected for the industrial countries this year is still P/2 percentage points above the average annual rate recorded during the expansion of the early and middle 1960s. The way to achieve lower interest rates is not through accommodative monetary policy—this would simply rekindle inflationary fears—but through a fiscal policy that reduces the share of savings absorbed by the public sector. This involves action both to bring down fiscal deficits and to curb the growth of public expenditures. If government deficits remain high, markets will remain fearful that the temptation to monetize debt will become difficult to resist. Even if this temptation is resisted, the pre-emption of savings to finance fiscal deficits will eventually squeeze out interest-sensitive expenditure, particularly business investment. Of course, private spending can also be crowded out by tax-financed government outlays; it is therefore of the utmost impor-

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tance that adequate restraint be exercised over government expenditures. Financial policies, however, are only part of the story. We need also to make sure that markets are flexible enough to adapt to the demands of rapidly changing technology, and to absorb the available labor force. This is an area in which the different institutional settings of countries will require different policy responses. Depending on circumstances, these may include action to encourage labor mobility and retraining; greater limitations or even elimination of indexation provisions in contracts; reduction of artificial supports for declining industries; reform of the regulatory structure; rationalization of investment incentives; reform of wage bargaining arrangements; and so on. The fact that universal solutions do not exist should not divert attention from the importance of making a determined attack on these structural problems. Improving the efficiency with which the industrial economies function would help restrain the forces of protectionism. To the extent that these countries can exploit the opportunities of new industries and technologies, the pressure to cling to the false security of old ones will be reduced. The dynamic nature of comparative advantage means that it is to the ultimate benefit of all countries to preserve an open trading system. It is thus not just the industrial countries themselves that would benefit from a more efficient functioning of their economies. The rest of the world looks to growing markets in these countries to provide the kind of global environment that is so necessary to their efforts to regain the momentum of development.

2. Growth and Adjustment in Developing Countries The improving situation in the industrial countries is having a beneficial effect in the Third World. A number of developing countries have taken advantage of these conditions by implementing courageous and determined adjustment programs. With better conditions and improved policies, exports of developing countries to the industrial world have grown rapidly over the past year (by 18 percent in dollar terms), imparting a badly needed stimulus to growth and contributing to a further improvement in balance of payments positions. The current account deficit of the non-oil developing countries in 1984 is likely to be less than $50 billion, well under half the figure of three years ago. This deficit is equivalent to about 9 percent of their exports of goods and services, the lowest proportion in at least twenty years. The fact that the adjustment process in developing countries is now moving from the import-compression phase to the export-expansion

©International Monetary Fund. Not for Redistribution ADDRESS BY MANAGING DIRECTOR 23 phase is also making for faster output growth. For the first time in four years, output in these countries, as a group, is expected to grow appreciably faster than population, and a further acceleration to 4!/2 percent is in prospect for 1985. These positive developments should not be allowed to obscure the many aspects of the present picture that give cause for concern. The present trends in growth follow several years in which living standards in many developing countries have been stagnant or declining. It must also be borne in mind that economic performance has been highly uneven across countries, with African and Latin American countries having been severely affected. The African countries have suffered particularly severely as recent setbacks have been compounded by adverse climatic conditions. What is more, the low growth rates now being experienced in Africa follow several years of economic stagnation against a background of already low per capita incomes. Though Asian countries have generally experienced satisfactory growth rates, we must not forget that this is still the region with the largest number of people in economic distress. Lastly, the debt situation of many developing countries the world over remains precarious and vulnerable to adverse developments, whether of a domestic or external character. The key issue is how developing countries burdened with heavy indebtedness can regain the momentum of their economic advance. This is a question that concerns us greatly in the Fund. We have studied it closely, both in the context of our support for member countries' programs of adjustment and of the Fund's surveillance of world economic developments. Careful analysis of recent developments and future prospects yields several important conclusions.

—First, the prospects for an orderly and effective handling of the debt situation are much better now than they were a year ago. —Second, with sensible policies, the situation of indebted countries appears manageable in the medium term. A resumption of growth can be combined with a gradual reduction in their external debt burden. The latest medium-term projections undertaken by the Fund staff suggest that by 1990 the ratio of external debt to exports of goods and services for the seven most heavily indebted developing countries, taken together, could fall by two fifths, while economic growth could increase to about 5 percent a year over the second half of the decade. —Third, the differences among countries are such that a case-by- case approach offers the only realistic hope of continued progress. This case-by-case approach has already yielded positive results.

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Several major indebted countries have made significant progress toward restoring their creditworthiness while improving the basis for domestic growth. If the adjustment programs which these countries have adopted are continued, there is every prospect that further progress will be made in the period ahead. Having said that, I must now underline the point that while a satisfactory outcome is possible what will actually happen depends, above all, on the policies that are pursued. It is in this respect that the challenge arises to all of us concerned with national and international economic policy making. The policies that I want to touch on involve three sets of decision makers: the authorities of the major industrial countries, whose economic performance will affect the global environment in which growth and adjustment in developing countries must be pursued; lenders, both in the private and public sectors, whose lending decisions determine the direct constraints facing the indebted countries; and finally, and most importantly, the authorities of the borrowing countries themselves, whose adjustment efforts are the touchstone for the maintenance of adequate financing. The major countries have a vital role, in present circumstances, to create an environment conducive to export growth and smooth debt service. This means three key things: continued noninflationary economic growth to provide a steadily expanding market for developing country exports; the avoidance of protectionist measures; and the adoption of policies that permit a return to more moderate levels of real interest rates. For lenders, both official and private, continued understanding of the dynamics of the adjustment process will be needed. This involves a continued willingness to provide adequate financing to countries that are making genuine attempts to solve their debt problems. It also involves a readiness to approach debt problems in a medium-term context and to take account of progress toward adjustment through adequate refinancing. I come, now, to the indebted countries themselves who bear the main burden of adjustment. I want to emphasize that in an integrated yet rapidly changing world environment, adjustment is not a policy option: it is obligatory for a country's economic survival. True, adjustment involves costs. But those costs can only be compounded if adjustment is resisted through controls and restrictions. The relevant distinction is between orderly adjustment that seeks to exploit the opportunities of a new situation and an adjustment that is ultimately

©International Monetary Fund. Not for Redistribution ADDRESS BY MANAGING DIRECTOR 25 thrust on a country when confidence has been lost in the currency, forcing drastic cuts in imports and living standards. Key elements in an effective adjustment strategy include the following: —More effective pursuit of greater domestic price stability to improve the climate for investment. —Adequate control over budget deficits where they have been contributing to inflationary pressures or crowding out more productive resource use in the private sector. —Realistic and flexible domestic prices (including especially the exchange rate, interest rates, and major administered prices) so as to improve the allocation of resources and promote growth. —Continuous review of government expenditure, both current and capital, to ensure that the resources thus absorbed are productively employed. These are the policies that are recommended by the Fund. It would be hard to exaggerate their importance. Only such policies can rebuild confidence, serve to bring back flight capital, and attract new flows of direct foreign investment. Without such policies the present imbalances and external payments difficulties cannot be surmounted and a return to satisfactory growth will simply not be possible. They are not short-sighted or anti-growth policies as is sometimes contended. Far from it: they are consistent with growth and, indeed, indispensable to it. It is in that context that the collaboration between the Fund and the World Bank is so important. Indeed, the Fund works very closely with the World Bank to ensure that the requirements of balance of payments adjustment are cast in the light of balanced and sustainable development over the longer term; this collaboration is being intensified. We can already see that many of those countries that have been most successful in implementing adjustment programs and in restoring external viability are also those where domestic growth is recovering most vigorously. Though the road of economic adjustment will continue to be bumpy, the adjustment programs that many developing countries are implementing, if adhered to, promise significant further benefits to economic performance over the medium term. It would indeed be unfortunate if the recent and prospective surge in developing countries' exports gave rise to complacency about the need for further policy adaptations. There is an important role here for political leadership in developing and sustaining support for the policies needed.

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In spite of the remarkable progress achieved in a number of countries, adjustment programs have still to be agreed upon in some cases. Indeed, a lot remains to be done to improve economic performance in much of the developing world. Inflation remains extremely high in many developing countries. Major rigidities are still to be found in the mechanisms by which interest rates, exchange rates, and other key prices are adjusted. Government deficits are often high and public expenditures inefficiently allocated. The success of adjustment efforts will require determination on the part of the borrowing countries and the support of lenders. The Fund can play a crucial role in this respect. The Fund is indeed uniquely placed to help member countries devise responses to adverse developments and provide assurances to lenders that the thrust of an adjustment effort is being maintained.

3. International Collaboration Grasping the opportunities and meeting the challenges of the present situation will require not only domestic political commitment, but also a high degree of international collaboration. The world economy has become increasingly interdependent, and all countries need to recognize the ways in which their policies interact with those of their trading and financial partners. One of the main functions of the Fund is to foster such a recognition and to promote sound national policies that are internationally compatible. The past year has seen several welcome manifestations of effective international collaboration. To begin with, the Fund's finances have been substantially reinforced. Toward the end of 1983, the increase in Fund quotas under the Eighth General Review became effective. This was followed by an enlargement of the resources available to the Fund under the General Arrangements to Borrow, and through additional lending agreements with Saudi Arabia, the Bank for International Settlements (BIS), and certain industrial countries. These developments have significantly enhanced the ability of this institution to promote and finance orderly adjustment. In the 12 months to the end of August 1984, the Fund approved 27 new stand-by or extended arrangements for member countries. After the high commitment figures of 1983 (SDR 11 billion) in the wake of the debt crisis, Fund commitments are expected not to exceed SDR 5 billion in 1984. These amounts should not entail a need for additional borrowing by the Fund for the time being. They show the prudent way in which the Fund has utilized in individual cases the limits of the enlarged access policy. The agreement reached in the Interim Committee over the weekend to continue the enlarged access policy is very important. The agreement

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preserves the necessary flexibility for the Fund to be able to respond to individual situations and problems if and when they arise. Collaboration on the part of international lenders, both public and private, has over the past year been crucial in underpinning adjustment efforts and in bringing about an orderly evolution of the debt situation. There are no miracle solutions, no global panaceas in this field. It is only by maintaining and improving collaboration between all the parties concerned on a case-by-case basis that continued progress can be realized. Remarkable cooperation has been shown in the Paris Club in handling official debt refinancing. And cooperation among commercial banks too has been close and effective. The recent multiyear rescheduling arrangement concluded between the Mexican authorities and the banks' advisory group constitutes an extremely important step forward. That arrangement, by dealing with the entire "hump" of debt maturing between 1985 and 1990, will enhance Mexico's capacity to manage its external debt and facilitate its return to normal market access. It also marks an improvement in the terms obtained by Mexico, thus strengthening the obvious linkage between performance and spreads. Lastly, the arrangement provides for a continuing collaboration between the Fund and the Mexican authorities through enhancement of the procedures of Article IV consultations. This agreement should therefore strengthen the incentives for other countries to pursue effective adjustment policies. Extension to other countries of multiyear rescheduling will depend on the circumstances of each case. These are, indeed, welcome developments. At the same time, there remain aspects of the situation where the spirit of collaboration needs to be strengthened. I will refer to three: concessional financing, trade policies, and surveillance. While many governments are finding it difficult to increase their official development assistance, it is clear that whatever the cooperation provided by the banks in international lending in the coming years, and whatever the level of direct investment—which should play an increasing role—there will be a need for increased official development assistance. The role of governments in providing adequate concessional lending, in particular through IDA, and in making available additional bilateral assistance, for instance, in the form of sustained access to export credit guarantees, cannot be overemphasized. It will also be essential that governments play an active role in backing financial packages in support of adjustment programs. International collaboration in the field of balance of payments adjustment and financing cannot be fully effective if adjustment efforts are impeded by measures that restrict or distort trade. Yet, over the

©International Monetary Fund. Not for Redistribution 28 SUMMARY PROCEEDINGS, 1984 past few years, many governments have been yielding to protectionist pressures despite an almost universal commitment to resist them. Some recent actions to resist protectionist pressures are encouraging. The importance of firmer resistance to protectionism cannot be over- stated. Of course there are political pressures. But the hard lesson of the past is that protectionist measures, however temporary they are intended to be, have a tendency to become entrenched and to spread. They do not just poison the trading climate in certain industries, but weaken the fabric of international economic and political cooperation as a whole. They impede the satisfactory functioning of the international price mechanism, they undermine efficient allocation of resources, and they add to balance of payments and debt problems. Thus, there is an urgent need for high-level political decisions on a strategy to advance trade liberalization and strengthen the trade system based on the GATT. It is sometimes suggested that pressure for protection has arisen largely as a consequence of shifts in exchange rates. This leads some observers to suggest that the focus of collaboration should be on redesigning the international monetary system so as to prevent or reduce the exchange rate movements which have characterized the floating period. While it is true that exchange rate variability gives rise to problems, it must be recognized that, in a world of integrated financial markets and free capital flows, such movements are not easy to check by means of exchange rate limits and intervention. They are more often the manifestation of economic instability than the cause of it. Exchange rate variability arises to a large extent from divergences in policies and performance among major countries, and it is on improving policies that the principal effort should, in my view, now focus. That is why it is so important to enhance the effectiveness of Fund surveillance of exchange rates and of the national economic policies and international developments that influence them. To strengthen the Fund's capacity to act as a forum for multilateral surveillance, we have built upon some of the initiatives introduced in the consultation process in recent years. The great majority of consultations are now on a regular 12-month basis; and there is a growing focus on assessments of trade policies and their impact on domestic and international adjustment. The procedures are now in place. But the effectiveness of multilateral surveillance will depend in the event on the willingness of member countries to submit their own economic policy choices to the constraints and the spirit of international collaboration. I look forward to an enhancement of evenhanded surveillance as is now being contemplated.

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Mr. Chairman, the world economy has made considerable progress in the past two years. The industrial world is regaining the momentum of growth and the rapid deterioration of the debt situation has been reversed. These are solid achievements. Our goal now must be to ensure such sustained growth, for all countries, on a firm financial footing. I believe this goal can be achieved. It cannot, however, be achieved without a continued commitment to sound noninflationary policies. The fight against inflation is not yet over. We still have to maintain the course and resist the pressures from whatever source to relax the commitment to financial discipline. The lesson of the 1970s is clear. It is that shortsighted inflationary policies exact a heavy price in terms of growth and jobs. There is also another lesson: those who have been predicting collapse since the onset of the debt crisis have been wrong. Action and cooperation are possible and if pursued with determination can lead to success. If these lessons have been well learned, we can be confident of a stronger and more sustainable economic performance as we face the second half of the 1980s.

©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

Willy De Clercq

It gives me great pleasure to be here to report to you in my capacity as Chairman of the Interim Committee, and even more so because we are marking this year the tenth anniversary of the establishment of the Committee. As you know, it has been a decade of solid accomplishment. The world economy and the international monetary system have gone through many vicissitudes and rapid change during this period that could hardly have been foreseen at the time when the Committee was created. That we have managed to cope with them so far, and more or less successfully, is in no small measure due to the effective way in which the Interim Committee has carried out the mandate given to it by the Board of Governors of the International Monetary Fund. For me, it has been a special privilege and a pleasure to have been associated with the Committee since its inception and an honor to have been twice selected to be its Chairman. The Committee has held two meetings, both here in Washington, since I presented a similar report to you last year—the Twenty-Second Meeting was held on April 12 and the Twenty-Third Meeting was held last Saturday, September 22. The world economic outlook and the question of the allocation of SDKs in the current basic period were discussed on both occasions; in addition, the Twenty-Third Meeting also had on its agenda the review of the enlarged access policy and of access limits for the use of Fund resources. The main conclusions of each meeting are contained in the press communiques issued at the end. Therefore I shall briefly summarize here only some of the highlights from the discussions.

1 September 24, 1984.

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World Economic Outlook In many respects, the evolution of the world economy during the last 12 months has been more favorable than we had anticipated. The growth of output in the industrial world is proceeding at a rate of 5 percent, and inflation has continued to abate. The pickup in fixed capital investment in the major industrial countries during the last year has been a particularly reassuring development. The aggregate current account deficit in 1984 of the non-oil developing countries is projected to decline to a level that, as a proportion of current earnings, is the lowest in at least the last 20 years. The Committee found it particularly encouraging that their adjustment is now stemming increasingly from an expansion of exports and being accompanied by a return to positive growth in per capita terms. There remain, however, several areas of concern in the present, and of uncertainties with respect to the future. The encouraging overall picture masks a great deal of unevenness in the performance of countries and regions. In Europe, the recovery has not yet become robust and the high level of unemployment remains a serious concern. The already high and still growing current account imbalances in some major industrial countries, and the accompanying pattern and volume of capital flows, cannot be regarded as sustainable for an indefinite period. The high level of international interest rates remains trouble- some and complicates the adjustment process in the heavily indebted countries. Protectionism continues to be a danger to the sustainability of the recovery. In several developing countries, firm adjustment policies are not yet in place, and in some of them, inflation has not yet been brought under control. In a significant part of the developing world, especially the low-income countries relying on commodity exports whose prices remain weak, the financial position remains difficult and real income growth disappointing. In response to these concerns and uncertainties, the Committee emphasized that continued pursuit of a medium-term strategy should remain the basis of economic policy. Such a! strategy required that monetary policy remained committed to the elimination of inflationary expectations. In fiscal policy, elimination of structural budget deficits had to be given priority and achieved primarily through reduced expenditures. Most members of the Committee believed that, in addition to being essential to the medium-term strategy, implementation of such a fiscal policy would contribute significantly to lowering the level of international interest rates. In Europe, structural measures to eliminate rigidities would help strengthen growth and ease unemployment. The Committee reiterated its concern that resort to protectionist measures might undermine the prospects for world recovery. While

©International Monetary Fund. Not for Redistribution 32 SUMMARY PROCEEDINGS, 1984 welcoming some recent actions in some countries to resist protectionist pressures, it called upon all members for concrete actions to reverse the drift toward protectionism. Debt Problem While noting that the external debt problems of many developing countries remain serious, the Committee felt that the coordinated strategy by debtors and creditors of tackling these problems within the framework of adjustment programs had been working well, thanks partly to the more favorable economic environment created by the recovery in world trade. Such a cooperative approach remained essential to the successful resolution of debt problems. In this connection, the Committee stressed the importance of a continuing Fund role in the implementation of the coordinated strategy and it welcomed initiatives toward multiyear debt rescheduling arrangements in cases of effective adjustment. In the recent meeting of the Committee, Treasury Secretary Donald Regan of the United States proposed that the next meeting of the Committee give special attention to the issues surrounding the management of debt problems in a medium-term context. The suggestion received wide support from other members, and the Committee has requested the Managing Director to prepare, in the framework of the Fund's mandate and competence, background papers for consideration by the Fund's Executive Board. The Managing Director's report on this subject to the next meeting of the Committee will provide a basis for its discussion of these issues. There will be a parallel discussion, with a complementary focus, in the Development Committee. In many indebted countries, adjustment is now entering a phase in which their key task becomes the achievement of acceptable growth rates while continuing to strengthen the viability of their external positions. In order to facilitate this task, it is important that economic growth in the industrial world should continue at a reasonable rate; that international interest rates recede from the current high levels; that adequate financing should be available in an appropriate volume and on appropriate terms; and that the indebted countries themselves should persevere in their adjustment policies. Enlarged Access Policy and Access Limits Turning now to the enlarged access policy and access limits for the use of Fund resources, Governors will recall the agreement in the Committee last year that these subjects would be reviewed annually in the light of all relevant factors, including the magnitude of members' payments problems and developments in the Fund's liquidity position.

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A year ago, the Fund's liquidity position was under considerable strain. Since then, the implementation of the Eighth General Review of Quotas, implementation of the enlargement and modification of the General Arrangements to Borrow, together with the associated agreement with Saudi Arabia, and the conclusion of a short-term borrowing arrangement for SDR 6 billion have greatly strengthened Fund liquidity. Thus the Committee's consideration last Saturday of the policy on access took place against the background of an improved world economic outlook and a comfortable liquidity position of the Fund. In view of difficult payments problems faced by many members and the serious uncertainties with respect to the medium-term outlook, there was unanimous agreement in the Committee on the need for a continuation of the enlarged access policy but there were some differences regarding whether there should be a phasing down in access limits from 1984 to 1985, and by how much. Following discussion and some intensive negotiations, the Committee reached the following conclusions regarding the access limits for 1985: 1. Access under the enlarged access policy in 1985 should be subject to annual limits of 95 or 115 percent of quota, three-year limits of 280 or 345 percent of quota, and cumulative limits of 408 or 450 percent of quota, depending on the seriousness of the balance of payments need and the strength of the adjustment effort. As at present, the Executive Board should retain the flexibility to approve stand-by or extended arrangements for amounts above these access limits in exceptional circumstances. 2. The present access limits under the special facilities should be retained. 3. As at present, access limits should not be regarded as targets. These limits, and the enlarged access policy itself, should be reviewed before the end of 1985, and yearly thereafter, in light of all relevant factors, including the magnitude of members' payments problems and developments in the Fund's liquidity position. The Committee called on the Executive Board to complete, before the end of this year, the necessary action in order to implement the conclusions reached by the Committee. The modest reduction in the access limits implied by the above conclusions underscores the temporary character of the enlarged access policy but is not in practice expected to affect materially the Fund's ability to provide appropriate amounts of balance of payments support to member countries. The Managing Director had noted in his statement to the Committee that the Fund has been cautious in implementing the enlarged access policy in 1984. Therefore, the significance of the

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proposed modest reduction in the annual and triennial limits is primarily as a signal rather than as a substantive reduction in actual use of resources in the near future. The retention of the second tier of limits leaves in place the capability of providing augmented access in specific cases if justified by balance of payments need and the strength of the adjustment effort. The cumulative limit of 408 percent has been left unchanged and the second- tier cumulative limit set at 450 percent in order to give the Fund a certain amount of flexibility, and also in particular to avoid situations in which a cumulative limit might cut off Fund financing from countries that, on the basis of their adjustment efforts and needs, it would be in the interest of the international financial community to provide. I should add that as at present the Executive Board retains the flexibility to approve amounts in excess of the access limits in case of exceptional circumstances. By leaving the present access limits under the special facilities unchanged, the Committee was recognizing the importance of the special facilities at the present time in view of the weakness of commodity prices that is unusual for the current phase of the world economic recovery.

SDR Allocations The Committee has continued to give close consideration to the question of SDR allocations during the fourth basic period in the hope of arriving at a sufficiently broad consensus in favor of allocations. However, so far it has not been possible to do so. Most members are convinced that there is now a strong case, in conformity with the Fund's Articles of Agreement, for at least a modest allocation of SDKs. They suggest that such an allocation would meet a part of the growing long-term need for reserves and would not be an inflationary threat. It would be beneficial to many countries that are now undertaking severe adjustment efforts but have inadequate levels of reserves. In short, an allocation would strengthen the world economy and the international financial system. However, other members remain un- persuaded of the existence of a global reserve shortage. They believe that the problems faced by some countries with reserve inadequacies should more appropriately be met through adjustment in economic policies and use of conditional financing. Under the circumstances, the Committee has urged the Executive Board to continue its examination of the issues involved. It was agreed to hold the next meeting of the Committee in Washington, D.C. in April 1985.

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

Alan M. Dukes

I have the honor to address this meeting on behalf of the countries of the European Economic Community.

Present Economic Situation Last April the message conveyed on behalf of my predecessor, Mr. Delors, as President of the Council of Economics and Finance Ministers of the European Communities, was of optimism, pragmatism, and hope. Nothing that has happened since then would lead us to abandon that message. The optimism has indeed been reinforced in some respects by developments in the interim. At the same time, a number of uncertainties and problems which pose a serious threat to sustained economic recovery have come more sharply into focus. These emphasize the need for vigilance in order to protect the recovery. We are entitled to take heart from the progressively widening geographical spread of recovery. This has been helped by the sharp pickup in world trade, attributable largely to the strength of activity in North America. Most industrial countries are now into the recovery phase, although, outside the United States, their recovery is still modest by historical standards. Overall growth in the developing countries is also modest and in many cases is inadequate to reverse a serious decline in real per capita incomes over the past few years: in fact, a large number of those countries are still in the grip of stagnation. Encouraging elements in the present situation are that recovery has not so far given rise to a resurgence in inflation, and that significant adjustments in fiscal and external imbalances have been brought about in many countries. As a group, the non-oil developing countries have achieved a remarkable turnaround in their balance of payments position. On the other hand, the high level of unemployment continues in most of our countries. In the industrial countries it is now three times as high as it was in the 1960s and is still rising in many countries. The present year will still see more than 30 million people unemployed in the OECD area alone. Economic trends in the European Community have mirrored those of the industrial countries generally. Gross domestic product growth in the Community is expected to be about 21A percent this year. While benefiting from the increase in world trade, better growth was spurred

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by the improvement in the underlying conditions and there has also been an encouraging pickup in business investment in recent months. Inflation is expected, on average, to slow down further to 5 percent. The single most unsatisfactory development since April last, and the one which, in our view, still poses a major threat to a lasting recovery, is the increase in interest rates. Views expressed earlier in the year, that interest rates in the United States would soon fall, proved to be overoptimistic. On the contrary, the significant new upward pressure on U.S. interest rates during recent months, allied to the continuing strength of the dollar, has put pressure in turn on interest rates in other countries. The high level of real interest rates cannot but hold back investment as well as consumption in many countries, both directly and through its distorting effects on exchange rates and capital flows. Even more disquieting, it is placing further burdens on the heavily indebted countries, is adding to the amount of domestic adjustment that they must undertake, and has imposed strains on the international financial and banking systems. The fact that these problems have been contained up to now should not delude us into a sense of complacency.

Economic Policies The basic aim of policy in coming months must be to make the economic recovery a healthy and lasting one so that its benefits can spread further, both within the industrial countries and also to the developing countries. The most pressing need is to create the conditions for getting interest rates down. This could ease simultaneously a number of problems on the real and financial sides of our economies. The achievement of lower interest rates in all our countries will depend on how successful we are in keeping a lid on inflationary expectations. This requires in many cases further progress in controlling public expenditure and in reducing structural budget deficits. While many countries are confronted with these difficulties, the United States has a particular responsibility to discharge here. The kkdownpayment" measures which have been taken to reduce the U.S. budget deficit are welcome. We trust that they will soon be followed by the additional measures that are needed to reassure the markets and convince them that interest rates can, and will, come down. In discussions here and elsewhere a large degree of consensus has already been reached on the prudent monetary, budgetary, and other policies that should be pursued to promote noninflationary growth. However, prudent economic management will require us also to keep

©International Monetary Fund. Not for Redistribution GOVERNOR FOR IRELAND 37 further developments under review and to exercise flexibility in the pursuit of policies. The present level of unemployment, with its vast waste of human and economic resources, will confront us with a major challenge in the months and years ahead to see how we can achieve increased employment opportunities in the rapidly changing technological environment. Success in this task will involve not only sound macroeconomic policies to promote investment and overall growth, but also, and more particularly in Europe, the cutting back of major rigidities in our economies which stifle initiative and enterprise and work against job creation.

International Debt Problem The interdependence among all our economies is not an abstract concept. It shows up in a very real way when one looks at international debt problems. A return to sustained levels of economic growth in the industrial countries in coming years will be facilitated by continued successful management of the debt problems of the developing countries, with whom we have close trading and financial links. At the same time, lasting growth in the industrial countries is itself required for solving the problems of major debtors in the developing world. The need to view international debt problems in a medium-term perspective is now more generally accepted. Unremitting effort will be needed over a period of years, first of all by the debtor countries but also by industrial countries as well as the international organizations and, of course, the commercial banks. The progress that some major debtor countries are achieving, at great but unavoidable economic and social sacrifice, is ample evidence of the soundness of the case-by-case approach that has served us well since 1982. That approach must be maintained and strengthened. In particular, an adjustment program agreed between the debtor country and the International Monetary Fund should continue to be the focal point. While these programs will entail some cutbacks in domestic demand and imports, the Fund should continue to make full use of its operating flexibility, in cooperation with the World Bank, to ensure that the productive potential of the economy will be strengthened and progressively brought into use. Moreover, the banks' willingness to continue providing new funds for debtor countries which are adjusting their economies is a cornerstone of the strategy to deal with the debt problem. Official financing will also have a part to play. In cases where debtor countries are making successful efforts to improve their position,

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more extended multiyear rescheduling of commercial and public debts should be considered. As already indicated, the main contributions that we in the industrial countries can make are to create and maintain conditions conducive to lower interest rates and to endeavor to achieve the highest level possible of noninflationary growth. There are two other things that we must do. First, we must facilitate the debtor countries in expanding their international trade by resisting pressures in our countries for further protectionist measures and by rolling back measures already in place. Real progress in opening markets, and not mere posturing, is now needed. The European Community is committed to advancing the work program agreed at the ministerial meeting of the Contracting Parties to the General Agreement on Tariffs and Trade in 1982. A new round of multilateral trade negotiations may also make a valuable contribution to freeing world trade, and it is our intention, therefore, to participate constructively in the preparatory discussions with our GATT partners on the possibility of holding such a round. Second, we must lift our eyes beyond immediate problems and look toward ways to improve the operation of the international monetary system, so as to avoid the emergence of unwarranted and volatile exchange rate movements. The European Community looks forward to the completion, in the first half of 1985, of the present phase of the Group of Ten's work and to subsequent discussion in the Interim Committee. Clearly, in the light of the upheavals of recent years, all countries represented here have a vital interest in such major issues as exchange rate stability, better multilateral surveillance, management of international liquidity, the role of the Fund, and the cooperation between the World Bank and the Fund. In the meantime, we in the Community take satisfaction in the smooth functioning of the European Monetary System in the recent past despite the unstable international environment. We are determined to maintain and strengthen the European Monetary System, both to bring our own economies closer together and as a contribution to the wider objective of stabilizing the international monetary system. The further development of the international role of the Japanese yen will be followed with interest by the Community. IMF and World Bank Matters Our dependence on the stabilizing influence of the Fund was never more apparent than during the recent past. The Managing Director deserves our special gratitude for his leadership and clarity of purpose.

©International Monetary Fund. Not for Redistribution GOVERNOR FOR UNITED STATES 39

The countries of the European Community stand fully behind the Fund in its work. During the year Community member countries demonstrated our support in a concrete way by participating, with the Bank for International Settlements and certain other countries, in the operation to provide credit lines of SDR 6 billion to the Fund. Thanks to this SDR 6 billion and the implementation of the last quota increase, the liquidity and financing positions are satisfactory at present, but pressures on resources could arise again at a later stage. This year's effort to provide new resources to the Fund was, by its nature, an exceptional arrangement. Any new financing efforts that may be required should be spread fairly and should include all the major industrial countries. The enlarged General Arrangements to Borrow, which were an integral part of the agreement on the expansion of the Fund's resources, provide an important instrument for this purpose. The Fund's resource needs will, of course, be influenced by the agreement reached at the Interim Committee on Saturday last on the continuation of the enlarged access policy and on the limits to apply in 1985. In present circumstances it would have been premature to drop the enlarged access. Further review of the facility must take account of IMF members' payments problems, of the financing available to the Fund, of the temporary nature of the policy, and of the principle that subscriptions under members' quotas are the primary source of Fund financing. As regards a new allocation of SDRs, the arguments for and against, including the question of the existence of a global need to supplement existing reserve assets, have been well rehearsed over a long period. In the final analysis a decision on whether or not to have an allocation, and on its specifications, is a matter for judgment. Any decision must be consistent with the IMF Articles of Agreement, taking full account of present economic and financial circumstances. . . . We must surely redouble our efforts to help the poorest countries if we are to retain credibility. The task is not easy but, in tackling it, we must keep in mind the interdependence among all our countries and try to recapture the spirit and vision of Bretton Woods forty years ago. STATEMENT BY THE GOVERNOR OF THE FUND AND THE BANK FOR THE UNITED STATES Donald T. Regan

Forty years ago financial officials from throughout the world gathered at Bretton Woods with a common purpose in mind: to create inter-

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national institutions which, through mutual cooperation and commitment, would assure that the world would not repeat the economic debacle of the 1930s. The past forty years serve as testimony to their wisdom and foresight in creating the International Monetary Fund and the World Bank. We have modified—in some cases significantly—the tools they fashioned in order to meet the demands of a rapidly changing global economy. But the institutions themselves and the basic purposes for which they were founded have well stood the test of time. The Fund and the World Bank are even more central to the global economy of the 1980s than they were when they were first created. As we began this decade our nations faced a number of serious problems. These included persistent inflationary pressures, weak economic growth, low productivity, high and rising unemployment, sharply higher oil import bills, and massive payments imbalances and financing needs. We have, however, made very substantial progress in the past four years. Thanks to the cooperative efforts of debtors and creditors alike in making difficult, but essential, adjustments in our economic policies, we have once again restored growth to the global economy, sharply reduced inflation in many countries, improved productivity, stimulated investment, increased global trade, and preserved a sound international financial system. Still, making it this far has not been easy—for any of us. The adjustment burden has not been borne by merely a few countries alone. We have all, in one way or another, been compelled to accommodate a new, evolving environment. And we have all had to bear the cost in order to reduce inflation and to restore growth to our domestic economies. Significant progress has been made in dealing with problems of international indebtedness, although difficulties still remain. Thanks to global economic growth and firm domestic adjustment measures under market-oriented programs, a number of debtor countries are in the process of restoring growth, balance of payments sustainability, and creditworthiness in international capital markets. None of this would have been possible if we had remained on the inflationary path of the 1970s, if we had refused to recognize the changing global environment, or if each of us had insisted on "going it alone," and closing our doors to the rest of the world. Indeed, one of the most important lessons we have learned since the early 1970s is that the health of the global economy depends

©International Monetary Fund. Not for Redistribution GOVERNOR FOR UNITED STATES 41 fundamentally on economic stability within individual member countries. This basic principle is clearly reflected in Article IV of the revised IMF Articles of Agreement—and it has been central to efforts among the industrial countries to improve policy compatibility, and to bring about a convergence in economic performance, as well as to deal with the problem of debtor nations. Each nation must do its share. Only then can we achieve the desirable and necessary objectives of increased trade, increased employment, and increased real income; the development of productive resources; exchange rate stability; and the restoration of payments equilibrium. And let me reiterate once again my profound belief that these objectives can be achieved. At no time in the past four years has there been more reason for optimism; nor more reason for rededicating ourselves to proven policies and methods. The United States pledges to do so. The International Monetary Fund, under the capable leadership of Managing Director Jacques de Larosiere, has played a central role in the progress that has been achieved. We believe that the following additional steps can strengthen further the Fund's positive influence on the world economy. First, we should continue the process of restoring the original monetary character of the IMF. The Fund was never intended to be a source of long-term assistance to economic development. That is the role of the multilateral development banks. The Fund's strength derives from its ability to provide sound policy advice in conjunction with temporary balance of payments financing to countries in immediate need. Since last year's meeting we have significantly strengthened IMF resources. It is essential, however, to husband the use of Fund resources in order to maintain the financial strength of the IMF through this decade. Access to IMF resources must be subject to adequate safeguards, and drawings must be scrupulously repaid in order to preserve the revolving character of the Fund's resources. In this connection, we support the recent discussions by the Interim Committee to continue phasing down enlarged access and to forgo an SDR allocation. Second, we should broaden the scope and give greater substance to annual Article IV consultations and other forms of IMF surveillance over members' policies—debtors and creditors alike.

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I recognize that some have been looking for an easy solution to the recent debt problems of developing countries. But we have all learned that there is no "quick fix." The only certain approach to restore growth and stability to the world economy is through improved domestic economic policies. The United States is prepared to move ahead decisively to strengthen international surveillance. We believe that such measures as increased public awareness of Article IV consultations with member countries, and a greater use of ad hoc consultations between the Managing Director and finance ministers, could be very useful. We hope others will support proposals such as these for a stronger IMF surveillance role. Third, we should increase the emphasis both within the Fund and in our own countries on market-oriented economic policies. Trade restrictions, impediments to capital flows, and wasteful subsidies impair national and global economic efficiency. We need to begin to liberalize these restrictions and to reduce government subsidies, in developing and industrial countries alike, to improve opportunities for global growth. Fourth, the debt strategy that we developed in response to the 1982 crisis has been working. Many of the debtor countries have adjusted their economies, and in conjunction with expanded market opportunities in the industrial countries, are increasing their exports. Growth in export receipts exceeds the higher costs due to the high interest rates of recent months, which are, nevertheless, well below 1980 levels and trending downward. The debt strategy should be maintained on the basis of particular solutions for individual countries, not across-the-board formulas. The case-by-case approach has worked and should be continued, but we should also be alert to ways to strengthen it. Finally, we join others in supporting concrete practical steps to strengthen coordination between the IMF and the World Bank. While both institutions should maintain their individual roles, it is also important to assure that their policy advice and technical assistance are complementary. They have, in fact, adapted very well to the need to develop a wide range of adjustment programs, often under very difficult circumstances. . . . The United States has proposed a round of discussions next spring between the developed and developing nations. We have made this proposal for a dialogue—not negotiations but a dialogue—in order that we more fully understand one another's views and one another's vantage points. It is only in that way that real progress can be made.

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This proposal has been endorsed by the Interim and Development Committees, and we look forward to a constructive exchange of views on a wide range of issues. Now if you will permit me a moment of reflection, I invite you to stand back and look at the last four years with me. As the 1970s gave way to the 1980s, the world was suffused with pessimism and despair. Well, to paraphrase the words of the U.S. author Samuel Clemens— better known as Mark Twain—the reports of our demise were greatly exaggerated. Yes, individually and collectively we got ourselves into trouble—in some cases—deep trouble. And, yes, individually and collectively we paid a price—some of us a very steep price in the form of severe austerity programs. But all in all, we are back from the brink and poised to move into the next phase—the future. And, it's the future I want to talk about. Because our efforts, however successful, will ultimately mean nothing unless each of us, and all of us, recognize and profit from the economic lessons temporarily ignored and reimposed on us at a heavy price. We all now acknowledge the problems that arise from policies and programs that produce inflation. And all of us have learned not only of the inevitability of the stagnation that follows such inflation, but the high price of corrective action. We acknowledge the pernicious effects of erecting barriers to trade and investment. Many have paid the price of vastly reduced participation in the growing world economy by such self-defeating actions. We acknowledge the stifling effects of high tax rates and tax policies that reduce incentives. The cost we pay is very real. We acknowledge that no nation can forever escape the effects of imprudence in its borrowing. That hardly needs restating here, nor do I want to dwell very much on the painful lessons that we have all learned from the 1970s. But I wonder if we have all understood the corollaries to these timeless economic lessons. Because, from what we have all learned in the last generation, everyone of us can take hope for the future. By putting incentives into the system—lower taxes, less regulation, free markets—by allowing the creative spirit and energies that exist in all of our countries to flourish, I believe every economy on earth can enjoy the growth that some of us have experienced and all of us want.

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By being prudent in our fiscal and monetary affairs, I believe every one of us can experience that growth without devastating inflation. By allowing the free flow of goods, services, and capital, both within and without our borders, I believe that every nation in the world can enjoy the benefits of the individual genius that lies within every land. By removing the rigidities within each of our economies, I believe every nation can more quickly improve its efficiency and investment potential. In short, let me impart to you today my firm conviction that by living the lessons, those universal economic lessons that we have all been called to relearn in the last decade, the next decades can generate a prosperity undreamed of. I urge you: As much as you may want to erase the memory, do not forget the pain of the past, nor allow yourselves to lose sight of the better times on the horizon. Being mindful of that past and optimistic for that future gives the best assurance of reaching our mutual goals. With a little courage, a little determination, and a little patience we can do it. But we must do it together. We must rededicate ourselves to the spirit of cooperation and shared destiny that brought our predecessors together 40 years ago. The opportunity is here today. We cannot afford to let it pass us by.

STATEMENT BY THE GOVERNOR OF THE BANK FOR FRANCE

Pierre Beregovoy

The Bretton Woods Conference, which gave birth to the institution under whose auspices we are now gathered, was held forty years ago. Such longevity bears witness to the soundness of the system established at the end of the Second World War. Adjustments have been necessary; others remain to be made. We are here to devise solutions adapted to our times. The world has changed a great deal in forty years. In all likelihood there will be additional upheavals by the end of the

©International Monetary Fund. Not for Redistribution GOVERNOR FOR FRANCE 45 century under the combined impact of the demographic, technological, and social changes that set the course of international economic developments. The basic question before us now is, in fact, broadly the same as the one facing the participants at the Bretton Woods Conference, namely, our ability to pull our countries out of the economic crisis and to establish the conditions for lasting growth. No one can be content with the present situation: the rise in unemployment, which is still very high in Europe, the impoverish- ment of many developing countries, and the recurrence and spread of famine in certain areas such as sub-Saharan Africa not only generate sizable social and human problems, they also threaten to jeopardize international relations. To correct this situation a balanced growth of production is required. All our efforts must be focused on the need to achieve and subsequently consolidate world economic recovery. The improvements over the past two years indicate that we are on the right track. In 1984, prospective growth in the OECD countries is about 4 percent, and international trade is again on the rise after having stagnated and then declined. Encouraging as these results may be, they remain tenuous. Even where growth is the most pronounced, disequilibria and financial pressures show that the adjustment process is far from being completed. This rehabilitation of our economies is based primarily on the efforts, and, in many cases, the sacrifices, that each of our countries has agreed to make in order to emerge from the crisis. As you know, France is modernizing its economy while simultaneously reducing public deficits, being conscious that higher productivity is the prerequisite for noninflationary expansion. Our policies will remain firmly based on the principle of the openness of our economy to international trade as we believe that the growth of international trade is essential for the growth of the world economy. In this connection, monetary stability is one of the conditions for maintaining sustained growth. This requires eliminating current payments imbalances through adjustment measures adapted to the circumstances of each country. Fund assistance is decisive in this regard. Under the leadership of its Managing Director, Jacques de Larostere, the Fund has played a role of paramount importance in the drawing up and financing of the programs required for the countries suffering from the most serious imbalances.

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On behalf of my Government, I express the wish that international monetary cooperation be strengthened. It is clear for us that the debt burden of the developing countries, aggravated by the rise of the dollar, is seriously endangering the world economic recovery. Let us be specific: According to Fund data, one additional percentage point of growth in the industrial countries between 1984 and 1986 would yield a 3.5 percent expansion in the exports of the non- oil developing countries and improve their balance of payments by a corresponding amount. In contrast, however, the monetary developments of the first six months of this year will increase the developing countries' interest burden by $6 billion. This gives the measure of the harmful effect of high interest rates, which are also impeding economic recovery in Europe. Despite the commitments made at former summit meetings of industrial countries, the situation has scarcely changed at all. I hope that our discussions on this topic here in Washington these past few days will not be without result. France believes that industrial countries have a responsibility to bear in this matter. No country in the world, not even the largest one, can shirk this responsibility. I would even go so far as to say that the responsibility increases with the economic size of countries and the role they play on the world scene. France is deeply attached to the community of democratic nations; that is why I am expressing myself in such a forthright manner, political and economic responsibilities in this area being closely interrelated. An easing of interest rates would therefore be most welcome. This would not in itself compensate for the slow growth of international liquidity, which in our view jeopardizes the medium- term growth of output and trade. For this reason, we have supported a new allocation of SDKs. Although a majority of member countries declared themselves in favor of such an allocation, this proposal was not accepted by the Interim Committee. I regret this fact, for a new allocation would have confirmed the Fund's monetary function and strengthened the role of the SDR as a reserve asset. It is my firm wish that this question be re- examined, and that France's suggestion that industrial countries lend all or part of their new allocations to the countries that are carrying out economic adjustment efforts be taken into account.

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In the same spirit, France spoke out clearly in favor of continuing the policy on enlarged access to the Fund's resources. This instrument has proved to be useful and I am glad that it has been continued. Arduous discussion took place within the Interim Com- mittee, but eventually all member countries were able to agree. This agreement means that the loans extended under the enlarged access policy will be reduced significantly less than might have been feared. In addition, overall access limits for individual countries will be maintained at the same level in the vast majority of cases; this constitutes the most positive outcome of our discussions. Finally, should the Fund need to replenish its liquidity, it could make use of the General Arrangements to Borrow, revised last year, in which France would participate. To be effective, adjustment programs must be part of an overall approach to economic development. The countries concerned are required to make a threefold effort: balance their accounts, produce more, and sell more abroad. This means that their productive capacities must be considerably strengthened, which will call for a sizable investment effort over a long period. The financial assistance provided to them must therefore be considered within a long-term framework. In this connection, it is essential that the Fund cooperate closely with other institutions involved in medium-term project financing. It is therefore necessary to ensure that the multilateral financial institutions have sufficient resources to carry out their missions. . . . I wish now to raise an issue about which my country is particularly concerned, namely, sub-Saharan Africa. The region has serious, often dramatic, problems; it is ravaged by drought, and there are now more than 100 million Africans suffering from malnutrition. It is urgent that the international community should make an exceptional effort for these countries and their peoples. The World Bank has presented us with a forthright analysis of the difficulties. It has still to draw appropriate financial conclusions from its lucid analysis. Once again, I call upon the World Bank to convene a donors' meeting so as to set up as early as feasible a " Special Africa Facility. ..." France is prepared to contribute to this effort with the resources it had set aside for the ID A-VII Supplementary Fund. Bilateral aid programs are useful; France for its part is earmarking 50 percent of its bilateral aid for sub-Saharan Africa. Multilateral assistance

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is no less necessary, and I invite the major industrial countries to hear the call of the African continent. The international community must also agree to take a more prospective view. "The time has come to consider a new Bretton Woods," stated the President of the French Republic, Frangois Mitterand, to the OECD last year. We all sense that the international monetary system needs to be adapted to the vast social changes that are taking place. Moreover, France proposes that a new instrument, country loans, be created. These loans would be committed over a period of five to seven years. Their basic aim would be to contribute to external adjustment through a range of coordinated policies to enhance the productive capacity of the countries concerned. They would be extended by the World Bank in close cooperation and consultation with the International Monetary Fund. We cannot remain indifferent to the disorder and injustice imposed upon the weakest countries. I realize that it is a delicate matter and that monetary reform is not easy. I am a pragmatist and would like to see steady progress made, neither too quickly nor too slowly. Under my predecessor, Jacques Delors, the Group of Ten gave serious and detailed consideration to four topics: the stabilization of exchange rates, international liquidity, multilateral surveillance, and the role of the Fund. The report will be completed early next year. It is the wish of France that a special meeting of the Interim Committee be held in 1985 to discuss it. In this way, we would be moving one step closer to a more stable and mutually supportive system. Forty years ago, the Bretton Woods Conference opened the doors of prosperity to the world by organizing a stable monetary system. Present times are not so dramatic. The world has changed, often for the better. However, monetary stability and development are still to be addressed. It is my earnest wish that we should demonstrate, for the cause of our peoples and of peace, the same boldness and realism as our predecessors.

STATEMENT BY THE GOVERNOR OF THE BANK FOR THE DOMINICAN REPUBLIC

Jose Santos Taveras It is my honor and privilege to address you at these Meetings of the Boards of Governors of the International Monetary Fund and the

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World Bank on behalf of Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Haiti, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, the Philippines, Spain, Suriname, Uruguay, Venezuela, and my own country, the Dominican Republic. The Dominican Republic and the other countries I represent are pleased to take part in the discussions on this transcendentally important occasion. Most of our countries, like the industrial countries, are in the midst of a critical stage in the development process, and we believe this is the proper time and place to give voice to our profound concerns. Our destinies are so intertwined that to strengthen one is to strengthen all. We are concerned today, therefore, with the importance of adopting a comprehensive approach to the economic and financial problems that threaten both the strength of the recovery and the re-emergence of the forces of development. We are fully aware that the conditions in which our nations find themselves today impose a clear choice: either we progress jointly, or we will be forced to face social, economic, and political disturbances of unforeseeable magnitude. Although it is repetitive to state it time after time, the situation of the great majority of our countries is deeply worrisome. The major economic indicators all yield the same somber picture, and I have no hesitation in stating it in these terms, on behalf of all the countries I represent and of my own. For instance, data from the Economic Commission for Latin America (ECLA) show us that Latin America's gross domestic product (GDP) declined for the second year running in 1983, falling by about 3 percent, and that per capita GDP decreased by 5 percent last year, continuing a "trend" started in 1980. On the other hand, urban unemployment in the region rose alarmingly in 1983 and can be clearly felt throughout our countries' economies. And inflation, as measured by consumer prices, also showed a similar trend, as domestic prices rose more quickly in 1983 even in those countries that have traditionally moderate inflation rates. Turning to indicators for the external sector—which is so important in our countries, given the considerable degree of openness of our economies—we see that the trade surplus of approximately $33 billion obtained in 1983 was generated exclusively by drastic cuts in the region's imports, which declined by 30 percent after having already fallen by 20 percent in 1982. This fact and its exceptionally adverse implications for regional and world development, together with the shocking reality of progressively

©International Monetary Fund. Not for Redistribution 50 SUMMARY PROCEEDINGS, 1984 worsening terms of trade, brutally reveals the crisis in which we are mired. In this regard, the data show that in 1983 the terms of trade index was 28 percent lower than in 1978 and reached its lowest level in the last half century; in 1980-83 its average was much lower than in 1931-33, the most critical stage of the Great Depression. Further- more, as a result of this new decline in the terms of trade, and despite the 7 percent increase in the region's export volume, purchasing power actually fell. We should also note that declining financial remittances helped strengthen the impact of the trade surplus on the current account of the balance of payments. Nevertheless, we know that this resulted largely from a contraction in the region's economic activity. Another equally significant fact affecting the reduction in the current deficit was the sharp decline in net capital inflows, which in 1983 were no more than 10 percent of their 1981 value. On the other hand, the external debt grew by 7 percent in 1983, as a basic consequence of the virtual cessation of new international bank lending to Latin America. In addition to these facts, developments in 1984 add even more unsettling factors, including above all the rise of the basic interest rate in the United States. Our countries do acknowledge, however, that some positive signs can be seen in several developed economies. The U.S. economic growth rate has remained at levels that suggest the emergence of economic recovery. Other developed economies have also shown progress in this regard. Industrial country growth rates are expected to exceed 3.5 percent in 1984 and may possibly be even higher in 1985. But these signs of recovery have not produced the stimulus our countries looked forward to in order to escape from their three-year- long economic recession, during which we saw our per capita income decline in real terms. More serious yet is the fact that we continue to be strangled by service payments on an external debt for which creditors as well as debtors are responsible. We must honor this debt to the extent possible, in order not to affect the normal development of the international financial community—an objective we deem essential and because of which we are immersed in a painful economic adjustment process which in many cases is taking us to the limits of our social and political tolerance. Let us recall that some years ago, in meetings similar to this one, we were told that our countries should resort to international private bank financing to cope with their desperate economic problems. However, events have shown that, instead of resolving those problems, what recycling through the commercial banks has brought us is a

©International Monetary Fund. Not for Redistribution GOVERNOR FOR DOMINICAN REPUBLIC 51 problem even greater than the one we were trying to solve. Conse- quently, the problem of development cannot be stated in purely commercial terms. Our countries reiterate their view that the topics of the uncertainty of this recovery and the declining thrust of development in many developing regions have not been given the importance they merit. These factors place the world financial and monetary systems in danger of collapse. The industrial countries continue to fight to prevent the resurgence of inflationary pressures, but they do so only through monetary policy, allowing their fiscal deficits to persist. As a result, real interest rates remain high and nominal rates have become extremely sensitive to the slightest movement of economic indicators. Exchange rates, particularly those of the stronger currencies and especially that of the U.S. dollar, have become unbalanced and are causing unsustainable trade dislocations. Protectionism is gaining strength day by day, preventing the developing countries from increasing their penetration of the developed world's markets, especially as regards their agricultural products, and constituting a threat to their small achievements in, say, the textile and steel sectors. Above all, however, what we call the international problem of the debt continues to weigh heavily on the development of our economies. The irony of the situation is that what has always been referred to as the international debt problem has not been approached as what it is—an international problem. By dealing with it case by case, the tendency has been to approach the problem as belonging to this or that debtor country and to consider that it should be solved through sacrifice on the part of the debtor country. The international conditions that created the problem have been altogether overlooked. For example, there has never been a willingness to accept joint responsibility for the unevenness of the adjustment effort. Because of the inequality in the adjustment process during the 1970s, the requirement of adjustment was imposed only on the developing countries, as if it were merely a matter of mismanagement of resources in those countries. At no time was there a mention of the lack of action by the developed countries—five or six of which dominate multilateral organizations such as the International Monetary Fund and the World Bank—in not applying the political will to change the position of these institutions and thereby obtain an appropriate reaction to the changes that were occurring in the international financial environment in the late 1970s. It cannot be denied that the problem of the debt is everyone's problem and that, consequently, it merits a highly urgent international

©International Monetary Fund. Not for Redistribution 52 SUMMARY PROCEEDINGS, 1984 political solution that must not be delayed. The leaders of the countries on whose behalf I am addressing you today have repeatedly emphasized this fact in the last two years, both in Quito early this year and in Cartagena in June, then in a communique addressed to the London Summit Meeting and, more recently, in the Mar del Plata communique. These initiatives unambiguously state that the negotiations to restructure our countries' external debt must envisage the elimination of a series of obstacles that hinder our compliance with our payment commitments and make it more burdensome to do so. To this end, it was mentioned that there is a need to establish multiannual rescheduling periods, eliminate administered rates, reduce spreads, abolish rescheduling fees, and consider designing debt profiles more consistent with the debtor countries' payment and refinancing capacity. In addition, in view of the burden represented by the high real and nominal rates of interest—which clearly have become obstacles to economic recovery in our countries and even in the creditor countries, as many of these hindrances result from the fiscal and monetary policies pursued by the industrial countries—we reiterate that the adjustment process must not be recessive and must have a symmetrical nature in order to prevent its costs from falling solely upon the developing countries. Moreover, our countries would hope that the rescheduling of their debts to international banks will not be linked to international organizations' conditional programs but rather will be based on criteria consistent with our payment capacity. Any lasting and equitable solution must be the result of a joint consensual position reached by all sectors involved in the international community, as the signatory countries of the Cartagena Consensus stated clearly in the Mar del Plata communique. To this end, the countries we represent are determined to continue to seek such a consensus through a permanent and sustained dialogue going beyond the unavoidable purely economic facets to encompass the political aspects of our societies. Our countries have not shied away from their responsibilities. They are directly confronting the adjustments required by their economies, and, furthermore, they are also prepared to assume their international financial obligations. No more should or can be expected of us. The rest of the world also must face up to this challenge. The industrial countries must soften their monetary policies with a significant fiscal moderation and adopt more liberal policies in the areas of trade and development aid. Commercial banks and other sectors of the international financial community must provide a stronger and surer support adapted to the external situation of the countries in question and

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leading to their development. And, from our own point of view, it is essential that the multilateral institutions provide guidance and assistance based on realistic data regarding capacity and limits of tolerance in view of the political and social costs and of the needs of developing countries. . . . We would like to conclude our remarks by stressing that it is only through direct, permanent, and constructive dialogue among all nations, backed by a firm political will, that we will be able to arrive at satisfactory solutions to the international economic crisis now weighing down upon us.

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

Mahn-Je Kim

I would like to begin by joining fellow Governors in extending a wholehearted welcome to St. Christopher and Nevis as the newest member of the International Monetary Fund and the World Bank. As we all know, 1984 marks the fortieth anniversary of a landmark in international cooperation—the Bretton Woods Agreement, which created the Fund and the Bank. This successful experiment in world cooperation has guided us into almost four decades of postwar prosperity. I would like to take this opportunity to review the current state of the world economy and the role of the two Bretton Woods institutions. By a renewal of this spirit of global cooperation, I am confident that we can find solutions to the major problems facing the world economy today. Fortunately, the world economic situation is much better now than it was a few years ago. The marked economic recovery in North America and moderate recovery in the other areas of the industrial world, combined with significant progress in price stabilization, have brightened the world economic picture. Also, some progress in correcting unsustainable external positions of some developing countries through implementation of structural adjustment programs has also improved prospects for a resolution of their debt servicing difficulties and a resumption of more satisfactory growth rates. Some important issues, however, remain:

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First, many developing countries have yet to share in the fruits of recovery. Second, the recovery itself may lose momentum in the latter half of 1984 and on into 1985 partly as a result of high real interest rates. Third, as noted by the Fund's 1984 Annual Report on Exchange Arrangements and Exchange Restrictions, trade protectionism has expanded in the industrial countries. Fourth, and last, the debt burden of many developing countries continues to be heavy. Thus, the medium-term prospects for a durable world economic recovery are still uncertain. Among others, protectionist pressures have produced anxiety among developing countries that are dependent on continued access to export markets in industrial countries. Indeed, it cannot be emphasized strongly enough that the developing countries must have fair access to export markets in order to earn the hard currency needed to service their foreign debts. In addition to protectionism, excessively high real interest rates pose a serious threat to the stability of the world financial system. Not only do they discourage investment spending in the industrial nations over the long run, but in the short run they exacerbate the debt servicing burdens of the developing countries as well as increase the costs of needed structural adjustments for developed and developing countries alike. These problems highlight the interdependence of the world economy. Therefore, their solutions can only be found through the joint efforts of both developed and developing nations working in collaboration with international organizations such as the Fund and the Bank. On our part, the Korean Government has been consistently pursuing strong adjustment policies despite severe hardship that they sometimes entailed. These include strict fiscal discipline, monetary restraint, and flexible management of the exchange rate, complemented by structural policies. To improve the efficiency of domestic industry through increased competition and greater technology transfer, we have been adopting measures to liberalize imports, reduce tariffs, and remove barriers to foreign investment. To mobilize more domestic resources and enhance the role of the market mechanism in resource allocation, we have been implementing policies to deregulate prices and interest rates and to reform the financial sector. The result of our adjustment program is clear from our recent economic performance, which in 1983 far exceeded program targets.

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Output growth nearly doubled to over 9 percent, inflation was virtually eliminated, and the current account deficit halved to about 2 percent of GNP. At the same time, the growth of external debt slowed and its maturity improved. Judging from our economic performance in the first half of this year, we expect in 1984 a growth rate of over 8 percent, continued low inflation, and further reduction in the current account deficit. To ensure the ongoing success of our structural adjustment efforts, Korea will continue to work closely with the Fund and the Bank. As Korea becomes more integrated with the world economy, its vulnerability to external disruptions is heightened. Therefore, more coordinated international economic policies and stronger international cooperation become necessary. That is why Korea strongly supports a strengthened role for the Fund and the Bank. The Korean Government is pleased with the achievements of the Fund during the last year. The Fund has played a catalytic role in facilitating cooperation among debtor nations and lenders to effectively address the developing countries' balance of payments and debt servicing problems. Also, the Fund has recently expanded its surveillance activities in the context of annual consultations with member countries. In view of the important link between developing countries' export earnings and their debt servicing capacity, Korea supports a strengthened role of the Fund's symmetrical surveillance function, particularly aimed at the reduction of protectionism. A more open trading environment will benefit all countries. First, it would accelerate structural adjustment in the industrial countries, which leads to higher economic growth through international trade specialization. Second, it would increase developing countries' access to export markets and, thus, improve debt servicing and import capabilities. As I mentioned earlier, substantial progress in price stability has been achieved. However, the international reserve assets of the developing countries relative to their financing needs are not adequate. Therefore, now is the time to reach an agreement on the additional allocation of SDKs to smooth the functioning of the international monetary system and to facilitate the expansion of world trade. In order to enlarge Fund resources to meet an expanded role, Korea hopes that meaningful discussions on the Ninth General Quota Review will begin shortly. . . . Let me conclude by mentioning the major challenges facing developed and developing countries in their common endeavor to achieve a durable expansion of the world economy. First of all, developed countries should open up their markets to developing countries' exports

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by reducing protectionist barriers. Furthermore, greater efforts should be made to reduce the present high levels of real interest rates in order to ease the debt burden and to ensure a stable international financial system. On their part, the developing countries should manage their balance of payments and external debt problems more effectively by pursuing strong adjustment policies. As for international organizations, such as the Fund and the Bank, they should strengthen their role as capital suppliers to the developing countries, and particularly the Fund's surveillance function aimed at balanced structural adjustment efforts. And, finally, commerical banks should play a larger financing role in the current world economic environment. In so doing, they should respond favorably to countries undertaking adjustment programs and posting good economic performance. We cannot afford to delay these actions, because such delay would bring greater unnecessary hardship to all nations. Rather, the time to deal with the problems I have discussed is now, during a period of global economic recovery, when the task of structural adjustment of the world economy can be undertaken with lesser sacrifice and greater chance for success. If we act promptly and decisively, I believe that we can break the vicious circle of protectionism, recession, and debt crisis that has plagued the global economy in recent years. On behalf of the Government of the Republic of Korea, I look forward to welcoming you all in Seoul at the next Joint Annual Meetings, and I can assure you that we will do our best to assist in making the meetings a success and to make your stay a very pleasant and comfortable one.

STATEMENT BY THE GOVERNOR OF THE FUND FOR INDONESIA

Radius Prawiro

I am very pleased to meet you all today in the course of these extremely important and constructive meetings. With the experiences of Sarajevo and Los Angeles fresh in our minds, I suspect some might regard these meetings as the Olympics of the international financial community. I trust, however, that our gracious hosts do not attempt to continue their success in those Olympics. With all the first place medals won by U.S. athletes, some may be inspired to return to the gold standard

©International Monetary Fund. Not for Redistribution GOVERNOR FOR INDONESIA 57 as suddenly as it was dropped a decade ago. There are sufficient indicators in the world economy today which would make such a sudden policy change all the more unsettling. In a sense, that sums up the point of view that I would like to share with you today. To take a page from the game theory and to continue the Olympics metaphor, let me suggest that we give equal attention to the rules of the game as well as the policy content. It should be acknowledged at the outset that certain conditions have improved significantly since we last met in September 1983. The economic recovery, however, has been heavily concentrated in North America and Japan. It is true that in spite of the prevailing high interest rates in the United States, business fixed investment has revived quite strongly, but some slowdown in the economic performance of the United States is expected in the year ahead. On the other hand, growth has been relatively weak in the European countries, where very high unemployment still prevails. The inflation rates, however, have generally been brought down to sustainable levels. The developing countries in general have likewise experienced some acceleration in the improvement of their economies. Their debt servicing problems have eased considerably since 1982 when the prolonged world economic recession and the emerging debt problems caused fears of an imminent financial crisis. Relatively austere monetary and fiscal policies, good agricultural harvests, and generally stable import prices have allowed most countries in Southeast Asia to maintain remarkably low rates of domestic price increases. Austere domestic policies to contain import demand, combined with generally improving export markets, have been the main reasons for improvement in the current account deficits of these countries. In general, the performances so far are encouraging, but the outlook remains uncertain because growth recorded so far has been uneven, and the ability to sustain the recovery remains unproven. A number of factors suggest that the present recovery is fragile and could easily be aborted. High interest rates, protectionist trade policies, and exchange rate fluctuations still darken the horizon. The uncertainty surrounding these factors would no doubt complicate the formulation of economic plans and could easily undermine the effectiveness of the policies pursued by the developing countries to achieve sustained economic growth. For a country seeking to improve the inflow of capital and stimulate investment, the upward pressures on interest rates are causes for concern. Excessive fluctuation in exchange rates will also take its toll in exports. At the same time, protectionist trade policies persist, thus further distorting the efficiency of international trade.

