World Bank Document

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL FINANCE CORPORATION INTERNATIONAL DEVELOPMENT ASSOCIATION Public Disclosure Authorized

1978 ANNUAL MEETINGS OF THE BOARDS OF GOVERNORS

SUMMARY PROCEEDINGS Public Disclosure Authorized Public Disclosure Authorized

WASHINGTON, D.C. SEPTEMBER 25-28, 1978 Public Disclosure Authorized INTRODUCTORY NOTE

The 1978 Annual Meeting of the Board of Governors of the Interna- tional Bank for Reconstruction and Development, held jointly with that of the International Monetary Fund, took place in Washington, D.C., Sep- tember 25-28 (inclusive). The Honorable Tengku Razaleigh Hamzah, Governor of the Fund and Bank for Malaysia, served as Chairman. The Annual Meetings of the Bank's affiliates, the International Finance Cor- poration (IFC) and the International Development Association (IDA), were held in conjunction with the Annual Meeting of the Bank. The Summary Proceedings record, in alphabetical order of member countries, the texts of statements by Governors relating to the activities of the Bank, IFC and IDA. The texts of statements concerning the IMF are published separately by the Fund.

P. N. DAMRY Vice President and Secretary THE WORLD BANK

Washington, D.C. December, 1978

v CONTENTS

Page Opening Remarks by Jimmy Carter, President of the United States ...... I Opening Address by the Chairman, Tengku Razaleigh Hamzah Governor of the Bank and Fund for Malaysia ...... 5 Annual Address by Robert S. McNamara, President of the World Bank ...... 12 Report by Cesar E. A. Virata, Chairman of the Development Committee ...... 40 Statements by Governors and Alternate Governors ...... 43

Page Page Afghanistan ...... 43 Maldives ...... 125 Australia ...... 48 Mauritius ...... 126 Austria ...... 50 Morocco ...... 129 *Bahamas ...... 53 Nepal ...... 131 Bangladesh ...... 55 Netherlands ...... 133 Belgium ...... 62 New Zealand ...... 135 *Cameroon ...... 66 Nicaragua ...... 138 Canada ...... 71 Pakistan ...... 139 China ...... 74 Papua New Guinea ...... 143 *Denmark ...... 76 Paraguay ...... 147 Egypt ...... 80 Romania ...... 152 Fiji ...... 83 Solomon Islands ...... 155 France ...... 85 South Africa ...... 157 *Germany ...... 90 Spain ...... 159 India ...... 95 Sri Lanka ...... 162 Indonesia ...... 100 Suriname ...... 165 Ireland ...... 103 Thailand ...... 167 Israel ...... 104 Turkey ...... 168 Italy ...... 106 United Kingdom ...... 170 Japan ...... 110 United States ...... 174 Korea ...... 115 *Uruguay ...... 179 Luxembourg ...... 117 Western Samoa ...... 182 Malaysia ...... 121 Yugoslavia ...... 184

:Speaking on behalf of a group of countries.

vii Concluding Remarks by Mr. McNamara ...... 186 Concluding Remarks by Chairman, Tengku Razaleigh Hamzah ..... 187 Remarks by R. D. Muldoon, Governor of the Fund for New Zealand ...... 188 Documents of the Boards of Governors ...... 189 Schedule of Meetings ...... 189 Provisions Relating to the Conduct of the Meetings ...... 190 Agendas ...... 191 Reports of the Joint Procedures Committee ...... 192 Report I ...... 192 Report II ...... 193 Report IV ...... 194 Report V ...... 195 Resolutions Adopted by the Board of Governors of the Bank Between the 1977 and 1978 Annual Meetings ...... 197 No. 321 . . . Agreement with the United Nations Development Programme ...... 197 No. 322 ... Agreement with the International Fund for Agricultural Development ...... 197 No. 323 . .. Director Remuneration of Executive Directors and their Alternates ...... 197 No. 324 . .. Benefits of Executive Directors and their Alternates. . 198 No. 325 ... Rules for the 1978 Regular Election of Executive Directors ...... 198 No. 326 ... Membership of the Solomon Islands ...... 198 Resolutions Adopted by the Board of Governors of the Bank at the 1978 Annual Meeting ...... 201 No. 327 .. . Review of the Performance of the Development Committee ...... 201 No. 328 .. . Membership of the Republic of Cape Verde ...... 202 No. 329 .. . Financial Statements, Accountants' Report and Administrative Budget ...... 203 No. 330 .. . Allocation of Net Income ...... 204 Resolutions Adopted by the Board of Governors of IFC Between 1977 and 1978 Annual Meetings ...... 205 No. 100 ... Increase of Capital ...... 205 No. 101 ... Increase in Subscription by Argentina Pursuant to Article II, Section 2(d) of the Articles of Agreement of the International Finance Corporation ...... 210 No. 102 .. . Membership of the Republic of Mali ...... 211 Resolution Adopted by the Board of Governors of IFC at the 1978 Annual Meeting ...... 213 No. 103 . . . Financial Statements, Accountants' Report and Administrative Budget ...... 213

viii Resolution Adopted by the Board of Govemors of IDA Between 1977 and 1978 Annual Meetings ...... 213 No. 106 . . . Agreement with the International Fund for Agricultural Development ...... 213 Resolutions Adopted by the Board of Governors of IDA at the 1978 Annual Meeting ...... 214 No. 107 ... Membership of the Republic of Cape Verde ...... 214 No. 108 ... Financial Statements, Accountants' Report and Administrative Budget ...... 216 Report of the Chairman of the Development Committee ...... 217 Review of the Performance of the Development Committee ...... 218 Report of the Executive Directors of the Bank and IDA ...... 223 Proposed Cooperation Agreement with the International Fund for Agricultural Development ...... 223 Reports of the Executive Directors of the Bank ...... 230 Proposed Agreement with the United Nations Development Programme ...... 230 Allocation of Net Income ...... 250 Executive Directors' Administrative Arrangements ...... 251 1978 Regular Election of Executive Directors ...... 252 Rules for the 1978 Regular Election of Executive Directors ...... 253 Executive Directors Elected at 1978 Regular Election ...... 256 Reports of the Board of Directors of IFC ...... 259 Increase in Authorized Capital of the Corporation and Increase of Members' Subscriptions thereto ...... 259 Increase in Subscription by Argentina Pursuant to Article II, Section 2(d) of the International Finance Corporation ..... 288 Annual Report of the Development Committee ...... 289 Accredited Members of Delegations at 1978 Annual Meetings ..... 306 Observers at 1978 Annual Meetings ...... 335 Executive Directors, Alternates and Advisors ...... 338 Officers of the Boards of Governors and Joint Procedures Committee for 1978-79 ...... 339 Reference List of Principal Topics Discussed ...... 341

Ix i OPENING ADDRESS BY THE PRESIDENT OF THE UNITED STATES JIMMY CARTER

Mr. Chairman, Managing Director de Larosiere, President McNamara, Governors of the Fund and the Bank, and distinguished visitors: On behalf of the American people, I want to welcome you to Washington again for your thirty-third Annual Meetings. We meet as a group, dedicated to the cause of international cooperation. In the political field, you and I share the belief that cooperation among leaders can lead to peace. We have learned that lesson once again in the last few days. I know that you will join me in saluting the statesmanship and the courage of President Anwar Sadat and Prime Minister Menachem Begin. Your tremendous influence as leaders in your own nations can contribute greatly to maintaining the momentum toward peace both in the Middle East and throughout the world. In the economic field, also, cooperation brings large benefits to the people who look to us for leadership. Three decades of existence of the Fund and the Bank have brought progress and a better life for the people of the world. Like you, I want to build on that record to achieve still further economic cooperation, progress, and a better life. Since your meeting last year, our countries acting together have made tangible progress on world economic problems. The issues that remain, as you and I well know, are very difficult. But they, like other difficult questions, are not insoluble. You assembled in this room are the economic leaders of the world. The task before you is to consolidate past gains and then to push ahead in ways that will foster economic growth in both developing and the industrialized nations. Our goal is to achieve progress for all peoples, not just a few. The basic strategy has already been agreed. In Mexico City, at the IMF Interim Committee, agreement was reached on the general directions that economic policy should take. Progress on these agreements has been made. The outlook for improvement is good. We must not falter. A contribution to this strategy is needed from every country represented here; no matter how great nor small, no matter how weak nor powerful. In this effort, the United States has a major responsibility. Two months ago at Bonn, I made specific promises to our major trading partners about the actions that my country will take to this end. I pledged that the United States will fight inflation, will reduce oil imports, will expand exports. Let there be no doubt in your mind about how seriously I take these pledges that have been made on my own word of honor and on behalf of

1 the people of the United States. Taken together, they encompass the most urgent priorities of my own Administration; my own reputation is at stake as a leader. And they are commitments that I am most fully determined to fulfill. I have come here today to underline that determination and to describe the next steps that we will take. I will soon announce the first phase of a long-term program to expand American exports. Removing disincentives to exports and encouraging exports are overriding tasks for my own Administration. As you know, compared to many nations represented here, the export commitment has not been as great in our own country as it has perhaps among some of you. I have also intensified my efforts which were already great, to obtain legislation that will curtail United States imports of oil; imports which are entirely too high. The United States Senate is scheduled to vote this week, the day after tomorrow, on the key bill, natural gas regulation and pricing. This is one of the most complicated and difficult and challenging assignments that the United States Congress has ever faced. This particular bill is expected to save 1.4 million barrels of imported oil per day by 1985. I am confident that the Senate and House of Repre- sentatives will do their duty to our nation by approving this bill. I hope to have other bills, comprising a strong package of energy legislation en- acted before the Congress adjourns, probably, hopefully, less than a month from now. This is essential, we know, to a sound American dollar. I intend very shortly to announce a further series of important and specific and tough measures to strengthen our fight against inflation. These next steps will certainly not be the end of our effort, only the renewed beginning and commitment, part of a sustained effort to control these very serious problems for our own people in this country, and our relationship with your countries as well. Every nation represented in this room understands how difficult this struggle against inflation is, and what sustained commitment it demands. My Administration will continue that struggle on a wide variety of fronts until we succeed. There will be obstacles and objections from special interest groups all along the way. But I will not shrink from the hard decisions and the persistent efforts that are needed. I am determined to maintain a sound dollar. This is of primary importance to us. I know it is of great interest and importance to you as well. We recognize that our currency plays an international role. We accept the responsibilities which this involves. Our countries are acting to meet our responsibilities consistent with the directives set at the IMF meeting in Mexico and as was pledged again by seven of us national leaders at the Bonn Summit. The United States will do the same. Through programs which I have just described, we will achieve a strong

2 U.S. economy and noninflationary U.S. growth that must underlie a sound dollar and a stable international monetary system. The outlook for progress is good. Some of the causes of our large trade deficit have already been removed. Others are now being removed. Our current account position should improve significantly next year. The United States will remain an open and vigorous economy; and an attractive place to invest. Other steps are also required to achieve the economic progress that we all seek. In these steps, the IMF and the World Bank have, of course, a vital role to play. These two institutions are the core and the symbol of the international economic order that was built after World War II. They have shown a high capacity to adapt to new and rapidly changing needs. Strengthening and enlarging them, both institutions, is a prime goal of United States policy. The United States is firmly committed to a strong International Mone- tary Fund, exercising effective surveillance over the system and with adequate resources to meet official financing needs. The United States has supported and will continue to support an increase in IMF quotas and a new allocation of special drawing rights. I am pleased that legislative consideration of U.S. participation in the supplementary financing facility is nearing completion. I expect final action to be taken shortly. I might report to you that this year, the attitude of the United States Congress is better than it has been in my own memory toward supporting international financial institutions and toward foreign aid as well. I trust that our European friends will fashion the proposed European monetary arrangements which were discussed at least superficially at Bonn, in a way that will also strengthen the international monetary system and that will facilitate growth and trade and investment and also, quite importantly, the continued central role of the IMF. Current European efforts to these ends are a logical step toward the greater European integration which the United States has long supported. We also support proposals to enlarge the resources of the World Bank and its soft loan affiliate, the International Development Association as we pledged at the Bonn Summit. Again, the Congress has met our expectations. Expanded help to developing countries, contributes, we know, to the healthy world economy and to world peace. Last week, the United States Senate, as the House of Representatives had already done, met our nation's obligations for both multilateral and bilateral aid beyond, I must admit, my own expectations. I will seek next year to continue this commitment as part of a growing international effort to eliminate the worst aspects of human poverty. The United States Governor for the Fund and the Bank, Secretary of the Treasury, Mike Blumenthal, will outline our policies in more detail and our prospects for achievement in more detail when he addresses your session tomorrow.

3 You are gathered in Washington to address formidable challenges in both monetary and development fields. The future of all peoples in both developing and developed countries depends upon the outcome of your deliberations and subsequent action. I reiterate my nation's commitment to the common effort that is required. I am confident that this joint effort will succeed. Thank you very much.

4 OPENING ADDRESS BY THE CHAIRMAN H. E. TENGKU RAZALEIGH HAMZAH GOVERNOR OF THE BANK AND FUND FOR MALAYSIA

It is a great honor and privilege for the Government and people of Malaysia for me to be chosen to preside over the thirty-third Annual Meetings of the Boards of Governors of the International Monetary Fund and the World Bank Group. I wish to thank the Governor for the United States for inaugurating these meetings and welcoming us again-for the twenty-third time-to Wash- ington. I am sure all my fellow Governors will want to join me in expressing our gratitude for the traditional American hospitality and courtesy that we have received over the years. We look forward to President Carter's address this afternoon. It is also my pleasure to welcome the distinguished Governors and Alternate Governors, Advisors, guests and observers, and especially the three new members that joined our institutions in 1978-the Maldives, Suriname, and the Solomon Islands. In a world facing many varied and difficult problems, it is fitting that my country-a country in an intermediate stage of development-should have the honor of taking the chair on this occasion. Malaysia occupies a focal position in Southeast Asia. It is located on the major trade routes between Europe and the Orient, and has strong historical ties with both the East and West. We have met and are overcoming the political difficulties of an emerging independent nation. We know the problems of economic development, particularly those faced by exporters of primary products. We are active in all forms of cooperation for economic development such as ASEAN, the Association of South East Asian Nations. We have had strong and beneficial ties with both the Fund and the Bank, whose respective roles in the world economy we are here to discuss this week. Since our meetings last year, the most important development for the evolution of the international monetary system has been the adoption of the Second Amendment of the Articles of Agreement of the International Monetary Fund. The final acceptance by members represents the spirit of accommodation and cooperation that has been so carefully fostered by our institutions over the past three decades. The Fund begins this new era under the direction of a new and illustrious Managing Director, Mr. Jacques de Larosiere. I am sure my colleagues will want to join me in expressing our special satisfaction at his appointment and to wish him well in the challenging role that he is now being called upon to play. During the past five years, the Fund has been faced with a sharp increase in the demand for its services and resources, and has shown much innova- tion in coping with new and extraordinary problems. We have just completed putting into effect the Sixth General Review of 5 Quotas, which has raised total quotas in the Fund from SDR 29.2 billion to approximately SDR 39 billion. In addition to strengthening its own resources, the Fund has been successful in supplementing those resources through borrowing. Over the past four years, the Fund has borrowed or made arrangements to borrow a total of nearly SDR 19 billion through the 1974 and 1975 oil facilities, the General Arrangements to Borrow, and the Supplementary Financing Facility, which has still to be implemented. When this latter facility becomes effective, approximately SDR 8.75 billion will become available to assist members requiring balance of payments financing in larger amounts and for a longer period than is available under the Fund's regular tranche policies. Another major issue that has been the subject of extensive debate in the Fund during the past year is the question of whether there should be a new allocation of SDRs, and what improvements can be made in the uses and characteristics of the asset. There has been some progress in this matter in recent weeks and, as agreed by the Interim Committee yesterday, there will now be an allocation of SDRs over the next three-year period, although the size of the proposed allocation is below the expectations of many of us. At the last Annual Meetings, many speakers expressed the hope that the world economies would move steadily out of recession into a period of stronger expansion. There was also considerable satisfaction that we had increasingly come to accept the importance of Interdependence among all nations, rich and poor alike. This emerging confidence and hope was due partly to the fact that we had intensified our consultations and were seeking to increase cooperation, on a global basis, and particularly between the North and South, with the aim of tackling the most complex, socioeconomic, monetary, and trade issues that the world has ever faced. Several Economic Summit Meetings have come and gone. However, the world economic outlook is still plagued with slow growth prospects, a continuing unstable monetary situation, and general uncertainty in business confidence. This is compounded by a definite lack of concerted international action to solve our critical global economic problems. The concept of Interdependence is indeed in danger of further deteriorating into the concept of Dependence. The industrial countries have depended on each other to take the lead in adopting meaningful measures to pull the world out of its persistent slow growth. But they have badly fallen short of any real achievement so far. The Bonn Summit has succeeded only in raising our hopes and expectations. In the meantime, the world's economies continue to drift, without a proper sense of direction. Judging from the assessment of the Fund's Annual Report, the economic outlook for the OECD countries appears to be heading for a further slowdown. In many industrial countries unemployment and inflation are expected to continue to remain unacceptably high. Much can be done to improve the international economic outlook. How-

6 ever, those countries that made commitments to adjust still do not appear to have the political will, strength, and courage to move more resolutely toward overcoming global problems. Nevertheless, despite this unfortunate stalemate in international economic and monetary affairs, the industrial world will continue to have a reasonable basis for the maintenance of comparatively high standards of living and have reasonable prospects for continued progress. For the developing world, however, the consequences of the continuing slow and uncertain international economic growth can be disastrous. Mil- lions upon millions of our peoples in the developing world now face greater possibilities of unemployment and lower standards of living. In addition, they also face the stark realities of malnutrition, and even starvation, as well as widespread disease and continued deprivation of basic human needs. Indeed, millions will continue to be denied the right to live and to have a decent livelihood. This will not be because of their lack of determination to fight to live, but because those of us who have the resources and capacity to save life and suffering will continue to turn a deaf ear and be blind to the human tragedy, particularly in the most underdeveloped areas of the world. It might not be fully realized in the industrial world that there is a dangerous trend in the development of a severe credibility gap between the rich and the poor countries, the North and the South. The verdict of history would not be that the developing countries have not done enough on their own, but that the rich industrial countries sought too much for themselves, and unfortunately often at the expense of the developing world. This is why there has to be a New International Economic Order, so that we can all honestly and effectively contribute to the realization of genuine Interdependence. Otherwise, Interdependence will remain only a concept or, worse still, an excuse for the developing countries to continue to be deprived of a fair deal. On their part, the developing countries have increasingly come round to accept that the so-called bridging of the Income Gap between the rich and the poor countries is no longer feasible in the foreseeable future. Many of us realize that in reality our only hope in the short term is to be able to provide the Basic Needs to the lowest income and depressed groups in our societies. We have discussed this new approach of providing the Basic Needs to our peoples in many international forums. However, here again we still have a long way to go. To be effective, we must now concentrate our efforts on the primary objective of meeting basic needs which are vital to the interests of the developing countries. Although some progress has been made in some areas, especially in averting the highly dangerous protectionist trends, much more has to be done. There is growing cynicism in the world today about the relationship between the rich and the poor. Many have come to view organized attempts to improve the opportunities and conditions of living of the less privileged as a hopeless task. Indeed, many are even hostile to calls for changing 7 institutions, the systems and conditions which discriminate against the poor majority of the world. I am convinced that there has to be a compact between the developed and the developing countries, which are now obliged to deal with the developed countries from a position of weakness. For the process of development to be meaningful, there has to be an equitable international system that would directly involve and bring benefits to the majority of the human race. I cannot conceive that there will be a world of peace and prosperity without this meaningful development process. We have to admit that the major pirority issues on reform of the international economic and trading system, on transfer of real resources, and on the establishment of the Common Fund have not made sufficient progress. So much for the past. We need now to learn from our past experience and to resolve to find equitable solutions to the fundamental economic issues of our time. It seems to me that the right approach would be one which addresses the economic problems of our time on a limited scale and on a priority basis. This approach would seek to achieve objectives that would: First, meet the urgent, basic needs of the largest poverty groups, and second, enable the industrial countries to enhance their role by contributing more substantially to the alleviation of poverty. I would suggest that this New Approach should incorporate the following basic issues of our time: First, industrial countries should set target dates for increasing their Official Development Assistance to the poorest developing countries, where the need for such assistance is greatest, including measures to alleviate their debt burden. Second, the industrial countries should give priority attention to the current Multilateral Trade Negotiations, with a view to providing wider concessions and access to the exports of the poorest developing countries. Third, a definite start must be made by the developed countries to phase out their least sophisticated industries, which could be more beneficially undertaken by the developing countries. Fourth, a definite commitment should be made for a timetable to establish the Common Fund and related Commodity Stabili- zation Schemes so as to benefit the vast majority of developing countries that depend predominantly on the export of their raw materials. Fifth, the developing countries, which remain basically responsible for their own socioeconomic advancement, will have to do even more to maximize their efforts and optimize their management systems, to deliver the goods, and increase their absorptive capacity. The issues that I have enumerated as part of the New Approach are global in nature but, nevertheless, limited and feasible. If an international consensus can be developed to give priority to these basic issues there will be greater opportunity to provide the basic needs to the millions in the developing countries who are poverty stricken. If we could achieve this kind of consensus on the issues which I consider to be the basic minimum, we would have taken the vital first steps to the achievement of a New International Economic Order. If we should fail

8 to do so, I fear that we shall face the consequences of a growing credibility gap and the increasing disenchantment with, and indeed resentment against, the rich countries. If this rising reaction is left unchecked, we must be realistic enough to accept that all this will lead, slowly but surely, to only one end: international economic disorder and political instability. All that I have said is of direct relevance to countries represented in this forum and to international institutions, such as the Fund and the Bank. In many ways the Fund and the Bank have served the cause of international development and monetary stability exceedingly well. However, these institutions were born in different times and under different circumstances, and they will need to continue to be as relevant and as effective in the future as they have been in the past. The Fund and the Bank must continue to review their performances, their roles, and, indeed, their future directions if they are to continue to play an increasingly relevant role in a changing world. Equally important, the Fund has to become an even more dependable and adequate source of financial assistance. Similarly, the World Bank needs to be strong and independent, with a truly international personality. Both the Bank and the Fund must also keep under constant review the need for an acceptable balance in the representation of developed and developing nations. Furthermore, efforts should be accelerated to improve the balance and spread of the staff in these institutions. In this connection, I would like to pay tribute to the management and staff of the Fund and the Bank. Both these institutions have fostered a spirit of commitment and dedication and a standard of excellence. In order to enable both the Fund and the Bank to play an effective leadership role in the challenging times ahead, it is even more important now that these qualities should be upheld. The morale of the staffs of the two organizations should not only be preserved and strengthened but also their international character reinforced. I am confident that the Bank and the Fund have both the opportunity and the capacity to meet these new challenges. They could well provide the leadership and set the pace in working effectively toward the realization of the objectives of the New Approach to development. The IMF would need to re-examine its role in the context of the present and future needs of both the developed and developing member countries. I would suggest that the Fund: First, strengthen its role as a pro- vider of both conditional and unconditional liquidity and take measures designed to enhance the role of SDRs in the international monetary system. Second, continue and complete its review of the criteria and procedures for lending, particularly to the poorer deficit developing countries. For instance, more liberal criteria could be applied to developing countries than to the more viable developed countries. Third, develop its Sur- veillance Procedures under the Second Amendment in a flexible manner, applying them on a priority and selective basis and paying particular attention to the actual and potential sources of international monetary instability. Fourth, further develop the policies and procedures of its buffer

9 stock and compensatory financing facilities, in order to meet more effectively the particular needs of member countries. And continuing in this spirit of constructive contribution, I would like to suggest that the World Bank could: First, accelerate the shift in its lending and technical resources to the softer development projects that directly benefit the lowest income groups. Second, keep under constant review its policies and management procedures so that they should not be unduly stringent or restrictive. Third, develop model or prototype development projects and programs to combat and alleviate poverty, so that these models could be adapted to national needs, and used more readily in developing countries to accelerate their economic development. Fourth, proceed forthwith to seriously discuss a further General Capital Increase. IDA also needs widespread support for replenishment on a scale that will permit its lending to rise annually in real terms. Fifth, provide, with the enlightened encouragement of the major industrial countries, a greater proportion of local cost financing to enable the poorest countries to realize their own economic potential more effectively. Both the IMF and the World Bank already provide their members with invaluable technical assistance, but both institutions could do much more to expand this assistance to the developing countries. While there is always a severe constraint in increasing financial resources, it is relatively less difficult to make available more expertise from the Fund and the World Bank to help member countries optimize the utilization of their scarce resources. Similarly, both the Fund and the Bank must get more directly involved in the major international issue of Commodity Price Stabilization. The implementation of the Integrated Program for Commodities, including the Common Fund to finance the Program, constitutes the key instrument in the overall plan to bring about the New Internationl Eco- nomic Order. This Program would benefit both the developing as well as the industrial countries through stable and fair commodity prices. I would, therefore, strongly urge the Fund and the Bank to give priority consideration to seeking ways and means of assisting in the formulation of specific measures to effectively contribute toward the realization of the Common Fund, particularly the Commodity Stabilization Schemes. We have all been encouraged by the initiative taken by the Fund to enable the buffer stock facility to finance the special stocks of sugar established under the 1977 new International Sugar Agreement, which will be nationally owned but internationally controlled. In this connection, I would urge the Fund and the Bank to provide the necessary financing for the effective implementation of any viable Inter- national Commodity Stabilization Schemes. Thus, I would strongly suggest that the proposed International Natural Rubber Price Stabilization Scheme, and other schemes that have reached an advanced stage of preparation under the aegis of the UNCTAD, be fully supported by the Fund and the Bank as a matter of priority. Finally, I welcome the World Development Report. Its conclusions and recommendations merit our very serious consideration and should provide

10 an invaluable framework for more conclusive measures to be adopted by the world community. The underlying theme of the World Development Report reaffirms our basic belief that it is not only vital, but also an absolute prerequisite for our very survival in the longer term, that the leaders from both the developed and the developing world should earnestly seek to bring about a New International Economic Order to increase the welfare of all peoples, fairly and justly. This then is the challenge of our times. It is not beyond human ingenuity-and our global resources-to devise ways of effectively meeting this challenge. What we need is a collective political will and the resolve to overcome our basic human weakness of selfishness and to become a little more selfless in the service of our noble ideals and aspirations to achieve a better world for all our peoples.