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What accounts for these problems? I hesitate to say whose responsibility it is because I believe it is the responsibility of us all. It is, therefore, fair to say that we must renew our commitment to ensure that national economic policies are harmonized with global economic interest, particularly with that of the developing countries. Developed countries are equally affected, but the strength and diversity of their economies could cushion or even disguise the impact. In the United States, a combination of strong private demand for credit, together with a large fiscal deficit, has pushed real interest rates up to levels that could adversely affect investments. High real interest rates have also contributed to the sharp appreciation in the value of the dollar which will adversely affect U.S. exports. This, in turn, leads to increased protectionist pressures within the United States. High real interest rates in the United States also have international implications since they attract foreign savings into the United States and influence exchange relationships in a direction that may not be justified from the point of view of balance of payments, particularly the current account balances. At the same time, the debtor countries' debt servicing capacity will be adversely affected by high interest rates in the capital markets. The rise in debt service cost due to interest rate increases has, to a large extent, offset the benefits of the recovery in the exports of the debtor countries. We.also observe that recovery in the European economies has not been sufficient to reduce the prevailing high unemployment. Policies to stimulate growth in these economies are constrained by structural rigidities. The social welfare schemes in some of these countries, together with wage rigidities, have resulted in distortions in the labor market and a decline in business profitability. Consequently, investment performance and job creation have lagged behind those experienced in North America. Among the developing countries, the newly industrialized countries have indeed benefited the most from the world economic recovery. This is mainly due to their more diverse economic bases and their ability to respond quickly to foreign demand for manufactured and semiprocessed products. However, the apparent increase in protectionist sentiments in industrial countries might severely limit the ability of these newly industrialized countries to experience sustained growth in exports of manufactured goods. At the same time, international prices of commodities, upon which most developing countries are heavily dependent, have declined in recent months. The outlook for a pickup in these prices, especially for coconut and copra products, sugar, timber, copper, tin, oil, and rubber, is very uncertain. Prospects

©International Monetary Fund. Not for Redistribution GOVERNOR FOR INDONESIA 59 for substantial improvements in the economic performance of these countries during the coming year could, therefore, be undermined. To put this in a different perspective, the Economist recently noted in its columns that after this November, industrial Western nations will go two years without national elections. This provides them with the chance to make tough economic decisions without the pressure of voter reactions. The publication added, and I quote, While the (major) shareholders in the IMF are right to say debtors can boost their supply of exports by changing their domestic policy ... (it is) equally right that the demand for exports must be there. ... If governments of the rich world want to turn debtors into defaulters and shake the banking system, they only need to follow the advice of their own protectionists. In order to sustain the present recovery in the West, important measures must be taken to reduce budget deficits to achieve lower interest rates, to establish a more consistent pattern of exchange rates, and to reduce current account deficits. It is not difficult to envision the domestic political value of a strong dollar and the probability that these conditions would change after the election. But there is also a practical and psychological impact on the world economy which must respond to the pressures. For other industrial countries, especially those in Europe, I believe that a cautiously expansionary financial policy, combined with measures to ease the structural problems, could contribute toward a better economic performance. This seems especially appropriate in countries where inflation is under control and where the balance of payments is strong. For the developing countries, further progress in economic development and the ability to service debt will depend, to a large extent, on the willingness of industrial countries to match the adjustment efforts of the developing countries with policy improvement of their own. Recovery in the developed countries should provide them with a good opportunity to adopt trade liberalization measures. In addition, some thought should be given to the idea of introducing more effective surveillance procedures in the Fund to bring about a better mix of policies in the industrial countries. In addition to those measures, there is the urgent need to preserve and increase the financing flows to developing countries as an integral part of the strategy to ensure a sustainable and broad-based global economic expansion. This brings me first to the question of adequate access to Fund resources. Since the global situation is still uncertain and the liquidity position of the Fund is sufficiently comfortable, I do not see any reason why the present access limits could not be at least

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maintained, along with higher rate of utilization, so that a larger proportion of members' deficits could be financed with Fund resources. An allocation of SDRs in the remaining fourth basic period could certainly play an important role in ensuring appropriate financing flows to the developing countries. The most recent paper by the Fund staff on this subject provides a clear and convincing case for the resumption of the allocation of SDRs. I cannot help but express again my disappointment at the fact that the allocations have not materialized. What we need is not another case with more convincing technical arguments, but a strong political will to agree on an allocation. Let me now turn to the economic difficulties confronted by our developing member countries. The plight of these countries, particularly those in sub-Saharan Africa, is a matter of serious concern for the world community. These countries require massive development assistance from both bilateral as well as multilateral sources, including increased flows of foreign grants. . . . I have attempted to show that the elements which would contribute to a sustained and healthy global recovery are based on some traditional "rules of the game," such as the free flow of capital resources and free trade. To bring this about requires not only harmonization of national economic policies, but also close cooperation through multilateral institutions such as the Fund, the World Bank, GATT, and others. With that kind of cooperation, the future of the world economy can be much brighter. In concluding, I would like to express my gratitude to the Government and the people of the United States for the warm hospitality that they have extended to us.

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

Michael H. Wilson

It is an honor for me to address this distinguished assembly. The institutions gathered here have been pillars of strength for the international financial system. The fact that these institutions have always met jointly is a tribute to the foresight of their founders and continuing testimony to the need for, and benefits of, international cooperation. I have been Minister of Finance for Canada for only one week. In that brief period I have had the pleasure to chair the Commonwealth

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Finance Ministers meeting in Toronto and to meet with many of you personally to begin discussions of issues of common concern. This has been an exciting and stimulating beginning to my new job. I am impressed by the determination with which our problems are being tackled and the firm commitment of policymakers in all countries to overcome them. This determination and commitment will allow us to improve our prospects for the remainder of the 1980s. I look forward, during my time as Minister of Finance, to working closely with each of you and I pledge to do so in the same spirit of constructive purpose that I have encountered so far. As we meet today, we are justified in taking some satisfaction in the strength of the global economic recovery and the success of efforts to enhance the stability of the international financial system. Led by a remarkable performance in the United States, the industrial countries are experiencing less inflation and more buoyant growth than has been the case for a number of years. International cooperative efforts over the past two years, along with the recovery in the industrial countries, are easing the financial difficulties of the developing countries. Over the medium term there is every reason to be confident that the international debt situation can be successfully managed, within an environment of sustained growth, provided both debtor and creditor countries continue in their determination and commitment to follow appropriate policies, and provided the commercial banks remain flexible and pragmatic. Developments over the past year justify increased optimism on our part but this must be tempered by the realization that the global economy continues to face major difficulties. Unemployment remains unacceptably high, with little indication of immediate relief. The economic loss and associated social burdens resulting from unemployment are a matter of great concern to governments. Many developing countries have yet to share in the recovery and the outlook for the poorest remains bleak. Although world trade is now expanding strongly once again, protectionist pressures remain strong everywhere. The durability of the recovery demands that we pursue policies that will avoid both a new recession and a resurgence of inflation. During most of this year nominal and real interest rates have been rising, reflecting continued concern over the future course of inflation and the conflict between private and public demand for credit. Their rise has resulted from the extraordinarily rapid growth of the U.S. economy and the impact of interest rates set in U.S. financial markets on interest rates around the world. Although world output is now growing again at a healthy rate, the benefits of the recovery remain unevenly distributed. Current high real rates of interest threaten its continuation and the

©International Monetary Fund. Not for Redistribution 62 SUMMARY PROCEEDINGS, 1984 economic and social well-being of industrial and developing countries alike. The United States has provided a remarkable boost to the worldwide recovery through increasing export opportunities for other countries. There are, however, two worrying aspects of its performance, particularly for those developing countries that are struggling to pull themselves out of an extraordinarily difficult debt situation with minimum social and political disruption. The first is the threat of protectionism. The U.S. Administration, to its great credit, had not yielded to easy short-term solutions at the expense of the multilateral trading system that has served us well. But pressures continue to build and will remain relentless. The second is the high level of real interest rates which continues to have an adverse impact on other countries, adding to the difficulty of debtor nations, and increasingly threatens the sustainability of the expansion in the United States itself. Government debt and deficits are very much on my mind as I begin to assess Canada's economic situation. Clearly, Canada is not unique in the nature of its problems nor in the policy directions that must be pursued. Real growth in 1984 in Canada is generally expected to be about 4!/2 percent, and the outlook is for a significant slowing next year. I am concerned about the adverse implications of such a slowdown for employment. And, as worrisome as this prospect may be, it could become worse if we continue on our present policy course. The Government I represent was elected to bring about change and we are committed to do so. Our top priority will be to introduce new policies that generate investment and provide sustained growth. But, while policy change is needed, it is crucial to bear in mind that the process of restoring the vitality of the Canadian economy will be lengthy and difficult. Lower real interest rates are essential to support sustained expansion and to provide us with the ability to reduce fiscal imbalances. The United States is critical in this regard. But we cannot use this as an excuse for inaction. The situation requires a demonstration on our part that we are prepared to put our own fiscal house in order. As the Managing Director of the International Monetary Fund has so aptly noted, deficits around the world exploded because traditional fiscal probity yielded to the political pressures that rising expectations generated. The consequent buildup of public debt, however, has increased our vulnerability to high real interest rates and threatens our ability to achieve sustained growth and high employment. As the

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Annual Report of the Fund points out, deficits in Canada are destined to absorb historically high proportions of people's savings if we continue along the same path as the previous administration. The expectation that large deficits are likely to persist indefinitely is, itself, becoming a serious obstacle to growth. While a deficit in any given year generally supports economic activity, the path of deficits over time can worsen prospects for sustained growth. The accumulation of debt that such deficits imply will hinder our ability to grow in many ways. It encourages inflationary expectations that can put upward pressure on current interest rates. It increases real interest rates that can shift income away from risk capital and labor to debit holders. Moreover, because deficits bias output away from productive private sector investment and toward public expenditure, they can lower the long-term potential growth rate of the economy. The growing debt burden places a serious constraint on economic policy and leaves us increasingly vulnerable to economic events beyond our control. In order to achieve maximum feasible growth it will be necessary to tackle the deficit successfully. Moreover, a credible plan of action to constrain the growth of debt is necessary to build business and consumer confidence, on which our economic objectives are so dependent. In taking the difficult decisions necessary to get our deficit under control, I want to emphasize that this will not be done at the expense of the underprivileged in our society. Indeed, the social safety nets are an important element in maintaining consumer confidence. Ours is a government of compassion and it will not inflict hardships on the poor in its efforts to restore our economy to health. In addition to a responsible fiscal stance, monetary policy must continue to be carried out in a prudent manner. In many countries, including Canada, inflation is currently lower than it has been for over a decade and there is no sign of a significant upturn. However, it should not be forgotten that inflation rates remain significantly above the levels experienced in the 1950s and 1960s, and even current rates pose longer-term threats to efficient performance. Governments can and must provide a sound economic framework. But it is the private sector which generates the investment essential for growth and the productive jobs which yield rising real incomes. Sound fiscal and monetary policies thus must be supported by measures to increase competition and remove structural rigidities. Such measures will play a central role in our economic program. Economic growth and job creation depend critically upon investment. Our policy framework will be designed to encourage business expansion

©International Monetary Fund. Not for Redistribution 64 SUMMARY PROCEEDINGS, 1984 in Canada by domestic and by foreign investors. Let me state clearly that the welcome mat is out once more: Canada is a good place to do business; we are opening our doors to those who want to share in the tremendous opportunities with which we have been endowed. The new Canadian Government faces a formidable challenge in renewing the economy. It cannot do the job alone. We intend to provide the leadership and direction; our goal will be to forge a consensus among governments, business, and labor. The success of our program will ultimately depend upon their response. This Govern- ment has the political will to adopt the necessary economic policies; it is the private sector that will have to work and invest for a more productive future. The situation we face in Canada, with large deficits and a rapidly accumulating debt, has parallels in many developing countries. And the remedies for these problems are broadly similar. Sooner or later realities must be faced and economic equilibrium must be restored. I am happy to note that the courageous adjustment programs of many developing countries, supported by multilateral cooperative efforts, are beginning to show results. Their external imbalances have narrowed. Exports are higher, permitting increased imports and ac- celerating growth. Over the next few years, however, major debtors will have to cope with a heavy schedule of maturing debts. To service these debts and maintain an acceptable rate of economic development will require perseverance with adjustment efforts. Sound adjustment means that an economy becomes dynamic, productive, and stable and that it produces rising standards of living for its citizens. Governments of debtor nations have an additional incentive to persist with policies in this direction. If they are successful they will attract investment that will reinforce their efforts. Domestic entrepreneurs as well as foreign investors shirk economies burdened with debt and lacking fiscal discipline. Investors will elect to invest in countries offering the greatest economic opportunities, and sound and stable economic policies. My Government intends to practice what we preach. We intend to produce that sort of environment in Canada. Debtor nations that do pursue appropriate policies deserve support and encouragement. Private creditors must continue to demonstrate flexibility in dealing with those countries which respond to their debt problems with realistic and effective policies. For our part, governments in the industrial countries must provide adequate financial support through the multilateral institutions and through bilateral development assistance, particularly to the poorest. In addition, greater private

©International Monetary Fund. Not for Redistribution GOVERNOR FOR CANADA 65 investment in developing countries will allow a greater share of official development assistance to go to those most in need. On the decision we reached on operational matters, I welcome the Interim Committee's agreement to extend the enlarged access policy into 1985. The new, marginally lower limits continue to provide the IMF with the flexibility it needs, while still recognizing that the policy is temporary and should be gradually phased down. The other major item on the Fund side is the question of an allocation of SDKs. Relevant to our consideration of this issue is the rebound in world trade and the consequent prospect of an expansion in the overall demand for official reserves. The global need for reserves can likely be met in forms other than the SDR. However, in support of the objective of strengthening the role of the SDR in the international monetary system, it would be appropriate if we were to satisfy some of that need through modest allocations. I regret that we have not been able to find a consensus on this matter. . . . The situation in most of sub-Saharan Africa has become increasingly desperate. We commend the World Bank and the countries in the region for the efforts they have made so far in dealing with this pressing problem. Nonetheless, as noted in the Bank's report, the crisis facing this region can only be resolved through major structural changes, some of which may be painful and require several years to implement. Canada is already making a concerted effort to direct a major portion of its aid program to the African region in helping those countries attempting to implement needed changes. We stand ready, however, to join with the other major countries, the World Bank, and the Fund to do whatever is possible to increase not only the volume, but more particularly, the effectiveness of the assistance we are providing. . . . Finally, I welcome the decision that we will examine current problems in a medium-term context in meetings of the Interim and Development Committees next spring. This idea was introduced by Canada at the London Summit. It found widespread support at the meeting of Commonwealth Finance Ministers last week in Toronto and I was pleased to pursue this initiative here over the past few days. I think it is indeed appropriate that we look at the challenges to development and related balance of payments and adjustment issues over a broader horizon. In that framework we can also see whether the efforts of the Fund and the World Bank can be strengthened to the benefit of all of us. I began by expressing my admiration for the Fund and the Bank and the commitment of their members to international cooperation. I am confident that if we follow through in that spirit, pursuing policies

©International Monetary Fund. Not for Redistribution 66 SUMMARY PROCEEDINGS, 1984 both at home and internationally that promote better economic performance in a realistic and disciplined framework, we will achieve a better world. I will return to Canada to take on the heavy agenda that our own economic problems have created for me, more secure in the knowledge that a community of interest provides a close bond with my colleagues from around the world. This is a reassuring thought as I begin my challenging tenure.

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

STATEMENT BY THE GOVERNOR OF THE FUND FOR ITALY

Giovanni Goria

I would like first of all to welcome the representative of St. Christopher and Nevis, a new member of our institutions, and I also wish to greet the representative of the People's Republic of Mozam- bique, whose application for membership has just been accepted. May I also be allowed to note the reassurance we have derived from the outstanding analyses presented by you, Mr. Chairman, by Mr. de Larosiere, the Managing Director of the International Monetary Fund, and by Mr. Clausen, the President of the World Bank, in your opening addresses. We should show some form of optimism, but this should be a form of intelligent optimism which will allow us to cope with a situation where real interest rates are higher than the increase of the growth in GNP. Intelligent optimism is also called for in order to overcome a number of weaknesses and contradictions which are still the hallmark of the world economic situation. We are in a situation where the currency market is characterized by the concept of disorder rather than that of an orderly market situation. These are the problems which may well cancel the results achieved so far unless we do something about it. The problems we are called to solve today and which we should solve in the future also relate to the fact that no one really looked to the problem of comparability of the projects and policies to be implemented. 1. The International Economy Unlike what has been the case in the recent past, on the occasion of this meeting we can present our analyses with greater, albeit cautious, confidence. As is fully and exhaustively documented in the Annual Report of the International Monetary Fund, the upturn which was becoming apparent last year at this time has been gaining strength. Under the

September 25, 1984.

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stimulus provided by the recovery in the United States, the improvement has spread to both the industrial and the developing countries. Recovery has been reinforced by renewed growth of investment after a long period of stagnation, thereby giving rise, at least in the United States, to a brighter outlook on the employment front which, let us not forget, remains the primary goal. The present economic recovery is not accompanied, as has traditionally occurred in the past, by a corresponding resurgence of inflation. This positive feature is the new fact that makes us optimistic. Of course, as documented in the Fund's Report, "more production and less inflation" does not apply uniformly to all countries. Rather, the spread in growth rates is relatively greater than in the past, which goes to show that how a country comes out of the recession is closely connected with the kind of adjustment policy applied during the crisis period. The countries that were the first to implement their adjustment policies and which applied them energetically are today experiencing a more vigorous recovery. In this connection one cannot fail to note that, in this phase of the world's economy, the European countries are participating less prom- inently than in the past. The reasons for this lag are twofold. Some are of an international nature and external to the European countries. Others pertain to the specific structure of the European labor market. It has now become a commonplace to state that Europe is incapable of creating new jobs. The need to intervene in my country in particular, to remove the barriers that built up, frequently in contradictory fashion, in the course of the 1970s and which today hinder the attainment of higher employment levels, is a political duty that cannot be put off. The problem lies in deciding how to intervene. While it may not be possible always to deal with the roots of the problems, it is nevertheless necessary at the same time to find, as support, a sufficient degree of consensus among the various social strata.

In addition to domestic problems, causes for concern persist at the international level. The first regards the duration and stability of the economic recovery under way. The U.S. economy, which alone represents approximately one fourth of world production, is buoying up the recovery. There are predictions of a slowdown in the U.S. economic activity as early as 1985. A modest, and normal, recession could occur in 1986 as a consequence of the present over-rapid expansion. Recovery at world level could thus collapse too early.

Moreover, it is difficult to foresee growth of the international economy of more than 3 percent in the medium term. This does not

©International Monetary Fund. Not for Redistribution GOVERNOR FOR ITALY 69 appear sufficient to offset the upward trend in unemployment and to enable debtor countries to meet their commitments. The present recovery, based on the large current deficit of the United States, along with maintenance or continuation of the dollar's appreciation with respect to the other currencies due largely to the continuous rise in real interest rates in that country, contains in itself a fundamental contradiction that casts a shadow of uncertainty over continuation of this recovery and its spread to the rest of the world. This is why we join with those who are calling for a combination of more coordinated and better balanced fiscal and monetary policies among our countries. Another problem requiring attention is the level reached by the exchange rate for the dollar with respect to other currencies. It is certainly true that the world economy has been able to adjust to changes in relative prices unthinkable up to a few years ago; so much so that many predictions regarding the rate for the dollar based on "fundamental" factors have been shown to be wrong. We must, however, observe that clear and disturbing signs are now appearing of the growing divergence between international competitive relationships and nominal exchange rates. Neither, in light of recent movements in the exchange markets, should the cost of sudden fluctuations and the risks entailed by the development of disorderly conditions be underestimated. We cannot overlook, in this connection, the increasing tendency of many countries to adopt protectionist measures. We insist that such measures, short-term panaceas for countries that apply them, are in the longer run unsettling for world trade. The excessive appreciation of the dollar, accompanied by high interest rates, can have even more worrying effects for developing countries. In its Report, the Fund observes that the encouraging signs are not limited to the resumption of growth but also point to greater international financial stability, and emphasizes that, in the majority of developing countries, a process seems to be occurring in which decisions on economic reorganization at the domestic level are followed by a restructuring of debt on the part of creditors, with as a result a general lessening of the risk of insolvency. This is doubtless what we all want to see. But how can it be considered realistic when, even though many developing countries have achieved improvements, in some cases quite significant ones, in their current account balance, they see these efforts brought to nought as regards their indebtedness by the appreciation of the dollar and the rise in international interest rates?

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2. The Italian Economy In the recent context of increased international trade, the Italian economy has also experienced an upturn. After the long recession of the early 1980s, production began to rise again as of mid-1983, thanks to the initial and consistent support provided by exports. Growth has continued thus far in 1984, which will clearly close with satisfactory results, especially when compared with those of the preceding year; results which nevertheless need to be consolidated as many pointers indicate how long a way there is yet to go before the economic system is back in balance again. In fact, the restoration of equilibrium presupposes adoption of longer- term measures designed to change the domestic operating mechanisms, from those which regulate public finance to those that determine variations in labor costs. The direction to be taken has been outlined by a number of actions already taken: while the results achieved thus far are not outstanding, we need to appreciate their scope and draw fresh courage from them to press ahead. Advance determination of the wage and salary escalator mechanism was introduced in 1984 with reference to the first two quarters of the year. The objective was not to reduce workers' real purchasing power, but rather to bring nominal wage growth closer into line with inflation, the decline of which in 1984 had been programmed to 10 percent as compared with 15 percent in 1983. The results confirm the validity of this step: the rise in production costs has slowed and the inflation rate has fallen, turning out to be a third less last summer than it was a year ago the previous summer. Estimates that can now be made for 1984 point to a rise in consumer prices of slightly over 10 percent, which only a year ago many observers believed unlikely if not impossible for our economy. Wages have not gone down in real terms, primarily because the increase in hours worked led to significant increases at the year's end. The foreseeable trends for the coming months indicate continuation of this cooling down, so that 1985 should see a lower rate of inflation than the present year. However, without further containment of wage dynamics, it will be difficult to attain the goal of lowering inflation to 7 percent, a precondition for bringing Italy's inflation down to a level comparable with those levels prevailing in the other industrial countries. Such containment is all the more necessary if it is desired to lay the foundation for growth of employment. The international example has already demonstrated that reduction of inflation and growth of em-

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ployment are complementary today. Such a relationship is even more evident in a country like Italy, for which foreign trade is of vital significance and where only the maintaining of adequate international competitiveness makes it possible to create nonmarginal spaces for production growth and, hence, for broadening of the employment base. Greater competitiveness of the productive system is not obtained merely by the containment of costs. It presupposes an improved production base in industry and improvement of the entire general context in which the latter operates. It accordingly also presupposes control of public finances, whose imbalance is today affecting all the mechanisms of the domestic market. We have also achieved a number of non-negligible though still insufficient successes along this road in 1984. The requirements of the state sector have been contained this year close to the limits set for it, which has made it possible to hold its growth to a rate below that of the gross domestic product. In the near future, more wide-ranging action will have to follow the containment effort of 1984; action that will lead within the span of a few years to curbing of the growth of the public debt and reduction of the current deficit to zero. A number of rules of behavior have been set on the basis of which budgets are to be planned and the necessary intervention measures prepared. Notwithstanding these partial successes on the public finance front, monetary policy restraints have held firm. The foreign context, where interest rates have remained extremely high and exchange rates have been unstable, has certainly not favored a less onerous administration of monetary variables for public and private finance. Despite these constraints, monetary policy has continued to pursue the objective of taming the inflation rate and controlling domestic demand. These aims led, a few days ago, to an increase in the discount rate, following much more intensive utilization by banks than had been expected, and a resumption of the growth of the money supply. The stress created by internal demand has aggravated the trade balance deficit; not worrisome in absolute terms, this indicates the influences to which our economy is still subject. It is the general wish, and my personal conviction, that the downward trend in nominal interest rates will resume shortly.

3. International Liquidity (a) It has always been difficult to make appropriate judgments regarding international liquidity. The problem became even more

©International Monetary Fund. Not for Redistribution 72 SUMMARY PROCEEDINGS, 1984 complicated after the institution of floating exchange rates because variations in exchange rates have direct repercussions on the demand for reserves, because of the continuous changing of their amounts. Moreover, a judgment as to whether international reserves are sufficient or not must necessarily take both their distribution and their composition into account. Even though an exact estimate of international reserve requirements proves impossible, it seems to us that the high inflation of recent years, the present considerable increase in world trade, the increased demand for reserves to offset exchange rate fluctuations, the large balance of payments deficits and their distribution, and the sudden turn of real interest rates from negative to positive are amply sufficient to justify a new, albeit limited, creation of official reserves to counterbalance increased demand, without fear of rekindling the flames of worldwide inflation. The Fund's staff, which can be considered a privileged observer corps in this field, proposes on the basis of analyses and forecasts prepared for the purpose, a limited resumption of the allocation of SDKs. A fresh allocation of this special form of international reserves also seems justified to us by the aim of expanding international liquidity sources not subject to sudden changes in the monetary policies of the countries that hold the key to the creation of international reserves. At the same time, a modest allocation of SDRs cannot prejudice the success of the adjustment programs of developing countries, because the additional liquidity generated in this way can only be of a lesser amount, compared with the resources furnished by the Fund in support of such programs, and can only be minimal in relation to the present practice under which indebted developing countries borrow reserves from the international financial markets. Even if the concept of global need—which is at the basis of every formal proposal for allocation of new SDRs—is an extremely difficult one on which to reach agreement, the Fund's proposal for a fresh allocation appears consistent with the requirements of its Articles of Agreement. My country is therefore still in favor of a new allocation of SDRs. (b) The recent increase in quotas and the borrowing agreements with the industrial countries and Saudi Arabia have made it possible for the Fund to reconstitute the resources necessary for its tasks of promoting financial stability and implementing adjustment programs, while the General Arrangements to Borrow (GAB) have been expanded and amended to serve as a bulwark for defense of the Fund's liquidity. The limits of the enlarged access policy were reduced last year, taking into consideration that the simultaneous increase in quotas also

©International Monetary Fund. Not for Redistribution GOVERNOR FOR ITALY 73 left the absolute value of the financing potential for individual member states practically unchanged. When the limits for 1984 were set, it was established that they were not to be considered as a right to be automatically exercised every time a loan is set up but rather as limits that may be reached under circumstances of particularly serious imbalance and after the adoption of adjustment measures appropriate to the particular circumstances. The Fund has respected these criteria and, in view of the ample increase in resources made available to it, has sought to increase its margins for maneuver beyond what was asked of it by acting in a most prudent fashion. The demand for loans, as the Fund sees it, is bound to remain high next year and, presumably, over the medium term. It is therefore necessary to continue the enlarged access policy for 1985 and beyond, in order to allow the Fund greater freedom of maneuver and flexibility of action, so as not to erode its credibility, in terms of potential financing capacity with regard to member countries and private international capital markets at a time when the outlook is still uncertain. To stress the temporary nature of this facility, the Interim Committee agreed to a reduction in the maximum access limits for 1985. We accepted this compromise because we are convinced that the Managing Director will continue to administer these resources in a prudent and not unduly restrictive manner. (c) The IMF and the World Bank, while continuing to perform their fundamental roles in respectively promoting financial stability and improving economic structures, should cooperate more closely with each other, and complement each other in solving the present crisis, which can only be accomplished in the medium term. In this connection I stress with satisfaction the undertaking of both the Interim Committee and the Development Committee to consider certain problems relating to member countries' adjustment efforts and balance of payments prospects, including external debt and trade policies. . . .

4. Conclusions We have all shown optimism in discussing the overall economic situation, an optimism that was practically absent from our discussions of just one year ago. However, we must practice "intelligent optimism" if we are to deal with the situation properly, as 1985 and, even more, 1986 promise to bring a gradual slackening in growth rates. We must also display intelligent optimism if we are to identify weak points and

©International Monetary Fund. Not for Redistribution 74 SUMMARY PROCEEDINGS, 1984 obstacles still impeding the path to sustained and harmonious development. Real interest rates higher than the rate of increase in GNP and a situation on the foreign exchange markets that is closer to "disorder" than to the notion of a "market" are problems that can rapidly wipe out the results obtained to date if we do not attack them resolutely. The problems we are faced with today, and which we must resolve in the future, also stem in part from the fact that we have not paid sufficient attention to ensuring that the policies implemented are mutually compatible. The major industrial countries simply must coordinate their economic policies, particularly in maintaining the balance between monetary stimuli and fiscal stimuli. In particular, changes in exchange rates for the major currencies and in real interest rates have consequences that reach far beyond national frontiers and which the international community cannot ignore. Our ability to govern and to avoid becoming victims of economic events will be measured largely by our adjustment policies. Many countries have achieved significant results, encouraging them to move ahead. Others, surrounded by countless difficulties, are still seeking the path to follow. Yet other countries have made progress, at the cost of great sacrifice, but their efforts have not always been successful because external conditions, whether financial or commercial, which we had judged to be essential, failed to materialize. Here is a basic issue we must never forget in our discussions: We cannot impose extremely high political and social costs and thereby jeopardize the results agreed to, or even cancel them out, albeit involuntarily. Within the framework of the Fund and the Bank, it is essential to assist the countries in overcoming objectively unfavorable situations that may arise during the adjustment process. While we must take steps to ensure effective implementation and to secure the efforts that have been made, we must also convince those who still entertain doubts that the adjustment process, inevitable and costly though it is, offers real hope of progress. All of these questions make it all the more necessary to have an in- depth discussion among countries at different stages of development. The response given by the Interim Committee and the Development Committee seems correct: the debate has been brought back within the most appropriate institutional framework; the idea of "negotiations" has been abandoned; all countries have been invited to participate in a joint analysis; and care has been taken not to give certain countries the unrealistic idea that others will solve their problems for them.

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On the specific issues we have studied this year, we have made a step forward through a difficult compromise. As regards the Fund, those of us who felt the time had come to show more courage in a new allocation of SDKs and to show greater caution in reducing the limits of access to the enlarged Fund facility may not be fully satisfied by all the decisions taken. The fact remains, however, that the compromise reached is satisfactory on the whole and, as such, is acceptable to all. ... When we return home, we will have to answer to public opinion. We will be asked whether we strengthened international cooperation, whether we did anything for the poor countries, whether we played an active role or were merely onlookers. In these last few days, we have sought to find valid answers to the questions raised. It has also been brought home to us that we still have a long way to go.

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

Pranab Kumar Mukherjee

I would like to join my fellow Governors in extending to you our warm congratulations on your election as Chairman of these Annual Meetings. May I also welcome the new members, St. Christopher and Nevis, and the People's Republic of Mozambique, who have joined our institutions. I think we would all agree that for the past three years these meetings have taken place against the backdrop of a world economy in serious trouble, with both developed and developing countries experiencing a sharp deceleration in economic growth. There is also general agreement that the developing countries have suffered the most. If it has been a difficult time for the developed countries, it has been a desperate time for the rest of us. This year things look a little different. Economic growth in the OECD countries in the current year is likely to exceed 4 percent, which is certainly better than the previous year. The developing countries too are likely to see a higher growth rate than in the previous two years. These improvements are indeed welcome. But it would be premature, indeed seriously misleading, to conclude that the world economy is out of the woods, and that all we need to do is to wait and let the economic recovery spread and gather strength. Unfortu-

©International Monetary Fund. Not for Redistribution 76 SUMMARY PROCEEDINGS, 1984 nately, there are far too many uncertainties and contradictions in the present situation to warrant this conclusion. It is important that we perceive this clearly so that we can chart an appropriate course for our two institutions. The economic expansion, though stronger than expected, is due almost entirely to strong expansion in North America. It has not spread convincingly to Europe, and it has had very limited effect on the developing world. High interest rates continue to cloud the prospects for a broader spread of recovery in Europe. There is not much cheer in all this for the developing countries. True, their balance of payments deficits have been reduced, but only because their imports have been savagely squeezed. Per capita incomes today are no higher than they were three years ago. In many of the poorer developing countries they are actually lower. Besides, the past year has seen a steady increase in the restrictions imposed by industrial countries on exports from developing countries, contradicting the view that with the beginning of recovery there would be a decline in protectionism. To make matters worse, there has been a sharp decline in commodity prices in recent months. High interest rates continue to impose a heavy burden of debt servicing, and persistent currency misalignments have inflated the real burden of their dollar-denominated debt. The debt problem simmers alarmingly. We have only avoided an imminent collapse of the financial system, but a durable solution still eludes us. In short, the crisis of the world economy is still with us, and prospects for growth in both the North and the South continue to be uncertain. And it will not yield to piecemeal attempts at solving particular problems to the exclusion of others. We need to act on several fronts and we need to act urgently. We must strengthen.the forces that can convert the present unbalanced recovery in the industrial countries into one that is broader based and more sustainable. This calls for policy changes in industrial countries and also policy initiatives in the area of international money and finance. The present historically high real rates of interest are clearly having a depressive effect on investment, especially in Europe. Their adverse impact has been mitigated by fiscal incentives in North America, but this is not a viable long-term solution. There is no alternative but to bring about a better balance between fiscal and monetary policy which alone will lower interest rates to more normal levels. It will also restore a measure of rationality in exchange rate alignments.

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Equally important, there must be a visible political commitment in the industrial countries to stemming and indeed reversing the swell of protectionism. This is particularly important for the efficient functioning of the transmission mechanism whereby OECD growth stimulates growth in the developing countries, and is in turn stimulated by it. These improvements in the character and coordination of macroeconomic policy in the industrial countries must be accompanied by decisive action to improve the international financial and monetary prospects facing the developing countries. The crisis of the world economy has exacted a heavy toll from the developing countries, especially the low-income countries. These countries have fragile and vulnerable economies with per capita income levels that provide little margin above the barest subsistence levels. Most of them have undertaken severe domestic adjustment measures, in many cases stretching the limits of social tolerance. Their growth prospects will not improve significantly unless there is a renewed commitment to provide additional finance for both structural adjustment and development. The Fund and the Bank have a central role to play in this area. Both Mr. de Larosiere and Mr. Clausen have steered these two institutions through extremely difficult times with great skill and dedication. I am confident that under their dynamic leadership these two institutions will live up to the even more difficult challenges ahead, provided the international community gives them the financial support they need. Unfortunately, our experience in trying to forge a new and expanded role for the multilateral institutions has been far from satisfactory. In the Fund, the increase in quotas under the Eighth General Review was lower than what even a pessimist would have predicted when negotiations began. Last year, despite strong opposition by developing countries and several other countries, the access limits were cut rather drastically. To our further disappointment, in the agreement reached in the Interim Committee last week, there has been a further reduction in these limits for 1985. The Interim Committee was also unable to reach agreement on SDR allocations in the remaining part of the fourth basic period despite a proven need and well-established technical case for such an allocation. Extended arrangements which were expected to meet the problems of medium-term adjustment are also under attack, and, in actual practice, such arrangements are now giving way to one- year stand-by arrangements. The compensatory financing facility has suffered a setback. To add to all this, there are now strong pressures to further stiffen Fund conditionality. . . . Looking to the future, the choice before us is either to continue the process of attrition or to embark on a new course. We believe that

©International Monetary Fund. Not for Redistribution 78 SUMMARY PROCEEDINGS, 1984 there is sufficient goodwill and an emerging consensus in favor of a more effective and expanded framework for international economic cooperation. Within this framework we also believe that most nations are ready to augment the roles that our two multilateral institutions should play. What is needed now is a program of action to translate this hope into reality.

The specific issues before us have been discussed at length in the meetings of the Group of Twenty-Four, Development Committee, and Interim Committee held last week and I do not wish to take the time of this august assembly to go over the same ground again. I would, however, like to take this opportunity to touch upon some areas of broader Fund-Bank policies. First and foremost, there is the question of resources. There is no way in which these institutions can play a more meaningful role in meeting the challenges that lie ahead without adequate resources. It is necessary to reverse the trend witnessed in the last few years and take positive decisions on issues such as the supplementary funding for IDA, the general capital increase in the World Bank, the establishment of an energy affiliate, resumption of allocation of SDKs, and increase in access limits in the Fund. I am, of course, aware that all this cannot be accomplished immediately and that careful groundwork is needed before decisions can be taken. However, what is required is a broad consensus at the political level that the resource base of these institutions should be strengthened. Such a broad consensus can subsequently facilitate decision making on specific issues that otherwise tend to become contentious and divisive.

In recent months, both in the Bank and the Fund, there has been some discussion of conditionality, and the role that these institutions should play in rendering policy advice to borrowing countries. There can be no doubt that it is the responsibility of governments to formulate appropriate policies, and that corrections and adjustments in these policies are needed in response to the emerging situation and problems. However, what is equally true is that, given the state of the art, there can be an honest difference of opinion regarding what constitutes the right policy mix as well as the pace of transition. Needless to add that these differences of views exist in the developed world just as they do in the developing world. In this situation, it is only proper that the responsibility for taking policy decisions and for deciding on the right course of action rests squarely on those who have to face the consequences of such decisions. Those of us who have to formulate policies and to work out programs for development in the face of many uncertainties have learned to be modest. Our ability to forecast

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economic events or even to correctly diagnose the causes of deep- seated problems is not beyond doubt. We would urge that this perspective is kept firmly in view by those who advocate a greater or a more wide-ranging role for multilateral financial institutions in bringing about economic and social change in developing countries.

It is only natural that during a period of extreme strain and stress through which the world economy has been passing, our attention has concentrated on fire-fighting operations or in trying to find solutions to the immediate crisis in particular countries and regions. These problems often require a special thrust, diversion of resources from other areas, or the launching of a new program with a specific focus. While this is necessary, we believe that our concern with short-term problems must not deflect us from the primary task of promoting investment, growth, and development. . . .

In recent years, there has also been some discussion of the role of concessional assistance in development financing, and this issue is being considered in depth by a task force of the Development Com- mittee. It seems to us that the developments of the 1970s and early 1980s have convincingly demonstrated the vital role that such assistance can play in promoting investments in developing countries, particularly in sectors such as infrastructure, irrigation, rural development, and development of human resources. Investments in these areas strengthen the long-term productive capacity of the developing world without, however, providing immediate and adequate financial returns in foreign exchange. In many cases, excessive reliance on high-cost financing for long-term development has led to both a liquidity squeeze and an erosion in the capacity to finance new investments.

Finally, in our view the crisis that has been confronting the world economy for some time now is "systemic" and not merely due to erratic shocks or some temporary phenomena. However hard we try to overcome these problems through ad hoc and special solutions, we are unlikely to make sustained progress unless there is a more basic review of international monetary and financial issues. It was for this reason that the Nonaligned Summit, held in New Delhi last year, had given a call for an international conference on money and finance. Several other countries have since joined in this call, and considerable work has been done in various forms to identify the issues, and to determine the modalities for holding such a conference.

This is an idea whose time has come.

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STATEMENT BY THE GOVERNOR OF THE FUND FOR THE UNITED KINGDOM

Nigel Lawson

I should like at the outset to join my colleagues in extending a very warm welcome to our two new members—St. Christopher and Nevis, and Mozambique. A year ago most of us saw three main external threats to our national economies: uncertainty over the prospective world economic recovery, high interest rates, and international debt difficulties. I would like today to look at each in turn. Before doing so I will, as last year, say something about the experience of my own country.

The U.K. Economy Developments in the United Kingdom over the past year have been much as I foresaw when I spoke at this meeting last year. We are now in the fourth successive year of steady recovery. As expected, the pattern of the recovery has changed. Fixed investment and exports have both grown rapidly over the past year while consumer spending has grown more slowly. In particular, manufacturing investment in the first half of 1984 was about 15 percent up in real terms from a year ago. At the same time the inflation rate has remained broadly flat at 5 percent, a pattern which has persisted now for some 18 months. Fiscal and monetary policies have developed as intended. Both broad and narrow measures of money are growing at a rate well within their target ranges. And we are continuing to reduce the budget deficit. Last year, it was over 3 percent of GDP. This year we budgeted for 2!/4 percent of GDP and present indications suggest that we remain broadly on target. Growth last year was 3!/4 percent. This year, the fall in coal output as a result of the continuing miners' strike is equivalent to almost 1 percent of GDP in 1984, and growth this year may therefore be closer to 2 percent than the 3 percent previously expected. By the same token, growth next year should benefit by about 1 percent as coal output returns to its normal level. As a result, I would expect recorded growth next year to be higher than this year. While none of us can claim actually to have abolished the business cycle, the policies which the United Kingdom, in common with many other industrial countries, has been following, form a sounder basis for sustainable growth than we have known in the past.

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So far as my own country is concerned, that is borne out by the important differences between this recovery and previous recoveries. There has been no significant stock building. This means there is much less chance of a sharp stock building cycle. There is little threat from higher inflation, which so often has been an important factor in cyclical slowdown. In addition, the different phasing of output growth in the United States and Europe means that the growth of world trade should be more even. And commodity prices, including oil, are showing weakness rather than the rapid growth of the last two cyclical upswings. In previous cycles, inflation has tended to rise as soon as recovery has become well established. As a result, many commentators have argued that an inflation upturn in the United Kingdom is imminent. We take a different view. Our analysis suggests that the pressures making for higher inflation are not strong. Monetary growth continues to decline, and competitive pressures are likely to continue to restrain price increases. The underlying trend of inflation is still downward. This performance of inflation during the current recovery has convincingly reversed the secular upward trend of the last two decades. The one outstanding worry is unemployment, which is not only far too high but continues to rise. Not that new jobs are not being created. Over the year to last March, the number of people in work in the United Kingdom has risen by around a quarter of a million—about double the rise in unemployment over the same period. But we ought to be doing better than this. To some extent, of course, the rise in unemployment is the temporary consequence of the long overdue success of British industry in making itself more competitive by cutting costs and improving productivity. The heart of the problem—and here the contrast with the United States is particularly striking—has been the steady growth in real wages. We must not be seduced by the wonders of high-tech into overlooking the fact that many of the jobs of the future will be in labor-intensive service industries that are not so much low-tech as no-tech. I see little prospect of reversing the trend of unemployment unless we can decisively moderate the growth of real wages. As the Managing Director of the Fund put it in a speech to the Economic and Social Council of the United Nations last July: There are now clear indications that in some of the major industrial countries, especially in Europe, the present cost of labor may be incompatible with attainment of high employment goals. This means that it has become more important than ever to remove rigidities in the labor market and the product markets alike.

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In recent years the emphasis of policy in many countries, including the United Kingdom, has been on financial stabilization. And we have seen the benefits of that stabilization. But while maintaining this policy intact we need to place more emphasis on supply-side policy in the true sense of that much-abused term, that is, in dealing with the structural problems that are the cause of the continuing high level of unemployment which so many of us face today.

The World Economy In the industrial world as a whole, recovery has in general been stronger even than the hopes, let alone the fears, of a year ago. The Fund staffs latest forecast for growth this year shows a further upward revision. And almost all major forecasters expect reasonable rates of growth to continue next year, and with a less uneven distribution. The position of many developing countries, and I will come back to this, has also been strengthened. The current account deficit of the non-oil developing countries this year is expected to be only $45 billion, less than half its level in 1981. This improvement has reflected, in many cases, cutbacks in imports and national income. We recognized at the London Summit the social and political hardships this involves. But such adjustment is paying the way for renewed and sustainable future growth. The process must continue, but we should be looking now for emphasis on the positive aspects of maintaining and financing healthy growth.

Trade and Capital Flows In the trade field there is agreement to begin preliminary consultations on a new round of multilateral trade negotiations. With recovery being sustained I hope we need not wait for those negotiations before taking action to roll back protectionist barriers—not just tariffs but subsidies and other distortions. With an overvalued dollar causing imports to flood into the United States, with high and rising unemployment in Europe, and with the continuing hardship faced by much of the developing world, the pressures for protectionism are very strong indeed. It is essential that we resolve all the more strongly to resist them. Nothing could be more self-defeating than a worldwide drift to protectionism. And few things would be more damaging to our burgeoning recovery. The past year has also seen progress in promoting the free flow of capital between countries. I have particularly in mind the steps

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announced by the Japanese Government to promote the international use of the yen. This involves a continuing program of specific measures, and we will follow developments here with close interest. In short, in the first of our three main areas of concern, the future course of world economic activity, we have a distinctly improved climate, and the medium-term prospects for widely shared recovery are better than for many years past.

Interest Rates Interest rates, on the other hand, remain a dominant concern for most of us, and I must link this with the situation in the United States. The United States accounts for one fifth of world GNP and some 15 percent of world trade. So U.S. policies cannot simply be judged by domestic criteria, even in economic terms, quite apart from the responsibilities that accrue to the United States as the leader of the free world. On the domestic side, the U.S. achievement has been remarkable by any postwar standards. In particular, the creation of over 6 million new jobs since the end of 1982 owes a great deal to the flexibility of the U.S. labor market and the moderate increases in real labor costs compared with most other leading industrial countries in recent years. Success in the creation of new jobs and the vigorous growth of output in the last two years reflect the admirable strength and resilience of the U.S. economy. But there are other features that represent a cause for real concern. Although the U.S. budget deficit may be lower as a proportion of GDP than that of some other major industrial countries, it has grown very large in relation to the level of net domestic savings. Its sheer size weighs heavily in the demand for savings worldwide. As the recovery stimulates a growing parallel demand for private investment, without any matching growth of domestic savings, we see two effects. Interest rates are held at unprecedented levels in real terms, and the needs of the U.S. economy pre-empt a large share of the savings of the rest of the world. The need to attract increasing capital inflows from the rest of the world to finance the budget deficit has as its inevitable counterpart— for the external accounts have to balance—a current account trade and payments deficit of nearly $100 billion a year, and still rising; while the unprecedented rate of interest on the world's leading reserve currency has inevitably led to a sharp rise in the value of the dollar in terms of other currencies.

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I come from a country that has experience from the past of the advantages—and also of the risks and the responsibilities—of operating a reserve currency. The availability to borrow abroad in one's own currency gives opportunity and time which would not otherwise be available, to some extent at the expense of the rest of the world. But we also have experience of the consequences that occur when this special privilege is abused. Imbalances, in the budget and in the trade and current accounts, of the size we are now seeing in the United States can continue for much longer than they could in any other country. But they cannot be sustainable forever. Meanwhile, the problem of international debt, to which I will turn in a moment, is greatly exacerbated. The U.S. authorities have themselves pointed the way ahead with their important "down payment" decision. Timely reinforcement of that approach will be crucial if the process of adjustment is not to end in tears. Perhaps, here in Washington, it would be appropriate for me to conclude this section of my speech with some words of Thomas Jefferson: I place economy among the first and most important of republican virtues, and public debt as the greatest of the danger to be feared. To preserve our independence, we must not let our leaders load us with perpetual debt. (Letter written in 1816 by Jefferson to William Plumer, quoted in the 1984 Shann Memorial lecture given by John Stone, Secretary of the Australian Treasury.)

International Debt I turn now to the question of international debt. Last year, I suggested some ideas going beyond the immediate strategy adopted by the international community built around programs of adjustment. Some of those ideas were carried a stage further at the recent London Summit. I should like to say a little more about them now.

Borrowing of the Wrong Kind I will not today go over all the origins of the debt problem. But important elements were too much borrowing and borrowing of the wrong kind. By borrowing of the wrong kind I mean undue reliance on bank finance. In retrospect it is easy to see how this happened. Financing difficulties were substantial and arose relatively suddenly. The private banking sector is generally able to respond more quickly to sudden change. It is therefore perhaps not surprising that the banks took on the major role in the recycling process. Indeed, the substantial recycling of funds that took place during the 1970s and 1980s was initially helpful in

©International Monetary Fund. Not for Redistribution GOVERNOR FOR UNITED KINGDOM 85 avoiding severe deflation in developing countries and providing them with time to adjust. But, with the benefit of hindsight, it is clear that overshooting is a characteristic not merely of the foreign exchange market. The patterns and scales of financing that resulted and the lack of conditionality attaching to most of the flows made the debtor countries and the international financial system highly vulnerable to the changes in the economic environment that have occurred since the end of the 1970s. The unhappy legacy of that period which we now face is a burden of liabilities of debtor countries which present considerable problems in terms of their relative size, their maturity profiles, and the accompanying vulnerability to interest rate fluctuations; and for banks, potentially destabilizing doubts as to the true value of a part of their assets.

Debtor Countries Some debtor countries have achieved conspicuous success in some aspects of adjustment. The turnaround in the balance of trade of both Mexico and Brazil are notable examples of what can be achieved, if inescapably at the cost of considerable pain and sacrifice. But even those countries that have tackled adjustment in the most determined fashion still have some way to go. Some countries are as yet only a little way along the adjustment road; and some countries have not yet made a start. The need for further adjustment is evident. Many countries still have to contend, in varying degrees, with high rates of inflation and substantial budget deficits beyond the scope of financing by domestic savings. Some are still clinging to overvalued exchange rates, on the mistaken grounds that this will moderate inflation—the real effect is to damage international trade performance and depress and distort domestic production. These are not stable conditions. They do not make for real growth of prosperity. The essential point, on a longer perspective, is that borrowing countries will need to place more emphasis on changing the structure of their economies to reduce distortions and disincentives. More consideration needs to be given in ways in which this can be achieved. Continuing adjustment is needed for both internal and external reasons, if the future development of these countries is to be put again on a sound basis, and if they are to restore confidence in themselves as well as in world financial markets. One of the tragedies in many debtor countries—and other developing countries too—is that they not only have difficulty in attracting foreign

©International Monetary Fund. Not for Redistribution 86 SUMMARY PROCEEDINGS, 1984 investors, but they have lost a huge volume of potential investment by the flight of capital from their own residents. Debtor countries need to adopt policies that will restore the confidence not merely of the outside world but also—and equally important—of their own people. Foreign exchange controls are not, and cannot be, a substitute for restoring that confidence. To imagine otherwise is an illusion.

Private Financial Flows As debt servicing problems emerged among developing countries, banks that had lent to them faced uncertainty about the value and maturity of a proportion of their assets. They have responded to this by establishing a higher level of provisions. It is of prime importance that this process continues and that banks build up and maintain provisions to allow for the probability of some losses of value, even where they cannot with any uncertainty be identified individually. They must also continue the process of strengthening their balance sheets in other ways, notably by adding to their capital resources. There are a number of lessons for the longer term. For the international financial system as a whole it can be argued that a balance needs to be maintained between unconditional market lending at commercial rates and concessionary lending which will, for the most part, be conditional. The banking system has undoubtedly a role to play, but it is not appropriate for it to play the major role that it has in recent years in financing debtor countries' balance of payments deficits. At the level of the individual bank, the events of recent years provide an eloquent case for the need to maintain an appropriately diversified portfolio. Banks and their supervisors are well seized of this although it will not be quickly achieved. Banks have been prepared to put up substantial sums of new money in "unspontaneous" lending in support of debtors that have agreed programs with the Fund. They are showing a willingness to adapt to the changing needs of debtors at different stages of adjustment, as witness the imaginative and longer-term package recently negotiated for Mexico. This constructive approach was advocated for appropriate cases at the London Summit. But the fact remains that it is necessary, both in the interests of debtors and of the banks, that nonbank private flows should gradually become more prominent. The London Summit addressed this issue and outlined a strategy to create a sounder financial framework for medium-term development in the present debtor countries. I have

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mentioned multiyear rescheduling. Let me recall now three other important elements: —First, a stronger role for the World Bank in fostering development over the medium and long term, not least as a catalyst for private investment. —Second, the encouragement of private investment. I welcome the emphasis the Managing Director of the Fund has given to the importance of borrowing countries "taking steps to dismantle or relax administrative or other obstacles which often apply to inflows of direct investment." This is a matter to which I believe the Executive Board should always pay close attention both in its regular surveillance and in its examination of country programs. An important advantage to developing countries, especially debtors, of seeking private direct investment is that it can service itself as, and only as, it contributes to profitable output. In this context, I hope we shall be able to bring to fruition a workable plan for the insurance of private overseas investment. —Third, the encouragement of other forms of finance that promise to be more appropriate and stable. For the moment, the financial position of many debtor countries remains so precarious that the provision of unspontaneous bank lending will have to continue to play a part in meeting their immediate financial needs. But the recent Mexican agreement shows that a return to spontaneous lending is a prize within reach. Beyond that, debtor countries should be given encouragement to find means of reducing the relative burden of bank debt by offering opportunities for more stable and appropriate investment—the kinds of investment they will surely need to foster in any case in support of their internal development for many years to come. Better and healthier commercial ways of financing the future needs of developing countries could be found in private investment, direct and portfolio, and in longer-term marketable instruments. I would like to see banks positively encouraging developments of these kinds. Many of them could doubtless find an active role as agents in placing financial instruments that complemented, or in some cases reduced, the banks' own lending, to this end developing a more direct relationship between some of their present depositors and the ultimate borrowers. The development of such different forms of financing will take time and is likely to relate to new money rather than the direct marketing of existing debt. But the action already being taken, with adjustment bolstered by rescheduling, has bought time and is helping to create a situation where some debtors at least may begin to contemplate returning to the bond market and where outside investors may be willing to look again at participations in local resources and assets.

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Banks and other financial institutions should be encouraged to devise new instruments to bring stable capital to countries whose underlying resources in many cases are so abundant.

The Lesson for Governments The kinds of future financial flows I am advocating are for commercial markets to develop. They are needed to mobilize in up-to-date ways the kind of financing which has been based on private resources in the past. Governments of host countries can do much by creating confidence and a hospitable climate. International institutions can play a valuable encouraging role, which is why I warmly welcome the efforts, for example, of the World Bank to promote joint ventures and cofinancing, and the ideas IFC has been nurturing for the development of unit and investment trust outlets in some developing countries. Governments of creditor countries can and should offer encouragement. They are also directly involved with debtor countries, largely through their various export credit agencies, and on a large scale. They have shown readiness, through the Paris Club, to negotiate rescheduling arrangements, and will be prepared to extend this approach to multiyear agreements where appropriate, in parallel with negotiations by commercial banks. The United Kingdom has taken the initiative in pushing forward consideration of the technical issues that arise. In the past the United Kingdom, in common with many others, has normally suspended provision of official export cover to countries which have rescheduled debt. We have reviewed this policy and should shortly be ready in appropriate cases to maintain cover or resume it at an earlier stage to support credit for goods that would contribute to the economic recovery of the debtor country. In this area we see a case for some harmonization of approach among industrial countries generally and I welcome the discussions now taking place to this end. But by far the most important contribution that governments of the major creditor countries can make lies in their own general economic and financial policies. The biggest single contribution so far toward easing the debt problem has been the recovery of world economic activity and, especially during the past year, the resumption of more vigorous growth of world trade. The biggest single contribution which could be made over the next year or so would be the development of U.S. policies which could lead to lower dollar and world interest rates.

The Case-by-Case Approach It is tempting, of course, to seek now a radical new approach to international debt. However, I do not believe that that is the way

©International Monetary Fund. Not for Redistribution GOVERNOR FOR UNITED KINGDOM 89 forward. There is no such radical alternative that can satisfactorily resolve what is clearly a highly complex problem. Rather, we have to persevere with the present approach, varying it as necessary to meet the particular circumstances as they arise. I remain firmly opposed to the "global solutions" to the debt problem which are canvased from time to time. These invariably—if not always explicitly—involve new and inflationary methods of financing, or the assumption by the taxpayers of creditor countries of the obligations of the debtor countries or the risks of the banks. There is no sensible alternative to the case-by-case approach which we have been pursuing. Contrary to what is alleged by its critics, it represents a coherent strategy. It rests on common principles—above all on the central importance of countries taking measures to put their finances in order and restore their creditworthiness. But it recognizes the inescapable fact that every debtor country is individual and different. They all have different resources and abilities, different kinds and scales of debts, and international financial and economic difficulties and opportunities. The case-by-case approach also recognizes the need to buy time. Borrowing countries need time for the process of adjustment to work. Banks need time to get their balance sheets in order. This is a situation in which time—provided it is put to good use—is an invaluable commodity.

The London Initiative At our meetings over the past weekend we were able, within the Interim Committee, to reach satisfactory operational decisions which will provide constructive guidance to the work of the Executive Board of the Fund in the coming months. But the most important outcome of our deliberations in the Interim and Development Committees derives from the proposal contained in the Economic Declaration at the end of the London Summit last June. It was then agreed, by the seven nations taking part, that finance ministers should set up an intensive discussion of international financial issues of particular concern to developing countries within the framework of the established international financial institutions. This initiative recognized the close interdependence of developing and developed countries. It reflected the interest they share in a re- examination, in a medium-term framework, of aspects of the international monetary system, of external indebtedness, the roles of multilateral institutions, international capital flows and investment, and trade policies and protectionism. The concerns expressed in the London

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declaration have been echoed in other international forums, including the recent meeting of Commonwealth Finance Ministers in Toronto. As host country at the London Summit, it is therefore of particular satisfaction to the United Kingdom that at the meetings that have just been concluded, the Interim and Development Committees have responded by deciding to set time aside next spring for discussions covering the broad areas I have outlined. I am sure that this is the most constructive way of meeting the very understandable requests of developing countries throughout the world for a dialogue with the industrial nations.

Concluding Remarks Two years ago saw the start of global economic recovery. This year we can reasonably claim that it is well established. In the coming year the task before us will be to sustain it by making progress in the following areas. We need to: —put our own houses in order by securing stable monetary conditions and reduced budget deficits; —press forward with supply-side policies to improve productive potential and employment; —resist the forces of protectionism and move toward a new round of multilateral trade negotiations; —maintain the momentum of economic adjustment where it is still needed; —develop new ways of financing the future needs of developing countries; and —relax obstacles to flows of private capital. Let us, in all these endeavors, recognize the responsibilities that flow from the interdependence of our economies, an interdependence of which the Fund and the Bank are so valuable an institutional expression.

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

L. J. Mwananshiku

I am greatly honored to address this important international gathering on behalf of the African Governors in the International Monetary Fund

©International Monetary Fund. Not for Redistribution GOVERNOR FOR ZAMBIA 91 and the World Bank, and also to welcome the new members of our institutions—St. Christopher and Nevis, and Mozambique. Some forty years ago, the founding members of our two Bretton Woods institutions had a vision. Their vision was of an international economic system characterized by mutual cooperation for the benefit of all. Today, paradoxically, despite the greater interdependence of the economic system, the vision and the will to work cooperatively have waned. Today, we face difficult economic conditions that call for a concerted effort by all countries and a willingness to join in a common endeavor to overcome them. The policies currently pursued by some industrial countries offer little encouragement to the developing countries which continue to experience serious deterioration in their economic performance. The economic recovery which is being talked about has not exerted any significant positive influence on the developing countries. International interest rates are still very high. The prices of our major export commodities remain depressed, while the prospects for increased concessional assistance are grim. Furthermore, industrial countries have continued to erect trade barriers everywhere. The terms of trade of the developing countries have suffered serious deterioration and their balance of payments deficits are still very high. The debt problems are still with us and are becoming more severe. At the same time, available financing has diminished to a point where net transfers of resources to developing countries are now negative. The increasing number of debt rescheduling exercises testifies to the severity of the problems facing the developing countries. The adjustment that these countries are undergoing involves a severe reduction in imports resulting in a depressed rate of growth. Although current account deficits have fallen significantly, this reflects the sharp cutback in imports rather than an increase in exports. Exchange rate volatility has become more pronounced in the last few years to the detriment of our economies. The situation has been aggravated by the continuing appreciation of the U.S. dollar and, in particular, its impact on debt servicing costs and the uncertainties it generates with regard to trade, foreign exchange earnings, and debt management. We therefore call on the industrial countries to take due account of the implications of their exchange and interest rate policies on other countries. Most African countries have been forced to reduce their imports of capital goods, thereby slowing down their rates of growth at a time when the problems of poverty, disease, illiteracy, hunger, and malnutrition demand increasing attention. The recurring severe drought

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and the disastrous desertification have aggravated Africa's problems. These are the problems that constitute Africa's crisis today. Despite the weak economic conditions, our Governments have taken measures to address the emergency situation. Among other things, we have had to redirect resources allocated to development projects in order to finance urgently needed foodstuffs. In spite of all these efforts, we believe that urgent international action is needed to assist us in alleviating the adverse impact of the drought, and reversing the declining trend in economic growth. Much has been written and said about the plight of sub-Saharan Africa. Two of the most recent documents on sub-Saharan Africa entitled, Toward Sustained Development: A Joint Program of Action for Sub-Saharan Africa, by the World Bank, and the Special Memo- randum by the UN Economic Commission for Africa Conference of Ministers on Africa's Economic and Social Crisis reiterate the difficult economic circumstances that continue to face Africa and present a realistic assessment of the alarming prospects for the coming decade. The crisis now confronting Africa needs to be addressed urgently if the political, social, and economic "nightmare" that many African countries might experience by the turn of the century is to be avoided. A clear, coherent action by the international community has not yet emerged to address the problems facing Africa. Clearly, African countries have never abdicated their primary responsibility for dealing with the problems they face. But it has to be acknowledged that, given the magnitude of the problems, it is virtually impossible for Africa to cope with them on its own. We believe that the Joint Program of Action prepared by the World Bank provides a reasonable basis for joint action by the international community. It is both timely and feasible and must be implemented as a matter of urgency. . . . Indeed, while the drought in Africa is most disturbing, we should also not lose sight of the seriousness of the continent's debt problem. We are aware that because of its magnitude in relation to those in other parts of the world, the debt problem facing Africa is not given due attention. For Africa, however, the problems are of staggering proportion. The number of African countries that have gone to the Paris Club is but one indication of the severity of the problem. In view of the seriousness of the situation, which is aggravated by the effect of the adjustment programs now underway, the rescheduling exercises on a case-by-case basis no longer suffice. New and comprehensive arrangements for debt relief including the conversion of ODA loans into grants are called for particularly in favor of the least developed sub-Saharan African countries, if there are to be reasonable prospects for the resumption of growth and development in these countries. . . .

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We should like to draw the attention of the international community to the funding problems facing the International Fund for Agricultural Development. To enable the institution to continue to foster rural development, it is essential that the second replenishment of the Fund provides substantial additional resources. This is all the more important given the decline in food production in most developing countries. Turning now to Fund matters, I should like to express serious concern at the new development which has cast the Fund on the center stage of debtor/creditor relationship. This development is evidenced by the fact that before rescheduling negotiation with a debtor member, the latter is required to conclude an arrangement with the Fund. The 4'seal of approval" by the Fund brings with it increased responsibility for the Fund. The Fund must be warned of the consequences of shouldering this undue responsibility. It will no longer be enough for the Fund to preach the familiar tune that it was established to deal with short-term balance of payments problems. It is clear that the Fund will need to adjust to the new reality which will call for bold and innovative approaches and longer-term perspectives in dealing with problems facing member countries. One of the measures the Fund would be required to take in meeting this new responsibility is increasing its financial support for the countries undertaking adjustment programs as adjustment without adequate financing is highly disruptive. The Eighth General Review of Quotas was to have been a step in this direction, but as we had feared from the start of the review exercise, the increase in quotas has proved to be grossly inadequate and inequitable in distribution. As a result, the new quota increase has had very little meaning for us in Africa relative to our access to Fund resources. In fact, the Fund has been and continues to be under pressure to reduce access under the enlarged access policy and under the special facilities, a step that defeats the basic purpose of the quota review. There is even talk of limiting access further to members which are being described as prolonged users of Fund resources, something which we find objectionable since the incidence of repeated use of Fund resources in recent years does not show any marked change compared with the past. For the Fund to be able to play a significant role in the financing of payments imbalances, it will have to increase its lending capacity to a level compatible with the magnitude of expected imbalances; which means that resources at its disposal must be increased. In this regard, the African Governors are agreed that Fund borrowing at that time was unavoidable and we would commend the management of the Fund for concluding borrowing arrangements totaling SDR 6 billion to augment the lending resources of the Fund. However, since it is our view that borrowing should not

©International Monetary Fund. Not for Redistribution 94 SUMMARY PROCEEDINGS, 1984 replace quotas as the primary source of Fund financing, we will re- emphasize the need for the Fund to advance the time for the Ninth General Review of Quotas by at least two years. That Review should fully reflect the financing needs of members. In calling for a new outlook for the Fund, we would like to stress that because of many structural problems and rigidities in many of our economies which make it difficult to adjust to external shocks and respond promptly to policy measures, we see a need to reduce undue reliance on very restrictive demand management policies and prescrip- tion for exchange rate devaluations. The lesson of experience shows that under such conditions progress tends to be illusory and is quickly reversed in the face of new external shocks. This is not to deny the relevance of austerity to the adjustment process. In fact, African countries have themselves undertaken rigorous adjustment measures that have all but brought their economies to a standstill. The social and economic costs of these measures threaten the real fabric of their society. The scope for further actions on their part is extremely limited. It is high time that the Fund begins to see adjustment in a medium- term context that gives adequate attention to growth and structural reform, as well as to factors that are known to be beyond the control of the country concerned, including in the African context, the devastating effects of drought. This would require fundamental improvements in program design and more support based on extended arrangements than as of now. In this connection, we would also reiterate our proposal that the management should initiate a serious study to assess the applicability and relevance of various policy mixes to countries at varying levels of development.

We would like to re-emphasize that adjustment should not be seen as limited to the deficit countries only. From the standpoint of a smooth functioning of the international adjustment process, surpluses and deficits can be equally destabilizing. Adjustment to be successful must therefore be symmetrical between the surplus and the deficit countries. The asymmetry in the international adjustment process as we now have it implies that the brunt of adjustment in terms of output, unemployment, and consumption is borne by deficit countries. The fact that these are, by and large, the developing countries with fragile socioeconomic and political institutions makes the inequities in the system more absurd.

Closely linked to the inequity in the international adjustment process is the asymmetry now inherent in the Fund's surveillance activities. It is clear that Fund surveillance has been pursued seriously only in respect of developing countries, particularly those making use of Fund

©International Monetary Fund. Not for Redistribution GOVERNOR FOR ZAMBIA 95 resources. By and large, the Fund has not so far devised a mechanism to make its surveillance over the exchange rate and other policies of the large industrial countries effective even though what happens in these countries determines the smooth running or otherwise of the international monetary system. There is no gainsaying the fact that the domestic policy stance in major industrial countries has contributed greatly to the severity of the adjustment problems of developing countries. The Fund should therefore find means of making its surveillance over the economic and financial policies of the large industrial countries meaningful, consistent with, and mutually supportive of the efficient and smooth functioning of the international adjustment process. To this end, we urge the large industrial countries to cooperate with the Fund in order to make the surveillance effective.