11 ANNUAL ADDRESS BY ROBERT S. McNAMARA PRESIDENT OF THE WORLD BANK

I. INTRODUCTION You will recall that when we met last year I recommended two specific actions designed to improve the climate of international economic development. To prevent the debate between the developed and dveloping nations over a whole series of sensitive issues from hardening further into a North- South deadlock, I urged that former Chancellor Willy Brandt form an independent, high-level commission that could search for practical solutions to the growing impasse. Herr Brandt has, as you know, moved forward vigorously in this matter. He has recruited a distinguished group of commissioners, has gathered an expert staff, and is at work seeking to identify for the developed and developing nations areas of mutual interest in an increasingly interdependent world. All of us are indebted to him, and to his colleagues, for undertaking this complex and difficult task. The second action I recommended is complementary to the first. I proposed that the Bank should undertake, annually, a comprehensive analysis of economic and social progress in the developing world in order better to assist ourselves, and our member governments, assess the alternatives and make the decisions that confront us all in the development field. Our goal was to have in your hands, by the time of this meeting, the initial volume in this effort. That we have done. The World Development Report, 1978 deals with fundamental problems currently facing the developing countries, and explores the relationship of those difficulties to the underlying trends of the international economy. Many of the conclusions the report reaches are sobering. One of them is much more than that; it is shocking. Even if the projected-and optimistic-growth rates in the developing world are achieved, some 600 million individuals at the end of the century will remain trapped in absolute poverty. Absolute poverty is a condition of life so characterized by malnutrition, 9illiteracy, disease. high infant mortality, and low life expectancy as to be beneath any reasonable definition of human decency. What I want to do, then, this morning is: A. Examine with you our current projections for economic growth in the developing countries, and the implications of that growth for the absolute poor. B. Make clear that in order to achieve even the projected levels of growth, which are short of the optimum, additional effort will be required from both the developed and developing nations. In particular, additional international effort will be needed on three fronts:

12 * A further expansion of international trade on the basis of long-term comparative advantage and mutual benefit; * A sharp increase in the level of capital extended to the middle-income developing countries from private sources, together with increased support from the multilateral financial institutions; and * An increased flow of concessional assistance to the poorest developing countries. C. Stress that even if the additional international support is achieved, and the projected growth rates are realized, much greater emphasis must be placed on domestic development strategies specifically designed to reduce absolute poverty. We are far from a perfect understanding of the mix of policies required. But within the limits of our present knowledge and experience, a great deal more can-and must-be done. D. And finally, I want to outline briefly the ways in which the World Bank itself can assist in the achievement of these twin goals of accelerating economic growth, and reducing absolute poverty. Let me, then, begin by summarizing our projections for economic growth in the developing countries over the next decade, and their implications for absolute poverty at the end of the century.

II. PROJECTED GROWTH IN THE DEVELOPING COUNTRIES, 1975-85, AND ABSOLUTE POVERTY IN THE YEAR 2000

It is important to understand the purpose of these projections. They are not an attempt to predict the future. Their purpose, rather, is to provide a perspective in which development issues can be examined, and to establish a basis for determining those actions that are necessary if greater social and economic progress is to be achieved. The pursuit of that progress will, of course, cut across a number of vested interests and require an immense effort from the developing countries themselves. There must, for example, be a renewed drive to mobilize domestic resources (Table I). It will not be easy for the poorest nations to raise their low savings rate, nor for the middle-income countries to maintain their current high rates, but it is essential that they do so. It will mean reform of taxation policies, more realistic prices for public sector products and services, restraint in low-priority government expenditures, and increased incentives for private savings. In addition to strengthening their domestic savings performance, the developing countries must bolster their efforts in two other critical areas. The first is agricultural production. In the low-income countries, action must be initiated to at least double agricultural growth rates from 1.5% to 3.0% a year. The second is foreign trade. Programs must be launched to increase foreign exchange earnings through export expansion in a larger number of countries.

13 Table I-Developing Countries': Savings and Investment Rates (Percentage of gross domestic product)

Gross Net Foreign Gross Domestic Resource Domestic Savings Inflows Investment 1960 1975 1985 1960 1975 1985 1960 1975 1985 Low-Income Asia 12.6 16.7 20.5 2.1 2.5 2.0 14.8 19.2 22.5 Low-Income Africa 7.0 8.4 11.4 9.0 10.0 7.7 14.0 18.4 19.1 Middle-Income 17.8 22.1 21.8 2.4 4.3 2.6 20.2 26.4 24.4 *Throughout the text, developing countries are divided into low-income countries and middle-income countries on the basis of income per capita. Income per capita in low-income countries was below $250 per year in 1976. Country groupings exclude Centrally Planned Economies other than Romania, Yugoslavia, Cambodia, Laos, and Vietnam.

But as essential as these actions by the developing countries are-and they clearly constitute a formidable agenda in themselves-they simply cannot succeed without a more realistic level of support from the developed nations That support must encompass three principal efforts: * A reversal in the rising tide of protectionism in the developed countries against imports from the developing world; * A sustained growth in the net financial flows from the world's private capital markets to the middle-income developing countries of about 5% a year in real terms, thus increasing them, in current dollars, from $26 billion in 1975 to $80 billion in 1985; and * A move away from the virtual stagnation of concessional aid from the OECD countries in recent years to a growth rate of at least 5% a year in real terms, thereby causing it to rise in current dollars from $15 billion in 1977 to $42 billion in 1985. If one assumes that both the developing and developed nations in fact take these actions, then the projected growth rates are as follows:

Table II-Growth of Gross Domestic Product, 1960-85 (Average annual growth rates, at 1975 prices)

Per Capita Total GDP 1960-70 1970-75 1975-85 1960-70 1970-75 1975-85 Low-Income Asia .0 1.5 2.8 2.4 3.9 5.1 Low-Income Africa 1.9 .4 1.5 4.3 2.8 4.1 Middle-Income 4.0 4.1 3.4 6.3 6.4 5.9 All Developing Countries 3.2 3.6 3.3 5.5 5.9 5.7 Industrialized Countries 4.1 2.0 3.5 4.9 2.8 4.2

14 Because these projected growth rates are predicated on major efforts in both the developing and developed countries, they are-while feasible- very far from certain. But one thing is certain: there is no reason for the developed nations to believe that the actions suggested for them in this scenario are beyond their capacity. For even if projected growth rates for the developing countries were to be achieved, overall growth in the world would still be heavily skewed in favor of the developed countries, as the table below indicates.

Table III-Distribution of Population and GNP, 1950-1985

Share of % of Total GNP Incremental Population (in billions $75) Income

Country Group 1975 1950 1975 1985 1950-75 1976-85

Low-Income 43 69 175 286 3 4 Middle-Income 33 208 873 1543 21 25 Total Developing 76 277 1048 1829 24 29 Total Developed 24 1341 3841 5795 76 71 Total 100 1618 4889 7624 100 100

Aver. Annual Increase in Income Income % of Per Capita Per Capita Population (in $75) (in $75) 1976-85 Country Group 1975 1950 1975 1985 1950-75 5 Low-Income 43 104 150 195 2 37 Middle-Income 33 454 957 1327 20 Total Developing 76 243 Total Developed 24 2614 5883 8316 131 Total 100

So far we have been taking about growth rates. What about the poverty issue? To try to grasp its magnitude at the end of the century, we have projected the growth rates beyond 1985 for another 15 years. Admittedly such projections are subject to large margins of error. But based on what little we do know about the interactions of social and economic factors, and the effect of various patterns of economic growth on the prospects of the poor, the projections point to a global problem of shocking proportions. The likelihood is that even if the projected growth rates in the developing countries are achieved, some 600 million individual human beings will be living in absolute poverty at the end of the century.

15 Table IV-Projected Levels of Absolute Poverty, 1975-2000

Numbers Percent of (in millions) Total Population 1975 1985 2000 1975 1985 2000 Low-Income Countries 630 575 540 52 39 Middle-Income 27 Countries 140 140 60 16 12 4 All Developing Countries 770 715 600 37 27 17

I would like to turn now to a more detailed discussion of the actions required from the developed nations if the projected growth rates are to be realized or exceeded. I will then examine what can be done to reduce the projected levels of absolute poverty. And I will conclude with a statement of what the Bank itself can most usefully do to assist in both accelerating growth and reducing poverty.

111. EXPANSION OF INTERNATIONAL TRADE The scarcity of foreign exchange is, of course, one of the major obstacles to greater economic growth in much of the developing world. Export earnings are the chief source of foreign exchange, and hence the growth rates projected in Table II depend on the achievement of the underlying assumptions of export performance. What are those assumptions? Can they be realized? The projections assume that exports from the developing countries will rise marginally from their 5.9% rate of expansion in the 1960-1975 period to 6.4% in the period 1975-1985. While this may seem a modest gain, it depends in fact on manufactured exports-now a quarter of the total- continuing to grow at the rate of approximately 12% per annum, as they have over the past 15 years. This rate simply cannot be sustained if the protectionist barriers erected by the developed nations against the manufactured exports of the developing countries continues to rise as they have recently. Even a partial resum6 of the new restrictive measures illustrates the severity of the problem.

* Australia, Canada, France, the United Kingdom, the United States, and Sweden have imposed new quotas and so-called "orderly marketing arrangements" on the developing countries' exports of footwear. * The new protocol of the Multi-Fiber Arranegment, covering the period through 1981, permits the imposition of more severe restrictions on clothing and textiles. Under it, for example, the European Common Market has reduced 1978 quotas for three countries beneath actual 1976 levels, and has severely limited the growth of quotas of other countries, including many that are only beginning to export these products.

16 * In addition to the EEC, Australia, Canada, Norway, and Sweden have also tightened developing country quotas for textiles and clothing, and the United States, for 1978, has held three of its largest suppliers to 1977 levels. The net effect of all of these restrictive measures will be to limit the growth of developing countries' exports of clothing and textiles to only 5% per annum over the next few years, compared to some 16% per annum in the period 1967-1976. * The European Community and the United States have introduced special protective measures regarding steel, which pose serious difficulties for those developing countries now emerging as exporters. * The United Kingdom has imposed quotas on television sets from two developing countries, and similar action is threatened in the United States and elsewhere. The truth is that throughout the industrialized nations this trend toward protectionism is gathering momentum. There is an increasing readiness for OECD governments to extend assistance to domestic industries at the expense of developing country exports. And producers of a wide variety of products in the industrialized world-ranging from petrochemi- cals and ships to bicycle tires-are now demanding relief from import competition. The popular rationale for this protectionist posture in the developed nations is, of course, that the growth in developing country exports elimi- nates jobs. But while the impact on jobs in specific firms, or in particular product lines, can sometimes be serious, it is important to recognize that the negative effect of developing country exports on overall employment in the developed world has been negligible. The fact is that developing countries today supply only a tiny portion of the manufactured goods consumed in developed countries. Less than 2%. Even in the case of clothing, which contributed the most to developing- country export growth, the ratio of imports to total consumption in 1976 was less than 8% in the United States. In 1974, developing country textiles and clothing together constituted only 8% of the market in Ger- many, 6% in the United Kingdom, 5% in Canada, 4% in Japan and in the United States, and 2% in France. These low levels of market penetration have clearly made only a minuscule impact on the overall industrial structure of the importing countries, and the impact on the occupational pattern is even smaller since a num- mer of industries share a common need for specific occupational skills. Further, the number of workers displaced by imports from developing countries is only a fraction of those displaced by shifts in technology and demand in the industrialized countries themselves. A number of studies have indicated that within a given industry, the amount of employment lost through import competition is generally much smaller than that lost because of technological advances that increase labor productivity.

17 A German study, for example, concluded that for manufacturing as a whole during the 1962-1975 period, technological improvements displaced 48 workers in Germany for every one worker displaced by imports from developing countries. Even in clothing, where imports from developing countries grew rapidly, and technology was relatively stable, this ratio was more than three to one. What the protectionist view overlooks is that the loss of jobs due to imports from the developing countries is outweighed by the increase in jobs due to the growing volume of exports to those same developing countries. In 1975 the industrialized nations imported $26 billion of manufactures from the developing nations, and exported $123 billion of manufactures to them in return. And that accounted for a full 30% of all their exported manufactures. If the developing countries are to import even more from the developed nations-and they want to-they must be allowed to export more so that they can earn the foreign exchange necessary to pay for them. Excessive protectionism is not only unfair. It is self-defeating. But, as I have noted, though the overall net effect of developing-country imports on employment in the developed nations is beneficial, it is true that problems can arise in individual firms, or in particular product lines, in which comparative advantage lies strongly with the developing countries. In these cases, what are needed are practical adjustment measures, not broadside protectionist barriers that in the end only make reasonable and mutually advantageous adjustment more difficult. The truth is that the adjustment problem has largely been neglected in the industrialized countries. Too often the effort is merely to keep weak and inefficient industries alive rather than designing effective incentives for labor and capital to shift to more competitive and productive sectors. Further, with the notable exception of The Netherlands and Norway, there have been very few governments in the developed world that have even studied the need for changes in their industrial structure. As the international economy continues to evolve, and the capacity of the developing countries to export manufactured goods expands, it is essential that there be adequate forward planning to reduce the frictions associated with structural change. The OECD nations, both individually and collectively, should undertake such studies to identify the problem areas in advance, and explore practical solutions to deal with them. The primary concern of the industrialized nations today is, of course, greater progress in the recovery of their own domestic economies. Less restrictive trade with the developing countries can hasten that recovery. A more liberal import policy, as I have already pointed out, will lead to a more rapid expansion of exports to the developing countries, thus providing a healthy stimulus to demand in the developed nations. And added to that, imports from developing countries can assist in reducing inflationary pressures. In the United States, for example, while

18 other wholesale prices rose by 60% from 1970 to 1976, those for clothing -due to low-cost imports-rose only 26%. Adjustment assistance, and economic recovery, are essentially tasks for individual governments. What is needed at the international level-beyond what is accomplished at the Tokyo Round-is a more rational framework of trade relations through which excessive barriers can be more rapidly dismantled, and more explicit criteria can be established governing those barriers which must be imposed to deal with strictly temporary difficulties. Protectionist measures are, of course, common in developing countries as well. For those societies still at an early stage of industrialization, they are often justified. But for those countries that are well advanced in the development process, the negative effects of industrial protection on efficiency and growth become increasingly apparent. Such countries will also have to face adjustment problems if they are to increase their competitiveness and diversify their exports. And it is these countries that have the greatest stake in avoiding an increasingly restrictive trading system. Maintaining the benefits of more liberal trade clearly will demand a cooperative approach, and the success of that approach will be enhanced as the more advanced developing countries-on a reciprocal basis- demonstrate a greater willingness to reduce their own import barriers. Though developed and developing countries have different interests at different stages of industrialization, given a sense of realism, they can reach practical accommodations that are mutually beneficial. A realistic agenda for such negotiations should include: * Assured growth of the developed countries' imports of currently restricted developing-country products; * Strict rules to prevent new tariff and non-tariff barriers, except for brief periods under agreed criteria and under strict multilateral surveillance; * Progressive removal of present quantitative import restrictions, and the easing of administrative procedures; * Greater liberalization of import policies by the more advanced developing countries; * Gradual reduction of export subsidies, except for the less advanced developing countries with special problems; and * Agreements facilitating the growth of trade among the developing countries themselves. By participating more intensively in multilateral trade negotiations, the developing countries-and particularly the middle-income nations-can counter the growing threat of discrimination against their exports. This will help ensure a trading environment that better reflects their interests. Unless this is done, not only will the economies of the developing countries grow at rates less than those projected, but growth in the developed countries will suffer as well. In the final analysis, a more rational framework of trade and adjustment to changing comparative advantage must be the centerpiece of any long-

19 range international economic strategy that has any realistic hope of succeeding. Now let me turn to another facet of this same overall problem: the need for greater capital flows to the middle-income developing nations.

IV. CAPITAL FLOWS TO THE MIDDLE-INCOME DEVELOPING COUNTRIES Over the past five years, the amount of foreign exchange required by the middle-income developing countries to finance their imports has risen dramatically. This has been in part due to the steep increases in the cost of oil. During the same period, the recession in many industrialized nations reduced in real terms the export earnings available to the middle-income countries to finance those imports. Thus these countries faced a dilemma. They could either reduce their imports, thus slowing their own economic growth as well as that of the industrialized nations. Or they could try to maintain the level of their imports, and thus protect their growth, through greater reliance on external borrowing. They chose to follow the latter course. And as a consequence, as shown in Table I, their external financing as a percentage of GDP nearly doubled from 2.4% in 1960 to 4.3% in 1975. The bulk of these funds, as both the table below and Annex Table II indicate, came from private sources, primarily commercial banks. Thus, net flows to middle-income developing countries from private sources increased 30% a year between 1970 and 1975. Such explosive growth could not, of course, continue indefinitely. And it has already begun to slow down substantially.

Table V-Medium- and Long-Term Capital Flows to Middle-Income Countries' (Billions of current US dollars) Disbursed Debt Net Disbursements Outstanding

1970 1975 1985 1970 1975 1985 Grant and Concessional Loans 2.3 8.0 22.0 11.6 24.8 95.5 Loans at Market Terms Multilateral and Government 1.0 3.3 9.2 8.9 19.6 90.8 Private' 6.9 26.0 80.0 15.9 83.5 349.8 Total 7.9 29.3 89.2 24.8 103.1 440.6 Total-Current Prices 10.2 37.3 111.2 36.4 127.9 536.1 -1977 Prices 19.0 41.8 63.8 67.7 143.2 307.6

,Includes "Direct Foreign Investment."

20 In the projections of the future growth of these countries, the assumption is that net flows will grow by 12% a year. As the table shows, even this reduced growth in lending will mean that net flows from private sources will rise, from $26 billion in 1975 to $80 billion in 1985. That in turn means that outstanding balances would increase from $84 billion in 1975 to $350 billion in 1985. The question is: can such huge increases in absolute amounts be supported by the private sector? The projected growth of these balances reflects, of course, inflation: in 1977 prices, the 1985 figures would only be about half as large. In real terms the growth in net disbursements is only about 5% a year. Thus, at this level, net flows will be growing only slightly more rapidly than the GDP in the developed countries, and somewhat less rapidly than the GDP in the middle-income developing countries. But the fact remains that the magnitude of the increases is immense, and both the governments of the borrowing countries and the commercial lending institutions, and their supervisory agencies, must give the matter very careful thought. What precisely are the problems involved in this expansion of debt? What are its risks? And what steps ought to be taken to ensure that the debt is managed prudently so as to avoid any sudden disruption in the flow of essential capital to the developing countries? Two years ago, when the extent of the recent increases in commercial capital flows became apparent, there was considerable anxiety expressed over the prudence of lending on such a scale to developing countries. We said at that time there was no real cause for alarm. And we believe that today there is a much better understanding of the capacity of the developing countries to manage their debt, even in the context of a less buoyant outlook for international trade. But if the private lending process is to proceed smoothly, there are three aspects of it that must have continuing attention. First, there is the problem of the risk for individual developing countries associated with the high volumes of commercial bank loans falling due in the next few years. This quantum leap in maturing debt reflects the typical 5-year maturity of the very large volume of Eurocurrency borrowing which took place in 1974 and 1975. As long as the outlook for a borrowing country seems bright, the commercial banks are likely to make new loan commitments which not only offset the amounts due for repayment but also provide a substantial inflow of net external finance. But if the outlook for a particular borrowing country is in doubt for any reason, then the entire amount of new loan commitments can be called in question. In such a situation what is at stake is not simply some increment of new funds, but rather the risk of a substantial new outflow of capital. The nature of the risk can be illustrated with figures for middle-income countries as a group. To meet the projected net disbursement of $68 billion for these countries in 1985, new medium- and long-term loan commitments from private sources would need to reach $160 billion per year

21 by 1985. This is clearly an enormous sum, even allowing for the inflation which may take place over the next few years. Such a high ratio of gross to net flows is a direct consequence of the relatively short maturity of commercial bank lending. The $160 billion figure assumes an average maturity of five years. Given the rather sharp lengthening of maturities on syndicated loans which has occurred over the past year or so, and given the success of a few middle-income countries in tapping the international bond markets, it would not be surprising if the average maturity were longer than this. But even at an average of 7 years, the gross flows would need to reach $140 billion a year. There is no doubt that private capital flows of these magnitudes will require a continuing climate of confidence and a supportive framework of public policy in both the developed and developing countries. Another cause for concern is that much of the international lending is still handled by relatively few banks. Well over half of all outstanding claims on developing countries are held by about 30 major banks, principally in the United States. How much these banks can increase their lending in developing countries over the next several years depends on the growth in their capital base and the diversification of their portfolios. This is a strong reason for involving more lenders in international development. Banks in Europe and Japan have been increasingly active in lending to developing countries, and it is important that this trend be accelerated. Diversifying the sources of lending would help dampen excessive volatility in the international capital market. That expansion of private lending can be stimulated by the provision by borrowers to lenders of more adequate information, and by the acceptance of appropriate risk premiums. Ex- panded cofinancing between official and private lenders can also significantly help the diversification process. A third area of concern is the high levels of bank exposure to risks in a relatively few countries. While the number of countries that have sizeable borrowings from private markets has grown in recent years, about 70% of outstanding claims are owned by 12 countries. Debt problems in any one of these countries, even a small one, can affect the willingness of the private market to lend to all developing countries. While a number of analyses have concluded that there is no general problem of middle-income developing countries being unable to service debt, individual countries may run into liquidity problems. The availability of private capital to a broader range of middle-income developing countries would make the market less sensitive to developments in a restricted few. In a more general sense, the confidence of private lenders needs to be protected by better arrangements to assist countries in short-term balance of payments difficulties, notably by expanding the resources aavilable to the International Monetary Fund. The critical flow of private capital to developing countries can be substantially enhanced by expanding the lending capacity of the official lend-

22 ing organizations-both the export credit agencies and the multilateral financial institutions. This is true for three principal reasons. First, the maturities of official lending are substantially longer than private lending and can effectively assist developing countries in the management of their external debt. Blending official loans at near market terms having maturities of 15 to 25 years with private loans having maturities of 5 to 10 years can lighten the debt service burden on developing countries. It would result in an average maturity of their external debt that is more appropriate to their investment program and balance of payments outlook. Whether this blending is achieved through cofinancing of the same or different projects is less important than that the volume of funds lent by the official institutions be sufficient to make a significant difference to the average maturities. Secondly, official lending institutions support the expansion of commercial flows by providing private lenders greater assurance of the quality of economic management in the borrowing country. Through analysis and advice, the multilateral lenders help influence more prudent borrowing and economic management, and the scale of their involvement in individual countries is an important signal to private lenders. Finally, the lending programs of the official institutions, since they are not subject to short-term changes in liquidity, can provide a less volatile flow of funds, thus adding an important element of stability. The importance of these factors has been evident in recent years as both official multilateral lending and private lending grew extraordinarily fast, each supporting the other in meeting the capital requirements of developing countries. As I will discuss in more detail when I deal with the World Bank's program, there is a danger that this mutually supportive growth may be weakened by a failure to expand the lending authority of the multilateral financial institutions as rapidly, and as adequately, as is necessary. Official loans accounted for 36% of developing countries' outstanding debt in 1970-excluding concessional loans-but only 19% in 1975. This share has continued to decline in 1976 and 1977. It is neither surprising nor undesirable that private lending accelerated. But there can be a problem when the balance shifts as rapidly as it has in recent years, particularly in the case of a few countries that have been exceptionally active borrowers in the private market. The continued health of the current system of international financial intermediation requires that the growth of lending in the next decade be more balanced between official and private lenders. Maintaining the steady growth of the medium- and long-term capital flow to developing countries, in line with their growing capicity to service external debt, serves their development needs and at the same time is of benefit to the industrialized countries. Such productive investment of a portion of their savings is profitable to their financial institutions and expands the import capacity of the developing countries, and hence the export volume of the developed nations. The additional demand will benefit

23 particularly their machinery and transport-equipment manufacturing sectors, which are likely to account for about half of the incerase in the developing countries' imports from the industrialized countries. As with the growth of trade, strengthening the framework of international capital flows clearly provides important benefits to both developing and developed nations. Let me turn now to the problem of concessional assistance to the poorest developing countries.

V. CONCESSIONAL ASSISTANCE TO THE LOW-INCOME COUNTRIES The development strategies of the low-income countries of Asia and Sub-Saharan Africa clearly must give priority to raising agricultural productivity, and to meeting the requirements for essential infrastructure such as roads, health and sanitation facilities, power generating capacity, and schools. The investment needed to support that strategy is immense. As in the past, and as shown in Table I, the bulk of the funds to finance these investments must come from domestic savings; already they furnish some 80% to 85% of the total. The domestic savings of these low-income countries have been rising. But they have to be supplemented by external capital flows if the total investment requirements for even modest growth are to be met. And because most of the low-income countries have limited debt-servicing capacity, most of the external capital must be obtained on concessional terms through what is known as Official Development Assistance (ODA). What is the outlook for such assistance? As indicated in Annex III, recent trends in ODA from the Development Assistance Committee (DAC) countries are disquieting. In relation to their GNP, it has declined from .52% in 1960 to .31% in 1977*a Since 1970, when the United Nations General Assembly adopted a target of .7% of GNP for concessional aid, it has never exceeded half that level, and there has been a steady deterioration against the objective. The fact is that in 1976 and 1977 the absolute amounts were less in real terms than in 1975, 1972, or 1971. There have, however, been significant differences within the group of DAC countries. Some of the smaller countries such as The Netherlands, Norway, and Sweden have exceeded the .7% target. Others such as Canada and Denmark have substantially raised their share since 1970. But among the four largest contributors, only France was close to the .7% objective in 1977. The other three, the United States, Japan, and Germany, all contributed substantially less than half of the target ratio in 1977, and the performance of all three has deteriorated since 1970. Had

,In addition to development assistance from the DAC countries, developing countries since 1975 have received over $5 billion of such aid each year from OPEC nations-the equivalent of about 5% of the GNP of the major donors.

24 these countries increased their contributions of ODA in relation to GNP, even up to the average of the other countries, the total supply of ODA in 1977 would have been more than 25 % greater. In projecting economic growth in the low-income countries, we have assumed that ODA from DAC members will rise by approximately 5% per year in real terms. The incerase in current dollars would be from $15 billion in 1977 to $42 billion in 1985. In relation to recent performance, such increases look formidable. They are unlikely to be achieved, much less exceeded, unless early action is taken in Japan, Germany, and the United States to incerase commitments substantially. There have been statements of intention to increase the flow of aid in all three countries. But these statements have yet to be translated into action. Today, in September 1978, it is already too late to affect the flow of disbursements significantly by 1980. Unless very substantial increases in commitments-more than sufficient to keep pace with inflation and the real growth of GNP-are undertaken in the next year, and regularly thereafter, even the modest objective we have postulated for 1985 will not be achieved. In that event, the growth rates we have projected for the low-income countries in Table II will not be realized, and the number of absolute poor projected in Table IV, already intolerably high, will be even greater. Let me turn now to an examination ot that poverty problem.