The African Governors regret that until now agreement has not been reached on SDR allocation under the fourth basic period which began in January 1982. All technical studies on the subject to date have established the case for further SDR allocations. The African Governors strongly support annual allocations of the order of SDR 15 billion as called for by the Group of Twenty-Four Ministers. In lending our support for this modest annual allocation we take into account the efforts which have been made to improve the quality of the SDR and enhance its attractiveness as a reserve asset. But, unless the declining trend in the share of SDRs in total non-gold reserves is stemmed through SDR creation, we might be giving the wrong signal that the objective of making the SDR the principal reserve asset is being abandoned. We therefore call on the few industrial countries which have delayed agreement to respond positively in order to enable the Managing Director of the Fund to make the necessary proposals to the Board of Governors without further delay. Future SDR allocations should be delinked from quotas. While we continue to call for the establishment of the link between SDR allocation and development finance, we are totally opposed to the establishment of a link between SDR allocations and Fund conditionality. We believe that it will be wrong for the Fund to move in that direction as it would only confuse the issue and lead us down a road that offers little chance of resolution of the real problem. It would be tantamount to an attempt to change the basic character of the SDR outside the framework of the Articles of Agreement, and could open up a Pandora's box on the Articles themselves, and this against the background that not only has Fund financing become generally highly conditional, but also that financing by banks is now more often than not tied to the adoption of Fund- assisted adjustment programs and increasingly official flows are not now exempt from this consideration.

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The African Governors are agreed that the compensatory financing facility should be untied from quota limitations. We also feel that repurchases should be linked with recovery of export earnings. As provision already exists for accelerated repurchases in cases of rapid export recovery, a comparable set of provisions should be made for deferred repurchases for up to ten years in cases of real export shortfalls. The compensatory financing facility should be a noncondi- tional facility in all respects and should not be linked with upper credit tranche and extended Fund facility drawings and therefore subjected to their conditions. The African Governors would like to repeat the call they made at last year's Annual Meetings for the establishment of a special window as an emergency facility in the Fund along the lines of the former Trust Fund to provide additional resources to the low-income countries facing severe adjustment problems and with inadequate access to financial markets. Drawings under the facility should be eligible for interest rate subsidy. Let me reiterate that the African Governors strongly believe that there is now a clear case for a fundamental and far-reaching reform aimed at making the international financial system fully supportive of global development. The ingredients of such a reform should include, inter alia, equitable distribution of the burden of adjustment between surplus and deficit countries and an exchange rate system that provides stability while retaining flexibility to allow adjustment to take place without putting undue pressures on the level of economic activity; a new look at the principles governing international liquidity and reserve creation taking due cognizance of the interests of all groups of countries. The reform should also focus on a better functioning of the market mechanism to facilitate equitable return to primary producers; enhanced and efficient flow of resources, particularly ODA, to developing countries; finding means of helping international banks to facilitate capital flows to developing countries on appropriate terms; reducing the role of national currencies and strengthening that of the SDR in the international financial system; and making developing countries' participation in decisions affecting the system meaningful. In this regard, we would like to affirm our support for the position taken by the Group of Twenty-Four calling for an international monetary and financial conference. It has been suggested that the vision of the founders of our institutions 40 years ago has been dimmed by excessive preoccupation with parochial concerns. It has also been suggested by some that there is nothing that can be done about it. It is something that we just have to live with, we are told. We refuse to accept the counsel of despair on

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this issue. The people on whose behalf we make these pleas deserve better. We cannot let them down. The challenge before us is to renew that vision. Together we will not fail.

STATEMENT BY THE ALTERNATE GOVERNOR OF THE FUND FOR THE FEDERAL REPUBLIC OF GERMANY

Gerhard Stoltenberg

Spreading recovery; reviving world trade; ongoing adjustment; responsible financial cooperation: these are important elements of the world economic setting in which this meeting takes place. The two organizations whose work we are reviewing today have made a critical contribution to this improving trend. I pay a special tribute to the dynamic and innovative leadership of Mr. de Larosiere, Managing Director of the Fund and Mr. Clausen, President of the World Bank. Developments last year have again demonstrated the indispensable role of the Fund as a catalyst for adjustment and cooperation as well as for economic and social progress. In cooperation with the Fund, many developing countries have made bold efforts to restore their economic and financial equilibrium. In the initial phase, this process almost inevitably developed in a context of economic retrenchment. We are now in the second stage. The adjustment that remains to be accomplished is likely to take place in a more forward-looking manner with developing countries gradually regaining the growth momentum. Many industrial countries, too, have significantly strengthened their policies; they have restored monetary credibility, improved fiscal performance, and are now tackling structural rigidities. The progress achieved has belied the pessimists. However we remain vulnerable. Confidence is still fragile. Many developing countries remain burdened with severe social problems and large external debts. At this meeting we are called on to reaffirm our commitment to a credible strategy for sustained and broadly shared growth; to emphasize the common interest of all parties involved in resolving debt problems in an orderly way; and to demonstrate our undiminished support for the Fund and the Bank. Monetary and fiscal discipline; structural flexibility; international cooperation: Countries that have followed this course have, in the longer run, performed better; they have grown faster, have been more successful in creating employment, and have more quickly adapted to external shocks.

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Cautious monetary policies have been essential to get the recovery started. They remain essential to ensure that it will last. Inflation should not be allowed to come back as it did in previous cyclical upswings. A credible anti-inflationary commitment is the best way to help bring down interest rates from their very high levels. The improved performance of monetary policy has yet to be matched in the fiscal and budgetary areas. The Fund has become a sharp critic of large budget deficits—and with good reason. Expansionary budget policies may help to underpin demand in the short run. This has to be weighed, however, against the distinctly adverse effects on interest rates and exchange rates, on trade flows and current accounts, on the debt burden of developing countries, and on the long-term potential for growth. Government itself cannot secure lasting growth. Its most effective contribution is to provide a framework of stability within which individual initiative can develop. Realistic price and incentive structures are an essential part of that framework. Their restoration has been, and must continue to be, a focus of the economic policy surveillance maintained by the Fund. Another element of that framework has to be a liberal trading system. The continuing pressures for protectionism remain a hazard to recovery. As the Managing Director once said: "Attacking trade strikes at the roots of ... prosperity." The debt difficulties of the developing world have increased the urgency of new and concrete steps to dismantle barriers to trade. My Government fully supports the launching of a new round of trade negotiations in the GATT. One focus of such negotiations should be extension of disciplines of the liberal trading system to new and subtler forms of protectionism which, so far, escape multilateral surveillance in the GATT. The success of a new trade round hinges on thorough preparation. In the interim, every effort should be made to implement the commitments to trade liberalization already existing. Open markets; sustained growth; policies conducive to lower inflation and lower interest rates: these are preconditions for coping with world debt. It is the primary responsibility of industrial countries to ensure that these conditions are met. There is another contribution that essentially can only come from debtor countries themselves: policies designed to strengthen the domestic framework for growth and financial equilibrium. Such policies are essential to reverse capital flight, to encourage the external financing without which adjustment cannot proceed in an orderly way, and to increase nondebt-creating financial flows, particularly direct investment.

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The linkage of financing to corrective policy action—a key feature of the Fund—is the very basis of the Fund's strength and of its catalytic effect on other sources of finance. The frequent controversy over Fund conditionality tends to miss a basic fact. Adjustment is not dictated by the Fund. It is imposed by a member's objective economic situation. The longer adjustment is postponed, the harsher it will eventually be. Effective conditionality, of course, has to be flexible. It must take into account the hardship that the adjustment process can entail. And it must be sensitive to the limits of what is socially and politically tolerable. Adjustment must go hand in hand with continued financing from official and private sources, including the commercial banks. Creditors are aware of the stake they have in restoring the financial viability of their debtors. This awareness is reflected in the cooperative way in which financial support packages have been arranged. The spirit of cooperation is also reflected in the substantial replenishment of the Fund's resources that became effective late last year. Moreover, commercial banks are now envisaging a restructuring of debts in a longer-term perspective for countries with demonstrable adjustment progress. This is a welcome and constructive innovation. Within the broad framework of the strategy I have just outlined, effective solutions to the debt problems must be worked out on a case- by-case basis, taking into account the widely varying circumstances of individual countries. Grand designs and sweeping proposals for debt relief would only postpone the return to financial normality. A minute ago I discussed the role of conditionality as a necessary adjunct to financial support from the Fund. However, the Fund also has to oversee the policies of those members that do not have recourse to its conditional lending. This underlines the need for a firm implementation of the surveillance function conferred on the Fund. I am pleased to note that the stance of German policies is in close harmony with the Fund's views. Since the fall of 1982 when my Government came to office, we have significantly strengthened our fiscal performance and prospects. In particular, we are firmly committed to achieving a very marked reduction in our budget deficit in a medium- term framework. We are keeping a tight rein on expenditure growth, holding it well below the growth of GNP. Tax policy is geared to encourage private initiative, investment, and risk taking. Budget consolidation in Germany is part of a broader strategy. It is designed to cut back the role of government in the economy, to strengthen market forces, and to re-emphasize the qualities upon which economic vitality depends—the effort and dedication of individual citizens.

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We will reduce bracket creep. We are removing unnecessarily burdensome regulation of private sector activity. The share of public sector spending as a percentage of GNP is again declining; we will bring it down to about 45 percent over the next few years, five percentage points below the level reached when my Government took office. We remain committed to turning over public sector enterprises and activities to private ownership and management where this can be achieved without prejudice to the public interest. The German economy has responded well. It is again set on a path of sustainable growth. Our biggest concern remains the persistence of high unemployment. A significant reduction in unemployment will require sustained and satisfactory growth over the medium term. The conditions for a continuation of economic expansion in Germany are now generally favorable, and not solely in the fiscal field. Investment has strengthened. Inflation has dropped below 2 percent. Lower inflation is bolstering the income of private households. International competitiveness, in price and nonprice terms, is satisfactory. The external payments position is balanced. Interest rates are low by international standards. Long-term interest rates have fallen about 5 percent below dollar rates. A fall in interest rates abroad would provide room for a further decrease in our domestic rates. Given its close integration in world trade and finance, the German economy, of course, cannot isolate itself from developments abroad. We have an important stake in the economic and financial stability of our partners. We recognize the critical role of the Fund and the Bank in that respect. I welcome the constructive agreement reached in the Interim Com- mittee on the future enlarged access policy. The continuation of enlarged access in 1985 will ensure the continued ability of the Fund to meet members' legitimate liquidity and financing needs. As was recalled by the Interim Committee, enlarged access is a facility of a temporary nature. It was introduced in 1981 as an exceptional response to an exceptional situation. Since that time, the world economy has distinctly improved. It is, therefore, appropriate that the Interim Committee has agreed on a moderate scaling down of the lending limits in 1985. An important indirect contribution that the Fund can make in order to ensure a sustainable balance of global liquidity demand and supply is through effective exercise of its surveillance function. The Fund can encourage members to pursue policies that will keep their liquidity needs within realistic limits and that will provide a more favorable climate in international financial markets by fostering the conditions for lower interest rates. . . .

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I welcome the increased attention being given in the Fund and the Bank to ways of strengthening cooperation. While their roles and responsibilities are different, their ultimate goals are identical: to catalyze balanced growth and prosperity. Maximum efficiency in the cooperation between the Fund and the Bank will benefit all members, and particularly the developing countries. . . . I would like to conclude with a point that gives me particular pleasure: the resolution earlier this month of the two Boards of Governors to accept the invitation to hold the 1988 Annual Meetings in Berlin (West). I would like to express, on behalf of all concerned in my country, our sincere appreciation for this decision. The crucial importance of a strengthening of international cooperation for the well-being of our nations is becoming increasingly well understood by the citizens of our countries. The differences in our political systems and economic structures are real. But it is only by acting together that we can meet the enormous challenges facing mankind in a peaceful manner and in a spirit of solidarity. To achieve these goals, we must enable the Fund and the Bank to continue playing their important roles while coordinating their activities even more effectively. As before, my Government will work to ensure that both institutions continue to be provided with the necessary resources and instruments.

STATEMENT BY THE GOVERNOR OF THE BANK FOR TUNISIA

Ismail Khelil

It is a great honor for me to address this distinguished gathering on behalf of the Arab Governors of the International Monetary Fund and the World Bank. I would like to start by joining other speakers in welcoming the new members of these institutions. I would also like to take this opportunity to express our appreciation for the very useful opening statements made by you, Mr. Chairman, and by Mr. de Larosiere, and Mr. Clausen on the issues that must engage our attention at these meetings. As a result of recent developments, the world economic outlook is much better today than it was when we met last year. The recovery in the industrial countries has strengthened; output has increased, inflation is slowing down, world trade is growing, and unemployment, although still high by historical standards, is on the decline. However, the spread of recovery to the developing countries has been both slow

©International Monetary Fund. Not for Redistribution 102 SUMMARY PROCEEDINGS, 1984 and uneven. While certain countries have recorded some improvements in their growth and export performance, many aspects of the global economic situation remain a source of concern and pose a continuing challenge to policymakers. Protectionism in the industrial countries is still on the rise. This is particularly so with respect to nontariff barriers. Many of the new barriers are of a covert nature and introduce greater rigidities into the international trading system, such as voluntary export restraints and the so-called orderly marketing arrangements. The tightening of trade barriers is hampering the adjustment efforts of developing countries. It is also hurting their development potential along the lines of comparative advantage. The debt problem continues to be disturbing. In the past two years, a large number of developing countries have experienced serious difficulties in servicing their outstanding debt. At the end of 1983 the total debt of all developing countries stood at an estimated $810 billion. Service payments due in 1983 on all debts, including short-term, amounted to approximately $165 billion or 34 percent of total developing country exports of goods and services. However, due to rescheduling, actual payments in 1983 were about $125 billion or 25 percent of exports; still a heavy burden on their foreign exchange earnings. Related to the debt problem is the high level of interest rates, both nominal and real. For developing countries the rise in interest rates has made new borrowing more costly and difficult; it has also considerably raised service payments on debts contracted at variable interest rates. The problem has been compounded by the instability and misalignment of exchange rates. In addition, developing countries have had to contend with a precipitous decline in commercial bank lending. Voluntary commercial lending to some of the major debtor countries has all but ceased. As a result, developing countries in 1983, for the first time, received less from medium- and long-term loans than they paid to service outstanding ones. At the same time, official development assistance, which constitutes 75 percent of the external capital flows to low-income countries, has not increased in real terms since 1980. ODA has traditionally played a unique role in supporting the efforts of developing countries toward structural transformation of their economies. Unfortunately, the performance of most DAC countries in the field of ODA continues to fall short of the 0.7 percent target. The aid performance of OPEC donors as a group, relative to their GNP, substantially exceeds DAC average and stands well above 0.7 percent. Despite the large decline in oil revenues in recent years, the major Arab donors have continued to extend high levels of external aid. These aid flows, which have been

©International Monetary Fund. Not for Redistribution GOVERNOR FOR TUNISIA 103 widely distributed among developing countries, still exceed 3 percent of their GNP. Faced with these difficulties, many developing countries have embarked on the implementation of severe adjustment measures. Non- oil developing countries have sharply reduced their current account deficit from $109 billion in 1981 to $56 billion in 1983. Some major debtor countries have in fact moved from large deficits to large surpluses in their trade accounts. But these gains have been due mainly to substantial compression of their imports rather than expansion of exports. In the face of sluggish export earnings, decline of commercial bank lending, stagnation in official development assistance, and mounting debt service burden, the full brunt of adjustment fell upon imports. This has had profoundly adverse effects on investment programs and consumption levels. Available evidence goes to show that this kind of adjustment has been bought at the cost of economic setback, injury to world trade, not to speak of grave risk to political stability. The policy questions that Arab countries have had to deal with in recent years have in many respects been similar to those faced by other developing countries. In response to the global recession, the non-oil Arab countries have followed a policy of adjustment that has been reflected in reduced public expenditures and imports. As a result, growth rates have generally been much below those attained in previous years. Moreover, some of the Arab countries have experienced difficult debt servicing problems. The recession has also had a large impact on those Arab countries that are oil exporters. The drop in the demand for oil, coupled with increased production outside OPEC, resulted in a sharp decline in export receipts, necessitating a general policy of adjustment and restraint, which had the inevitable effect of considerably slowing down economic expansion. Most of these countries have over this period undertaken a reassessment of their development plans with a view to economizing on expenditures and improving the allocation of resources. An increase in output and exports is forecast for the period ahead, though the extent of the recovery remains sensitive to assumptions made with respect to developments in the international oil market. For their part, the Arab oil exporting countries, together with other OPEC members, have sought to preserve stability in the oil market, which they regard as being in the interest of both producers and consumers. Turning to some specific Fund issues, while an agreement has been reached at the Interim Committee to continue the policy on enlarged access in 1985, we would have preferred an agreement that also maintained access limits under the policy at the present level. As we know, the enlarged access policy has played a very useful role in the

©International Monetary Fund. Not for Redistribution 104 SUMMARY PROCEEDINGS, 1984 past in enabling the Fund to meet members' increased requirements for financing in support of adjustment. Care should be taken in future reviews to avoid a premature phasedown of the policy. We note the concern that has been expressed by other developing countries at the general shift toward lower access ranges in the implementation of the policy on access over the past year, and at the tightening of the conditionality of the compensatory financing facility. The amount of access within the limits should be duly related to the particular attributes of individual cases, and the compensatory financing facility should retain its distinctive identity as a source of quick- disbursing bridging finance. While the Interim Committee has agreed to maintain access limits for the compensatory financing facility at the present level, we would like to state that, since the compensatory financing facility is not a temporary facility, access under it should not be tied to the annual reviews of the enlarged access policy. It is regrettable, that, despite widespread support, no allocation of SDRs has so far been made in the current basic period. The substantial weakening of the reserve positions of a large number of countries despite severe import compression clearly points to the existence of a long-term global need for reserve supplementation. This need could be further accentuated in the coming period if world trade expands as projected and access to financial markets remains limited. Moreover, it appears highly unlikely at this juncture that an allocation of an appropriate size would be inflationary or would adversely affect the ongoing adjustment efforts. A strong case, therefore, exists for an early and meaningful allocation of SDRs, which would also contribute to the objective of promoting the role of the SDR as a reserve asset. . . .

STATEMENT BY THE GOVERNOR OF THE BANK FOR THE NETHERLANDS

//. O. Ruding

The international economic environment has undergone radical changes during the last decade. First of all, the end of the Bretton Woods exchange rate arrangement heralded a new era of managed floating. Second, oil price shocks led to macroeconomic disturbances throughout the world. These shocks, together with economic mismanagement and institutional rigidities in both industrial and developing countries, amplified internal and external imbalances. In my opinion, and with the benefit of hindsight, the economic policy responses to the effects of the increasing oil price

©International Monetary Fund. Not for Redistribution GOVERNOR FOR NETHERLANDS 105 were generally inadequate. Although the new system of flexible exchange rates mitigated some of the macroeconomic disturbances, inflation surged while output stagnated. The current accounts of most oil importing countries deteriorated sharply. Nevertheless, necessary policy adjustments were delayed or not implemented at all. In the meantime, international financial markets played an increasing and much acclaimed role in providing funds for balance of payments support. The recycling of funds through these markets led to a sharp increase of external debt in a number of countries, and weakened the role of the Fund during this period. Indeed, in the second half of the 1970s, only a small part of the need for balance of payments assistance was accounted for by IMF financing, although Fund resources had increased as a result of quota increases. Only after 1980 did the demand for Fund credit rise sharply. The Fund became more involved in the financing process, and applied an appropriate, strict degree of conditionality to ensure the implementation of policy adjustments. Thus the Fund became a catalyst and coordinator of balance of payments adjustment and assistance.

Policy Stance During the last few years, the international economic situation has improved. Industrial countries have pursued anti-inflationary policies and many countries have implemented adjustment policies in cooperation with the Fund. The result was lower inflation in the industrial countries, a recovery of world output, and a sharply reduced external deficit of the developing countries as a group. It is encouraging that the improvement in the current account of developing countries is by now increasingly due to growth of exports and no longer to further compression of imports. However, a number of developing countries will be confronted with serious domestic and external economic and financial problems for many years to come. In general, those countries, both developed and developing, that have adjusted in time to the changed international economic environment have fared better in their economic performance than those that have been slower to adjust. Threats to the current economic recovery remain. Too high nominal and real interest rates, influenced by high fiscal deficits, could weaken the economic recovery, particularly in those countries with high external debts. Inflexibilities on the supply side still exist in many countries, owing to market imperfections, capital controls, and institutional rigidities. And unemployment levels in many European countries, particularly in my own country, are still unacceptably high. Therefore, in order to sustain, deepen, and spread the improvement of the international economic situation in the years ahead, monetary

©International Monetary Fund. Not for Redistribution 106 SUMMARY PROCEEDINGS, 1984 discipline should be maintained and fiscal deficits further reduced. Such macroeconomic policy measures that would keep inflation and real interest rates low, should in most countries be combined with microeconomic measures, aimed at reducing capital and labor market rigidities. In this way, opportunities for domestic and foreign private investment can be improved. At the same time, we must intensify our efforts to roll back protectionism. Refraining from protectionism is crucial to the efforts of the developing countries to increase their exports. Although protectionism is not a sin exclusively committed by industrial countries, they, because of their economic predominance, bear a special responsibility for maintaining an open trading system. Developing countries, on their part, need to pursue sound macroeconomic policies, if their exports are to compete in the international markets.

The International Monetary System If we all accept these responsibilities, I am confident that we will be able to attain durable noninflationary economic growth. The present system of exchange rates, for which I see no viable alternative in current circumstances, can be effectively used to help prevent longer- term balance of payments disequilibria. Of course, the recent change in the international economic situation has implications for the functioning of the Bretton Woods institutions. Although developments appear to have taken a turn for the better, it will be necessary to prevent a recurrence of the severe liquidity and debt problems that many countries have been facing these last few years. Future financial flows to developing countries will depend highly on the successful solution of present major debt problem cases. Already, many countries have accepted arrangements for the restructuring of their debts together with a coherent set of policy measures aimed at economic adjustment. But even when the creditworthiness of a country has been restored, a more cautious approach to commercial borrowing than in the past is called for—both on the part of the commercial banks and of the deficit countries. The Fund can and should play an important role in preventing the recurrence of liquidity problems. Let me indicate how I think this could be realized.

The Role of the Fund The policy of enlarged access, a temporary facility from the outset, enabled the Fund to cope with the financial needs of its member countries. At the same time, however, it also severely strained its liquidity position. The Eighth General Review of Quotas had to be

©International Monetary Fund. Not for Redistribution GOVERNOR FOR NETHERLANDS 107 precipitated and additional borrowing had to be arranged. The serious strains that emerged in the international monetary system and the threats they posed to the world economy have been dealt with swiftly and satisfactorily. Owing to their impressive adjustment efforts, many of the debtor countries have been able to bring down their current account deficits drastically since 1981. Most of these countries are now implementing adjustment programs geared toward reducing their dependence on external financing. Considering these positive results so far, I think there is sufficient room to proceed with the gradual reduction of the enlarged access to Fund credit, as agreed in the Interim Committee, beginning next year, in order to bring access limits over time to a level that can be supplied from the Fund's quota resources. By such action the direct financial role of the Fund would be somewhat de-emphasized, but its role as a catalyst in unlocking additional finance would, in combination with a strengthening of surveillance, not be affected. The advantage would be that the liquidity position of the IMF would remain strong enough to cope with all requests for Fund credit until the time of the next quota increase. Moreover, subscriptions under members' quotas would again become the primary source of Fund financing. The liquidity of the financial claims on the Fund would be improved and the role of the Fund as a monetary institution would be strengthened. In order to ensure that the recent problems of the heavily indebted countries are less likely to recur, it is also advisable to enhance further the Fund's role in the international monetary system by strengthening its surveillance task. What is needed is a shift in its role from cure toward prevention. External adjustment and economic recovery are encouraging. This is the time to consolidate and extend what has been achieved so far. The heavily indebted countries should continue to implement adjustment programs, whereas the industrial countries should set themselves to the task of consolidating their present recovery. Higher growth in the industrial countries will allow higher exports from the debtor countries and thereby ease their adjustment efforts. It is the smoothest way out of the debt crisis.

Surveillance As we know from experience, economic recovery requires a climate of stable economic and financial conditions. Unfortunately, instability continues to exist in the field of both exchange rates and international liquidity. Instability creates uncertainty and uncertainty leads to extra costs. Reduction of instability would therefore be beneficial to the economies of all our countries.

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An essential step toward long-term stability is the coordination of our national monetary and budgetary policies. I am convinced that the Fund's surveillance could play an important role in achieving this. Of course, I realize that surveillance by the IMF can only be effective if member countries are willing to work together to ensure that their domestic economic policies are formulated and conducted in such a way as to take the international consequences into account. A stable system requires a stable development of key variables such as price level, monetary growth, domestic demand, and the current account position, as well as a reduction of external debts and public sector deficits. Apart from a more intensive country-by-country approach under Article IV, multilateral surveillance should be intensified. Particular attention could be paid to the international implications of the economic policies of the major industrial countries. In this spirit, discussions are being held in the Group of Ten to examine how Fund surveillance can be strengthened and be made more effective, for debtor and creditor countries alike. I realize that much remains to be done to achieve a more effective surveillance, but I am convinced that agreement on strengthening surveillance would be considered a signal of greater international willingness to work toward a stable future.

The Developing Countries In the first part of my speech, I presented my views on the international economic recovery and the effects that it is having on the economies of developing countries. I indicated that, provided sound economic and financial policies are pursued by all parties and protectionism is contained, the recovery will undoubtedly spread to developing countries. Indeed, it has already done so. Nevertheless, this assessment must be qualified for the poorest countries that have no access to financial markets. Even if those countries do profit from the economic upturn, they still face harsh long-term constraints on their development. The problems of sub-Saharan Africa were the main item on the agenda of the Development Committee.

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

Paul J. Keating

After a prolonged period of economic recession, with each year seeming to offer less hope than the previous one, the world economic situation at last shows some encouraging signs:

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• Total output in 1984 should show its best performance for some years, both in developed and developing countries; • The rate of inflation has slowed in most countries; • World trade is beginning to pick up, to the benefit of all; and • Disequilibrium in external payments shows signs of diminishing. I am pleased to say that in my own country inflation has been cut to less than half its previous rate, while declining output has been replaced by record economic growth. But the world is still confronted by some difficult problems. For instance, real interest rates remain high, adding to debt burdens; and the appreciation of the U.S. dollar continues, thus heightening tension and uncertainty. Hanging over us all are three major questions: • Whether we can find a satisfactory solution to the debt problem; • Whether we can roll back protection; and • Whether we can reduce unemployment from its tragically high levels. For my part, I err on the optimistic side. We now have opportunities that we have not had for some years, but it would be so easy to let those pass us by. In what ways can the institutions we Governors represent—the International Monetary Fund and the World Bank— help us to transform those opportunities into success? Let me speak first of the Fund. It seems to me that we often expect the impossible from that organization. It is an institution that was never designed to solve the development problems of the world. Within the limits of its capacity, this is the responsibility of the World Bank. The Fund was originally designed to provide temporary balance of payments assistance. In recent years, we have experienced a severe period of international payments imbalance. Without going into the reasons for that, let me say that we all, individually and collectively, bear the responsibility. The Fund has done a great deal about this—a great deal for which it has not received the credit it deserves. There is not time for me to go into the changes the Fund has made to its normal working procedures to cope with the problems we laid at its doorstep. But let me just mention its major policy adjustments. • It pressed those of us who could afford it to provide loans which it could on-lend to countries who had fared less well;

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• It strained at its Articles of Agreement to lend money in larger amounts and over longer periods than had previously been enter- tained; • It involved itself directly in encouraging private banks to maintain their lending to countries hard pressed by debt; and • Most of all it endured the criticism which came its way when it insisted that countries drawing on its resources took all the steps necessary to adjust to changed economic circumstances. By 1983, the Fund was making finance available at ten times the rate of the mid-1970s. In the light of this alone, who can honestly say that the Fund has not proved itself to be flexible and sensitive to the financial needs of the times? The other side of this debate concerns the conditions under which finance is lent. I believe that criticism of the Fund's approach to conditionality is misplaced. It is the role of the Fund not just to help countries through temporary balance of payments difficulties, but to provide finance in such a way that they can avoid self-defeating economic policies and need not try to pass their problems on to others. Economic adjustment by such countries is inevitable. The question is not whether to adjust but whether adjustment should come about with or without Fund support. And it is wrong to imply that Fund conditionality is in some way inimical to growth. The aim of the Fund is to help establish the basis for sustainable growth. I seriously put it to Fund members that we should take care not to place too great a burden on this institution lest we inadvertently undermine its basic character and its financial support. The outcome of the Interim Committee's deliberations is clearly in line with the views I have just expressed. The conclusion that an SDR allocation is not warranted at this time is, I suggest, soundly based given the lack of evidence of a global need for additional liquidity. An allocation large enough to add significantly to liquidity would have run an unwarranted risk of adding to inflationary pressures. We should remember that, while we have fought a long and hard battle against inflation—and have made remarkable progress—it is not yet total victory. I support also the reasonable compromise reached on access limits. The policy of enlarged access was adopted as a temporary measure to respond to members' needs during a time of massive and widespread payments imbalances and of constrained quotas. Though many problems remain, the overall payments imbalance has improved and quotas have been increased. It seems to me fitting, therefore, that we should begin the task of reducing access limits. . . .

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STATEMENT BY THE GOVERNOR OF THE BANK FOR ISRAEL

Moshe Y. Mandelbaum

I would like to join the preceding speakers in welcoming St. Christopher and Nevis and Mozambique, the newest members of the International Monetary Fund and the World Bank. I would also like to congratulate Mr. Richard Erb on his recent appointment as Deputy Managing Director of the Fund and extend to him my warmest wishes. May I also thank our host nation, the United States, and say what a pleasure it is to be here in Washington. Following a protracted period of stagnation, economic recovery in most industrial countries, and especially so in the United States and in Canada, is now well under way. Furthermore, in the developing countries, exports are already responding to this recovery, thereby generating renewed economic growth. However, these encouraging developments must not deflect from the persistence of three fundamental problems which threaten global economic recovery: unemployment, external debt, and inflation. Moreover, most of the developing economies are still suffering from a serious setback as a result of the prolonged world recession. In some areas of the world, notably in sub- Saharan Africa, the standard of living has been reduced to poverty if not outright hunger. Interest rates, contrary to the hopeful signs last year, have not fallen; instead they have settled at a level which imposes crippling debt servicing on the developing economies. Indeed, during the last 12 months we have witnessed an alarming increase in the number of countries which have had to negotiate debt rescheduling agreements and to seek emergency balance of payments support from the Fund. The Fund's role in administering first aid to economies that cannot meet their external obligations has become quite formidable as has the task of governments that are receiving such aid and are required to implement harsh and unpopular adjustment policies. As the Annual Report of the Fund points out, the measures that are implemented in order to bring about an improvement of the balance of payments are often at the cost of suppressing economic growth. Furthermore, the high level of interest rates is preventing a renewal of private investments, and with inadequate capital formation, the prospects for sustained growth in the future are jeopardized. . . . But the developing countries' debt burden has more immediate repercussions too. The pressing need to improve their current account

©International Monetary Fund. Not for Redistribution 112 SUMMARY PROCEEDINGS, 1984 often made countries take recourse to administrative import controls. For their part, the industrial countries seek to further their own recovery by protective measures. Such practices put further obstacles in the way of global economic recovery. We share the view that free world trade is essential if optimal economic growth is to be achieved. In spite of the reservations expressed at the Interim Committee, I believe that an allocation of SDKs will stimulate world trade and strengthen the global recovery and thus obviate the need for protective measures. Bearing in mind the unutilized capacity in both developed and developing economies, there is, I believe, no danger that such an allocation will rekindle inflation. As for enlarged access, this Fund facility has been of great help to many countries but it is an emergency measure that should not be perpetuated. The Fund's support should be granted according to well-defined criteria. The Fund should have adequate resources at its disposal, so as to be able to make its support available in full measure to the eligible members. I would now like to address myself briefly to Israel's economy. Israel's exports are responding well to the recovery of the industrial economies. Following two meager years, export performance in 1984— a 16 percent increase in dollar terms—suggests a return to the rapid expansion that characterized Israel's exports until 1981. It is significant that such rapid expansion of exports is taking place in spite of a three- digit inflation which is plaguing Israel's economy and it is perhaps indicative of the economy's growth potential. This potential could be fully expressed once inflation has been stopped. In order to alleviate the effects of inflation, Israel has introduced an indexation of both wages and financial assets. Such an arrangement has worked tolerably well at moderate rates of inflation and has in fact ensured high levels of private savings. However, as inflation accelerated, indexation also perpetuated it. The real forces in the economy have to struggle with a severe and unnecessary handicap which inflation imposes. The cost of inflation is reflected in a financial sector that has expanded beyond the real needs of the economy; it is estimated that 4 percent of total employment accounts for this expansion of the financial sector. Furthermore, the private sector has to function in a situation of growing uncertainty expressed in the ever-widening vari- ance of the relevant economic variables. The new government, which came into office ten days ago, has put on top of its list of priorities the implementation of an economic plan to reduce simultaneously the rate of inflation and the deficit in the current account. This plan calls for a substantial reduction of the budget deficit and for the encouragement of private savings in order to reduce inflationary pressures and bring about some improvement

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of the current account at the same time. The plan also calls for a "social contract" which will provide the ground for a policy of price stabilization. The success of the plan is underpinned by the growth potential of Israel's export sector. Growth in Israel has concentrated on technologically intensive industries. Investment in these industries has been increasing at fast rates (last year alone, there was a 20 percent increase). However, because of the high level of domestic demand, the export potential could not be utilized. A reduction of domestic demand will therefore enable a fast transfer of resources into exports. As I have mentioned, Israel's economic growth is based on technologically intensive production sectors in both industry and agriculture. The emphasis has always been on a close link between research and development and investments. Since Israel's industries are technologically intensive rather than capital intensive, they would also be suitable for many other developing countries who suffer from scarcity of capital and energy. I would like to take this opportunity to reiterate Israel's readiness to put its developing experience at the disposal of all other developing countries. Israel's expertise in agromechanical farming methods, creation of alternative energy, industrial training, public health, and civil engineering could be made available to many other countries. In closing, I would like to say that we see it as the duty of the developed countries, and very much in their own best interests, that the Fund and the Bank, so ably led by Mr. de Larosiere and Mr. Clausen, be provided with the means necessary to foster sustained growth and financial stability in the world economy.

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STATEMENT BY THE GOVERNOR OF THE FUND FOR SOUTH AFRICA

B. J. du Pies sis

We continue to live in difficult economic times. As some international financial problems become less serious, others take their place. In these circumstances, the Fund and the Bank, under the distinguished leadership of Mr. de Larosidre and Mr. Clausen, deserve to be complimented on the contribution they have once again made during the past year toward defusing, containing, and, to a significant extent, even solving the prevailing problems. As one of the founding members of the Fund and the World Bank, it is a great honor for South Africa to join in welcoming St. Christopher and Nevis and our neighboring country, Mozambique, as new members. The success achieved by the United States and some other industrial countries during the past year in combining lower inflation with higher growth is most impressive. The lesson it holds for all of us is clear: the key to rapid and sustainable economic growth lies in first curbing excessive money creation and spending by means of basically market- oriented financial policies. Although this approach entails painful short- term sacrifices, it is fundamentally the only way to curb inflation and to achieve or maintain sound balance of payments and foreign debt positions. As indicated earlier, however, the difficult economic problems which have confronted the world during recent years have not been fully resolved. Far from it. The international debt crisis is still with us and the problems facing many developing countries remain extremely serious. The belt-tightening adjustment programs prescribed under the present case-by-case approach make good economic sense. But it remains to be seen whether these restrictive policies can be implemented to the required extent without creating unmanageable sociopolitical problems leading inevitably to further rescheduling. And, of

1 September 25, 1984.

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course, the need for further growth in these countries cannot be ignored. In the meantime, the present unusual economic situation in the United States continues to exert both favorable and unfavorable effects on other economies. The favorable consequences flow from the strong domestic upswing and the upsurge in the U.S. dollar, both of which contribute to rising U.S. imports from other countries. The unfavorable effects emanate mainly from the large budget deficit and the accompanying high real interest rates and net capital inflow, which are adding to the burden of debt service for many countries and draining scarce international capital from other countries. Given these continuing problems, the time is indeed opportune for new thinking on the future roles of the Bank and the Fund, and for more effective forms of development finance. The answer clearly does not lie in a premature relaxation of monetary and fiscal policies in the industrial countries. Nor is it to be found, in the first place, in the creation of more SDKs or in the relaxation of Fund conditionality. Steps of this kind are bound to result in more inflation and instability, and will, in the long run, do more harm than good. The only effective way of assisting the developing countries is through transfers to them of real resources and know-how. It is therefore gratifying that fresh consideration is currently being given to the most appropriate ways and means of effecting such transfers. South Africa has a particular understanding of the plight of many other African countries since it forms part of a region faced with the onerous task of developing its resources in conditions of considerable diversity and volatility. This keeps us singularly aware of the magnitude and complexity of the economic challenges currently facing sub- Saharan Africa. The debilitating socioeconomic effects of the harsh climatic conditions that have ravaged this region in recent years can hardly be fully appreciated by countries that have not themselves actually suffered the same experience. The unfortunate combination of a number of adverse factors at this juncture presents the whole region with an almost intractable problem, but one that must be solved to ensure the very survival of many inhabitants of the area. The recent initiatives put forward by the World Bank in its report to the Development Committee provide a new and encouraging approach toward meeting these challenges. In the light of its own experience and objectives as part of developing Africa, South Africa welcomes the recognition of the need for realism and viability reflected in the recommendations of the report. In pursuit of similar guidelines, we have for some time been applying a comparable approach in terms

©International Monetary Fund. Not for Redistribution 116 SUMMARY PROCEEDINGS, 1984 of which, among other things, substantial amounts from our own resources are being devoted to agricultural research, education, health and population development programs, and we can testify to the potential advantages of this approach. A number of internationally recognized organizations, such as the Council for Scientific and Industrial Research and the National Vet- erinary Research Institute at Onderstepoort, do valuable work in Southern Africa. We are also a leading member of a Southern African agency for the promotion of interterritorial cooperation in the broad field of agriculture and natural resources. The Rand Monetary Area Agreement and the Southern Africa Customs Union Agreement provide further evidence of the benefits accruing from the pragmatic approach taken by some Southern African governments in regard to technical, financial, and economic cooperation. Through these arrangements, supplemented by numerous other bilateral agreements, South Africa accepts a role and a responsibility for cooperating with its neighbors in serious efforts to improve the standards of living of all the peoples of Southern Africa. . . . Since last year's Annual Meetings, the new Development Bank of Southern Africa has commenced operations as planned. It not only supports the maintenance and expansion of the existing economic infrastructure of its members, where appropriate, but concentrates on rural development and the strengthening of the food-producing capacity of the region. In recent months, we have been greatly encouraged by the degree of economic cooperation that has been made possible, not only between countries in Southern Africa but also between the private and the public sectors, following the recently concluded Nkomati Accord between South Africa and Mozambique. Such cooperation, of course, already exists in other areas, particularly in the financial, agricultural, and transport fields. Only last week seven Bank member countries in Southern Africa gathered to strengthen cooperation in the field of rail transport, which must of necessity redound to the economic benefit of all concerned. The economic development of sub-Saharan Africa is certainly a high priority from the point of view of both humanitarian and economic considerations. Equally important is the fundamental requirement that such development be achieved through sound economic and financial policies and practices, and in the shortest possible period of time. . . . The commitment by a government to the principles of private initiative and a free market, while an indispensable prerequisite for success, will end as nothing more than a good beginning unless it is also

©International Monetary Fund. Not for Redistribution GOVERNOR FOR LUXEMBOURG 117 supported and implemented by the populations in those countries. This will involve the uninterrupted and imaginative dedication of experts to the identification, implementation, management, and control of specific programs. Also needed will be the education and training of large numbers of people and, ultimately, the reorientation of a sufficient number of individuals and communities to establish the principles and work ethic of a free enterprise society as the generally accepted standard and norm. Clearly, this process will demand sustained involvement and the investment of a variety of resources by the Bank, the respective governments, and the private sector. But mostly it will require ingenuity, perseverance, and time. We are optimistic that the rewards can be substantial, both materially and in terms of those values and goals which the far-sighted founders of the Fund and the Bank envisaged in the establishment of these institutions.

STATEMENT BY THE GOVERNOR OF THE BANK FOR LUXEMBOURG

Jacques Santer

We have noted with great interest the optimism that emerges from the probing analyses of the world economic situation presented to these Annual Meetings by the Managing Director of the Fund and the President of the World Bank, this despite the lingering uncertainties about the scenarios adopted. I would also like to congratulate Mr. de Larostere and Mr. Clausen for their success in carrying out their extremely difficult tasks. The resurgence of world trade, in large measure attributable to the dynamic growth of the U.S. economy, is an encouraging sign that has contributed to modest growth in the other industrial countries. The factors behind the growth in the United States raise some doubts, however, as to its durability without inflation and as to the budgetary and current account deficits. These deficits are not only responsible for the persistence of historically high interest rates; they also are absorbing an ever larger share of other countries' savings. We in Europe are aware of the need to continue the restructuring efforts undertaken some years ago with a view to achieving sound and sustainable growth that will make it possible to reduce the currently intolerable levels of unemployment.

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Even so, in those European countries that have advanced the farthest in the adjustment process, it should be possible to promote the resurgence of domestic demand and to reduce the rigidities that all too often are still hampering the development of the European economies. In my own country, the effort to restructure the economy has been carried out in such a way that employment in the steel industry, which provided jobs to 17 percent of the work force prior to the 1974 crisis, has been reduced by more than half. The development of the tertiary sector and the establishment of a wide range of new industries have nevertheless made it possible to keep the employment level high and to limit unemployment to less than 2 percent of the work force. Financing this restructuring involved shared and coordinated efforts on the part of all concerned while avoiding any structural indebtedness in government finance. Our objective is to impart consistency and durability to the still moderate growth our economy is experiencing once again. In the monetary area, we are striving to strengthen the European Monetary System which has made increased convergence of the European economies possible. We are convinced of the merits of more stable exchange rates and are striving to keep our currency among the strongest within the European Monetary System. One of the major problems which continues to cast its shadow over the world economic situation is the indebtedness of numerous developing countries. This topic also affects us in our capacity as an international financial center. Experience in recent years shows that this problem, while far from being definitively resolved, is nonetheless susceptible to being dealt with satisfactorily in the medium term. On debt matters, I am most appreciative of the role of catalyst and orchestrator played by the Fund, a role it must continue to play with all the requisite flexibility and in concert with the World Bank. It will also be necessary for growth in the industrial countries to be maintained, for interest rates to come down, for the debtor countries to persevere in their adjustment efforts, and for financing flows to continue without interruption. In this regard we wish to express our satisfaction with the agreement reached in the Interim Committee to reduce the enlarged access to the Fund's resources only moderately and to leave the policy in its present form as regards the special facilities. Alongside the question of access to the Fund's conditional liquidity, there is the unresolved problem of creating new unconditional liquidity in the form of a new SDR allocation. This subject has been studied on many occasions, but consensus is still far off. My Government is

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in favor of a new allocation of SDKs; in our opinion there is a need for liquidity that can properly be considered as global. This need can no longer be met by borrowing and often compels countries seeking financing to implement excessively deflationary policies and to make drastic reductions in their imports. Moreover, the resurgence of world trade requires a roughly equivalent expansion of reserves, meaning that there is no justification for the fear that such new liquidity might be inflationary. Finally, we are pleased by the initiative to begin global discussions on the major problems affecting the developing countries as well as the problem of indebtedness at the next meetings of the Interim Committee and the Development Committee. The uncertainty and the uneven geographical distribution of the economic recovery remain the major stumbling blocks to improvement of living standards in the developing countries. These countries' export prices and their potential markets are still depressed. Their growth rates are lower than the interest rates on their loans. The indebtedness of the developing countries, estimated to exceed $800 billion, amounts to a mortgage in the form of interest and principal equivalent to a third of these countries' export proceeds. There has been a pronounced decline in spontaneous commercial lending since 1983, and the developing countries' interest payments exceed net inflows of capital. In many countries, in particular in sub-Saharan Africa, the population is growing at a faster rate than the economy. The unequal distribution of income internationally is becoming more pronounced and threatens to stymie the economic development of all countries, since a lasting collapse of the buying power of the developing countries would have a serious impact on the majority of the industrial countries that depend on foreign trade. . . . In conclusion, I would like to stress that the problems of growth, aid, indebtedness, international trade, and population growth cannot be considered separately. The risks are shared, and so are the responsibilities.

STATEMENT BY THE GOVERNOR OF THE BANK FOR CHINA

Wang Bingqian

First of all, let me extend, on behalf of the Chinese delegation, our sincere congratulations to you on your assumption of the chairmanship of the current Annual Meetings. I believe that under your guidance, me current meetings will certainly yield positive results. I would also like to express my appreciation to Mr. de Larosiere and Mr. Clausen

©International Monetary Fund. Not for Redistribution 120 SUMMARY PROCEEDINGS, 1984 for the commendable work they have done in the International Monetary Fund and the World Bank in the past year. I would like to extend my congratulations to the new member countries. The world economy has witnessed considerable changes since we met here a year ago. Economic recovery is well under way in developed countries. We should be aware, however, that such recovery is not stable, and very much unbalanced too. The developing world as a whole is still plagued by serious economic difficulties. Over the past few years, many developing countries have carried out economic adjustment and improved their balance of payments to a certain extent at the cost of slowing down their economic growth. However, intensified trade protectionism practiced by a number of developed countries, their reduction of official development aid, and rising real interest rates have made it hard for the developing countries to overcome their economic difficulties. What is most disturbing is that the situations of many low-income developing countries are still deteriorating. It goes without saying that to change such a state of affairs, developing countries themselves should exert their utmost efforts. But, what is equally important is that their external conditions must be improved, which would require the international community to make concerted efforts to render them effective assistance. The economies of all countries today are closely interrelated. Developed countries cannot expect to consolidate the results of recovery and sustain their economic growth without the economic development and prosperity of the vast number of developing countries. We hope that developed countries, the major ones in particular, will adopt far-sighted economic, trade, and fiscal policies and, while developing their own economies, help to promote the economic development of developing countries. We are all concerned about the problem of international debts which has gone beyond being a mere economic problem and become one of the prominent issues in international politics. The debtor countries should not be held solely responsible for the debt crisis. The high real interest rates resulting from the fiscal and monetary policies pursued by the major industrial country, coupled with the sharp reduction in both private and official flows by the creditor countries, have not only substantially increased the debt service burden of the debtor countries but have also given rise to the abnormal phenomenon of reverse flow of funds from developing to developed countries. Over the past two years, the International Monetary Fund has done a lot of work to ease the debt crisis. But one should be aware of the fact that the debt crisis is not yet over. We are of the opinion that in efforts to overcome the debt crisis, it is neither fair nor workable to call on the debtor countries alone to shoulder the burden of adjustment; the creditor countries should take up certain obligations to lower tariff

©International Monetary Fund. Not for Redistribution GOVERNOR FOR CHINA 121 and nontariff barriers, open up their markets, bring down real interest rates, and offer new loans to the debtor countries so that the debtor countries can enhance their debt servicing capacity on the basis of economic development and export expansion. To this end, the Inter- national Monetary Fund should make new efforts to urge the major industrial countries to change their irrational monetary and fiscal policies. In our opinion, the mounting trade protectionism being practiced by developed countries has seriously harmed the interests of developing countries and impeded the growth of world trade and economy. Developed countries should act speedily and earnestly to honor the commitments they have made in various international forums to roll back protectionism. . . . We deeply regret the failure in reaching an agreement so far on the allocation of SDKs during the fourth basic period. In recent years, the foreign exchange reserves of many countries have dropped and the proportion of the issued SDKs to the total volume of world trade is shrinking daily. With the upturn of world trade, the problem of the lack of international liquidity has become increasingly serious. Ob- viously, a new allocation of SDKs is a prevailing general demand. Some people are worried that the allocation of SDKs for the fourth basic period may reignite inflation and adversely affect the adjustment efforts of the debtor countries. That concern is not well founded. We earnestly hope that agreement will be reached on the allocation of SDKs for the fourth basic period as soon as possible. The situation in sub-Saharan Africa is especially disquieting. For many years, production there has been sluggish and it has been hit by natural calamities year after year. People in that part of the world are living in dire misery. While it is the governments and people there that should be relied upon to reverse this ever deteriorating situation, the international community obviously should make a special effort to give them effective assistance. To this end, the World Bank has worked out a program of action for sub-Saharan Africa, which contains many positive elements that we would like to fully support. In my opinion, in providing aid to Africa, one should take full account of its actual conditions; respect the wishes of the African peoples and governments and the priority in their economic development; and pay attention to the practical effectiveness of the assistance. Only in this way can one truly help the African countries restructure the old economies and build up their own national economies. China and the African countries all belong to the developing world. The Chinese Government has always supported the African people in all their endeavors for national independence, social progress, and economic development. The Chinese

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Government is ready to continue to assist the African countries within the bounds of our capabilities. I will now speak briefly about China's economic situation. Over the past year, at the level of our national economy, better than expected results were achieved in speeding up economic growth, in restructuring the economy, and in improving economic performance. However, from the overall point of view, we still face many difficulties, particularly the backwardness of our technology and the lack of development funds. These will remain major problems for China for a fairly long time to come. To accelerate economic development in China, we have devoted our efforts to two aspects in our economic work, that is, structural reform and opening to the outside world. As far as the structural reform is concerned, we have scored great successes in rural areas and are now working to speed up the pace of economic reform in the urban areas. With regard to opening to the outside world, we have adopted some policies and measures that are more favorable than before, we have promulgated certain laws concerning external economic relations, and we have signed agreements with several countries on investment protection and the avoidance of double taxation. All this is aimed at protecting the legitimate rights and interests of foreign investors and creating a favorable environment and conditions for foreign investment. The Chinese Government decided early this year, in addition to expediting the development of the existing special economic zones, to open 14 more coastal port cities including Shanghai, Tianjin, and Dalian, as well as Hainan Island, where foreign investors are to enjoy more preferential treatment according to relevant regulations. Through these policies and measures, we hope to further develop economic and technological cooperation with the outside world. At the same time, we will actively promote South-South cooperation on the principles of "equality and mutual benefit, stress on practical results, diversity in form and attainment of common progress" and together with other developing countries, make a joint effort to overcome the present difficulties and seek common economic growth.

STATEMENT BY THE GOVERNOR OF THE FUND FOR ARGENTINA

Bernardo Grinspun

It is an honor for me to address this meeting on behalf of Bolivia, Brazil, Chile, Colombia, Costa Rica, the Dominican Republic, Ecuador, El Salvador, Guatemala, Guyana, Haiti, Honduras, Mexico, Nicaragua,

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Panama, Paraguay, Peru, Spain, Suriname, Trinidad and Tobago, Uruguay, Venezuela, and my own country, Argentina, in order to speak on the complex problems affecting us. If we go by the weighted average of the growth indicators, we could conclude that there is some evidence of improvement in the global economic situation. However, this average is influenced by the strong economic recovery in North America and by the progress achieved by certain other industrial countries. The fact is, though, that the rate of transmission of this upturn to the developing countries is slow; where there is improvement, it is not uniform and falls far short of offsetting the external factors still besetting us, such as external debt service, the marked fall in the prices for the commodities we export, and the chronic lack of sufficient investment to spur economic growth in our countries. In addition, and despite the upturn in economic activity referred to, the industrial countries are continuing to impose protectionist measures that restrict access to their markets for the developing countries' exports. The future outlook contains a high degree of uncertainty regarding the possibility of maintaining the recovery of the industrial countries, at least in a fashion that will ultimately also benefit the economies of the developing nations. A feature of recent years has been that many countries have based their growth policy on a high level of public indebtedness. The industrial countries borrowed for the greater part in their domestic markets, but the developing countries—which did not have a similar option in their domestic capital markets—resorted to external credit, a process made easier by the ample supply of funds at the time. While there are many variables that play a part in determining the level of interest rates, there is no denying that persistent fiscal deficits, mounting public debt, and the growing demand for new funds to finance it form a vicious circle fueled by progressive increases in real interest rates. When this happens in industrial countries, which absorb funds willingly made available by foreign investors, the inflow of outside capital tends to result in an overvalued national currency, which can over time produce significant distortions. Moreover, the trade balances of countries with overvalued currencies show heavy deficits. The liquidity which is thus passed on to the market is distributed unevenly in the world economy, giving rise to a circuit that is basically confined to the industrial countries. When we add the impact of international interest rates, running at unprecedented levels in real terms, the result is an enormous burden

©International Monetary Fund. Not for Redistribution 124 SUMMARY PROCEEDINGS, 1984 for the indebted developing countries, a burden that has the additional disadvantage of being of indefinite duration. Most of the countries on whose behalf I am speaking today have not yet felt the effects of the economic recovery under way in the industrial countries; this impact has been exceeded or wiped out by the lagging prices for exports. In some cases, our products have no market in the industrial countries, because they compete with goods that those countries themselves export or because technological developments have reduced demand for the products in question, or because protectionist barriers have been erected or made harder to overcome. Worldwide economic adjustment is thus taking place on the backs of the debtor countries, through sharp cuts in their domestic consumption designed to produce greater surpluses for export and through a reduction in their imports and hence in their levels of economic activity, employment, and wages. This situation is not only unfair; it is also unsustainable over time and thus perilous unless concerted action is taken to correct it. It is simply unjust that one group should bear the entire cost of correcting a situation for which all parties are jointly responsible, and it is likewise impossible that this adjustment can continue indefinitely since, as you all know, two thirds of the total debt of the region has been contracted at floating interest rates. While the transmission of economic recovery manifests itself basically in the interrelationship among the industrial countries, the developing countries are lagging far behind and there is a risk that the process may come to an end before its benefits reach us. The speed of transmission of real increases in interest rates, on the other hand, has been phenomenal. In just a few short months, the countries that are highly indebted in dollars at floating rates have seen the real burden of interest payments rise from a historic level of one to two positive points, in the years prior to 1979, to more than 5 percent, in 1980, and to an average of 10 percent over the last four years. Future trends cannot yet be foretold, since the structural reasons for this aberration have not changed. With an external debt on the order of $350 billion, this implies a considerable extra burden for our economies, which will be deducted from the funds available to finance regional development and will instead be transferred to the industrial countries. This makes a mockery of the basic idea that the developing countries ought to be natural importers of capital, with balances of payments

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and of services that are normally negative, as a basis for their necessary growth. This principle has been generally accepted since the end of World War II, but now we find the exact opposite occurring. We are obliged to export capital we do not have, stifling our development process and placing social stability at great risk. The adjustment this situation has forced on our countries is not proportionate to our resources, nor is it consistent with the historic context in which the debts were assumed, nor is it justified in light of the underlying causes for the high real rates of interest. In the past two years, the developing countries have not been significant borrowers on international financial markets. Any increase in our external debt has been at an annual pace considerably below interest rates. Our payment capacity has not been able to expand as rapidly as the real pace of increase in interest rates, since the rise in the volume of our exports has been more than offset by the drop in commodity prices and limited by protectionism. And, nevertheless, we continue to reduce our domestic expenditure and our imports, postponing justified aspirations for growth and spending to meet social demands—a policy that has produced outbreaks of violence in some countries—in order to devote increasing trade balances to make interest payments on outstanding debt, but in some cases we are still unable to meet these payments in their entirety. We are faced with the paradox that the developing countries—or should we say the countries whose development has been put on hold—are currently net exporters of capital. And we are not even being encouraged in our efforts by moves to eliminate the causes that are producing so much hardship and bringing so much danger for social peace in our countries. Starting in 1982, the external debts of many countries have been rescheduled and in some cases the markups on commercial bank lending have been reduced by approximately one point. But it must be noted that this slight decrease has applied to margins and commissions that had reached levels that were both excessively high and unsustainable, allegedly based on a concept of country risk that we cannot accept, since the legal continuity of national states guarantees final payment of all sovereign debts assumed. Countries constitute sovereign entities, not risks. It is here, within these institutions that are hosting our discussions, that we must seek ways and means to overcome the circumstances that have brought many countries to a situation of illiquidity that, as we can see, is often due to causes beyond their control.

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In addition, and as part of the debt rescheduling operations to which we refer, a certain volume of external trade financing has, in most cases, been maintained and, through the intervention of the Interna- tional Monetary Fund, other organizations, governments, and banks, it has been possible to obtain some measure of new funds subject to the payment of interest. But if we nonetheless continue paying real rates of interest that remain consistently above 10 percent per annum, it is clear that the main problem resides in the base for determining the rate in question, on which no progress has been made. In point of fact, we have slipped back in the past year, with average rates rising by close to two points. The problem of the base rate, which must be lowered if a true and lasting solution is to be found, can be dealt with only by attacking its root causes. A temporary palliative, which could be applied while the causes are being corrected and the effects eliminated, would be the expansion of the facility for the compensatory financing of export fluctuations to cover upward fluctuations in interest rates, or, as an alternative, the establishment of a special mechanism to finance interest markups, as part of the arrangements proposed by the Ministers of the Group of Twenty-Four. All countries must recognize, while there is still time, that we cannot continue accumulating fiscal deficits and public debt. The countries with the largest external debts have come to understand this on their own, as is clearly indicated by the impressive reversal in the flow of international payments. As the problem of high real interest rates in the dollar area persists, as does protectionism, which in some cases has been intensified, we wish to stress the need to find a lasting solution that would make it possible to reduce the rate of interest, reverse protectionism, and improve the terms of trade of the developing countries. The industrial countries must understand that we are purely and simply unable to go on bearing the burden of such high real rates of interest, the root causes for which lie in events beyond our control. These countries must correct their fiscal deficits and contribute to a more equitable distribution of burdens, which at present is quite unjust and one-sided. Only if we recognize that the problem is global and structural in nature, rather than regional or transitory, will we find the proper way to deal with it. Let us not be deceived by the more satisfactory figures now appearing on the foreign trade of the indebted countries. These very figures show that the effort is tremendous and carried out in isolation. It is our responsibility to vindicate those who are making

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this effort and to make it known that they cannot be required to continue it indefinitely, while the industrial countries are increasing their fiscal deficits and piling up domestic debts which exert a steady upward pressure not only on domestic interest rates, but also on the cost of our external commitments, in which they are immediately reflected. Recognition of the global nature of the problem does not imply support for the implementation of a single, identical approach to rescheduling for all debtors, since each country has its own characteristics, plans, and decisions. It does mean, however, that there is joint responsibility on the part of everyone concerned, going beyond the relationship between debtor and creditor. Markups and maturities can be discussed with the lenders, but only the governments of the industrial countries are in a position to reduce base rates to their normal real levels. Without such action, it seems impossible to arrive at any lasting solution. As a representative of one of the signatories of the "Cartagena Consensus" and the "Mar del Plata Communique," which are supported by the countries participating in the preparatory meeting of the Latin American caucus of the International Monetary Fund and World Bank in Puerto Plata, I wish to stress the need for direct political dialogue, as a factor promoting understanding in the search for an agreed solution to the problem. Dialogue between creditors and debtors is essential to achieving full understanding of the situation and represents the most suitable means for establishing the contributions each party must make to the solution sought. In this context, the Foreign Ministers and Finance Ministers signing the Mar del Plata Communique deemed it essential to invite the governments of the industrial nations, the international credit institutions, and commercial banks to cooperate in seeking a solution to the problem jointly with the debtors. For us, direct dialogue opens the way to mutual collaboration in the search for a promising and equitable solution.

For this reason, we are pleased by the initiative under which the Interim Committee and Development Committee are to be examining in 1985 various issues pertaining to the external debt. However, we wish to emphasize that this welcome first step in the proper direction should be complemented by direct political dialogue between the governments of the creditor countries and the debtor countries in the first half of 1985, as 11 Latin American countries have requested in the Cartagena Consensus and the Mar del Plata Communique with the unanimous endorsement of the countries meeting recently in Puerto Plata.

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It must be recognized that recent rescheduling agreements and new flows of funds have embodied some of the principles in regard to costs and conditions set forth in the Cartagena Consensus. This represents an encouraging step in the right direction. It marks the beginning of a reordering of conditions with a view to correcting the underlying economic disequilibria. We must continue along this course, but nothing can replace the powerful stimulus that would ensue from elimination of the fiscal deficit of the industrial countries, with their impact on base interest rates. Until this happens, the risk of a further and even greater decline in the world economy remains very high and the balance remains a tenuous one. For the situation to become sustainable, the developing countries must soon return to adequate rates of growth needed to meet national priorities. The countries I represent support the "Revised Program of Action for the Reform of the International Monetary and Financial System" approved by the Ministers of the Group of Twenty-Four. The following points were borne in mind in drafting that document: the call by the developing countries for sustained growth; stability in money and exchange markets; the need for flows of external resources to fund investment programs, and more particularly, the specific needs of the developing countries. The document is intended to provide technical information that justifies the needs discussed and the procedures for meeting these objectives. We trust that the response from the industrial countries will be positive, starting with recognition of the desirability of convening an international conference that will enable the world community to examine these important matters, and going on to define the means for applying a program of immediate action, as the proposed reform takes shape. In this context, it is also vitally important for the international organizations to take into account the special situation of the smallest countries which, while individually presenting no threat to the stability of the international financial system, are presently coping with acute financial and economic problems that do place their own political and social stability in jeopardy. We expect these Thirty-Ninth Annual Meetings of the Boards of Governors of the International Monetary Fund and the World Bank to constitute a milestone in the growth of understanding of the obligations resulting from joint responsibility and interdependence. We

©International Monetary Fund. Not for Redistribution GOVERNOR FOR ARGENTINA 129 hope to return next year to discuss new advances and not to reiterate our pressing present problems, having particular regard to the injustices- underlying the financial structure, the effects of which are weighing so heavily on many of the countries on whose behalf I am speaking. For and on behalf of these countries, I reiterate our support for the recommendations put forward by the Group of Twenty-Four, which more precisely express our ideas and needs. I should now like to refer briefly to the situation in my own country, the Argentine Republic. Last December 10 we began a fundamental period in our history, when we regained all our freedoms and set off on the difficult road toward ultimate democracy. This new stage is not an easy one, however, because of the inheritance we received. The previous government brought disorganization and destruction to the system for producing goods and services and to the country's basic infrastructure and laid waste entire industrial sectors. Per capita gross domestic product was more than 15 percent lower than in 1970. Real wages fell markedly, and the level of unemployment and underemployment rose. The external debt rose from $8 billion in 1975 to nearly $45 billion by late 1983. This increased indebtedness was not used to add to the nation's capital base. Another negative aspect of our inheritance was uncontrolled fiscal expenditures and foregone tax collections, which led to a substantially increased public deficit. Central bank financing of this fiscal deficit, in conjunction with the high interest rate subsidies granted through the monetary regulation account, were key factors behind the expansion of the monetary base. In spite of all the difficulties, we have reoriented public expenditure in our first nine months of democratic management and managed to raise allocations for health and education—which had fallen to alarmingly low levels—while curtailing overall spending. As a result of the enormous effort made in the external sector during this period, the trade balance posted the best results ever achieved in all of Argentine history, even though our export prices fell 20 percent below their level of three years ago. Satisfactory results have also been obtained in the fiscal area, as the deficit was cut by more than half in terms of the gross domestic product. We are achieving moderate growth in the productive sectors, particularly in manufacturing. The Argentine Government acknowledges that much remains to be solved. We must expand the construe-

©International Monetary Fund. Not for Redistribution 130 SUMMARY PROCEEDINGS, 1984 tion industry in order to alleviate the housing shortage; we want to improve agricultural and livestock production; we wish to impart stimulus to the country's reindustrialization by expanding manufacturing activity so as to place the entire productive system at the service of Argentine society. We are also aware, however, that one of the most complex problems faced by Argentina is its high domestic inflation. With a view to containing it, we have begun a process of concertation between labor and capital under guidelines clearly defined by the Government, which we expect to bear fruit during the next few months. In order to achieve this, our efforts to constrain the growth of the monetary base are being matched by our attempts to improve the overall productivity of the economy, to make supply more responsive by modernizing the production and distribution system for goods and services, and to dismantle those institutional mechanisms set up in the past that have promoted inflation feedback. The Government's price policy fits within the broader framework of its incomes policy. Once we have overcome the current problems arising from high inflation, we will enter the stage in which a central role is played by entrepreneurial responsibility, sectoral concertation, and social harmony. In the tax area, we aim to curtail the high level of evasion and are engaged in broadening and deepening agreements on double taxation so as to eliminate obstacles to foreign investment. As regards fiscal policy, and in addition to the achievements I have already mentioned, we anticipate a better balance between expenditure and resources, and we will make an additional effort to reduce the fiscal deficit in 1985. Lastly, a profound revision of the financial system, a fundamental mainstay of our policy of revitalization and growth, will enable it to serve the productive sectors. These general aspects comprise the constitutional Government's response in the economic area with a view to consolidating democracy in Argentina. Austerity without recession is the slogan we have used repeatedly to define our economic adjustment policy. We took office with a firm commitment to reorganize the production and distribution system of goods and services, raise the employment and wage levels of workers, restore the entrepreneurial rate of return, control the excesses of the financial system, capitalize public sector

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enterprises, transfer to the private sector those public enterprises that do not fulfill essential government purposes, refinance the external debt, reshape the public sector, reorient allocations, and reduce the fiscal deficit. All of this, so as to bring balance to the domestic sector and order to the external sector. We favor foreign investment. We do so not only because Argentina became increasingly decapitalized during the last decade as investment in productive activities was cut back, the economic infrastructure was partially destroyed, and the mechanical and technical obsolescence of our industrial plants accelerated. We favor foreign investment not only because a large share of the saving our economy can generate each year has to be transferred abroad to cover debt service equivalent to 8 percent of the gross domestic product. We favor foreign investment because we want an economy with open borders, an economy that is strongly integrated domestically but closely linked with the rest of the world, and because when foreign investment was respected and respectful in Argentina it contributed markedly to modernizing the country, spurring its economic growth, and enhancing the welfare of the people. The incredible growth of the Argentine foreign debt since 1976, together with the arrears situation and the almost total lack of reserves, led us to give priority to the normalization of our external sector, beginning with foreign trade. In October 1983 the former authorities had suspended payments for imports effected through the end of that month; in view of the minimum financing terms to which imports were then subject, we were left to cope with six months' imports in arrears and no reserves. We thus made it a priority to regularize all private sector arrears while punctually fulfilling obligations with respect to new imports under the automatic payment system that was still in effect for both the public and the private sectors. The characteristics of our inherited debt made it necessary to conduct a formal inventory—completed and published this month—which will be used to speed up the tasks of conciliation and rescheduling with commercial banks and other creditors within the framework of the current negotiations. With no material assistance other than the bridge loan extended to us by four Latin American countries, which we repaid in July of this year, we have fully settled all private sector commercial arrears; from December 1983 to August 1984, we made total payments of nearly $7 billion including two quarterly financial payments to banks and the

©International Monetary Fund. Not for Redistribution 132 SUMMARY PROCEEDINGS, 1984 payment of current interest on the syndicated loans linked with the last refinancing. This was feasible primarily because of our foreign trade performance, which brought in receipts of $6.8 billion during the period and generated a record surplus. The negotiations under way with the International Monetary Fund, the commercial banks, and the Paris Club should enable us gradually to settle our arrears and to arrange a more appropriate external maturity profile. In connection with our discussions with the International Monetary Fund, I am pleased to announce that the Managing Director of the Fund, Mr. de Larosiere, has officially informed me that he has decided to recommend for approval by the Executive Board the documentation submitted by Argentina. This is a decisive step toward putting our external sector back in order. I have earlier spoken at length regarding the costs involved in fulfilling debt obligations. Therefore, I will say only that our principle is to sign contracts we will be able to fulfill. We are prepared to increase the volume of our exports, which will gradually give us greater flexibility to manage a growing economy. We wish to avoid further increases in the size of the debt in the future, except for specific projects that are linked to the effective development of the country's productive capacity and have clear potential for yielding adequate returns. These goals have been approved by Argentina's society and today determine the actions of our Government. On behalf of the countries in whose name I am speaking, I would now like to return to certain other specific concerns which we have already addressed in the Interim Committee but which also warrant being summarized here. In particular, we deem the role that should be played by official organizations such as the International Monetary Fund as regards the liquidity of the system to be a most important one. Last year we reached a compromise on reducing the limits on access to the Fund's resources, taking into account the necessity of preserving the institution's liquidity position. In this regard, we have noted that those prospects have notably improved and that there are more than sufficient resources to meet potential commitments within the present access limits. Nevertheless, these limits were reduced at the recent meeting of the Interim Committee. Many countries continue to experience payments difficulties; external accounts are subject to great uncertainty for 1985 as regards the world economic outlook, interest rates, potential financing, and the resurgence of protectionism. The debtor countries

©International Monetary Fund. Not for Redistribution GOVERNOR FOR BELGIUM 133 are engaging in severe adjustment efforts. In view of these circumstances, we had anticipated an adequate response, with access levels at least being maintained; this would have sent positive signals to the international financial community, demonstrating the political will to support such adjustment efforts. We therefore believe that, as soon as possible, the Fund's access limits should be restored to at least the levels applied heretofore. In this regard, we wish to stress our concern with the trend toward greater conditionality that can be perceived in several areas of Fund activity. In this connection, we repeat our firm conviction that any new allocation of SDKs must be without conditions on their use, for which reason we support the basic views on this subject set forth clearly in the Ministerial Communique of the Group of Twenty-Four. We wish to express our great concern with the fact that, even though a great majority of Fund member countries favor an SDR allocation, sufficient agreement was not reached for the fourth basic period. An allocation of SDRs has been unjustifiably delayed. Our countries believe that the conditions exist for an SDR allocation in accordance with the terms of the Articles of Agreement, that such an allocation should be no less than SDR 15 billion in 1985 and 1986, and that the possibility of allocations beyond that year should be studied, all in accordance with the request of the Group of Twenty-Four. Until the limitations on the developing countries' access to markets have been reversed, the various measures proposed can contribute to a more positive transition. We therefore recommend that they be studied and decided on without delay. In this context, the supervisory function of the Fund must effectively influence policies in the industrial countries, not merely in the countries that make use of the Fund's resources. I would like to close by reaffirming that the nations on whose behalf it has been my privilege to address these meetings are firmly resolved to persevere in the task on which we have all embarked—that of finding approaches that ensure progress in the effort to achieve understanding and cooperation among all countries.

STATEMENT BY THE GOVERNOR OF THE BANK FOR BELGIUM

Willy De Clercq

Forty years after their foundation, the institutions under whose auspices we are meeting today continue to play a vital role in the

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world economy. I personally see this as eloquent homage not only to those who had the vision to lay the foundation stones but also to those who today guide the destinies of these institutions. The legacy of cooperation and solidarity from which we benefit and which it is our duty to uphold must be continually defended and consolidated: it is our responsibility to do this with the vision and clarity of purpose required for the conduct of any financial transaction and, in addition, with the courage and steadfastness required of us in our capacity as Governors of these institutions. Our collective decisions can make a major contribution to the economic climate worldwide, not only by their direct technical impact and resultant linkages, but also through the message they send to the nations of the world, to their governments, to their businessmen, and to their people. I appeal to all, particularly the most powerful among us, not to lessen our support for the growing activities of the Fund and the Bank. Forty years of experience have shown us that the capital in the form of money and effort invested in these institutions serves to promote progress and harmony in the world. We, for our part, will continue to contribute in this spirit. As always, the decisions we are called upon to make are governed by the world economic situation and prospects. As the current President of the Council of European Communities has already discussed this matter at length, I shall confine myself here to stressing two points, both closely interrelated, which I feel to be of vital importance and which indicate the direction in which we must move rapidly, particularly in the industrial countries. The first point is that economic recovery can be consolidated only if there is a speedy prospect of a lowering of interest rates. In the major countries, these rates are no longer simply the consequence of persistent and stubborn inflation, but also reflect a real and marked disequilibrium in the financial markets calling for resourceful action. And this leads to the other point I wish to stress: the need to reduce budget deficits, where these are of a size that requires the economy to draw consistently on foreign savings. We in Belgium have implemented a medium-term program designed to reduce the budget deficit for this precise purpose. For the past two years, the Belgian Govern- ment has been applying this program in full awareness of the necessary sacrifices it will entail for the population as a whole and the difficulties that will have to be overcome. Why should we not ask the same of our U.S. friends, since they cannot balance their accounts without massive recourse to the savings of less prosperous countries, at interest rates that place the world economy in jeopardy.

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I wish to focus my remarks on what we expect from the International Monetary Fund. To my mind, three lines of action need to be pursued simultaneously. First, the Fund's catalytic role, which has been recognized by all, cannot be maintained without credible recovery programs; we must not weaken the Fund by forcing it to play a role that more properly belongs to the development institutions. Moreover, in many cases, it is vital that the Fund's activities continue to be supported and supplemented by other sources of financing on more concessional terms and that collaboration with the World Bank be maintained and strengthened. We fully approve the decision to extend the policy on enlarged access for 1985. While recognizing the temporary nature of this policy, the Fund will in this way have sufficient flexibility to use these resources to benefit member countries engaged in appropriate adjustment programs. In view of persistent difficulties in finding supplementary sources of financing, and the recovery policies that need to be pursued, action by the Fund can only be fully effective if the countries can have full access to the potential assistance currently available from the Fund. Moreover, a reduction in the Fund's financing capacities might be wrongly interpreted by the financial community, which has been strongly urged to maintain and even to increase its commitments to the heavily indebted countries. In short, I feel it highly desirable that the recommendations made by the Fund in the exercise of its surveillance functions be followed with increased attention by the various member countries, particularly when the external effects of policies under discussion are sizable. I also feel it appropriate to say a few words on the question of SDR allocation. Belgium remains favorably disposed to a reasonable allocation. This view is backed by two considerations: —To be able to develop and take root, the revival of international trade must be accompanied by an appropriate increase in international reserves; —While they are engaged in considerable adjustment efforts with inadequate reserves, a certain number of countries have difficulty in gaining access to capital markets. We should also recognize that the inflationary risks attaching to a reasonable allocation seem minimal. Our recent experience with this interminable debate on the timeliness of an SDR allocation prompts me to a more basic thought.

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The objections raised as a matter of principle against the "long-term global needs" criterion bear witness to the difficulties we face in correctly interpreting this criterion, delay the allocation process, and jeopardize the role we want the SDR to play. Belgium consequently felt it would be useful to put forward proposals for the conditional use of SDKs, while respecting the provisions of the Articles of Agreement, so as to make a new allocation compatible with the totality of the Fund's objectives, while allowing the SDR to retain a measure of importance within overall reserve assets. I should not like to conclude this part of my remarks without sharing some thoughts on the debt problem facing many countries. If we are to overcome and solve this problem we must, I feel, step up our efforts to promote sustained growth, reduce interest rates, and put up greater resistance to protectionist pressures. The consultation and cooperation that have hitherto characterized relationships among the indebted countries, the Fund, the commercial banks, and certain governments remain necessary. The introduction of measures of a general nature should be clearly rejected: it is essential that the special circumstances of each country be fully taken into account at the time of each renegotiation. Furthermore, in some instances of rescheduling, it could be desirable to take a longer-range approach, and a more extensive exchange of information among the Fund, the debtor country, and the commercial banks could prove beneficial to all concerned. Over the past two years, the Fund has played a key role in the strategic measures drawn up to counter the threats to the stability of the international financial system. A longer-range view must now be taken if we are to avoid a resurgence of past difficulties that could wipe out all that has been accomplished by adjustment efforts to date. This approach, which seems to be widely accepted, should provide support for adjustment programs and also permit growth to resume. . . . In conclusion, I wish to stress the need for increased international cooperation within existing multilateral institutions. Definite progress has been made since the low point in the world recession two years ago, but at the cost of adjustments that were sometimes painful, but invariably essential. This is not the time for us to slacken our efforts. We only need to ask what the situation would be like today if the Bretton Woods organizations did not exist in order to realize that we live in a better world because of them. This alone is reason enough to hope that their activities will be strengthened in years to come. The wisdom of our

©International Monetary Fund. Not for Redistribution GOVERNOR FOR PAKISTAN 137 founders lay not in seeking to foresee all too precisely the difficulties that the future would hold, but in providing our institutions with sufficient flexibility to enable them to meet the needs of the moment. The cooperation that has grown up among us has kept our institutions on a path of cautious but continuous development. The many years that I have spent as minister in charge of my country's finances, and as Chairman of the Interim Committee, have made me neither a skeptic nor a pessimist. The opposite has in fact occurred: after overcoming a number of serious crises, and most recently the gravest crisis of the postwar years, we have earned the right to speak hopefully of the future.

STATEMENT BY THE GOVERNOR OF THE BANK FOR PAKISTAN

Ghulam Ishaq Khan

I join my colleagues in extending a warm welcome to the new members of the Fund and the Bank. It is indeed gratifying to note the general air of cautious optimism at these Thirty-Ninth Annual Meetings of the Fund and the Bank which is stronger than I can remember at any time since the mid- 1970s. President Reagan's address has certainly contributed to this mood by pledging U.S. support for efforts to maintain growth and stability in the world economy in an environment of freedom and peace. Your opening statement, Mr. Chairman, and those of the Managing Director of the Fund and the President of the World Bank present a lucid analysis of recent developments in the world economy, setting out the agenda for global policy action for the latter part of the 1980s. As the Annual Reports of the Fund and the World Bank clearly state, the world economy was in a more healthy state in 1983 and the early part of 1984 than at any time since the beginning of the 1980s. Not only did the economic recovery gain further strength in the United States, its impact was also observed in the better growth performance of a number of other industrial nations. The rate of inflation in the seven major industrial countries fell below 5 percent in 1983 and is expected to decline even further in 1984—the lowest in 15 years. The external payments position of various country groups also presented a more manageable outlook. Thus, real prospects now exist for the world economy to resume steady growth once again, with stability in prices and external payments.

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This generally encouraging outlook is, however, threatened by persistent high fiscal deficits and an unprecedented steep rise in real interest rates. The accentuation of the debt problem of those countries that relied on market borrowings for financing their development efforts is only one of the many consequences of this phenomenal increase in real interest rates. Another manifestation of the same basic problem is the instability of exchange rates giving rise to serious strains in trade relations and revival of strong protectionism in industrial countries. The financial and trading system of the world cannot sustain the distortions created by high real interest rates for long. The impact of these adverse elements on the global situation has fallen disproportionately upon the developing countries. The average rate of growth in the non-oil developing countries, at 1.5 percent in 1983, showed no improvement over the preceding year. In fact, 1983 was the second successive year of negative per capita income growth for the non-oil developing countries. For 1984, there is hope that per capita income growth may be positive although it will still be significantly below the 3 percent growth recorded in the 1960s and 1970s. A number of factors have impeded the spread of the recovery to the developing countries. Apart from the high interest rates, growing protectionism in the industrial nations, declining net availability of concessional capital flows, sharply reduced access to commercial sources of finance, and the fall in commodity prices continued to restrict their growth. It is indeed remarkable that, even in this inhospitable world climate, the developing countries have pressed ahead and managed to attain some success with their adjustment programs. A major improvement has been brought about in the balance of payments position of the non-oil developing countries. The balance of payments deficit in the current accounts of these countries has been reduced to virtually half between 1981 and 1983 and, at 12.5 percent of the value of exports in 1983, was the lowest on record in ten years. The foreign exchange reserves of these countries also increased by SDR 13 billion in 1983. The median rate of inflation which the Fund report regards as more representative of price increases in a typical developing country declined from 15 percent in 1980 to 11 percent in 1982 and remained at that level in 1983. This difficult adjustment was carried out at a heavy economic and social cost. The volume of imports of the non-oil developing countries in 1983 was not higher than it had been in 1979. Major debtor nations faced a considerable increase in unemployment, and real wages in these countries registered a decline of 20 to 30 percent. The limits of

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sociopolitical tolerance were severely tested in some of these countries. Millions were pushed below the poverty line, frustrating their hopes for a minimum level of human existence. This is particularly true of Africa, which comes to us as the biggest challenge for development in the 1980s. Let it not be said that the developing countries have not contributed in full measure to the process of adjustment. The human cost of this adjustment could have been less and the pace of progress higher, if those with the capacity to influence the environment of world economy had intervened in time to arrest the deteriorating situation. We talk of an interdependent world. However, the dependence pattern is extremely slanted and asymmetrical. The developing countries are among the first to feel the impact of recession and decline in economic activity in the dominant industrial nations. They do not, however, automatically benefit from the recovery. There is a serious danger that the recovery phase may fade into a slowdown without a large number of developing countries moving to a strong resumption of growth. A careful "engineering," and not a total reliance on a "trickle-down effect," is needed to strengthen the positive linkages between trade, debt, and capital flows. I am happy to note that the documentation for this meeting prepared by both the Fund and the World Bank has focused on the joint responsibility of the industrial and the developing nations to influence the scenarios for the second half of the 1980s and the 1990s. A lack of symmetry continues to persist in distributing the burden of responsibility for correct and rational behavior among nations. To give a few examples: (1) The disturbances in the international payments and exchange system arising from the actions of major industrial nations, acting either alone or in concert, have to be accepted as a reality. The rest of the world is expected to adjust meekly as part of the required good conduct. (2) While tying of foreign assistance by donors is not regarded as a deviation from market behavior, the efforts of the developing countries to regulate their imports for the purpose of absorbing this very tied assistance become heresy. (3) The developing countries are urged to accept import liberalization as an article of faith, while nontariff barriers and other impediments against their exports continue to intensify. (4) Fiscal deficits in the industrial nations are beyond the scope of advice from the international community and surveillance by international financial institutions, regardless of the severity of their impact on the global economy.

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(5) Agriculture must continue to be heavily subsidized in the industrial nations even when such subsidies result in piling up unmanageable surpluses of agricultural produce which cloud the prospects of agricultural growth in the developing countries. Subsidy programs, even for smoothing out the adjustment to high food prices for poverty- stricken masses in the developing countries, remains anathema. The standards expected of borrowers have, of course, always been different from those of the lenders. Such conventional wisdom apart, the developing countries must accept that the efficient management and healthy development of their economies is primarily their own responsibility. Sound policies are in their own best interest. Never- theless, in the context of a truly interdependent world, we must all move in a cooperative framework, with mutually supporting policies. Certain obligations must be accepted as part of rational international behavior by all. With the recovery now well established, though at differing rates, in the industrial nations, it is essential that steps be taken early to ensure the sustainability of growth. This is not only in the interest of the concerned nations themselves but of the entire global community. The World Development Report presents this as the necessary condition for reasonable growth prospects for the developing world. The rates of growth are not high enough in any of the scenarios presented in the report. For Africa, the best hope, even under the most favorable circumstances, is an absence of decline in per capita income during 1985-95. While this may be the high-case scenario, it is also the minimum case worth the effort. Recognition of the dominant role of industrial economies in determining the economic climate for growth in developing countries does not preclude the possibility of certain countries moving at a rapid pace despite an unfavorable international climate. In my own country, we have succeeded, with Allah's blessing, in maintaining a growth rate close to 7 percent per annum for the past seven years, almost in defiance of the international economic factors. We began implementing our own adjustment program with positive results prior to an agreement with the Fund on the extended Fund facility and have persisted with the objectives of our adjustment strategy even after the successful completion of the extended facility. It is, however, not easy for any country to swim against the tide all the time. Our common concern is with the growth prospects for the majority of the developing countries and the climate affecting the results of their endeavors in this direction. For this purpose, it is essential that apart from steady growth in the industrial nations, the access of these

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countries to the markets of industrial nations is improved. All the advice to the developing countries to adopt an open, outward-looking development approach is meaningless, so long as their access to markets is limited precisely at the time and in relation to the items in which they show signs of successful market penetration. Once hurt by such an experience, entrepreneurs refuse to invest in export- oriented ventures and prefer the security of domestic markets. In the Development Committee, we have been examining this issue for the last two years. There is a consensus on the objectives and the positive correlation between trade and development. Commitment to the ideal of maintaining and enlarging an open-trading system has been restated at the highest level in the OECD and at the summit meetings of major industrial nations. At its recent meeting a few days ago, the Development Committee again reiterated that progress in maintaining open access to markets for the exports of developing countries was an essential support to their current adjustment efforts and to the long- term solution of the debt problem. The actual progress so far has, however, been disappointing. Trade practices form the core of impediments in finding a long-term solution to the debt problems of developing countries. It is axiomatic that international debt is serviced in the final analysis in the form of exports of goods and services. Behind the cover of financial flows lies the real world of trade and movement of goods. Insistence on uninterrupted debt servicing from the developing countries, while refusing to accept the goods and services which represent the concrete form of the same debt servicing, is a major contradiction. Another important lesson that we must learn from our recent debt crisis is to avoid excessive reliance on the commercial banks for meeting the financing requirements of development. Commercial banks primarily hold short-term liabilities and cannot commit funds for long periods. Their short- and medium-term lending must be combined in suitable proportions with long-term capital. In retrospect, it was probably a mistake to rely on the market alone to recycle the surpluses generated as a result of the second oil price increase after 1978. Much greater vision was shown by the world leaders at the time of the initial oil price increase in 1974 by creating an oil facility which, together with the Trust Fund, played a major role in smoothing the transition. Institutional support continues to be essential for handling major changes in the world economy. The flexibility of response by the Bretton Woods institutions holds the key to the economic future of the world. I am happy to note that the Fund demonstrated a great deal of boldness combined with its traditional realism in handling the short-

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term aspects of the debt crisis which loomed large as a major threat to the global financial system at our Annual Meetings last year. The increase in the quota resources and the larger agreement to borrow enabled the Fund to approach the adjustment problem with adequate resources at its command. In the immediate perspective, the problem has been reduced to manageable dimensions. The world can now focus with greater calm on the longer-term solution of this serious issue. I was particularly happy that the latest agreement on Mexican debt has adopted a longer-term approach for the debt problem. For the low-income developing countries, the only significant source of financing is concessional assistance. Their debt problem is mainly related to the net transfer of resources under various assistance programs. Growing debt service payments on earlier contracted loans, in the absence of a similar increase in fresh transfers, drastically squeezed net resource inflows. . . . In this connection, the Development Committee has urged the World Bank to play a leadership role in mobilizing financial support from donors for implementing the joint action program for Africa. My impression is that the response is favorable and with the strong support extended to this program by the President of the United States in his address, a constructive effort can be launched in Africa without further loss of time. I find it encouraging that, at our meetings this year, we have decided to make a modest beginning toward establishing a constructive dialogue between the industrial market economies of the North and the developing countries, mostly from the South, on global economic issues of common concern. The Interim Committee and the Development Committee in their meetings last week agreed on the broad modalities of the work programs preparatory to their extended meetings in the spring of 1985, for discussing a series of interrelated issues in the field of money, finance and debt, trade, and development. The selection of existing proven institutions for this purpose is a positive factor. The aim of this dialogue would be the development of a framework for medium- and long-term adjustment, both for the developed and the developing countries, including the financing of such adjustment. The structural and development aspects of the problems of developing countries cover a wide range of issues, including indebtedness, protectionism, commodity prices, interest rates, structure of capital flows, obstacles to direct investment, and equity capital flows. The Fund and the World Bank would need to work in close cooperation to blend the application of the unique expertise of their respective staffs and differing institutional perspectives to evolve a well-coordinated approach. . . .

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In the end, let me express my strong feeling that we have arrived at a new moment of decision. We can move forward from here toward achievement of the interests of both the developing and the industrial nations—if, by adopting the right course, we move in concert in a spirit of understanding and accommodation as urged by President Reagan. The real test will be whether we can mobilize the necessary political will for such an effort.

STATEMENT BY THE GOVERNOR OF THE FUND FOR NORWAY

Knut Getz Wold

I have the honor to speak on behalf of the five Nordic countries— Denmark, Finland, Iceland, Norway, and Sweden. I join my fellow Governors in welcoming our new members, St. Christopher and Nevis, and the People's Republic of Mozambique. Since our meeting a year ago, the recovery of world economic activity has continued at an uneven pace. It has been particularly strong in the United States and moderate at best in Europe. It is beginning to reach the developing countries. Many of them, however, find themselves saddled with an extraordinarily high debt service burden which, barring any fundamental changes, will seriously weaken their ability to pursue appropriate development policies. Despite wide differences between our member countries, both in terms of their levels of development and current cyclical status, the high degree of interdependence in the world economy forces us to look beyond our borders and focus on the solutions to our current problems in a global context. Otherwise, we may not be able to prevent a relapse into another recession. Although the industrial countries have emerged from the recession, they continue to face important problems. I would like to mention three areas which in particular deserve our attention. First, in spite of the recovery, unemployment in Europe remains at about 11 to 12 percent on average, and no reduction is in sight. By the end of 1983, youth unemployment in the four major countries reached an average of more than 20 percent and is still increasing. We cannot allow ourselves to become accustomed to such figures. In the

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United States, on the other hand, developments in the labor markets have been encouraging, but at the present rate of growth, capacity constraints will soon be encountered. Hence, it becomes essential that growth in Europe and Japan takes up the important and useful role which the U.S. economy has played internationally, as the latter's growth makes a hopefully "soft landing" onto a more sustainable path. Some countries in a strong balance of payments position and with low inflation already appear to be at a point where stimulative measures are advisable for international as well as for domestic reasons.

Second, the European economies might do well in drawing upon the U.S. experience with respect to flexibility in labor markets as well as in industrial structure. It is essential that market imperfections and failing profitability be corrected if significant inroads into unemployment are to be achieved in Europe. This might also open the way for some stimulative measures to be taken with less fear of reigniting inflation.

Third, a very deplorable aspect of the problems facing the industrial countries is the impetus given to protectionist tendencies and measures. We have already on earlier occasions given our support for a fresh multilateral approach aimed at rolling back restrictive measures imposed in recent years. In this connection, I welcome the declarations of the OECD Ministerial Meeting in May and the London Summit in June regarding a new round of trade negotiations. But we should also keep in mind that the process of completing a new round of negotiations will take a long time, and the present situation is of immediate concern. We must, therefore, as a high priority, implement the work program set up at the GATT Ministerial Meeting in 1982 and rely on the GATT and the International Monetary Fund to emphasize the economic inefficiency of restrictive measures, their detrimental effects on the recovery, and consequently the importance of a swift rollback.

Troubled by severe balance of payments problems, developing countries have experienced only a limited recovery so far, and some have hardly been affected by the recent upswing at all. Although exports to the industrial countries have expanded vigorously since the end of 1982, this positive factor has to a large extent been offset by high and increasing interest rates and reduced net inflows of capital from abroad. Terms of trade have improved only marginally. Their sharp deterioration in recent years was brought about by the depth and the length of the recession which illustrates how important an extended period of satisfactory growth in the industrial countries is for an alleviation of the problems of the developing countries.

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In many cases, the externally generated problems have been compounded by inadequate domestic policies with rapidly increasing reliance on foreign borrowing. The foreign debt which was thus incurred has, however, become much more burdensome than could have been anticipated because of the prevailing high level of real interest rates in international capital markets and the strong dollar. This twin problem is partly a result of governments' high reliance on savings in the private sector to pay for their expenses. The fiscal deficit of the United States is of particular concern in this connection, due to the importance of the U.S. dollar in the international monetary system. In these troubled waters, the Fund has navigated skillfully in preventing major payments crises and in helping to bring about a manageable balance of payments situation in a number of countries. However, we must also acknowledge that dealing with many of the problems of the present day is beyond the scope and capacity of the Fund. In the absence of other arrangements, however, the Fund has been called upon to deal with situations that require much more than short-term balance of payments financing and, in the view of my authorities, it has handled these well within its financial and institutional constraints. In a number of developing countries, the circumstances are now such that they will, in effect, have to contain their imports over the next few years to levels which must be considered highly inappropriate given their stage of development. Consequently, it is of great importance that the industrial countries pursue policies that will enable the developing countries to expand their exports. Second, appropriate fiscal and monetary policies would also tend to reduce over the medium term the burden imposed by high real interest rates. Third, as many of the poorest countries will continue to depend on direct transfers, it is essential that the industrial countries maintain and increase the transfer of resources to the developing world. Fourth, we should encourage cooperation between the World Bank and the International Monetary Fund, particularly in the restoration of sound economic developments in severely imbalanced countries. We would also underline the importance of granting multiyear rescheduling of debts. Finally, we welcome the agreement reached to discuss issues related to the adjustment efforts at the next meetings of the Interim Committee and the Development Committee. But what role can the Fund most usefully play in the present situation? It has few alternatives but to try to continue on the present course— to aid in bringing about manageable payments situations in the countries concerned, including the encouragement of appropriate adjustment policies. It is equally essential that the Fund be enabled to carry out more effectively its surveillance function. This is becoming all the

©International Monetary Fund. Not for Redistribution 146 SUMMARY PROCEEDINGS, 1984 more important now that the future path of the recovery may be very much affected by policy choices in the industrial countries. In this connection, we welcome the commitment to effective surveillance given at the London Summit in June. With some justification, it has been pointed out that there is considerable asymmetry in the implementation of the Fund's surveillance policy. It is, of course, difficult for the Fund to treat uniformly, on the one hand, members with pegged currencies and, on the other, members with floating currencies. The Fund's power of persuasion is, by the nature of things, significantly stronger in its relations with countries implementing Fund-supported programs than vis-a-vis other member countries. We must consider how the Fund can most effectively bring to the attention of authorities in countries which do not have Fund programs, and to the authorities in the major industrial countries in particular, the possible international implications of their policies. In our view, the Fund must, in its consultation reports, give frank and explicit views on member countries' exchange rate policies as well as policies influencing the exchange rate. When the exchange rate development causes particular concern, the Fund must stand ready to undertake special consultations. In looking beyond the area of exchange rates, that is, at the international implications of domestic policies, the Fund enters another sensitive area of equal importance. I have already referred to the interrelationship between fiscal deficits and high real interest rates, and to the impact of the latter on the ability of many developing countries to service their debts. In our view, the Fund should take a very explicit stand on these matters in its publications, such as the World Economic Outlook, supported of course by careful analyses. In this area, the Fund should emphasize its assessments of policies in countries which strongly influence world economic developments. The commitment of the membership should be such that members would be prepared in a spirit of cooperation to seriously consider the opinions expressed by the Fund. In conclusion, the sustainability of the present recovery is still uncertain. It is threatened by protectionist policies in the industrial countries, debt problems in many developing countries, and high real interest rates, which are impediments to growth in the industrial as well as in the developing world. These areas need to be dealt with through a multilateral approach where the Fund has a crucial role to play.

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

Ronnie de Mel

At the outset, let me extend a warm welcome to St. Christopher and Nevis, and the People's Republic of Mozambique, who have come into our fold since the last Annual Meeting. Although I consider it a great privilege and honor to speak at these Annual Meetings for the eighth consecutive year, I am rather concerned at the little progress we have made during this time toward a more orderly and equitable international financial system. There has been such a wide divergence between theory and practice, between intention and action. Our discussions and deliberations in recent years have been clouded by severe problems arising from the worst global recession during the last half century. There are some signs of modest economic recovery in North America and Japan; but there is a great deal of uncertainty about whether the recovery will be widespread and long lasting. Despite the improvements in the United States and Japan, conditions in the developing countries are still very serious. External debt still continues to be a major constraint to growth in developing countries and, consequently, to global economic recovery. The super- imposition of the debt burden on the recent recession has destabilized the international financial system. The realization of a lasting world economic recovery can prove to be rather elusive if we do not remove the obstacles to growth and development in the majority of the nations— the developing countries. Growth and development in these countries have been truncated in recent years by worldwide recession, large oil bills, slumping commodity prices, prohibitive interest rates, volatile exchange rates, increasing protectionism, and high debt service payments. Many developing countries responded to these adverse forces by undertaking courageous adjustment programs, which, in sum, resulted in the severe curtailment of imports and investments and a drastic fall in living standards for three years. The pursuit of such contractionary policies in developing countries could not only be socially and politically unsustainable but could also be counterpro- ductive in promoting global economic recovery. How can poor countries be expected to carry the burden of asymmetrical adjustment in the world economy any longer? The time has come, therefore, to create an environment that is conducive to growth and development, in both industrial and developing countries. In my opinion, a world economic recovery program should include, inter alia, the following four elements:

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First, greater convergence and complementarity of economic policies adopted by industrial countries, so that the volatility of interest rates and exchange rates could be contained. Policies should be adopted to bring down real interest rates on the one hand, and to expand economic activity, on the other. Second, economic efficiency of industrial countries must be improved by elimination of structural rigidities. The intensification of protectionism has been due largely to the lack of restructuring, based on comparative advantage, in the industrial countries. Protectionism, therefore, acts as a major obstacle to efficient utilization of global resources and promotion of trade. Removal of protectionist barriers is also an essential component of a long-term solution to the debt problem of developing countries. Third, an integrated approach to the debt problem: The origin of the debt problem may be traced primarily to the recession, collapse of commodity prices, protectionism, and, most of all, too high real interest rates. The solution lies in an adequate response from the entire international community. I commend for your consideration the report entitled "The Debt Crisis and the World Economy" prepared by a team of Commonwealth experts. The current ''case-by-case" short- term approach is fraught with danger. An integrated medium-term program must be evolved to contain the debt problem. Special attention must be paid to the needs of the poorest countries. It is important that the preoccupation with the problem of the large debtor countries does not lead to the "crowding out" of the low-income countries from official financial sources. Fourth, transfer of an adequate amount of resources to developing countries so that recovery can be accelerated and made more sustainable. It is possible for the anti-inflationary policies currently being pursued by the industrial countries to be married to a form of international Keynesianism that transfers resources to develop the vast unutilized capacities in the developing countries. I think an adequate transfer of resources through aid, trade, and direct investment can bring about a "positive-sum" situation, whereby the whole community of nations can benefit. Capital markets of industrial countries should be broadened and diversified to facilitate the flow of resources to developing countries. The multilateral institutions, such as the Fund and the Bank, have a crucial role to play in the process of resource transfers.

International Monetary Fund Issues Let me now deal with some of the issues concerning the International Monetary Fund. The relative size of Fund resources vis-a-vis both

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current accounts imbalances and the volume of world trade has declined significantly. In this connection, it is of paramount importance that the enlarged access policy is maintained until such time as the size of quotas bears an appropriate relationship to world trade and current account deficits. Furthermore, the improvement in the world economic situation has been very uneven. The Fund must be in a position to support, on a substantial scale, members' adjustment efforts. Many countries that require balance of payments support are being discouraged from coming to the Fund because of the tightening of conditionality. Any further reduction of access limits or increase in conditionality would not be in the interests of promoting orderly adjustment in the developing countries. It is also important to maintain the special facilities at the present limits. It is extremely disconcerting that greater conditionality is being attached even to lower tranche drawings under the compensatory financing facility (CFF). These trends should be reversed. There must be automaticity in the operation of the CFF. It is also important to continue with the access limit for the buffer stock financing facility to avoid giving the signal of declining Fund support for international commodity stabilization. Conditions in the world economy warrant a substantial fresh allocation of SDKs. There is an urgent need to provide sufficient liquidity to enable imports of non-oil developing countries to recover from the very depressed levels to which they have sunk. The case for an infusion of liquidity is strengthened by the reduced access of many countries to international capital markets. Furthermore, lack of reserves is forcing countries to adopt excessively restrictive policies which are having negative effects on growth and employment. A resumption of SDR allocations would help world economic recovery, reserve diversification, reduce excessive dependence on borrowed reserves, and promote the SDR as a principal reserve asset. The effort to obtain a consensus for an SDR allocation must be relentlessly pursued. It would be wholly inappropriate to attach conditionality to SDR allocations. This would constitute yet another mechanism to promote asymmetrical adjustment. There is also a very strong case for establishing a link between the allocation of SDRs and development assistance when considering the distribution of SDRs. . . . Let me conclude by urging my fellow Governors to set in motion the process toward a conference for the reform of the international monetary and financial system. Over the last decade or more, there has been an intensification of cyclical instability and the risk of shocks

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in the system has risen sharply. There has also been increasing asymmetry in adjustment between surplus and deficit countries and between reserve centers and other countries. This has been due largely to the lack of surveillance over the economies of the major industrial countries. Furthermore, little progress has been made toward stabilizing commodity prices and establishing regular and adequate levels of official development assistance. Above all, there is a need to develop a stronger framework for world production, trade, and finance. In this connection, we welcome the present initiative calling for extensive discussions on reform of the international monetary system. I trust that we will not attempt to institutionalize the current economic relationships, which have proved to be highly inequitable from our viewpoint. If we do so, we might have a highly protracted dialogue of the deaf. What we need for the next generation is an international financial system based on the spirit of dignity and the equality of all men and women the world over. It is now 40 years since the Bretton Woods system was inaugurated by its founding fathers. The system served its purpose and achieved much in the first two decades since its inception. The system, however, de facto ceased to exist in the early 1970s, but nothing coherent has replaced it yet. The entire structure of the world economy has changed during the last 40 years and is still changing. Only 44 states were members of the International Monetary Fund and the World Bank at their inception. Now there are 148, at varying stages of economic development. There is, therefore, a paramount need for a new and coherent system to fashion an equitable new international economic order. We have talked about it for more than ten years, but nothing has happened. When will this new system evolve? Without such a system the world economy will be condemned to blunder from crisis to crisis in which the developing countries will suffer most. In the process, the entire political and social fabric of these countries will be greatly damaged. The fact that developing countries seek international action to reduce, if not actually eliminate, international inequities does not imply that we are unwilling to shoulder our own responsibilities. We all know— finance ministers in particular know—that every developing country has to make very hard choices on the road to progress. The will to develop and the effort to develop can only come from within our societies. Developing countries do not shirk those obligations. Sri Lanka, for instance, has followed a sustained program of development and adjustment over the past eight years. Our people have maintained a willingness to shoulder even those burdens imposed on them by external economic circumstances. Creative policies and

©International Monetary Fund. Not for Redistribution GOVERNOR FOR SRI LANKA 151 popular response have combined well. Agriculture has flourished, incomes have risen, housing starts have moved briskly, and industry has shown a new vitality. Other developing countries have also shown their commitment to fulfilling their domestic responsibilities. We will continue to do so. But in an interdependent world, external inequities can wipe out the benefits of domestic effort. If that is to be the continuing pattern of international economic arrangements, developing countries will ultimately be wracked by social and political explosions whose reverber- ations will be felt worldwide. Collectively we must nurture the will and the wisdom to prevent such a catastrophe.

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

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)

Ghulam Ishaq Khan

It is my privilege to present to you the 1984 Annual Report of the Development Committee. The long shadow of the worldwide recession which had brought misery and suffering to so many for so long began to recede in 1983. There is now increasing evidence of economic recovery in major industrial countries without acceleration of inflation. This upswing started strongly in the United States and is extending to other industrial countries. Indeed, 1984 is projected to be shaping up as the best year for economic growth in the industrial countries in the last eight years. The impact of this recovery has been beneficial to the developing countries as a group. It has stimulated their export volume; their economic growth in 1984 is projected to rise more than three times compared with 1983, and their current account deficit has declined to about $50 billion, which is well below half the figure of three years ago. Nevertheless, there are a number of problems which demand attention and require resolution. Many developing countries still face severe difficulties; their per capita growth rates continue to decline from an already very low level. Also, many countries face a precarious and worrisome debt situation. The challenge, however, is how the present recovery should be sustained, strengthened, and extended in a noninflationary environment; how a liberalized trading system should be encouraged and

September 26, 1984.

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maintained without the impediment of protectionism; and how the obstacles of high interest rates and heavy indebtedness which threaten the growth momentum should be removed. It was against these global economic conditions and challenges that the Development Committee in its two meetings held during this year— one in April and the other concluded in Washington this Sunday— reviewed and deliberated on important and pressing global economic issues. There was strong support in the Committee for a $12 billion IDA- VII Replenishment, but unfortunately no agreement between the donors could be reached on a figure larger than $9 billion. This represents a sharp decline in real terms in the size of IDA Replenishment and is most disappointing. The Committee, therefore, noted with concern that recent efforts to mobilize supplementary funding arrangements had not yet been successful. The Committee requested that the situation be reviewed again next year in accordance with the Canadian proposal. This proposal enjoys wide support, and the key donors have a fresh and revived responsibility to match again their proud past record for the mobilization of much needed concessional resources for the poorest countries. The Committee was gratified with the successful negotiations of a selective capital increase of $8.4 billion for the World Bank and a capital increase of $650 million for IFC, both of which it had strongly supported. This IFC capital increase comes at an appropriate time since the outlook for direct private investment has become more attractive as it is nondebt-generating capital, while external loans have become both scarce and costly. During the past year, the Committee held extensive discussions on the linkages between trade and development. It agreed that progress in maintaining open access to markets for the exports of developing countries and in reinforcing the multilateral rules and disciplines for trade was an essential support to their current adjustment efforts and to the long-term solution to the debt problem. The Committee encouraged the immediate adoption of concrete measures to combat protectionism. It noted the progress being made in the implementation of the GATT's ongoing work program and welcomed the consideration being given to the role that could be played in liberalizing and strengthening the trading system by a new GATT round of multilateral trade negotiations in which all countries—developed and developing alike—could participate and from which all could benefit. Members also emphasized the contribution private investment could make to trade and development.

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Another subject of great interest to Governors will be the current ongoing work in the Bank, with which your Committee has remained in touch, concerning the future role of the Bank. It has now embarked upon an extensive analysis on the role it should play in the coming years. This analysis will also be a basis for consideration of its longer- term capital requirements. This is a crucial exercise that will determine whether this premier development institution, which has served the cause of development so admirably in the past, will continue to do so in the difficult circumstances of the decade ahead. The Committee continues to give this subject due importance and priority, and we look forward to the study to be ready by the spring of 1985. Another important and substantive item on the Committee's agenda during the year was the critical economic situation in sub-Saharan Africa. The subject was last taken up by us at our Sunday meeting when a comprehensive report from the Bank was given full consideration. The Committee, while sharing the Bank's analysis, expressed strong support for the Bank's new action plan and urged that expeditious efforts be made to implement it. We believe that a firm base has now been set for moving forward with actions, initiatives, and with prospects of financial support that will, over time, distinctly improve the development prospects of sub-Saharan Africa. One very important matter which needs to be brought to your special attention was taken up at our meeting last Sunday. It was decided in the Development Committee to initiate discussions on a number of interrelated issues concerning the revival of growth and trade in the developing world. In doing so, the members of the Committee were responding to the converging suggestions made at the London summit of industrial nations, by a group of Latin countries in the Cartagena conference, by the Commonwealth Finance Ministers at their meeting in Toronto, and by Mr. Regan, the U.S. Secretary of the Treasury, in his address to the Committee. It was agreed that the Committee will have an extended meeting in the spring of 1985 when it will discuss, within the context of a medium- to long-term framework and the current approaches toward resolving debt problems, the structural and development aspects of the problems of developing countries in their efforts to achieve sound economic growth. These include, inter alia, external indebtedness, protectionism, commodity prices, interest rates, the structure of capital flows, and obstacles to direct investment and equity capital flows. The interdependence of the world has grown immensely during the last ten years, creating a strong mutuality of interests among various groups of countries. This growing interdependence makes it imperative that we should place much greater emphasis on multilateral cooperative

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endeavors. National states and even regional entities can no longer solve their problems in isolation. The Committee has now been in existence for ten years. An important advance has been made in the general perception regarding its effectiveness and role. There is now a growing recognition of its potential as an appropriate and effective forum for mobilizing the political will to find practical solutions to difficult global economic development issues which threaten and impede our progress.

STATEMENT BY THE GOVERNOR OF THE FUND FOR ST. LUCIA

John G. M. Compton

I have the honor to address these Annual Meetings on behalf of the English-speaking Caribbean States, namely, Antigua and Barbuda, the Commonwealth of the Bahamas, Barbados, the Commonwealth of Dominica, Grenada, Jamaica, St. Christopher and Nevis, St. Lucia, and St. Vincent and the Grenadines. Since our last meetings, the number of countries in this grouping has been increased with the admission of St. Christopher and Nevis to membership in both the Fund and the Bank and I would like to extend a sincere welcome to the delegation from that country, which has joined the Caribbean constituency, and also to the People's Republic of Mozambique, which has recently gained admission to these institutions. The group of countries on whose behalf I speak have had a close and sometimes traumatic relationship with the Fund, and while only four of our constituent members had Fund programs, the objective circumstances of all of our respective economies dictate that not only should we cooperate very closely with this institution, but many of us should have availed ourselves of its financial and technical resources to ensure economic recovery, progress, and stability. But several members of our constituency have shied away from the Fund's chilly embrace fearing that adjustment programs would be imposed upon them that could push their societies beyond the limits of social and political tolerance. Since we last met a year ago, there have been definite signs that the world economy is recovering from its longest and deepest recession since the 1930s, and the mood of the two previous years has changed from one of doom and gloom to one of cautious optimism.

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There is, however, still great cause for concern, as the recovery, while encouraging, has been very uneven. Among the industrial countries, the United States has experienced very strong growth, but the recovery in Europe is still lagging and European economies continue to be plagued by very high levels of unemployment. Among developing countries, despite some evidence of improvement—mainly among the countries of the Pacific rim—most other developing countries, particularly those in sub-Saharan Africa and the highly indebted countries of Latin America, are still in very serious difficulties. The fragile and open economies of the Caribbean Group have yet to feel the effects of the North American recovery and find themselves still under severe economic pressure. The dangers facing the recovery stem from a number of sources, among them being high interest rates, protectionism, and the fear of return of inflation. High interest rates, which were employed as one of the weapons in the battle against the virulent inflation of the late 1970s, still persist. In the industrial countries inflation is in full retreat, yet interest rates have not been lowered to acceptable levels. These high interest rates are not only encouraging the flight of capital from the developing countries, but are also having a negative effect on domestic investment in these countries. Their worst effect, however, is on the debt servicing capacity of countries which are already under severe economic strain. With inflation at its lowest level in years and with interest rates so high, the real rate of return on loans to lending countries can be described as nothing short of exploitative. In the immediate past, many countries have responded to the battering effects of recession by retreating behind the drawbridges of protectionism. The storms of recession have now largely abated, but in many cases the protectionist drawbridges have not been lowered, thus hampering the free flow of trade so necessary to convert the early and fragile recovery into a robust engine of growth, strong enough to pull the entire world economy out of recession. Many developing countries have consequently been forced to adopt adjustment policies so harsh as to strain their very social and political fabric, reducing their demand for the manufactured goods of industrial countries, and thus delaying the very recovery for which we so ardently hope. This clearly illustrates the interdependence of the world economy and the need for measures to ensure that the recovery is more widely spread if it is to be sustained. Let me turn now to the situation in the English-speaking Caribbean. For several years we have been advocating with special fervor the need for particular attention to be paid to countries of our size and circumstances. Our persistence has met with some degree of success:

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a paper on small island developing economies has been presented during the past year to the Executive Board of the Fund for discussion. Although the discussion has been somewhat inconclusive, we nevertheless continue to press for a special recognition of our circumstances at the highest levels and feel sure that we will eventually succeed in this quest. The process of adjustment would by implication differ from country to country, but in our region, in the circumstances described above, adjustment is an extremely difficult and painful process. The current economic wisdom seems to suggest that the world recession is over but the scars left upon the Caribbean economies will be deep and long lasting. The fall in demand for such primary products as bauxite and the depressed tourist market have had a debilitating effect on the Caribbean economies. The regional integration movement which produced substantial economic growth in the 1970s and early 1980s has faltered and our own payments mechanisms have been suspended. One area of positive significance, however, has been the opportunities for export-led growth presented by the Caribbean Basin Initiative. This mechanism offers substantial benefits if Caribbean economies can be effectively restructured to place them on a competitive footing. To come to grips with the opportunities, as well as the difficulties, the Caribbean Governments commissioned a study of the process of structural adjustment in the region which was presented to our summit in Nassau this year. All the countries in the region are now committed to programs of broad structural adjustment and have started to move in this direction. We hope in this way to provide our own solutions to our pressing economic problems. We, however, operate within an increasingly interdependent international economy and the success of our venture will largely depend on the transformation of the world economy. Our Caribbean economies are too small and vulnerable to have any significant impact upon the world economic system so that while we must proceed with our own structural adjustment and transformation processes, our successes in these endeavors will depend largely upon a favorable international environment. Some essential features of this environment are: an increase in concessional funds to the region, as we have been advocating for years at our Caribbean Group Meetings; the dismantling of protectionist barriers leading to unrestricted access to markets for our exports; and substantial increases in the inflow of private capital and technology. In summary, it is only in a more liberalized world economy, supported by low interest rates, the removal

©International Monetary Fund. Not for Redistribution 158 SUMMARY PROCEEDINGS, 1984 of trade barriers, and the free flow of capital that small countries such as ours can have any chance at all of economic progress. Today, at our Annual Meetings, two specific issues have come in for special attention: access limits and a new SDR allocation. These issues are critical to the future role of the Fund in creating the new, stable, and prosperous international economy which we all seek. One hopeful sign at these meetings has been the general recognition of the need for change, by the developing countries, and for accommodation, by the industrial countries. The address by the Secretary of the U.S. Treasury, the recommendation of the Group of Twenty-Four, and the intervention of the Finance Minister of Canada on behalf of the Commonwealth Ministers of Finance all point to a consensus on the need for progress in establishing a new economic order. The deliberations of both the Interim Committee and the Develop- ment Committee bear witness to the desire for dialogue and discussions, and this sentiment has been echoed in the speeches to the Annual Meetings and in that of our distinguished guest, the President of the United States. In this situation, the work of the Fund is extremely critical and if its efforts are to succeed it cannot now be circumscribed by reducing access limits or not allowing an increase in SDRs in the fourth basic period. The work of the Managing Director is to be commended and a positive response on these two issues can be taken as a vote of confidence in the institution. In conclusion, we look forward to our next joint Annual Meetings in Seoul in the firm conviction that a process of reform has started, which will gather momentum in the spring of 1985 and come to fruition by the time we come again to our annual deliberations.

STATEMENT BY THE GOVERNOR OF THE BANK FOR THAILAND

Sommai Hoontrakool

Allow me, Mr. Chairman, first of all, to join my fellow Governors in congratulating you on your election as Chairman of the Boards of Governors. I am confident that your extensive experience in international economic and financial cooperation will guide the deliberations of this assembly to a fruitful and constructive conclusion.

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The 1984 Annual Meetings culminate another year of successful operations of the International Monetary Fund and the World Bank as is outlined in their Annual Reports. I should like to congratulate the Executive Boards, management, and staff for their highly devoted and valuable services under the able leadership of Mr. de Larosiere and Mr. Clausen. While it is heartening to note that signs of economic recovery have emerged in a number of industrial economies, the prospect for sustained worldwide economic progress remains uncertain. The slowdown in general economic activities has led to heightened pressures toward protectionism, and the debt problem remains critical in the context of high real interest rates and foreign exchange volatility. Many developing countries have undertaken drastic measures to restructure their economies, but it is clear that the serious problems of the world economy cannot be solved without the cooperation of the major industrial countries. It is, therefore, imperative that these countries accept the responsibility of leadership by adopting responsible and constructive fiscal, monetary, and trade policies. This leadership role is particularly critical now because, after years of austerity, many developing countries are finding it increasingly difficult to further intensify restrictive adjustment measures that could seriously impair their social and political stability. This need for greater symmetry means that the Fund will have to play a greater role in its surveillance and advisory activities and to adhere strictly to the uniformity of treatment of all members, developing and industrial countries alike. Under current highly sensitive and volatile international economic conditions, there is an urgent need for a reappraisal of the Fund policies to cope with emergent problems which had not been foreseen when the Fund was founded. The typical economic adjustment package favored by the Fund may put too much weight on short-term results without adequately taking into account the impact on medium-term and long-term growth as well as social and political stability. Another issue that must be seriously considered in this context relates to the maximum access limits to Fund resources. While tighter conditionality rules are applied, there has recently been a trend to reduce further the maximum access limits and a tendency to shorten the duration of Fund assistance. A realistic approach to this problem, which has emerged mainly from exogenous factors such as the prolonged recession, high real interest rates, and exchange volatility, would be a complete reversal of this trend. The downward trend in growth rates and the stagnation in world trade, coupled with the maturing of the $250 billion external debt of

©International Monetary Fund. Not for Redistribution 160 SUMMARY PROCEEDINGS, 1984 developing countries, will, if left unresolved, be the root cause of a new financial crisis in the coming years. It is clear that traditional approaches will not be adequate to deal with these pressing problems. The Fund, like all other international agencies, will have to rethink its role if it is to be in a position to help member countries in an effective and timely manner. . . .

STATEMENT BY THE GOVERNOR OF THE FUND FOR EGYPT

Mahmoud Salah el din Hamed

Let me first express the appreciation of my delegation for your address, Mr. Chairman, at the opening session, as well as for those of Mr. de Larosiere and Mr. Clausen. They provide a sober assessment of prospects and risks in the present state of the world economy and single out the most important issues of the day. I would like also to welcome, on behalf of the Egyptian delegation, the membership of Mozambique, and St. Christopher and Nevis to the Bretton Woods institutions. Despite definite improvements in the economic performance of the industrial countries, developing countries continue to face the severe crisis that has afflicted them for several years. Output has hardly increased in 1983. In large parts of the developing world, levels of per capita output fell for the third consecutive year and were below those recorded in 1979. The impact of this continuous economic erosion is being felt increasingly in the social as well as in the economic sphere. Unemployment, underemployment, and poverty are on the rise in many of these countries. The developing countries have spared no effort in adjusting to an inhospitable external environment, but the price in terms of growth and development has been onerous indeed. Failing a change of policies on the part of the major industrial countries, it is doubtful that the present burden is socially and politically sustainable in the long run. Transmission of recovery to developing countries is mainly hampered by the level of indebtedness of many of them as well as by protectionism. The increase in interest rates during recent months is a strongly negative factor. The combination of high interest rates and declining capital flows has drastically reduced net financial transfer to developing countries. Non-oil developing countries are in fact estimated to have

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made net payments to banks of at least $13 billion in 1983. The adverse effects of these reverse flows in the present crisis could hardly be exaggerated. Unfortunately, given the stance of monetary policy and the size of budget deficits of many industrial countries, particularly the United States, there seem scant prospects of an early decrease in interest rates. For countries with significant amounts of outstanding debt contracted at variable interest rates, higher interest payments will offset a large part of the higher export earnings resulting from recovery in the industrial countries. The problem of developing countries has been exacerbated by the upsurge of protectionism. The trend toward increased use of nontariff barriers has been particularly damaging to the export prospects of developing countries. Such measures like the Multifiber Arrangement and the so-called voluntary export restraints may involve derogations from GATT rules. The impact of these measures has been to deprive developing countries of export potential in precisely those products where they enjoy a decided comparative advantage. A continuation of these trends would have ominous implications for both developed and developing countries whose sustained growth can only be based on a fuller exploitation of their dynamic comparative advantage. The complexity and multiplicity of the trade issues facing developed and developing countries in the 1980s suggest that piecemeal approaches are unlikely to succeed, and that such issues could be addressed most effectively in a new round of multilateral negotiations under the aegis of the GATT. Such negotiations would help stem the tide of protectionism and roll back existing restrictions. My Govern- ment is prepared to lend its support to, and full participation in, a new round of trade negotiations. The Bretton Woods institutions could play an effective role, not only in furthering trade liberalization, but also in extricating developing countries from the grip of the current crisis. They are constrained, however, by the limitations of their resources. The Eighth General Review of Quotas served no doubt to improve the liquidity of and ease the resource constraint on the Fund. However, the increase of quotas was far below what is warranted by the requirements of growth and adjustment. The ratio of quotas to world trade has fallen significantly since the mid-1960s. The Interim Committee, in its last meeting, agreed that enlarged access limits should be maintained in 1985. We welcome this, but feel sorry for reducing the limits, and hope that they should be maintained while reviewing the enlarged access policy itself before the end of 1985. The same is true of access to the special

©International Monetary Fund. Not for Redistribution 162 SUMMARY PROCEEDINGS, 1984 facilities. The recent tightening of conditionality associated with the compensatory financing facility and reduction in access limits are unwarranted. There is an urgent need for reversing these trends. My delegation regrets that so far there has been no agreement on an SDR allocation in the fourth basic period. Recent developments have greatly strengthened the case for a sizable allocation of SDRs. The continuing expansion of world trade implies a growing long-term global need for reserves. Appropriate SDR allocations could play a useful role in meeting a part of this growing need and help the functioning of the international economy. It would contribute toward easing an excessively harsh adjustment burden that has been imposed on developing countries by the global recession. No less important is the fact that an allocation would strengthen the SDR as a financial instrument and would be in line with the requirement of the Articles of Agreement that it become the principal international reserve asset. My delegation supports the Managing Director in his efforts to achieve a consensus on a substantial allocation of SDRs in the fourth basic period, and urges member countries to make it possible for the Managing Director to come forward with a positive recommendation on this important issue. . . . We in Egypt have realized very good results in the field of development and reduced the balance of payments and budget deficits and are working toward the rectification and adjustment of the economic situation despite the unfavorable international economic climate. We urge the world community to continue its efforts and action in order to provide an international climate where we can cooperate to make it possible to achieve steps toward progress and prosperity.

STATEMENT BY THE GOVERNOR OF THE BANK FOR AUSTRIA

Franz Vranitzky

It is indeed a great pleasure and honor for me to address this distinguished gathering for the first time. On behalf of the Austrian delegation and myself let me first extend my sincere thanks to the U.S. Government for its warm hospitality. At the same time, I wish to thank the management and staff of the Fund and the Bank for the efficient arrangements made for this meeting. I also should like to extend a very warm welcome to the two new members—St. Christopher and Nevis, and Mozambique.

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Recovery in the industrial world has been the most salient feature of economic developments over the last 18 months. While this recovery continues to be dominated by the strong pace of expansion in the United States, other industrial countries also seem to participate more and more in improving the situation. However, this highly positive assessment has to be seen in contrast to a number of developments which are worrisome. Let me briefly enumerate the problems we are confronted with in the medium term. First, unemployment still remains a very serious problem. While the strong recovery in the United States has created many jobs in this country, unemployment is still bothering a large number of countries, particularly in Europe. Second, there is cause for concern about the high level of budget deficits and the high level of real interest rates. Third, the international debt situation continues to be a crucial challenge to the financial community worldwide. Fourth, the protectionist tendencies which have been proliferating over the past few years have seriously compromised the functioning of the international economic system. Let me dwell briefly on these issues, starting with unemployment. I believe that in this area we are confronted with a phenomenon, namely, with a secular rise in joblessness, particularly in the OECD countries. This structural unemployment can hardly be overcome with conventional policy instruments at hand. Moreover, employment should not be taken as a residual variable, the trends of which are affected by decisions taken elsewhere. We have to find new ways and means to cope effectively with this pressing problem which, if we cannot succeed, could have far-reaching consequences for the fabric of our societies in the longer run. In view of the dominant role of public finance in modern societies, we have of course to pay due attention to budget deficits; these deficits bear the danger of increasing interest rates, rekindling inflation, and, above all, reducing the room for maneuver for political action. This has to be put clearly in an international context. High dollar exchange rates lead to large outflows of capital from the other industrial countries, exerting upward pressures on their domestic interest rates and keeping them from adopting more expansionary monetary policies of their own. Turning briefly to the explosive expansion of the payments difficulties of the developing and newly industrialized countries, which poses the greatest challenge yet faced by the international financial community. Within a very short time, it has however been possible to establish an

©International Monetary Fund. Not for Redistribution 164 SUMMARY PROCEEDINGS, 1984 effective cooperation between the Fund, under the outstanding leadership of its Managing Director, the central banks via the Bank for International Settlements, and the commercial banks. It would be dangerous, however, to consider the mastering of this phase as a definitive solution of the problem. Let me therefore briefly outline what I consider necessary. First, there is no common mold to the debt problem. What we need is a case-by-case approach. Second, so far, we have taken a rather technical and short-term view. What we do need is a comprehensive and longer- term strategy. Third, this is an area which can only be properly addressed in the very end by the policymakers through international cooperation among governments. Fourth, we have to take into consideration the political consequences of financial austerity measures. Therefore, I am very pleased that the Interim Committee will convene next spring to discuss these particular issues in a global context. . . . International cooperation depends heavily on the large members of the community. However, full strength can only be achieved if all members, especially the small ones, play their role. Therefore, I am particularly pleased to tell you that Austria is in an adequate position to take her share. For 1984, the economic forecasts are not unfavorable. While GDP growth in OECD countries is lower than forecast, Austria will experience an economic expansion of approximately 2.5 percent in real terms, with unemployment slightly decreasing to 4.4 percent. The inflation rate reached the peak in August with 6.0 percent and is expected to decline by 1985. The current account will remain in balance. In concluding, let me express my sincere hope that our institutions, which have to play a decisive part in sustaining the worldwide recovery process, will be endowed with the necessary funds so as to enable them to fulfill their mandate. I wish to assure you that the Austrian Government is prepared to give to the Fund and the Bank its continued support. STATEMENT BY THE GOVERNOR OF THE BANK FOR BANGLADESH

M. Syeduz-Zaman

Before I start, I would like to join other Governors in welcoming St. Christopher and Nevis, and the People's Republic of Mozambique as members of our two institutions.

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This year, our Annual Meetings happen to be taking place in the wake of a recent rise in the growth forecast for industrial countries as a group and a downward revision of the estimate of the combined current account deficit of the developing countries. This, along with the somewhat improved growth forecast for developing countries as a group over the extremely depressed levels of the last two years, and debt rescheduling programs put together in the recent past, may help create a feeling of well-being in a world that has been starved for good news for some time now. It would indeed be tragic if such a feeling of well-being, therapeutic though it is, were allowed to blur the very real ambiguities and uncertainties underlying these and some other composite indices, or—more importantly—to divert our attention from the loss of development momentum in the low-income developing countries, especially the least developed countries. The development of the productive resources of all member countries, including specifically, the less developed countries, is a major common purpose shared by the Fund and the Bank, enshrined in their Articles of Agreement, and it should not be possible for us to relegate this purpose to the background. It is to the credit of our two institutions that in their surveys and reports released to the world this year, they have not done so. They have remained resolutely professional, as in the past, and have projected, with varying degrees of emphasis reflecting the division of their respective domains, the awesome challenges we are facing. Mr. Clausen deserves our special appreciation for the fact that, as in all the extremely difficult years since he assumed the responsibilities of his high office in 1981, he boldly underlined the urgency for intensified multilateral cooperation in his speech to these meetings last Monday addressing the problems of development. And Mr. de Laro- siere has continued to demonstrate the vital role of multilateral collaboration in the international adjustment process. The documents admirably put together by the professional staff of our two institutions for consideration by the Interim and Development Committees, the Boards of Governors, and, in a larger sense, by the international community, deal with a number of broad policy themes as well as action-oriented issues. Taken together, they delineate the challenges facing us fairly well, though not perhaps quite exhaustively. Allow me to extract from this complex fabric two broad policy strands repeatedly visible in its total texture: —One of these two themes is that if the recovery of output in the industrial countries, now dominated by recovery in the United States, is sustained and broadened with a sound adjustment of fiscal and monetary policies; and if market rigidities are corrected where they exist and protectionism is rolled back, there will be a

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turnabout in development momentum in the rest of the world through a cascading influence on exports, terms of trade, interest rates, capital flows, and other determinants of growth and development. —There is a more strongly articulated theme centering on market- based, efficiency-oriented policy reforms in the developing countries as an indispensable prerequisite for the resumption of their development momentum. The common feature of these two themes bridging the developed and developing worlds is the guiding role accorded to macroeconomic policy. It is important to remind ourselves of some vital facts surrounding these two parallel themes of policy adjustments and reforms in the industrial and developing countries. With reference to policy adjustments in the industrial countries, the facts are: —Historical experience suggests that while a sound expansion in the industrial countries is a necessary condition for meaningful growth in the developing countries, it is by no means a sufficient condition. The essential additional element necessary for this purpose is the discretionary, deliberate provision of capital flows in all varieties, including concessional flows, to the developing countries, with special emphasis on the least developed countries. This point is not absent from the documents before us or various speeches at this forum, but it is necessary to restate it, and to guard against the temptation to put excessive trust in an automatic transmission of growth impulses. —The current round of economic recovery in the industrial countries will have to deal not only with cyclical factors but also with deep, long-term structural changes in comparative advantage and with the development of technology affecting a wide range of goods and services. It is neither feasible nor desirable that these structural changes in industrial countries, involving as they do vast shifts in resources and the redesigning of the productive apparatus as well as human skills and capabilities, should take place in a short-term or even medium- term perspective in all industrial countries. On the whole, these changes will constitute a process rather than an event and, during this process and after, vast sections of the developing world will not only continue their progress as natural and efficient bases of production for a growing number of goods and services, they will also constitute the only market for many of the traditional types of capital goods and associated skills that are central to development and growth. There is, thus, a positive relationship between stable structural changes in the industrial world

©International Monetary Fund. Not for Redistribution GOVERNOR FOR BANGLADESH 167 and the provision of all varieties of medium- and long-term capital flows to the developing countries. This provides further immediate relevance to the interdependence that is the basis of policy-directed capital flows from industrial to developing countries. This mutuality of interests infuses the entire field of financial and real flows between the developed and the developing worlds, involving the whole range of bilateral and multilateral assistance, concessional as well as nonconcessional, direct private investment, and even commercial lending. The Fund and Bank documents released in connection with our Annual Meetings carry this reminder, but not, I am afraid, articulately enough in all cases. It is thus essential that, because of the inherent inadequacy of the spontaneous transmission mechanism between the industrial and developing countries and the mutuality of interests binding them together, we take discretionary, deliberate measures to reactivate capital flows to the developing countries for the sake of a genuinely sustainable world recovery and the "soundly expanding world economy" envi- sioned at Bretton Woods 40 years ago as a necessary precondition for the realization of "mankind's hopes for the future." The well-known but often underplayed facts surrounding the theme of policy reform in developing countries to which I would like to invite your attention are these: —Market-based, efficiency-oriented policy adjustments in most developing countries call for an adequate level of appropriate financing. It has been demonstrated that multilateral institutions are extremely efficient channels for such financing and this underlines the importance of extending strong support to their resource base and capital structure. In the absence of adequate and appropriate financing to support the supply-side activities of the economy, adjustment measures initially seen to be market based and efficiency oriented soon generate their own distortions and become simply unsustainable through the operation of the laws of the market itself. What is bound to follow then in most cases is a compelling, though often unconscious, reversion to methods and principles closely resembling those of a command economy. This takes us back to somewhere behind square one. Sometimes, in specially weak political and social structures, the consequences of policy reform unsupported by appropriate financing can be even worse: a decline of political and social cohesion and the emergence of an environment totally hostile to economic management and policymaking. —Because of the overwhelming weight of the unskilled, the une- quipped, the unemployed, the poor and, yes, the impoverished in

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the vast majority of developing economies, many adjustment measures often begin, in effect, with new burdens on the poor and the weak—burdens that are often misperceived by large sections of society as the very objectives of public policy. The ultimate success of such measures depends upon the speed with which they—the poor and the weak—can adjust themselves to these initial burdens through a rise of their real income. In a capital- and skill-starved, resource-poor country, this second round of adjustments in response to the first round of policy reforms naturally tends to be much slower than in a developed economy. If the design of policy reforms does not take account of this reality, the reforms ultimately break down. —A large number of developing countries are specially disaster prone, which causes unpredictable random shocks to the development process. In my own country, just when the benefits of severe adjustment measures and policy reforms were taking root with improved growth prospects, this year's unprecedented floods have destroyed a large part of our agricultural production. This has made sudden and heavy demands on resources that were otherwise available for development and investment. The design and implementation of policy-based programs will, therefore, demand a high degree of skill, imagination, and compassion, and a mastery of the art of the possible, touched upon with insight and understanding in Mr. Clausen's speech last Monday. This will also inevitably require, as I said before, adequate levels of financing, at the right time, in the right country, and on the right terms. The professional staffs of the Fund and the Bank are conscious of these matters and, of course, policymakers and managers in the developing countries are constantly grappling with them. But all of us, nevertheless, need to remind ourselves of these facts constantly while dealing with new initiatives in policy reform in the context of multilateral and bilateral assistance. These reminders are specially relevant this year, which has, I am afraid, been a sad landmark in the decline of the industrial countries' overall perception of the link between financial flows to developing countries and the shared interests of all countries. The resulting catalog of negatives includes the moth-eaten IDA-VII that has emerged from months of agonizing deliberations; the obstacles faced by the World Bank management in their courageous striving for a modest supplementary funding to regain the nominal size of ID A-VI; a World Bank selective capital increase only half as large as that warranted by well- established principles; a regrettable absence of consensus on an SDR

©International Monetary Fund. Not for Redistribution GOVERNOR FOR BANGLADESH 169 issue for the fourth basic period despite fulfillment of all objective criteria; and two rounds of reduction in access limits under the Fund's enlarged access policy. There are only three limited areas in which there appears to be some perception of interdependence. These include, first, what has come to be known as the debt problem of heavily indebted countries, and, second, the development problems of sub- Saharan Africa. The third area is that of direct private investment.