VI. ABSOLUTE POVERTY IN 1985 AND 2000 The need to give greater attention to the problems of the absolute poor has been increasingly recognized in international discussions. But the in- tractability of these problems and the scale of efforts needed to reduce the numbers of absolute poor have not been fully appreciated. In Sections III, IV, and V, I have examined three of the major assumptions-the expansion of international trade, the flow of commercial credit, and the volume of concessional aid-that underlie the projections of economic growth in Table II and of absolute poverty in Table IV. Because these assumptions are not likely to be achieved without additional action-action that is not now in prospect-I have stressed the need for a number of new initiatives. But even if such initiatives are undertaken, we will still be confronted by intolerable levels of absolute poverty, as projected in Table IV, and repeated below in Table VI.' The projection of 600 million absolute poor in the year 2000 does not assume a lack of progress in the remaining years of the century. The reduction in absolute poverty in any country depends on the growth of its

'I shouild emphasize again that so little is known about the interactionz of econonmic and social structures with development policies that projections of the number of absolute poor are siubject to wide margins of error. They provide, nevertheless, sufficient inidication of the potential results of existing policies to serve as a basis for the re-examinationl and assessment of strategy.

25 Table VI-The Absolute Poor, 1975-2000 (Numbers in millions)

1975 1985 2000 Low-Income Countries 630 575 540 Middle-Income Countries 140 140 60 All Developing Countries 770 715 600

GNP, the extent of improvement in its distribution, and the increase in population. Since the populationb of the developing countries is projected to increase from 2.1 billion in 1975 to 3.5 billion in 2000, a failure to reduce the proportion living in poverty would result in the number increasing from 770 million in 1975 to 1300 million in 2000. Hence, the projected reduction to 600 million does represent improvement. But it remains unacceptably high. Now, what can be done to reduce this level of poverty? The World Bank does not have a full and complete answer to that question, nor do I know of anyone in the world who does. And that is why I urge that the Brandt Commission, the Development Committee, the UN Overview Committee, UNCTAD, the Development Assistance Commit- tee, and other international groups-and above all the individual developing countries themselves-each give serious and detailed attention to it. But even though no one yet has a fully comprehensive answer to the problem of absolute poverty, I believe that within the present limits of our knowledge, each of the developing countries can-and should-set specific goals for its own society's direct attack on poverty; and that the international community, in the appropriate forums, should endorse those goals, and pledge the necessary support. As I have emphasized, such an attack on absolute poverty can only succeed in an environment of growth. And support from the international community-through further expansion of trade and more adequate capital flows-is essential if optimum growth rates are to be achieved. But though growth is an absolutely necessary condition for reducing poverty, it is not in itself a sufficient condition. For growth cannot help the poor unless it reaches the poor. It does not reach the poor sufficiently today, and hence the developing countries themselves must both: * Modify the pattern of growth so as to raise the productivity of the poor; and * Improve the access of the poor to essential public services. In most developing countries, growth too often bypasses the absolute poor. They have only tenuous links to the organized market economy. They bThe population problem is, of course, a critical issue in itself, and last year, in a detailed statement, I examined its relationship to the overall development task. Cf. Address to the Massachusetts Insitute of Technology, Cambridge, April 28, 1977.

26 own few productive assets. They are often illiterate. They are frequently in poor health. And their meager incomes make it almost impossible for them to save and invest. But though the absolute poor have severe disadvantages, their human potential remains immense. Given a realistic opportunity, they will respond. For no less than anyone else, what they want most from life is an end to despair, a beginning of hope, and the promise of a better future for those they love. That is why any practical strategy to reduce absolute poverty must begin with the effort to assist the poor to become more productive. If they have land-even if only as tenants-that can be done through a whole range of measures. I have described these in detail elsewherea, and will discuss in a moment what our experience in the Bank has been over the past five years. If the poor are without land or other productive assets, then the strategy clearly must stress greater employment opportunity, particularly in the more labor-intensive sectors. It is not so much conventional joblessness that characterizes the lives of the absolute poor in the developing world-though that is bad enough- but rather jobs so grossly underproductive that they yield only minuscule incomes despite long hours of labor. And not only are the poor without adequate incomes, but they are without equitable access to essential public services: to clean water, to basic education, to preventative medical care, to electricity, to public transportation-to those services fundamental to their health and productivity. Since most of these services cannot be privately purchased by the poor, they must be expanded through government programs as a key element in a practical strategy to reduce poverty. Now, I am not suggesting that any of this is easy to do. It is not. What I am suggesting is that absolute poverty can never be eliminated simply by traditional welfare. And the reason is obvious. No feasible redistribution of already inadequate national income in a developing society is, by itself, going to be enough to wipe out poverty. There must be growth in that income, and the poor must be enabled both to contribute more productively to that growth, and to participate more equitably in its benefits. The tragedy of the absolute poor in most developing societies is that they remain largely outside the entire development process. They must be brought more fully into it. That can only be done by the individual developing countries themselves. Conditions clearly differ from society to society, but what is essential is that governments: * Formulate attainable anti-poverty objectives at national, regional, and local levels;

'Address to the Board of Governors of The World Bank, Nairobi, 1973.

27 * Define clear operational programs, and institutional policies, for achievement of the objectives within specific time periods; and * Determine the level of resources required to meet the minimum goals. Unless such practical steps are taken by the governments in developing societies, the hope to reduce absolute poverty simply cannot be translated into effective action. Certainly no external development agency-no matter how helpful- can substitute for the internal political resolve necessary to take these steps. But once that firm resolve is evident, then the international community must support these politically difficult decisions with comparable courage and generosity. The mandate of the World Bank is, of course, to assist our developing member countries in their overall development tasks-including their attack on absolute poverty-and I would like to turn now to a discussion of the Bank's program.

VII. THE PROGRAM OF THE WORLD BANK The capacity of the World Bank itself to help accelerate growth and reduce poverty in the developing countries will depend chiefly on two key decisions which our member governments must take in the near future. These concern: * The General Capital Increase of the IBRD; and * The Sixth Replenishment of IDA's resources. The General Capital Increase will determine the scale of IBRD commitments over the next several years. Without an increase, the IBRD will be forced to cut the lending program planned for the next fiscal year from $7.6 billion to about $6.0 billion". And in future years, new commitments could not exceed $6.0 billion in nominal terms. In real terms, they would, of course, decline by about 6% per year: a major reversal of the 5% per annum increase assumed in the growth projections for the developing countries. The case for a General Capital Increase is straightforward and compelling. The IBRD is now the largest single source of official development finance. To curtail its lending program in the present circumstances would mean that the developing countries would be faced with a critical dilemma: either they would have to reduce their growth rates, or they would have to increase still further their dependence on potentially volatile private capital flows. Neither alternative is in the interest of the world community. A year ago, I reported to you on the consensus which had emerged, first at the London Summit Meeting, and subsequently at the CIEC meetings in Paris. This consensus clearly favored a General Capital Increase aThe reduction in lending to a level of $6.0 billionz per year would be necessary to ensure that in later years the total amount of loans outstanding would not exceed the total of capial and reserves as requiired by he Aricles of Agreemenit.

28 sufficiently large to support substantial real growth in IBRD lending for the next several years. After the meeting of the Governors last year, the Executive Directors held a series of informal discussions on the future role of the IBRD. These discussions revealed broad support for a real rate of growth of lending in the range of 5%-and it is for that reason that such a rate was built into the projections. While no attempt was made in these informal discussions to reach agreement on a specific figure for the General Capital increase, the positions taken on the desirable rate of growth, and on other issues affecting capital requirements, implied an increase of between $30 and $40 billiona. Contrary to the hope expressed a year ago, these informal discussions did not lead to a formal agreement in the Board before the end of the fiscal year. Fortunately, the delay in reaching formal agreement has not yet caused any serious penalty to IBRD borrowers. The Executive Di- rectors authorized continued work on the $6.8 billion of IBRD lending previously planned for the present fiscal year, as well as the $7.6 billion planned for FY1980. They did, however, make this approval subject to review at the end of this calendar year. If agreement on the General Capital Increase has not been reached by, say, January of 1979, it will become very difficult to avoid taking steps which would impose real and lasting penalties on IBRD borrowers. In particular, as I have pointed out, the number of operations and the amount of lending scheduled for FY1980 and FY1981 would have to be reduced. Such a setback to the progress of our developing member countries can and must be avoided. The whole range of issues involved in the General Increase has been closely examined and discussed in the two and a half years that have passed since the Executive Directors approved the Selective Increase. And political support for a General Increase has been repeatedly affirmed at the highest levels of government. What remains is to spell out the specifics, and to do so promptly. I believe it is both realistic and highly desirable to seek formal agreement in the Bank's Board on the size of the General Capial Increase no later than January of next year. The next few months will also see the start of the negotiations for the Sixth Replenishment of IDA. The first meeting for that purpose should be held before the end of this calendar year. Although the funds provided under the Fifth Replenishment will not be fully committed until June 1980, the long lead time required to reach a negotiated agreement, and to secure legislative approval, makes it essential that the negotiating process begin soon. The precise level of the Sixth Replenishment will, of course, be a matter

'A capital increase of this size would have relatively little budgetary impact on member countries, 90% would be represented by "callable capital," a contingent liability, which we expect would never hate to be drawn upon and which serves, in effect, as a gutarantee to IBRD's creditors.

29 for negotiation among member governments. I would hope, however, that in view of the critical need of the poorest developing countries for more adequate flows of concessional assistance, all our member governments will support a level that will provide for a substantial increase in IDA's commitment authority in real terms. Approval of a realistic Sixth Replenishment and General Capital In- crease, together with the increase in capital recently authorized for IFC, will give the World Bank a solid financial base for its operations for some years to come. Before describing the size and wider significance of the World Bank's financial contribution, however, I want to report briefly on where we stand in our efforts to assist in reducing absolute poverty by directing an increasing share of our total lending to projects which directly boost the productivity of the rural and urban poor.

Efforts to Attack Absolute Poverty: Progress Report Five years ago at our meeting in Nairobi, I outlined a strategy for attacking absolute poverty in the rural areas. This strategy focused on the more than 100 million subsistence farmers and their families. One element of this strategy was expanded World Bank lending. Our specific goal was to increase agricultural lending by at least 40% in real terms in the five-year period FY74-78 as compared with the previous five years. Within the context of expanding the overall agricultural program, we proposed to give greater emphasis to projects expressly designed to increase the productivity of low-income farmers, most of whom farm two hectares or less. The target was to have at least 70% of all our Bank agricultural loans contain a specific component for the smallholder. Each of these goals has been achieved. Not only achieved, but exceeded. In real terms, our lending for agriculture and rural development projects over the five-year period just ended, as compared with the previous five years, was up not merely by 40%-but by 145 %. Further, fully 75% of the 363 agricultural projects approved over the five-year period contained a component specifically addressed to the needs of the small farmer. There were, in fact, over 200 projects in which more than half of the direct benefits were expected to accrue to the rural poor. In total, they will increase the incomes-in most cases, by at least 100%- of over ten million poor families. The ultimate standard, of course, for judging the success or failure of these efforts is not the benefits projected at the time the loan is approved, but the benefits actually achieved in the field. We have been monitoring these projects very carefully. Because they are designed to produce progressive improvements over a period of years, it is still too early to form definitive judgments on most of them. They are breaking new ground, and we must expect some failures. But I can attest from personal observation in a number of countries that these "new style" projects can tangibly benefit the lives of literally hundreds of

30 thousands of poor farm families. Our experience with these investments supports the assumption that in low-income countries it should be possible to double the agricultural growth rate, raising it from 1.5% to 3% per annum. The Bank's efforts to assist the urban poor are at a much earlier stage, and on a much smaller scale. We have very far to go, but we are making progress. Two years ago at Manila, I expressed the hope that the Bank would be able to finance 50 urban projects during the FY76-80 period. It now looks as though we will meet, or possibly even exceed, that target. During the next two years we expect to process an average of more than 15 such projects per year, as compared with two or three a year in the mid-1970s. I also pointed out at Manila that we would be expanding and redirecting our investment in other sectors in order to increase earning opportunities in the urban areas. We developed guidelines with the goal that by 1981 at least one-third of the lending we do through industrial development finance institutions should directly benefit the urban poor. That goal, too, now seems within reach. As we widen our operational experience, we will learn a great deal more about what works best in expanding employment. The traditional labor-intensive sub-sectors of manufacturing-clothing, textiles, leather, light engineering, and certain kinds of machine tools-are obviously important in creating jobs, but they will have to be supplemented by other approaches as well. Recent projects, for example, have been directed at stimulating the construction industry-which can be very labor intensive- as well as artisan activities and cottage industries. The need for more jobs is critical. The cities of the developing world are expanding at runaway rates. The combination of high natural population growth and accelerating migration from the countryside will add well over a billion people to the urban labor pool by the end of the century. It is obvious that on any reasonable calculation the developing countries are going to have to make massive investments if these individuals are to find productive employment. It is sometimes argued that the costs will simply be too high; that the world just cannot afford it. But the truth is really the other way around. What the world cannot afford is procrastination and delay while dangerous social pressures build. The Bank, for its part, is determined to move forward vigorously in this sector, and to seek new and more effective solutions to the growing urban crisis. The Bank's effort in this matter is, of course, only one part of its overall financial program, which I would like now briefly to review.

Scale of Operations Last year I reported that World Bank commitments for the year ending June 1978 were expected to reach $8.7 billion, and that the level of net capital flows-Bank disbursements less repayments by borrowing member countries-was expected to be just under $4 billion.

31 Table VII-World Bank Group: Commitments and Disbursements (Billions of dollars)

Avg. per Avg. per Avg. per Year Year Year FY78 FY79 FY64-68 FY69-73 FY74-78 Actual Plan New Commitments IBRD .9 1.8 4.9 6.1 6.8 IDA .3 .8 1.6 2.3 2.8 IFC - .1 .2 .3 .4 Total-Current $ 1.2 2.7 6.7 8.7 10.0 -Constant FY78 $ 3.5 4.7 7.5 8.7 9.4

Net Disbursements IBRD .3 .6 1.7 1.9 2.5 IDA .3 .3 1.1 1.0 1.3 IFC - .1 .2 .2 .3 Total-Current $ .6 1.0 3.0 3.1 4.1 -Constant FY78 $ 1.6 1.9 3.3 3.1 3.8

No. of New Projects 71 152 242 277 294

Our commitments for the year turned out almost precisely as planned though in common with other official sources of finance our actual disbursements fell short of expectations. The net capital flows from the World Bank are, of course, a relatively small part of the total external capital received by the developing countries. But the World Bank's share in these flows understates its importance for a variety of reasons. First, and most directly, the Bank has increasingly associated its financing with loans from other sources, both official and private. In the fiscal year just completed, more than 80 IBRD and IDA projects and 35 IFC operations were carried out jointly with other lenders. The total finance committed by these other external sources in FY1978 was approximately $4.4 billion, or nearly three times the volume of just five years ago. In assessing the full impact of World Bank operations on the flow of external finance, one should also take account of the Bank's non-financial role. The Bank's economic reporting, its assistance in aid coordination, its continuing dialogue with borrowers on sectoral and macroeconomic policies and on the effectiveness of development expenditures-all these activities contribute to a favorable climate for more effective capital flows in general. As I emphasized earlier, the climate for capital flows is especially important for the private sector, which is now the source for roughly 60% of all medium- and long-term external finance. The commercial banks, in particular, play an indispensable role in channeling savings to the middle- income developing countries.

32 Governments must be sensitive to the need to provide a supportive environment for these flows, including the expansion of the lending programs of the World Bank, and the Regional Development Banks. And they should be prepared to consider whatever supplementary steps may be necessary in order to assure a more adequate level of such flows. Let me now summarize and conclude the central points I have made this morning.

VIII. SUMMARY AND CONCLUSIONS As one surveys the international development scene today, it is clear that there are two fundamental objectives that must command the priorities of us all. One is to accelerate overall economic growth in the developing countries, and the other is to reduce the massive dimensions of absolute poverty. In the World Development Report, 1978, the initial volume in a new annual series of World Bank analyses of economic and social progress in the developing world, these two issues are examined in detail. Based on a number of feasible-though admittedly optimistic-assumptions, projections for the period 1975-1985 indicate that the low-income countries could increase their overall growth rate from roughly 4% to about 5%, and that the middle-income countries could sustain their current growth of about 6%. These are not, however, predictions of what will actually happen. They are prospects which are far from certain. To achieve them, both the developing countries themselves, and the developed nations, must increase their efforts. The developing countries must, for example, mobilize even greater domestic savings than they do now. This will call for difficult reforms in a number of sensitive areas of public policy. Further, they must expand their export programs, and their agricultural productivity-which in the case of the low-income countries would mean doubling their current agricultural growth rates, raising them from 1.5% to 3.0% a year: a difficult but attainable goal. But if the developing countries were to do all this-as necessary as it is-they simply could not achieve the projected levels of economic growth without substantially greater support from the developed nations. That support is required, first of all, in the matter of trade. Just as the developing countries have begun to demonstrate their natural comparative advantage in certain labor-intensive manufactures, a new threat of protectionism is gathering momentum in the developed world. This is both inequitable and shortsighted since it denies the developing countries the only long-range economic strategy that can ultimately decrease their dependence on foreign assistance. Already the developing world constitutes an important and growing market for the exports of the industrialized nations, stimulating demand and helping to hasten their own economic recovery. But if the developing countries are to import even more goods and services from the OECD

33 nations-which they both need and want to do-then they must be allowed in return to export more to those same nations in order to earn the foreign exchange necessary to do so. In the end, excessive protectionism is self-defeating for everyone: for consumers, who are denied less expensive, and hence less inflationary, imports; and for producers, who are denied competitive access to expanding markets. What is required is a more rational framework of international trade that will reduce protectionism on both sides by promoting the dismantling of non-tariff barriers, and by broadening the scope of true comparative advantage. In the industrial countries this will require initiating adjustment procedures that can ease the shift of capital and labor away from marginal industries into more competitive and productive sectors. The expansion of international trade is, then, essential to the economic growth the developing countries so desperately need. Another requirement, particularly for the middle-income developing nations, is the continued assurance of adequate capital flows from both the multilateral financial institutions and the private capital markets. In the recession that followed the economic turbulence of the early 1970s, the middle-income countries had to rely on heavy borrowing abroad to maintain their development momentum. The international development institutions, and the commercial banks, responded to that need, and debt obligations rose swiftly. This was, on the whole, a very positive phenomenon, and assisted the recovery process in the developed as well as the developing nations. But as the debt grew, there began to be some anxiety that prudent levels might be exceeded. The World Bank has followed these developments closely and has concluded that the potential dangers lie not so much in the absolute amounts of the debt itself, but rather in a generally burdensome maturity structure and in liquidity problems that will affect a limited number of borrowers. It is essential that the middle-income developing countries continue to have available adequate flows of capital to finance their high-priority development projects, and prudent borrowing from the private capital markets is an indispensable ingredient in meeting that financial requirement. Whatever risk is inherent in the debt can be significantly reduced by three measures: lengthening the average maturities of the obligations, in part through more cofinancing between private sources and official development institutions; broadening the number of commercial banks, particularly in Japan and Europe, that engage in developing-world financing; and expanding the number of countries serviced by the private markets, thus diversifying their investment more widely. The case of the poorest developing countries is quite a different issue. These countries, because of their limited debt-servicing capacity, must of necessity depend on capital at concessional terms, and are in urgent need of greater Official Development Assistance. If the poorest countries are to attain the very modest economic growth levels projected for the period 1975-1985, there must be an end to the

34 virtual stagnation in ODA flows, and an increase of at least 5% a year in real terms. Though some of the smaller countries of the Development Assistance Committee have made a strong showing, the overall trend in Official De- velopment Assistance is very disappointing. In relation to combined GNP, ODA has declined from .52% in 1960 to .31 % in 1977. This is due chiefly to the poor performance of three of the most affluent DAC member countries, none of whom has reached even half the United Nations' .7% target, and all of whom have lagged further and further behind since 1970. All three of these nations have recently pledged to reverse this trend, but these statements-as welcome as they are-have yet to be translated into action. Unless very substantial increases in commitments-more than sufficient to keep pace with inflation and growth of GNP-are undertaken in the next year, and regularly thereafter, the poorest nations simply have no chance to reach their growth prospects. But increasing economic growth-as essential as it is-is not the sole objective of the development task. Reducing the massive and cruel dimensions of absolute poverty is equally imperative. And it is here that the World Development Report comes to its most shocking conclusion: that even if the growth rates projected for the developing countries were to be achieved by 1985-which is by no means certain-and even if that growth were to continue for another 15 years, it seems likely that at the end of the century there would still remain some 600 million individuals trapped in absolute poverty. That is intolerable. And it argues for intensifying our efforts both to understand the internal dynamics of poverty more clearly, and to design practical anti-poverty strategies that will work. Clearly what will not work is mere traditional welfare-redistribution of an already inadequate national income. The only feasible hope of reducing poverty is to assist the poor to become more productive. Each developing society must formulate specific anti-poverty objectives at national, regional, and local levels; prepare operational programs to attain those objectives over a reasonable time; and determine the level of resources required to meet the minimum goals. Such programs will, of course, cut across many entrenched interests in the developing countries, and will require sustained political courage to implement. If such actions are to succeed, the developed nations, and the international community, must exercise comparable political courage in committing generous assistance to support them. The experience of the World Bank itself over the past five years demon- strates that all of this can work. The progress of our new projects in both the countryside and the cities, designed to enhance the productivity of the poor, is extremely encouraging. But the Bank's capacity to broaden those particular efforts, as well as to further its overall program of development assistance-and it is now the largest single source of that assistance in the world-will depend on the prompt resolution of two paramount issues.

35 One is the decision to move ahead with the IBRD's General Capital Increase. The other is the Sixth Replenishment of IDA's resources. Without an agreement within the next few months to implement the General Capital Increase, IBRD's borrowers will inevitably suffer a real and lasting penalty: the lending program for the next fiscal year will have to be cut sharply from $7.6 billion to $5.9 billion; and in future years new commitments will have to be cut progressively about 6% a year in real terms. As our developing member countries will readily confirm, their circumstances today do not justify a decline in the World Bank's ability to help them, but rather an increase. That is true of our IBRD borrowers. And it is true, of course, for our poorest member countries who depend on continuing concessional assistance through IDA. Approval of the Sixth Replenishment which would allow for substantial growth in commitment authority in real terms, along with the General Capital Increase, will-together with the recent increase in capital for IFC-give the World Bank the financial foundation it will need over the next several years. Those years will clearly demand a more determined effort from us all if the central goals of development-sustained economic growth, and the reduction of absolute poverty-are to have any realistic chance of succeeding. We must be candid about the choices that confront us. There are no easy alternatives. But to relax in the development effort, to lose momentum, to procras- tinate, to let problems fester and grow worse-that choice can benefit neither us, nor those others who must follow after us. We know who those others are. They are our children. Will their world be more rational, more compassionate, more peaceful, more human? That choice is more ours than theirs. For the options are closing, and the inevitable chain of consequences is already underway. The time, then, to act is now. It is an opportunity that will not return.

36 ANNEX I

Capital Flows to and Debt Status of the Poorest Nationsa (In billions of current US$)

1970 1975 1976" 1977' 1980d 19854

Current Account Deficit before Interest Payments 2.4 6.5 3.3 1.7 8.5 13.1 Interest Payments .4 .8 1.0 1.3 2.3 3.6 Changes in Reserves, Short- Term Debt and Errors and Omissions - .1 1.5 3.1 3.3 1.2 4.6 Total to be Financed 2.7 8.8 7.4 6.3 12.0 21.3 Financed by Medium- and Long-Term Capital from: Public Sources (including Grants) 2.4 5.8 5.0 5.2 11.6 19.7 Private Sourcesb .3 3.0 2.4 1.1 .4 1.6 Total Net Capital Flows: Current $ 2.7 8.8 7.4 6.3 12.0 21.3 1977 $ 5.0 9.9 8.0 6.3 9.7 12.2 Outstanding Medium- and Long-Term Debt: Public Sources 14.5 27.0 30.8 35.4 52.8 104.0 Private Sources 1.4 7.2 9.0 9.2 14.0 8.5 Total: Current $ 15.9 34.2 39.8 44.6 66.8 112.5 1977 $ 29.6 38.3 43.1 44.6 53.8 64.5 Debt Service: Interest Payments .4 .8 1.0 1.3 2.3 3.6 Debt Amortization .7 1.5 1.7 2.4 5.1 5.1 Interest Payments as % of GNP .4 .4 .6 .6 .8 .6 Debt Service as % of Exports 14.5 11.2 11.4 12.7 17.4 11.9 Price Deflator 53.8 89.3 92.3 100.0 124.2 174.3

'Countries with 1976 gross national product per person of US$250 and below, mainly in Africa and Asia. 'Includes "Direct Foreign Investment." 11976 and 1977 data are based on IMF sources. dThe data for 1980 and 1985 are projections of current account deficits and capital flows. They are not predictions of what may actually happen.

37 ANNEX II

Capital Flows to and Debt Status of the Middle-Income Developing Countries' (In billions of current US$)

1970 1975 1976' 1977c 1 9 8 0d 1985d Current Account Deficit before Interest Payments 7.9 31.6 17.2 14.0 29.5 70.3 Interest Payments 2.1 7.6 8.5 10.7 18.2 33.7 Changes in Reserves, Short- Term Debt and Errors and Omissions .2 -1.9 9.4 20.2e 2.2 7.2 Total to be Financed 10.2 37.3 35.1 44.9 49.9 111.2 Financed by Medium- and Long- Term Capital from: Public Sources (including Grants) 3.3 11.3 10.7 14.0 20.6 31.2 Private Sourcesb 6.9 26.0 24.4 30.9 29.3 80.0 Total Net Capital Flows: Current $ 10.2 37.3 35.1 44.9 49.9 111.2 1977 $ 19.0 41.8 38.0 44.9 40.2 63.8 Outstanding Medium- and Long-Term Debt: Public Sources 20.5 44.4 51.4 61.9 99.4 186.3 Private Sources 15.9 83.5 106.0 134.0 169.5 349.8 Total: Current $ 36.4 127.9 157.4 195.9 268.9 536.1 1977 $ 67.7 143.2 170.5 195.9 216.5 307.6 Debt Service: Interest Payments 2.1 7.6 8.5 10.7 18.2 33.7 Debt Amortization 5.3 14.3 16.6 22.7 47.1 102.8 Interest Payments as % of GNP .7 1.0 1.0 1.1 1.2 1.2 Debt Service as % of Exports 15.6 11.8 11.5 13.3 19.0 22.0 Price Deflator 53.8 89.3 92.3 100.0 124.2 174.3 'Developing countries with 1976 gross national product per person above US$250, including Southern European countries and excluding capital surplus oil exporters. blncludes "Direct Foreign Investments." 11976 and 1977 data are based on IMF sources. dThe data for 1980 and 1985 are projections of current account deficits and capital flows. They are not predictions of what may actually happen. 'Includes an increase in Reserves of $11 billion and a reduction in Short-Term Debt of $0.5 billion.

38 ANNEX III

Flow of Official Development Assistance from Development Assistance Committee Members Measured as a Percentage of Gross National Product'

1960 1965 1970 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 .38 .53 .59 .60 .42 .45 .46 .47 .48 .49 .50 .50 .50 .50 Australia .30 .30 .30 .30 Austria .11 .07 .17 .12 .24 .26 .27 .28 .29 .88 .60 .46 .59 .51 .46 .50 .53 .56 .59 .62 .65 .65 .65 Belgium .55 .56 .56 .56 .56 Canada .19 .19 .42 .55 .46 .51 .53 .54 .54 .09 .13 .38 .58 .56 .60 .67 .70 .72 .74 .75 .75 .75 .75 Denmark .20 .20 .20 .20 Finland" .02 .07 .18 .18 .17 .17 .18 .19 .19 1.38 .76 .66 .62 .62 .63 .64 .64 .64 .65 .65 .65 .65 .65 France .33 .33 .33 .33 Germany .31 .40 .32 .40 .31 .27 .30 .30 .31 .32 .22 .10 .16 .11 .13 .09 .11 .11 .10 .10 .11 .11 .11 .11 Italy .25 .25 .25 .25 Japan .24 .27 .23 .23 .20 .21 .21 .22 .24 .24 .31 .36 .61 .75 .82 .85 .90 .96 .99 1.00 1.00 1.00 1.00 1.00 Netherlands .30 .32 .32 .32 New Zealand' .23 .52 .51 .35 .33 .32 .30 .30 .11 .16 .32 .66 .70 .82 .91 .96 .98 1.00 1.02 1.03 1.03 1.03 Norway 1.03 1.03 1.03 1.03 Sweden .05 .19 .38 .82 .82 .99 .97 .99 1.00 1.02 .04 .09 .15 .19 .19 .19 .18 .19 .19 .19 .20 .20 .20 .20 Switzerland .42 .42 .42 .42 United Kingdom .56 .47 .36 .37 .38 .38 .38 .38 .39 .41 .22 .23 .24 .24 .24 .24 United States' .53 .49 .31 .26 .25 .22 .23 .22 GRAND TOTAL ODA ($b-Nominal 30.0 33.6 37.5 41.8 Prices) 4.6 5.9 6.8 13.6 13.7 14.8 18.0 20.3 23.0 26.3 ODA ($b-Constant 19.9 20.8 21.7 22.6 1977 Prices) 12.2 14.1 14.4 15.2 14.8 14.8 15.8 16.5 17.5 18.7 GNP (St-Nominal 11.9 0.9 1.3 2.0 3.8 4.2 4.7 5.5 6.2 6.9 7.7 8.6 9.6 10.7 Prices) .35 .35 .35 as % GNP .52 .44 .34 .36 .33 .31 .33 .33 .33 .34 .35 ODA 1.41 1.51 1.62 1.73 1.85 ODA Deflator' .38 .42 .47 .90 .92 1.00 1.14 1.23 1.32 OECD and World Bank esti- 'Figures for 1977 and earlier years are based on actual data. Those for 1978-85 are based on information on budget appropriations for aid, and on aid policy statements by governments. mates of growth of GNP, on is taken. They are projections, not predictions, of what will occur unless action not now planned 1975. 'Finland became a member of DAC in January for 1960 and 1965. 'New Zealand became a member of DAC in 1973. ODA figures for New Zealand are not available of the Marshall Plan, US Official Development Assistance amounted to 2.79% of GNP. 1In 1949, at the beginning the same as those for GNP. -The deflator series includes the effects of changes in exchange rates. After 1975 deflators are

39 REPORT BY CESAR E. A. VIRATA CHAIRMAN OF THE JOINT MINISTERIAL COMMITTEE OF THE BOARDS OF GOVERNORS ON THE TRANSFER OF REAL RESOURCES TO DEVELOPING COUNTRIES (DEVELOPMENT COMMITTEE)

I am pleased to be able to report on our common endeavors in the De- velopment Committee. As our Annual Report has already been presented to you, I do not propose to offer any detailed review of last year's activities. The Committee held its last meeting on Saturday, September 23, in the background of the world economic situation. Progress has been made in overcoming some of the serious difficulties created by the crisis of the events of 1973, but we are still left with problems arising from slow recovery of the industrial countries, high rates of unemployment, increasing protectionism, widespread inflation, fluctuations in export earnings, stagnation of aid flows and uncertainty on the required volume of private capital on which the developing countries are critically dependent for their future growth prospects. The Committee at our recent meeting had concentrated discussion on two substantive items on its agenda, namely the World Development Report and the study on stabilization of export earnings. There was great appreciation for the initiative taken by the World Bank in presenting an extremely valuable report and Members welcomed the idea that such an analysis would be presented annually to provide a framework for their discussion on major policy issues of concern to them which require attention. The Committee focused its discussion on some four key policy areas arising from the analysis of the World Development Report, including: (i) trade and the importance of resisting protectionist pressures; while instituting structural adjustment measures; (ii) the need to increase concessional resource transfers to the poorest countries; (iii) the requirements for commercial flows of capital and other resources; and (iv) the role of developing country domestic policies to assure sustained growth and the effective use of resources. The analysis of the report reveals the close and growing interdependence of the industrial and developing countries and the mutuality of interests among them. This recognition makes it imperative that their policies be harmonized and be made fully responsive to the needs of the world as a whole. There was recognition of the role of international trade in maintaining a healthy world economy. In this context, great concern was expressed by Members on the growing trend toward protectionism and the urgent need to resist such pressure and progressively reduce the barriers which are now in existence. Politically appealing and offering short-term advantages, protectionism can indeed in the end prove extremely harmful to all insofar

40 as it inhibits structural changes, fuels inflation and restricts growth of the world economy. The future growth of developing countries is dependent as much on their own domestic policies as it is on the availability of concessional and non-concessional external capital flows on appropriate terms and scale consistent with their requirements. As was described in my summary at the conclusion of our meeting, all the critical elements of development were discussed and duly stressed for the attainment of the growth objectives which we all share. In this context the role played by international financial institutions was warmly acknowledged and it was stressed that decisions should be reached quickly on an appropriate increase of the capital of the World Bank and the regional banks. The Members also pressed for early commencement of negotiations for IDA VI with the objective of increasing its resources substantially in real terms. There were expressions of deep concern that despite the projected rapid growth in middle-income developing countries, and a potential acceleration of growth in the low-income countries, the most disquieting projection in the Report was that almost 600 million people would still be living in absolute poverty by the end of this century. This is an unacceptable waste and an affront to the international community's obligation to humanity. We must move forward together with major changes by the industrialized countries-in such areas as trade liberalization, industrial adjustment measures promoting growth, increased financial assistance and capital flows- and by the developing countries in such areas as mobilizing savings, efforts to accelerate agricultural growth, stimulating exports, and formulating specific programs to alleviate poverty. The Committee also considered a Fund/Bank staff report on the subject of stabilization of export earnings which reviewed the current compensatory facilities, especially the compensatory financing facility of the Fund and the EEC stabilization of export earnings scheme designed to help countries maintain foreign exchange receipts which are adversely affected by fluctuations in commodity prices. The Committee endorsed proposed improvements in the CFF of the Fund and agreed to study the scope for additional measures, especially a globalized stabilization of export earnings on the lines proposed by the Federal Republic of Germany and which was broadly supported by the Committee. In our discussion of the Committee's future work program, it was agreed that for enhanced effectiveness of the Committee it should concentrate on a limited number of topics, vital for development, with prospects of achieving positive results for both developed and developing countries and where the Committee had a comparative advantage to deal with them. The details of this program will be discussed during this week, but the topics which seem to meet with these criteria will include the World De- velopment Report, ODA flows, non-concessional private capital flows, including foreign private investment, the role of multilateral development institutions, some aspects of global STABEX and development of energy resources. We live in a fast changing world with its new demands and pressing

41 complex problems which require resolution. I am sure that we cannot afford to miss the opportunity to influence the future in a positive and progressive way. If we are to look for a smooth working of this increasingly interdependent world economy, we all need to act in unison and with strong political commitment before the problems are compounded through neglect or delay. It is here that a high level political forum like the De- velopment Committee can be a focal point in the structure of international economic cooperation and provide a political impetus to the resolution of the financial problems associated with the various facets of economic and social development.

42 STATEMENTS BY GOVERNORS AND ALTERNATE GOVERNORS'

AFGHANISTAN: ABDUL KARIM MEESAQ Governor of the Bank It is an honor for me to represent the Government of the Democratic Republic of Afghanistan at the 1978 Annual Meetings of the Boards of Governors of the World Bank and the International Monetary Fund. My delegation and I take this opportunity to express our deepest appreciation to the United States of America as the host country for the cordial and warm hospitality accorded to us, and for making such excellent preparations and furnishing all the necessary accommodation and facilities for the meeting of the World Bank and the International Monetary Fund. Our sincere thanks are also due to Mr. H. Johannes Witteveen, former Man- aging Director of the Fund, who, until the very last moment of his tenure in office, pursued on our behalf his heavy and highly important assignment for the benefit of all countries. Likewise we are grateful to Mr. McNamara, the President of the World Bank, and the Executive Directors and staff of both of these organizations who, within the context of their authority and responsibility, have rendered valuable services for the member countries last year. On this occasion we extend our congratulations to Mr. Jacques de Larosiere who has assumed recently the position of Managing Director of the Fund. We wish him all luck and success in pursuing his important assignment in the years to come. At this important economic meeting we speak not only for a poor and developing nation but for a landlocked and least developed country. We regret to say that the majority of our people still do not have the benefits of 'good education, medical care, food, clothing, and shelter which are minimally required by man in our era. It is further regrettable to note that these resentful and unacceptable characteristics are not exclusive to our society in Afghanistan, but they also characterize millions of other people who live in dire poverty in various other parts of the world. Mr. McNamara has rightly stated in his forwarding statement of the World Development Report, 1978 that: Some 800 million individuals continue to be trapped in what I have termed absolute poverty: a condition of life so characterized by malnutrition, illiteracy, disease, squalid surroundings, high infant mortality and low life expectancy as to be beneath any reasonable definition of human decency. It is imperative for human society to eradicate these problems with serious and earnest effort. Our efforts to this end must be practical, and not solely verbal and displayed by eloquent language and slogans. Deci-

passages are Comprising statements relating to the work of IBRD, IFC and IDA. Omitted FLnd are pro- indicated by dots (...). Statements relating to the International Monetary duced in the IMF Summary Proceedings.

43 sions which were taken in the First Development Decade (1960-70) by the international community should have, in fact, narrowed the gap between the rich and the poor countries. On the contrary, the rich and the industrial countries, contrary to the international decisions in which they themselves participated, instead of devoting I per cent of their gross national product to assist the developing countries, allotted only ½13 of I per cent of this fund. As predicted in the World Development Re- port 1978, this percentage may not be altered until 1985. In other words. the assisting industrial countries are not willing to allocate more than the 113 of I per cent of their gross national product to help underdeveloped countries, while demands of the underdeveloped countries for foreign assistance increases very rapidly. As predicted in the same World Development Report, despite optimism expressed with regard to the rising volume of exports in the underdeveloped countries, their demand for external financing will increase from $63 billion in 1975 to $276 billion in 1985, and half of these funds would be used for the repayment of loans and interest to advanced countries, while another 15 per cent would be used to meet additional costs of imports caused by higher prices in the industrial countries. Therefore, it seems clear that the volume of investment in the developing countries will have to remain at an abysmally low level for years to come. Another problem which the developing countries are faced with, which makes the implementation of their economic plans all the more difficult, is the absence of price stability of their exported raw materials. The un- predictable and severe fluctuations of foreign exchange rates of hard currencies in recent years make these problems even more acute, and according to the prediction made by the IMF, deficits in the balance of payments of the developing countries will reach a high point of $30 billion by the end of 1978. Although, with respect to all these issues-in other words, the flow of additional capital on easy terms to underdeveloped countries, price stability of their raw materials, and stability in foreign exchange rates, etc.-there have been prolonged and heated debates in the past several years, unfortunately, no firm decisions or practical measures have been taken. Consequently, the world economic situation is deteriorating further; poverty, disease, and illiteracy still remain at their previous high levels all over the world; and the gap between the rich and the poor countries in terms of their standards of living is still widening. It is now time for us to make a joint effort toward establishing such a world economic system as will ensure social justice and will bring about a complete eradication of poverty, disease, and illiteracy in the underdeveloped countries. Such a system, moreover, should reduce the heavy burden of foreign loans on the underdeveloped countries and accelerate their pace of capital investment in order to achieve a rapid economic growth. Un- doubtedly; the underdeveloped countries have the duty of improving their administrative, accounting, social, and judicial arrangements, so that funds which could be made available for them within the new world economic system would ensure maximum benefits to the majority of people and would minimize waste and abuse.

44 With respect to my own country, as all ladies and gentlemen here know, the victory of the glorious Revolution of April 27, 1978, resulted in the transfer of political power to the People's Democratic Party of Afghanistan, based on which, the present People's Government, representing the authority of the various strata of democratic people of Afghanistan, came into existence. The aim and objective of this Government is the class struggle of the toiling and working people against the exploiting groups in the hope that the exploited class will ultimately decide their own fate. The main duty of the Government of the Democratic Republic of Afghanistan is to create an independent and national economy to accelerate economic growth, to promote and modernize agriculture and animal husbandry, to establish and develop industry, and to raise the people's standard of living. This latter aim doubtless calls for dramatic changes in the social and economic spheres such as the following: 1. Land reform with the active participation of the peasants themselves for their own benefit, making arable fallow land and uncultivated land, expanding and improving irrigation networks, and finding a solution for the problem of pasture land; 2. Taking necessary and effective measures with respect to internal and external trade for the benefit of the people and the national interest of our country; 3. Strengthening the public sector by practical planning and the maintenance of effective command over our national resources and natural endowments; 4. Protection of domestic production against foreign competition; and promotion, protection, supervision, and guidance of private investment in small and medium-scale industries; 5. Promoting economic cooperation with friendly countries and attracting foreign loans without constraints for accelerating economic growth; 6. Fundamentally revising the government budget with respect to government revenues and expenditures with a view toward achieving better production, educational, medical, housing, and social welfare activities; 7. Revising the existing tax systems with a view to shifting the emphasis from indirect taxes to progressive direct taxes; 8. Establishing and controlling prices at suitable levels for the benefit of the people; 9. Providing free and obligatory general elementary education for all children of school age and creating all necessary conditions for the elimination of illiteracy; 10. Expanding free intermediate and advanced education as well as free vocational training necessary for the creation of the scientific and professional cadres needed by the economy; 11. Providing free medical services and engaging in an organized battle against various diseases, expanding the level of preventive and curative medication;

45 12. Maintaining equality between the rights of men and women in all social, economic, political, educational, and civil areas; and 13. Taking necessary and effective measures to eliminate unemployment, bribery, red tape, speculation, usury, and smuggling, and also fighting against hashish, opium, and other narcotics and harmful drugs. Although only four months have elapsed since the date of the glorious revolution in our country, within this brief period of time, a number of important activities have been undertaken in a revolutionary spirit in all facets of life. These activities are now moving in various directions in a sound and effective manner and with all possible speed. Our economic condition prior to the transfer of power to the People's Democratic Government was deteriorating and was heading toward absolute failure. With regard to the most important section of the Seven-Year Development Plan of the previous Government, which relied 80 per cent on foreign loans and assistance during the first and second years of Plan execution, even 50 per cent of the needed revenue was not provided and, naturally, not spent. For example, in the year 1355 (1976/77), out of 14.027 billion Afghanis allocated for capital investment, only Af 7.957 billion was actually spent. Similarly, in the year 1356 (1977/78) out of a total expenditure of Af 20.033 billion which was envisaged, only Af 9.2 billion was actually realized. Consequently one can say that the previous Seven-Year Plan was essentially no more than an imaginary and impractical exercise. At present, however, a group of experts and advisors has been assigned to formulate as rapidly as possible efficient plans to be implemented without any undue delay. The Ministry of Planning Affairs has already held fruitful discussions with various ambassadors and representatives of friendly nations regarding the possible flow of foreign assistance. A number of contracts have been also signed to receive foodstuffs for those homesteaders and landless people who are due to be settled on new agricultural projects. For example, agreement for an amount of $11,554,000 has been reached with the World Food Program; similarly, with regard to the fruit and vegetable project, an agreement with the World Bank has been signed for $18 million, and another agreement for $17 million has been signed with the World Bank for the construction, improving, and paving of roads. At the same time, regarding the rural development project, agreement is being reached with the World Bank for the erection of grain storage facilities and related activities in the Ghazni and Wardak areas. These projects will soon reach their final stages. Necessary steps have also been taken by the United Nations Develop- ment Program to give new life to rehabilitation centers for drug addicts in Badakshan. Agreement has also been reached with the United Nations Development Program relating to assistance amounting to $52 million to finance some of the projects. With respect to loans from the Asian Development Bank, necessary actions have been taken in the following areas: (a) A contract concerning a feasibility study for 7 technical schools has been signed.

46 (b) The development project of Nahr-e-Saraj which would provide adequate water for 18,900 hectares of land. (c) Study of the Khanabad electricity project. (d) Construction of the cotton-ginning plant in Kunduz. Negotiations with Japan are currently in progress for the construction of a rice cultivation promotion center and for the construction of a TB institute which may be financed with grant-aid of 750 million Japanese yen. The population census project is currently in hand. Good progress is being made on it, making it possible that within a period of less than a year other related works on it will be actually started. While some other friendly countries have also promised their cooperation, the Five-Year Plan of the present Government is based on actual facts and realities with very little reliance on mere promises. Our external financial position has noticeably improved in the past few months, and our international reserves have been further strengthened. Our aim to strengthen our foreign exchange reserves is based on our policy of stabilizing the value of the Afghani. This policy has already been put into effect by our Government, and through direct intervention of the Central Bank in the foreign exchange market, we have been able to prevent the value of the Afghani from rising further. Thereby we have been able to eliminate the adverse effects of foreign exchange depreciation on our exports, which have already suffered due to lower prices of primary raw materials in the international market. It should be mentioned that our international reserves in comparison with previous years have risen in relative terms. However, if we keep in mind our country's foreign indebtedness, which amounts to Af 95 billion, and the fact that each year we will pay nearly Af 21/2 billion in interest and loan repayments, then it is clear that the adequacy of even the entirety of our foreign exchange reserves to meet even a small portion of our international obligations is highly questionable. In viewing our rising commitment for the repayment of loans, and considering the possibility of there being no improvement in the international prices of our major export commodities, it appears that the prospect for our balance of payments is gloomy for the coming years. Furthermore, due to unfavorable climatic conditions such as floods and untimely rains which have inflicted heavy damages on our agricultural output, we are obliged to make additional payments for the import of foodstuffs. These additional elements force us to rely to an even greater extent on foreign technical and financial assistance on favorable terms from friendly countries and international agencies. Of course, these additional sources by no means release us from the already heavy burden of providing food, clothing, and shelter for all the people of our country in the context of our domestic programs and through our revolutionary efforts. Because countries of the world nowadays are more than ever before tied to and related with each other, no country in the world can survive in dire isolation and autarchy. Recognizing this fact, we earnestly appreciate the efforts and help of international agencies, notably the World Bank

47 and the IMF, to solve the economic problems of our countries. Needless to say, on our part, we are prepared to support all sincere and tireless efforts of these international bodies to this end.

AUSTRALIA: ERIC L. ROBINSON Governor of the Bank and Fund First of all, on behalf of the Australian Government, I warmly welcome the new members-the Solomon Islands, Suriname, and Maldives. Our congratulations go to Mr. de Larosiere on his appointment as Managing Director of the Fund. Our meetings are considering a wide range of issues, but the general world economic situation is the central factor underlying all issues. It would be easy to be despondent about the situation. Economic growth in major countries over the past year has been moderate rather than rapid. Unemployment and inflation have remained too high. Protectionist trends are a worry. The external positions of a number of countries are still of some concern. The tendency still exists for short-term solutions without regard to longer-term implications. Some improvement is none the less emerging. We should not be deceived into thinking that some progress is no progress at all. The Australian Government has always believed that correction of imbalances within and between economies would take time. Results have been achieved, yet there is a considerable way to go. The need for firmness in adhering to anti-inflationary policies is crucial. Of course, it should not be overlooked that economic growth in many countries is continuing at a rate not so far below the 1960 and early 1970 averages. Unfortunately, this growth has not been accompanied by a reduction in unemployment. This is a problem for us all. The Australian Government believes that a reduction in inflation is a precondition to a sustainable reduction in unemployment. Real wages must be brought into better balance with productivity. Private enterprise must be encouraged. This inevitably means for many of us that government expenditures have to be reined in. The ex- travagances of the past cannot be allowed to continue. Policies designed to raise private investment must be pursued. This is a world gathering and success can only come from mutual understanding and cooperation. If we can reduce inflation and overcome the associated distortions, the foundations for stronger growth will be laid, and when this occurs a more balanced international monetary situation and an easing of protectionism can be expected. Policy settings will, of course, have to take account of the differing circumstances of individual countries. However, internal decisions, if pursued in a spirit of cooperation, should not be to the detriment of other countries. In many ways, Australia shares certain characteristics with both industrial countries and developing countries. Perhaps we are an interesting case to study.

48 Our efforts to overcome the severe economic problems of recent years have been based on the fundamental belief that the control and reduction of inflation provide a foundation for better times. We do not pretend that this approach provides an easy answer. There is no easy answer. We are convinced, however, that we are restoring the preconditions needed for sustained economic growth. Australia's policies embrace firm control and reduction in the rate of growth of government expenditure, restricting the growth of the money supply, being responsible in the wages area, external policy which is consistent with the thrust of domestic policy, and, above all, not sacrificing economic temperance for short-term political advantage. These policies have reduced inflation from an annual rate in excess of 13 per cent to about 7 per cent. This is below the present average for OECD countries. An even stronger position will be achieved by the middle of 1979. This progress against inflation has led to a start in the reduction of interest rates and a clear revival in business investment spending. We are seeing also an improved rate of private capital flows to us. Further progress is needed on the wages front to correct the imbalance in the labor market, but we are moving in the right direction. I turn now to specific Fund and Bank matters...... The World Bank is essentially the pivot of the development assistance process. We are concerned about the problems facing developing countries, particularly the poorer ones. We appreciate the Bank's response to these problems and wish to support it to the greatest extent possible. Australia for its part has supported the principle that the Bank's resources should be expanded sufficiently to enable its lending to increase in real terms. We also support the replenishment of IDA resources to provide for an increase in real terms. Aid continues to be vital, particularly for the poorer countries. Aus- tralia's ODA will increase by close to 9 per cent in 1978/79, despite the stringent restraints imposed on our total budget outlays. Furthermore, the kind of aid is probably as important as its volume. The Australian Government is acutely conscious of the need for quality in its development assistance. Our aid allocation is given as grants and some 80 per cent of it is untied. Recently we have made further innovations with respect to meeting local costs and in untying. The Development Committee has just completed a useful discussion on the World Development Report, 1978. The report makes an important contribution by identifying the major issues that will bear heavily on the development prospects in the future. We welcome the report's recognition of the crucial role of domestic policies in developing countries. About 80 per cent of resources devoted to development within developing countries is generated by them. Sound domestic policies also maximize benefits from improvement in international trade. Australia knows well the frustrations of exporters where there are unreasonable restrictions on trade, and consistently subscribes to the need for restrictions on all trade to be reduced. This would benefit both developing and developed countries. It is natural and proper that we devote a good deal of attention to insti-

49 tutional issues in our search for improvements in welfare of our member countries. Both developed and developing countries stand to benefit greatly if we combine our own national efforts with continuing cooperation in institutions such as the Fund and World Bank Group. Meetings such as this provide an excellent opportunity for us to have frank discussions and hopefully find the right solutions. This year we have certainly made real progress. Australia will continue to cooperate actively in an enthusiastic and energetic way.