The first two of these three areas appear to be perceived as crisis areas signaling visible threats to existing institutions and interests, while the third area—that of direct private investment—appears to induce positive attitudes because of the most transparent trends in the financial and real sectors of several industrial economies. Support for the Action Program for sub-Saharan Africa is specially encouraging. We only hope and desire that this program may not meet the fate of the substantial new program of action adopted for the least developed countries only three years back.

Welcome as these limited and fragmentary perceptions are, they may distract attention from some very obvious and real issues, such as the decline of multilateralism as the basis of the international monetary system and the alarmingly growing debt burden of the low- income and least developed countries as a share of their GNP. The Expert Group of the Commonwealth on the world debt crisis has eloquently and with sound statistics drawn the attention of the international community to these issues.

Wider perceptions of interdependence cannot, and will not, take place spontaneously, without conscious cooperation in a collectively agreed forum. The time has come, in our opinion, for new initiatives, such as an international monetary conference. The latest deliberations at the Interim and Development Committees give only some faint hints of possible progress in that direction. . . .

We have always been justifiably proud of the urbane, rational business style and performance of the Fund and the Bank, historically dependent on producing a workable consensus. The managements of both institutions have been courageously innovative in the stormy financial environments of our troubled times. Let us all today give a renewed pledge of our strong and continued support to the Managing Director of the Fund and to the President of the World Bank, and, through them, the dedicated professional staffs of both our institutions, in their increasingly difficult task of furthering fruitful multilateral economic cooperation in a world that needs it more than ever before.

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STATEMENT BY THE GOVERNOR OF THE BANK FOR NEPAL

Prakash Chandra Lohani

It is indeed a great honor and pleasure for me to address this distinguished gathering. I wish to express our sincere appreciation and gratitude to President Reagan for his address and eloquent support for international cooperation and for the cause of prosperity and peace in the world at large. Since the last Annual Meetings, it is encouraging to note that the economic recovery in the industrial countries is underway. While the developed countries are emerging from what has been the worst recession of the postwar period, in many developing countries the effects of recovery are being felt only gradually. While aggregate gross national product of the industrial countries is estimated to have risen by 21A percent in 1983, real gross domestic product of non-oil developing countries taken as a group is estimated to have increased by only l!/2 percent. The levels of per capita output of these countries have actually declined for the third consecutive year. High real interest rates, inadequate capital flows, and protectionist tendencies continue to aggravate the problems faced by the developing countries. Despite a more promising world economic situation, many developing countries find their positions deteriorating even in this recovery phase. Historically high real interest rates, persistent disequilibrium, and instability in exchange rates have, however, cast doubts on the sustainability of the economic recovery. While the momentum of recovery is expected to be maintained in the coming years, with growth rates in the industrial countries projected at 3.9 percent in 1984, imbalances in the monetary and fiscal policies, and the protectionist measures could threaten continued world economic recovery. High real interest rates, the strengthening U.S. dollar, and artificial barriers to trade have further aggravated the alarming international debt situation. Protectionist measures, especially nontariff barriers adopted by the industrial countries, have made it more difficult for the developing countries to increase their export earnings. This has adversely affected their economic growth and their capacity to repay external debts. Although the current account deficit of non-oil developing countries has been reduced to about $56 billion in 1983 from $82 billion in 1982, this has been possible not because of improved export performance but because of drastic curtailment in the imports by these countries, leading to slow economic growth.

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Reduced international bank lending, stagnant or declining official capital flows, and heavy debt-servicing burdens have resulted in diminishing net financial transfers to the developing countries at a time when the need of these countries for capital is even more urgent. The high level of both official and private financial flows is of paramount importance for the developing countries. In this context the roles that the Fund and the World Bank can play assume vital importance. The Fund has been playing a constructive role in the adjustment process of a number of indebted developing countries. We welcome the improvement in the Fund's liquidity position following the replenishment of resources under the Eighth General Review of Quotas and the securement of credit lines from other official sources. However, the increased stringency of limits on members' access to Fund resources is a cause of concern to us. It is disheartening to note that in actual practice the access limits have fallen well short of the guidelines for maximum access adopted at the Interim Committee meeting of Sep- tember 1983. At present, the developing countries are faced with a disproportionately high burden of economic adjustment and are greatly in need of help. We would therefore like to see some easing of the conditionality rules adopted by the Fund. An allocation of SDRs in the remainder of the fourth basic period could have ensured appropriate financing flows to the developing countries. We are disappointed to note that the Interim Committee has not yet been able to reach an agreement despite a clear and convincing case for such allocations. . . . In the context of special needs of low-income developing countries, I would also like to refer to the substantial new action program adopted by the United Nations Conference on the Least Developed Countries held in Paris in 1980. I urge that the substantial new action program, which aims at alleviating the equally difficult problems of development faced by these least developed countries, some of which are also geographically handicapped small economies, should be supported by the international donor agencies. I would like to urge that, at the extended meeting to be held in spring 1985, the Development Committee should also take into account the need for external assistance to implement this substantial new action program for the least developed countries. At this point, I would like to briefly go over Nepal's economic performance during 1983/84. Prudent policy measures undertaken by the Government at the beginning of the year and favorable weather conditions have helped in achieving a 7.4 percent growth in GDP. In the previous year, serious drought had precipitated a negative growth

©International Monetary Fund. Not for Redistribution 172 SUMMARY PROCEEDINGS, 1984 rate of 1.4 percent. Increased output contributed to lowering the inflation rate substantially. Improved export performance led to a significantly reduced balance of payments deficit. Recognizing the vital role the private sector can play in the economic development of the country, the Government's economic policy has been designed to create and foster a competitive environment for the development of the private sector. Financial as well as other incentives are to be provided on the basis of achievement and excellence, both to the private sector and to projects implemented by the Government. In this context, the private banks, finance companies, and export-import companies with majority share of the private sector are to be encouraged. To enhance the participation of people in development activities, shares of public as well as private companies are being floated in public. The prospects for fiscal year 1984/85 look promising and the Government remains committed to pursue appropriate stabilization measures. Nepal embarks on its seventh Five-Year Plan next year. The Plan objectives, which are largely guided by the "basic needs" approach, are to accelerate production, increase opportunities for productive employment, and fulfill the minimum basic needs of the people. The plan aims to secure an average annual growth rate of 4.5 percent. In spite of increasing efforts toward domestic resources mobilization, about 70 percent of the aggregate development outlay will have to be met from external sources. . . . While concurring that the recovery in the industrial countries would undoubtedly favorably affect the growth of developing countries, this would not by itself ensure a satisfactory growth rate. For such growth, an appreciable increase in investment is imperative. While domestic resource mobilization should be enhanced, capital flows to the developing countries, both concessional and nonconcessional, public as well as private, must be stepped up. We believe that the Fund and the Bank can play a more effective and meaningful role in this respect. For this, these institutions need, and deserve, support in augmenting their resources by all member countries who have the capacity to do so. Finally, institutions like the World Bank reflect a willingness on the part of mankind to look at the world as one entity in a meaningful fashion, at least on questions of economic progress and development over time. If this attitude is to be an integral part of our thinking for future international institutions, these institutions must be made more effective and functional in meeting the needs and aspirations of member countries. To achieve these objectives with support by developed countries in the form of increased flow of resources and the establish-

©International Monetary Fund. Not for Redistribution GOVERNOR FOR GREECE 173 ment of an efficient mechanism to transmit recovery in the developed countries to the developing countries is vitally important. The Fund and the Bank must also be sensitive to both the short- and long-term country-specific needs and peculiarities of its members who are in differing stages of development. Viewed with this perspective, what is at stake is not just the effectiveness of the Fund or the Bank but the ability of nations to cooperate in making our planet a better place for all human beings.

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

Gerasimos Arsenis

In his address to these meetings, my colleague, Mr. Dukes, Minister for Finance of Ireland, gave the collective position of the European Community countries on matters regarding the International Monetary Fund and the World Bank. Therefore, I shall not cover the same ground. Nor will I deal with our adjustment program which has started yielding results in the form of higher output and reduced inflationary pressures. This program, together with our medium-term plan for restructuring the economy, lays the foundations for noninflationary and sustainable growth. The success of national policies, however, should not be the exclusive focus of discussions in this forum. I think that we should address ourselves, instead, to our collective responsibilities. In this respect, I would like to share some thoughts regarding recent developments and international policy options. Previous speakers have already emphasized the main developments during this year: —the strengthening of economic activity in industrial and developing countries alike, most notably in the United States; —continued moderation of inflationary pressures in the OECD area; —persistence of high unemployment rates in most countries, especially in Europe; —resurgence of upward pressures on real interest rates and the concommitant increase in the value of the dollar; and —the burdensome adjustment on the part of developing countries to meet debt service obligations. These developments, however mixed, can be surely taken as signs of a long-sought upward swing in worldwide economic activity that

©International Monetary Fund. Not for Redistribution 174 SUMMARY PROCEEDINGS, 1984 follows years of virtual stagnation. But a proper evaluation of the situation needs to go beyond a superficial analysis of aggregate economic indicators. There are four issues that need be explicitly addressed before useful lessons can be drawn from our past experiences: (1) origin of recent developments and the lack of symmetry in their effects; (2) sustainability of recovery; (3) implications for international coordination; and (4) gap between realizations and aspirations. Let me briefly comment on these issues. As far as recent developments are concerned, the worldwide level of economic activity has improved, world trade has increased, and significant progress in curbing inflation has been achieved in most countries. If anything, this experience has shown that determination and activist policies on the part of national governments do, in fact, work, especially after periods of low capacity utilization. It should not be surprising, therefore, that in the United States, a dominant player in the international economic scene, an expansionary fiscal policy stance resulting in large government borrowing requirements coupled with severe monetary restraint and concerted efforts to curb inflationary expectations have given rise simultaneously to output growth and high real interest rates. In a world of integrated financial markets and in the absence of countervailing policy measures by other governments, the direct consequence of this policy mix has been an appreciating dollar. This trend will continue till such time as this policy is reversed, either as a result of internal pressures or lack of confidence in the sustainability of financing arrangements. For several industrial countries, an appreciating dollar has meant greater competitiveness for their exports, but for other countries, however, especially those with diversified export earnings and dollar- denominated imports, the appreciation of the dollar has resulted in increased import payments without comparable increases in export receipts. Similarly the persistence of high interest rates has meant that, in the case of many debtor countries, a sizable portion of real output has had to be diverted to meet interest payments. The asymmetrical effects of recent developments is a point that needs to be emphasized. Asymmetry in repercussions leads to mixed policy responses as some countries strive to curb the inflationary

©International Monetary Fund. Not for Redistribution GOVERNOR FOR GREECE 175 pressures or meet external payments without jeopardizing the prospects of recovery. To be sure, demand and trade are expanding with the usual multiplier effects in the international economy but the sources of growth remain both geographically and compositionally unsatisfactory. The persistence of high real interest rates and contractionary policies followed by several governments have delayed or dampened the recovery in many parts of the world. At the same time, high real interest rates coupled with existing rigidities have acted as disincentives to private investment. It is worth noting that underinvestment in business plant and equipment continues in most countries. Since 1974, none of the major industrial countries has experienced growth rates of real investment comparable to the period up to 1973. In some countries, real investment has actually declined since 1980. Capital constraints already begin to impinge on the expansion of output as recovery proceeds. These factors intensify uncertainty as to future prospects and increase the probability that we might experience a new downturn in the business cycle before being able to take advantage of the beneficiary effects of the present expansion. If policy in the rest of the world, especially in other industrial countries, continues to be deflationary as countries ride on an export- led upward trend, then an abrupt shift in financial market behavior may result in renewed stagnation and even greater unemployment. This becomes a distinct possibility in view of the fragility of financing arrangements. There is a growing awareness that a situation in which a major industrial country becomes a major debtor in international financial markets can only be transitional. Thus, the second point that must be stressed has to do with the breadth and the sustainability of the recovery. Looking over the next couple of years, the central issue that will determine economic developments may well be the readjustment of exchange rate parities to a more realistic level. It is the pace and time profile of adjustment in financial markets that would be of utmost importance to policymakers as financial developments give rise to real effects at home. It is for this reason that we must work out now a strategy for solving the fundamental imbalances that have given rise to an unsustainable financial environment. In this task, not only the direction of policy but also its timing and worldwide repercussions should be considered. Uncertainty as to the future course of events and the fragility of the economic situation make it imperative that we should seek better

©International Monetary Fund. Not for Redistribution 176 SUMMARY PROCEEDINGS, 1984 coordination of efforts to work out a medium-term strategy that has as its principal components: (1) gradual reduction of the imbalances arising from policies or structural problems in industrial and developing countries alike; (2) commitment to long-run growth; and (3) support and financial assistance to developing countries. In order to succeed, coordination has to be credible. And this brings me to the last point I wish to raise: the gap between realizations and aspirations, a gap which I feel is growing increasingly wider. This may be attributed by some either to unrealistic expectations or to insufficient efforts. Whatever the case, the fact remains that the credibility of policymakers is being questioned increasingly all over the world. Since 1974, governments and international organizations have asked for support and consent in pushing through painful adjustment programs. Patience and hardship were to be rewarded in the long run by a lasting recovery and improved standards of living with full employment. During these ten years, the fulfillment of promises that were given was postponed over and over again pointing to unexpected changes in the economic environment. People begin to suspect that short-run adjustment programs were not of a transitory nature but an implicit long-run policy. What we must understand is that makeshift solutions are less and less likely to be politically acceptable. Consecutive adjustment policies that are not accompanied by a clear program of concerted action run the danger of being politically rejected. I need not, of course, dwell upon the incalculable political, social, and economic consequences that such a rejection may entail. I conclude that, from now on in our Annual Meetings, it will not suffice to reassert our commitment to national adjustment policies. We must also consider policies to support a program for employment creation and sustainable growth. And this task will be infinitely easier if we all consider it together in the context of a global strategy.

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

Petre Gigea

The 1984 Joint Annual Meetings of the Boards of Governors of the International Monetary Fund and the World Bank are taking place

©International Monetary Fund. Not for Redistribution GOVERNOR FOR ROMANIA 177 during a period in which the world economy is presenting some encouraging signs of relaxation and recovery. Nevertheless, it is still far from a firm and general recovery. Last year's recovery was followed by certain grave problems that confronted developing countries. I have in mind, first of all, the difficulties linked to debt servicing that has become a problem for more and more countries. The essential feature that characterizes the period to which I am referring, and which was mentioned in the Annual Reports presented to us, is the maintenance of excessively high interest rates that have practically diminished the economic readjustment efforts of debtor countries. To these difficulties is added the intensification of all kinds of protectionist measures on foreign trade. We have, unfortunately, the picture of a critical situation in the developing countries, which does not allow them to go forward with the implementation of their priority plans for economic development, thus, widening the gap between industrial and developing countries. The main efforts to improve their economies should be made by the developing countries themselves, and they are already doing this. But it is inconceivable that these efforts should be wiped out by certain financial and trade practices which determine that most of their national income must go abroad instead of being used for their own economic growth—growth which these countries badly need. Taking into consideration the present economic situation in the world, Romania and its President, Nicolae Ceau§escu, believe that this is the time in which developed countries should forge ahead with constructive negotiations in order to solve these particularly complex problems. In this respect, Romania believes, in principle, that this is necessary in order to achieve a global solution in a new manner, with regard to the debt burden which is affecting developing countries. It should be taken into consideration that it is necessary that their debts should be rescheduled on a long-term basis with low interest rates; the external debts of the poorest countries should be canceled, and a substantial reduction should be made in interest rates that favor other countries. At the same time, credits for developing countries, in order to support their efforts toward economic and social progress, should be granted on terms with lower interest rates. One such measure which could improve the economic situation of debtor countries would be to consider interest payments already made

©International Monetary Fund. Not for Redistribution 178 SUMMARY PROCEEDINGS, 1984 at rates in excess of, let us say 7-8 percent, as payment on the principal. At the same time, we are considering that a basic solution to the world's economic problems cannot be achieved without considering the establishment of a new economic order which is confronting countries all over the world, and an adequate reform of the international monetary system. Romania, as a member of the international community, is strongly anchored by its policy of consistent cooperation with all countries of the world, regardless of their economic and social systems, and it could not avoid the impact of the economic and financial recession. But by taking strong measures, for instance, stimulating labor productivity, production growth, savings in energy and raw materials, redi- recting investments according to our greatest priority, we have gradually reduced the effects of this impact. Last year we achieved an industrial growth rate of 4.8 percent and 5.9 percent for the eight months of this year. In agriculture, this year's harvest will be very good; we should reach one ton of grain per capita. This year investments are oriented with priority, as in previous years, to make better use of new reserves in mineral and energy resources, expanded land irrigation, industrial modernization, and completion of ongoing projects. In the field of foreign trade, we achieved an increase over last year's level both with respect to imports and exports, allowing us to continue to obtain surpluses, both in our trade balances and in our current account. This has resulted in a reduction in recent years of the total of our foreign debt by $2 billion and an update of interest rate payments, as well as other external commitments. Our programs for the 1986-90 period are aimed at consolidating the good results we have been able to obtain during the actual five-year plan, stressing further development and modernization of the existing technical material basis in the Romanian economy by increased efficiency in all sectors. The achievement of these programs will provide us the opportunities to further decrease our foreign debt and consolidate our hard currency reserves. Romania, as an active participant in international life, has developed and will continue to widen our cooperation with all countries within the well-known principles advocated by Romania. Within this framework, we have cooperation and fruitful relations with the International Monetary Fund and the World Bank. We positively appreciate the activity and the efforts of these two international organizations, headed by Mr. de Larosiere and

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Mr. Clausen, respectively, and I am expressing my conviction that the Fund and the World Bank will do their best through more flexible loan policies to assist the developing countries' efforts to a greater extent to solve the problems with which they are confronted, as well as to support their economic and social development.

STATEMENT BY THE GOVERNOR OF THE BANK FOR WESTERN SAMOA

Tofilau Eti Alesana

Speaking on behalf of Solomon Islands, Vanuatu, and Western Samoa, it is a pleasure to welcome the island countries of St. Christopher and Nevis and Mozambique to membership in the Fund and the Bank. When we gathered here one year ago, there was some hope and optimism that the international economic environment was improving, and that the slowdown or recession, the longest in 50 years, was abating. On one side of the coin, the world economy took a decided turn for the better in 1983. World output increased. Consumer price rises in the major industrial countries, which had exceeded 12 percent in 1980, fell to under 5 percent for the first time in more than a decade. And the balance of payments of the non-oil developing countries returned to more moderate levels. On the other side, satisfactory economic growth remains concentrated in relatively few countries; economies of many continue to be sluggish and few remain unscathed from the severe slowdown in activity; unemployment continues at historically high levels, and the debt problems of many developing countries remain precarious and require more durable solutions and a strengthened international financing system. Solomon Islands, Vanuatu, and Western Samoa—we are all small geographically isolated developing countries situated in the South Pacific Ocean. Along with most other small geographically isolated developing countries, we share common problems such as a low- income base and remoteness. Economies are often supported by only one or two crops. Industrial development is little better than rudimen- tary, and infrastructure, in the real as well as the financial sector, is often modest. Against this background, economic viability is understandably a serious problem. We are often criticized for the goals and objectives

©International Monetary Fund. Not for Redistribution 180 SUMMARY PROCEEDINGS, 1984 we seek. Expectations are set too high. "Doing too much too soon" is an often used quotation. To some extent, expectations of improved living standards established in the 1950s and 1960s were carried on into the 1970s although conditions had changed. Even so, material and technological developments over the last decade have brought the backwardness, human suffering, and difficult circumstances in the developing world into sharp focus in contrast to the wealth and affluence of the industrial countries—and it appears that it will take decades before the gap begins to narrow significantly or, indeed, even stops widening. In this context, the Fund and the Bank have responded to the situation on a number of fronts, and their continued study of particular problems confronting developing countries in the period ahead is to be applauded. The very recent decision to allow enlarged access to the Fund when members' circumstances warrant, and the Bank's increasing use of cofinancing techniques, are both good examples of the continued flexibility and innovation of approach of these organizations. . . . Against this background, we continue to require understanding and assistance from the international community and the major international institutions. Our domestic savings will not easily sustain an adequate amount of domestic investment. Concessional financing from both bilateral and multilateral sources must be a major ingredient of financing for our development efforts if the burden of debt service is not to prove crippling in the future. And there is an important role for foreign direct investment as well in the transfer of technology and the opening up of new opportunities for capital formation as part of any overall development package. On our part as smaller countries, we must also be prepared to accept the discipline of adjustment programs so that there is a better balance between supply and demand, goals, and what is achievable. "To bite the bullet" is a very apt phrase. It is in this context that we commend Mr. de Larosiere and his staffs sustained and untiring efforts to tailor financial programs to individual needs and to maintain an adequate flow of finance so that adjustment efforts can proceed. We were particularly struck with the frankness and concern shown by the Managing Director in his statement concerning the implications and impact of Fund policies. Clearly the Fund has emphasized for some time the need for more disciplined financing and for much more flexibility in the management of prices, notably interest rates and exchange rates, and wages. In Western Samoa, we are presently implementing such a program,

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successfully I believe, to achieve better internal and external balance. But from my own experience, it is not always easy to maintain a cohesive and rigorous strategy which allows adjustment to occur at the pace required. And at times, the severity of measures may reach the upper limits of social cost which prove too harsh to endure. I am certain that the Fund is conscious of such dilemmas faced by member countries. However, I want to emphasize that small developing countries are able to do only so much. The major industrial countries must also provide the necessary leadership and mix of policies which allow progress along the road to recovery. Actual and real interest rates in some major financial markets seem unnecessarily high. Closely related to these questions is the pattern of exchange rates. We do not stand alone in saying that some important relativities of the exchange rate to the foreign exchange markets have been distorted for too long and that budget deficits whether for a small or large country must be contained and, where excessive, reduced to more manageable levels. A second element at the international level relates to broader ranging policies and measures. With recovery under way, trade needs to be liberalized and the tide toward new forms of protectionism must be arrested. Regrettably, increased pressures for protectionism in countries with overvalued currencies are not offset by more liberal measures in countries with undervalued currencies. And liberalism runs out of steam as economies start to falter. Trade, in particular, will be vital to solving the debt crisis and additional trade barriers can only pose severe problems for those heavily indebted. With expanding export markets, developing countries, for one, will be better situated to service their debt obligations and to resume growth. Finance is of equal importance. Adequate liquidity including appropriate allocations of SDRs is crucial to maintain an efficient and effective international monetary system. The Fund's resources have recently been reinforced to finance a substantial growth in adjustment programs, and members must ensure that its resources remain more than sufficient to finance the needs of countries for some years ahead.. . . The world is in a somewhat improved economic and financial condition today than a year ago. Recovery and adjustment measures have removed the threat of an international financial crisis. However, we must not be lulled into a sense of complacency. For if recovery falters or is inadequate, many developing countries will be forced to make further adjustment which will only lengthen the severity of their plight. We must seek a more satisfactory outcome and hope that it can be achieved.

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All countries, and particularly those of the developing world, have much at stake and must try to ensure that the current international economic recovery is sustained. We remain confident that the Fund and the Bank will play their necessary roles in working toward this goal.

STATEMENT BY THE GOVERNOR OF THE FUND FOR SPAIN

Mariano Rubio Jimenez

The positive elements that inspired our confidence in a recovery of the world economy a year ago have been considerably strengthened over the past 12 months. In the course of that period we have, on several occasions, revised upward the forecasts for this year for the growth of the industrial countries and the rate of expansion of world trade and, as a consequence, we have observed an improvement better than that initially expected in the developing economies. These causes for satisfaction cannot hide, however, the difficult problems we are still faced with: the disparity in the cyclical situations of the various industrial countries, the difficulties that the present recovery will have to overcome for the way to be clear for a period of sustained expansion and, finally, the serious problems that continue to beset the present and future of the developing countries, and, particularly, of those with high external debts. All these problems are conditioned—at least partially—by the development of the U.S. economy. This economy was the source of the impulses that have dominated the present recovery phase of the world economy and brought about the successive upward revisions of our forecasts for the immediate future, but it also carries in it, in part, the origin of certain of our fears regarding continuation of the expansion in the medium term, regarding the rate at which other countries— especially the developing countries—will be able to share in this expansion, and regarding the makeup of international financing and trade flows in the near future. I do not, of course, propose to start making specific comments about the national economic policies of other countries, as that would be improper. I believe, however, that there is a general consensus, inside and outside the United States, on the need to reduce its public deficit, if the perpetuation of high interest rates and the absorption of savings from less wealthy countries, and the effects of this on domestic demand in the United States, on the pace of recovery in other industrial

©International Monetary Fund. Not for Redistribution GOVERNOR FOR SPAIN 183 countries, and on the problems of the heavily indebted developing nations are to be prevented. We must not, however, seek the sole source of our difficulties in the U.S. economy; on the contrary, that economy has demonstrated a flexibility in recent times which should give cause for thought to other economies that are more rigid and therefore slower to make the adjustments needed for them to participate in a process of sustained expansion that will enable a steady rate of employment creation to be resumed. The fact is that a good number of industrial economies are still encountering serious difficulties in eliminating their monetary disequilibria and overcoming numerous inflexibilities that hinder needed adjustments of real resources, swell public deficits, have a negative impact on incentives and returns and, ultimately, erode the capacity for growth and employment generation. These economies must continue their efforts to combat their disequilibria and the rigidities that obstruct their adjustments, since only in this way will they be able to maintain higher rates of expansion of domestic demand that can take the place of the external stimulus from the U.S. economy when it slackens in the near future. The strategies for dealing with these problems are unquestionably unpalatable, but they are essential if the aim is to truly set the world's economies on a sound footing. This is why the Spanish Government has been focusing its efforts in this direction, with positive results that have already begun to be apparent in an appreciable reduction in the rate of inflation, which now appears to be at an annual rate below two digits; in the elimination of the current account deficit of the balance of payments and its replacement by a sizable surplus this year; in containing the growth of the public deficit, within the context of policies designed to remove the causes that fuel it and, finally, in a substantial increase in the real growth rate of the economy, up to 2.5 or 3 percent this year, spurred by a significant rise in exports that promises to link up with a resurgence of domestic demand through the improvement in returns and the reorganization of the financial structure of enterprises in various sectors and a fall in interest rates. As in all countries, correction of the disequilibria is a prerequisite for moving into sustained growth that will generate employment, the last variable to recover in an economic cycle. In light of the difficulty of our efforts, the need becomes fully evident for the major industrial economies to implement their policies in such a way that those which take the initiative in the present recovery will ensure that it is consolidated in a phase of sound expansion, for those

©International Monetary Fund. Not for Redistribution 184 SUMMARY PROCEEDINGS, 1984 which remain less far advanced to be able to speed the rates of growth of their domestic demand, for international capital movements to regain a structure more consistent with the relative shortages of factors in the world economy, for international trade no longer to be threatened by a tide of protectionism and, in sum, for the clouds that have been obscuring the prospects of the world economy for more than a decade to be swept away. The formulation and application of appropriate economic policies by the industrial countries assumes all the more significance from the viewpoint of the developing countries. The International Monetary Fund has revised appreciably upward the growth rate foreseen for this group of countries in the present year and now places it at 3.75 percent, as a result of the stimulus their exports have received from the rapid recovery of world trade. However, the different countries in this group are not all starting from the same position; neither have they all shared equally in the general upturn. Many poorer African countries and a number of Latin American countries are still posting falls in their living standards; and, as shown by the "scenarios" outlined by our institutions for the years ahead, the recent easing in the situation of the developing countries with high external indebtedness—an easing due, to a large extent, to a compression of their economies that would be unsustainable for an extended period—does not exclude the persistence of very serious problems for some considerable time to come. Hence we trust that painstaking preparation for the Interim Committee and Development Committee spring meetings will lead to a fruitful di^pus- sion of the problems of the indebted countries. These countries must, of course, be asked to apply responsible economic policies consistent with a gradual improvement in the problems currently besetting them; but we must make this request with an awareness of the internal limits of these policies and of the fact that they cannot ultimately prove successful if they are not implemented in a favorable and dynamic world economic context. Here, again, a major factor will be the policies of the industrial countries for ensuring consolidation of expansion and normalization of world financial conditions. In the delicate circumstances today characterizing those economies and, with them, the functioning of the international economy, the activity of the Fund assumes special importance. I would accordingly like to express Spain's views regarding the criteria that ought to guide the policy of enlarged access to the Fund's resources and the desirability of renewed SDR allocations. The enlarged access policy has been an instrument of great value to the Fund and to the international community in this turbulent period

©International Monetary Fund. Not for Redistribution GOVERNOR FOR SPAIN 185 our economies have been passing through. It has been one of the chief mechanisms that have contributed to increasing and improving the composition of the financing of the adjustment processes carried out by the economies with a high level of external debt. This policy has been applied with the flexibility and prudence called for by the circumstances of each case, and I would accordingly like to offer our special congratulations to the Managing Director, Mr. de Larosiere. We believe that the way in which this policy has been implemented, and the difficulties and uncertainties which still hang over the adjustment process of the main developing economies, are grounds for delaying review of it until our next annual meeting.

Regarding SDKs, we repeat that, in our view, the present conditions of the international economy meet the requirements laid down by the Fund's Articles of Agreement for resuming allocations. Accordingly, and notwithstanding the position adopted last Saturday by the Interim Committee, we still believe that a moderate SDR allocation in the present basic period is advisable and would help to resolve the after- effects of a crisis as intense as that which the international community has suffered from. . . .

I would like to close by referring to one of the most serious problems facing the world economy today: the intensification of protectionism. Periods of contraction favor the extending of trade protection measures, the more so when these are combined with significant variations in the structures of relative costs and prices and of international comparative advantages. What is certain, however, is that protectionism is now on the rise and shows no signs of abating. Nontariff protection measures are continuing to proliferate over a wide range, running from import quotas to administrative barriers, voluntary export restriction agreements and recourse to measures presented as means to offset dumping or unfair competition; all with clear features of discretionality, discrimination, and a tendency toward bilateralism coupled with generation of considerable uncertainty that is prejudicial to trade flows and investment decisions.

This development is most certainly contrary to the opening of markets to goods from the developing countries that we should be interested in encouraging; however, the problem goes beyond the interest of the developing nations alone to affect the entire international community. Recent experience shows, once again, that protectionism engenders protectionism.

It would appear urgent that all countries should become aware of the threats posed by this process and that we should react energetically,

©International Monetary Fund. Not for Redistribution 186 SUMMARY PROCEEDINGS, 1984 tackling the problem efficaciously within the framework of the existing institutions and expanding the sphere of the GATT to include the protectionist measures that have sprung up in the recent past.

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

Mohammad J. Vahaji

In the Name of God, Most Gracious, Most Merciful 4The Evil One threatens you with poverty and bids you to conduct unseemly. God promiseth you His blessings and bounties. And God careth for all and He knoweth all things." Holy Quran 2:268 It is a pleasure to be part of these Thirty-Ninth Joint Annual Meetings of the International Monetary Fund and the World Bank, and I would like to express my gratitude to the organizers of these meetings. I also wish to welcome the two newest members of our two sister institutions. On the verge of the fifth decade of the existence of these institutions, these meetings provide us with an opportunity to gauge the successes and failures of our endeavors in fulfilling the great expectations of masses of poor and underprivileged people, the improvement of whose life conditions is supposed to be the main concern of these international bodies. Looking back, it seems to be obvious now that what was established 40 years ago at the Bretton Woods Monetary and Financial Conference provided a congenial foundation for the rapid growth of major industrial countries. But the system also embodied an inherent imbalance and asymmetry in the world financial relationships manifestly based on the dominance of one currency and one country. Even after the failure of what was considered to be the foundation of the Bretton Woods arrangements, the opportunity to base these relationships on a balanced basis, less inimical to the position of the poor countries, was regretfully missed. This, again, has emanated from the continuation of the preponderant presence of the major industrial countries in these institutions. The story of the last 40 years depicts a pathetic, experience in which any egoistic policymaking of a superpower has been allowed to make the weaker and vulnerable members of the international community suffer from the subsequent economic upheaval, while these two august organizations are supposed to act as a shield and shock absorber to protect and give the much-needed help to the needy and the oppressed.

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We are now almost in the middle of a decade which started with a year of a drastic decline in the output growth of nearly all countries, followed by profound stagnation and an actual decline in the level of output, which was only moderately reversed last year. Even the much- heralded recovery of the last year, if added to the best of expectations for this year, can bring the average output growth of the first five years of this decade to almost one half of the average for the second half of the last decade. Once again, it has been the poor who have borne the brunt of these adverse developments. The average growth rate of the developing countries during the last four years declined to almost one fourth of the corresponding figure for the preceding four years. Among the developing countries, the real price was paid by the oil exporting countries, whose output actually declined by an appalling figure approaching 12 percent for the last four years. Even this disturbing picture is not a true reflection of what actually happened to the needy in the oil exporting countries if income disparity between a few wealthy oil exporters and larger countries among this group is taken into account. This backward movement of income for nearly all the groups of developing countries has a different meaning for their poor population, compared with the slackening rate of growth in countries where personal income is already at comfortable levels. The luxury of a high per capita income affords the major industrial countries the liberty of tackling their problems through nationalistic policies, without taking heed of the plight of human beings living beyond their well-protected political and economic boundaries. Year after year there is talk about huge surpluses of a large variety of agricultural products in the Western industrial countries in the face of starvation and malnutrition in many developing countries. The possibility of producing all these products at a cost below the current cost of production in industrial countries does exist if the badly needed means and incentives are given to the people of the so-called South. The incentives are lacking and the protectionistic walls are being raised even higher, hence the inability of acquiring much-needed foreign exchange at a time when mounting foreign debts of developing countries are approaching the frightening figure of $850 billion and the value of their exports has been declining in each year during the last three years. The purchasing power of their exports is now less than it was in 1979. The charters of the International Monetary Fund and the World Bank were supposed to be the sources of inspiration for remedies for these problems. However, in practice, the major industrial countries have successfully shaped policies in these two institutions which have practically aggravated the existing problems. In particular, the burden

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of any kind of adjustment to the economic fluctuations has been put on the shoulders of the poorer members of the international community. The conditionalities imposed by the IMF and the terms attached to the World Bank lendings effectively pave the way for social and economic instability in the borrowing countries by putting too much emphasis on policies like wage restraint and government budget cuts. Ironically the U.S. Government can easily have a budget deficit of gigantic proportions, driving the international interest rates to unbearable levels and making the interest payments for the debtors a painful impossibility. On the one hand, the discussion about a harmless and much-needed new round of SDR allocation has been blocked at the IMF, and, on the other hand, the growth of the world liquidity has been allowed to become captive to U.S. economic policies. The asymmetries are shocking and no remedy can be expected to be offered by the IMF and the World Bank as long as the decision-making machinery within these institutions is geared to the interests of the industrial countries. The answer, inevitably, will be greater self-reliance and less dependence on major economies and less expectation about their generosity, either directly through official channels or indirectly through the international commercial banks. In my own country, the Islamic Republic of Iran, we have put this solution successfully into practice. We are in the fourth year of a devastating war ruthlessly imposed upon us by the superpowers. In spite of this, we have been successful to set the stage for a major economic recovery over the past two years. This has been made possible through an enhanced foreign exchange position, a deceleration in the pace of price inflation, together with an extended effort to introduce fundamental and far-reaching social and economic reforms. Though the agricultural sector of the economy has faced problems mainly emanating from the structural changes taking place in that sector, the achievements of the industrial sector have been considerable as a result of a sharp increase in investments both by the public and private sectors, with the latter doubling its investment efforts last year. The imposed war has continued, as expected, to place a claim on both the Government's budget and the country's foreign exchange resources. Therefore, the main emphasis throughout has been on the careful management of the country's foreign exchange resources with a view to accommodating the economy's import needs. As a result, in addition to the prepayment of most of our foreign debt obligations, we have been able to accommodate all our foreign obligations without any recourse to new borrowings. Even the attacks instigated by superpowers on our nonmilitary cargoes failed to achieve any disruption in our international transactions and we have been able to fully meet our foreign commitments. In fact, the valuable lessons learned by living

©International Monetary Fund. Not for Redistribution GOVERNOR FOR ISLAMIC REPUBLIC OF IRAN 189 through economic sanctions, sabotage, and the war against our country have made our people ready to refrain from wasteful consumerism. This, we believe, is bringing about economic and social rejuvenation in our society which is being helped and fostered by the social reforms now under way in our country. Perhaps the most important area of policymaking and a major step toward the introduction of socioeconomic reforms based on the principles of Islam has been the inauguration of the interest-free banking system in March 1984. This, undoubtedly, is the first systematic modern attempt to revolutionize the entire banking system of a country and base it on the Islamic principles. This is an altogether new experience, worthy of much research and evaluation, and we are gladly ready to share our ideas and experiences with other nations of the world in an effort to seek ways and means to alleviate the problems of today's international banking relationships. Much of the present international banking crisis and the debt problem have their geneses in the blind borrowing spree during the last two decades from the commercial banks, whose main occupation was to ensure that they would get back the principal and interest of their money without bothering about the inimical effects of such loan servicing on the borrower. This has undoubtedly been aggravated by the upsurge in the level of international interest rates. Any kind of direct involvement and participation by the lenders in the projects for which the borrowed money was supposed to be used would have precluded the banks from unjustified lending in the hope of collecting more interest. The new banking law in our country not only replaces the traditional interest charges with a series of profit-loss sharing arrangements, but also encourages the banks to play a far more active role in the selection, financing, and implementation of investment projects. We very much expect that this kind of risk sharing effectively enhances efficiency. While it is still too early for a final assessment, all current signs point to a very warm reception of the new system by the depositors. In fact, some 20 percent of the former savings and time deposits were changed into new investment deposits within only the first three months of the new system, even in the absence of any obligatory regulations to change the status of the old deposits before March 1985. At the same time, the main challenge remains the extent to which these newly mobilized funds could successfully be channeled into productive projects, which, God willing, can smoothly be undertaken considering the present very promising investment opportunities in our economy. We believe the new system is compatible with today's economic and financial needs of the countries and the idea deserves extended studies

©International Monetary Fund. Not for Redistribution 190 SUMMARY PROCEEDINGS, 1984 and debates in international forums organized by the International Monetary Fund and the World Bank. In our own country, we are closely monitoring the outcome of the implementation of the new system, which has not been faced with any difficulty or unresolvable problems. Hopefully by the next Annual Meetings we would have gained sufficient perspective to comment on these matters. Fellow Governors, what we are observing nowadays as happening to the majority of human beings living in miserable conditions over large, underdeveloped areas of our planet clearly points to a coming crisis, which, we strongly believe, will take the opportunity of discussing our problems out of tranquil meeting places like this and move it to the battlegrounds with an annihilating outcome for the well-being of mankind. Only by restraining the tyrannical economic and political hegemony of superpowers, altering the foundation of the present world economic relationships, and allowing the underprivileged and the poor to have a larger say in the affairs of today's world shall we be able to avoid a bleak future. May God's teachings and guidance illuminate our path and enable us to search for just and lasting solutions to the many problems still besetting the world economy.

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

STATEMENT BY THE GOVERNOR OF THE BANK FOR BOLIVIA

Oscar Bonifaz Gutierrez

I am the first to recognize that it is an impertinence for me to speak when I have already been represented, in an outstanding fashion, by another Governor. However, the seriousness of the present time for my country, and the fact that similar circumstances could in the immediate future affect other nations who are nearing a similar situation, obliges me to take some minutes of your time. The Minister of Economy of Argentina, Mr. Bernardo Grinspun, has fully expressed the thinking that is shared by the Latin American countries. I will not repeat the arguments of his comprehensive statement, with the content and recommendations of which I am in total agreement. What I would like to do, however, and it is for this that I ask your indulgence and understanding, is to refer briefly to the special economic and financial position of Bolivia. Bolivia is the only country that has been obliged to officially declare itself temporarily unable to pay its debt of $720 million to international private banks. Clearly, this is not a significant figure in comparison with other obligations of various countries, but as everything is relative in the international sphere, it constitutes an unbearable burden for our economy at this time. It is also a matter of respecting a hallowed principle among the international community: that of meeting contrac- tual commitments, regardless of conditions or circumstances or of domestic mismanagement of the resources in question. In this connection, we are pleased to see that some countries, by dint of exceptional efforts, have concluded agreements with the International Monetary Fund and are meeting the payments due on their external debt. But there are other countries, such as Bolivia, whose situation is different. Bolivia—less well endowed, with an

September 27, 1984.

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©International Monetary Fund. Not for Redistribution 192 SUMMARY PROCEEDINGS, 1984 economy destroyed by long years of incompetent dictatorships, plus the added complication of its position as a landlocked country—will remain unable to do so until it is in a position to unlock the wealth in its hydrocarbon deposits, mineral resources, especially gold, and extensive areas well suited to agriculture and the raising of stock. Deadlines have been set for Bolivia for resuming its payments to the international banks. If our creditors do not have a change of heart, the difficulties we are facing today—which include inflation on a scale that has reduced the purchasing power of wages to derisory levels, together with real hunger in some regions as a result of the ravages caused by the El Nino current that destroyed a third of our agriculture and livestock—will be compounded by the specter of sanctions in the form of attachments and freezing of accounts plus, of course, the impossibility of obtaining any new credit at all. We cannot ignore the consequences that could follow from such a situation. Just as it is not possible to squeeze blood from a stone, Bolivia, notwithstanding the goodwill of its democratic government, is temporarily unable to meet those obligations since it has to use what little foreign exchange it currently possesses to import food to feed its people and inputs to avert a total shutdown of its productive apparatus. The poorer countries such as mine need the understanding of the institutions sponsoring these meetings. The World Bank, which has done such an outstanding job of supporting the efforts of the underdeveloped countries to increase their productive resources, and the International Monetary Fund, which is deeply engaged in the task of bringing about a harmonious international financial equilibrium, could also help, in a realistic manner and using not altogether orthodox methods, in seeking formulas for understanding between the poorer countries and their international bank creditors. These institutions—set up precisely to promote economic development, strengthen the financial systems of their members and prevent collapses or catastrophes in any of their member states that could affect the others—ought to pay particular attention to situations such as the one I have just outlined. Bolivia has not reneged on its international commitments, but in order to meet them it needs to rehabilitate its economy and put its productive apparatus back on a sound footing. To be able to reopen the dialogue with its creditors, it therefore needs evidence that they are willing to negotiate, without imposing peremptory or unbearable deadlines. I am convinced that the two institutions under whose auspices we are meeting today can play an invaluable role in the attainment of

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these two objectives: the development of our economy and an agreement with the international banks which will give us a breathing space in which to create the conditions essential for meeting our obligations.

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

Mehrabuddin Paktiawal

It is indeed a great honor for me to represent the Democratic Republic of Afghanistan for the second time in the Annual Meetings of the Boards of Governors of the Fund and the Bank. First, let me compliment the management of the Fund and the Bank for the excellent organizational arrangements made for the conduct of these meetings. Let me also record appreciation for the painstaking work put in by the staffs of the Fund and the Bank in preparing the two reports on global economic development and prospects, namely the World Economic Outlook and the World Development Report 1984. These reports bring into focus the formidable problems that continue to beset the world economy. Prospects of a durable global economic recovery are not yet in sight. The turnaround in economic activity which began early last year remained feeble in most industrial economies, barring a few notable exceptions, while the impulse for transmission of its forces to the countries of the developing world has been, so far, extremely weak and halting. More significantly, unemployment and fiscal deficits in industrial countries continue to remain at historically high levels. So do real interest rates, despite their decline from the record levels of 1980-82. Protectionist pressures, too, remain strong; indications are that they have been further intensified since we met last. While these are posing serious threats to the very sustainability of the recovery, the distinct uptrend in interest rates in the United States since the beginning of 1984, and their firming up in other major industrial countries in the second half of 1983, despite the claim of continuing success in the fight against inflation, are, indeed, disturbing developments that give rise to new uncertainties. The non-oil developing countries are the worst victims of the prolonged and severe recession of the early 1980s. The rate of growth of real gross domestic product of these countries, which had decelerated from 5 percent in 1980 to less than 3 percent in 1981, slowed down further to \]/2 percent in 1982 and 1983. With population growing at a faster pace than output, these countries had a declining per capita output for the second year in succession. Although the deceleration

©International Monetary Fund. Not for Redistribution 194 SUMMARY PROCEEDINGS, 1984 in the rate of growth of their exports was reversed during 1983, export unit values remained depressed. The decline in their imports which began in 1982 continued, with a contraction of 1 percent in volume and 4 percent in value during 1983, on top of the 8 percent fall by volume and 11 percent drop by value in 1982. The squeeze on imports reflects the painful adjustments made by these countries in the face of the sharp deterioration in the external environment. Needless to say, the drastic pruning of imports has seriously undermined their development programs and growth prospects. Many are the problems that face the developing countries, especially the low-income least developed countries such as Afghanistan— problems of low commodity prices, sluggish demand for export products as a result of intensification of protectionist pressures in industrial countries, high interest rates, crushing external debt burdens, and reduced capital inflows, to name only the most prominent ones. It is crucial to find practical solutions to these problems urgently, for sustaining even their current low rate of growth. The solutions offered by the existing international economic system call for more and more adjustments on the part of these countries, with the developed economies and the international financial institutions playing only a minor role. It is cruel to expect further adjustments from these countries, which have been struggling to overcome the impact of the adverse external economic environment, and which, according to the World Development Report before us, account for only about one fifth of the world's total output, but have to support three fourths of the world's people. Clearly, the need of the hour is a very substantial increase in concessional external financing of these countries, both by way of balance of payments support and development assistance, but, today, notwithstanding pious declarations and resolutions of international conferences, the outlook for credit flows of such magnitude are, unquestionably, dim. The large decline, in real terms, of official development assistance flows in recent years, and the disappointing experience in mobilizing resources for IDA are amply illustrative of the current trends in international cooperation for assisting the developing countries. It is in this background that we find it difficult to share the optimism of the World Economic Outlook for 1984, which has projected a 3!/2 percent growth rate for the real gross domestic product of the non-oil developing countries during 1984, and a further acceleration in the rate during 1985. Such optimistic projections should not lull us into inaction. The major reason for the disturbing decline in development assistance flows in recent years is the mad race for building armies and stockpiling

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military hardware. Only progress toward disarmament will ease international tensions and help release resources, which are now diverted to military expenditures, for economic development. As you are aware, the Democratic Republic of Afghanistan is a low- income least developed country. For centuries we were exploited by a medieval economic system. The major objective of the April Revo- lution of 1978, which overthrew the feudal system was, and still is, the raising of the living standards of our people through planned development of the economy. Having set the stage for growth with social justice, by implementing land reforms and other progressive measures such as debt relief and irrigation water rights, we have embarked on the path of diversified development of our predominantly agrarian economy, through annual development plans. The role of the public sector has been strengthened and expanded, especially in industry and transportation. Simultaneously, a policy of actively encouraging private sector investment is followed. This policy was reaffirmed by Babrak Karmal, General Secretary of the People's Democratic Party of Afghanistan and President of the Revolutionary Council of the Democratic Republic of Afghanistan, in his address to the National Conference of the People's Democratic Party of Afghan- istan, held in February 1982, in the following terms: . . .we, from the State side, propose to the national capitalists, small traders, and businessmen, honorable, long-term cooperation, and anticipate that their role will be manifested for the development of the country and the welfare of the people. It is a matter of gratification that the private sector has since extended active cooperation to the State. Currently, that sector accounts for about one fourth of the total output of our manufacturing industry. Our government has also initiated a review of the entire gamut of legislation bearing on commercial, banking, and industrial activity, with a view to further improving the climate for economic development with the full cooperation of the private sector. Afghanistan also welcomes foreign capital participation for development of the economy through joint ventures. There are already tax concessions and customs duty exemptions for such investment, and statutory provisions for full repatriation of capital and profits thereon. We are, however, facing numerous difficulties in our endeavor because of the depredations of counterrevolutionaries, actively assisted by international reaction and imperialism. Besides disrupting current economic activities, they damage productive assets and infrastructure facilities and also indulge in wanton destruction of places of worship, medical and clinical centers, and educational institutions. The rebuilding of assets destroyed by this undeclared war of imperialism and

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reactionary forces absorbs a large part of whatever modest resources we are able to mobilize within the constraints set by our low per capita income, leaving practically very little for creating additional productive capacity and infrastructure facilities. Our external finances also have come under severe pressure due to a number of factors. The recession-induced crash in prices and depressed demand for our export products have drastically reduced our export earnings. The debt service obligations have increased in the meantime, making severe dents in our current foreign exchange receipts and curtailing our import capacity for undertaking development programs. With the unilateral suspension of development assistance by the industrial countries and some of the international financial institutions in 1980 and 1981, our external financing problems have assumed serious proportions. Today, our foreign exchange reserves are at a distressingly low level and we are facing acute balance of payments problems, which are anticipated to further intensify. Despite the many problems, in 1983 we could achieve a 4!/2 percent increase in the real material product, thanks to the devoted work of our people and liberal assistance of friendly countries, especially the Union of Soviet Socialist Republics. This welcome trend came after several years of poor growth, but the prospects for sustaining the growth momentum are extremely bleak, unless we get substantial balance of payments support and concessional development assistance. We have approached the Fund for assistance, and we hope that objectivity will be the Fund's guideline in processing our request. . . . I now conclude, looking forward to a constructive policy toward developing countries, a policy that will fully appreciate their problems and find practical solutions within the framework of the socioeconomic and political realities in each country.

STATEMENT BY THE GOVERNOR OF THE BANK FOR YUGOSLAVIA

Vlado Klemencic

The preceding Annual Meetings of our institutions were held at a time of great uncertainties with regard to the initiation, transmission, and intensity of the recovery process in the world economy. This process has now started, although it has been uneven and hampered by numerous obstacles and difficulties. The stability of the process, its strength, and duration are of great concern to us. It is also evident that the debt problem will dominate the world economic stage for

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many years to come. With its numerous political and social aspects, it will be the focus of our concerns, and will require joint efforts of debtor and creditor countries and a severe adjustment process in the developing countries. Yugoslavia acknowledges the fact that it should settle all its debts. We have adopted our own program of economic stabilization, which contains short- and long-term objectives of the adjustment process in the changed environment. After three years of economic stagnation, we are now in a period of recovery and growth. We estimate that the real GNP will increase by 2.5 percent in 1984, in comparison with the preceding year. Total exports are registering an even faster rise. Over the first eight and one-half months of the year, convertible exports rose by 10 percent over those of the same period in 1983. A surplus in the current balance of payments in the exchange with the convertible area is expected to be much higher this year than in 1983. In addition, we can report much better results in convertible cash flows than in the preceding year, when we were faced with considerable increases in exports and long delays in foreign exchange inflows. Also the relation between supply and demand in the market is more balanced in comparison to the late 1970s. Such results in the recovery of production, increased exports, and a more balanced global supply and demand are the outcome of efforts and policies over the last three years. The circumstances prevailing in the early 1980s called for many unpopular measures. Real personal wages have been in a constant decline for the last four years, investment expenditures have decreased in real terms, and to some extent, other forms of consumption. The Fund reported in midyear that the implementation of the 1984 stand-by arrangement was going according to plan, and, in some aspects, the goals achieved were higher than envisaged. This year we have prepared a strategy of gradual decrease in the country's overall indebtedness, both in absolute and real terms, with the intention of reaching a normal stage of the external liquidity of the country by 1990. This program is in its final stage of preparation. Yugoslavia is advocating a multiyear rescheduling. It will still need to refinance the payments on principal falling due over the next four years, but the percentage of such payments to be refinanced would decline from year to year. We count on financial support to be given by the international financial institutions, particularly the World Bank. We will continue to take commodity credits, while, at the same time, we have no intention of seeking fresh money this year or in the future. The decrease of indebtedness, however, must not result in a slowdown of our development, which is indispensable for the country

©International Monetary Fund. Not for Redistribution 198 SUMMARY PROCEEDINGS, 1984 and its further technological advancement. The same applies to the gradual improvement of the standard of living of our population. In the struggle aimed at overcoming the economic crisis and decreasing indebtedness there are still a number of uncertain assumptions and conditions which do not depend on us. An increasing interdependence of economies of all countries whose representatives are gathered here, and of all the countries in the world, is quite evident. We accept our share of responsibility for development in the world economy and in the international financial system. We should not underestimate the burden of austerity measures borne by the population of developing countries which have started implementing their adjustment processes. At the same time, we expect other countries, particularly those whose impact on the world economic movements is stronger, to take their own share of responsibility. It is only if we are aware of the joint responsibility of all countries that confrontations can be avoided and progress made to the benefit of developed and developing countries alike. I wish to emphasize all these points because it might be very dangerous to conclude that the world is now managing the debt problem, and that if we proceed in that way no serious difficulties can emerge if we continue to manage this issue. The amount of unsettled debts in the world is enormous, and the consequences of their repayments have neither been approximately perceived nor realized. In that connection, increasing interest rates, whose levels cannot be compared with any of those in earlier periods, have become a very serious problem. Their increases, together with the rising value of the U.S. dollar particularly, deteriorate the position of developing countries. Industrial countries should introduce changes into their economic policies to contribute to declines in interest rate levels. Changes are also necessary in budget deficit financing and taxation policies. Dis- cussions on protectionism have been initiated on many occasions over the last few years, but not a single determined step has been taken so far toward its alleviation. This would be a precondition to increase exports and to generate funds necessary for debt repayment. On the contrary, further steps toward protectionism are under way. The existing monetary and financial arrangements have proved inadequate to ensure the international financial stability in the long run. A characteristic feature of the existing arrangements was to seek short-term solutions. We must also be aware that medium- and long- term borrowings were lower than the repayments of obligations against that debt. This resulted in net transfer of funds from the developing countries in their transactions with commercial banks of about $7 billion in 1982 and $21 billion in 1983.

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We consider it unavoidable to have the basic principles of the international financial and monetary systems re-examined. This should, in turn, reflect the realities of the time we live in, and the need to create such mechanisms which will provide appropriate development opportunities for all members of the system. These are major issues whose solutions cannot be achieved by short- term activities. They call for long-term strategy and concrete obligations for their implementation. Economic policies pursued by industrial countries have far-reaching consequences for the adjustment processes in the developing world. Therefore, the supervisory role of the International Monetary Fund over these policies could exert a pro- portionally major impact on the decrease of total cost of adjustments, in particular, on the sector of foreign exchange policy, interest rates, and alleviation of protectionism. Yugoslavia supports the requests of debtor countries for better conditions for their debt repayment. We also call for a major involvement by the Development and Interim Committees in this matter. A task force under the aegis of the Development Committee, whose establishment was suggested by the Group of Twenty-Four last April, would also contribute to further elaboration on this issue. We will continue to make efforts within the Group of Twenty-Four, the Group of 77, and the Movement of Nonaligned Countries, to help find mutually acceptable solutions for both the debt problem and international indebtedness. A specifically important element in the present environment is the support given by international financial institutions whose funds should increase more rapidly, if it is the wish of all countries to have them play a more active role in adjustment processes during abrupt declines in commercial financing. However, a weakening spirit of international cooperation has made the international financial organizations instruments for the transmission of disproportionate burdens of adjustment to the countries that seek their assistance. Thus, certain adjustment processes are acquiring asymmetrical features. . . . One of the measures that should be taken would be a new allocation of SDKs. This would directly contribute to improve adjustment processes and to a faster recovery of the world economy, characterized by insufficient utilization of capacities. The latest trends in international liquidity and reduced levels of private capital flows to the developing countries, accompanied by negative transfers of funds, indicate that the new allocation of SDKs would contribute to stability in the international financial system. . . .

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These institutions are today playing not only an important but also a very delicate role. They are points of cooperation among the countries at different levels of development and with different economic systems. Never in the past have we expected so much from these institutions— encouragement of processes in the world economic recovery, solutions of debt problems, and assistance to the least developed countries at the times of their most severe crises. Creativity and flexibility in solving the problems that are placed before them are imperative in the present situation. Having this in mind, I would like to take this occasion to extend our support to the persons heading the World Bank and the International Monetary Fund in their future efforts and activities. It is my pleasure to welcome the representatives of St. Christopher and Nevis, and the People's Republic of Mozambique.

STATEMENT BY THE GOVERNOR OF THE FUND AND THE BANK FOR ST. CHRISTOPHER AND NEVIS

Kennedy Simmonds

I am grateful for this opportunity to respond to the many words of welcome which have been extended to St. Christopher and Nevis since the opening ceremony of the Joint Annual Meetings of the International Monetary Fund and the World Bank. Indeed, this is the first meeting of these organizations which affords my country the honor of participating in the proceedings of these institutions since we signed the Articles of Agreement on August 15 of this year. I would like to take this opportunity, on behalf of the Government and people of St. Christopher and Nevis, to emphasize my sincere appreciation for your warm and hospitable introduction into this most important and resourceful forum for regulation and collaboration on international monetary affairs. St. Christopher and Nevis brings into this forum a very vivid awareness of the reality of the trading and financial interdependence of all of the member nations which are gathered here today. It is an inescapable fact of life that the degree of strength of the economies of both the rich and poor nations alike is tied to the flow of goods, services, and money between their trading partners and themselves. While this phenomenon is perhaps more easily visible from the perspective of developing nations, it will be recognized that the

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deteriorating circumstances of overseas markets must, of necessity, adversely affect the prospects of sustained economic growth in even the most flourishing of developed countries as well. Therefore, the developed countries must have a vested interest in the economic growth of the developing countries. I listened with great attentiveness to the informative and comprehensive reports delivered to the Board of Governors on the subject of the most recent global economic trends and, in particular, I noticed the apparent uneasiness that is inspired by the seemingly intractable debt problems of developing countries. It is all too easy for us to categorize the problems of the developing world as being merely the product of poor financial management and to propose greater austerity as a possible solution. I strongly urge my fellow Governors to guard against any appeal of so facile a view. It is a gross oversimplification of our desperate economic situation. We must compete in the international arena against the background of a legacy of underdevelopment and stunted growth. This situation is compounded by fluctuations in trade conditions over which, in many cases, we have no control. I have a mind to repeat a point which I made in another forum recently: That ministates such as St. Christopher and Nevis are required to perform impossible feats of economic gymnastics—such is the skill, the ingenuity, the coordination, and the daring necessary to walk the tightrope between the growing expectations of our people and a legacy of monoculture which has, itself, a stranglehold on the aspirations of our population. I appeal to this gathering to consider that what is needed is an urgent re-evaluation of the criteria for concessionary assistance to ministates. We need to face the reality that special measures must be evolved for dealing with the new phenomenon of sovereign island states. Sometimes we get the feeling that we are under siege from all sides. On the one hand, our small population and scarce resources severely limit our gross national product, whereas on the other hand, the presence of a tiny nucleus of wealthy citizens can distort our per capita income out of all proportion and place us in a category which then denies the bulk of our poorer citizens the assistance which we so sorely need. While on this occasion I speak with the voice of inexperience in the workings of this forum, yet I speak with experience of the realities of poverty and underdevelopment. I urge that all of us give thought to questioning and challenging the established processes of both the

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International Monetary Fund and the World Bank with a view toward making them more responsive to the needs of all developing countries. To this end, I pledge the energies and cooperation of my delegation, and I look forward to a fruitful and productive relationship as a member of these institutions. Once again, I express the deep appreciation of the Government and people of St. Christopher and Nevis to you and to all members of the International Monetary Fund and the World Bank for the warm welcome accorded to me and my delegation and as the senior member, I extend a word of warm welcome to the People's Republic of Mozambique.

STATEMENT BY THE GOVERNOR OF THE FUND FOR THE PEOPLE'S REPUBLIC OF MOZAMBIQUE

Rui Baltazar dos Santos Alves

In taking the floor to address this gathering we first wish to thank you for the kind references to the People's Republic of Mozambique on the occasion of our joining the International Monetary Fund and the World Bank. We take this opportunity, through the various delegations here present, to send our greetings and our message of peace, friendship, and cooperation to the governments of the Fund member countries. The People's Republic of Mozambique, which gained its independence nine years ago, is continuing the struggle to secure the physical and spiritual well-being of its people, in full awareness of its role in the establishment of peace and the development of international cooperation. In addition to the backwardness and underdevelopment resulting from a distorted economy highly dependent on the outside world that they inherited from the era of colonialism, a series of natural disasters, and the negative consequences of the world economic crisis, the Mozambican people have also suffered aggression and attempts at destabilization in the process of building their nation, in affirming their personality, and reaffirming the right to freely determine their own destiny. The climate of peace and understanding that can be foreseen for the independent states of Southern Africa will enable the Mozambican people to focus all their efforts on rebuilding and restoring their economy.

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The People's Republic of Mozambique has increased bilateral cooperation, thereby gaining positive experience in the development of mutually beneficial multilateral cooperation with all countries, regardless of their economic and social system. Development of Mozambique's vast agricultural, energy, mineral, and other resources and exploitation of its strategic location will require an appropriate mix of locally available means and capacities with physical, technical, and financial resources from overseas. Mozambique's participation in the various international organizations will not only enable it to mobilize resources for its own development but also create favorable conditions for expanding regional cooperation among the various members of the Southern African Development Coordination Conference to the ultimate benefit of the entire international community. As we face the same type of problems and difficulties as all the sub- Saharan African countries, the People's Republic of Mozambique hopes that it too can benefit from the priority attention that these meetings have rightly endorsed. We are certain that with courage and a greater sense of justice, we will together be able to carry out actions that will promote real growth in the currently underdeveloped countries and provide the basis for stable growth of international economic and financial relations. In conclusion, we wish to thank the Government and people of the United States for the hospitality they have extended to us and for the excellent atmosphere that facilitated the accomplishment of our work.

STATEMENT BY THE GOVERNOR OF THE BANK FOR FIJI

Mosese Qionibaravi

I would like first to extend a warm welcome to St. Christopher and Nevis as the newest member of the Fund and the Bank. I also wish to welcome the representatives of the People's Republic of Mozambique whose membership has just been accepted. On this occasion, I would also like to express my deep appreciation to the President and the people of the United States for the warm welcome and hospitality extended to us. We meet at a time when the world economic situation looks promising. After a long recession, the international economy led by North America and Japan showed strong recovery in 1983 and 1984.