AUSTRIA: HANNES ANDROSCH Governor of the Bank I wish to join my fellow speakers in welcoming the Governors of Maldives, Suriname and the Solomon Islands to our community. I am also very glad to greet Mr. de Larosiere as the new Managing Director of the Fund and to extend to him our warm good wishes for the performance of his difficult task. Also, I should like to express my gratitude to the Govern- ment of the United States for the hospitality offered to us and my appreciation of President Carter's inspiring address. Analyzing the present economic situation we have to admit that only little progress has been achieved since our last year's meetings. Economic performance has continued to differ widely not only among industrial countries with inflation rates ranging from almost zero to double digit figures, real growth recorded between 11/2 and 6 per cent, still far too high external imbalances and, above all, an intolerably large number of unemployed. However, trends in jobless rates in industrial countries are showing significant differences that can be mainly attributed to cyclical factors. Al- though taking into account the difficult task and realizing that progress has been achieved I cannot but observe that in the past 5 years we have expressed our concern about the adverse economic developments and the situation has not improved, neither in the industrial nor in the developing world. Especially the existing unemployment is not only a deplorable waste of resources, but above all it deprives millions of people of basic human rights. As a consequence, we have to face a serious threat to our political institutions from those who rightly do not feel themselves properly represented within this system. It is very probable that serious mistakes in the political and economic decision-making have added to, if not caused, the difficulties we have been experiencing since the increase in the oil price. In addition, misconceptions about the usefulness and scope of certain instruments have also contributed to it. In this context, we have to recognize the limited effects of global fiscal policies, especially in view of the fact that the disaggregated entities such as costs, prices and profits do no longer correlate to each other. Politically speaking, historical evidence

50 leads to the assumption that the lack of convincing leadership may also have had its share in the present situation. I am, therefore, particularly glad about the unanimous political decisions reached in the Interim Com- mittee on Sunday. Because they not only are important for the international community per se but constitute an important follow-up to the decisions reached in Bremen and Bonn...... Speaking about my own country's economic performance, I may say that the development, not only since last year, has not been unsuccessful. Although, or should I say, because last year's forecast for 1978 did not look too good, by the end of this year, however, we will have achieved considerable improvements in nearly every respect: The GNP in real terms will be about 2 per cent, employment has reached the record high of 2.8 million with a constantly low rate of joblessness of 2.1 per cent and, what seems to me of utmost importance, with complete absence of youth unemployment. Inflation rate is down at 3.5 per cent and the prospects for 1979 do not look any worse. In 1977, the external imbalance, which had occurred after successfully fighting recession, constituted certainly Austria's most urgent problem, mainly stemming from two factors: (1) Geopolitically, Austria is located in the periphery of both the Western industrialized as well as the COMECON states, and (2) unlike most of the industrialized countries within the OECD, Austria's economic policy has been primarily aimed at maintaining full employment. Thus, my country's internal demand has been quite strong over the past years. This trend was aggravated by the fact that foreign producers stepped up their efforts to sell their goods on Austrian markets to offset losses they suffered from weak demand in their own countries. This buoyant Austrian demand contributed to the international economic recovery without having an adequate increase in exports of goods and services. Trade figures for the first 7 months of this year tend to indicate that at the end of 1977, not least because of far-reaching measures to influence the underlying economic conditions, the downward trend in our external balance may have been reversed. Exports in volume are up by 8 per cent compared to 4 per cent on an international average. Thus, we are confident to be able to reduce our trade deficit by one fifth and the current account deficit by almost two thirds. In view of this development, we must not overlook the fact that Austria's monetary policy has been directed to maintain the schilling as a strong currency. The results can now be seen in a low inflation rate, structural changes and, therefore, a satisfactory export performance. Thus, Austria welcomes and supports the recent efforts of large Euro- pean countries to create a European Monetary System which, in fact, will bring more exchange rate stability for the whole region. This will be an important step to establish more sound economic conditions in Europe. Austria is prepared to play her appropriate role under such a system. Austria's satisfactory national economic and political development is clearly reflected in her contributions to the needy nations. It is in this context that the growing interdependence of industrialized and developing

51 countries calls for more and better cooperation rather than purely financial aid. Austria's share in the Bank was raised in 1977 by US$39.2 million to a total of US$269.6 million. The fifth IDA replenishment amounting to US$49,700,000 was approved by parliament last year so that now Austria's contribution to IDA amounts to US$123,778,000. This year, our parliament also approved an increase of US$4,351,000 in our contribution to IFC. We continue to support the activities of the World Bank and, therefore, favor a substantial general capital increase of this institution and strongly hope that the negotiations of this issue will be successfully completed in the near future. Austria is greatly interested in the new plans to combat mass poverty and economic stagnation in many parts of the developing world. We are aware of the fact that an increased net transfer will alleviate the debt burden of the most needy developing countries. Preparations for debt reductions concerning three such countries are currently under way in Aus- tria. Member countries are expected to augment their ODA. This is also the intention of Austria. Between 1976 and 1977 Austrian ODA has been increased by 100 per cent to US$117.8 million (0.24 per cent of GNP), raising the total aid (ODA and private aid) to 1.04 per cent of our GNP. First priority should be given to the objective of meeting the basic human needs, i.e. to create new jobs, provide adequate food, decent housing and medical care. This would require an improved infrastructure with priority given to rural areas, as well as to the development and application of appropriate technologies. My country also takes great interest in the negotiations concerning a new Fund for Economic Cooperation and Structural Improvement and has made several proposals in this connection. We are confident that the group of outstanding experts under the distinguished chairmanship of Mr. Willy Brandt will give a new impetus to our efforts for more effective cooperation in international development activities. It is in this context that we come to realize and accept that today's problems of global interdependence require joint action and can by no means be solved through nationally isolated actions or policies alone. A number of factors have been leading to growing unemployment in the industrialized countries and continuing mass poverty in the developing world. Such factors are in the field of energy consumption as well as production, rising protectionism, unstable and/or erratic exchange rate changes, external disequilibria. Consequently, the international community cannot but opt for concerted actions to alleviate these unsatisfying situations. Suc- cess will not come easily and time will be needed to implement promising measures. But the problems we are confronted with are not imposed on us by some supernatural forces. They are man-made, hence lending themselves to and requiring common and concerted rational actions under a determined leadership. In this field, the IMF and the World Bank should continue to play a decisive and leading role.

52 BAHAMAS: ARTHUR D. HANNA Governor of the Bank and Fund Permit me to join those who have expressed their sincere welcome to the Managing Director of the Fund, Mr. Jacques de Larosiere, and to express our pleasure in his appointment. My remarks will be confined to matters relating to the Bank and I will be speaking, not only on behalf of my own country the Bahamas, but also on behalf of Barbados, Grenada, Guyana, Jamaica, and Trinidad and Tobago. We also take this opportunity to welcome Maldives, Suriname, and the Solomon Islands to these meetings and to membership of the Bank and the Fund. The world economy has, since our last meeting, shown some signs of improvement, but rates of growth are still, on the whole, unsatisfactory. In the industrialized countries, growth was slow and uneven, but the observed shifts toward faster growth in some of the major industrialized countries still, undoubtedly, contributed toward the reduction in current account surpluses and disadvantages of those countries. The advanced developing countries-other than the major oil-exporting countries-are moving toward the "take-off" stage with satisfactory growth rates, but the non-oil primary producing developing countries, including those of the Caribbean, with the exception of the Bahamas and Trinidad and Tobago, have continued to face severe current account deficits and whatever little improvements occurred over the past year have been achieved in some cases only at severe costs to the living standards and welfare of our peoples. In these difficult circumstances, we fully endorse the view that there is an urgent need for an effectively coordinated strategy of policies if prosperity is to come and if the poorer developing countries are to triumph over economic deterioration. A deliberate policy of continuing economic expansion in the surplus countries, promotion of a sustained expansion of international trade with particular emphasis on the needs of developing countries, and positive steps toward increasing the transfer of resources on concessional terms are some of the measures that we believe are needed to make a decisive and immediate contribution toward alleviating the external adjustment problems of developing countries. In this process, the goal which we all share of lasting improvements to the living standards of our peoples in the developing world will be greatly assisted. The World Development Report prepared by the staff of the World Bank is, in our view, a valuable assessment of development issues and current trends and policies. The Report draws attention to the limited impact which current trends and policies in the international economy would have on the eradication of poverty. According to this Report, even if projected growth rates are achieved, some 600 million people will continue to live in absolute poverty by the end of this century, representing a mere 25 per cent reduction from present estimates. We wish too record our serious concern at this slow rate of improvement and hope that the

53 conscience of the world community, particularly the developed world would be sufficiently aroused so that the structural adjustments and dynamic policies required for significant progress will be speedily implemented. But, as the President of the Bank reminded us, this task also requires a determined commitment by the governments of the developing countries themselves to pursue appropriate domestic policies, geared toward improving economic conditions of their people. We fully endorse this view, but urge that we should, at the same time, recognize that we are but unequal partners and therefore substantial assistance, financial and otherwise, would be expected of the richer and more prosperous developed partners. We look forward to further such analytical assessments of the development issues, but would hope to see explored in greater depth specific issues of particular concern to developing countries. For example-urban poverty and agricultural protectionism. We hope that future report will go beyond mere analytical trends to suggest what ought to be done to accelerate development in the specific areas examined. The Bank has, since 1974, shown much ability to be flexible and responsive to changing underlying economic conditions. We welcome this approach and commend the management for it. However, we do feel that much more needs to be done; for example, serious consideration should be given to increasing still further, the proportion of program loans and sector development loans. We see advantages for this type of lending both to the borrowing countries and the Bank. Moreover, such assistance, in our view, should be pursued independently of considerations relating to agreement on the use of Fund facilities. The total volume of Bank assistance determined on a per capita basis to many of the smaller countries with abundant natural resources is still very inadequate to make a significant impact on the overall economic conditions. We feel that in such circumstances the Bank should stand ready to take into account factors additional to per capita lending, provided such natural resource base projects, however large, are feasible. Such projects are particularly in need of Bank support as a means of attracting supplementary financing and we urge the Bank to provide this support at a level that bears a direct relation to the nature and size of the project. In the long run, we believe that such projects would help to solve rather than create problems of creditworthiness. The use of per capita GNP as the main lending criterion for lending terms for projects in a particular country has always been a matter of concern to us. Generally, other factors-exports and imports, balance of payments, natural resource availability, the real need to diversify the economy -are also relevant considerations and provide compelling reasons for much less blind reliance on concepts of per capita income and more on measures of needs and responses. We seriously urge that the peculiar nature of small island communities be taken into account. With specific respect to lending terms, we believe that this must be project-oriented. The Bank quite rightly varies the recovery rate of capital costs according to the type of project, and we feel that the same procedures should be followed in

54 fixing lending terms with regard to maturity and grace periods. This method would ensure, quite apart from being in keeping with the Articles of Agree- ment of the Bank that countries eligible for "hard" lending based on their GNP per capita or otherwise would still be able to obtain loans on soft terms if the nature of the project so justifies. With respect to my own country, there appears to us to be a defini- tional problem in the calculations of per capita income give'n the large number of foreign industries in the local economy. We are of the view that the present level of per capita GNP used for the Bahamas needs urgent revision to take account of this large external influence and thus make this, albeit unrealistic, criterion more relevant to the circumstances of the Ba- hamas and allow for useful and much greater Bank operations than exist at the present time. The Bank is a major source of development assistance and we believe that this should continue. We would expect the size of its lending operations to continue to grow in real terms in order to match the growing needs of developing countries. We therefore fully support a substantial increase, preferably a doubling in the authorized capital of the Bank, and we accordingly once again urge the completion of the discussions in the Execu- tive Board so the negotiations on the size of the capital increase could be completed early in 1979. Similarly, while we are pleased to have heard of the progress in further United States appropriations for IDA resources so that additional IDA commitments can be continued in the current financial year, we hope that negotiations on IDA-VI will commence no later than November of this year, and that they will yield commitments higher in real terms than on previous occasions. This, we believe, is vital in view of the growing needs of IDA eligible countries for concessional assistance. At last year's meeting, we referred to the stresses and strains the Carib- bean community was experiencing and pointed to the importance for the community for continued Bank concessional loans- on appropriate terms to the Caribbean Development Bank for on-lending. We now wish to reiterate this in the hope that real progress in this area would not be too far off. In closing, we would again wish to acknowledge the flexibility shown by the Bank in recent years and from which the Caribbean countries for whom I speak have benefitted. We are confident of the willingness of the Presi- dent and the Executive Board to respond even further to accommodate the unique problems that now beset many of its borrowing members.

BANGLADESH: M. N. HUDA Governor of the Bank It gives me immense pleasure to participate once more in the Annual Meetings of the World Bank and the International Monetary Fund. At the very outset, I would like to welcome and congratulate Mr. de Larosiere on his appointment as the new Managing Director of the International Monetary Fund. I would also like to wish Mr. McNamara a very fruitful

55 third term as President of the World Bank. Before I go further I would like to join the other delegations in extending a very warm welcome to the newest members of this group (Maldives, Suriname and Solomon Islands). The Annual Reports of the World Bank and the IMF, and documen- tations prepared for the Interim and Development Committees have all contributed to our knowledge and information on world development. The World Development Report prepared by the World Bank has given us significant insight into the issues relating to international development. I cannot but observe that the scenario that we discern in these reports is not at all encouraging. Not much ground has been covered in the one year since we met here last. No doubt satisfaction can be taken in the fact that substantial progress has been achieved by the developing countries in the 25 years between 1950 and 1975 and that the developing countries as a group have done much better than the developed countries in respect of economic growth in that recent period. To us this is only a partial view, and it conceals more than it reveals. The gap between the rich and the poor countries has increased steadily during this period. We note that the average per capita income of the low-income countries increased by only $2 annually over this period (1950-75) while the figures for the middle- income countries and developed countries are $20 and $131 respectively. Secondly, the per capita income growth of the poorest developing countries has been steadily declining, from a rate of 2.6 per cent in the period 1950-60 it declined to 1.8 per cent over the period 1960-70, and further down to 1.1 per cent in the period 1970-75. According to the World De- velopment Report, on the basis of the present trends, prospect of growth for the developing world for the period up to 1985 is not at all encouraging and the projections beyond 1985 for another 15 years point to a global problem of shocking proportions with serious consequences for the poorer countries. Mr. McNamara deserves our praise for his forthright exposition of the development problems in this forum for the past several years starting with the Nairobi meeting. Last year he advocated directing attention to the needs of the absolute poor in terms of meeting basic human needs of hundreds of millions in the developing countries for whom development has failed. He pointed out two essential things that needed to be done- acceleration of the rate of economic growth of the developing nations and the benefits of that growth to be channeled toward helping the absolute poor to meet their basic needs. It is in the fitness of things that this year he has very clearly explained the size of the problem and the need for action by the international community as a whole. The developing world had placed much hope on the Declaration for a New International Economic Order and International Development Strat- egy for the decade of the 1970s. Coming to the close of the decade we find that achievements will fall far short of the targets, and the gap between the rich and the poor countries, far from being reversed, will go on increasing. The scenario presented in the World Development Report is most discouraging particularly for the poorest of the low-income countries to which group my country belongs.

56 My country did not share the so-called impressive scenario of the last quarter century. In the decade up to 1974 per capita income in Bangladesh declined, the proportion of landless in the rural areas increased, the levels of nutrition steadily declined, and the percentage of absolute poor rose sharply. Soon after its independence Bangladesh faced unprecedented turmoil in the international economic situation and serious natural disasters. But we did not give up. Through a determined stabilization program, coordinated domestic effort and support of the international community, we made modest progress during the last three years. Agricultural production responded to the application of modern technology and inputs; the population problem has been recognized as the number one national problem and appropriate programs have been launched for controlling its growth; and socioeconomic development programs have been directed entirely toward the rural scene where 90 per cent of our people live. We are preparing to launch a second Five Year Plan soon with the objective of gradually removing poverty by the end of this century. We are conscious of the obligations in terms of domestic effort, and are hoping to derive maximum benefit from the support of the international community. Unfortunately, developments during this last year put serious setbacks to our expectations. The recovery of the world economy has slowed down. After a 51/2 per cent growth in 1976 over 1975, the industrial countries' growth rate in real terms fell to 31/2 per cent in 1977. The first half of 1978 does not appear to be any better. World trade which grew at the rate of 12 per cent by volume in 1976 expanded by less than 5 per cent in 1977, much lower than the average of about 9 per cent for the previous decade. The flow of ODA in terms of the GNP of the DAC countries dropped further to .31 per cent in 1977, less than half of the internationally accepted target of 0.7 per cent and according to the World Develop- ment Report, may reach a level of only .39 per cent in 1985. Only the OPEC countries have maintained the commitment and disbursement of their assistance at much higher levels and in significant proportions of their GNP. The current account deficit of the developing countries which decreased from $37 billion in 1975 to $25 billion in 1976 and further to $22 billion in 1977, is again projected to increase to $32 billion in 1978. The performance of the World Bank Group also gives reasons for concern. Disbursement figures for the Group as a whole declined in FY78. For the low-income countries this has been more serious. Disbursement of IDA funds decreased to just about a billion dollars from nearly $1.3 billion in FY77 and $1.25 billion in FY76. In real terms disbursements of IDA funds in FY78 were lower than what was realized in FY75. It is also regrettable that the amount of $1 billion which was supposed to be channeled as a Special Action Program to the developing countries as agreed at the CIEC has not yet started flowing and there is no certainty as of now as to when the process will be initiated and completed. The sense of urgency seems to have been lost. Mr. McNamara in his speech has highlighted the various aspects of interdependence between the advanced and the poor countries. Growing income disparity between the developed countries and the developing

57 countries on the one hand, and between the middle-income countries and the low-income countries on the other, are, therefore, seriously disconcerting developments indeed. We strongly feel that for reducing the number of absolute poor in the developing countries there is a special need for concentrating resources in the low-income countries, particularly those of South Asia and Africa. We are also disturbed to note that the developing countries of South Asia have received the lowest share of foreign resource inflow as percentage of their GDP in the recent years. The low-income countries of Asia have made modest efforts during the last few years. While the non-oil developing countries as a group improved their growth rates steadily from 4.1 per cent in 1975 to 4.8 per cent in 1976 and 4.9 per cent in 1977, the low-income countries of South Asia steadily improved their growth rates from 2.7 per cent in 1974 through 6.1 per cent in 1975, 5.8 per cent in 1976 and 6.4 per cent in 1977. It will be a great tragedy if there has to be a slowdown of the momentum at a time when the internal policies are reflecting strong political determination for mobilization of domestic savings, controlling the growth rate of population, and giving a new dimension to their development strategy incorporating the welfare of the poor and their basic needs in the fields of food, clothing, health care, and education. There is no denying the fact that it is the lack of political will which is aggravating the situation while the modalities of resource flows are known and the requirements of the LDCs are also known. If interdependence is to be meaningful, the international community cannot, and should not, permit the number of absolute poor to remain at the staggering figure of 600 million at the end of the century, when it is not beyond the capacity of the developed nations to undertake the actions suggested for them and will mean sacrifice of a small percentage of their incremental income. It is in this context that we feel the World Development Report has fallen short of our expectations. Last year we were told that the World Development Report would undertake work on a detailed analysis of major development issues and of the cost and benefits of alternative policies to deal with them. We do not notice any alternatives discussed or examined in the Report. We urge that the next World Development Report should work out an agenda of actions needed to remove absolute poverty by the turn of the century. The appropriate growth rate, the resources needed, the implications for ODA, private financial flows, growth in trade, and the strategies needed on the part of the developing countries and the developed world should be clearly worked out. In our view this should be the anchor-sheet of the "development strategy of the 1980s" to be adopted by the international community. The trend-based projection for flow of resources in the World Develop- ment Report cannot be accepted as the basis for action by the international community whether it is in the field of trade, flow of private capital or official development assistance. Growth of commercial fund flows has mixed blessings, and it does not help the low-income countries and creates problems of debt burden for the middle-income countries.

58 It is in this context that the role of the multilateral development institutions in general and of the World Bank in particular assumes great importance. To complement the flow of commercial capital, a greater flow of funds from the World Bank is a must. We therefore wholeheartedly support the proposal for doubling the capital structure of the World Bank without any further delay. Uncertainty in this respect has to be removed before the end of the current calendar year in the absence of which operations of the Bank will be seriously handicapped. We have noted with satisfaction the initiatives taken by the Bank in the field of development of energy resources, appropriate emphasis on agricultural development and food production and new initiatives taken for co-financing arrangements which substantially augment the flow of resources. In the same context we welcome the five-year program of the International Finance Corporation and fully support the guidelines for its operations as stated in the Annual Report. At the same time we are concerned that arrangements for commitment of the Fifth Replenishment of IDA have not yet been completed and some of the donors are still in arrears in respect of IDA-IV. We take this opportunity to express our thanks to Saudi Arabia for making special contributions to the resources of IDA-V. IDA, in our view, is an effective instrument for attacking the problems of poverty in the low-income countries. Continued replenishment of its resources and a growth in real terms is a must for this source of assistance for the low-income countries. It is already too late to affect the flow of disbursements significantly by 1980, and without a substantial increase in commitments beginning next year, even the modest objectives postulated for 1985 will not be achieved. We believe that appropriate action on relief for official debt obligations could go a long way in this direction. While we welcome the measures already taken or initiated by some countries, we urge upon other donors to take similar measures to reduce the burden of official debt. We also urge the donors to carry out an early beginning and completion of negotiations for IDA-VI. Consistent with the action proposed for the Bank's capital, we hope that IDA-VI resources will also be doubled from its present level. We feel that appropriate steps should be taken by the Bank Group for accelerating the flow of resources to the developing countries particularly to the low-income countries of Asia and Africa. We do not see why new- style projects which seek to meet the needs of the poorer members of these countries should necessarily slow down disbursement. We note that there has been a substantial increase in the flow of technical assistance from the Bank Group to the developing countries, but we are disappointed that it has not helped to step up disbursement of funds. We suggest the following steps for accelerating the disbursement of funds from the Bank Group: a) Project designs have to be carefully worked out keeping in view the social conditions and not depending entirely on specialized technical expertise. b) An increased share of local cost financing has to be covered for

59 projects concerned with basic needs which have larger local currency components. c) Increased use has to be made of the techniques of program loans and sector loans (particularly for rural development projects and small- scale industries sector). d) Inadequate knowledge about the dynamics of poverty is a serious matter indeed. We feel that involvement of more experienced LDC managers and experts in the design and implementation of new style projects will certainly help. I would now like to turn to the subject of trade. The magnitude of external resources that could be generated for the developing countries through liberalization of the present trading system is well known. The vehicle of trade is a powerful mechanism for resource transfer, but in recent years it has proved to be inadequate and shrinking. The developing countries are barred from reaping the benefit of their comparative mm advantages for factors inherent in the present trading system. Persistent and growing protectionism in international trade continues to impose a severe constraint on efforts for expanded export of manufactured goods by the developing countries, particularly the least developed ones among them. The recent slowdown in the growth rates of the industrial countries has created a vicious circle with proliferation of protectionist measures in one form or other which, apart from being detrimental to international trade, is taking a very short-sighted view indeed. While negotiations are afoot for adopting measures for facilitating fuller participation in international trade by the developing countries, introduction of such protectionist measures threatens to undermine the process of trade liberalization. In this context we urge the need for the early successful conclusion of the current multilateral trade negotiations and strongly feel that the least developed countries must have greater opportunities for exporting more diverse manufactured goods to the developed countries. We fully endorse Mr. McNamara's recommendations to the international community for specific lines of action in respect of trade, private capital flow, and concessional development assistance for rapidly increasing the flow of real resources to the developing countries. We believe that political will on the part of the richer nations will be crucial in this course of action. While the developing countries are exhibiting political will on their part to raise the level of living of their own people and to bring up larger sections of their society above the poverty line, it will be tragic indeed if this is not complemented by efforts on the part of the richer nations. We hope the Brandt Commission will suggest practical measures in the context of a well-defined time-frame for realizing the political will of the richer world into concrete action for helping the poorer section of the international community...... I would like to share with all of you some optimism which we notice in the background of an otherwise upsetting scenario. Concern shown by the leading industrial nations in the Bonn Summit in respect of deteriorating international economic system and cooperation and their reitera-

60 tion by the President of the United States, expressions of intent by the major donors in the forums of the Development Committee and Interim Committee for taking corrective measures, declarations of intent by some major donors to raise their levels of development assistance at least in the short run, the growing concern among the international leaders for the fate of the absolute poor and for reducing and eradicating poverty, and the growing realization of the interdependence of the developed and the developing worlds in more than one respect give us reasons for hope. We urge that these intents be translated into concrete action before opportunities are lost. Before I conclude, I would like to underscore the urgency of taking the following measures: i) Time-bound and target-oriented analysis and recommendations for action in the next World Development Report; ii) Time-bound commitment by the donor countries to transfer the accepted target of GNP as official development assistance; iii) Time-bound program for untying development assistance by donor countries; the benefits of converting ODA into grants by some donors are being eroded due to increased tying of procurement; iv) Increased grants for program assistance and sector assistance including higher proportions of local cost financing by bilateral and multilateral donors for projects designed to meet the basic needs of the poor sections of our societies; v) Early completion of commitments of IDA-V for ensuring unqualified commitment authorization and also completion of the arrear contributions in respect of IDA-IV; vi) Early beginning and conclusion of negotiations in respect of IDA- VI so as to double the amount of resources in real terms; vii) Early action in respect of doubling the capital structure of the World Bank; viii) Early measures for granting relief in respect of official debt by all donors; ix) Increased use by World Bank Group of the management experience of low-income countries particularly for appropriate project designs for meeting the basic human needs in the developing countries; x) A time-frame for reviewing the conditionalities of Fund facilities and for providing an interest subsidy for the supplementary financing facility; xi) A time-bound program for improving the scope of the compensatory financing facility as recommended by the Development Committee. May I, in conclusion, express our deep gratitude to President Carter and his Administration for their warm welcome and hospitality, compliment Fund and Bank staff for their documents and arrangements for our meeting, and also express our sincere thanks to you for so elegantly conducting the meeting.

61 BELGIUM: GASTON GEENS Governor of the Bank ... Last year, when I spoke at our previous Annual Meetings, I under- scored the importance that my country attached to a concerted revival of economic activity. This appeal remains valid as, despite some encouraging signs, this year's world economic situation still shows highly disquieting elements, such as persistent inflation and unemployment, difficulties in the operation of the adjustment process, and marked differences in economic growth. Rather than dwell at length on the analysis of this situation, I will seek to focus on the reasons which, in my view, explain the persistent nature of this phenomenon: First: the transitionalnature of the present economic situation Following the growth registered in the 1960s and the crisis of the early 1970s-aggravated by the impact of the rise in oil prices-economic activity is gradually recovering in the framework of a new economic order that will be marked by greater interdependence between the developed and developing countries, which will require significant structural changes in the economy. This transition period must allow time for international flows to reach equilibrium and for balances of payments to return to their more normal positions. Second: the difficulty in applying economic policies adapted to the balance of payments situation The progress made by a number of countries in reducing or eliminating their balance of payments disequilibria must indeed be noted with satisfaction. Instead of being absorbed, however, these disequilibria often seem to shift, and the situation in this regard remains a matter of concern. We have great hopes for the growth policy and equilibrium commitments made by the seven major industrial countries at the Bonn Summit. Their decisions will inevitably have repercussions on the less powerful countries, which will also have a role to play in this world effort. In this regard, we welcome the recent measures adopted or announced by the governments of several members of the Communities, by Japan, and by the United States. Depending on the case, these measures are designed sometimes to reduce the trade surpluses of certain countries by stimulating domestic demand and sometimes to reduce external deficits by increasing industrial competitiveness. We are following with particular interest the progress of the energy saving plan of President Carter, which could make a fundamental contribution by reducing the U.S. balance of payments deficit and by relieving tensions in foreign exchange markets. Belgium expresses the hope that all Bonn Summit participants will quickly implement the measures adopted at that meeting. For its part, Belgium has already adopted significant measures to stimulate public investment, to fight unemployment, and to provide tax incentives.

62 Balance of payments disequilibria result in wide exchange rate differences among the major currencies, which are accompanied or aggravated by disruptive expectations. Fresh examples of this are provided by recent movements, the fall of the dollar in particular. The return to a more orderly situation in the markets requires a renewed struggle against balance of payments disequilibria, as well as concerted efforts to curb erratic exchange rate fluctuations. It is essential that every country cooperate to this end, but developments in the past twelve months have again confirmed the extent to which the U.S. authorities can play a decisive role by the attitude that they adopt with regard to the external stability of the dollar. I now turn to the major options faced by my country in light of the situation I have described: First: Belgium attaches major importance to increasing the rate of growth of the world economy, particularly as regards the industrial countries. We hope the 4.25 per cent growth rate for the 1979-80 period, as envisaged in the scenario described in the latest "World Economic Pros- pects," will be attained. Second: As regards the balance of pavments situation, we insist that excessive deficits and surpluses should be reduced by means of appropriate policies, such as those devised at the Interim Committee meeting of last April and at the Bonn Summit. These policies were very wisely reiterated in the Annual Report of the Fund. Third: In the area of international trade we wish to forestall any threat of protectionism and hope for a successful outcome of the Tokyo Round negotiations at the end of this year. We recognize that the products of developing countries should be given greater access to the markets of developed countries, and that the LDCs should be able to rely on greater financial assistance from developed nations. The developing countries, for their part, should create favorable conditions for solid economic growth as well as for the necessary flow of investment capital. Fourth: International monetary cooperation must be intensified in an atmosphere of confidence: we recognize the need to intervene in exchange markets for the purpose of controlling any disorderly movements. We believe that the Fund's new policy of exchange rate surveillance will be very helpful inasmuch as it imposes obligations on both member countries whose currency has appreciated and those whose currency has depreciated. In the area of foreign exchange policy, Belgium favors all complementary efforts of concrete economic and monetary cooperation at the regional level. My country, which already is a party to the "European snake" agreement, is actively contributing to the plan for the "new Euro- pean monetary system" decided upon at the European summit held in Bremen. The objective of this plan is the creation, in accordance with economic and monetary policies, of a zone of enduring stability supported by a European Monetary Fund. Far from being directed against any currency, the new system is in keeping with the efforts that have long been undertaken within the European

63 Community to make economic and monetary union a reality. As stringent as the presept monetary snake, the new system should help bring about- especially through the European Monetary Fund and the ECU that will be defined in terms of a basket of European currencies-greater stability in foreign exchange relations... I should like now to make a few comments on the Bank and its affiliates. In listening to Mr. McNamara's address, I noted with satisfaction that the volume of operations of the World Bank Group again increased substantially during the past fiscal year, with commitments of over US$8.7 billion. We also applaud the fact that the Bank is continuing to direct its special resources to the poorest member countries, those with per capita incomes of US$280 or less. As for the sectoral distribution of loans, we likewise believe that the Bank's efforts in the field of rural development continue to be highly significant. On the other hand, we find the situation less encouraging when we look at the figures for disbursements, which declined appreciably with respect to those of the previous year, especially as regards IDA. The decrease was due in large measure to the complex nature of the "new-style" projects (in agriculture and rural development) and to the problems faced by the beneficiary countries in mobilizing domestic resources. These difficulties compel me to ask whether the Bank should not give higher priority to the financing of projects in infrastructure and other basic sectors for which sufficient local savings are not generally available and whose development will have a more rapid and certain effect on income. Like other speakers who have preceded me, I believe that it would be desirable for the World Bank to study the possibility of stepping up its action aimed at putting to use the energy resources of the developing countries. At the same time, we are pleased to note that for the fourth consecutive year the Bank has continued to expand its co-financing activities with other multilateral and bilateral agencies of both the industrial countries and the members of OPEC, and with credit insurance agencies and private financial institutions. We hope that in future the Bank can apply the co- financing formula to an even greater extent. Indeed, this is one of the most effective means of mobilizing additional financial resources, particularly private funds, for the developing countries. The Belgian Government will continue to support the Bank's efforts, as it has from the beginning. In this spirit, my country participated in the special increase of the Bank's capital, accepting the provision that the part of its subscription paid in national currency may be used without restriction. Also in this spirit, a few weeks ago Belgium announced its approval of the Fifth Replenishment of IDA resources. Finally, my country has participated ini the increase in the capital of the International Finance Corporation, which in the years ahead will expand its role as a catalyst in raising the foreign private capital necessary for the execution of large- scale projects in the developing countries, especially in the industrial sector. IFC thus will give renewed impetus to the flow of private investment into

64 those countries, which are facing stagnation at present, particularly through the creation of a more favorable climate and a greater absorptive capacity. And in the area of bilateral assistance, Belgium is continuing to provide financing for developing countries. For example. the 1979 budget calls for a 50 per cent increase in intergovernmental loans, increasing the allocation from 2 billion to 3 billion francs. The World Development Report shows that in the years ahead the role of the multilateral development institutions in the transfer of resources to the developing countries will be even greater. The work programs of these institutions for the coming years point to a further expansion of their operations. Their commitments for the period 1979-83 are projected at about $70-80 billion. For the poorest countries, which have a particular need for capital on favorable terms, IDA is the preferred channel. As we approach the opening of negotiations on the Sixth Replenishment of IDA resources, we express the earnest hope that they again will be truly successful and this time will be completed quickly through full cooperation between the traditional donor countries and the oil exporting countries with surplus capital. Belgium has taken part in five replenishment operations. It will participate in the negotiations on the sixth, and if the other traditional donor countries continue to accept the percentages assigned to them, we believe that we can maintain ours. For the middle-income countries, the World Bank and the regional banks will continue to serve as financial intermediaries with the international capital markets. They are the main public source of long-term loans and contribute to better balance between public and private credit for these countries. This function of the World Bank and the regional banks requires that their capital structure and the real volume of their lending operations be strengthened. We consider it appropriate to actively resume the discussions on the future role of the Bank and on the financial measures required for it to perform that role. I can assure you that my Government will be most pleased to take part constructively in that effort. To conclude, Mr. Chairman, I should like to emphasize the great importance of the Bank's World Development Report, and to express our hope that the Bank will continue in this direction as you have proposed today in your thought-provoking speech. Basic studies of this kind should enable us to progressively devise a strategic framework to guide the officials of the developed and developing countries in their decisions about the development process. At all events, this year's report underscores the crucial importance for the Third World countries of the expansion of international trade and the transfer of real resources to them from the industrial nations and the members of OPEC. In the latter regard, the World Bank and its affiliates can play a decisive part in the increased transfer of such resources in the years ahead, thereby significantly furthering international economic cooperation in a number of areas important to all countries in a world that is becoming

65 ever more interdependent. I can assure you that the Belgian Government will contribute actively toward the attainment of that objective.

CAMEROON: MARCEL YONDO Governor of the Fund Africa, destabilized as it is by conflicting interests, once more grants to Cameroon, which I am honored to represent, the privilege of telling the international community, at the Annual Meetings of the Fund and World Bank Group, of its economic and financial concerns...... I also wish to join previous speakers in welcoming the new members of the Fund and the Bank who participate in our meetings for the first time. Needless to say, Africa remains deeply concerned about the state of the world economy, especially as growth in industrial countries has been disappointing; it is estimated at a mere 3.5 per cent. This economic slowdown in industrial countries has led to a slower expansion of world trade, which has risen by only 5 per cent in 1977, compared with 12 per cent in 1976. Even more worrisome is the fact that world economic prospects are hardly encouraging. It is difficult to envisage any substantial improvement of the world economic situation so long as the industrial countries do not adopt the necessary measures to stimulate a vigorous and noninflationary recovery of their economies. In this regard, we support every concerted move to expedite world economic recovery. The developing countries that are not oil exporters are encouraged to find that, as a group, their growth rate was nearly 4.9 per cent for 1977, and that their exports increased at a faster rate than world trade. The year 1978 will no doubt bring a rate of growth similar to that of 1977. Despite these relatively satisfactory results, current account deficits are expected to rise from US$22.1 billion in 1977 to US$32 billion in 1978. To be sure, the performance of African countries as a whole, and particularly of those that do not produce oil, has not been good. Economic growth in non-oil African countries has been significantly lower than in other regions of developing countries; it has been estimated at 2.2 per cent in 1977, a rate clearly insufficient to offset population growth. The growth of exports has also been very low compared to other regions; it is estimated at 10 per cent, against 18 per cent for America and 18.6 per cent for Asia. This disappointing result has been further aggravated by the low prices for certain products exported by African countries, which are mostly basic commodities, by contrast to other regions which have shared with the developed countries in the benefits of increased trade in manufactured and semifinished products. This is the time to reiterate to the international community the importance which Africa as a whole attaches to the success of the negotiations on the Common Fund. The current account deficit of non-oil African countries has achieved a new record of US$6 billion. A deficit of about US$8 billion is expected for

66 1978, an increase of nearly 50 per cent over 1975. More paradoxically, however, most of the few African countries that are oil exporters also suffer from the same deficit. These growing deficits have also led African countries, in recent years, to resort to foreign capital, thus increasing their foreign debt. According to the latest figures published by the World Bank, the foreign debt of a large part of Africa has more than tripled between 1970 and 1976, climb- ing from US$7.8 billion to US$24.5 billion. The rise in the foreign debt has been coupled with a deterioration of the debt structure. The concessional element of loans granted to our countries declined from 46 per cent to 31 per cent in the same period, and the ratio of commercial loans rose from 25 per cent in 1970 to 34 percent in 1976. You will recall that last year, before this illustrious gathering, I stated that Africa does not wish to rely solely on foreign financial and technical assistance to solve its problems. African countries rely also and primarily on African cooperation. In this regard, the Economic Commission for Africa has scheduled a first meeting of the intergovernmental negotiation group to prepare the treaty on establishment of a preferential trade zone in East Africa as well as in Central Africa. To be sure, neither the efforts made by countries nor those of the various African economic groups will suffice, in view of the huge problems facing our continent. World interdependence naturally leads us to make an appeal for international cooperation and particularly for a significant increase in the net transfer of resources by multilateral and bilateral aid institutions, under conditions acceptable to African countries. Without this increased international solidarity, there will be no way to carry out the adjustment process in African countries except at the expense of the economic and social progress of our citizens. A study made by Fund staff in this connection has shown that, among developing countries, the group of African countries has thus far faced the most serious adjustment problem. The difficulties encountered by these countries are attributed to relatively low rates of growth, much higher inflation rates than in the past, and a substantial increase in the trade deficit. We find that, in this area, sufficient emphasis has not been placed on the fact that institutional as well as other factors tend to limit the possibilities for short-term adjustment in economies such as ours. Rising protectionism in the industrial countries is still a source of major concern to African countries, and we are particularly worried about the gradual spreading of restrictions on manufactures exported by developing countries. For this reason, we hope the outcome of the multilateral negotiations will be both satisfactory and consistent with the sustained growth of the world economy. As to the transfer of resources, the latest figures published by the OECD Development Assistance Committee show, regrettably, that this transfer was disappointing in 1977, particularly in the area of official development aid. The amount of aid last year, estimated at US$14.8 billion, barely increased in real terms in relation to 1976. As a percentage of GDP of developed countries, official aid decreased last year, falling from 0.33 per

67 cent in 1976 to 0.31 per cent in 1977. We believe, moreover, that an increased transfer of resources to developing countries can greatly contribute to the recovery of economic activity in the industrial countries, as clearly shown in the "World Development Report, 1978." The African Governments reaffirm their support for the existence of the Development Committee as a forum for constructive discussion and fruitful cooperation in the area of economic development. Even if results have not always matched expectations, we are eager to see a renewed political determination to back the activities of the Committee, as this will enable it to pursue the objectives for which it was established. We make an urgent appeal to those industrial countries which have not yet attained the objective of 0.7 per cent to adopt as soon as possible a program with a firm timetable, so that the amount of their official development aid may reach the 0.7 per cent objective. In this regard, may I congratulate the Nether- lands, Sweden, and Norway for again exceeding the objective this year. Likewise, we wish to express once more our appreciation to the OPEC countries for their significant assistance to African countries. Closely related to our problems of obtaining resources for development financing is our permanent desire to strengthen the African Development Bank and its affiliate, the African Development Fund, with increased support from the international community. These two institutions have recently reinforced their structure and their operational capacity in order to promote and finance African development more effectively. While appreciating the help already received by the African Development Bank Group, we fervently hope that all donor countries will respond generously to the funding effort now in progress. Our two institutions have set up realistic programs that require resources far greater than those presently at their disposal. We are, therefore, convinced that the international community will study with sympathy both these programs and the major decision made by the African Development Bank's governors to accept non-African capital in the institution, and will lend it the necessary support to carry out its programs. We take this opportunity to express our great appreciation for the efforts made by the World Bank to increase its cooperation with the African Development Bank Group, particularly in the area of joint financing and training. We hope the Bank will provide the same assistance and cooperation to other African subregional institutions. After this brief listing of the difficulties facing the African countries I would like to make some comments on our two institutions and to ex- pound on the views of the African countries regarding their operations....

. Activities of the Bank Turning to the World Bank Group, we note that in addition to the operations it has carried out, it has gained expertise and unique experience in the field of development over the years. This has been achieved thanks to the work of its President, Mr. McNamara, and to the high level of competence of the Executive Directors and the staff. Allow me, however, to voice again the concern expressed last year by the African governors at the repeated attempts made by certain member

68 countries to inject noneconomic factors into decisions on the financing of projects by the World Bank Group. We have learned with regret that the situation again worsened in fiscal year 1978. A larger number of projects submitted to the Executive Directors were opposed by a member country on grounds that are neither technical nor economic. We greatly deplore this situation. Even more troubling is the interference of certain member countries in the daily management of the multilateral institutions and the attempt by legislative bodies to prevent them from financing products that might compete with national exports, such as palm oil, sugar and citrus fruits. The African governors and their Executive Directors have repeatedly declared their firm commitment to respect human rights. In particular, they believe this purpose can be served by first of all ensuring the human rights that are most fundamental-the right to employment, to shelter, to food, to health and to education-through a redoubled attack on poverty, the very symbol of human degradation. But they wonder-not without concern-whether discussions on this subject in an institution that neither has sufficient specialized personnel, nor is authorized by its Articles of Agreement to discuss it, do not risk creating needless tensions among the member countries and giving rise to frustration among the staff, with adverse effects on the smooth functioning of the institution. We therefore urge all member countries to refrain from injecting considerations other than economic and technical factors into the deliberations of an institution that is a concrete example of international cooperation based on the mutual respect and trust of the member countries. With regard to operations, we are generally satisfied with the performance of the World Bank Group in Africa during the past decade. The activities of the Bank and IDA in Africa during that period have expanded impressively and attest to the effectiveness and dedication with which President McNamara has led the institution. On the other hand, we can only express our disappointment with the results for the past year and our concern regarding the program of operations for the next five years. In 1978 World Bank loans to Africa fell to US$929.3 million, after reaching US$1,211.8 million in 1977. This decrease-noteworthy in itself-is further aggravated by the anticipated reduction in West Africa's share of IDA credits and in East Africa's share of World Bank loans in the 1979-83 program of operations. The geographical distribution of Bank and IDA resources has always been and remains a matter of concern to the African governors. Taking into account the initial level of development and the massive investments required in our countries, we have requested an increase in Africa's share of Bank loans and IDA credits. It is, therefore, extremely difficult for us to understand, and much less to support, such a program. We hope these projections will be revised in order to ensure a more equitable distribution of the resources of the Bank and IDA. We are aware that this distribution would moreover be facilitated if the Bank's resources were increased. That is why the African governors last

69 year declared their support for a substantial increase in the capital of the World Bank and expressed the hope that negotiations would be completed by June 30, 1978 at the latest. Today we are obliged to say that these negotiations have been delayed because of certain questions that have arisen, unrelated to the problem studied. We urgently call upon all member countries to take the measures necessary to ease the situation and to permit the Executive Directors to resume the discussions on the future role of the Bank as soon as possible, so that a satisfactory agreement on the capital increase may be reached before the end of 1978. We clearly stated our position on this question at our last meeting. We consider it essential to reach an agreement on a substantial capital increase in order to avoid having to repeat the process within a very short period. This will require an increase of 100 per cent in the Bank's capital. The general capital increase should also be the occasion for increasing the representation of the developing countries on the Board of Executive Directors and ensuring a balanced geographical representation. The principle of equal representation should be examined seriously by the developed and developing countries. Moreover, appropriate measures should be taken to avoid any regional imbalance that could result from a change in the relative situations of the member countries at the time of the general capital increase. In this connection, adequate representation of each region should be maintained so that a single Executive Director will not represent a very large number of countries. I would now like to turn to a matter of particular interest to the African countries. We cannot overstate the importance of IDA to our countries. Over the years, the assistance provided by IDA has not only increased in volume but also improved in quality. IDA operations in recent years have been concentrated on projects that directly benefit the poorest people in our countries, which gladdens us. Thus, it is hardly surprising that we are most anxious to see agreement reached as soon as possible on the Sixth Replenishment of IDA resources. We call upon the donor countries to begin negotiations for this purpose before the end of 1978, and we hope that agreement will be reached by the end of 1979 so that the legislative procedures may be completed before the resources of IDA are fully committed. We take this opportunity to appeal to the donor countries to make a realistic assessment of our need for resources on favorable conditions. This means a substantial real increase in the resources of IDA-VI with respect to IDA-V. We earnestly hope that the donor countries will respond to our appeal. Another matter of concern to the African governors is the slowing of the rate of disbursement of World Bank Group commitments that began in fiscal year 1977 and was accentuated in 1978. While there are many reasons for this, such measures as an increase in program and sectoral loans, expanded financing of local currency costs, and greater flexibility in the Bank's procedures and conditions could contribute greatly to cor- recting the situation, and thus to a more rapid transfer of resources by the institution. We are convinced that this could easily be achieved without thereby sacrificing the quality of projects, and that it would respond to

70 the needs of the African countries in overcoming the enormous difficulties that they face. The struggle against poverty and the efforts to increase the productivity of poor people have been and continue to be enduring commitments of the African governors, who have enthusiastically supported the efforts of the World Bank in this regard. We remain firm in our support of the expansion of the Bank's activities in the areas of rural development and agriculture. An expansion of World Bank lending for food production should make it possible to reduce the food deficit that has appeared in several African countries and has assumed dangerous proportions. But the emphasis placed on this sector should not be at the expense of other sectors, especially infrastructures. In this connection, we ask that the Bank provide financial and technical assistance to help achieve the objectives of the Decade of Development of Transportation and Telecommunications in Africa. Moreover, while the Bank is already a participant in the Sahelian Club, we ask that it increase its contribution to the building of the infrastructures needed to forestall the injurious effects of the frequent droughts that afflict the Sahelian region. Finally, we believe that the activities of the World Bank Group should reflect the priorities of the borrowing countries, and should not be bound by a predetermined order of priorities. With regard to IFC, the African governors support the new strategy and the five-year program of operations of the Corporation, particularly the emphasis placed on the expansion of activities in smaller countries and the increase in investments in the agroindustrial sector. We are especially pleased to note that the volume of IFC investments in Africa reached a comparatively acceptable level in 1978. But these investments should be increased further. We thus note with interest that the 1979-83 program of operations of the Corporation calls for an increase of Africa's share to 18 per cent. To carry out this program, there is need for stepped-up action in the areas of promotion and technical assistance, especially for project identification and preparation. Africa, needless to say, rightly seeks the peace and welfare of its peoples. To achieve this in a world still in the grip of the longest economic crisis in history, it must rely on itself, to be sure, but also and particularly on the richer countries. The aspiration, the great aspiration, of our age is to see these more advanced peoples heed the call of the poorest and most deprived, so that the world will move toward the establishment of a new international economic order that is more just and more equitable. That is the wish that Africa expresses today before this joint meeting of the Fund and the Bank.

CANADA: JEAN CHRETIEN Governor of the Bank and Fund Membership in the Fund and Bank continues to grow and I would like to begin by welcoming those who have joined us since last year: Maldives,

71 Suriname and the Solomon Islands. I would also like to take this opportunity to offer my warm congratulations to Mr. Jacques de Larosiere, not only on his appointment as Managing Director of the Fund, but also for the skillful way in which he has guided the long and difficult negotiations on quotas and SDRs to a successful conclusion at these meetings. In formulating his package proposal, he demonstrated to all of us that he is well endowed with those qualities that are most essential for an institution based on the spirit of international cooperation-namely, the ability to find compromise solutions that are fair and acceptable to all, thus enabling us to take major new steps forward. Since we met last year here in Washington we have achieved some positive results. Growth is now proceeding at a slightly better pace than it was then. More people are at work. Prices are rising a little less rapidly. And there has been adjustment of some payments imbalances. But the picture is mixed from country to country in both the developed and in the developing world. Certainly we have not done as well as we had hoped. Certainly the challenges before us are still very great indeed. Growth rates in most countries have not been rapid enough to reduce the high levels of unemployment. Prices, especially food prices, have been rising too fast and the threat of renewed spiralling of costs and prices is serious in many countries. These factors, along with continuing payments imbalances, are generating repeated outbursts of erratic exchange rate movements. These unsatisfactory features of our performance compound our problems. They generate uncertainty which constrains the private sector from making the commitments that are essential to growth. They impede the flow of aid to developing countries. They foster protectionism, thus preventing developed and developing countries from securing growth through trade. They hinder governments and the private sector in their efforts to make the structural changes required in a changing world. The policy strategy that is called for in these circumstances has two main elements, each with several facets. The precise weight that should be given to each facet in any particular country depends of course upon the circumstances of that country. The first element of the strategy must be to promote the recovery of economic activity. In some countries the most important contribution to growth that can be made is to reduce the rate of inflation. In others, expansionary measures consistent with continuing improvements in price performance are more appropriate. As disparities in growth and inflation rates are reduced, troublesome payments imbalances will be reduced. The second element of the strategy concerns structural change. Struc- tural change is called for in many areas. It is called for in the area of energy production and consumption. Some adjustment to the higher prices of energy has been made but further adaptation of the patterns of supply and use will be needed. Structural change is called for to respond to the changing age composition of our populations and the evolving work habits of both men and women. The economic structure has to adapt also to the new technical opportunities opened by science. Very immediate and

72 pressing in many of our countries is the need to assist industry to shift resources into the uses in which they have the greatest comparative advantage in production. Structural change is of course the very essence of the development process. It requires evolution of patterns of activity in developed countries as well as in developing countries. As it takes place, both groups of countries can benefit. The Economic Summit meeting in Bonn last July endorsed a policy stance of this kind. The countries that participated in the Bonn meeting have been following through with policy initiatives to put the strategy into effect. In Canada, the Government announced in August major steps to implement the Bonn strategy in accord with the requirements of our own situation. These steps include large cuts in government expenditure. They include a redirecting of expenditures to promote structural improvements in the economy as well as higher and more productive employment. Our recent measures also include further improvements in the system of income redistribution which will help those who have been most seriously affected by inflation. Monetary policy in Canada continues to be directed toward gradually reducing the rate of increase of the money supply. Target ranges for the money supply provide adequate room for real growth as progress is made in reducing inflation. Within this framework, interest rate initiatives have been taken to moderate downward movements in the exchange value of the Canadian dollar. While the primary responsibility for making our strategy of concerted action effective lies with individual countries, the Fund and the Bank have vital roles to play.... The World Development Report produced earlier this year under- lines the need for cooperation between the developed and the developing world. It provides-possibly for the first time in international discussions- a useful balance between the needs of developing countries and the more positive aspects of their development experience over the past 25 years. In doing so, the Report gives us reason for hope, but not for complacency. To reduce the present large number of people now at the level of absolute poverty will require changes in the domestic policies of the individual developing countries. Such policies will have to include those aimed at raising the productivity of rural economies, redistributing national incomes, maintaining a high rate of domestic savings, and limiting external borrowings. Industrial countries for their part will have to play fully their role in the development process as suppliers of capital and technology and as trading partners of the Third World. The importance of the energy sector is also highlighted in the World Development Report. Thirty to forty developing countries that do not now produce petroleum have the potential to do so commercially. The Bonn Summit called for the World Bank to study how this potential could be developed. I have recommended that the Development Committee follow up this study by analyzing the outlook for developing countries in terms

73 of the supply and demand of energy and the possibilities for coordinating and improving external assistance in the energy sector. In making these comments, I want to emphasize the role of the World Bank Group in the overall transfer of resources to developing countries. The World Bank and IDA are the primary international instruments of support to the developing countries, with an unrivaled level of expertise and record of performance. Given this, I am disappointed to see the stalemate on the capital increase of the World Bank, and I would urge that these negotiations be resumed as quickly as possible. In the months ahead we will also be moving forward with the Sixth Replenishment of IDA. Successful completion of both these negotiations is essential to ensure continued growth of the lending operations of these institutions which are so vital to the developing countries. Last week in Montreal, Canada had the honor to host a meeting of Commonwealth Finance Ministers. In our discussions we covered many aspects of the general economic situation as well as the particular work of the Fund and Bank. Despite the many differences in economic circumstances, I was struck by the common concern to work together to improve our performance domestically and internationally. This can be done. Over the last year or two, we have gained a better understanding of our problems. I believe we have set ourselves on the right course and I am confident that if we persevere patiently and firmly it will lead us toward the goals we all seek.