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Substantial gains have been made in controlling inflation in major countries, thus creating a suitable climate for recovery. The debt problem that loomed large in 1982 and 1983 now appears to be more manageable. However, there are certain elements that raise doubts as to whether, in the absence of positive action, the recovery will be sustained. In many countries, appropriate policy measures need to be put in place to address problems and reduce rigidities which have led to inflation, recession, mounting debt, unemployment, and reduction in the international flow of goods, services, and capital in the last three or four years. Unemployment is still high in industrial countries outside the United States and Japan. High real interest rates in the United States continue as a result of large fiscal deficits and increasing demand for capital and credit from the private sector, posing a policy dilemma for other industrial countries where the recovery is still weak. Exchange rates are being largely influenced by developments in the financial markets leading to extreme volatility. The combination of high interest rates and a strong U.S. dollar is draining savings from other countries and diverting them to the United States. Less developed countries, in particular, are under strain with their debt servicing burden which in turn creates an unstable situation for commercial banks and other lending institutions. There is a further threat to the continuation of world economic recovery and its sustainability over a long period. Protectionist tendencies are increasing. This is partly the result of high unemployment. It also reflects a combination of rigidities in the labor markets, exchange rates not aligned with basic economic conditions, and a misconceived belief that incomes and jobs can be protected by keeping out cheaper imports. These tendencies pose a threat not only to the prosperity of countries dependent on world trade, but adversely affect the growth even of the countries that embrace such policies because of the attendant misallocation of resources and consequent loss of efficiency. I have taken a little time in underlining these problems because they point out the basic issues which the International Monetary Fund and the World Bank should address in the interest of advancing the role for which they were constituted. The lessons of the postwar period of prosperity, depression, fluctuations in world trade, and financial strains clearly demonstrate the increasing economic interdependence among nations. No country or group of countries should pursue independent policies without considering their impact upon other countries. We must embrace international coordinated actions if growth with stability is once more to be achieved by the membership of the Fund and Bank. It is in this context that we should pause to consider what policies the

©International Monetary Fund. Not for Redistribution GOVERNOR FOR FIJI 205 two institutions should follow in light of the basic problems confronting us and the lessons that we have learned from the recent past. At our September 1983 Annual Meetings, it was decided to reduce access limits in terms of multiples of quota but to maintain approximate absolute access limits in 1984. I am most concerned that, in the implementation of this decision of the Interim Committee, there seems to be a marked trend toward granting a level of assistance which falls substantially below the approved access limits. I note that, in the implementation of the enlarged access policy, the average size of commitment under stand-by arrangements has declined substantially, and purchases under special facilities in 1984 are expected to be only one half that in 1983. The shift toward lower access cannot be explained solely by improvements in the external position of developing countries. The factors I mentioned earlier, such as protectionism and high real interest rates, and the sharp curtailment in the access of many developing countries to private sources of capital tend to suggest that the utilization of the access limits should be increased, so that a larger proportion of members' deficits could be financed with Fund resources. This would also assist in giving confidence to the banking community to assume a more active role in resolving the current debt problems. Thus, it is important for the Fund to send positive signals by providing a more realistic access to its resources than has been the practice in the recent past. I would also encourage the Fund management to help debtor countries to secure multiyear debt rescheduling on more favorable terms. I attach great importance to the special facilities of the Fund. They constitute a useful and important instrument for short-term balance of payments assistance. For a country like Fiji, whose resource base is narrow, and who has been faced with historically low prices for its major export, sugar, a facility such as the compensatory financing facility is extremely useful. In fact, we have been making use of that facility. The shortfall in our exports flowed from factors beyond our control. But I note with disappointment that conditions for access to this facility have been made stringent. Once the shortfall in exports has been proven to be outside the control of a country and to be of a temporary and reversible character, it is clearly inappropriate to make access to the compensatory financing facility conditional upon pursuit of restrictive macroeconomic policies. I would therefore urge that the Fund revert to a more traditional approach to the compensatory financing facility under which the test of cooperation is given a more liberal interpretation. Let me now turn briefly to the equity aspects of adjustment, the question of conditionality, and the need for an appropriate balance

©International Monetary Fund. Not for Redistribution 206 SUMMARY PROCEEDINGS, 1984 between growth and stabilization objectives in Fund programs. I accept that orderly adjustment on the part of the member countries is both desirable and necessary. In recent years, however, the burden of adjustment has fallen rather too heavily on the developing countries, particularly those countries which entered into Fund programs. It is my view that the international community should give some thought to the idea of introducing more effective surveillance procedures in the Fund, so that the burden of adjustment could be shared more equitably. I accept that conditionality associated with Fund credit is an important and a useful tool of adjustment. However, there is evidence that suggests that conditionality in recent times has become so stringent that it discourages members to come to the Fund at an early stage of their problems. Perhaps the Fund could approach the application of conditionality with more sensitivity to the social costs and political realities inherent in adjustment. I shall now address the issue of SDR allocations in the fourth basic period. The Fund staff paper on this subject clearly establishes that there exists a long-term global need for reserve supplementation. The projected recovery in world trade will result in a substantial increase in the demand for reserves. Already, a large number of countries undertaking serious adjustment efforts are faced with inadequate levels of reserves. In the process of their adjustment efforts, many of these countries have already compressed their imports to a level where it is seriously undermining investment and growth. All these factors, together with the fact that inflation has been brought under control in many countries, suggest that this may be a propitious time for a significant allocation of SDKs. . . .

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

Kikham Vongsay

Permit me to express at the outset, on behalf of the delegation of the Lao People's Democratic Republic, my heartiest congratulations to Noboru Takeshita of Japan for his unanimous election to the important position of Chairman of these Thirty-Ninth Annual Meetings of the Boards of Governors of the International Monetary Fund and the World Bank. My delegation is certain that his broad range of

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experience and skills guarantees that our meetings will yield the anticipated results. My delegation would also like to take this opportunity to extend its sincere greetings to the delegations of the friendly countries which have become full members of our two institutions. Finally, I would like to express my sincere thanks for the warm welcome and hospitality extended to us by the Government and people of the host country during our stay in their beautiful country. Our thanks also go out to the Managing Director of the International Monetary Fund, to the President of the World Bank, and to their respective associates, for the excellent arrangements and facilities provided for a successful conference. After three years of what could be termed uninterrupted declines in growth and trade, the international economic situation has improved somewhat in the last 12 months. This should facilitate the adjustment process under way in many developed and developing countries. Economic growth slowed in the industrial countries during the 1970s, and at the end of that decade inflation appeared impossible to control. Vigorous anti-inflationary policies based largely on monetary policy and continuous budget deficits have prolonged the recession of the early 1980s. The high level and volatility of interest rates as well as the instability of exchange rates in the industrial countries over the past two years have posed serious problems for these countries and the rest of the world, in particular the developing countries. An unprecedented number of developing countries have had difficulty servicing their debts. Commercial bank lending to the developing countries has slackened off somewhat, further aggravating the liquidity problems of the borrowing countries. Debt reschedulings have afforded some respite to many developing countries allowing them to benefit from a regular flow of long-term capital to use for their development and to increase their exports so as later to be able to repay their debts. Development assistance contributions have been irregular and uncertain, and protectionist pressures are jeopardizing the liberal system of multilateral trade. To meet the urgent problems that have arisen, many developing countries are obliged to take steps that hamper their future growth. For budgetary reasons, some of them are cutting back or eliminating sound and promising programs aimed at increasing the production of small farmers, improving education and sanitary conditions, and extending services to the urban poor. Because of the stagnation of their economies, the developing countries are compelled to reduce imports, which in turn slows recovery

©International Monetary Fund. Not for Redistribution 208 SUMMARY PROCEEDINGS, 1984 in the industrial countries. About 30 percent of the 1982 decline in imports worldwide can be attributed to the import cuts by the non-oil developing countries. There can be no strong and lasting recovery in the industrial countries unless it is matched by recovery in the developing countries. With your permission, I would like briefly to inform you of some of the results of implementing the development strategy and plan in the Lao People's Democratic Republic in 1983. We are pleased to report that the achievements in the sacred effort to defend and build socialism in our homeland in the past year have been significant, this despite the enormous difficulties caused by natural disasters and especially by the manifold incidents of subversion and sabotage perpetrated by the enemies of the new Government. The diverse Lao people, under the firm leadership of our Party, mobilizing all their physical and intellectual energies and benefiting from the assistance of fraternal socialist countries, friendly countries, and various international organizations including the International Monetary Fund and the World Bank, have accomplished the following: The gross domestic product increased by 9 percent over 1982 and national income rose by 6 percent; agricultural production was up 3.5 percent and industrial output 18.9 percent; the domestic revolving fund used for development purposes was increased by 26 percent, while export proceeds rose 10 percent; the volume of transportation and communications services increased 38 percent. It is obvious that these significant achievements were largely due to the transformation and reorganization of the agricultural cooperatives and of the industrial and commercial firms, in other words to the rationalization of their management. As regards agricultural production, despite poor weather total rice tonnage is at roughly the same level as in 1982. This does not mean that our people are without problems. Indeed, this is far from the case. Our Party and our Government are deeply devoted to improving the living standards of our diverse people to the greatest possible extent. As regards the policies followed by our two institutions, I fully share the views expressed by many delegations from developing countries. Accordingly, we would like to make the proposals which follow. We believe it will be necessary to increase the resources of the International Monetary Fund and the World Bank in an accelerated manner in order to be able to meet international requirements. . . . My delegation remains concerned by the fact that our two institutions have not yet been able to examine certain credit requests from a particular member country which has been provisionally suspended

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for political reasons. We believe that once a country fufills all its obligations as a member, it must be treated normally in a nondiscrim- inatory manner just as all other members. We would like both our institutions to re-examine the decisions that are prejudicial to such countries. As regards the future role of the International Monetary Fund, we believe the Fund should play a vital role by supporting the adoption of measures aimed at managing the crisis and should contribute to resolving the fundamental problem by promoting well-crafted medium- term adjustment programs. We ask that access limits and the future of the policy on enlarged access be reviewed annually in the light of all pertinent factors. We strongly support the Fund's efforts to arrange for additional lending from public sources to cover the gap between available credit lines and the Fund's commitments. The institution should cooperate with private banks in lining up the resources to finance economic development. In conclusion, my delegation believes that the views expressed above will help strengthen the role and effectiveness of our two institutions throughout the world. We heartily congratulate the Managing Director of the International Monetary Fund and the President of the World Bank for the remarkable manner in which they have performed their duties in such a serious world economic climate. We wish these Thirty- Ninth Annual Meetings outstanding success.

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

Abdul Daim bin Haji Zainuddin

It is my privilege and honor to address, for the first time, the Annual Meetings of the Boards of Governors of the International Monetary Fund and the World Bank on behalf of the Government of Malaysia. Allow me first to extend my congratulations to Mr. Noboru Takeshita, Chairman of the Annual Meetings, and my appreciation to Mr. de Larosiere and Mr. Clausen and their respective staffs for the excellent arrangements made for these meetings. The world economic outlook is now showing some positive signs of improvement compared with the situation in the last two or three

©International Monetary Fund. Not for Redistribution 210 SUMMARY PROCEEDINGS, 1984 years. There are some indications that the major industrial countries will show significant growth in their economies. However, considerable anxiety still exists at the thought that the recovery may not be as strong as is hoped, and that its effects will not permeate to all countries in the world, especially the developing countries. Any renewed recession would be a heavy blow to developing nations, especially the low- income and heavily indebted countries that are still trying to pull themselves out of the last recession. Economic conditions in the developing countries are still fragile, and any new round of increase in interest rates, protectionism, or weakness in the economic growth rates of the major developed nations would only spark another recession that would set back whatever little gains have been made over the last few months. Indications are that growth in the United States, which has provided grounds for optimism in the early part of the year, is expected to slow down in late 1984 and in 1985. For 1985, the growth rate of real GNP in the United States is expected to decline to 4 percent from about 7.3 percent in 1984. This, coupled with an expected decline in the growth rates of other OECD countries, would reduce the OECD growth rate to 3.4 percent in 1985. It is important, therefore, not just for the economies of the developed countries to strengthen the momentum of growth so far achieved, but to also have the will to lay the foundation for even stronger growth in their countries. This would not only assist the developing nations to extricate themselves from the current economic difficulties but also enable them to grow at rates that would allow for the achievement of their economic and social development targets. While we agree that it is difficult to project economic growth with any certainty, one thing is still clear: the greatest threat to economic growth lies in the disparate performance of monetary and fiscal policies of the major industrial countries, especially in the United States. If their performance turns out to be below that projected, the consequences for developing countries will be exceedingly damaging. While the developing nations are attempting to improve upon their performances, it is important that their efforts are not hampered by the policies of developed nations. Many developing nations have reviewed and revised many of their economic and fiscal policies and embarked upon austerity measures in order to meet and overcome their current economic difficulties. However, there is a limit to what they can do and the measures they can take without causing serious disruptions to their development plans. The situation is so fraught with dangers that any excessive measures run the risk of backfiring and would take years and even greater hardship to recover from. It is thus important for industrial nations to play their role, to contribute toward the estab-

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lishment of sound economic and fiscal policies for the betterment of the international community. It cannot be stressed too much that the International Monetary Fund must continue its efforts to aid the adjustment efforts of member countries by providing adequate financing. This must be on a scale commensurate with the needs of member countries now that the access to international capital markets has become more difficult for developing countries. We are disappointed that the access to Fund facilities has become increasingly subject to greater conditionality due to the desire of the Fund to conserve resources. The issue here is surely how best the Fund can help the member countries facing problems of balance of payments difficulties to adjust over time without being too destructive to economic growth, domestic political stability, and national development. The liquidity and financial viability of the developing countries are just as vital to the developed countries in an interdependent world. Shortsighted pressures to curtail the role and effectiveness of the Fund, at a time when its assistance is most needed, could only rebound on the developed countries. While the major burden of adjustment is being borne by the developing countries themselves, they must be assured of at least a certain minimum support from the Fund. Moreover, we are disappointed by news that some industrial countries have suggested reducing or even eliminating the policy of enlarged access. It must be noted that although the current account imbalances of the non-oil developing countries have declined, the fragile state of the world payments situation still makes it appropriate to continue the limits of enlarged access for a further period. In implementing the access limits, the Fund has to consider seriously the borrowing requirements of members and allow increased access, depending on the seriousness of their balance of payments needs and the strength of their adjustment efforts. On the question of an allocation of SDKs in the fourth basic period, we are concerned that the major industrial countries continue to refute the clear evidence that all requirements for an allocation of SDKs have been met. The need for additional unconditional liquidity in the face of declining reserves has been established by almost all technical analyses. The arguments that an allocation of SDKs will lead to higher world inflation are not valid in an environment of declining inflation, especially when the reserve-creating capability of the private capital markets is not forthcoming to assist the orderly progress of adjustment being undertaken by the developing countries. I consider, therefore, that there should be an allocation of SDR 4 billion to SDR 5 billion a year for the next two years in order to

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alleviate the strained international liquidity situation. An allocation in the present circumstances will be critical in the much-needed bolstering of reserves at a lower cost, thus helping to alleviate the international debt problem. It will also improve over time the effective functioning of the international monetary system. . . . The actions that are needed to tackle the difficult conditions of the world economy are both urgent and obvious. They have been discussed at various international forums. Pledges and commitments have been made by all parties to improve the situation. However, we are disappointed that many of these promises have remained just that: promises. The experiences of the last decade showed that there is still no strong commitment to look beyond narrow national interests to the wider needs of the international community. We hope that this forum will be different, and that the hopes and wishes of the majority in this hall will not be drowned in the flood of good intentions and empty pledges. It is our hope that we will exercise the proper judgment and leadership that will make these meetings remembered long after we have all returned to our countries.

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

Wistin Abela

During the past year, we have seen economic recovery get under way in the industrial countries after the most severe and prolonged recession since the Great Depression. We have also seen concerted efforts set in motion to deal with the severe debt problems that had beset and continue to beset a number of countries in the developing world. These are doubtlessly positive developments. But we cannot afford to be complacent about them. Without wanting to sound unduly pessimistic, we must point out that neither the world economy nor the international financial system is yet in a particularly healthy condition. Steering the global economy back toward a sustainable growth path and restoring stability to the financial system are indeed a challenge that will require further efforts, both at the national and at the international levels. For one thing, the recovery in the industrial countries is still very uneven. Although most of these countries have been quite successful in bringing down inflation, there are some notable exceptions. More- over, unemployment levels remain stubbornly high almost everywhere.

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Worse still, there is a real danger that the continuing high level of interest rates will choke off the recovery before it has time to become more broadly established, and before its effects filter down significantly to the developing world. Above all, we must not forget that the systemic factors at work in the world economy—the structural imbalances, about which there has been almost universal consensus—still have to be tackled if the present recovery is not to be more short- lived than the previous cyclical upswing, and the subsequent down- swing more severe and prolonged than the one we have just been through. In these circumstances, the least we can do is to revive and strengthen the spirit of international cooperation which had inspired the founding fathers of the two Bretton Woods institutions, and which, sadly, has been so badly weakened by years of stagflation. Strengthening cooperation implies two things, even though the two may not be unrelated. First, it means that governments—especially in the larger, more economically powerful countries—should take more account of the international consequences of their domestic economic and financial policies. Second, it means that the international institutions—like the Fund and the Bank, among others, should be strengthened further. These institutions, after all, are the visible embodiment of the spirit of international cooperation. Whatever their defects, it would be hard to imagine how the world could be better off if their influence were diminished and their role curtailed. With respect to the international consequences of domestic economic policies, there can be no doubt that the fiscal deficits of some of the major economies, when combined with the strict adherence to policies of tight monetary control, are contributing to the present high level of interest rates. These, in turn, not only aggravate the debt burden of several developing countries but also threaten to cut short the recovery in the industrial countries. Moreover, when coupled with large current account deficits, financed by potentially volatile capital flows, they pose another different threat to international financial stability. Protectionist measures, on the other hand, are even more obviously inimical to the spirit of international cooperation. Such measures should be resisted at all costs. Economic theory itself can only suggest one argument to justify protection, namely, the "infant industry" argument. And surely there are no infant industries in the industrial countries—especially none that is threatened by competition from the developing countries. More likely, there are declining "old industries," which the theory of comparative advantage suggests should now be left to the developing countries if there is to be a proper international division of labor that would lead to increased world output for the benefit of all.

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We are pleased to note, however, that there seems to be a growing interest in multilateral trade negotiations under the auspices of the GATT, and we would like to join our voices with those of the Development Committee which, at its April meeting here, expressed the hope that the GATT should continue to play the central role in its efforts to bring about a more open trading system. These negotiations should, in particular, consider ways of dismantling nontariff barriers and other measures adversely affecting the trade of developing countries, which seem to have increased alarmingly during the past years. With regard to the international institutions, in particular the Fund and the Bank, strengthening them means not only providing them with adequate resources but also enabling them to play a wider role, through greater flexibility and the development of procedures more suited to the conditions of the present times. Regrettably, however, we note that when it comes to providing them with resources, the Fund and the Bank are being increasingly used as bargaining counters by the more powerful member countries in disputes over matters extraneous to these institutions. We have in mind, in particular, the recent unedifying wrangles over the selective capital increase for the Bank, and previous attempts to subject the Fund to conditions that would have undermined its autonomy, such as putting pressure on the Fund to introduce political considerations into its lending policies. It is the Fund that should influence the policies of members, and not vice versa. Through exercising "firm surveillance," in accordance with Article IV of its Articles of Agreement, we feel the Fund should ensure better coordination and compatibility of policies among the major industrial countries, so that the burden of global adjustment does not always fall on the poorest and weakest of its members as has happened hitherto. We regret, also, that despite the stagnation of global reserves during the last three years, no allocation of SDKs has been made for the fourth basic period. Yet such allocations would have helped ecqnomic recovery without being inflationary, particularly if linked with development finance. Moreover, they would have eased the serious constraints in the payments position of many countries and, besides promoting world trade, they would also have helped reserve diversification and generally supported orderly adjustment. Therefore, we strongly urge those member countries that have so far not found it possible to agree to an SDR allocation to reconsider their position. . . . The provision of adequate financial resources, though necessary, is not in itself sufficient to ensure that the Fund and the Bank respond sensitively to the aspirations of the developing world. Thus, while my country has always supported moves to increase the resource base of these institutions, we have consistently deplored the fact that, given

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the criteria generally applied by the Fund and the Bank, the middle- income countries stand to gain very little from membership in the two institutions. In the case of the World Bank, for instance, the only type of aid to which such countries are entitled, under present policies, is in the sphere of technical assistance. Neither do current proposals for graduation from the World Bank and other multilateral development banks augur well for middle-income countries such as Malta in this respect. Yet, we must submit that the criteria of income and GNP per capita do not in themselves constitute an adequate yardstick of development. We feel, as we have repeatedly stated in this and similar forums, that account should also be taken of such factors as resource endowment, levels of technological know-how, size and openness of economy, and vulnerability to external shocks. Thus, rather than the graduation principle, we would like to see alternative approaches developed, within the Fund and the Bank as well as elsewhere, to the problems at present besetting many developing countries. The plight of those countries overburdened with foreign debt also deserves special and urgent attention. It is not enough to point out that the combined deficit of such countries has declined from $82 billion to $56 billion over the past year. These gains have been made at the price of a severe setback to the development process and a fall in living standards in these countries. The result has been, as the Commonwealth Group of Experts chaired by Lord Lever points out in its excellent Report, "The Debt Crisis and the World Economy," that people in these countries have been driven to the margin of tolerance, and that some countries may even be contemplating reneging altogether on their debts. Should that happen—should we be faced with nonperforming debts on a large scale—the international financial system could be dealt a mortal blow. Therefore, apart from all moral considerations, it would clearly be in everybody's interest to give serious consideration to all schemes aimed at resolving or alleviating these problems. Besides other suggestions, these Experts call on the governments of all creditor countries, in cooperation with the Fund, to insure loans from private banks to debtor countries on a scale large enough to eliminate the need for debtor countries to service their debt by premature exports, or to postpone the day of reckoning by refinancing past loans. We believe that this approach, which attempts to deal with the root causes of developing country debt problems, deserves serious and sympathetic consideration. Another proposal that has recently been made, and which, in our opinion, should be put into effect expeditiously, is the setting up of a special facility within the Fund, similar in concept to the compensatory financing facility, to assist debtor countries adversely affected by

©International Monetary Fund. Not for Redistribution 216 SUMMARY PROCEEDINGS, 1984 increases in international interest rates which are completely beyond their control. Indeed, we have often urged that even large increases in import costs, like shortfalls in import earnings, should qualify for compensatory financing, particularly for those developing countries whose openness makes them exceptionally vulnerable to such shocks. In conclusion, if the Fund and the Bank are to continue to play a meaningful role, so as to ensure increased economic well-being for all our peoples, they must adapt—and be allowed to adapt—to the constantly changing environment. In short, we need to recapture some of the spirit that inspired the founding fathers of these institutions. I sincerely hope that our discussions at these meetings will make a valid contribution to this end.

STATEMENT BY THE GOVERNOR OF THE FUND FOR NEW ZEALAND

R. O. Douglas World Economic Situation A striking feature of the present international situation is the firming- up that has taken place during the course of this year in the outlook for the world economy. We have been through a stage when estimates and projections of such key variables as the growth in the volume of world trade, or of the growth in demand in the industrial economies, have moved up with each fresh set of forecasts. This pattern is in marked contrast to the pattern of recent years. It is generating a new set of expectations—if not of optimism then at any rate no longer of unbridled pessimism. The outlook is, by the dismal standards of recent years, relatively encouraging. Global economic expansion is being driven by broadly based and vigorous growth in the United States. By the end of this year output in the United States should be over 13 percent up, in real terms, from the trough of the recession in late 1982. A strong recovery is under way in world trade, with trade volumes likely to rise this year by over 8 percent. Inflationary pressures have subsided in many industrial countries and have not been revived by economic recovery. This is all having widespread and positive effects. Developing country imports are now rising after two years of decline—and their output is now rising significantly faster than population growth. These broad indicators do, however, include continuing bleak prospects for some regions of the world, even under the most optimistic scenarios for the international economy as a whole. And they do not remove the need for difficult economic adjustments by many countries.

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A key question is whether the present rapid economic expansion will settle down to a more modest, but enduring period of rising levels, of output—with all that implies in the way of a favorable international environment for the changes some of us need to make, in any event, to restore growth and development. Or whether such elements as the uneven pattern of economic growth—rapid in the United States, and sluggish in Europe—and the very high level of international interest rates, will set in motion forces that will return us to the economic stagnation of earlier years. I will comment on three aspects of this: in the first place, barriers to international trade; in the second place, the responsibilities that all countries have to tackle their own problems; and lastly, the financial cooperation at the international level which has to support their efforts.

Trade and Protection Whether or not it proves possible to avoid the imposition of further restrictions on international trade, and to roll back existing barriers to trade, will have a major influence on the economic prospects of all of us. The recent record is not encouraging. In one area of special interest to us—agricultural trade—markets are deteriorating under the impact of tightening restrictions and increasing subsidies. New Zealand has itself long maintained very high levels of protection for manufacturing industries. We have recently decided to phase out import controls and rely instead on tariffs. We will end up with a lower and more uniform rate of protection. We are doing so primarily because we think that we ourselves will benefit from this step. Excessive levels of protection are costly to the economy. The direct impact falls on consumers and unprotected industries—especially in the export sector—in the form of higher costs for goods and services. They also subsidize industries that compete with imports: industries that need to rationalize, improve productivity, and stand on their own feet. And finally they fail over the long run to increase employment or economic growth.

Economic Change A feature of a meeting like this is the similarity of the economic problems that many of us face; the similarity of what we need to do about them; and finally the similarity of the difficulties in the way of bringing those changes about. There are some impressive examples of countries—both developed and developing—who have in the very difficult circumstances of recent years made the economic changes necessary to lay the basis for a return to sustainable growth and

©International Monetary Fund. Not for Redistribution 218 SUMMARY PROCEEDINGS, 1984 development. Their resolution is already paying off in the form of rising levels of production and employment, an easing of external financial pressures, and returning confidence. Some of the rest of us— New Zealand included—have delayed for a long time before setting out down that path. Economic adaptation and adjustment is not just a matter of identifying what needs to be done. I see little room for argument on the lessons to be drawn from the experiences of so many countries. These lessons include the importance of a realistic exchange rate; the importance of letting interest rates encourage savings and promote the best use of funds for investment; the importance of reducing excessive levels of protection, which deny the consumer the benefits of international trade; the importance of getting labor markets to work better and increase employment; and the importance of reducing budget deficits to sustainable levels and reducing dependence on external borrowing. The real challenge is rather different. It is to develop public understanding of why changes have to be made, and to arrive at a broad-based consensus on what has to be accomplished. That is, naturally, easier said than done. We have in the last couple of months been trying to do just that in New Zealand. We have been doing so because earlier very cautious attitudes to economic change, and a preference for tackling symptoms rather than causes, had been based on a profoundly pessimistic view of what the public could understand or support. We now take a different and more optimistic view. We realize that we cannot protect everyone from the adverse short- run impact of what has to be done. We can and we will protect the position of low-income families. That is central to our economic program, and is an important reason for confidence that it will be supported by the community as a whole. A final point on economic change. A country such as New Zealand has the resources and the social infrastructure to support the most vulnerable section of the community. The adjustment problems of low- income developing countries are of a different order of severity, not only because of low overall levels of income but also because of the scarcity of social welfare mechanisms to meet basic human needs. It is those countries in particular whose efforts to develop and adapt deserve the full support of the international community.

International Financial Cooperation The International Monetary Fund and the World Bank are the major mechanisms through which the international community can support the adjustment and development efforts of individual countries. The

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enlarged access policy of the International Monetary Fund, and the Special Action Program of the World Bank, have each made vital contributions in a period of acute difficulties. It is now time for both institutions to consider directions for the future. They will face further challenges, and will need to respond to them. International trade and finance issues need to be reviewed in a comprehensive manner. I welcome the recent agreement to schedule special discussions of these matters at the next meetings of the Interim and Development Com- mittees. I will also comment on four issues of immediate concern.

IMF: Enlarged Access Policy The IMF's Interim Committee has very recently decided to reduce the limits on countries' access to the Fund's financial resources. The present enlarged access policy has enabled the IMF to provide large- scale financial assistance to countries in acute balance of payments difficulties, assistance which in turn has acted as a catalyst for additional bank lending. Over time, if payments imbalances decline and if quotas are increased, then the IMF should revert to limits on access that can be financed by quota subscriptions alone. But I regret that it has been thought necessary to reduce the limits at this point. I hope this action will not be seen as signaling a lack of support for the adjustment efforts of individual countries—efforts that will be every bit as arduous next year as this.

IMF: Allocation of SDRs New Zealand will continue to support the resumption of SDR allocations. Provided the size of the allocation is carefully set, and timed, we do not think it would risk reviving inflationary expectations. An allocation will permit the rebuilding of reserves to proceed at a faster rate than would otherwise be the case. This is particularly important given the very low level of access that many countries now have to the international capital markets. . . .

STATEMENT BY THE GOVERNOR OF THE BANK FOR PAPUA NEW GUINEA

Phillip Bouraga

As we review the world economic situation in 1984, we see signs of economic recovery in the United States, and to a lesser extent, in Western European countries. However, we all acknowledge that several major concerns still confront the world community. Interest rates in the financial markets remain high, making the cost of much-

©International Monetary Fund. Not for Redistribution 220 SUMMARY PROCEEDINGS, 1984 needed development funds burdensome for all borrowers. The rate of inflation continues to remain at high levels in many countries, thereby adversely affecting their growth objectives. These depressing conditions, which have continued from the period of the recession, continue to give rise to high levels of unemployment, low export earnings, high debt service burdens, and low levels of economic growth. Papua New Guinea, as a small island developing country, is concerned, along with many other countries, about the problems of sustaining the present economic recovery, because it also affects our development objectives and prospects just as intimately. During the last three years of the recession, Papua New Guinea, and my Government in particular, had to come through a very painful adjustment period. During the three-year period of the recession, we cut government expenditure at an average rate of 3 percent in real terms a year. This meant trimming our public service by 6 percent and generally rationalizing the functional activities of the Government so that we can continue to provide essential services required by the population within our existing resources. Because of the openness of our small economy, my Government also tightened monetary policy to ensure that the balance of payments did not deteriorate to any significant extent. These fiscal and monetary initiatives, together with the existing stabilization schemes we have for our major export commodities, such as copper, coffee, cocoa, copra, and palm oil, as well as the appropriate wage and exchange rate policies, have lessened the adverse domestic impact of the global recession. With these domestic developments, my Government continues to formulate its fiscal and monetary policies to ensure continuous suste- nance of the current favorable domestic economic conditions as were implemented by the Government in response to the global recession. The most noted initiative is the current Government's objective to develop a medium-term development planning program. The new initiative has been to change the Government's pattern of expenditure and revenue generation to a five-year cycle because of the current medium-term forecast of weak metal and agricultural export prices and the growing burden of recurrent expenditure. This initiative has been considered necessary because we have come to realize that management of our resources should be given special attention, so that we can better withstand future prolonged adverse economic conditions like the recent recession we have just come through. As part of the new initiative to shift to, and, at the same time, to strengthen our medium-term planning capacity, Papua New Guinea

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has committed itself to a more growth-oriented approach to development. This involves major reforms in our economic planning, financial regulation, and personnel management policies. An important aim in this exercise is to strengthen the functional capacity of line departments to more efficiently perform their respective development functions. Papua New Guinea recognizes that these new initiatives being undertaken by my Government will not produce immediate tangible results. In consultation with the World Bank, we have decided to concentrate our efforts in the most important economic sectors such as agriculture, forestry, fisheries, education, minerals, energy, communications, road, and particularly, air transport to achieve some economic growth in the short term to medium term. . . . I have taken the trouble to briefly and generally outline the new development plans for Papua New Guinea because the sustainability of the present recovery, and indeed, the world economic and financial developments in the 1980s and 1990s are going to be of utmost importance to the success of these plans. To illustrate this point, our new plans and initiatives for development will require additional financial flows in the form of new commercial and concessionary borrowings. At the same time, we will require external markets for all our products. It is most important for us, as I am sure it is for most other countries, that world trade continues to expand and that interest rates and world inflation decline to levels that would promote national as well as international economic growth.

STATEMENT BY THE GOVERNOR OF THE FUND FOR PARAGUAY

Oscar Jacinto Obelar

I have the honor, on behalf of the Government of the Republic of Paraguay, to present friendly and cordial greetings to the Chairman of the Joint Meeting; to the authorities and people of the United States of America; to the Managing Director and Executive Directors of the International Monetary Fund; to the President and Executive Directors of the World Bank; to the Governors and delegates of the participating countries; and to all the staff of the two institutions who are performing such valuable services. This Annual Meeting finds the world economy on the way to gradual recovery, with the degree of recovery differing among countries depending on their level of industrialization. Within this context, the developing nations harbor rising expectations that they too will soon be able to share in the benefits of recovery. Despite the considerable

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domestic efforts they have made, often at high social costs, the developing countries are experiencing a growing need for timely and effective international cooperation rooted in a true understanding of the crisis that is still affecting them. Analysis of the causes and consideration of the corrective courses of action adopted reveal significant differences in the ways and the intensity with which the economic crisis has tested each country's capacity and options for overcoming the recent difficulties. Thus, despite its exemplary growth over the past decade, Paraguay has been unable to escape the impact of external recessionary factors coupled with difficulties brought about by adverse natural conditions. May I be allowed to present a brief outline of the exceptional development of the Paraguayan economy and give a brief description of the current situation and prospects for the future. Between 1976 and 1981, Paraguay's gross domestic product grew by an exemplary 67 percent in real terms, representing an average yearly growth rate of 10.5 percent which was achieved through prudent management and the joint efforts of the people and Government of my country. The factors whose combined effect brought about this expansion in economic activity included: the rapid capitalization of the economic system; the social and political stability prevailing in the country; the effective tax incentives granted for production activities; and the increase in external demand resulting mainly from diversification and improved quality of our major agricultural and livestock exports. This period of rapid expansion was, however, affected starting early in the present decade, as was the case in many countries, by a number of outside factors that caused demand for our exports to slacken, making it necessary to introduce additional adjustment mechanisms and austerity measures. The concerted efforts undertaken by the Government in conjunction with the productive forces have sought mainly to secure economic recovery in the short term; to reduce current levels of inflation; to bring about a general improvement in central government finances; and, lastly, to bring about a substantial improvement in our external position. The Government is devoting constant and attentive efforts to the strengthening of the agriculture and livestock sector, acknowledging its role as Paraguay's main source of future development. Special attention has been paid to investment designed to substantially boost production of export crops.

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With the increased capacity to provide direct technical assistance to farmers in the field and the valuable help received from international financial agencies, it has been possible to increase the potential of the country's farms through intensive use of labor on the smaller holdings and mechanization on the larger ones, together with the adoption of appropriate technologies in accordance with local conditions. Support measures in the form of credit for farmers have also had a considerable impact, in terms of number of beneficiaries, area under crops, and returns at farm level. We must, however, recognize a number of factors that limit the actions that can be taken to develop and support crop and livestock production. The ratio between the domestic cost of inputs and mech- anized equipment in relation to prices obtained for products is growing increasingly distorted. Notable work is also being done by the relevant agencies in constructing, improving, and maintaining Paraguay's road network. While there has been considerable expansion of the areas served by some 15,000 kilometers of major and secondary highways, large sums and considerable institutional efforts are still needed to provide adequate roads serving population and production centers. The gradual implementation of timely and effective tariff measures has permitted a significant advance in the area of foreign trade. Nevertheless, the volumes available for export are still small, and are sensitive to a continuing lack of diversification, while international prices are low in relation to production cost. After a period of constant growth, the other sectors of the economy, namely, industry, construction, and basic services, declined in 1983 as a result of the economic downturn. The Government is aware of the major impact of fiscal policy and public finances in determining general economic growth and particularly in attaining development goals. Throughout the 1970s, and up until 1982, revenue and expenditure were in balance and the national budget was in surplus. Despite this, we must recognize that the picture with regard to the national government public finances was not entirely satisfactory in 1983. As regards current trends and prospects for the public sector, as measured by data for the first half of 1984, the assumptions and strategies adopted for budget execution have been borne out in the current fiscal year. Among the preliminary results, we note there was a gradual improvement in the level and composition of revenue, up

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approximately 5 percent compared with the original estimates, together with no need to draw on additional financing from public credit during the period. It is expected that, by the end of 1984, current revenue receipts will be up approximately 16 percent over 1983. The draft National Budget for 1985 to be submitted to Parliament for approval calls for the rationalization and restructuring of public expenditure, with the accent on investment in productive projects while making full allowance for counterpart contributions for projects benefiting from external financing. I should also like to note the special emphasis that has been placed on strengthening administrative and control systems, together with the introduction of fiscal instruments intended to increase tax revenues. These measures include a simplification and unification of the domestic tax rates, at appropriate levels, with a view to their gradually replacing import taxes as a major source of income. Export transactions, for their part, have been stimulated by a total elimination of taxes. In short, this has been Paraguay's experience and response as it moves ahead in the current situation with renewed confidence and optimism. My country is thus laying the foundations for effective, timely, and ongoing international cooperation among both member countries and the agencies that bring us together. In conclusion, I wish to congratulate the Fund and the World Bank on their work and at the same time express my sincere thanks for the hospitality extended by our great host country. To the delegates representing the international community, we again express our hopes that our current deliberations will be crowned with success.

STATEMENT BY THE GOVERNOR OF THE BANK FOR VIET NAM

Nguyen Duy Gia

On behalf of the delegation of the Socialist Republic of Viet Nam, I wish to extend to you, Mr. Chairman, the Managing Director of the Fund, and the President of the Bank my warm greetings. I also wish to extend my thanks to the staff of the Fund and the Sank for their excellent arrangements for these meetings. As we meet here this year, the world economic situation is not as gloomy as in previous years, although dark clouds are still hahgiftg Oft

©International Monetary Fund. Not for Redistribution GOVERNOR FOR VIET NAM 225 the horizon and blur our vision, and many countries are still facing difficulties. Although there was some improvement in the world economy in 1983, the foundation for a forceful recovery and development was not well established. Financial stability—an important prerequisite for satisfactory economic growth—has not emerged. In- creased trade protectionism in various forms has placed severe obstacles to a free trade system, to economic development, and to the external debt servicing of many countries, especially developing countries. These also slow down the adjustment process of developed as well as developing countries. The obstacles to recovery and development emanate from the selfish policies. of major member countries which disregard the interest of others. Our delegation shares the concern of other Governors about the heavy fiscal deficits of the United States which affect the monetary and financial situation and investments in the world. The high interest rate in the United States has attracted investment capital from other countries and pushed the dollar to an overvalued level, thus causing disturbances in exchange markets and adding additional cost to the debt servicing of a number of countries. External debts of developing countries have become increasingly serious. Principal payments alone by the 25 biggest debtors will rise from $35 billion to $85 billion between 1984 and 1987. The hardship that many developing countries are encountering, especially external debts, is attributed to the financial and monetary policies of industrial member countries. It is the right time for both our institutions to fully play their role in awakening the industrial community to the formidable danger of a default crisis of $800 billion of debt and provide necessary assistance to countries in difficulty. This crisis may blow out the light of recovery at the end of the tunnel. One question is now raised: which policies and measures should the Fund and the Bank adopt to cope with these problems? The Fund's resources are not so constrained at present as in previous years, while its assistance is piecemeal with tighter conditionality. We cannot agree with the imposition by the Fund of unduly rapid adjustment in member countries, because it disregards the social constraints involved. The Fund always requests members to be flexible in their policies under an assisted program, whereas the Fund is always rigid in its application of the rules for its assistance as permitted by the Articles of Agreement. . . . Now I wish to elaborate on Viet Nam's economic situation and its financial relations with the two institutions. There were positive and favorable improvements in our economy in 1983. We wish to draw

©International Monetary Fund. Not for Redistribution 226 SUMMARY PROCEEDINGS, 1984 your attention to the fact that these improvements emerged from serious imbalances caused by a long war of 30 years and successive natural calamities and from a very low base. And it is because of these factors that the economy, including the monetary and public finance positions, is still in an extremely difficult position. Viet Nam, as other poor developing countries, has been affected by the recent prolonged recession. We have no choice other than to adopt the necessary policies and measures for economic adjustment. We have so far received some assistance from the Fund and the Bank, but the conditions are harsh and the amount is too little in proportion to our economic needs and too low on a per capita basis—$2 from the Fund and $1 from the Bank. We have in recent years continued to introduce new economic adjustment policies and measures to cope with the changing situation and our economic needs. It is unfortunate that in the course of the years our two institutions, on the basis of some unpersuasive excuses, have not extended due financial assistance to Viet Nam to enable us to overcome our difficulties. Despite this fact, Viet Nam has done its utmost to fulfill its financial obligations to the Fund even under severe circumstances of exceptional hardship. In response to our willingness to promote cooperative relations with international financial and monetary institutions, the Fund is reluctant to resort to possible provisions and regulations in its Articles of Agreement to help Viet Nam relieve extremely acute hardship. We have been patient with the Bank's inflexible policies regarding Viet Nam, and it is regrettable that the Fund has adopted rigid policies regarding the settlement of Viet Nam's overdue payments to the Fund. In light of our extreme economic difficulties and exceptional hardships, the Fund should find appropriate policies and a satisfactory solution to the case of Viet Nam that would not run counter to the Articles of Agreement.

©International Monetary Fund. Not for Redistribution CONCLUDING REMARKS1

STATEMENT BY THE GOVERNOR OF THE FUND FOR SENEGAL

Mamoudou Toure

Senegal is happy to accept the chairmanship of the Fortieth Annual Meetings of the International Monetary Fund and the World Bank as an honor to our country, our people, and our region. For my own part, I will strive to carry out the duties of the chairmanship with the same courtesy, sense of responsibility and, as far as possible, the same efficiency that have characterized these meetings under the chairmanship of Mr. Takeshita, Governor for Japan. We have come a long way in the past 12 months. The fact is that solutions to some problems that seemed insurmountable just a few short years ago now seem to be within our reach. However, as Governors have made plain in their statements, many serious difficulties remain to be faced. Now is not the time to relax our efforts, but to intensify them. That is the challenge facing us in the year ahead. Before closing, I would like to commend all my fellow Governors for their positive contributions to this week's discussions and decisions. I would like to thank Mr. de Larosiere, Mr. Clausen, the Executive Directors, and the staff of our institutions for having ensured the smooth functioning of the meetings. I look forward to working with them during the year ahead and to greeting all of you at our next Annual Meetings in Seoul, Korea, in October 1985.

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

J. de Larosiere

Mr. Chairman, we have had a fruitful week of meetings. Governors in their interventions have touched on a wide range of subjects and

1 Delivered at the Closing Joint Session, September 27, 1984.

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©International Monetary Fund. Not for Redistribution 228 SUMMARY PROCEEDINGS, 1984 have given constructive guidance on many of the key policy issues facing the Fund. In these closing remarks, I will group my comments under three broad headings: the economic situation in industrial countries, adjustment and financing in the developing world, and international economic cooperation. Economic Situation in Industrial Countries In their comments on the economic situation of industrial countries, Governors generally welcomed the progress that has been achieved over the past year. They noted, in particular, that further improvements in price performance have provided the conditions in which a recovery in the growth of output and investment has occurred. As a result, international trade has been growing more vigorously, contributing to a further strengthening in the external position of developing countries. Governors took these developments as evidence that the medium- term strategy being pursued by the major countries is the correct one. Nevertheless, as was generally recognized, important problems remain and cast a shadow over the durability of the recovery. These problems include the geographical imbalance of the present expansion and the continuance of disturbingly high unemployment in many countries. As many Governors pointed out, high interest rates are a source of very serious concern. They jeopardize the prospects for a sustained and balanced expansion and add to debt service burdens. It was also stressed that, especially in Europe, structural rigidities have retarded recovery and impeded the growth of employment opportunities. Dealing with these problems will not be easy. As you pointed out yourself, Mr. Chairman, and as many other Governors have emphasized, the only effective way to bring down interest rates on a durable basis is to combine monetary discipline with determined action both to curb the growth of public expenditure and to reduce the extent to which budget deficits pre-empt available savings. In this latter connection a number of Governors noted the particular responsibilities of the United States. Action to improve fiscal positions will require a sustained commitment on the part of governments. So, too, will the tackling of the other rigidities besetting economic performance. But, in dealing with these problems, governments have, as the Governor for Italy put it, "a political duty that cannot be put off." Adjustment and Financing in Developing Countries Recent improvements in the economic situation of many developing countries were welcomed. Governors noted that the aggregate current account deficit of non-oil developing countries, in relation to exports, has fallen to its lowest level in many years. At the same time, output growth has been picking up in a number of countries.

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These encouraging trends, however, mask a wide diversity of individual experiences. As the Chairman of the Development Com- mittee has said, many developing countries still face severe difficulties: their per capita incomes are low and their debt situation worrisome. Particular attention was drawn to the plight of sub-Saharan African countries, and the special financing needs of that area. Concern was also expressed about the impact on developing countries of the recent downward trend in commodity prices, the persistence of high interest rates, and protectionist tendencies. Much remains to be done if a firm basis is to be laid for durable economic growth with financial stability. From what Governors have said, there is a consensus that adjustment efforts must be pursued with determination; that external financial resources must continue to be provided in appropriate amounts and on appropriate terms in support of those efforts; and that policies in the major countries must be such as to facilitate the adjustment and financing process. As far as handling the debt issue is concerned, considerable emphasis was placed on the importance of adhering to the present case-by-case approach, involving a mutually supportive mix of adjustment and financing measures. Effective adjustment would help restore confidence, deter capital flight, and enhance the prospects for attracting the inflows of foreign capital needed to support development. In this respect, recent multiyear reschedulings are an encouraging development. At the same time, however, many Governors noted that the external economic environment that affects debt servicing conditions was a shared responsibility, with a reduction in international interest rates and adequate access to growing world markets being essential elements. In the absence of these developments, as many Governors have emphasized, the adjustments required of debtor countries are difficult and onerous and frequently involve considerable sacrifice and hardship. Clearly, adjustment programs must reflect international economic realities, and be cast in a medium-term perspective. In this context, the need for continued close collaboration between the Fund and the Bank was noted. Governors also looked forward to the discussions in meetings of the Interim and Development Committees in the spring of 1985 as foreshadowed in the communiques issued at the conclusion of their meetings last weekend.

International Cooperation The challenge of restoring sustainable growth and financial stability in the world economy will, as many Governors have recognized, hinge

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importantly on the effectiveness of international cooperation. This is particularly significant in the field of debt. We can take satisfaction from the fact that a willingness to work together enabled the crisis of 1982 to be surmounted and has laid the basis for a medium-term approach to debt problems. The need for the Fund to continue to play a central role in this process was firmly endorsed by the Governors. This followed the agreement reached last Saturday in the Interim Committee to extend the enlarged access policy, though with slightly lower limits for 1985 than prevail currently. This agreement will give the Fund the capacity and the flexibility needed to assist and encourage determined adjustment efforts by member countries. Other aspects of international cooperation addressed by Governors included trade, foreign assistance, and Fund surveillance. Virtually all Governors voiced concern about rising protectionist pressures over the past few years. There is widespread understanding of the overriding importance of preserving an open trading environment and of the urgent need for countries to act on their commitments to roll back existing protectionist measures. As far as foreign aid is concerned, many Governors stressed the need for an enhanced flow of official development assistance if the special problems of the poorest countries are to be adequately treated. These countries, many of which have suffered prolonged economic weakness, cannot regain the momentum of their development without well-conceived programs of domestic investment supported by adequate foreign assistance. Lastly, there is a general recognition of the need to strengthen Fund surveillance and make it more evenhanded. Many of the problems currently facing the world economy including issues related to the pattern of interest rates, exchange rates, and current account positions are associated with divergences in policies and performance across countries. Recognizing this, Governors underlined the importance of taking adequate account of the international dimension of national economic policies. At the same time, a number of Governors have called for renewed attention to issues in the evolution of the international monetary system. On the question of a further allocation of SDKs, I noted that there were no changes in the positions that had been taken earlier; as agreed in the Interim Committee this matter will be kept under close and continuing consideration.

Mr. Chairman, as these meetings draw to a close, we have a full agenda of work for the coming months. The recovery that is under way in the world economy must be sustained and broadened; the debt

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situation must be managed carefully and prudently; and existing mechanisms of international collaboration must be strengthened. These are difficult challenges, but I believe our meetings this week have shown that the membership is ready to meet them. It remains for me to thank you, Mr. Chairman, for the skillful and effective way in which you have guided our discussions. I wish all of you a safe journey home, and I look forward to seeing you next year in Seoul.

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

Noboru Takeshita

As I had the privilege of opening the Thirty-Ninth Annual Meetings of the Boards of Governors three days ago, I have the duty to bring them to a close. This year's meetings have been highlighted by constructive exchange of views on the now brightening prospects of the world economy and issues thereof from various perspectives. On this occasion, I should like to express my sincere gratitude to the Governors of Ghana and the Netherlands for kindly assisting me as Vice Chairmen, and all the other fellow Governors, the Managing Director of the Fund, and the President of the World Bank for their thoughtful contributions to our deliberations. On behalf of us all, I should like to express our sincere gratitude to President Reagan for his continuous warm support for the Fund and the Bank.

World Economy Looking back on the deliberations at the Annual Meetings this year, it should be pointed out first that we have confirmed the need to come to grips with the tasks remaining before us with as progressive a spirit as ever and further cooperation in order to translate the brightening prospect of the world economy into a reality. We are encouraged by the increasing growth rate of the world economy, brighter prospects on the manageability of the immediate liquidity problem in debtor countries, and agreement on or implementation of various measures to strengthen the resources of the Fund and the Bank. It is equally true that many Governors have raised basic questions as to whether the present economic recovery will pervade; whether there exist uncertainties as to its sustainability; whether the sound economic

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development of developing countries will be resumed; and whether the debt problem is on the right track toward its ultimate solution. The first task confronting us is how to sustain and spread the global expansion of the economy which is now materializing as a result of our joint efforts in recent years. The fact that many Governors have emphasized the future challenges confronting us much more often than they have shown their satisfaction for the present economic recovery indicates the breadth and depth of the difficulties of the world economy. At the same time, however, it implies the determination to solve these difficulties by ourselves and not leave them for later generations. Prudent stance of policy management demonstrated in many Gov- ernors' addresses strengthens the possibility of making the present economic recovery durable. The following points have generally been agreed upon as future efforts in the right direction. First, the industrial countries should continue to give priority to containing inflation, sustaining prudent monetary and budgetary policies, and trying to lower high interest rates, with continued efforts to curtail public expenditures and to reduce fiscal deficits. At the same time, the effort to achieve economic adjustment is required not only of developing countries but also of industrial countries. Industrial countries should proceed with various reforms in their respective context so that new ideas and vitality are fully infused into the labor market, industrial structure, and capital market. Furthermore, the necessity to avoid and roll back protectionism has been pointed out, almost without exception, in addresses by Governors. What is needed now is to translate this determination into concrete and concerted actions. Second, profound concern has been expressed regarding the present situation of sub-Saharan countries which is in sharp contrast to the improved circumstances in general. We should be prepared to provide a concessional flow smoothly to those nations, while technical assistance is also indispensable for the formulation of appropriate development programs and for the management of those programs. As to the debt problem, which should continue to be dealt with case by case, it is important to maintain the collaboration among those concerned and advance the economic adjustment effort of debtor countries, in order to make appropriate funds available to those countries.

Role of the Fund The Fund has played well its role required by the times with due flexibility to adapt to the changing circumstances of the world economy.

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Especially its role as a pilot in tiding over the economic difficulties of the 1970s and its role as a core of strategic action against the debt problem, which became acute two years ago, should be highly noted. Realization of the rapid enlargement of the Fund's resources since last year and the agreement on the maintenance of enlarged access to the Fund's resources in 1985, with some reduction in access limits at the Interim Committee, attest to the great credibility of the Fund. In the addresses by the Governors, many referred to more effective use of surveillance conducted by the Fund concerning economic management of both industrial and developing countries. Moreover, the Interim Committee meeting next year is expected to discuss how to improve the functioning of the international monetary system. Now that we are gradually being freed from the heavy pressures of immediate problems, such as worldwide recession and the debt problem, I am convinced that the Fund surely offers the most appropriate forum to cope constructively with such new tasks of the medium- to long-term framework.

Role of the World Bank We have reached a broad agreement that addressing the developmental problem requires medium- to long-term structural support in accordance with the particular situation of individual countries. In the context of such country assistance, I should like to confirm that many Governors have pointed out the following: first, the Bank needs to enhance policy dialogue with borrowing countries and utilize structural adjustment lending effectively; second, the Bank needs to strengthen its financial base and catalytic role. To this end, I earnestly hope that the selective capital increase for the World Bank and the Seventh Replenishment of IDA will be mobilized as soon as possible and the general capital increase for IFC will be authorized as scheduled. Furthermore, I hope cofinancing with private banks will be promoted. Also, we should carry forward our discussions on the future role of the Bank, keeping in mind the need to start consideration for its general capital increase.

International Cooperation As I pointed out in my opening address three days ago, there is a danger that the gap in living standards between countries could widen if no positive action is taken. I, thus, underscored the indispensability of comprehensive international collaboration based on effective adjustment efforts by each country if we are to realize sound and well- balanced growth of the world economy. Indeed, many Governors

©International Monetary Fund. Not for Redistribution 234 SUMMARY PROCEEDINGS, 1984 stressed that international cooperation must generate more concrete results than ever in order to cure the worldwide economic problems. An important outcome of the Annual Meetings this year was the agreement reached at the Interim Committee and the Development Committee to discuss at their next meetings financial and development aspects of the problems of developing countries in their efforts to achieve sound economic growth within a medium- to long-term framework. Let us take on this assignment together and discuss through what policies and in what form it would be appropriate to further international collaboration in the framework of the Fund and the Bank and report the outcome of our discussions to the Annual Meetings next year.

Concluding Remarks Lastly, I would like to express the appreciation of us all for the excellent arrangements that the staff of the two institutions have provided us with at these meetings. On behalf of my fellow Governors, I should like to thank the Government and the people of the United States for their warm hospitality. And I extend my congratulations and best wishes to the Governor for Senegal, who is succeeding me as Chairman of the Boards of Governors. I look forward to seeing you again in the beautiful city of Seoul, the capital of Korea. Finally, let me wish you all a safe journey home. The 1984 Meetings of the Boards of Governors of the International Monetary Fund and the World Bank and its affiliated institutions are hereby closed.

©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 MEETINGS' Saturday 9:30 a.m.—Interim Committee2 September 22 4:20 p.m.—Interim Committee2

Sunday 9:30 a.m.—Joint Development Committee September 23 4:00 p.m.—Joint Development Committee

Monday 10:00 a.m.—Opening Ceremonies September 24 Address from the Chair Annual Address by Managing Director, IMF Annual Address by President, IBRD, IFC, and IDA 12:15 p.m.—Joint Procedures Committee 3:00 p.m.—Annual Discussion

Tuesday 9:30 a.m.—Address by the President of the United September 25 States Annual Discussion 3:00 p.m.—Annual Discussion IMF Election of Executive Directors IBRD Election of Executive Directors

Wednesday 9:30 a.m.—Annual Discussion September 26 5:30 p.m.—Joint Procedures Committee 6:25 p.m.—Joint Development Committee

Thursday 9:30 a.m.—Annual Discussion September 27 Joint Procedures Committee Reports Comments by Heads of Organizations Closing Remarks from the Chair 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 Bank, IFC and IDA. 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 of the Bank, IFC, and IDA will be joint and shall be open to accredited press, guests, and staff. 2. Meetings of the Joint Procedures Committee shall be open only to Governors who are members of the Committee and their advisers, 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 Bank and its Affiliates, 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 Bank and its Affiliates 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. 1984 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. Application for Membership—People's Republic of Mozambique (Fund Document No. 6)

5. 1984 Regular Election of Executive Directors (Fund Document No. 7)

6. Financial Statements and Audit Report (Appendix VIII of 1984 Annual Report and Fund Documents Nos. 8 and 9)

7. Administrative Budget for Financial Year ending April 30, 1985 (Appendix VI of 1984 Annual Report and Fund Documents Nos. 9 and 10)

8. Amendments of Rules and Regulations (Fund Document No. 11)

9. Selection of Officers and Joint Procedures Committee for 1984-85

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©International Monetary Fund. Not for Redistribution REPORTS OF THE JOINT PROCEDURES COMMITTEE

Chairman Japan Vice Chairmen Ghana Netherlands Reporting Member Australia

Other Members: Brazil, Cyprus, Dominica, Egypt, France, Federal Republic of Germany, Morocco, Peru, Saudi Arabia, Solomon Islands, Sudan, Sweden, Thailand, United Kingdom, United States, Venezuela, Zaire, Zimbabwe

Report I'

September 24, 1984

Mr. Chairman: The Joint Procedures Committee met on September 24, 1984 and submits the following report and recommendations: 1. Membership of the People's Republic of Mozambique—Fund The Committee considered a Resolution, recommended by the Executive Board of the Fund on September 14, 1984, on the admission of the People's Republic of Mozambique 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 proposed Resolution.2 2. Membership of the People's Republic of Mozambique—Bank, IFC, and IDA The Committee considered the Report of the Executive Directors of the Bank and IDA and the Board of Directors of IFC dated

1 Report I and the Resolutions contained therein were adopted by the Boards of Governors of the Fund and of the Bank, IFC and IDA, in Joint Session, on September 24, 1984. 2 Resolution No. 39-4; see pages 281-83.

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September 19, 1984, on the admission of the People's Republic of Mozambique to membership in the World Bank, IFC, and IDA, set forth in Bank, IFC, and IDA Document No. 4. The Committee recommends that the Boards of Governors of the Bank, IFC, and IDA adopt the draft Resolution attached to the said Report.3

Approved:

/s/ NOBORU TAKESHITA /s/ C. R. RYE Japan—Chairman Australia—Reporting Member

3 Resolution No. 399 of the Bank.

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Report II]

September 26, 1984 Mr. Chairman: At the meeting of the Joint Procedures Committee held on September 26, 1984, the 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. 1984 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. 1984 Regular Election of Executive Directors The Committee noted that the 1984 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 1986. 4. Financial Statements, Report on Audit, and Administrative Budget The Committee considered the Report on Audit for the financial year ended April 30, 1984, the Financial Statements contained therein (Fund Document No. 8 and Appendix VIII of the 1984 Annual Report), and the Administrative Budget for the financial year ending April 30, 1985 (Fund Document No. 10 and Appendix VI of the 1984 Annual Report.) The Committee recommends that the Board of Governors of the Fund adopt the draft resolution set forth in Fund Document No. 9.3

1 Report II 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, 1984. 2 See pages 30-34. 3 Resolution No. 39-5; see page 283.

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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 24, 1984, reproduced as Fund Document No. 11, regarding amendments of the Rules and Regulations set forth in Attachment 1 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. II.4

Approved:

/s/ NOBORU TAKESHITA /s/ C. R. RYE Japan—Chairman Australia—Reporting Member

4 Resolution No. 39-6; see page 284.

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Annex I to Report II Regulations for the Conduct of the 1984 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 Chairman of the Board. (d) 4 '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 1984 Regular Election of Executive Directors. (g) "Eligible votes" means the total number of votes that can be cast in the election. 2. Date of Election: The election shall be held during a plenary session of the 1984 Annual Meeting to be held Tuesday, Septem- ber 25, 1984. 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 Article 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 "six- teenth" 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 persons nominated. 8. Supervision of the Election: The Chairman shall appoint such tellers and other assistants and take such other action as he deems necessary for the conduct of the election. 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 by a call of members whose Governors are eligible to vote and each ballot form signed by the Governor, shall be deposited in the ballot box. (c) When a ballot has been completed, the Chairman shall cause the ballot forms to be counted and shall announce the names of the persons elected 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 nominees to be voted on and the members whose Governors are eligible to vote. (d) If the tellers are of the opinion that any particular ballot form is not properly executed, they shall, if possible, afford the Governor concerned an opportunity to correct it before tallying the results, and the ballot form, if corrected, shall be deemed valid. (e) If a Governor does not vote on any ballot, he shall not be entitled to vote on any subsequent ballot and his votes shall

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not be counted, under Article XII, Section 3(/)(iii), toward the election of any Executive Director. (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. 10. If on any ballot there are more nominees than the number of Executive Directors to be elected and two or more nominees tie with the lowest number of votes, no nominee 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 nominees from the following ballot. 11. If on any ballot two or more Governors having an equal number of votes have voted for the same nominee and the votes of one or more, but not all, of these Governors could be deemed under paragraph 4 of Schedule E to have raised the total votes received by the nominee 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 nominees is the same as the number of Executive Directors to be elected, and no nominee is deemed to have received more than nine percent of the eligible votes, each nominee shall be considered elected by the number of votes received even though a nominee 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 nominee 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 nominee above nine percent. 14. Any member whose Governor has voted on the last ballot for a nominee 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. 15. Announcement and Review of Result: (a) After the tally of 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

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on the Proposed Second Amendment to the Articles of Agree- ment an additional Executive Director should be elected to serve for the term of office commencing November 1, 1984. 16. Effective Date of Election of Executive Directors: The effective date of election shall be November 1, 1984, 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, 1984. 17. General: Any questions 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. 39-2, September 4, 1984

STATEMENT OF RESULTS OF ELECTIONS, SEPTEMBER 25, 1984

5 Members Whose Votes Candidate Elected 6 Number of Votes Counted Toward Election Abderrahmane Alfidja Benin 563 Burkina Faso 566 Cameroon 1,177 Cape Verde 295 Central African Republic 554 Chad 556 Comoros 295 Congo 623 Djibouti 330 Equatorial Guinea 434 Gabon 981 Guinea-Bissau 325 Ivory Coast 1,905 Madagascar 914 Mali 758 Mauritania 589 Mauritius 786 Niger 587 Rwanda 688 Sao Tom6 and Principe 290 Senegal 1,101 Togo 634 Zaire 3,160 18,111

5 The candidacy of Muhammad Al-Atrash was withdrawn prior to the election. 6 Egypt, Democratic Kampuchea, and South Africa did not participate in this election.