REPUBLIC OF CHINA: KUO-HWA YU Governor of the Fund On behalf of my delegation, it is my pleasure to reiterate our congratulations to Mr. Jacques de Larosiere upon his undertaking to serve as the Managing Director of the Fund. With his distinguished qualifications and rich experience in the field of international finance, we wish him every success in carrying out his highly complicated and difficult responsibility in the years ahead. We would like to assure him of our warm support. I would also like to join my fellow Governors in extending our thanks to Mr. Robert S. McNamara, President of the International Bank for Re- construction and Development, and the Executive Directors and the staffs of the Fund and Bank for their conscientious and fruitful efforts. The economic performance of the member countries during the past year could hardly be considered satisfactory. The pace of recovery from the severe 1974-75 recession unexpectedly slowed down. High levels of unemployment and low capacity utilization persisted in most industrial countries, accompanied, in the case of many, by unacceptable rates of inflation. In the non-oil developing countries, inflation rates were even worse. Moreover, the growth of trade among nations did not appear to be robust enough to provide the necessary momentum urgently needed to improve the economic outlook of the world as a whole. As a result, the temptation to resort to protectionist action of all kinds became increas-

74 ingly strong and, in some instances, irresistible. If unchecked, such an environment would not only frustrate the aspirations of developing nations to raise the living standards of their people, but also nullify the efforts of industrial countries to achieve stabilization and growth objectives...... Regarding the operations of the Bank and its affiliated organizations, 1 wish first to reiterate our appreciation to the World Bank Group for extending some 20 loans to my country in the period from 1968 to 1971, totaling some US$325 million. These loans contributed significantly to our economic development, when external help was much needed. Since the early 1970s, the Bank has not been active in my country and we have to go ahead with whatever steam we are able to generate through our own efforts. However, we are indebted to the Bank for periodic visits of its experts, who have rendered us timely and valuable technical advice, the most recent being in connection with the revision of our current six- year economic development plan which will end in 1981. The revision is being finalized, and will be officially announced in a couple of months. In this connection, we also wish to draw attention to the first issue of the World Development Report by the Bank, which provides sound guidelines for member countries in their decision-making process on economic development. This Report and the Brandt Commission Report point the way toward bridging the gap between the developed and the less developed countries. They highlight the common interests of both, and contribute to better mutual understanding. Being ourselves a developing economy depending heavily on trade, we are particularly appreciative that the World Development Report emphasizes the need for adjustments in the global patterns of trade to reflect shifts in comparative advantage. We share the view that failure to introduce these needed adjustments as a result of protectionist tendencies can only mean, in the end, penalties for all. Before I conclude my remarks, may I add a few paragraphs on the economic performance of my country, the Republic of China. We feel both flattered and apprehensive when our experience has generally been ac- claimed as a success story; we, too, had our ups and downs. As an aftermath of the oil crisis and the ensuing global recession, our growth rate declined substantially in 1974 and 1975. In order to vitalize our economy, a new six-year economic development plan was promulgated in 1976 to replace the then current four-year economic development plan. The characteristics of this six-year plan are the following: (1) to promote the overall modernization of agriculture; (2) to accelerate the Ten Major Infrastructural and Industrial Projects; (3) to develop capital- and technology-intensive industries; (4) to strengthen the competitiveness of our exports; and (5) to achieve fair distribution of wealth among our people. Currently, we are in the third year of this six-year economic development plan. As I mentioned earlier, we are in the process of revising the plan, with assistance from a Bank expert, using new data of actual achievements, and setting up realistic targets for the next three years. As a result of strenuous efforts from both the private and public sectors, our real GNP rose by 11.54 per cent in 1976 and 8.48 per cent in 1977, both well above the predetermined 7.5 per cent target. It accelerated to

75 11.22 per cent in the first half of 1978, and we expect the high rate of growth will continue during the second half of the year. This sustained rapid growth has been led mainly by the export sector. Merchandise trade recorded a surplus of US$850 million in 1977. In the first half of 1978, our exports amounted to US$5.6 billion, and imports amounted to US$4.9 billion, representing increases of 33.8 per cent and 21.8 per cent, respectively, over the corresponding period of 1977. A favorable trade balance of US$662 million was registered during the period. The phenomenal growth in our exports is attributed to the improved price and nonprice competitiveness of our products. Until July 1978, the New Taiwan dollar had been pegged to the U.S. dollar at a fixed rate for a long period of time, and, along with the persistent decline of the U.S. dollar, our exports got a boost as compared to those of some of our competitors. But the rapid rate of growth, fanned on by the depreciation of our currency in terms of strong world currencies, generated a potential inflationary pressure. Import prices rose. The rapid increase of external assets led to an increase in money supply. The increase in consumer prices accelerated to 6.59 per cent (annual rate) in the first half of 1978, caused by both strong effective demand and cost-push. But wholesale prices rose moderately at an annual rate of only 2 per cent. My Government is strongly committed to the maintenance of price stability. Hence, it decides upon a policy of balance of payments adjustment. In July of this year, my Government revalued the New Taiwan dollar by 5.56 per cent against the U.S. dollar. The exchange rate between the U.S. dollar and the New Taiwan dollar remained for many years at 1:38. In July, it was changed to 1:36. At the same time, my Government adopted measures to liberalize imports. Duties and restrictions were reduced. These measures produced a stabilizing influence on prices. The end intention of my Government is to establish a free foreign exchange market and let the rate of our currency find its own level, in order to promote easier balance of payments adjustment and greater independence from external fluctuations. In concluding my statement, I would like to express the hope of my delegation that the Fund and Bank will continue to play their constructive role in enlisting the cooperation of all member countries to achieve global progress and prosperity. My country will, as it has always done, continue its support of all cooperative efforts in that direction.

DENMARK: LISE OSTERGAARD Governor of the Bank It is a privilege for me to take the floor on behalf of the five Nordic countries-Finland, Iceland, Norway, Sweden and Denmark. Let me join previous speakers in welcoming the new members of the World Bank. I feel strongly the heavy responsibility laid upon us all to use this occasion to bring the development dialogue further. How can we, as Governors,

76 best contribute to the successful work of the World Bank Group in the year ahead? Our main task is to give an impetus to the day-to-day activities of the Bank Group. The Bank is a most efficient vehicle for transferring resources to the developing countries. And efficiency is very important. But it is not the only thing. The efficiency of the Bank Group must be used to further comprehensive development policies. The World Development Report which is the first of a series of annual reports which will provide us with projections for the formulation of an action-oriented development policy. We commend the Bank for this important initiative. Two levels of realities emerge: One is global: a world entering the last decades of the twentieth century, with an impressive record of rapid change, but with doubts about the per- spectives for continued rapid growth. This is the world of increased awareness of interdependence. The other reality is at the level of man: men and women in the villages and in the big cities in developed and developing countries, rich and poor; too many appallingly poor. No real development can take place without the full mobilization of those human resources. As Mr. McNamara so rightly emphasized in his opening address: "though the absolute poor have severe disadvantages, their human potential remains immense. Given a realistic opportunity, they will respond." It is paradoxical that great human and material resources in the developed countries are lying idle or are not being fully utilized while at the same time many of the developing countries, especially the poorest, are experiencing desperate needs due to unsatisfactory growth rates. It is now widely accepted that rapid worldwide economic advancement can, and should, go hand-in-hand with enlarged transfer of resources to the developing countries. The Nordic countries find that the World Bank has a most vital role to play in this process. The ability of the Bank Group in mobilizing capital is well recognized. The efforts of the Bank Group can at the same time enhance the potential of the developing countries and especially the poorest among them to benefit from trade and enlarged transfer of resources. At last year's Annual Meeting we had reason to believe that the discussions on a general capital increase and the future role of the World Bank were to take place and perhaps even be concluded prior to this year's Annual Meeting. The Nordic countries regret that this has not proved possible. We can only once again urge all member countries to show their readiness to accelerate these negotiations as soon as possible after this meeting. The Nordic countries have declared their readiness to take part in a capital increase sufficiently large to permit the Bank's lending to grow in real terms over the coming years. The importance of bringing the negotiations on the capital increase to a successful conclusion very soon is underlined by the fact that Bank lending will otherwise soon be affected by the ceiling imposed by the Articles of Agreement. Such a situation must be avoided.

77 As to the Sixth Replenishment of IDA, it is of the utmost importance to have an early agreement that will enable the Bank Group to substantially increase its soft lending to the poorest countries. Both IBRD and IDA must be given adequate resources to enable them to fulfill their tasks. This is all the more important since a better balance between the growth of lending from these institutions and the private sector is desirable in view of the further deterioration of the maturity structure of the debt of many developing countries. In the past ten years we have witnessed a major change in the Bank Group's lending patterns and policies in order to help increase the productivity of the world's poorest people. This is especially true for IDA whose resources are allocated to the poorest countries in the world. The Nordic countries support the continuous efforts of IBRD toward an increased lending to the low-income countries. This change of lending has also led to a shift in the sectoral emphasis of the Bank Group. Much more money is today devoted to such sectors as rural development, education, services, and water supply. The content and design of projects have also changed in order to benefit poor people more directly. The Nordic countries welcome these changes and give them our full support. Having stated our full support for the new policies of the Bank Group in its lending and other activities, the Nordic countries would like to suggest that particular attention be paid-in connection with forthcoming discussions-to measures which would further strengthen the Bank Group as a development finance institution. Such measures would be to improve the opportunities for effective participation of the developing countries in the decision-making process of the Bank and IDA, for instance through strengthening their voting power. Moreover, in view of the situation of the low-income Bank borrowers, we feel that the possibility for further differ- entiation of the lending terms of the Bank should be considered. Increasing the share of resources for program lending and local cost financing would be other measures to respond to demand from developing countries. The developed countries should see the development of the Third World as an opportunity for more rapid worldwide economic advancement. Nothing could therefore be more wrong or ominous than if the industrial countries responded to the growing economic strength of some of the developing countries by giving way to protectionism. In considering how to accelerate growth in both developed and developing countries the transfer of resources has a key role. Let us remember, however, that significant transfer of resources already exists today in the form of substantial flows of nonconcessional capital to the developing countries. What is now asked for is a system where these resources are increased and more decisively used for the needs of the people in the developing countries. The time has come to examine the utility and feasibility of this and other measures to stimulate financial flows to poorer nations. We believe that the World Bank and the Development Committee have a clear responsibility to carry out active work on this subject.

78 I must stress, however, that new forms of transfer of resources should supplement-not replace-regular ODA flows. Such a transfer must not be permitted to excuse failure on the part of the developed world to live up to its obligations in the field of official development assistance. Trans- actions of this type must further be channeled and organized so as to fit into the national priorities of the developing countries. The disappointing overall trend in ODA constitutes in reality a stagnation in the level of concessionary flows. A substantial increase of ODA of the largest industrial countries in the world is imperative. Additional resources to developing countries cannot guarantee success in dealing with poverty. But the absence of adequate resources greatly increases the risk of failure. This is underlined by what President McNamara describes as perhaps the most shocking conclusion in the World Development Report: Even if the growth rates projected for the developing countries were to be achieved by 1985 and thereafter continue for another 15 years, it seems likely that at the end of this century there would still remain some 600 million people living in absolute poverty. Behind our abstractions there is the real world, with its sufferings and its conflicts. We are satisfied that the Bank is speeding up its action in Viet Nam and Laos, countries devastated by war, where the needs are enormous and, we feel, where the Bank Group has an essential role to play. Another part of the world torn by conflict is Africa. Allow me to repeat the hope expressed at last year's Annual Meeting by the Nordic countries that all the peoples of the countries in Southern Africa still under minority regimes will reach full independence in the very near future. We hope that the Bank Group at that time will be ready, without delay to play an active role in the development effort of these countries. Pending independence and fully fledged development aid programs, we believe that the Bank Group can support development toward independence in this area by increasing assistance to those African countries carrying the heaviest burden in the liberation process. Even though we can state that much has been accomplished for the economic development of the Third World over the last 25 years, we all know that we have much ahead of us. The poor people of the world are asking for their share of the resources of this world. The objective of all our endeavor should therefore be to bring about equality and justice, both within and among nations, rich as well as poor, without discrimination as to race, color, sex, religion or political opinion. The Nordic countries believe that the World Bank has a vital role to play in this united effort to improve the conditions of the poor and the underprivileged in the developing countries. So let us show the political will necessary to forge the tools and create the right conditions so that this can be accomplished and inject in our discussion that sense of urgency which is needed.

79 EGYPT: HAMED EL-SAYEH Governor of the Bank I wish to congratulate you, Mr. Chairman, for the opening address which has provided us with a comprehensive view of the principal issues facing the world economy and the present juncture...... I wish also to express our appreciation to Mr. McNamara and to Mr. de Larosiere for their stimulating addresses. Our compliments are also conveyed to the Executive Directors for the comprehensive Annual Reports of the World Bank and the IMF. We all appreciate the splendid work of Mr. McNamara under whose leadership the World Bank has continued to accommodate the numerous problems of developing countries. Mr. McNamara's name will always be associated with the unfailing efforts for promoting economic and social development and for furthering international cooperation. One of the most important issues at present is the progress of economic recovery. It is generally agreed that progress in restoring economic health to the world economy has been slow indeed. Many economies developed deep structural distortions early in the 1970s, particularly real wages which outstripped productivity. Government spending grew at high pace while large public sector deficits contributed toward excessive monetary expansion. These problems manifested themselves in high rates of inflation and inflationary pressures. Correction of such distortions is imperative for the resumption of swifter growth in a very fast-moving world. The Annual Report of the Fund states that the average rate of inflation in some important industrial countries reached around 10 per cent per annum. In the non-oil developing countries, as measured by consumer prices indices, the rate of inflation rose to some 33 per cent in 1974 and remained above 30 per cent in every subsequent year through 1977. Analysis in the IMF Report indicates that recent economic growth rates are seriously unsatisfactory and imbalances in the external positions of many countries remain precarious. The situation in the developing countries is also a cause for serious concern, while the current account deficit on the non-oil developing countries is expected to rise from $22 billion in 1977 to $30 billion in 1978. This has been largely due to poor export performance and an adverse shift in the terms of trade. The situation was aggravated by high levels of external indebtedness, especially to commercial banks, and at a time when official development assistance remained low relative to their needs. The disappointing growth in the volume of world trade-5 per cent in real terms compared with 12 per cent in the previous year-combined with high rates of unemployment seemed to be the source of increased resort to protectionist actions. Recently disturbing restrictive measures are being imposed on goods exported by developing countries. Such measures threaten to create an environment unfavorable to the trading interests of all countries. They are also frustrating to the aspirations of primary producing countries whose economies depend to a great extent on the

80 markets of industrial countries and on the maintenance of access to such markets. Insofar as the question of outstanding debt of non-oil developing countries is concerned, although it has leveled off in relation to their export earnings, the ratio of its service payments to such earnings will increase for many developing countries. A greater flow of resources from both advanced countries and international institutions would undoubtedly be of great help in alleviating the servicing burden, and would be to the benefit of the donor as well as recipient countries...... Turning to the World Bank Group activities, we are highly appreciative of the significant role played by the Bank in the various fields of economic and social development and in the transfer of resources to the developing countries. The World Development Report, 1978, however, points out and stresses some very significant and important facts. The most important of these facts are those related to the widening income gap between the rich and the poor countries, the persistence of absolute poverty, the poor performance of industrial countries in the area of official development assistance, and the expected future increase in the debt service payments of developing countries. These facts lead me to emphasize serious concern over the current and short-term trends in the developing world where the number of the absolute poor will continue to be at the unacceptable level of 600,000,000 in the year 2000. We are of the view that a stronger political and financial commitment to the World Bank Group should readily be made to enhance developmental efforts, activities and operations both horizontally and vertically. In this regard, and while we note with satisfaction the progress made toward the completion of the Fifth Replenishment of IDA resources. we still believe that negotiations on the Sixth Replenishment of IDA should start as soon as possible and be completed sometime before mid-1979 as IDA-V will cover only up to 1980. We strongly believe that IDA-VI should represent a substantial increase of IDA-V, meaning an increase of more than 50 per cent over IDA-V. On the other hand, we hope as well that we all agree that the Bank's capital should be increased to permit an annual growth of more than 5 per cent in real terms. We have great faith that all members, developed and developing, are aware of the need for increasing the Bank's capital. Negotiations for the general increase in the Bank's capital should start as soon as possible in order to be completed in the very near future in order to allow the Bank to continue its very valuable work and operations for the benefit of international development and international cooperation. We should note in this regard that in the process of increasing the capital of the Bank, the voting power of the developing countries should be enhanced and strengthened, together with the voting power of the OPEC countries. It was duly recognized in the Bank Report that the developing countries in adjusting to inflation and to balance of payments difficulties found that local counterpart funds fall short of the amount needed for full financing of Bank/IDA assisted projects, which affect both project execution and

81 loans disbursements. Such circumstances should lead the Bank to consider significantly expanding program lending to a large part of the local expenditures. Another point of concern is the decline in the flow of financial resources from DAC countries to developing countries during 1977, when official development assistance fell to 0.31 per cent of their GNP whereas it had been 0.35 per cent and 0.33 per cent in 1975 and 1976, respectively, which in turn were far below the UN target of 0.7 per cent. Even the projection cited by the World Bank shows that this flow would not exceed 0.39 per cent in 1985. While on this issue, due appreciation should be expressed toward OPEC countries who continued their assistance at about 3 per cent of their GNP, although they themselves are in process of development. Taking into consideration that world development is nothing but a concerted action between developed and developing countries, we call for more effort to be exerted to enhance the flow of official development assistance to developing countries. While calling for more flow of financial assistance, I would like to stress the point raised by His Excellency Dr. Kaissouni, the leader of the Egyptian Delegation in last year's meetings when he called for an increase of the flow of technical assistance and transfer of technology to developing countries, in order to assist these countries to implement efficiently their development programs and thus rapidly derive the fruits of such projects. I would like to take this opportunity to express our appreciation for the cooperation between my country and the World Bank Group in recent years. For the second successive year the Bank has chaired successfully a consultative group of donor countries and organizations. Continuing our efforts to adjust the economic path, a three-year program was agreed upon with the Fund. The major objectives are to improve our balance of payments position, sustain the momentum of domestic economic growth, and reduce the inflationary pressures. This required a substantial rationalization of the cost-price structure of the economy, particularly in industry and agriculture, through the relaxation of administrative controls on prices, employment and production, and on external transactions. Taken together with a policy of fiscal and monetary restraint, these measures will eventually result in stability and generate a real increase in net domestic savings. This is an area of policy the importance of which cannot be underestimated. Our exchange rate system has been improved through easy access to the foreign exchange parallel market and expanding the open general license system. Our tax policy was reviewed in order to generate production incentives, particularly in the agricultural sector, and allow more decontrol to stimulate higher productivity. Wide and varied measures have been taken to encourage private investors, both national and foreign, to participate actively in the development efforts in order to achieve the highest possible rate of growth.

82 FIJI: S. SIWATIBAU Governor of the Bank and Fund I would like to join my colleagues who have spoken in thanking the President of the United States for his warm welcome. I also thank the U.S. Government and the Bank and Fund for the excellent arrangements under which we again meet this year. I must, however, draw attention to the need for more cost consciousness by both the Bank and Fund in the organization of future meetings. I believe that the standing of both these important organizations and indeed the credibility of the now well-established institution of our annual meetings would be enhanced if we were to meet under more modest arrangements. I welcome the three new members of the Fund and Bank. I would specificially welcome the Solomon Islands, our neighbor from the distant South Pacific...... The world economic and monetary scene of 1977 and 1978 has been analyzed with the usual clarity in both the Annual Reports of the Fund and Bank for fiscal year 1978. The Managing Director of the Fund and the President of the Bank have covered the salient features of this important subject in their addresses. The Chairman of the Interim Committee and Governors who have spoken also elaborated on the same issue. The Presi- dent of the United States in his very incisive and, I think, sympathetic coverage of our collective world economic problems isolated and focused on all the economic and political prescriptions that need to be implemented by our various countries. So, bearing in mind your plea for time saving, Mr. Chairman, I shall not cover the same ground. Instead I shall focus only on a number of issues deserving of further emphasis. Although the economic performances of the various countries have varied widely, we have in the last fifteen months witnessed general improvements in inflation and adjustments in current account balances. But the U.S. economy has and continues to experience certain underlying weaknesses. Its deficits continue to persist. Its rate of inflation has increased and the U.S. dollar continues to weaken. The U.S. deficit and the still persistent deficits of the non-oil developing countries and the primary producing developed countries are of course mirrored in the persistent and growing surpluses of the economically strong industrialized countries, particularly Japan and the Federal Re- public of Germany. At the same time and, as we all know, unemployment remains relatively high in all the member countries of the Fund and Bank. It is apparent that the policies, particularly fiscal and monetary, of the major industrialized countries must be closely coordinated if we are all to escape from the clutches of persistent recession without bringing upon the world another bout of high inflationary rates as experienced in 1974 and 1975. It is difficult to see how the United States could continue on an expansionary course, given its continuing deficits, rising consumer prices and weakening dollar. It would seem that the answer must lie more in the

83 adoption of expansionary fiscal and monetary policies of those able to do so, namely those industrialized countries with low inflation rates and mounting surpluses. The revised Articles of Agreement of the Fund pur- port to distribute the burden of adjustment symmetrically on the deficit and surplus countries. The mechanism of adjustments now fall heavily on curing the underlying conditions of the economies concerned through appropriate policies. The situation which I have just covered would appear to call for adherence to the spirit if not the letter of this particular provision for its solution. I must also draw attention to the specter of rising protectionism in recent months. The President of the Bank in his address referred to the gathering momentum of protectionism by the industrialized countries. It will be recalled that as long back as January 1974 the then Com- mittee of 20 strongly pleaded for the avoidance of escalation in trade restrictions. In May 1974 and every year after that OECD has been repeating the same caveat. The 1977 Annual Report of the Fund also repeated the same warning and added that protectionism could destroy the prospects for world prosperity. Last year the President of the Bank, the Managing Director of the Fund, and GATT and UNCTAD added their deep concern against the rising trend of protectionism. An analysis of trade policies of the United States, Canada, Australia, Japan and the EEC countries would suggest that all these warnings have fallen on deaf ears. The thrust of protectionism by the industrialized countries has fallen heavily against those developing countries with established industrial bases. Protection against textiles, clothing, footwear, bicycles, umbrellas, ceramics, leather, wood products, silk yarn, alkaloids; items which employ labor and unsophisticated manufacturing processes and upon which the developing countries heavily depend for their export earnings, have noticeably escalated over the last three years. Such protectionism has been implemented through various means including tariff increases, quota restrictions, orderly marketing arrangements, total pro- hibitions, minimum import prices, anti-dumping duties, countervailing duties and import licensing. As we all know very well from bitter experience in the past, the adoption of restrictive trade practices has an unfortunate tendency to spread widely. And it is here that serious danger lies. True unemployment and threat of unemployment are politically difficult to resist. But beggar-my-neighbor policies, of which protectionism is a notable example, ultimately result in serious setbacks in all our collective efforts toward world economic progress. We all know what the long-term answer must be. The tide of protectionism must be contained and reversed. Industrialized countries should adopt policies effecting structural adjustments in their economies shifting productive capacities toward the capital-intensive and sophisticated manufactures, allowing the developing countries to operate freely at the other end of the manufacturing spectrum. I would like to congratulate Mr. McNamara, the Executive Board and staff of the Bank for another year of impressive performance. At these difficult times we must ensure that the Bank, the IFC and IDA can look

84 forward to increasing involvement in real terms in the Third World in the years ahead. But this cannot take place unless we urgently effect a substantial increase in the Bank's capital. We must also lend strong support to the expeditous completion of IDA-V and to early action on IDA-VI...... Turning to the important question of stabilizing commodity export earnings, I must commend the initiative of the Federal Republic of Ger- many for its proposed globalized STABEX Scheme. The Scheme as proposed covers a relatively wide range of commodities important to the Third World. Its operation is expected to be triggered through specified shortfalls in total export earnings from approved commodities. It is on this particular aspect that I would urge those concerned with developing the formula to consider operating on a commodity-by-commodity basis. Such an arrangement would allow STABEX disbursements when individual commodity export receipts declined by specified percentage points. It would then be in line with the existing STABEX Scheme for associate EEC members; an arrangement which works very successfully at present. The Development Committee of the Fund and Bank has a critical role to play. We all welcome the decision to review its position after a further period of two years. It would be important for its effectiveness to strengthen its Secretariat. I believe that excess capacity does exist in both the Fund and Bank and would feel that this resource, which hopefully would not involve additional cost, could be put at the disposal of the Committee in the months ahead. The solutions to the world's economic problems are political ones. The economic and financial measures that need to be introduced by our various countries are easy to formulate. Indeed all the speakers who have spoken covered these with precision and clarity. The literature, issued by multilateral organizations such as the Fund and Bank, and also by aca- demia, have all accurately analyzed the world's persistent economic difficulties together with appropriate policy prescriptions. But it is upon the implementation of such policies, which require political resolve, that we still fail. The world needs political will by our leaders. To improve our collective welfare we must accept a spirit of give and take. We must be prepared to sacrifice our individual national economic interests in the short term to the common good in the long term. That is where we must begin. It is undoubtedly the condition precedent to bettering the economic position of all our peoples.

FRANCE: RENE MONORY Governor of the Fund For the international monetary community, the entry into effect of the Second Amendment of the IMF Articles of Agreement is certainly the most significant event of 1978. It marks an important step toward the rebuild- ing of the international monetary system. But what I find striking and a cause for concern is the continued presence of the problems with which

85 we have been faced for some years: the slowdown in the growth of world economic activity; the persistence of excessive inflation; the massive unemployment; the existence of profound disequilibria in balances of payments; and the continuance of wide disparities in levels of economic development. I should like today to discuss some of the means that should enable us to progress toward the three main objectives we should set for ourselves: a more sustained and more generalized economic recovery; a better adjustment of international payments; and a more equitable and effective organization of the international economy. I-Our first objective must be more sustained and more generalized economic growth. This objective, which our country's economic policy is designed to achieve, calls for immediate concerted action to stimulate economic recovery, coupled with the adaptation of economic structures. (a) In the last two years the growth of economic activity and world trade has been disappointing. Furthermore, marked disparities have become apparent between the rates of growth of different countries. This situation poses grave dangers. It could obstruct the continued adaptation of productive structures and loom menacingly over the open system of international trade which has prevailed for more than 30 years and which has been chiefly responsible for the widening of prosperity. Every effort must therefore be made to bring our economies out of the slow-growth stage they have been in since the energy crisis. The need for broad concerted action has been recognized. Specific commitments have been made to this end; their implementation must be pursued until the desired results are achieved. This concerted action should be on as wide a scale as possible and geared to the situation of each participant. It seems to me essential that the developing countries be able to join forces with the industrial countries in the endeavor. The industrial countries must help the less developed nations to shake off the constraints that would hinder them from sharing in accelerated growth. The countries' roles in this joint effort should be in accordance with the particular economic conditions of each one. In any event, the measures taken in our concerted endeavor must not entail any relaxation of the struggle against inflation wherever it continues to be a threat. (b) The second comment I should like to make to this meeting concerns the need for a policy of structural adjustment aimed at restoring the conditions for more rapid and enduring economic progress. This effort should be focused on three aspects in particular: First, the productive apparatus must be adapted to the new circumstances of the world economy. This calls for the development of new activities, especially in the geographical areas most affected by unemployment. Secondly, business must be allowed to find the sound financing conditions it requires, which can be done by ensuring an appropriate distribution between wages and self-financing. Such a policy is vital for the lasting recovery of investment. Finally, we must continue all our efforts to conserve energy and develop new energy sources.