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Members Whose Votes Candidate Elected Number of Votes Counted Toward Election Jacques de Groote Austria 8,006 Belgium 21,054 Hungary 5,557 Luxembourg 1,020 Turkey 4,541 40,178

Mohamed Finaish Bahrain 739 Iraq 5,290 Jordan 989 Kuwait 6,603 Lebanon 1,037 Libya 5,407 Maldives 270 Oman 881 Pakistan 5,713 Qatar 1,399 Somalia 692 Syrian Arab Republic 1,641 United Arab Emirates 2,276 Yemen Arab Republic 683 Yemen, People's Democratic Republic of 1,022 34,642

J. E. Ismael Burma 1,620 Fiji 615 Indonesia 10,347 Lao People's Dem. Rep. 543 Malaysia 5,756 Nepal 623 Singapore 1,174 Thailand 4,116 Viet Nam 2,018 26,812

Robert K. Joyce Antigua and Barbuda 300 Bahamas 914 Barbados 591 Belize 345 Canada 29,660 Dominica 290 Grenada 310 Ireland 3,684 Jamaica 1,705 St. Christopher and Nevis 295 St. Lucia 325 St. Vincent 290 38,709

Members Whose Votes Candidate Elected Number of Votes Counted Toward Election 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 Ram N. Malhotra Bangladesh 3,125 Bhutan 275 India 22,327 Sri Lanka 2,481 28,208

Edwin I. M. Mtei Botswana 471 Burundi 677 Ethiopia 956 Gambia, The 421 Guinea 829 Kenya 1,670 Lesotho 401 Liberia 963 Malawi 622 Mozambique 860 Nigeria 8,745 Sierra Leone 829 Sudan 1,947 Swaziland 497 Tanzania 1,320 Uganda 1,246 Zambia 2,953 Zimbabwe 2,160 27,567

Fernando Luis Nebbia Argentina 11,380 Bolivia 1,157 Chile 4,655 Paraguay 734 Peru 3,559 Uruguay 1,888 23,373

Pedro Pe"rez Fernandez 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

Members Whose Votes Candidate Elected Number of Votes Counted Toward Election Jacques Polak Cyprus 947 Israel 4,716 Netherlands 22,898 Romania 5,484 Yugoslavia 6,380 40,425

A. R. G. Prowse Australia 16,442 Korea 4,878 New Zealand 4,866 Papua New Guinea 909 Philippines 4,654 Seychelles 280 Solomon Islands 300 Vanuatu 340 Western Samoa 310 32,979

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

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

Salvatore Zecchini Greece 4,249 Italy 29,341 Malta 701 Portugal 4,016 38,307

Zhang Zicun China 24,159

/s/ PEACE AYISI-OKYERE /s/ D. H. BOOT (Ghana) (Netherlands) Teller Teller

Annex II to Report II

September 24, 1984 Dear Mr. Chairman: In accordance with Section 16 of the By-Laws, the attached amendments of the Rules and Regulations adopted since the 1983 regular meeting (Annex I) are submitted for review by the Board of Governors. A draft resolution for approval by Governors appears in Annex II. On January 6, 1984, the Executive Board amended Rule I-10 to provide for a gradual increase in the rate of remuneration relative to the SDR interest rate (the remuneration coefficient), thereby improving the return on the remunerated reserve tranche positions held by members and narrowing the disparity between the return on those positions and the return on other Fund-related claims. It was recognized that a large-scale expansion of Fund credit had occurred and the total of reserve tranche positions had increased sharply, both in absolute amounts and also as a proportion of members' reserves. Further, the volume of credit extended by the Fund was expected to continue to increase at a rapid pace in the period ahead, which implied a further expansion of remunerated reserve tranche positions. Yet reserve tranche positions represented the only creditor claims on the Fund which yielded a rate of return (the rate of remuneration) that was significantly below market-related rates of interest, even though they can be viewed as somewhat less liquid than other Fund-related assets. The amended Rule prescribes a formula under which the rate of remuneration, which stood at 85 percent of the SDR interest rate, will be raised by 3.33 percentage points on May 1 of 1984, 1985, and 1986, or by a larger amount depending on interest rate movements, with the possibility of further increases thereafter. The rate of remuneration will be reviewed in the year following May 1, 1986. Rule G-4(b) was amended on May 1, 1984, effective July 3, 1984, to modify slightly the provision establishing the dates on which purchases under stand-by or extended arrangements involving resources borrowed in connection with the enlarged access policy are normally made. Rule G-4(b) provides that purchases involving these resources will normally be made only twice a month, for value on either the 15th day or the last day of the month. As originally adopted, the Rule also provided that if one of these days was not a business day, the value date would be the next business day. However, members have experienced occasional inconvenience with this provision when the last day of the month was not a business day, since the effect has been to shift the value date of the purchase into the next month (or into the next year, if the month in question was December). This has

©International Monetary Fund. Not for Redistribution 252 SUMMARY PROCEEDINGS, 1984 led to requests that the Fund permit purchases to be completed within the same month, as an exception to the normal rule. During 1984 and 1985, seven out of eight calendar quarters would end on a non-business day, so that requests for exceptions to the Rule would be likely to occur with greater frequency. Accordingly, it was decided to modify the Rule by shifting the value dates to the preceding business day, instead of the following business day, whenever the specified value date is not a business day. On May 30, 1984, Rule 1-6(5) was amended to revise the method of calculating charges levied by the Fund on holdings of currency acquired under the policy on enlarged access. Purchases under this policy are normally financed with borrowed resources, and Rule 1-6(5) provides for the rate of charge on outstanding purchases in each six-monthly period to be calculated on the basis of the net cost of borrowing by the Fund for the period. As originally formulated, Rule 1-6(5) did not provide a basis for including the cost of ordinary resources in the cost of borrowing by the Fund for the purpose of calculating the rate of charge applicable to outstanding purchases, in the event that ordinary resources would be used to finance EAR purchases. This will be the case because in the period through January 1985, a considerable amount of EAR borrowing is scheduled for repayment with ordinary resources. In view of this, the Executive Board decided to amend Rule 1-6(5) so as to impute a borrowing cost to the amount of ordinary resources used to finance outstanding purchases, and include this cost in the calculation of the rate of charge on holdings derived from such purchases. For purposes of this calculation, the imputed borrowing cost of the use of ordinary resources will be the daily amount of such resources multiplied by a rate of interest computed in the same manner as the SDR interest rate, except that the underlying yields on individual currency instruments will be the same as those used in calculating the interest on the Fund's borrowing under its 1981 agreement with the Saudi Arabian Monetary Agency. The Executive Board has made no other changes in the Rules and Regulations since the last Annual Meeting. Very truly yours, /s/ J. DE LAROSIERE Managing Director and Chairman of the Executive Board Chairman of the Board of Governors 1984 Annual Meeting International Monetary Fund

Attachment 1. Rules and Regulations Amended Since the 1983 Annual Meeting

1. Rule I-10. Text as amended January 6, 1984. (a) The rate of remuneration shall be equal to 85 percent of the rate of interest on holdings of SDRs under Rule T-l (hereafter referred to as the "SDR interest rate"). The relationship of the rate of remuneration to the SDR interest rate will be referred to as the "remuneration coefficient." (b) Beginning April 30, 1984, the remuneration coefficient during each quarter shall be at the level determined under (1), (2), (3), and (4) below, but no higher than permitted by Article V, Section 9(a): (1) During the period May 1, 1984 to April 30, 1987, the remuneration coefficient shall be the higher of (i) or (ii) below: (i) The remuneration coefficient in effect on January 1, 1984 increased by 3.33 percentage points in each of the three financial years beginning May 1, 1984, May 1, 1985, and May 1, 1986; (ii) The remuneration coefficient in effect on January 1, 1984, increased or decreased on the first day of each quarter by 1 percentage point for each !/6 of 1 percentage point that the SDR interest rate on the day before the beginning of the quarter is below or above the SDR interest rate in effect on April 30, 1984, provided that the remuneration coefficient in any quarter in each of these three financial years shall not be more than 2.5 percentage points above the amount of the coefficient for that year as determined under (i) above. (2) Following the adjustment in the remuneration coefficient on May 1, 1986, the rate of remuneration shall be reviewed before May 1, 1987. This review shall be conducted in the light of all the relevant considerations, including, in particular, the SDR interest rate and the rate of charge. (3) Beginning May 1, 1987, the remuneration coefficient shall be the higher of (i) or (ii) below: (i) The remuneration coefficient existing at the end of the preceding financial year;

(ii) A remuneration coefficient of 95 percent, increased or decreased on the first day of each quarter by 1 percentage point for each !/6 of 1 percentage point that the SDR interest rate on the day before the beginning of a quarter is below or above the SDR interest rate on April 30, 1987, provided that the remuneration coefficient in any quarter of a financial year shall not be more than 2.5 percentage points above the level at the end of the preceding year. (4) The rate of remuneration, while less than 100 percent of the SDR interest rate, shall be rounded to the nearest two decimal places. (c) The operation of (b) above shall be reviewed on the occasion of the reviews of the rate of charge under Rule 1-6(4) and the SDR interest rate under Rule T-l(d). (d) If the rate of charge on holdings specified in Rule 1-6(4) should exceed the SDR interest rate, the Executive Board shall review the remuneration coefficient, and, in particular, will consider whether the remuneration coefficient should be set, within the range in Article V, Section 9(0), at such a level as would permit the rate of charge to be set under Rule I-6(4)(a) or (b) at the same level as the SDR interest rate referred to above and still meet the target amount of net income for the financial year. 2. Rule G-4(b). Text as amended May 1, 1984, effective July 3, 1984. (b) The value date for a purchase that involves resources borrowed by the Fund under the policy on enlarged access, and that is in accordance with the stand-by or extended arrangement, will normally be either the 15th or the last day of the month, or the preceding business day if the day selected is not a business day. If the request for the purchase is not received in the Fund in time for its instructions to be issued for the first of these value dates following the date of receipt, the purchase will be executed at the next such value date.

3. Rule 1-6(5). Text as amended May 30, 1984. (5) The rate of charge on holdings of a member's currency acquired as a result of the member's purchases of borrowed currency under the Policy on Enlarged Access to the Fund's Resources (Executive Board Decision No. 6783- (81/40)) during a six-month period ending June 30 or

December 31 shall be equal to the total, expressed as a percentage per annum, of: (i) the net cost of borrowing by the Fund under that Policy for the period, calculated in accordance with (a), (b) and (c) below and (ii) the imputed borrowing cost of the amount of the ordinary resources being used to finance purchases of borrowed currency calculated in accordance with (d) below, plus 0.2 percent per annum. (a) The net cost of borrowing for a six-month period ending June 30 or December 31 shall consist of the actual gross cost of borrowing to finance purchases under the Policy assignable to the period less net income during the period from the temporary employment of the borrowed funds. (b) Actual gross costs of borrowing shall comprise: (i) interest paid or accrued to lenders on the average daily amount of balances borrowed; and (ii) fees, commissions, and any other primary costs directly payable to lenders or incurred in order to secure the borrowed funds, prorated for six-month periods ending June 30 and December 31 in proportion to the duration of the borrowing arrangements to which such costs relate, or to the period covered by these costs. (c) Net income from temporary employment of borrowed funds pending disbursement shall be determined by taking into account: (i) income received and income accrued from investments or other operations to secure a rate of return; (ii) operational expenses (paid and accrued) incurred directly by the Fund in order to obtain this income, prorated over the period to maturity of the investment; and (iii)any net gain or loss, calculated to the end of each six- month period ending June 30 or December 31, resulting from exchange valuation adjustments of currency balances and investments representing the undisbursed proceeds of borrowing in terms of the SDR. (d) (i) The imputed borrowing cost of the use of ordinary resources being used to finance purchases of borrowed

currency shall be the product of the daily amount of such resources as determined in accordance with (ii) below multiplied by the rate of interest for the weekly period commencing each Monday calculated in accordance with the method set forth in Rule T-l(b) and (c) for determining the rate of interest on holdings of SDKs except that, in place of the rates or yields for the preceding Friday on the instruments listed in Rule T-l(c), the yields for the preceding Wednesday on the instruments specified under paragraph 3(b) of Annex A to the letter referred to in Executive Board Decision No. 6843-(81/75) adopted May 6, 1981, shall be used. (ii) The amount of ordinary resources being used to finance purchases of borrowed currency is equal to the amount of the Fund's holdings of currency resulting from members' purchases of borrowed currency under the Policy on Enlarged Access less the outstanding amount of currency borrowed by the Fund to finance such purchases after deducting the amounts of currency held in the Borrowed Resources Suspense Accounts.

Report IV!

September 26, 1984 Mr. Chairman: The Joint Procedures Committee met on September 26, 1984 and submits the following report: 1. Development Committee The Committee noted that the Annual Report of the Joint Ministerial Committee of the Boards of Governors of the 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 the 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 1984/85 The Committee recommends that the Governor for Senegal be Chairman, and the Governors for Canada and Ecuador be Vice Chairmen, of the Boards of Governors of the Fund and of the Bank and its affiliates, to hold office until the close of the next Annual Meetings. It is further recommended that a Joint Procedures Committee be established to be available, after the termination of these Meetings and until the close of the next Annual Meetings, for consultation at the discretion of the Chairman, normally by correspondence and, if the occasion requires, by convening; and that this Committee shall consist of the Governors for the following members: Cameroon, Canada, Dominican Republic, Ecuador, France, Germany, Iceland, Indonesia, Italy, Japan, Mexico, New Zealand, Qatar, Saudi Arabia, Senegal, Sri Lanka, Swaziland, Syrian Arab Republic, Turkey, United Kingdom, United States, and Yemen Arab Republic. It is recommended that the Chairman of the Joint Procedures Committee shall be the Governor for Senegal, and the Vice Chairmen

1 Report III dealt with the business of the Boards of Governors of the Bank, IFC and IDA. Report IV 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 Septem- ber 27, 1984.

shall be the Governors for Canada and Ecuador, and that the Governor for Iceland shall serve as Reporting Member. Approved:

/s/ NOBORU TAKESHITA /s/ C. R. RYE Japan—Chairman Australia—Reporting Member

Annex to Report IV

September 23, 1984

Sir: As Chairman 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), I have the honor to present herewith to the Boards of Governors a report by the Committee on the progress of its work during the period July 1983- June 1984. The report is presented in compliance with Section 5(i) of the Bank Board of Governors Resolution No. 294 and the Fund Board of Governors Resolution No. 29-9, adopted on October 2, 1974.

Sincerely yours, /s/ GHULAM ISHAQ KHAN Chairman Development Committee

Attachment

His Excellency Noboru Takeshita Chairman of the Boards of Governors International Monetary Fund and the World Bank

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

(July 1983-June 1984)

I. INTRODUCTION

1. This is the tenth annual report of the Joint Ministerial Committee of the Boards of Governors of the Bank and the Fund on the Transfer of Real Resources to Developing Countries (Development Committee). It covers the period from July 1983 to June 1984. 2. The Development Committee was established in 1974 on the recommendation of the Committee on Reform of the International Monetary System and Related Issues (Committee of Twenty) to carry forward the study of all aspects of the broad question of transfer of real resources to developing countries and to recommend measures to implement its conclusions. It was thus designed to provide a focal point at a high political level in the structure of international economic cooperation for the formation of a comprehensive overview of the development process, for efficient and prompt consideration of development issues and for coordination of international efforts to deal with problems of financing development. According to the Resolutions establishing the Committee, the consideration of the question of the transfer of real resources to developing countries was to be undertaken in relation to existing or prospective arrangements among countries, including those involving international trade and payments, the flow of capital, investment and official development assistance (ODA). 3. The members of the Development Committee were to be Gov- ernors of the Bank and the Fund, ministers, or others of comparable rank and were to be appointed in turn for successive periods of two years by the members of the Bank and the members of the Fund. Each member of the Committee was to be assisted by seven Associates and the Executive Directors of the two institutions representing his constitutency on the Executive Boards. 4. Against the background of analyses and projections contained in the IBRD's World Development Report 1983 and the IMF's World Economic Outlook and other studies specially prepared, the Committee

©International Monetary Fund. Not for Redistribution 260 SUMMARY PROCEEDINGS, 1984 during the year under review considered a number of key issues relating to promotion of development and to the improvement of capital flows and their effective utilization in the developing countries. The agendas were designed to focus the attention of the ministers, representing developed and developing countries, on important development issues of mutual interest and urgency in an effort to promote international consensus and to facilitate decisions in appropriate bodies at national and international levels. 5. The Committee held two meetings during the year. The first meeting was in Washington, D.C. on September 26, 1983 at the time of the Annual Meetings of the Boards of Governors of the Bank and the Fund. The other meeting during the year—the twenty-third in the series—was also held at Washington, D.C. on April 13, 1984. Both meetings were chaired by His Excellency Ghulam Ishaq Khan, Minister for Finance, Commerce and Economic Coordination of Pakistan. 6. At the technical and preparatory level, the Task Force on Concessional Flows, which had been set up by the Committee in May 1982 to conduct an in-depth study of the problems affecting the volume, quality and effective use of concessional flows, proceeded with its endeavor during the year. Its Chairman, Mr. John P. Lewis, Professor at Princeton University, presented the Task Force's first status report on its work at the meeting of the Committee in September 1983. 7. The Committee is currently operating under the procedures established in April 1979 which placed the responsibility for the organization of its work on the Chairman, the President of the Bank, and the Managing Director of the Fund, assisted by the Executive Secretary. The other measures then adopted included greater and closer involvement of the staffs and Executive Boards of the two institutions in the work of the Committee. During the year under review it was decided to replace the practice of presenting Annotated Agendas with reports from the President of the Bank and the Managing Director of the Fund. This approach in procedure was calculated to provide greater flexibility, a more open and freer discussion and help counteract the feeling of pre-emptiveness created by the annotations. These changes in the organization and procedures have contributed to the effectiveness of the Committee but the search for the realization of the Committee's full potential continues to receive the attention of all involved in its operations. 8. The main thrust of the Committee's work in the year under review continued to be on capital flows to the developing countries, both nonconcessional and concessional, and both public and private. Par- ticular emphasis was given to the crucial importance of the IDA-VII

Replenishment, the lending program of the World Bank and the International Finance Corporation (IFC), and implications for increase in their capital requirements and the need, in accordance with past policy and practice, for early action on a Selective Capital Increase (SCI) for the World Bank following and in line with the Eighth General Review of Quotas in the Fund. A Selective Capital Increase was successfully negotiated, and agreement was reached on the relative contributions of major donors to ID A-VII. The importance of trade and its linkages with development providing expanding export opportunities to developing countries and the serious economic situation in sub-Saharan Africa with its social and political implications are the other important specific issues which received special attention.

II. COMMITTEE CONSIDERATION OF MAJOR DEVELOPMENT ISSUES DURING THE YEAR JULY 1983-JuNE 1984

A. Economic Situation and Prospects Facing the Developing Countries in the 1980s (World Development Report 1983 and the World Economic Outlook as Background Documents)

9. The IBRD's World Development Report 1983 and the IMF's World Economic Outlook both served as valuable background documents for the Committee' s discussions on many current and prospective issues. These background documents showed that there were clear signs of recovery from the worst recession in 40 years. The process had begun in many industrial countries where inflation had been sharply reduced, unemployment levels had peaked and in some cases were falling and economic activity and world trade had gathered strength. 10. It was, however, recognized that while economic recovery in the industrialized countries was a necessary prerequisite, it was not by itself sufficient for restoring growth momentum in the developing countries, many of which continued to face a difficult situation and would have to undertake sustained adjustment efforts. The slow rate of growth averaging less than 1 percent in 1983 resulted in a significant decline in per capita incomes in many developing countries. Indeed, in sub-Saharan Africa per capita incomes had been declining for over a decade and in much of Latin America for the past three years. For these countries it will take years to regain even previous levels of per capita incomes. Besides, there was little improvement in inflation rates in developing countries while the external trade environment remained constrained by protectionist pressures and practices. Further, the Committee expressed great concern on the high level of real interest rates which have significantly added to the debt service obligations of

©International Monetary Fund. Not for Redistribution 262 SUMMARY PROCEEDINGS, 1984 the developing countries. However, recent economic recovery in major developed countries has now begun to help developing country exports. 11. The challenge, therefore, was how the present recovery could be sustained, strengthened, and extended in a non-inflationary environment to developing countries. The durability and strength of the recovery can be assured only if both groups of countries—developed and developing—were to share in growth since growth in one will stimulate and sustain growth in the other in this increasingly interdependent world. In addition to the performance of the industrial countries, the debt situation and the future of capital flows—both concessional and nonconcessional—to the developing countries, the international trade environment and the special problems of the least developed countries, particularly in sub-Saharan Africa, all need special and urgent attention. 12. The Committee, therefore, noted that while the world economic stiuation is more promising than a year ago, the attainment of sustained growth and its extension to developing countries requires improved policy performance by both developed and developing countries, increase of private and official capital flows, and improved trade prospects. B. Concessional Flows (i) ODA Flows 13. The low-income developing countries are heavily dependent on flows of ODA. Thus, for countries described as "least developed" by the United Nations, of which two thirds are in sub-Saharan Africa, ODA corresponds to 10 percent of their combined GNP, 50 percent of their current imports and no less than 80 percent of their investment. 14. In the 20-year period between 1960 and 1980, ODA, in absolute amount, more than doubled in real terms while in the 1970 decade it grew by about 5 percent a year. The medium-term increase now forecast by the OECD's Development Assistance Committee is only 2-3 percent per annum which is about half the rate of increase achieved in the preceding decade. In fact, real ODA flows are estimated to have been at about the same level in 1982 as in 1980. As a result, there has been a slowdown in programs dependent on concessional flows. This slowdown could postpone the implementation of important projects at a time when aid recipients' needs are substantial.

(ii) IDA-VII 15. The International Development Association (IDA) was established over 20 years ago to provide concessional assistance to low-

©International Monetary Fund. Not for Redistribution COMMITTEE REPORTS 263 income countries which have no, or very limited, access to private capital and cannot afford to borrow funds carrying high interest rates and short maturities. IDA has helped to expand the Bank's development role in offering low-income countries concessional resources and policy advice. The initial fund of just under $1 billion has been replenished six times making a total of $30 billion by the end of 1980 when it accounted for 16 percent of total ODA. 16. IDA has become a most valuable source for transferring concessional resources effectively to the poorest countries. Its role in promoting development is widely acknowledged. A proposal of $16 billion for the Seventh Replenishment was made out by IDA management to accommodate an expanded recipient community with the entry of China, the increased requirements of the poorest countries in achieving food self-sufficiency, in supporting structural adjustment programs and in the attainment of reasonable growth rates. 17. The prolonged negotiations, however, concluded on an IDA- VII Replenishment of $9 billion on which agreement of all donors could be reached in time to meet new commitments without interruption from July 1, 1984 onwards. This amount represents a decline of 24 percent in real terms from annual IDA-VI commitment levels and a substantially larger decline as compared with IDA-VI as originally negotiated. It was felt by most members that the size therefore imposes severe constraints on the Association's ability to meet the development assistance needs of its recipients. The amount was considered inadequate by most donors who provided the Association's management with a mandate to raise additional resources. The management is now engaged in working out suitable modalities for creating a Supplementary Fund acceptable to the prospective participants.

(in) Task Force on Concessional Flows—A Progress Report 18. In his interim report to the Committee at its meeting in Wash- ington, D.C. in September 1983, the Task Force Chairman, Professor John P. Lewis, emphasized that the main subjects occupying the Task Force—aid volume, aid effectiveness, and the "mandate for aid"— are intimately interconnected. Strengthening the mandate for aid can be expected to contribute to a greater supply. But such strengthening may, in turn, depend at least partly on establishing greater confidence in the effectiveness of aid. On the other hand, greater effectiveness cannot be achieved without a requisite volume of resources in support of policy change and institutional innovation. Professor Lewis expressed the hope that the Task Force would be able to present its final report to the Development Committee during the year 1985.

19. The Task Force has currently commissioned a team of independent consultants to assess aid effectiveness. Professor Robert Cassen of the Institute of Development Studies of the University of Sussex in England heads the team of consultants. Several members of the team are engaged in investigating the issue of aid effectiveness in seven countries: Bangladesh, Colombia, India, Kenya, Korea, Malawi, and Mali. Other consultants are doing functional studies, such as examining food aid and technical assistance and comparing bilateral and multilateral aid. Others are assessing the evaluating materials provided by bilateral and multilateral donors, to draw conclusions about aid effectiveness.

C. Nonconcessional Flows

World Bank's Lending Program and Implications for the Bank's Capital Requirements 20. Foreign capital—private and official (bilateral and multilateral)— has traditionally played a key role in the development of less developed countries. The middle-income countries rely heavily on external financing of a nonconcessional nature particularly from private sources. Thus, private lending grew annually by 12 percent in real terms from 1970 to 1980 and private direct investment by over 8 percent. Official nonconcessional flows also increased markedly during the decade of the 1970s rising by 14 percent a year in real terms. 21. The World Bank has been an important participant in this process. The Bank's commitments grew by an average of 7 percent a year and its disbursements by an average of 12 percent a year in real terms between FY1970-80. 22. However, developments in the past year or two, represented by a decrease in the Bank's net disbursements and in particular a dramatic decline in private lending, pose serious questions to developing countries in the matter of obtaining investment resources required by them for implementing their adjustment programs and for achieving long- term growth. 23. The need to maintain an appropriate level of lending and disbursements is important at a time when the Bank's borrowing members are experiencing serious financial problems and have undertaken important programs of structural adjustment which need support. In this context, the Committee's support resulted in agreement on a Selective Capital Increase of $8.4 billion following in line with the Eighth General Review of Quotas in the Fund.

24. The Committee welcomed the intention of the World Bank management to prepare proposals concerning the future role of the Bank and the implications for longer-term capital requirements, including the need for a General Capital Increase. This work is under preparation and a comprehensive paper on the subject is expected to be circulated for consideration by the Development Committee at its spring 1985 meeting. The purpose is to enable the Bank to continue to respond meaningfully to the carefully assessed requirements of the developing countries for adjustment and growth.

D. External Debt Problems of Developing Countries

25. Following a rapid expansion, during the 1970s and into the early 1980s, external borrowing and growth in debt of developing countries declined markedly in the last two years. External debt remains substantial, however, and many of the countries that face serious payments problems have pursued or are pursuing vigorous adjustment programs with determination to restore health to their economies and improve their future credit worthiness. The Committee expressed its satisfaction with the progress achieved so far by the international community in addressing the debt problem of developing countries. The situation, nevertheless, needed careful watching and the Com- mittee requested that the Fund and the Bank continue to examine the debt problem of developing countries.

E. IFC Capital Increase

26. The outlook for direct investment has become more attractive. External financing has become both scarce and costly and there is now a better understanding of the role of direct investment in development among investors and host governments. Moreover, the outflows related to direct investment—in the form of profit remittances—are directly dependent on the success of the enterprise, and there is more flexibility as to their timing. In the circumstances, the Committee agreed on the importance of encouraging direct private investment especially in the poorer countries and welcomed progress in the preparation of an expanded investment program for IFC through a management proposal of a $750 million capital increase and called for early action by the IFC Executive Board. This would help expand capital flows from the World Bank Group to the private sector in the developing countries. 27. In connection with this subject, the Committee also took note of a study on investment incentives and performance requirements undertaken by the World Bank on the earlier recommendations of the

Task Force on Private Foreign Investment. The study will facilitate a better understanding of the impact and choice of policies pertaining to international direct private investment.

F. Sub-Saharan Africa

28. The Committee paid special attention to the particular situation faced by the sub-Saharan African countries. The subject came up for discussion at both meetings held during the year. The Committee noted that all the major economic indicators gave cause for serious concern. Per capita incomes are declining and in 1983 were below the level of the mid-1960s in many African countries. The region faces a burdensome debt situation and export commodity prices in real terms fell to levels in 1982 lower than at any time since World War II. Indeed, between 1973 and 1982, low-income Africa lost as much as 21 percent of the purchasing power of its exports. During the last couple of years flows of concessional assistance, upon which Africa depends heavily, have stagnated even in nominal terms, and the food situation has worsened sharply as a result of severe drought in many parts of the region without any abatement in the rate of population growth, creating human and economic problems of major proportions. 29. The Committee expressed concern at the continuing grim prospects for sub-Saharan Africa and agreed that increased concessional assistance was urgently needed for both bilateral and multilateral sources to support domestic policies aimed at improving sub-Saharan Africa's long-term development prospects. The Committee also reiterated its earlier view that Africa should continue to receive high priority in the allocation of IDA resources. The Committee welcomed an undertaking by the Bank/IDA management to prepare a program for Africa for its September 1984 meeting to guide the Bank and the international community in helping sub-Saharan Africa deal with its severe human, social, and economic problems.

G. Linkages Between Trade and the Promotion of Development

30. In view of the importance of an open trading system for the growth and development prospects of developing countries, the Com- mittee held an extensive discussion on the linkages between trade and development on the basis of background papers prepared by the Bank and Fund staffs. While the Committee noted with satisfaction that exports had begun to revive, it expressed serious concern regarding the continuing rise in protectionism which is making more difficult the orderly implementation of the adjustment process in all countries, developing and developed. Moreover, for some heavily indebted

developing countries relying on the openness of markets, protectionism has aggravated their serious balance of payments problems, making it more difficult for them to service their debt in an orderly fashion. The increase in trade barriers is also retarding the much-needed structural adjustment in both developed and developing countries. The Committee emphasized that expanded trade opportunities, including more remunerative prices for primary commodities, would provide a critical impetus to the extension of world economic recovery and contribute to restoring the long-term growth and development prospects of developing countries. Trade liberalization and improved domestic economic policies in all countries, together with enlarged flows of external finance to developing countries, are mutually reinforcing actions which would help accelerate growth momentum of developing countries. 31. The Committee invited all governments to step up their efforts to seek effective solutions to the current problems in international trade relations, bearing in mind the special needs of developing countries. The Committee welcomed the indications of a growing interest among governments in launching a new round of multilateral trade negotiations under the aegis of the GATT, which should continue to play the central role in efforts to bring about a more open trading system. These negotiations should consider dismantling nontariff barriers and other measures affecting the trade of developing countries. The Committee considered that it could usefully supplement these efforts by playing a more active part in strengthening governments' resistance to protectionist pressures and encouraging trade liberalization. Accordingly, it invited members to discuss in future meetings progress reached on improvements in trade opportunities, particularly for the developing countries. It also invited the Director-General of the GATT, at the Committee's future meetings, to present his appraisal of progress in measures to strengthen the multilateral trading system and to liberalize trade affecting developing countries. The Committee urged the Bank and the Fund to continue their efforts to encourage an expanding and open world trading system. The Committee considered that, by keeping under review the linkages between trade and the promotion of development, it could provide continuing support to the work of the GATT and the UNCTAD, and thereby help ensure the coherence and consistency of actions in the international financial and trade fields.

H. Additional Lending for Energy

32. Another subject which engaged the Committee's attention concerned the financing requirements for energy development. The

documents prepared by the Bank brought into focus the large magni- tudes of resources required for financing essential energy projects in a large number of developing countries. The search by the Bank for mobilizing additional funds for this sector has not borne fruit so far.

I. Executive Secretary

33. The Committee appointed Mr. Fritz Fischer to succeed the present Executive Secretary, Mr. Kastoft, with effect from July 1, 1984, and placed on record its appreciation of the services rendered by him.

Annexes A. Members of the Committee B. Organizational and Administrative Aspects C. Text of Parallel IBRD and IMF Resolutions Establishing the Development Committee (see Summary Proceedings, 7975, pages 278-82) D. Agendas and Press Communiques of Meetings Held in September 1983 and April 1984 Annex A

Members of the Committee

Member Countries 1. His Excellency Austria, Belgium, Hungary, Luxembourg, Willy De Clercq Turkey Vice Prime Minister, Minister of Finance, and Minister of Foreign Trade Belgium

2. His Excellency France Jacques Delors Minister of Economy, Finance and Budget France

3. His Excellency Argentina, Bolivia, Chile, Paraguay, Peru, Luis Escobar Cerda Uruguay Minister of Finance Chile

4. His Excellency Denmark, Finland, Iceland, Norway, Kjell-Olof Feldt Sweden Minister of Finance Sweden

Member Countries 5. The Honorable Greece, Italy, Portugal Giovanni Goria Minister of the Treasury Italy

6. His Excellency Burma, Fiji, Indonesia, Lao People's Sommai Hoontrakool Democratic Republic, Malaysia, Nepal, Minister of Finance Singapore, Thailand, Viet Nam Thailand

7. His Excellency Bahrain, Egypt, Iraq, Jordan, Kuwait, Ghulam Ishaq Khan2 Lebanon, Maldives, Oman, Pakistan, Minister for Finance, Commerce Qatar, Saudi Arabia, Syrian Arab and Economic Coordination Republic, United Arab Emirates, Yemen Pakistan Arab Republic

8. His Excellency Afghanistan, Algeria, Ghana, Islamic Abdellatif Jouahri Republic of Iran, Libya, Morocco, Minister of Finance Tunisia, People's Democratic Republic of Morocco Yemen

9. The Honorable Australia, Korea, New Zealand, Papua P.J. Keating New Guinea, Solomon Islands, Vanuatu, Treasurer Western Samoa Australia

10. His Excellency, Benin, Burkina Faso, Cameroon, Cape Abdoulaye Kone* Verde, Central African Republic, Chad, Minister of Economy Comoros, Congo, Djibouti, Equatorial and Finance Guinea, Gabon, Guinea-Bissau, Ivory Ivory Coast Coast, Madagascar, Mali, Mauritania, Mauritius, Niger, Rwanda, Sao Tome' and Principe, Senegal, Somalia, Togo, Zaire

11. The Honorable Bahamas, Barbados, Belize, Canada, Marc Lalonde Dominica, Grenada, Guyana, Ireland, Minister of Finance Jamaica, St. Lucia, St. Vincent Canada 12. The Right Honorable United Kingdom Nigel Lawson, M.P. Chancellor of the Exchequer United Kingdom 13. The Honorable Botswana, Burundi, Ethiopia, The K.A. Malima Gambia, Guinea, Kenya, Lesotho, Liberia, Minister for Planning Malawi, Nigeria, Seychelles, Sierra Leone, and Economic Affairs Sudan, Swaziland, Tanzania, Trinidad and Tanzania Tobago, Uganda, Zambia, Zimbabwe

2 Mr. Usamah J. Faquih, Deputy Minister of Finance for International Development Cooperation, Saudi Arabia, served as Alternate Member to permit His Excellency Ghulam Ishaq Khan to serve as Chairman.

Member Countries 14. The Honorable Bangladesh, Bhutan, India, Sri Lanka Pranab Kumar Mukherjee Minister of Finance India

15. The Honorable United States Donald T. Regan Secretary of the Treasury United States

16. His Excellency Cyprus, Israel, Netherlands, Romania, H.O. Ruding Yugoslavia Minister of Finance Netherlands

17. His Excellency Costa Rica, El Salvador, Guatemala, Jesus Silva Herzog Honduras, Mexico, Nicaragua, Panama, Secretary of Finance and Spain, Suriname, Venezuela Public Credit Mexico

18. His Excellency Japan Noboru Takeshita Minister of Finance Japan

19. The Honorable Brazil, Colombia, Dominican Republic, Jose" Santos Taveras Ecuador, Haiti, Philippines Governor Central Bank Dominican Republic

20. His Excellency China Wang Bingqian State Counsellor and Minister of Finance China

21. His Excellency Federal Republic of Germany Juergen Warnke Federal Minister for Economic Cooperation Germany

Annex B

Organizational and Administrative Aspects

1. The Committee on Reform of the International Monetary System and Related Issues (Committee of Twenty) in 1974 agreed that one of the important objectives of the Reform of the World Monetary and

Economic Order should be the promotion of economic development and to this end the net flow of real resources to developing countries should be given positive encouragement. The Committee of Twenty, in its final report in June 1974, therefore recommended that two committees be set up: an Interim Committee in the Fund to deal with monetary reform and a joint ministerial committee of the Bank and the Fund (Development Committee) to continue the study of the broad question of the transfer of real resources to developing countries. 2. It was hoped that the Development Committee would be helpful in providing a focal point in the structure of economic cooperation for formation of a comprehensive overview of diverse international activities in the international area, for efficient and prompt consideration of development issues, and for coordination of international efforts to deal with problems of financing development. The Committee was expected to work in close association with the managements and the boards of the two institutions. 3. The Development Committee was accordingly established pursuant to Bank Governors Resolution 294, October 2, 1974, and Fund Governors Resolution 29-9, October 2, 1974. The parallel resolutions provided that the members of the Development Committee were to be governors of the Bank, governors of the Fund, ministers, or others of comparable rank. Each member government of the Bank or the Fund that appoints an executive director or group of members that elect an executive director was to appoint one member of the Committee (in all: 21 in the Bank and 22 now in the Fund) and up to seven associates. The members were to be appointed in turn for successive periods of two years by the members of the Bank and the members of the Fund. 4. At the inaugural meeting of the Committee held October 2-3, 1974, Mr. Henri Konan Bedie, Minister of Economy and Finance of the Ivory Coast, was selected as Chairman, and Mr. Henry J. Costanzo, Executive Vice-President of the Inter-American Development Bank, was appointed Executive Secretary. At the seventh meeting of the Committee, held October 6, 1976, Mr. Cesar E.A. Virata, Secretary of Finance of the Philippines, was selected as Chairman, and Sir Richard King, Permanent Secretary of the Ministry of Overseas Development of the United Kingdom, was appointed Executive Sec- retary. Mr. Virata was re-elected as Chairman on September 27, 1978, at the eleventh meeting of the Committee. On expiry of Mr. Virata's term, the Committee, at its fifteenth meeting held on October 2, 1980, in Washington, D.C., unanimously selected Mr. David Ibarra Munoz, Secretary of Finance and Public Credit of Mexico, as Chairman, and appointed Mr. Hans E. Kastoft, as Executive Secretary. Mr. Ibarra resigned from the post of Chairman in March 1982, and the Development

Committee at its eighteenth meeting in Helsinki in May 1982 selected Mr. Manuel Ulloa Elias, Prime Minister and Minister of Economy, Finance, and Commerce of Peru, as the new Chairman of the Com- mittee. Mr. Ulloa completed his term in September 1982 when, following the elections of the Executive Directors of the Bank and the Fund at the Annual Meetings in Toronto, the Committee unanimously selected Mr. Ghulam Ishaq Khan, Minister for Finance, Commerce, Planning, and Coordination of Pakistan, as the new Chairman of the Committee. 5. Following the resignation of Mr. Hans E. Kastoft, Executive Secretary, the Committee at its twenty-third meeting held on April 13, 1984, appointed Mr. Fritz Fischer as its new Executive Secretary. Mr. Fischer assumed charge of his duties with effect from July 1, 1984. 6. The Boards of the Bank and the Fund are used as preparatory bodies for the work of the Development Committee. The mechanism of Task Forces, with a specific limited task and duration, is used by the Committee whenever a need is felt for an in-depth study of a particular subject. A Task Force on the problems of Nonconcessional Flows was established in 1980 and concluded its comprehensive work by presenting its Final Report to the Committee at its Helsinki meeting in May 1982. The Committee also approved the establishment of a new 18-member Task Force on Concessional Flows to carry forward and widen the continuing study of the problems affecting the volume and quality and effective use of concessional flows in the shorter and longer terms. It is expected to present its Final Report sometime during 1985. 7. The organizations listed below were official observers to the Development Committee during 1983-84. In addition, the Government of Switzerland was represented by an observer. African Development Bank Arab Bank for Economic Development in Africa Arab Fund for Economic and Social Development Asian Development Bank Commission of the European Communities Commonwealth Secretariat Development Assistance Committee European Investment Bank General Agreement on Tariffs and Trade Inter-American Development Bank International Fund for Agricultural Development Islamic Development Bank OPEC Fund for International Development

Organization for Economic Cooperation and Development United Nations United Nations Development Program United Nations Conference on Trade and Development

Annex C

The text of the parallel IBRD and IMF Resolutions establishing the Development Committee is reproduced in Summary Proceedings, 7975, pages 278-82.

Annex D

Agendas and Press Communiques of Meetings Held in September 1983 and April 1984

Meeting of September 26, 1983 A. Agenda 1. Capital Flows to Developing Countries (i) The World Bank Lending Program and Implications for the Bank's Capital Requirements (ii) Status of Concessional Resource Flows 2. Sub-Saharan Africa: Development Issues 3. Progress Reports (i) Linkages between Trade and the Promotion of Development (ii) Lending for Energy (iii) Task Force on Concessional Flows 4. Annual Report 5. Other Business B. Press Communique (text published in Summary Proceedings, 1983, pages 280-82).

Meeting of April 13, 1984 A. Agenda 1. Status of IDA 2. Linkages between Trade and the Promotion of Development

3. Status Reports (a) Selective Capital Increase (IBRD) (b) IFC Capital Increase (c) Investment Incentives and Performance Requirements 4. Appointment of Executive Secretary 5. Other Business B. Press Communique 1. The twenty-third meeting of the Development Committee was held in Washington, D.C. on April 13, 1984 under the chairmanship of His Excellency Ghulam Ishaq Khan, Minister of Finance, Commerce and Economic Coordination of Pakistan. Mr. A.W. Clausen, President of the World Bank, Mr. J. de Larosiere, Managing Director of the International Monetary Fund, and Mr. Hans E. Kastoft, Executive Secretary, participated in the meeting. Representatives from a number of international and regional organizations and Switzerland also attended. 2. The Committee discussed the status of IDA and the linkages between trade and development against the background of the world economic outlook as projected in the Fund document and the report by the President of the World Bank. It was noted that while the world economic situation is more promising than a year ago, the achievement of sustained growth and its extension to developing countries require improved policy performance by both the developed and developing countries, an increase of private and official capital flows, and improved trade prospects. 3. Ministers recalled that at their last meeting most members had agreed on a Selective Capital Increase (SCI) for the World Bank of about $8 billion. In the process of negotiating the SCI, agreement was reached on the relative contributions of major donors to ID A-VII. The Committee noted the agreement reached among most of the major shareholders on share ranking in the IBRD which had facilitated the agreement on the ID A-VII Replenishment. While concern was expressed by members that action on ID A-VII and the SCI had not yet been taken, they were encouraged by the willingness of major shareholders to work toward resolving as quickly as possible the outstanding issues. Ministers urged that shareholders exert maximum effort to obtain the necessary approvals so that the implementing resolutions for the Seventh Replenishment and the Selective Capital Increase could be considered by the Executive Boards and approved by the Governors in time to permit the legislative action needed if IDA-VH is to become effective on July 1, 1984.

4. All donors but one expressed concern at the implications of a $9 billion replenishment, an amount well below the $12 billion level supported by most. All members except one pointed to the inadequacy of the $9 billion replenishment, which represents a sharp decline in real terms in relation to ID A-VI. Most members asked for accelerated action by IDA management and donors to mobilize up to $3 billion in a Supplementary Funding Arrangement to be available by July 1, 1984. All donors were urged to participate in this fund on the basis of fair burden-sharing. 5. The Committee looks forward at its next meeting to suggestions from World Bank management concerning the future role of the Bank and the implications for longer-term capital requirements, keeping in mind the need for a general capital increase. The Committee welcomed progress in the preparation of an expanded investment program for the International Finance Corporation (IFC) through a management proposal of a $750 million capital increase and called for early action by the IFC Executive Board. 6. In reviewing the world economic outlook, the Committee took note of the difficulties developing countries continued to experience despite recovery in many industrialized countries. The Committee welcomed the recovery of economic activity that is currently under way in industrial countries at a pace faster than was foreseen. It noted, however, that the effects of this recovery on employment had so far been limited outside the United States and Canada. The reductions in inflation rates which had been substantial in many countries were welcomed. The Committee expressed great concern, however, at the possible consequences of recent increases of key interest rates rising from an already high level. In reviewing economic conditions in the developing countries, the Committee commented favorably on the fact that the rate of growth appears to be picking up in these countries on average, but regarded the continuing low level of that rate, especially in per capita terms, as a danger and a challenge to policy. It was a matter of regret that, in general, little improvement in inflation rates had yet taken place. 7. The Committee paid special attention to the critical situation faced by the sub-Saharan African countries. The Committee expressed concern at the grim prospects for the region, reflected in a continued decline in per capita incomes for many African countries, a weakening in external payments positions, depressed commodity prices, a burdensome debt situation and against rapidly rising population growth, a crisis in food production, bordering on famine. These negative features had been exacerbated by continuing severe drought conditions which had now extended to southern Africa, creating human and

©International Monetary Fund. Not for Redistribution 276 SUMMARY PROCEEDINGS, 1984 economic problems of major proportions. It was agreed that increased concessional assistance was urgently needed from both bilateral and multilateral sources to address the immediate problem of food availability and its distribution and to support domestic policies aimed at improving sub-Saharan Africa's long-term development prospects. 8. The Development Committee reiterated its earlier view that Africa should continue to receive high priority in the allocation of IDA resources. It was noted, however, that with a replenishment level of $9 billion, it would be difficult to provide adequate IDA resources to sub-Saharan Africa, taking into account the needs of other low-income countries. The Committee welcomed an undertaking by the Bank/IDA management to prepare a program for Africa for the September 1984 meeting of the Development Committee to guide the Bank and the international community in helping sub-Saharan Africa deal with its severe human, social, and economic problems. 9. The Committee held an extensive discussion on the linkages between trade, finance and development, on the basis of background papers prepared by the Bank and Fund staffs. While the Committee noted with satisfaction that exports had begun to revive, it expressed serious concern regarding the continuing rise in protectionism which is making more difficult the orderly implementation of the adjustment process in all countries, developing and developed. Moreover, for some heavily indebted developing countries relying on the openness of markets, protectionism has aggravated their serious balance of payments problems, making it more difficult for them to service their debt in an orderly fashion. The increase in trade barriers is also retarding the much needed structural adjustment in both developed and developing countries. The Committee emphasized that expanded trade opportunities, including more remunerative prices for primary commodities, would provide a critical impetus to the extension of world economic recovery and contribute to restoring the long-term growth and development prospects of developing countries. Trade liberalization and improved domestic economic policies in all countries, together with enlarged flows of external finance to developing countries, are mutually reinforcing actions which would help accelerate growth momentum of developing countries. 10. The Committee invited all governments to step up their efforts to seek effective solutions to the current problems in international trade relations, bearing in mind the special needs of the developing countries. The Committee welcomed the indications of a growing interest among governments in launching a new round of multilateral trade negotiations under the aegis of the GATT, which should continue to play the central role in efforts to bring about a more open trading

©International Monetary Fund. Not for Redistribution COMMITTEE REPORTS 277 system. These negotiations should consider dismantling nontariff barriers and other measures affecting the trade of developing countries. The Committee considered that it could usefully supplement these efforts by playing a more active part in strengthening governments' resistance to protectionist pressures and encouraging trade liberalization. Accordingly, it invited members to discuss in future meetings progress reached on improvements in trade opportunities, particularly for the developing countries. It also invited the Director-General of the GATT, at the Committee's future meetings, to present his appraisal of progress in measures to strengthen the multilateral trading system and to liberalize trade affecting developing countries. The Committee urged the Bank and the Fund to continue their efforts to encourage an expanding and open world trading system. The Committee considered that, by keeping under review the linkages between trade and the promotion of development, it could provide continuing support to the work of the GATT and the UNCTAD, and thereby help ensure the coherence and consistency of actions in the international financial and trade fields. 11. The Committee expressed its satisfaction with the progress achieved so far by the international community in addressing the debt problem of developing countries. The Committee requested that the Fund and the Bank continue to examine the debt problem of developing countries. 12. The Committee also took note of a study on investment incentives and performance requirements undertaken by the World Bank on the recommendation of the Task Force on Private Foreign Investment. The study will facilitate a better understanding of the impact and choice of policies pertaining to international direct private investment. 13. The Committee appointed Mr. Fritz Fischer to succeed the present Executive Secretary, Mr. Kastoft, with effect from July 1, 1984, and placed on record its appreciation of the services rendered by him. 14. The Committee agreed to meet again on September 23, 1984 in Washington, D.C.

Resolution No. 39-1

Membership for St. Christopher and Nevis

On August 2, 1983, the Government of St. Christopher and Nevis applied for admission to membership in the International Monetary Fund. The Executive Board resolved on March 5, 1984 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 March 7, 1984 for a vote without meeting: WHEREAS, St. Christopher and Nevis on August 2, 1983 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 St. Chris- topher and Nevis 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 St. Christopher and Nevis to membership in the Fund; Now, THEREFORE, the Board of Governors, having considered the recommendations of the Executive Board, hereby resolves that the terms and conditions upon which St. Christopher and Nevis 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 "SDR" means the special drawing right. 2. Quota: The quota of St. Christopher and Nevis shall be SDR 4.5 million. 3. Payment of Subscription: The subscription of St. Christopher and Nevis shall be equal to its quota. St. Christopher and Nevis shall

278

©International Monetary Fund. Not for Redistribution RESOLUTIONS 279 pay 21.7 percent of its subscription in SDKs 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 St. Christopher and Nevis. 4. Timing of Payment of Subscription: St. Christopher and Nevis shall pay its subscription within six months after accepting membership in the Fund. 5. Exchange Transactions with the Fund and Remuneration: St. Christopher and Nevis 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. 6. Exchange Arrangements: Within 30 days after accepting membership in the Fund, St. Christopher and Nevis 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. 7. Representation and Information: Before accepting membership in the Fund, St. Christopher and Nevis 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 8(a) and 8(b) of this Resolution, and St. Christopher and Nevis shall furnish to the Fund such information in respect of such action as the Fund may request. 8. Effective Date of Membership: After the Fund shall have informed the Government of the United States of America that St. Christopher and Nevis has complied with the conditions set forth in paragraph 7 of this Resolution, St. Christopher and Nevis shall become a member of the Fund on the date when St. Christopher and Nevis shall have complied with the following requirements: (a) St. Christopher and Nevis 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) St. Christopher and Nevis shall sign the original copy of the Articles held in the Archives of the Government of the United States of America. 9. Period for Acceptance of Membership: St. Christopher and Nevis 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 St. Christopher and Nevis are deemed by the Executive Board to warrant an extension of the period during which St. Christopher and Nevis 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 April 4, 1984. The Articles of Agreement were signed by the Honorable Erstein Edwards, Charge d'Affaires, on behalf of the Government of St. Christopher and Nevis, on August 15, 1984.

Resolution No. 39-2

1984 Regular Election of Executive Directors The Executive Board resolved on July 20, 1984 that action in connection with the regulations for the conduct of the 1984 regular election of Executive Directors should not be postponed until the time of the next regular meeting of the Board of Goyernors, 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 25, 1984 for a vote without meeting:

RESOLVED: (a) That the proposed Regulations for the Conduct of the 1984 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 1986. The Board of Governors adopted the foregoing Resolution, effective September 4, 1984.

Resolution No. 39-3

Forthcoming Annual Meetings The Executive Board decided on August 3, 1984 that action in connection with the places and dates of forthcoming Annual Meetings from 1988 through 1990 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 August 7, 1984 for a vote without meeting:

RESOLVED: That the invitation of the Government of the Federal Republic of Germany and of the Senat to hold the Annual Meetings in Berlin (West) in 1988 be accepted; That the 1988 Annual Meetings be convened on Tuesday, Septem- ber 27, 1988; and That the 1989 and 1990 Annual Meetings be convened, respectively, on Tuesday, September 26 and September 25, in Washington, B.C. The Board of Governors adopted the foregoing Resolution, effective September 11, 1984.

Resolution No. 39-4'

Membership for the People's Republic of Mozambique

WHEREAS, the People's Republic of Mozambique on May 3, 1984 requested admission to membership in the International Monetary Fund in accordance with Article II, Section 2 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 Mozambique 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 Mozam- bique to membership in the Fund; Now, THEREFORE, the Board of Governors, having considered the recommendations of the Executive Board, hereby resolves that the terms and conditions upon which the People's Republic of Mozambique 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;

1 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 24, 1984.

2. Quota: The quota of the People's Republic of Mozambique shall be SDR 61 million. 3. Payment of Subscription: The subscription of the People's Re- public of Mozambique shall be equal to its quota. The People's Republic of Mozambique shall pay 21.7 percent of its subscription in SDRs or in the currencies of other members selected 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 Mozambique. 4. Timing of Payment of Subscription: The People's Republic of Mozambique shall pay its subscription within six months after accepting membership in the Fund. 5. Exchange Transactions with the Fund and Remuneration: The People's Republic of Mozambique 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. 6. Exchange Arrangements: Within 30 days after accepting membership in the Fund, the People's Republic of Mozambique 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. 7. Representation and Information: Before accepting membership in the Fund, the People's Republic of Mozambique 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 8(a) and 8(b) of this Resolution, and the People's Republic of Mozambique shall furnish to the Fund such information in respect of such action as the Fund may request. 8. Effective Date of Membership: After the Fund shall have informed the Government of the United States of America that the People's Republic of Mozambique has complied with the conditions set forth in paragraph 7 of this Resolution, the People's Republic of Mozambique shall become a member of the Fund on the date when the People's Republic of Mozambique shall have complied with the following requirements: (a) The People's Republic of Mozambique 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 People's Republic of Mozambique shall sign the original copy of the Articles held in the Archives of the Government of the United States of America. 9. Period for Acceptance of Membership: The People's Republic of Mozambique 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 Mozambique are deemed by the Executive Board to warrant an extension of the period during which the People's Republic of Mozambique may accept membership pursuant to this Resolution, the Executive Board may extend such period until such later date as it may determine. The Articles of Agreement were signed by the Honorable RuiBaltazar dos Santos Alves, Minister of Finance of the People's Republic of Mozambique, on behalf of the Government of the People's Republic of Mozambique, on September 24, 1984.

Resolution No. 39-52

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, 1984, the Financial Statements contained therein, and the Administrative Budget for the Financial Year ending April 30, 1985 as fulfilling the requirements of Article XII, Section 7 of the Articles of Agreement and Section 20 of the By-Laws.

2 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, 1984.

Resolution No. 39-62

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 amendments of Rules I-10, G-4(b) and 1-6(5), which have been made since the 1983 Annual Meeting, and has no changes to suggest.

2 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, 1984.

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

PRESS COMMUNIQUE

September 22, 1984

1. The Interim Committee of the Board of Governors of the Inter- national Monetary Fund held its twenty-third meeting in Washington, D.C., on September 22, 1984, under the chairmanship of Mr. Willy De Clercq, Vice-Prime Minister and Minister of Finance and Foreign Trade of Belgium. Mr. Jacques de Larosiere, Managing Director of the International Monetary Fund, participated in the meeting. The meeting was also attended by observers from a number of international and regional organizations and from Switzerland. 2. In their discussion of the World Economic Outlook, members of the Committee expressed satisfaction that economic growth in the industrial world had been proceeding during 1984 at a 5 percent rate— even more rapidly than expected. They noted that investment had displayed particular strength, and that inflation had remained under control. Concern was voiced, however, that European countries had not yet participated fully in the recovery and that unemployment in these countries remained at very high levels. The Committee expressed concern that the position of many developing countries remained difficult. Nonetheless, in a number of the developing countries, the further reduction in current account deficits that was in prospect was viewed as encouraging, especially as it stemmed increasingly from export growth, and was being accompanied by a return to positive growth in per capita incomes. The Committee agreed that continued pursuit of a medium-term strategy was appropriate to sustain recovery. Such a strategy would involve, in particular, a disinflationary monetary policy, further action to improve the structure of government budgets and reduce deficits, primarily through reduced spending, and a determined attack on structural rigidities, including protectionist measures, which impede the efficient functioning of markets. 3. While the external debt problems of many developing countries remain serious, the Committee felt that good progress had been made in the implementation of the coordinated strategy of debtors and

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©International Monetary Fund. Not for Redistribution 286 SUMMARY PROCEEDINGS, 1984 creditors to tackle these problems within the framework of adjustment programs—a development that has been facilitated by the recovery in world trade. The Committee stressed that a satisfactory resolution of debt problems would continue to require close cooperation among all parties concerned. In this connection, it is important that reasonable economic growth be maintained in industrial countries, that real interest rates come down substantially from current levels, and that the indebted countries themselves pursue determined adjustment policies. The major industrial countries have a special responsibility to pursue policies that result in noninflationary growth, and permit developing countries adequate access to markets. There is also a continuing need for adequate financing to encourage and facilitate effective adjustment. The borrowing countries themselves have to make the fundamental contribution by persevering with programs of economic adjustment that strengthen their external position, lay the basis for a more effective utilization of resources, and thereby restore credit worthiness and permit the resumption of growth at an early date. In this connection, the Committee welcomed the initiatives toward multiyear debt rescheduling arrangements in cases of effective adjustment. The Committee also stressed the importance of a continuing Fund role in the implementation of the coordinated strategy of external debt management. 4. The Committee expressed concern over the continued resort to protectionist measures. It noted that the drift toward protectionism, if unchecked, would undermine the prospects for world recovery and would impede the smooth functioning of the international trading and financing system. The Committee, therefore, welcomed the commitments to open trade policies undertaken at the London Summit of major industrial countries which have a large weight in world trade, and in other international fora in the recent past. While welcoming some recent actions in some countries to resist protectionist pressures, it called on all members to translate general commitments into concrete actions to prevent new, and to roll back existing, protectionist measures. The Committee called attention to the need for improved access to foreign markets for the exports of developing countries as an important element in supporting the adjustment efforts of these countries and in contributing to a long-term solution of the debt problem. The Committee also emphasized the importance of increased and effective international surveillance of trade policies. In this regard, it considered that the Fund should continue to give special attention to the problem of protectionism in the context of its surveillance function, and in support of the efforts of the GATT and other institutions having responsibilities in this field.

5. It was agreed that, at its next meeting, the Interim Committee will discuss, in a medium-term framework and in the context of the global financial environment and the current approaches toward resolving debt problems, certain issues relating to the adjustment efforts and balance of payments prospects of member countries. These will include external indebtedness, international capital flows, trade policies, and the role of Fund surveillance in dealing with these issues. In this connection, it called on the Managing Director to prepare, in the framework of the Fund's competence, background papers for consideration by the Executive Board, and to report to the next meeting of the Committee, in order to provide a basis for its discussion of these issues.

6. The Committee discussed the question of the Fund's policy on enlarged access and the limits on access to the Fund's resources in 1985. It was recalled that the Fund's policy on enlarged access is a facility of a temporary character, and that this policy and the access limits under it, as well as the access limits under the Fund's special facilities, were to be reviewed before the end of 1984.

The Committee recognized that, in spite of the improvement in the world economic situation, many member countries continued to face difficult payments problems and that serious uncertainties remained about the prospects in the medium term. In these circumstances, the Committee agreed that there was a need for the continuation of the enlarged access policy and it reached the following conclusions on the access limits for 1985:

a. Access under the enlarged access policy in 1985 should be subject to annual limits of 95 or 115 percent of quota, three-year limits of 280 or 345 percent of quota, and cumulative limits of 408 or 450 percent of quota, depending on the seriousness of the balance of payments need and the strength of the adjustment effort. As at present, the Executive Board should retain the flexibility to approve stand-by or extended arrangements for amounts above these access limits in exceptional circumstances.

b. The present access limits under the special facilities should be retained.

c. As at present, access limits should not be regarded as targets. These limits, and the enlarged access policy itself, should be reviewed before the end of 1985, and yearly thereafter, in light of all relevant factors, including the magnitude of members' payments problems and developments in the Fund's liquidity position.

The Committee requested the Executive Board to complete, before the end of this year, the necessary action in order to implement the conclusions reached by the Committee. 7. The Committee considered again the question of an SDR allocation against the background of the state of international liquidity and the conditions of the world economy. In this connection, it noted the statement of the Managing Director on the discussions on the subject in the Executive Board. Most members of the Committee expressed again their firm view that there was a long-term global need to supplement existing reserve assets and that an allocation of SDKs in present circumstances would be in full conformity with the requirements of the Fund's Articles and would strengthen the world economy and the international monetary system. Some members of the Committee, however, continued to feel that a global liquidity shortage had not been demonstrated. In their view, the problems faced by some countries with reserve inadequacies should be met through adjustment in economic policies and the provision of conditional financing. While no conclusion was reached at this meeting, the Committee recognized that the matter should be kept under close and continuing consideration. Therefore, it urged the Executive Board to continue its examination of the issues involved. The majority of the members of the Committee agreed that efforts should continue toward the achievement of a broad consensus on an SDR allocation in the current basic period. 8. The Committee agreed to hold its next meeting in Washington, D.C., in April 1985.

COMPOSITION

as of September 22, 1984 Willy De Clercq, Chairman

Mohammed Abal-Khail Saudi Arabia Hassan Tawfik Al-Najafi Iraq Pierre Beregovoy France Rachid Bouraoui Algeria Abdulai O. Conteh Sierra Leone Willy De Clercq1 Belgium Ernane Galveas Brazil Giovanni Goria Italy Bernardo Grinspun Argentina Paul J. Keating Australia Nigel Lawson United Kingdom Liu Hongru China Benito Raul Losada Venezuela Pranab Kumar Mukherjee India Radius Prawiro Indonesia Rolf Presthus2 Norway Donald T. Regan United States H. O. Ruding Netherlands Sambwa Pida Nbagui Zaire Gerhard Stoltenberg Germany, Federal Republic of Noboru Takeshita Japan Michael H. Wilson Canada

Alternate attending for the member: 1 Jacques F. Poos (Luxembourg) 2 Kjell Storvik

©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 23, 1984

1. The Development Committee held its twenty-fourth meeting in Washington, D.C. on September 23, 1984 under the chairmanship of His Excellency Ghulam Ishaq Khan, Minister for Finance, Commerce and Economic Coordination of Pakistan. Mr. A. W. Clausen, President of the World Bank, Mr. J. de Larosiere, Managing Director of the International Monetary Fund, and Mr. Fritz Fischer, Executive Sec- retary of the Development Committee, participated in the meeting. Representatives from a number of international and regional organizations and Swtizerland also attended. 2. The Committee heard its Chairman, the Managing Director of the IMF, the President of the World Bank, and the Chairman of the Group of 24 on the world economic outlook. 3. The Committee welcomed the successful completion of negotiations of a Selective Capital Increase of $8.4 billion for the World Bank and a capital increase of $650 million for the International Finance Corporation. It noted with concern that recent efforts by IDA management and donors to mobilize a supplementary funding arrangement for IDA-VII had not yet been successful and requested that in accordance with the Canadian proposal the situation should be reviewed. 4. The Committee discussed the report prepared for the meeting by the World Bank entitled Toward Sustained Development in Sub- Saharan Africa: A Joint Program of Action. The members reiterated their concern at the severity of the sub-Saharan African economic situation and noted that many African governments were making serious efforts to rehabilitate and restructure their economies. The Committee concluded that there was an emerging consensus on the diagnosis of sub-Saharan Africa's economic problems and on measures needed to address them. Members further agreed that delay in taking action could not be justified. The Committee expressed strong support

290

©International Monetary Fund. Not for Redistribution DEVELOPMENT COMMITTEE 291 for the report's proposed action program, emphasizing that its implementation required the concerted and sustained efforts of African governments, bilateral donors and international organizations. The Committee encouraged the donors to provide more flexible forms of development assistance in both their bilateral and multilateral aid best adapted to Africa's needs and urged the World Bank to take a leadership role in strengthening aid coordination efforts. In that connection, the Bank was also encouraged to explore with donors various approaches to mobilizing the resources required to implement the proposed program for sub-Saharan Africa. The Bank was asked to report to the next meeting of the Development Committee on the progress achieved in implementing the program. 5. In the discussion on linkages between trade and the promotion of development, a presentation was made to the Committee by the Director General of GATT, Mr. Arthur Dunkel. The Committee agreed that progress in maintaining open access to markets for the exports of developing countries and in reinforcing the multilateral rules and disciplines for trade was an essential support to their current adjustment efforts and to the long-term solution to the debt problem. The Committee encouraged the immediate adoption of concrete measures to combat protectionism. It noted the progress being made in the implementation of the GATT's ongoing work program, and welcomed the consideration being given to the role that could be played in liberalizing and strengthening the trading system by a new GATT round of multilateral trade negotiations in which all countries— developed and developing alike—could participate and from which all could benefit. Members also emphasized the contribution private investment could make to trade and development. 6. The Committee noted the ongoing discussions in the World Bank on its future role and the contribution it could make to developing countries' structural adjustment efforts and to the successful resumption of investment and economic growth. The Committee looks forward at its next meeting to suggestions from World Bank management concerning the future role of the Bank and the implications for longer- term capital requirements, keeping in mind the need for a general capital increase. It urged that sufficient progress should be made in the next several months for the subject to be considered in depth at the spring 1985 meeting. 7. It was agreed that, at an extended meeting in spring 1985, the Development Committee will discuss, within the context of a medium- to long-term framework and the current approaches toward resolving debt problems, the structural and development aspects of the problems of developing countries in their efforts to achieve sound economic

©International Monetary Fund. Not for Redistribution 292 SUMMARY PROCEEDINGS, 1984 growth. These include, inter alia, external indebtedness, protectionism, commodity prices, interest rates, the structure of capital flows and obstacles to direct investment and equity capital flows. In this connection, it called on the Managing Director of the Fund and the President of the World Bank to prepare in close collaboration, contributing from the perspective of their respective mandates and com- petences, background papers for submission, after consideration by their respective Executive Boards, to the next meeting of the Committee.

COMPOSITION

as of September 23, 1984

Ghulam Ishaq Khan, Chairman

Pierre Beregovoy France Willy De Clercq Belgium Luis Escobar Cerda Chile Kjell-Olof Feldt Sweden Giovanni Goria Italy Sommai Hoontrakool Thailand Ghulam Ishaq Khan1 Pakistan Abdellatif Jouahri Morocco Paul J. Keating Australia Abdoulaye Kon£ Ivory Coast Nigel Lawson United Kingdom K. A. Malima Tanzania Pranab Kumar Mukherjee India Donald T. Regan United States H. O. Ruding Netherlands Jose* Santos Taveras Dominican Republic Jesus Silva Herzog Mexico Noboru Takeshita Japan Wang Bingqian China Juergen Warnke Germany, Federal Republic of Michael H. Wilson Canada

Alternate attending for the member: 1 H. U. Beg

PRESS ANNOUNCEMENT

September 26, 1984

At its twenty-fifth meeting on September 26, 1984, in Washington, D.C., the Development Committee selected His Excellency Ghulam Ishaq Khan, Minister for Finance, Commerce and Economic Coordi- nation of Pakistan, as Chairman for another term.

COMPOSITION

as of September 26, 1984

Ghulam Ishaq Khan, Chairman

Mohammed Abal-Khail1 Saudi Arabia Pierre Beregovoy2 France Willy De Clercq3 Belgium Luis Escobar Cerda4 Chile Uffe Ellemann-Jensen5 Denmark Giovanni Goria6 Italy Ghulam Ishaq Khan7 Pakistan Abdellatif Jouahri8 Morocco Paul J. Keating9 Australia Abdoulaye Kon6 Ivory Coast Nigel Lawson10 United Kingdom Pranab Kumar Mukherjee11 India Donald T. Regan12 United States H. O. Ruding13 Netherlands Jesus Silva Herzog14 Mexico Arifin M. Siregar15 Indonesia Onaolapo Soleye Nigeria Francisco H. Swett Ecuador Noboru Takeshita16 Japan Wang Bingqian17 China Juergen Warnke18 Germany, Federal Republic of Michael H. Wilson'9 Canada

Alternate attending for the member: 1 Yusuf A. Nimatallah 11 P. K. Kaul 2 Bruno de Maulde 12 James W. Conrow 3 Jean-Pierre Arnoldi 13 Ferdinand van Dam 4 Luis Arturo Fuenzalida 14 Ariel Buira 5 Mogens Isaksen 15 Soegito Sastromidjojo 6 Mario Sarcinelli 16 Tsuneo Fujita 7 Said E. El-Naggar 17 Wang Liansheng 8 M'Hamed Tazi Mezalek 18 Eberhard Kurth 9 Ronald H. Dean 19 Bernard J. Drabble 10 Nigel Wicks

Afghanistan Santiago del Puerto Hector Luis Ferraro Governor Carlos Garcia Tudero Mehrabuddin Paktiawal Adolfo Gass Alternate Governor Carlos Goldstein Fatah Mohammad Tarin Maria del Carmen Gomez Jorge Gonzalez Algeria Gustavo Grinspun Beatriz Harretche Governor Alfredo C. lannucci Rachid Bouraoui Marcelo Kiguel Alternate Governor Jorge Osvaldo Lauria Ortus Bachir Mohammed Bouyadjra Benito J. Lucini Advisers Jose Luis Machinea Houcine Abed Monica Merlo Abdelmoumene Fawzi Ben Malek Roberto A. Micele Abdou Bousselham Raul Miranda Ahmed Boutache Esteban R. G. Molfino H.E. Driss Djazairy Fernando Nebbia Llies Goumiri Juan Manuel Peire M'hamed Oualitsene Lucio Reca H.E. Mohamed Sahnoun Moises Resnick Brenner Ahmed Lamine Tarfaya Roque Humberto Rubio Mahfoud Zerouta Jesus Sabra Edgardo Silberkasten Antigua and Barbuda Juan F. Sommer Mario Teijeiro Alternate Governor Roberto Enrique Vaccarone Hon. Molwyn Joseph Mario Alejandro Weitz Advisers Eduardo Zalduendo H.E. Edmund H. Lake Paul O. Spencer Australia

Argentina Governor Hon. Paul J. Keating, M. P. Governor Temporary Alternate Governor H.E. Bernardo Grinspun Don Sanders Temporary Alternate Governor Advisers Pedro Camilo Lopez Paul L. Coghlan Advisers Anthony S. Cole Ubaldo Jose Aguirre D. A. Hollway Salvador Aisenstein John W. Keany Ramon Almendra Peter A. McLaughlin Horacio A. Alonso John Phillips Dario Braun A. R. G. Prowse Mario S. Brodersohn Ian Robinson Felix Camarasa Alan J. Tregilgas Alfredo V. Chiaradia Barbara Ward Jorge E. Christensen Robert J. Whitelaw

294

Austria S. Rozanne Osborne George L. Reid Alternate Governor Thomas Lachs Belgium Temporary Alternate Governor K. Mundl Governor Advisers Jean Godeaux Heinz Kienzl Alternate Governor Christian Prosl Emile Kestens Heinrich G. Schneider Advisers Jean-Pierre Arnoldi Bahamas Luc E. J. M. Coene Jacques de Groote Governor Robert Gryson Hon. Arthur D. Hanna H.E. Jan Hendrickx Alternate Governor Georges A. E. Janson William C. Allen Jozef Kortleven Advisers G. Noppen Peter Bethel Jacques Roelandts G. McNair Brown Andre Taymans Reno J. Brown Jan M. G. Vanormelingen Maria-Teresa Butler H.E. Reginald L. Wood Belize

Bahrain Governor Hon. Said W. Musa Alternate Governor Temporary Alternate Governor Abdulla Hassan Saif C. R. Swift Advisers Adviser Salman Khalifa Al Khalifa H.E. Henry Cain Rashid Ismail Al-Meer Anwar Jassim Lori Benin Bangladesh Governor Alternate Governor H.E. Hospice Antonio M. Mustafizur Rahman Alternate Governor Temporary Alternate Governors Guy Pognon Nazem Ahmed Choudhury Advisers Brig. Mufizur Rahman Chowdhury Jerome Ahouanmenou Advisers H.E. Guy Landry Hazoume M. A. Halim Choudhury Constant B. Koukoui A. K. Nasim Hyder Bhutan Barbados Governor Governor Dorji Tshering Rt. Hon. J. M. G. M. Adams Alternate Governor Alternate Governor Yeshey Zimba Courtney N. Blackman Adviser Advisers Sonam T. Rabgye Winston A. Cox Cleviston L. Haynes Bolivia Michael I. King H.E. Peter D. Laurie Governor Rashid O. Marville Reynaldo Cardozo Arellano

Bolivia (continued) Fernao Bracher Luiz Eduardo Campello Alternate Governor Americo Oswaldo Campiglia Armando Salas Antonio Carlos de Lauro Castrucci Advisers Newton Chiaparini H.E. Mariano Baptista Gumucio Ronaldo Cezar Coelho Roberto Barbery Solomon Cohn Oscar Bonifaz Paz Horacio Sabino Coimbra Luis Bustos Cesario Coimbra Neto Antonio Cabrera Crespo Lucio de Freitas Pereira Claudio Calderon Jose Augusto de Queiroz Fernando Campero Edesio Fernandes Ferreira Hugo Duchen Renato Francesco Fileppo Rene Fernandez Araoz Dilson Sampaio da Fonseca Percy Jimenez Herculano Borges da Fonseca Miguel Zalles Joao Batista Baldini Franco Luis Raul Zarate Carlos Eduardo de Freitas Joubert Furtado Botswana Alberto S. Furuguem Orlando Galvao Filho Governor Eduardo da Silveira Gomes, Jr. Charles N. Kikonyogo Joao Baptista Dias Guzzo Alternate Governor Eduardo de Mattos Hosannah Phophi Thapelo Nteta John E. Hunnicutt, Jr. Advisers Istvan Lantos H.E. S. T. Ketlogetswe Pedro Leitao da Cunha B. Mathe Antonio Carlos Lemgruber T. M. Tsikata Eloy Fontes Lessa Dalmir Sergio Louzada Brazil Francisco Vidal Luna Carlos Benigno Pereira Lyra Neto Governor Luciano Villas Boas Machado H.E. Ernane Galveas Roberto de Moraes Maisonnave Alternate Governor Ermelino Matarazzo Affonso Celso Pastore Jose Artur Tenot Medeiros Temporary Alternate Governors Joao de Paiva Menezes Octavio Gouvea de Bulhoes Luis Wilton Guerreiro Mesquita Oswaldo Roberto Colin Luiz Felipe Kok de Sa Moreira Filho Alexandre Kafka Eduardo de Castro Neiva Jose Carlos Madeira Serrano Zeuxis Ferreira Neves Advisers Gilberto de Almeida Nobre Heinz W. Ahlert Rubens Novais Antonio Calmon de Pin e Almeida Alfredo M. de Oliveira Jose Roberto N. Almeida Carlos Passoni, Jr. Ney Castro Alves Jose Maciel de Araujo Penna Silvio Rodrigues Alves Luiz Carlos Bresser Pereira Sergio da Silva Amaral Ary dos Santos Pinto Pedro Paulo Pinto Assumpcao Carlos Eduardo Quartim Barbosa Eimar A. Avillez Jose Mario P. do Rio Branco Oswaldo Ballarin Tarcisio Marciano da Rocha Luiz Barbosa Jose Roque Rossi Felismino de Figueiredo Barretto Francisco Sanchez Benvindo Belluco Floriano Pecanha dos Santos Paulo Vieira Belotti Joao Sayad Lino Otto Bonn Antonio de Padua Seixas Antonio Bornia Maurice M. Shashoua Jose Botafogo Goncalves Helio Prates da Silveira

Brazil (continued) Alternate Governor Gottlieb Titti Advisers (continued) Temporary Alternate Governor Geraldo Fonseca Siqueira H.E. Paul Pondi Jose Sousa Santos Advisers Jose Gomes de Souza Moise Beke Bihege Osvaldo Moreira de Souza Ambroise Foalem Peter Egon de Svastich Halidou Garga Ivan Mendes de Vasconcellos Robert Ghogomu Tapisi Joao Paulo dos Reis Veloso Ephraim Inoni Carlos Alberto Vieira Isaac Njiemoun Jose Eduardo de Andrade Vieira Gabriel T. Tanke Lydiberto dos Santos Villar Claude Tchepanou Maria Celina Arraes Vinhosa Arnoldo Wald Canada Masato Yokota Governor Hon. Michael H. Wilson Burkina Faso Alternate Governor Bernard J. Drabble Governor Temporary Alternate Governor H.E. Justin Damo Baro Gerald K. Bouey Alternate Governor Advisers Die Martin Sow L. Michael Berry Temporary Alternate Governor Jacques Bussieres H.E. Doulaye Corentin Ki Marshall Cohen Advisers H.E. Allan E. Gotlieb Andre Bicaba Glen David Hodgson Kassoum Congo Robert K. Joyce Alain Jubinville Burma Michael G. Kelly Blake MacKenzie Governor George W. K. Pickering U Aung Sin Douglas I. S. Shaw Alternate Governor Philip R. Sommerville Maung Shein Advisers Cape Verde H.E. U Maung Maung Gyi U Nyunt Lwin Governor Aung Pe Amaro Alexandre da Luz Alternate Governor Burundi Antonio Hilario Cruz

Governor Central African Republic Aloys Ntahonkiriye Advisers Governor Simon Findano Hon. Jean-Louis Gervil Yambala H.E. Simon Sabimbona Alternate Governor Alphonse Koyamba Cameroon Temporary Alternate Governor Henri Guerella Governor Adviser Etienne Ntsama H.E. Christian Lingama-Toleque

Chad Temporary Alternate Governors Che Peiqin Governor Hu Dingyi H.E. Elie Romba Wang Baoliu Alternate Governor Wang Enshao Madji Adam Zhang Zicun Temporary Alternate Governor Advisers Casimir Oye Mba Chang Liangcai Advisers Chen Jian H.E. Mahamat All Adoum Chen Jiguang Joseph Baroung Di Weiping Clabe Guile Jiang Hai Maurice Moutsinga Jin Liqun Li Shurong Chile Shao Zhengkang Wang Chang Yao Governor Xu Dequan Felix Ruiz Yang Jusheng Temporary Alternate Governor Yang W7eimin Claudio Pardo Zhang Yuanzhong Advisers Lucia Avetikian de Renart Colombia Ricardo Bacarreza R. Francisco Javier Comandari Garcia Governor Pedro Corona Hugo Palacios Mejia Ignacio Cousino Aragon Temporary Alternate Governors Hernan Cubillos S. Virgilio Barco Vargas Agustin Edwards H.E. Alvaro Gomez Hurtado H.E. Hernan Felipe Errazuriz Edgar A. Gutierrez Castro Octavio Errazuriz Hernan Mejia J. Francisco Javier Errazuriz T. Advisers Adolfo Goldenstein Eduardo Arango Restrepo Roberto Kelly Vasquez Enrique Arias Jimenez Sergio Markmann D. Julio Manuel Ayerbe Manuel Martin Roberto Brigard Francisco Massoni Mauricio Cabrera Galvis Benjamin Mira Federico Clarkson Maria Elena Ovalle M. Guillermo Alberto Constain Andres Gabriel Passicot Callier Ignacio Copete-Lizarralde Vladimir Radic P. Juan Diego Jaramillo Paola Ramirez Javier Fernandez Riva Pedro Rivera A. Alejandro Figueroa J. Gonzalo Ruiz Undurraga Ernesto Franco Cristian A. Salinas Luis Jorge Garay Jorge Schneider Florangela Gomez de Arango Hernan Sommerville Jaime Infante Enrique Tassara T. Alvaro Jaramillo Vengoechea Jorge Yarur Banna Francisco Javier Gomez Ruben Dario Lizarralde China Andres Lloreda Rodrigo Llorente Martinez Governor Alfonso Llorente Sardi Liu Hongru Jorge Mejia Salazar Alternate Governor Guillermo Nunez Vergara Wang Weicai Roberto Pardo-Vargas

Colombia (continued) Denmark

Advisers (continued) Governor Luis Perez Erik Hoffmeyer Luis Prieto Ocampo Alternate Governor Eduardo Rivera Giraldo Erling Jorgensen Pablo Roldan Temporary Alternate Governors James A. Therrien Richard Mikkelsen Jorge Enrique Uribe Lars Tybjerg Sonia Weil Advisers Niels Bodelsen Comoros Henrik Fugmann Kai Aaen Hansen Governor H.E. Eigil Jorgensen Mohamed Halifa Jorgen Ovi Temporary Alternate Governor Bodil Rosenbeck Said Mohamed Mshangama Djibouti Congo, People's Republic of the Governor Luc A. Aden Governor H.E. Justin Lekoundzou Dominica Alternate Governor Gabriel Bokilo Governor Advisers Hon. Mary Eugenia Charles Henri Bourges Alternate Governor Gaston Ikombo Alick B. Lazare Celestin Leroy Gaombalet Advisers Clement Mouamba Cecil Jacobs Edmond Ndolo Marcella H. Mukasa Omog Samnick Armand Bienveno Vouidibio Dominican Republic

Costa Rica Governor H.E. Hugo Guiliani Cury Governor Temporary Alternate Governor Eduardo Lizano Fait Milton Messina Alternate Governor Advisers Olivier Castro Perez Eligio Bisono Temporary Alternate Governor Bienvenido Brito Federico Vargas Peralta H.E. Carlos Despradel Advisers Luis Manuel Pellerano Felix Delgado Quesada Hector Valdez Albizu Jorge Manuel Dengo Silvia Saborio Ecuador Rodrigo Sotela Governor Cyprus Carlos J. Emanuel Temporary Alternate Governor Governor Alberto Dahik A. C. Afxentiou Advisers Alternate Governor Miguel Babra H. G. Akhniotis Danilo Carrera Adviser Oswaldo Davila Andrade H.E. Andrew J. Jacovides Cesar Duran-Ballen

Advisers (continued) Governor Victor Eastman Baltasar Engonga Edjo Marcos Espinel Temporary Alternate Governor Jose Larrea Damian Ondo Mane Oscar Orrantia Eduardo A. Pena Ethiopia H.E. Mario Ribadeneira Cesar Robalino Governor Tadesse Gebre-Kidan Egypt Temporary Alternate Governor Tsehai Alemayehu Governor Advisers H.E. Mahmoud Salah el din Hamed Belayneh Abebe Alternate Governor Tadesse Abebe Aly M. Negm Tsegaye Asfaw Advisers Abdel Moneim Aboul Saad Fiji Ahmed Abu-Ismail Sultan Abou Ali Governor Kazim H. Barakat Alan Gee M. Roushdi Barakat Alternate Governor Nazih Deif H. P. Singh Hazim El Beblawy Adviser Hamed El Sayeh Janardana Reddy Adalat Hammad Foad Hashim Finland Rajaa Abdel Rasoul Hassan Fouad Hussein Governor Ahmed Ismail Rolf Kullberg Mamdouh Ismail Alternate Governor Alaa Khalil Pentti Uusivirta M. Samir Koraiem Temporary Alternate Governor Mohamed Awny Mahfouz Matti Vanhala Ibrahim M. Oweiss Advisers Abdel Hamid Rizk Markus Fogelholm Abdel Moneim Roushdy Antti K. Juusela Ismail Roushdy Juhani Koskiniemi Nabil Sadek Peter Modeen Ahmed Abdel Salam Ilkka Puro M. Taha Zaky Tapani Saastamoinen

El Salvador France

Governor Governor Alberto Benitez Bonilla Renaud de la Geniere Alternate Governor Alternate Governor H.E. Ricardo J. Lopez Daniel Lebegue Advisers Temporary Alternate Governors Filadelfo Baires Paz Bruno de Maulde Oscar Castro Philippe Jurgensen Benjamin Vides Deneke Advisers Alfredo Milian Xavier Blandin Ricardo Poma Francis Cappanera Edgar Leonel Saballos Andre Gauron

France (continued) Christoph Bruemmer Manfred Busch Advisers (continued) Karl Deres Jean-Luc Graeve Wolfgang Dix Robert Granet Bernd Esdar Gilles Guitton Johannes Esswein Thierry Moulonguet Werner Flandorffer Jean de Rosen Wolfgang Glomb Denis Samuel-Lajeunesse Bernd Goos Jean-Francois Stoll Hansjoerg Haefele Jacques Waitzenegger Gerd Haeusler Gert Haller Gabon Detlev Hammann Wolfgang Hinz Governor Hans-Joachim Hoffmann H.E. Jean-Pierre Lemboumba-Lepandou Hubert Kleinert Alternate Governor Ernst Joachim Klute Jean-Paul Leyimangoye Klaus Kuebler Advisers Gert-Robert Liptau Eyamba-Tsimat Ingrid Matthaeus-Maier Pierre Parfait Gondjout Stephen B. Modly Mr. Leboussi Wolfgang Moerke Narcisse Massala-Tsambat Wilhelm Noelling Jean Robert Ndzar^ Manfred Oblaender Emmanuel Ondo Methogo Guido Osterhaus Dieudonne Youmou Walter Prax Heinz Rapp The Gambia Wolfgang Rieke Eberhardt Rolle Governor Kurt J. Rossmanith Hon. Sheriff S. Sisay Adolf Roth Alternate Governor Wolfgang Schulhoff T. G. G. Senghore Hermann-Otto Solms Advisers Karl-Heinz Spilker L. D'Mellow H.E. Guenther Van Well Mamour Malick Jagne Ludger Vollmer Abdou Janha Karl H. von den Driesch Valdemar Jensen Dietrich von Kyaw H.E. L. A. Mbye Rudiger von Rosen H. M. M. Njai Michael von Schmude Ludolf-Georg von Wartenberg Germany, Federal Republic of Hans-Theodor Wallau Peter Wende Governor Wolfgang Weng Karl Otto Poehl Peter Wichert Alternate Governor Karl-Fred Zander H.E. Gerhard Stoltenberg Temporary Alternate Governors Leonhard Gleske Ghana Guenter Grosche Waldemar Mueller-Enders Governor Gerd Saupe Kwesi Botchwey Helmut Schlesinger Alternate Governor Advisers H.E. Joseph L. S. Abbey Lutz Baehr Temporary Alternate Governor Wolf-Ruediger Bengs Peace Ayisi-Okyere

Ghana (continued) Jorge Alexei de Synegub Mario R. Gomez Valencia Advisers Carlos Gonzales A. E. Kojo Acquah Cesar Soto Rodas M. T. Amoako-Atta Kwamina Barnes Guinea Kenneth K. S. Dadzie Deborah Jackson Governor S. E. Jonah Captain Kabine Kaba Cornelius Y. Nyonator Alternate Governor William Osei Kory Kondiano H.E. Eric K. Otoo Advisers Kofi Sekyiamah Mamadou Ba H.E. T. H. Diallo Greece NTamoussa Diane Mohamed Doumbouya Governor H.E. Gerasimos Arsenis Alternate Governor Guinea-Bissau Dimitrios Chalikias Temporary Alternate Governor Governor Evangelos Kourakos Pedro A. Godinho Gomes Advisers Alternate Governor Eugene Calafatis Jose Abrantes Lopes Julia Panourgia Clones Adviser Nikolaos Coumbis H.E. Inacio Semedo, Jr. Vassilis Kafiris Argyris Kanellopoulos Guyana Theodore Kariotis Louka Katseli Governor Constantine Panagides Hon. Carl Greenidge Spyros P. Papanicolaou Alternate Governor Emmanuel Petoussis Patrick E. Matthews Nikolaos Skoulas Advisers Constantine Sophoulis H.E. C H. Grant Stavros Thomadakis Desire Field Ridley Anastassios Tzavellas Leslie G. Robinson Joseph Simmonds Grenada Joseph A. Tyndall Governor Lauriston F. Wilson, Jr. Haiti Temporary Alternate Governor Roslyn James Governor Adviser Allan Nolte H.E. Albert Xavier Alternate Governor Jean-Claude Sanon Guatemala Temporary Alternate Governor Antonio Andre Governor Advisers Carlos H. Alpirez Perez Pierre Marie Boisson Alternate Governor Gesner Champagne Hon. Leonardo Figueroa Villate Yvon Guirand Advisers Yves Germain Joseph Antonio Blanco Louis Moravia Gabriel Castellanos Jean-Philippe Prosper

Honduras V. K. Malhotra Chander Vasudev Governor A. Vasudevan Gonzalo Carias Pineda Temporary Alternate Governors Indonesia H.E. Juan Agurcia Ewing Dante Ramirez Governor Moises Starkman Hon. Radius Prawiro Advisers Alternate Governor Guillermo Bueso Sujitno Siswowidagdo Maria Antonieta Dominguez Temporary Alternate Governor H.E. Roberto Galvez Barnes H.E. A. Hasnan Habib Mario Rietti Matheu Advisers Leida Samra de Pinto Sofjan Djajawinata Armando San Martin J. E. Ismael Paul Vinelli I. Purwanto Joesoep Wibowo Koesoemo Hungary Soetopo Mangunhandojo Adrianus Mooy Governor Karnaen A. Perwataatmadja Janos Fekete Bakti Prawiro Temporary Alternate Governor Triputro Jusni Prawiro Ede Bako Retno Rahadjeng S. Advisers Mukhlis Rasyid Istvan Ipper M. H. Sitindjak Pal Peterfalvy Mr. Sumitro Antal Pongracz Gunawan Suratno Istvan Szalkai Rien Suryonegoro Bea Szombati

Iceland Iran, Islamic Republic of

Governor Governor Johannes Nordal Mohammad J. Vahaji Alternate Governor Alternate Governor Jon Sigurdsson Ali Manavi-Rad Adviser Advisers Sigurgeir Jonsson Mahmaz Khadempour Kazem Zavarehi Tabatabai India Javad Yarjani

Governor Iraq Pranab Kumar Mukherjee Alternate Governor Governor Manmohan Singh Hassan Tawfik Al-Najafi Temporary Alternate Governors Temporary Alternate Governor G. K. Arora Tarik Tukmachi Bimal Jalan Advisers Ram N. Malhotra Majid Ibrahim Adham Advisers Abdul Ghafour A. Al Shaik S. P. Bagla Abdullatif Al-Jubouri S. P. Biswas Sami F. Atto K. L. Deshpande Muther Hilawi V. Govindarajan Papken H. Melconian Ashok Jha Mahmoud Ahmed Uthman P. K. Malhotra Abdul Hassan Zalzalah

Tiebenon Diarrassouba Ireland Lancina Dosso Tekalign Gedamu Governor Charles Mangua Hon. Alan M. Dukes, T. D. B. N'Diaye Alternate Governor Jacques Ropars Tomas F. O Cofaigh Daouda Tanon Advisers Bernard J. Breen Jamaica Luke Leonard Dermot B. Quigley Governor W. P. Ryan Rt. Hon. E. P. G. Seaga, P. C, M. P. Alternate Governor Israel Horace G. Barber Advisers Governor Asgar Ally Dan Halperin Headley Brown Alternate Governor Earl Carr Israel Igra Doris Chin Temporary Alternate Governor H.E. Keith Johnson, O. J. Raphael Meron Jane Levenson Advisers Harold Milner, C. D. Gad Arbel Masie Plummer Avigdor Steinberg Mervis Samuels John Sleeman Italy Tom Theobalds

Governor Japan Hon. Giovanni Goria Alternate Governor Governor Lamberto Dini H.E. Noboru Takeshita Advisers Alternate Governor Ignazio Angeloni Haruo Mayekawa Paolo Janni Temporary Alternate Governors Giovanni Lovato Hirotake Fujino Giovanni Magnifico Tsuneo Fujita Luigi Marini Toyoo Gyohten Rainer Stefano Masera Sugio Hatanaka Stefano Micossi Tomomitsu Oba Giuliano Monterastelli Shijuro Ogata H.E. Rinaldo Petrignani Makoto Utsumi Alessandro Roselli Kiichi Watanabe Fabrizio Saccomanni Kenji Yamaguchi Salvatore Zecchini Advisers Yasukuni Enoki Ivory Coast Tetsuma Fujikawa Haruo Funabashi Alternate Governor Shigeru Hatakeyama Lamine Diabate Makoto Hatano Advisers Masakazu Hayashi Pascal A. Aka Morinobu Iritani H.E. Rene Amany Mitsukazu Ishikawa Rene Amichia Masami Ishizaka Daouda Bamba Akira Kanno Jean Batigne Takatoshi Kato Oumar Diarra Michihiko Kunihiro E. M. Diarrassouba Rei Masunaga

©International Monetary Fund. Not for Redistribution ATTENDANCE—MEMBERS OF FUND DELEGATIONS 305 Japan (continued) Temporary Alternate Governors JaeHyung Hong Advisers (continued) Nyum Jin Kazuya Murakami Yong-Sung Lee Takashi Murakami Hong Woo Nam Sei Nakai Advisers Takafumi Ohtsu Young-Wook Chin Shigemitsu Sugisaki Eui Dong Chung Kenjiro Suzuki In Chul Kim Kazushige Taniguchi Won Tai Kim Mikio Wakatsuki Yong Kim Ken Yagi Young Bin Kim Toshihiro Yamakawa Dong-Sork Kwon Tadaie Yamashita Hak-Sung Lee Chan Moon Park Jordan Han Chang Suh

Governor Kuwait Mohamed Said Nabulsi Alternate Governor Governor Abdel Majid Qasem Naser H.E. Ali Khalifa Al-Sabah Advisers Alternate Governor Ziyad Annab Abdulwahab Ali Al-Tammar Ahmad Chalabi Advisers Ismail Tawfiq El-Zabri Abdul Rasoul Youssef Abulhassan Abdel-Elah M. Khatib Fahed Rashid Al-Ibrahim Zuhair Khouri Ghassan Hamad Saleh Al-Ibrahim Bassam Khalil Saket Fahed Mohammad Al-Rashid Sheikh Salem Abdullah Al-Ahmed Al-Sabah Kenya Sheikh Fahed Mohammad Al-Sabah Fawzi Hamad Al-Sultan Governor Mohammed Haider Ghuloum Hon. George Saitoti, M. P. Fuad K. Jaffar Alternate Governor Talal A. Razooqi Ahmed Abdallah Advisers Lao People's Democratic Republic Ben Kipkorir J. M. Magari Governor Andrew K. Mullei H.E. Kikham Vongsay J. W. Munyiri Temporary Alternate Governor H. Njoroge Sivaly Sisane Frederick N. Ondieki Adviser M. A. Sergon Sythongma Phandanouvong S. S. Surtan G. W. Uku Lebanon Alfred Vienna H.E. Wafula Wabuge Alternate Governor Walid Naja Korea Temporary Alternate Governor Andre Chaib Governor Advisers Hon. Mahn-Je Kim Raymond Audi Alternate Governor Naaman Azhari Chang Nak Choi Salim Habib Henry Obegi Nassim Saliba Ali Ahmad Serhal

Lebanon (continued) Temporary Alternate Governor Omar Ahmed El-Magsi Advisers (continued) Advisers Jean Tamer Ebrahim Assoul Nuri A. Baryun Lesotho Mohamed Finaish Abdulgader Ali Muttardy Governor Muftah Ali Sherif E. Waddington Ali M. Souri Alternate Governor Nuri Tailamun S. Schoenberg Advisers Luxembourg E. S. Khoali Ramabilikoe Gabriel Mashape Governor N. J. Matete H.E. Jacques F. Poos P. P. Mofolo Alternate Governor C S. Molelle Pierre Jaans L. B. Monyake Advisers E. H. Phoofolo Ernst-Guenther Broeder B. N. J. Qhobela Jean Guill H.E. M'alineo N. Tau Dieter Hartwich Serge Kolb Liberia Richard Ross Jacques Silvain Governor Hon. G. Alvin Jones Madagascar Alternate Governor Thomas D. V. Hanson Governor Advisers Richard Randriamaholy J. Emmanuel Bowier Alternate Governor Mary B. Dennis Nirina Andriamanerasoa William Diggs Temporary Alternate Governor John Farngalo Renee Razafintsalama Elwood Greaves Advisers Samuel Greene Jean-Marie Henri Isaac Grigsby Jocelyn Rafidinarivo C. T. O. King, III Andre Rajaonah Ratsimisetra Estella K. Liberty Alfred Rakotonjanahary Charles S. McGill, Jr. Mamy Ramanjatoson Samuel Moiyallah Charles Ranaivo Harisoa John S. Morlu Nathaniel R. Patray, III Malawi Emmanuel Reeves Z. Moulai Reeves Governor Hon. Frank P. Senkpeni L. Chakakala Chaziya G. Pewu Subah Temporary Alternate Governor Moses G. Tarbo H. P. Bandawe Jeremiah Tulay Advisers David K. Vinton C. T. Mwalwanda H.E. G. Toe Washington B. T. Nthambi

Libyan Arab Jamahiriya Malaysia

Governor Governor Regeb A. Misallati Hon. Abdul Daim bin Haji Zainuddin

Malaysia (continued) Alternate Governor Cheikh S. El Moctar O. Cheikh Abdellahi Alternate Governor Advisers Tan Sri Abdul Aziz bin Haji Taha H.E. Sidi Ahmed Deya Temporary Alternate Governor Wone Elhadji Tun Ismail bin Mohamed Ali Mamadou Lamine N'Dongo Advisers Ahmed Ould Bouchieba Mohamed Arif bin Jaafar H.E. Abdellah Ould Daddah Hashim Awang Mohmed Lemeine Ould Deidah Feisol bin Hj. Hashim Horst M. Scheffold Rasidi Hazizi Jaafar Ahmad Mauritius Dzulkefly Mustapha Aris Othman Governor Mohd. Ramli bin Mat Wajib Hon. Seetanah Lutchmeenaraidoo Shaharuddin bin Haji Haron Alternate Governor Shapii bin Abu Samah Indurduth Ramphul Andrew Sheng Len Tao Advisers Rundheersing Bheenick Maldives Marc Bourdet Srikant Madan Chitnis Governor Jagnaden P. Coopamah Hon. Fathulla Jameel N. Deerpalsingh Alternate Governor Premduth Kumar Fulena Adam Maniku Beejaye Ghoorah Tat Woon How Kit Mali H.E. Chitmansing Jesseramsing

Governor Mexico H.E. Drissa Keita Alternate Governor Governor Abdoulaye Sow Jesus Silva Herzog Advisers Alternate Governor Chieck Kane Miguel Mancera H.E. Lassana Keita Temporary Alternate Governors Tall Koreissi Aguibou Maki Salvador Arriola Moussa N'Gom Ariel Buira Seira Abdou Karim Ndaye Enrique Creel de la Barra Amidou Oumar Sy Jose Angel Gurria Younoussi Toure Victor Navarrete Alfredo Phillips Olmedo Malta Advisers Patricio Ayala-Gonzalez Governor Enrique Castro Tapia Hon. Wistin Abela, M. P. Alejandro de Pedro Alternate Governor Jose Luis Flores H. C. de Gabriele Luis Nava Hernandez Adviser Raul Obregon Lawrence Farrugia Luis Orci Guillermo Ortiz Martinez Mauritania Eduardo Portas Rafael Resendiz Governor Dieng Boubou Farba

Morocco New Zealand

Governor Governor Ahmed Bennani Hon. R. O. Douglas, M. P. Alternate Governor Alternate Governor Mohamed Tazi Spencer T. Russell Temporary Alternate Governor Advisers H.E. Maati Jorio Pamela A. Alderton Advisers Kerry G. Morrell Mohamed Aboulfadl Michael Wintringham Omar Alaoui All Amor Hassan Belkoura Nicaragua Haj Abdelmajid Benjelloun Chakir Bennani Governor Fouad Benzakour Luis Enrique Figueroa Omar Kabbaj Alternate Governor Abdellatif Loudiyi Francisco Vannini Temporary Alternate Governors Mozambique, People's Republic of Roberto Mayorga-Cortes Rolando Sevilla Governor Adviser H.E. Rui Baltazar dos Santos Alves Marcos Wheelock Alternate Governor Luis Costa Campos Niger Advisers Abel David, Jr. Governor H.E. Valeriano Ferrao H.E. Boukary Adji Joana Saranga Alternate Governor Jacques Nignon Nepal Temporary Alternate Governor H.E. Joseph Diatta Governor Advisers Kalyana Bikram Adhikary Moussa Maina Boukar Alternate Governor Mamadou Diop Loke Bahadur Shrestha Mahamadou Gado Advisers Madou Mahamadou Ishwari Raj Panday Adamou Souna Tulak Bikram Rana

Netherlands Nigeria

Governor Governor W. F. Duisenberg Alhaji Abdulkadir Ahmed Alternate Governor Alternate Governor Pieter Korteweg G. P. O. Chikelu Temporary Alternate Governors Temporary Alternate Governor D. H. Boot H.E. I. C. Olisemeka Pieter Stek Advisers Advisers Y. Seyyid Abdulai Fred de Bruin S. A. Adekanye Tom de Vries P. E. Archibong J. J. Polak J. 0. Awoleke Andre Szasz R. N. Ezeife Ferdinand Van Dam Ayodele Fadare Ling Wong R. O. Mo woe B. G. Zandstra Philip K. Nelson

Nigeria (continued) Panama

Advisers (continued) Governor G. O. Nwankwo H.E. Hector Alexander N. E. Ogbe Alternate Governor Christopher U. Omamogho Luis Alberto Arias H. A. Oseni Temporary Alternate Governor M. A. Owoeye Mario de Diego, Jr. M. Sogules Advisers Paul Uhebagwi Hernando A. Arias B. N. Unachukwu Reinaldo Decerega Orville K. Goodin Norway Jose Salterio Juan Silvera Governor Knut Getz Wold Papua New Guinea Alternate Governor Eivind Erichsen Governor Temporary Alternate Governor Nick Bokas Hermod Skanland Alternate Governor Advisers John Vulupindi Sten Anders Berge Advisers H.E. Kjell Eliassen John Balagetuna H.E. Oddmund Graham Morea Vele Martinus Halsen Turid Kongsvik Paraguay Enok Olsen Stein Seeberg Governor Sigurd Simonsen Oscar Jacinto Obelar Steinar Soerbotten Temporary Alternate Governor Trygve Spildrejorde Cesar Tellechea Arve Thorvik Advisers John Tvedt Enrique Bendana Juan J. Diaz Perez Oman Oscar Estigarribia Guillermo Frizza Governor Carlos Gobermann Abdul Wahab Khayata Carlos A. Heisecke Temporary Alternate Governor Heriberto Insfran Ruotti Abdulla Shabaan Carlos Knapps Advisers H.E. Juan A. Llanes Mohamed Nasser Al-Khasibi German Martinez Warren M. Woods Cesar Antonio Menchaca Mokhtar M. Zouari Pedro Daniel Miraglio Julio Rejis Sanguina Pakistan Epifanio Salcedo Cecilio Sanabria Governor Rol Staudt A. G. N. Kazi Betty Vargas Alternate Governor H. U. Beg Peru Advisers Moinuddin Baqai Governor Ihsanul Haq H.E. Jose Benavides Munoz

Peru (continued) Alternate Governor Emilio Rui Vilar Alternate Governor Temporary Alternate Governor Jose Morales Urresti Vitor Constancio Advisers Advisers Fernando Correa Miller Maria Teodora Cardoso Guillermo Garrido Lecca Carlos Saldanha Do Valle Gonzalo Gutierrez Brian Jensen Qatar Drago Kisic H.E. Luis Marchand Governor Victor Miro Quesada Majid Mohd. Al-Majid Raymundo A. Morales Hector Neyra Chavarry Romania Raul Salazar German Suarez Governor Manuel Velarde Aspillaga Petre Gigea Temporary Alternate Governor Philippines Nicolae Eremia Advisers Governor Sergiu Contineanu Jose B. Fernandez Nicolae Galea Alternate Governor loan Petre Mada Placido Mapa, Jr. H.E. Mircea Malitza Temporary Alternate Governors Stelian Marin H.E. Benjamin T. Romualdez Vladimir Soare Hon. Imelda Romualdez-Marcos Advisers Rwanda Wilfredo Avila Tristan E. Beplat Governor Romeo L. Bernardo Jean Birara Leonidas Caday Alternate Governor Andrea Domingo Jean Marie Vianney Ndimbira Evelyn M. Escudero Advisers Octavio V. Espiritu Cyprien Habimana Jose R. Facundo H.E. Simon Insonere Edward S. Go Emmanuel Mangona Ophelia Gonzales Gabriel Itchon St. Christopher and Nevis Ernest Leung Teodoro Locsin Governor Jesus G. Reyes Hon. Kennedy Simmonds Antonio V. Romualdez Alternate Governor Cynthia Santos Hon. Richard L. Caines Ingrid Sta. Maria Advisers Delmar Tina Terrence Victor Byron Vicente B. Valdepenas Kirk Davis Reginald S. Velasco Erstein M. Edwards Educaro Villanueva Hugh Guishard Edgardo P. Zialcita H.E. William V. Herbert Suswin Mills Portugal

Governor Manuel Jacinto Nunes

St. Lucia Khalid Al-Turki Khalid Al-Zaiml Governor Abdullah El-Kuwaiz Hon. John G. M. Compton Adnan Khodary Alternate Governor Suliman S. Olayan Dwight Vernier Mohammad Ramady Advisers Abdulrahman Sehaibani H.E. Joseph Edmunds Nazih Soury Sonia Johnny Jobarah E. Suraisry George Theophilus Elwaleed M. Taha

St. Vincent and the Grenadines Senegal

Governor Governor Senator Stuart Nanton Hon. Mamoudou Toure Alternate Governor Alternate Governor Karl John Mamadou Ndong Adviser Temporary Alternate Governors Allan Cruickshank Abdoulaye Fadiga H.E. Falilou Kane Sao Tome and Principe Advisers Charles Konan Banny Governor Lamine Boye Fausto Scares Vera Cruz Souleymane Cisse Alternate Governor Abdoul Aziz Diop Leonel de Oliveira da Costa Vangente Demba Diop Ibra Deguene Diop Saudi Arabia Cheikh Ibrahim Fall Fidele Hien Governor Pascal Irenee Koupaki H.E. Sheikh Mohammed Abal-Khail Ousmane Noel Mbaye Alternate Governor Famara Ibrahima Sagna H.E. Sheikh Hamad Al-Sayari Magatte Sene Temporary Alternate Governors Emile J. Senghor Mohammed Al-Sharif Abdou Karim Sidibe Sheikh Mohammed Al-Sugair Alwyn B. Taylor Usamah J. Faquih Henri A. Turpin Yusuf A. Nimatallah Hounouvi Yao Advisers Prosper Youm Yusuf Abdallah Ahmed Abdulatif Seychelles Eric Michael Ainley Saud A. Al Sulaiman Governor Abdulaziz M. Al-Dukheil Lewis Chang-Leng Khaled Al-Fayez Temporary Alternate Governor Mohammed Al-Hakami Tin Tun Matar A. M. Al-Jameely Adviser Ayeidh Al-Jeaid P. Stravens Abdul Aziz Al-Kulaibi Mohammed Al-Mazyad Sierra Leone Abdul Aziz Al-Nowaiser Abdullah Al-Omran Governor H.E. Sheikh Abdul Aziz Al-Qureishi J. S. A. Funna Mohammad Abdullah Al-Shawi Alternate Governor Jammaz Al-Suhaimi D. Minah

Sierra Leone (continued) Spain

Advisers Governor J. K. E. Cole Mariano Rubio Jimenez H.E. D. S. Kamara Alternate Governor J. Sanpha Koroma Antonio Sanchez Pedreno C. J. Smith Advisers Ignacio Alberich Sotomayor Singapore Aurora Bernaldez Anselmo Calleja Siero Governor Guillermo de la Dehesa Romero Richard Hu Tsu Tau Joaquin de la Herran Mendivil Temporary Alternate Governors Jose Luis Feito Teh Kok Peng Carmen Fuente Salvador Tan Kong Yam Mariano Garcia Munoz Advisers H.E. Gabriel Manueco Jack E. K. Choo Pedro Perez Freddy Orchard Alberto Pico Maeso Juan Rincon Solomon Islands Luis Angel Rojo Duque

Governor Sri Lanka A. V. Hughes Temporary Alternate Governor Governor J. T. Kaitu Hon. Ronnie de Mel Alternate Governor Somalia Warnasena Rasaputram Temporary Alternate Governors Governor H.E. Ernest Corea Omar Ahmed Omar A. S. Jayawardena Alternate Governor Advisers Mohamud Mohamed Nur I. Coomaraswamy Advisers Tara de Fonseka Ibrahim A. Deria Mallika de Mel Hussein Elabe Fahiye Renuka Dossa H.E. Mohamud Haji Nur Lloyd Fernando Hussein Siad A. C. Randeni Osman Hasi Yusuf T. Sivagnanam

South Africa Sudan

Governor Governor Hon. B. J. du Plessis Farouk Ibrahim El Magboul Alternate Governor Alternate Governor J. H. de Loor Fawzi Wasfi Advisers Advisers H. B. B. Bester Osman El Saved Ahmed F. G. Browne H.E. Omer Salih Eissa Paul K. Coetzee Omer Ibrahim El Tahir G. P. Croeser Mamoum Ibrahim Hassan Emile Matthee Abdul Azim Mohamed Kheir D. Niemand Mamoun O. Medani R. Parsons Osman Mohamed Meki A. H. Peacey Salih Mohameh Ali Sakaran G. J. L. Potgieter Osman A. Suleiman R. C Webb Abdel Rahman Abdel Wahab

Suriname Tanzania

Governor Governor Wim Lieuw A. Soe Hon. C. D. Msuya Alternate Governor Alternate Governor Henry R. Neijhorst Charles M. Nyirabu Adviser Advisers Kenrich J. Texel H.E. A. M. Hyera M. T. Kibwana J. P. Kipokola Swaziland N. N. Kitomari H. Lungwadila Governor Ahmed Abdulrahim Mahmoud Hon. Barnabas S. Dlamini Tuvako N. Manongi Alternate Governor Richard E. Mariki H. B. B. Oliver, C. B. E. R. N. Mlolwa Advisers M. B. Ngatunga Taffara Deguefe S. Odunga Martin G. Dlamini I. M. Rashid H.E. Peter H. Mtetwa Ben Tarimo Thailand Sweden Alternate Governor Governor Chavalit Thanachanan Bengt Dennis Temporary Alternate Governors Alternate Governor Ekamol Kiriwatana Kurt Ekloef Vijit Supinit Temporary Alternate Governors Advisers Sven-Olof Johansson Waranat Anussorn-Nitisara Gunnar Lund Tamchai Kambhato Advisers Naovarat Karnasut Anders Calmfors Banyong Lamsam Peter Engstrom Tarrin Nimmamahaeminda Lars Kalderen Suwan Pasugswad Goran Lind Chote Sophonpanich Arne Lindaa Sakorn Sornyanyontr Bert Lindstrom Ubolwan Usawattanagul K. G. Lindvall Jada Wattanasiritham Bertil Lund Birgitta von Otter Togo Governor Syrian Arab Republic H.E. Komla Alipui Alternate Governor Governor Bawa Sandani Mankoubi H.E. Salim Yassin Temporary Alternate Governor Alternate Governor H.E. Ellom-Kodjo Schuppius Hisham Mutewalli Advisers Advisers Issol Affo Muhammad Al-Atrash Eli Komla Djelou Mohammed Imady Patrice DuFour Muhammad Bachar Kabbara Napo Kakaye Izzat Traboulsi Komlanvi M. Klousseh

Trinidad and Tobago Advisers Per Aasmundrud Governor Aggrey S. Awori Hon. Anthony Jacelon Fred K. Beyendeza Alternate Governor Elizabeth Kaijabwango Euric Bobb R. Kaijuka Advisers H.E. Semyano Kiingi Lingston Cumberbatch D. Kireju Sheelagh de Osuna A. Mawanda Terrence Farrell Jesse W. Mutenga H.E. James O'Neil Lewis A. S. Njala Ken Valley G. S. Odong J. W. Okune Tunisia United Arab Emirates Governor Moncef Belkhodja Governor Alternate Governor H.E. Ahmed Humaid Al-Tayer All Chaouechi Alternate Governor Temporary Alternate Governor Abdul Malik Al Hamar Tahar Sioud Advisers Advisers Abdul Rahman Abukhater Slaheddin Ben M'Barek Anis Al Jallaf Mohamed Ghenima Abdulla Al Mazrui Hedi Toumi Hussain Al Midfa Yousuf Abdul Latif Al Sirkal Turkey Irfan Al-Azmah Saeed Al-Hamiz Governor Ahmed Lutfi Ali H.E. I. Kaya Erdem Ibrahim Fayez Alternate Governor Saeed Ghobash Yener Dincmen Mohd Kharbash Advisers Abed Alia Usama Malki Bozkurt A ran Abdulla Mohn Saleh A. Berati Arisoy Labib Shoukair Tune Bilget Osman Birsen United Kingdom Yalcin Burcak Gazi Ercel Governor Atilla Gunay Rt. Hon. Nigel Lawson, M. P. Erol Hurbas Alternate Governor Esen Mutluay A. D. Loehnis Suna Ozturk Temporary Alternate Governors Bulent Sahinalp T. A. Clark Rusdu Saracoglu R. H. Gilchrist Dogan Sevim R. G. Lavelle Gulnur Ucok Nigel Wicks Zekeriya Yildirim Advisers A. R. H. Bottrill Uganda Sir John Bremridge Janet Bulloch Governor Sir Terence Burns Hon. E. R. Kamuntu, M. P. R. P. Culpin Alternate Governor P. H. Kent Leo Kibirango D. L. C. Peretz

United Kingdom (continued) Hon. Ron Paul William Poole Advisers (continued) Roger W. Robinson David Robinson Hon. Toby Roth M. L. Tait Hon. Eldon Rudd Hon. Martin Olav Sabo United States Charles Schotta H. Joe Selby Governor Hon. John W. Snyder Hon. Donald T. Regan Anthony M. Solomon Alternate Governor Bruce E. Thompson, Jr. Paul A. Volcker Edwin M. Truman Temporary Alternate Governors Peter J. Wallison James B. Burnham Margery Waxman James Conrow Hon. George C. Wortley Hugh W. Foster R. T. McNamar Uruguay M. Peter McPherson David C. Mulford Governor Beryl W. Sprinkel Juan Carlos Protasi Donald C. Templeman Alternate Governor Henry C. Wallich Carlos Koncke Advisers Temporary Alternate Governor Hon. Robert B. Anderson Diego Cardoso Stephen H. Axilrod Advisers Harvey E. Bale, Jr. Ariel Banda Hon. Joseph W. Barr Jorge Borad Robert R. Bench Raul Carcavallo John A. Bohn, Jr. Manfredo Cikato Mary K. Bush Carlos Corti Moreno David Chew Helio Fernandez C. T. Conover Jose Enrique Pujol Elinor G. Constable Francisco M. Ravecca Robert A. Cornell Jorge Sienra Sam Y. Cross Gonzalo Soto Charles H. Dallara Julio Werthein Thomas C. Dawson Juan Yerman Richard A. Derham William H. Draper, III Vanuatu W. Antoinette Ford Hon. Henry H. Fowler Governor Hon. Benjamin A. Oilman Kalpokor Kalsakau Thomas J. Healey Alternate Governor Hon. Chic Hecht Patrick Noel Christopher Hicks Adviser George Hoguet George Pakoa Hon. Jack F. Kemp Hon. David M. Kennedy Venezuela Frank B. Kimball Alfred H. Kingon Governor Oscar M. Mackour Benito Raul Losada Richard T. McCormack Temporary Alternate Governors Hon. Stewart B. McKinney Manuel Azpurua Arreaza Hon. G. William Miller Francisco Garcia Palacios Craig A. Nalen Alfredo Lafee William A. Niskanen Alfredo Machado Gomez

Venezuela (continued) Alternate Governor Salem M. Al-Ashwali Advisers Eduardo Alvarez Raytler Yugoslavia Luis E. Berrizbeitia Manuel Jacobo Cartea Diaz Governor Leonor F. de Gonzalez Radovan Makic Gustavo Galdo Alternate Governor Eugenio Mendoza Slobodan Stanojevic Alain Morales Temporary Alternate Governor Guillermo Pimentel H.E. Mico Rakic Jesus E. Rodriguez Nunez Advisers Miguel A. Senior Tarik Ajanovic Arturo Sosa Milica Borlja Heberto Urdaneta Zore Gregor Gordana Hofmann Viet Nam Mihajlo Nikolic Jordan Panev Temporary Alternate Governors Branko Radivojevic Le Van Chau Nguyen Chu Zaire

Western Samoa Governor Sambwa Pida Nbagui Governor Alternate Governor Hon. Tuilaepa Sailele Malielegaoi Mawakani Samba Temporary Alternate Governor Advisers Alistair L. Hutchison Bobanza Nzele Advisers Djamboleka Loma W. E. Davies Mulumba Lokoji Hon. Polataivao Fosi Muninda Muansa W. Keil M. L. Yuma Barry Muntz Hon. Fepuleai Semi Zambia T. Suisala Peter Tapsell Governor I. Vallee Hon. L. J. Mwananshiku, M. P. Alternate Governor Yemen Arab Republic David A. R. Phiri Advisers Governor Moses M. Belemu H.E. Mohamed A. Al-Wagih E. Bellington Alternate Governor Esther Chatembwa Abdulla Al-Sanabani C. L. M. Chirwa Advisers B. Hamaluba Ahmed Hussein Al-Basha Silvester R. Kabati Anwar Rizq Al-Harazi S. Konie Abdul Aziz Yasin Al-Maqtari Leo Mweemba Ahmed Abdul Rahman Al-Samawi L. Nyambe Omar Salim Bazara Martin G. Sakala Alex K. Tubi Yemen, People's Democratic Republic of

Governor Gumaan Awadh bin Saad

Zimbabwe Advisers Arthur T. M. Charamba Governor H.E. Edmund Chipamaunga Hon. B. T. G. Chidzero X. M. Kadhani Alternate Governor V. S. Kumalo K. J. Moyana J. Mashamba Tonette S. Pineda R. V. Wilde Nhamo E. Zengeni

OBSERVERS AND REPRESENTATIVES OF INTERNATIONAL ORGANIZATIONS International Fund for United Nations Agricultural Development G. Farug Achikzad Abdelmuhsin M. Al-Sudeary Fabio Arango Mohiuddin Alamgir G. Arthur Brown Donald S. Brown Iqbal Haji Joaquin Izcue Switzerland Christian Ossa Peter Buomberger Charles Perry David de Pury Pierre Vinde Jacques Failletaz Klaus Jacobi Daniel Kaeser Christian Kauter Thomas Kupfer Fritz Leutwiler Eric Martin Kurt Schiltknecht Cornelio Sommaruga Peter Vogler

Alternate Executive Advisors to Executive Executive Directors Directors Directors

Abderrahmane Alfidja wa Bilenga Tshishimbi Lubin K. Doe Jean-Christian Obame Norbert Toe Jacques De Groote Heinrich G. Schneider Pal Peterfalvy Bruno de Maulde Xavier Blandin Georges Nguyen Alvaro Donoso Mario Teijeiro Jaime Delgadillo Mary K. Bush Donald C. Templeman Mohamed Finaish Tariq Alhaimus Samir Ramez Abiad M.Z.M. Qureshi Hirotake Fujino Tadaie Yamashita Guenter Grosche Bernd Goos Wolfgang Moerke J.E. Ismael Jaafar Ahmad Ishwari Raj Panday Robert K. Joyce Luke Leonard Douglas I.S. Shaw Alexandre Kafka Cesar Robalino Hernando A. Arias Giovanni Lovato Nikolaos Coumbis Ram N. Malhotra A.S. Jayawardena A. Vasudevan Yusuf A. Nimatallah Jobarah E. Suraisry Elwaleed M. Taha J.J. Polak Tom de Vries Avigdor Steinberg A.R.G. Prowse Kerry G. Morrell Hak-Sung Lee Ghassem Salehkhou Omar Kabbaj Ali A. Agah N'Faly Sangare E.I.M. Mtei E.A. Ajayi Sabir M. Hassan Miguel A. Senior Jose Luis Feito Silvio E. Conrado John Tvedt Arne Linda Kai Aaen Hansen Nigel Wicks T. A. Clark Zhang Zicun Wang Enshao

318

BALANCE OF PAYMENTS DISEQUILIBRIA (see also Non-Oil Developing Countries, External Payments Position) Adjustment 6, 10-12, 16, 18, 22-25, 27, 28, 31, 35, 40, 41, 45, 47, 50, 51, 52, 53, 54, 56, 59, 74, 77, 85, 87, 90, 94, 95, 97, 99, 103, 105, 107, 114, 118, 120, 124, 125, 135, 136, 149, 150, 162, 165, 167-68, 173, 198, 205, 206, 218, 228 Fund role in 11, 12, 15, 23, 24, 25, 26, 32, 37, 41, 45, 51, 56, 72, 77, 93-95, 97, 99, 103-104, 105, 106, 107, 111, 120, 209, 211 Macroeconomic policies 12, 18, 21, 22, 25, 31, 36-37, 43, 44, 57, 59, 62, 63, 69, 76, 77, 85, 90, 94, 97-98, 105- 106, 115, 121, 134, 138, 139, 146, 147, 163, 165-66, 175-76, 183, 184, 205, 210, 218, 228 Financing from commercial banks 27, 37, 38, 50, 52, 56, 86, 87, 99, 103, 106, 141, 207 from International Monetary Fund 37, 93, 105, 106-107, 211 DEVELOPMENTS IN THE WORLD ECONOMY Current Situation and Outlook 3, 8, 9, 19, 31, 35, 40, 45, 49, 50, 53, 57, 61, 67-69, 73, 75-76, 82, 91, 97, 101, 105, 109, 111, 120, 123, 132, 137-38, 143, 147, 152- 53, 155-56, 159-60, 163, 165, 170, 173, 174, 180, 193, 203-204, 207, 209-10, 216-17, 220, 231 Debt (see also Non-Oil Developing Countries, External Debt) 5, 10, 12, 15, 28, 37-38, 40, 42, 50, 51, 52, 55, 58, 61, 62-63, 84-85, 86, 87-89, 92, 93, 97, 98, 99, 102, 106, 109, 111, 114-15, 118, 120-21, 123, 125-28, 136, 148, 152-53, 154, 161, 163-64, 169, 177-78, 189, 196-97, 198, 199, 205, 214, 215, 225, 229, 230, 232 Case-by-case basis 12, 23-24, 37, 42, 51, 88-89, 92, 99, 114, 148, 164, 229 Fund role in 15, 93, 118, 126, 141^2, 146, 164, 180, 205 Paris club 27, 88, 92 Rescheduling of 52, 87, 88, 125, 126, 136, 145, 177, 205, 207, 229 1 This list relates only to the Addresses and Statements. It excludes discussions of individual countries, tributes to the host country, and personal tributes. References are to pages.

321

DEVELOPMENTS IN THE WORLD ECONOMY (continued) Developing Countries (see Non-Oil Developing Countries) Exchange Rates 6, 10, 15, 25, 29, 36, 38, 41, 51, 57, 59, 72, 74, 76, 85, 91, 94, 96, 106, 138, 146, 147, 148, 159, 163, 170, 181,204,218 Industrial Countries 8, 9, 12, 20, 21, 24, 38, 46, 51, 52, 59, 74, 77, 82, 88, 91, 95, 97, 98, 105, 112, 118, 123, 126-27, 128, 133, 134, 139, 148, 152, 166, 174-75, 181, 183, 228, 232 Inflation 9, 10, 11, 19, 20, 29, 31, 35, 43, 49, 59, 61, 68, 72, 81, 85, 98, 105, 106, 110, 111, 112, 121, 134, 137, 138, 144, 158, 163, 174-75, 193,204,206,212,220,221,232 Interdependence and Cooperation 9, 11, 18, 19, 26, 29, 37, 46, 54, 60, 61, 65, 78, 89, 90, 91, 97, 120, 127, 128, 133, 134, 136, 137, 139, 140, 146, 151, 154, 155, 156, 157, 159, 164, 165, 169, 170, 173, 174, 176, 198, 199, 202, 204, 213, 218-19, 221, 229- 30,231,233-34

Group of 77 199 Group of Ten 38, 48, 108 Group of Twenty-Four 78, 95, 96, 126, 128, 129, 133, 158, 199 Cartagena consensus 52, 127, 128, 154 London summit 4, 5, 6, 52, 65, 82, 84, 89, 144, 146, 154 Mar del Plata meeting 52, 127 Nonaligned meeting 79 South-South cooperation 122 Toronto meeting 65, 90, 154 Williamsburg summit 4, 5 Interest Rates 6, 9, 10, 12, 24, 25, 31, 32, 35, 38, 42, 46, 51, 52, 54, 56, 57, 58, 59, 61, 62, 63, 67, 69, 74, 76, 83, 91, 98, 100, 102, 105, 106, 111, 118, 119, 120, 123, 124, 125, 126, 128, 134, 136, 138, 145, 146, 147, 148, 154, 156, 157, 159, 160-61, 163, 166, 170, 173, 174, 175, 177, 181, 193, 198, 199, 204, 207, 213, 216, 218, 228, 229, 232 International Banks 27, 36, 52, 84 International Liquidity 38, 71-72, 121, 132, 135 Middle-Income Countries 16, 214-15 Oil Exporting Countries 102-103

Oil Prices 9, 58, 81, 102, 103, 104, 141, 147 Private Investment 5, 11, 25, 43, 63, 86-87, 153, 167, 169, 180 Recovery 3, 9, 10, 21, 35, 45, 46, 49, 53, 56, 57, 61, 68, 69, 82, 105, 107, 111, 119, 120, 123, 124, 134, 137, 140, 143, 146, 147, 152, 156, 159, 165, 166, 175, 187, 197, 210, 212, 221, 230, 231-32 Trade General Agreement on Tariffs and Trade . .38, 98, 144, 153, 161, 186, 214 General remarks 5, 9, 17, 28, 32, 43, 45, 49-50, 55, 72, 81, 82- 83, 112, 117, 135, 141, 148, 166,230 Liberalization 10, 59, 60, 98, 121, 152, 161, 214 Protectionism 5, 10, 12, 22, 24, 28, 31, 32, 38, 51, 54, 55- 56, 57, 58, 61, 62, 76, 77, 82, 89, 90, 98, 102, 106, 109, 112, 120, 121, 124, 125, 126, 132, 136, 138, 139, 141, 144, 146, 147, 148, 153, 156, 157-58, 159, 160-61, 163, 165, 170, 177, 181, 184, 185, 186, 193, 198, 199, 204-205, 207, 210, 213, 217, 218, 225, 229, 230, 232 Unemployment 8, 9, 19, 20, 21, 31, 35, 37, 45, 49, 58, 61, 63, 68, 81, 82, 90, 94, 105, 106, 109, 111, 117, 124, 143, 144, 163, 166, 167, 173, 193, 204, 212, 218, 220, 228 Wages 22, 124

INTERNATIONAL MONETARY FUND Annual Report 3, 63, 67, 68, 69, 111, 137, 159, 177 Annual Report on Exchange Arrangements and Exchange Restrictions 54 Articles of Agreement 34, 41, 42, 72, 95, 108, 110, 133, 136, 162, 165, 185, 200, 214, 225 Borrowing 93 General Arrangements to Borrow 15, 26, 33, 39, 47, 72, 142 Liquidity position 33, 39, 47, 59, 78, 107, 208 Collaboration with the GATT 60 Collaboration with the World Bank 6, 12, 16, 25, 37, 38, 42, 48, 54, 60, 73, 107, 118, 135, 142, 145,229 Development Committee 6, 11, 32, 43, 65, 73, 74, 78, 79, 89, 90, 108, 115, 119, 127, 141, 142, 145, 152-55, 158, 165, 169, 171, 184, 199, 214, 219, 229, 234 Report on Sub-Saharan Africa 7, 92, 115, 169 World Development Report 140, 193

INTERNATIONAL MONETARY FUND (concluded) Interim Committee 6, 11, 15, 30-34, 38, 39, 41, 43, 46, 65, 73, 74, 78, 89, 90, 100, 103, 104, 107, 110, 112, 118, 119, 127, 132, 142, 145, 158, 161, 164, 165, 169, 171, 184, 185, 199, 205, 219, 229, 234 Quotas Eighth General Review 15, 26, 33, 39, 77, 93, 106-107, 161, 171 Ninth General Review 55, 94 Role in International Monetary System 5, 6, 38, 41, 46, 51, 53, 55, 93, 106-107, 109- 110, 115, 121, 132, 135, 136, 145-46, 148- 49, 160, 167, 199, 209, 232-33 SDRs Allocations 34, 39, 41, 46, 55, 60, 65, 72, 75, 77, 95, 104, 110, 112, 115, 118-19, 121, 133, 135-36, 149, 158, 162, 168-69, 171, 181, 184, 185, 188, 199, 206, 211, 214, 219, 230 Link 95, 149 Role in international monetary system 46, 65, 95, 96, 104, 115. 136, 149, 162 Surveillance 15, 23, 28, 38, 41, 42, 55, 56, 59, 87, 94^-95, 98, 99, 100, 107-108, 135, 139, 145-46, 150, 159, 214, 230, 233 Use of Fund Resources Access limits 15, 32-33, 47, 59, 77, 78, 93, 110, 132, 133, 158, 169, 171 Compensatory financing facility 77, 96, 104, 126, 149, 205, 215 Conditionality 77, 78, 95, 99, 104, 105, 110, 133, 149, 159, 162, 171, 188, 205, 206, 211, 225 Enlarged access policy 26, 32-33, 39, 47, 72-73, 75, 93, 100, 103- 104, 106, 110, 112, 118, 132, 135, 149, 161, 162, 169, 180, 184-85, 205, 211, 219, 230, 233 Extended Fund facility 96 Proposed facilities and mechanisms Emergency facility 96 Mechanism to cover interest fluctuations. .126, 215-16 Special facilities 33, 34, 93, 161-62, 205 World Economic Outlook 146, 193, 194

INTERNATIONAL MONETARY SYSTEM Bretton Woods Institutions (see also International Monetary Fund, Role in International Monetary System) 106, 115, 141, 161, 200

Current Situation 106 European Monetary System 38 Exchange Markets 10, 69, 128 International Institutions 37, 93 Reform of 28, 48, 96, 128, 150, 178, 199 Commonwealth Study Group 148, 169, 215 International monetary conference, proposal for 79, 128, 149, 169 Role of Japanese Yen 14, 38, 83 Role of U. S. Dollar 36, 51, 59, 69, 91, 145, 173, 174, 198

NON-OIL DEVELOPING COUNTRIES Commodity Prices 58, 76, 81, 91, 125, 138, 147, 148, 150, 154, 157, 229 Economic Situation 7, 10, 11, 22, 23-26, 31, 35, 57, 58, 60, 65, 75-76, 82, 91, 102-103, 106, 108, 119, 120, 121, 124-26, 138-39, 144-45, 147, 152-54, 156, 160-61, 165-69, 184, 187, 194, 207, 210, 228 Export and Capital Markets, Access to 12, 55-56, 96, 108, 121, 133, 135, 140-41, 153, 211, 219 External Debt (see also Developments in the World Economy, Debt) 11, 12, 23, 24, 32, 37, 50, 51, 52, 53, 54, 56, 57, 64, 69, 92, 102, 106, 111, 119, 124-25, 138, 141, 145, 148, 159-60, 169, 173, 177, 181, 201, 213, 225 External Payments Position 10, 11, 19, 22-24, 31, 35, 46, 50, 51-52, 53, 54, 56, 57, 64, 77, 82, 85, 103, 124-25, 138- 39, 147, 150, 167-68, 194, 210-11 Landlocked and Small Island Economies, Needs of 156-57, 179-80, 220 Sub-Saharan Africa 11, 12, 47, 65, 92-93, 111, 115-16, 119, 121, 154, 169, 203, 229, 232 Terms of Trade 91, 126, 166 Transfer of Resources Official development assistance 27, 65, 92, 96, 102-103, 120, 150, 171, 194, 230 Other 11, 13, 18, 64, 79, 91, 106, 115, 127, 142, 145, 148, 166, 167, 172, 176, 180, 201 United Nations Conference on the Least Developed Countries 171

BIS Bank for International Settlements Committee of Twenty Committee on Reform of the International Monetary System and Related Issues DAC Development Assistance Committee (of the Organization for Economic Cooperation and Development) 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 EC European Community ECLA United Nations, Economic Commission for Latin America EMS European Monetary System GAB General Arrangements to Borrow GATT General Agreement on Tariffs and Trade GDP Gross domestic product GNP Gross national product Group of Ten Industrial Countries Participating in General Arrangements to Borrow Group of Twenty-Four Intergovernmental Group of Twenty-Four on International Monetary Affairs Group of 77 Group of 77 Developing Countries IBRD International Bank for Reconstruction and Development (World Bank) IDA International Development Association IFAD International Fund for Agricultural Development IFC International Finance Corporation IMF International Monetary Fund Interim Committee Interim Committee on the International Monetary System LDCs Less developed countries MDI Multilateral development institution ODA Official development assistance OECD Organization for Economic Cooperation and Development OPEC Organization of Petroleum Exporting Countries 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.

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