86 (c) French economic policy has been formulated in this context, and in the light of these needs, since March of this year. I should like to mention briefly some key elements of the active policy to improve basic economic and financial conditions that the French Government has been implementing since September 1976. The first evaluation of this effort, which can be made today, is positive and encouraging. In 18 months the balance of trade has been restored to equilibrium. We may expect that for 1978 as a whole, the French balance of trade and current payments will be nearly in equilibrium. The year 1979 should show surpluses. The gradual improvement in the financial situation of France is also reflected in the strength of the franc in foreign exchange markets. This steadiness of the franc has, furthermore, contributed to an appreciable replenishment of our foreign exchange holdings. This return to equilibrium in the foreign accounts of France was made possible by the efforts made in the last two years to slow the pace of price and wage increases. The success achieved has given us enough leeway to make a significant contribution to the collective endeavor of reviving the international economy and world trade, by allowing a doubling of the 1978 budget deficit. But it was advisable to go further and to embark on the structural reforms required to foster greater freedom, responsibility, and competition in our country. In this regard, the year 1978 will be noted above all for the total deregulation of industrial prices that has taken place in recent months. It is aimed at restoring to executives full responsibility for management, thereby improving the efficiency of our enterprises. The French Government has also adopted key fiscal measures aimed at channeling savings into the purchase of corporate stocks. France has, then, taken a number of important steps to ensure sustained and lasting economic growth and the noninflationary development of our economies in the years ahead. However, these efforts cannot yield their full effect unless progress is made in improving the functioning of the international monetary system. II-Progress can be made toward improving the international adjustment process if we manage to reduce instability in foreign exchange markets and to improve conditions for the financing of deficits. (a) Reduction of instability in foreign exchange markets: Since our last meeting, the foreign exchange markets have been disrupted by wide fluctuations, not all of which can be explained solely by the underlying economic conditions. It is now increasingly evident that the system of floating rates is incapable of preventing such erratic movements and that it cannot spontaneously restore balance of payments equilibrium. Moreover, instability in exchange rates hampers the internal adjustment policies pursued by the deficit countries and creates further risks of spreading inflation and upsetting the stability of economies. Finally-and this is a matter of grave concern-the sharp and erratic exchange rate fluctuations of recent months have impaired the confidence of economic agents, made all their forecasting extremely hazardous, and

87 led them to adopt a "wait-and-see" attitude. These uncertainties act as a check on investment and a serious hindrance to growth. It is not surprising, then, that more and more countries, both industrial and developing, are showing a desire for greater stability and opting for an exchange system in which their currency is pegged either to another currency or to a group of other currencies. In view of all this, the member States of the European Economic Com- munity undertook last July to strengthen their monetary cooperation. My colleague Mr. Matthoefer has described the main features presently envisaged for the mechanism decided upon. I should just like to add here a few remarks of my own. My first comment is that the sole aim of the system is the establishment, on realistic and durable bases, of a zone of monetary stability in Europe. The EEC scheme will be in accordance with the general purposes and the Articles of Agreement of the International Monetary Fund. Secondly, the European monetary system will in itself be complementary to the existing international institutions. Thirdly, it will be necessary to weave this European monetary system into the pattern of existing exchange relationships. For this reason, the Council of Ministers of Economy and Finance of the EEC has clearly emphasized that the system should not be prejudicial to third currencies. In principle, interventions to limit fluctuations between European currencies will be effected in EEC currencies. My fourth comment is that this European monetary system, by establishing a zone of monetary stability, should contribute to the recovery of the European economies and to the adjustment of world payments. Within this system, in fact, efforts will be symmetrically shared by deficit countries and surplus countries. So, by this venture, the member States of the European Economic Com- munity intend to make a positive contribution to the building of a more stable exchange system, one that is more propitious to economic growth, the development of trade, and the adjustment of world payments. (b) To achieve a better adjustment in international payments, we must not only reduce instability in foreign exchange markets but also improve the conditions for financing balance of payments deficits. Since last year the world payments situation has shown some noteworthy improvements. Yet substantial payments disequilibria persist. Concerted action should help to improve balance of payments adjustments. However, it will not cause the present disequilibria to disappear overnight. Financing needs will continue to be great, and we must see to it that they can be met in a satisfactory manner. The International Monetary Fund must, therefore, be capable of playing its full part in assisting countries with temporary balance of payments difficulties. That is why I welcome the agreement we reached yesterday in the Interim Committee; the remarkable alacrity with which it was obtained is an unmistakable sign of our will to cooperate. This agreement, which reflects a constructive compromise between the concerns of all parties, causes me only one regret: the present basis for

88 SDR allocations, which is solely quotas in the IMF, means that the developing countries receive too small a share. I express this regret in the hope that it will lead to a consideration of political and technical aspects in time for the next meeting. 111-I come now to the third essential task to which we must devote ourselves-that of moving toward the establishment of a new international order. France regards this as an essential objective, and it was with such an end in mind that we proposed the Conference on International Economic Cooperation. I should like today to discuss three aspects of this endeavor: official development assistance, stabilization of raw materials prices, and the role of the multilateral development institutions, particularly the World Bank Group. (a) Official development assistance is a matter of overriding concern. The economic growth of the developing countries, and especially that of the poorest among them, depends greatly on the volume of official development assistance. Recent developments in this regard have been doubly disappointing. For one thing, total official assistance declined in 1976 and 1977. Furthermore, differences in the assistance efforts made by the various countries, instead of narrowing, have tended to widen. For its part, France wishes to affirm its support of the international target of allocating 0.7 per cent of GNP for official development assistance. It is fundamental, in our opinion, that the countries with the highest per capita incomes make a special effort to attain this international objective, and thus guarantee a more equitable sharing of the collective assistance effort. (b) With regard to stabilization of raw materials prices, it is our sincere hope that the negotiations now in progress for the establishment of a Common Fund and the finalization of commodity agreements will come to a rapid conclusion. (c) I also wish to refer to certain aspects of the activity of the World Bank Group, touching on four main points: I should like first to reaffirm France's support for expansion of the operations of the Bank and its affiliates. We are in favor of regular and reasonable increases in the volume of IBRD lending operations in order to avoid any interruption in the rate of its commitments. As far as IDA is concerned, we are delighted to see the contributing countries carry out the financial undertakings they gave with regard to the fifth replenishment of IDA resources, and we are convinced that this will be the continuing pattern. In the second place, I should like to emphasize how necessary it is for the World Bank to maintain its high standard of accomplishment. What I mean by this is that the Bank should be especially careful in maintaining the quality of its projects and its management, on which it has established its reputation and which ensures its access to world financial markets. By the same token, the Bank must not abandon its traditional spheres of activity, these being in many cases the keys to growth. The long experience

89 the Bank has gained in them is a pledge of its effectiveness and ought not to be cast aside. The third point I should like to make is that it seems to me desirable that IDA credits and IBRD loans take better account of the basic needs and potential resources of the recipient countries. In this regard, a special effort should be made to help the poorest countries, particularly in Africa. As my final point, I would draw your attention to the importance of expanded Bank operations in the energy field. The Conference on Inter- national Economic Cooperation last year invited the Bank to participate to a greater extent in the diversification and exploitation of energy resources in the developing countries, particularly those that are importers of energy. Since then, the Board of Executive Directors has approved an operations program in this sector for the immediate future. The French Government assigns high priority to this program, and hopes that, in accordance with the wish expressed by the heads of State and Government in Bonn, the World Bank will seek means by which it might help to ease the problems of petroleum exploration. I also believe that the Bank should make a greater contribution to the development of mineral resources in the developing countries. This would imply a significant extension of the cooperation approved for mining projects and the provision of necessary financing for price-regulating agencies. Furthermore, the Bank might also be called upon, in conjunction with the IMF, to make a medium-term contribution to the problem of shortfalls in export earnings. These, then, are the general guidelines proposed by the French Govern- ment. If they are to be implemented, it will be necessary for each member Government to agree to make the necessary efforts in a spirit of solidarity and collective accomplishment. If we recall the situation that prevailed in 1974 and the gloomy forecasts made at that time, we may take the measure of the progress achieved in the last two or three years. These achievements can be carried further if we persevere in our cooperative effort, overcoming our inevitable differences and searching tenaciously for courses of action and measures that we may undertake together for the common good.

GERMANY: HANS MATTHOEFER Governor of the Bank I have the honor to take the floor on behalf of the European Communi- ties-since my country currently holds the presidency of the Council of Ministers-and as Governor for the Federal Republic of Germany as well. Before turning directly to matters of our annual discussion I would like to make one short remark concerning the basic condition for any solution of the economic problems we face: the preservation of peace and the diminishment of the risks of war in all parts of the world. I would like to thank President Carter for his efforts in this field and particularly for

90 helping Egypt and Israel toward a peaceful solution of the problems in the Middle East. On behalf of the European Community I would like to inform you of our common view of the present economic situation, our efforts to cope with them, and to add some words regarding the concrete problems we are dealing with during this conference. Assessing the present state of the world economy and its prospects is not easy. Despite some signs of revival, growth has remained unsatisfactory. We are worried about persisting unemployment. It hits hardest at the disadvantaged segments of society. Its costs in economic and human terms are too high. Unless growth picks up, major inroads on unemployment will hardly be achieved. As for prices there are some encouraging signs. In the Community inflation lessened particularly in those countries where previously it was highest. On the whole, however, worldwide inflation rates and inflation differentials remain unacceptably high. For too many countries price stability is still an elusive goal, with inflation showing a rising trend in some cases. As regards the adjustment of payment imbalances a number of countries succeeded remarkably well. Last year the deficit countries within the Community recorded a favorable shift in their current accounts of about $11 billion. This is not just a reflection of still unsatisfactory economic activity. It is the result of deliberate stabilization efforts. This success con- trasts, however, with a disturbing increase in the external imbalances of other major economies of the world. Further progress in the adjustment process will crucially depend on developments in the energy field. The Community will continue to contribute its share to a stable energy situation. We are committed to reduce our dependence on imported oil, to save energy and to develop new sources of energy. We need, however, the cooperation of the other major energy importing and energy producing countries. Unless there is adequate assurance about future energy supply and prices it will be difficult to sustain a favorable investment climate. We also hope that, here in our host country, effective energy measures will soon be adopted. We welcome the initiatives taken by President Carter in this field. An improvement in the U.S. balance of payments would strengthen the external value of the dollar; it would enhance confidence in the exchange markets, which is a prerequisite for investment and growth. The monetary and economic problems which have been discussed at last year's Annual Meetings have changed little. The basic issues are as pressing as before. In one respect, however, progress has been made: the consensus on our common strategy for more growth and more employment has been filled with a good deal of substance. On various occasions we have witnessed the determination of governments to solve our problems in a spirit of cooperation rather than in isolation. For the Community the Bremen Summit has given an impetus that will shape the Community's policy for some time to come. There is now a large measure of agreement about the sharing of responsibilities in our common efforts. The agreement

91 has been followed by policy action in a good number of cases. This provides a sound basis to support reasonable confidence for the time ahead. With integration between the countries of the European Communities becoming closer, the interrelationship between internal stability and the situation in exchange markets is increasingly felt. In July the Community therefore discussed a scheme for tightening monetary cooperation. This scheme-the "European Monetary System"-is to provide for a zone of greater stability in Europe, contributing to greater stability worldwide. The technical details of the system are under examination. The Euro- pean Council will consider the system at the beginning of December. We are well aware of the implications of such a system for international monetary relations. We are keeping in mind the interests of our partners in setting up the system and we will continue doing so in operating it. It is obvious that a smooth functioning of the system will require an even closer coordination of economic policies between the participating countries. The problems we face do not lend themselves to quick solutions. We must approach them in a long-term perspective. We need patience and stamina. We still bear the legacy of inflationary strains. More than in previous business cycles economic recovery has to contend with problems of structural change. We must allow our economies to adjust themselves to these changing conditions. Speed and means of this adjustment must, however, not jeopardize our social achievements and aspirations, which we can be proud of and should not abandon in times of economic difficulties...... Let me now turn to my own country, speaking as Governor for the Federal Republic of Germany: We have repeatedly-and again in recent months-adapted our economic and financial policies to the needs resulting from the world economic situation. Following the strategy adopted at the Bonn Summit meeting in July, we have prepared action to accelerate demand and to promote growth in our country. In effect, last week I presented the 1979 budget to the German Parliament and I trust it will be supported and speedily passed. We expect the new fiscal program to give our economy an additional boost of over $6 billion. Tax reliefs and additional fiscal expenditures amounting to 1 per cent of our GNP will give sustained encouragement to industrial investment and stimulate consumption by private households. This new program has been preceded by a series of public investment programs, tax reliefs, and other stimulatory action since 1974/75. The impetus given to the economy can easily be read from the deficits of the public sector (including regional and local authorities) which went up from 2.7 per cent of GNP in 1977 to 3.9 per cent in 1978 and will rise to 41/2 per cent of GNP in 1979. The size of our deficit has already given rise to serious concern in all political quarters back home. The limit has clearly been reached. But fighting unemployment, especially unemployment among young people, is our primary concern. We are also aware of the importance of price stability, knowing that inflation would not help to reduce unemployment. In order to achieve more growth Germany most urgently needs a higher

92 rate of investment. This presupposes confidence, cost stability, and also budgetary incentives for those of our industries which have difficulties to cope with structural problems and to stand the risks of adjusting themselves to future conditions. In addition to internal stability we need stable external conditions. The adjustment process has been under way for many years now. The appreciation of the deutsche mark as a trade-weighted average came up to almost 60 per cent compared with early 1970 and has exceeded the inflation differential. The improvement of our partners' competitive position has considerably affected our trade flows in real terms. From 1974 to the first half of 1978, real imports rose by some 34 per cent, while exports increased only by some 10 per cent, and real GNP by 8.8 per cent over the same period. Imports of manufactured goods, which grew by about 43 per cent from 1974 to the first half of 1978 now account for over half of our total imports. The demand effects arising from this import performance must undoubtedly have contributed to sustain employment and growth in other countries. On the other hand, this remarkable import penetration-and quite a number of other factors-has subjected the German economy to structural change. An economy which for more than two decades became accustomed to produce external surpluses cannot easily adjust to current account equilibrium. As everywhere, structural changes take time and organizational imagination. Excessive and rapid exchange rate changes would undermine confidence which still is the main basis for investment and growth. More external stability would greatly support our chances of achieving a better rate of economic growth while accepting and even fostering structural change. For the time being, our current account surplus still persists but has been more than offset by long-term capital exports in 1977. During the first seven months of 1978 we have continued to export long-term capital on balance. The low level of interest rates in Germany led to extraordinary differentials to major foreign financial markets and, thus, has considerably improved the conditions for international payments equilibrium. I wish and hope that our major partner countries will strive to take advantage of their improved competitive position. Without effective action on their side, all our efforts will be of no avail. No country, big or small, can be exempt from the unwritten code of behavior for international adjustment. We greatly welcome the recent measures of the U.S. to dampen inflationary pressure. Action on fundamentals is of utmost importance for the dollar as the major trading currency. A prudent but clearly positive attitude toward the process of restructuring economies is crucial if we want to prevent the emergence of a new wave of protectionist measures. Former periods have seen protectionism because of balance of payments difficulties. Today we have learned how to finance somewhat better our balance of payments needs. In these days, the roots of protectionism can be found rather in widespread concern about production and employment. Certain sectors are particularly affected. My Government continues to believe in free trade. To sever the ties of world

93 trade would benefit neither strong nor weak economies. The countries represented in this room would unavoidably drift apart. The joint declaration against protectionism by the countries taking part in the Bonn Eco- nomic Summit Conference and their commitment to bring the multilateral trade negotiations to a successful close are of major significance for world economic recovery. I am glad to see that a good number of developing countries have achieved a promising improvement in their trading position and a higher degree of wealth. Industrialization in the Third World is to be welcomed, even if this adds to structural problems in highly industrialized countries. Again, protectionism cannot be of any help. On the contrary, industrialized countries should support efforts made by developing countries to increase their exports; this would increase their purchasing power, which in turn would be beneficial to the world economy...... As to the increased capital transfer through multilateral development institutions, we have repeatedly stated, as we did again recently at the Bonn Economic Summit meeting, our willingness to contribute to a replenishment of funds. It is urgent to increase the capital of the World Bank. The negotiations ought to be finalized by the beginning of 1979. The Federal Republic of Germany supports a substantial capital stock increase of the World Bank, of which a 10 per cent share would have to be paid in. In view of the development of the standing of the Bank with regard to the international capital markets one should work toward this capital increase becoming effective in 1981. Likewise, the coming year should see an agreement reached on the comprehensive complex of the "valuation of the Bank's capital." It is also important to reach a decision in the near future on how to treat the adjustment and maintenance of value, especially for reason of the already mentioned credit standing of the Bank. I am thinking here also of the provision of funds to the World Bank by my own country, which reached US$1.12 billion in the last fiscal year, thus representing the Bank's main source of long-term financing. Two decisions, taken at the Bonn Summit affect the future role of the World Bank in the international development process. We have committed ourselves to increase IDA funds, enabling IDA to expand its lending capacity in real terms. The Federal Republic will participate in the Sixth Replenishment of IDA, as in the past, on the basis of the well-proven principles established there. The other decision concerns the future role of the World Bank in the energy sector. We are looking forward with interest to the respective report. Without forestalling its results I would wish that existing institutions of proven efficiency like the World Bank will play a prominent role. A setting up of new funds should be avoided. The Federal Republic of Germany subscribed to its full share in the selective capital increase. It also subscribed to its full share in the first capital increase of the IFC. It participated, until IDA-V became effective, in the bridging arrangement, as it already had in the case of former replenishments, and it notified the contribution to be made at an early stage.

94 I wish to thank President McNamara, Managing Director de Larosiere and their staffs very much indeed for the excellent work and for their dedication. I may refer also to the World Development Report. This study is of great advantage to all of us. The next report will appear at a time when preparations for a new international development strategy of the UN will be in its decisive phase. We hope that the report can make a substantial contribution toward the discussions on the UN strategy.

INDIA: H. M. PATEL Governorof the Bank and Fund I would like to welcome also the members who have joined the Fund since the last Annual Meetings: Maldives, Suriname, and the Solomon Islands. At this time last year, the small and faltering recovery in the industrial world seemed to portend, if not recession, generalized stagnation from which a way out could only be found if the leading industrial countries were prepared to take urgent corrective action. As the year advanced, pessimism gave way to moderate optimism and during the Interim Com- mittee meeting in Mexico City the prognostications were predominantly favorable. Since then, the pendulum once again swung back and the outlook for the coming months began to look decidedly gloomy. This was because the coordinated corrective action on which our hopes of recovery rested did not materialize. The continued sluggishness in economic activity in the developed world, the low rate of expansion in world trade and the instability in exchange markets observed since the last Annual Meeting have had, and will have, a number of adverse repercussions on the developing world. These will obviously further depress the already low rate of income growth among non-oil developing countries and delay the removal of poverty of millions of their people. It was expected that the declining trend in the developing countries' balance of payments deficits from the peak of 1975 would be reversed in 1978. As it is, the aggregate deficit would be about 45 per cent larger than the level last year, partly owing to an unfavorable movement in the terms of trade. The debt servicing problem of some of these countries might, therefore, become acute and force them to adopt deflationary measures and/or severely restrictive import policies unless adequate relief/credit is made available. I cannot help feeling that the health of the world at this time would have been better if there had been greater cooperation and coordination among the leading economies notwithstanding the limitations on the maneuver- ability of the authorities imposed by unacceptably high inflation and unemployment rates. Some efforts were no doubt made in this direction but

95 they have failed to yield the desired results because of inadequate and halt- ing implementation which again was the result of excessive caution and conservatism. We welcome the renewed initiative of the Bonn Summit declaration and feel encouraged that, this time, the needed policy measures will be expeditiously implemented. Whatever be the preferred development strategy-the "locomotive," the "convoy" or any other-the fundamental fact is that because of the sheer weight of their economies, the policies and performances of major industrial economies will have far greater multiplier impact, in either direction, on the rest of the world. We would, therefore, urge them to set their growth targets as high as possible commensurate with reasonable price stability. In the field of international payments, the most striking feature has been the pronounced instability of exchange rates and its unsettling effects on the growth of the income and trade of developing countries. These countries have had to deal with this phenomenon at a time when they were faced with the difficult task of undertaking domestic adjustment measures in the face of a severe deterioration in their terms of trade since the early seventies. The slump in the U.S. dollar and the continued inflation in the industrial world have sharply reduced the real purchasing power of developing countries' reserves. One does not have to be an unflinching believer in fixed exchange rates to be convinced that the world could do without the extreme volatility of exchange rates we have experienced in recent months. Given the inflation differentials among countries and the distribution of balance of payments surpluses and deficits, exchange rate movements are inescapable; but we have serious reservations whether the observed movements could be characterized as orderly or even appropriate. Here again, lack of adequate cooperation among major economies has caused unwarranted fluctuations. Leading economies should undertake (i) timely and appropriate policy measures, (ii) concerted action to resolve the underlying destabilizing factors, and (iii) prudent intervention to ensure orderly movements in exchange rates. The International Monetary Fund should make effective use of its powers of surveillance under the amended Articles to prevent the persistence of disorderly movements in the exchange markets...... Last year I had expressed concern at the restrictive tendencies on the trade front. This undesirable trend appears to have gained strength. The Fund's 29th Annual Report on Exchange Restrictions concludes that during 1977 and early 1978 several countries in Europe and elsewhere made more frequent use of protectionist trade measures. This is increasingly hurting a growing number of developing countries partly because it has coincided with a drop in the rate of expansion of world trade. The social and economic problems connected with structural adjustments needed to absorb more imports from developing countries are difficult but these should not be exaggerated. In any case industrial and creditor countries

96 should not attempt to throw the burden of adjustment on poor developing countries through the erection of trade barriers. The developing countries just do not have the economic capacity to bear the burden of adjustment. In this respect, the determination of the Bonn Summit leaders to maintain and strengthen the open international system is welcome. However, the manner in which the multilateral trade negotiations are being conducted raises serious doubts in the minds of developing countries about the outcome of these negotiations. It is my sincere hope that in the coming months there will be greater awareness of the aspirations and concern of developing countries so that in line with principles accepted in the famous Tokyo declaration these negotiations are able to make a major contribution to an orderly and equitable management of the growing interdependence of the world. While on the subject of trade, I cannot but point to the serious deterioration which the non-oil developing countries have suffered in their terms of trade in the last few years. Many of them have made strenuous efforts to expand the quantum of their exports, but their over-all balance of payments position continues to be under strain. A degree of instability in export prices has contributed to this but the increase in the prices of their imports have also been a factor of great significance. Therefore, while measures to stabilize export earnings at a higher level are necessary, this is only a partial solution to the wider and more complex problem of their balance of payments vulnerability. A review of compensatory financing facilities should keep these wider aspects in mind. It is certainly not beyond our ingenuity to devise appropriate mechanisms which would enable developing countries to withstand the danger of disruption of their external payment situation. Of equal concern to us is the overall situation with regard to international resource transfers. Official development assistance levels have declined as a percentage of the Gross National Product of donor countries from 0.36 in 1975 to 0.33 in 1976 and the projections of the World Development Report suggest that they may rise to no more than 0.39 by 1985. This is a grossly inadequate measure of progress. What has happened to the target of 0.7 per cent, a target which was an internationally declared objective but whose fulfillment is now confined to a handful of developed countries and some oil producing countries? Capital transfers represent an important aspect of economic interdependence. We believe that an increase in official development assistance is an essential aspect of the international adjustment process in that the surplus countries would be fulfilling not merely their obligations in terms of adjusting their balance of payments but also helping in raising the level of development in the developing world. In fact, such an increase in developmental assistance would help to expand economic activity in many leading industrial countries where at present there is considerable under-utilization of productive capacity and unemployment

97 levels are higher than what they should be; and some of these countries also happen to be the ones whose official development assistance performance is disappointingly low. An analysis of recent trends of external capital flows to developing countries shows that concessional capital flows have increased far more slowly than commercial capital flows. Since the capacity of low income countries to absorb external capital on commercial terms is extremely limited, it is not surprising that these countries have failed to attract external resources commensurate with their objective needs and growth potentialities. There is an urgent need to correct this growing asymmetry so that external capital inflow on soft terms to the lower-income countries is encouraged. There is indeed no real substitute for larger official development assistance. The increase needed in levels of official development assistance reflects also our recognition of the need for concessionality in assistance to the poorer among the developing countries. It is a matter of gratification that several Development Assistance Committee members are now providing assistance to the low income countries on a grant basis. While this is welcome, it must also be pointed out that the problem of debt servicing remains a serious one for many poor developing countries. The logic behind the provision of new assistance on a grant basis clearly needs to be extended to debt relief or any other form of retroactive application of the currently prevailing soft loan or grant terms. I would like to take this opportunity to express our appreciation of the measures taken by Canada, the Nether- lands, Switzerland, Sweden, and the United Kingdom in canceling the official debt owed to them by several developing countries. While the importance of concessional aid to low income countries has received universal recognition, it is a matter of regret that the replenishment of International Development Association resources regularly runs into problems, even to a point where its commitment authority appears to be seriously jeopardized. Although the funds available to IDA V will not be fully committed before June 1980, we strongly support Mr. McNamara's plea for start of negotiations for the Sixth Replenishment latest by the end of the current year. In view of the great importance of the International Development Association to the poorer among developing countries, it is absolutely essential that the next replenishment should involve a substantial expansion of resources of the International Development Association in real terms. The problem which the International Development Association is facing is part of the larger issue of mobilization of resources for the multilateral development institutions. The World Bank has expanded its activities in a significant manner during the last decade under the inspiring leadership of Mr. McNamara and as he begins his third term, the Bank is poised for an even greater role. The proposal for a capital increase of the Bank has come

98 not a day too soon and we strongly support the enlargement of the Bank's capital, so that it might be enabled to play an even more helpful isle in the future. We welcome President Carter's declaration affirming the support of the United States for the increase in resources both of the Bank and the International Development Association. The Bank's expanding activity is not merely a matter of numbers. I believe its activities are beginning increasingly to make a qualitative difference to the lives of the people it serves, for they are oriented essentially toward alleviation of poverty and the provision of basic human needs. This change in the Bank's approach is completely in line with the thinking of my country. The objectives of India's new Five-Year Plan are precisely these, namely, the removal of unemployment and significant underemploy- ment, an appreciable rise in the standard of living of the poorest sections of the population, and the provision of some of the basic needs of the people in these income groups like clean drinking water, adult literacy, elementary education, health care, and rural housing. Accordingly, we are planning not merely to achieve a higher rate of economic growth than has been feasible in the past but to move toward improving the productivity of the lowest income groups and thereby effect a significant reduction in the disparities of incomes and wealth. We recognize that to achieve these objectives, the major effort has to be made by ourselves. India has progressed considerably along the path of self-reliance and the share of external assistance in relation to our own investment effort is indeed low. But at the same time we believe that the extent to which the international community is able to sustain the efforts made by countries themselves makes appreciable difference to the speed and the rate at which the developing countries are enabled to move forward in the achievement of their essential objectives. A favorable international economic environment characterized by forward-looking trade and aid policies by the developed countries can greatly enhance the effectiveness of domestic policy measures adopted by the developing countries. The message of the World Development Report is that international development ought to be a combined effort of both the developed and the developing world and that the world cannot afford to have large patches of poverty alongside tiny islands of enormous affluence. In this task the international financial institutions have done commendable work and their successful functioning in the future will without a doubt provide valuable support to the grim struggle of millions of the world's poor for a better and more meaningful life.

99 INDONESIA: ALI WARDHANA Governor of the Fund Economic rates of growth of developing countries, registered by both the Bank and the Fund in their as usual informative Annual Reports, again indicate that on the whole they have been able to continue sustaining their momentum of progress. For the group of non-oil developing countries, the average rate of increase in output was 5 per cent in each of the three years after the recession of 1974-75. The figures for the industrial countries as a group were lower so that the recovery from the recession was better in the nonindustrial countries. However, at least three qualifications should be made. First, the actual average size of the economies of the developing countries outside OPEC is smaller than in the 19 industrial countries listed by the Bank. Consequently per capita income or per capita GNP is much lower. Second, in comparison to the prerecession period, the 5 per cent rate of growth in output is 2 per cent lower than in 1973 and 1 per cent less than the average for the period 1969-72.1 Third, the World Develop- ment Report, published for the first time this year, reveals the persistence of subhuman conditions in many developing countries, including Asia, recognized as the area where economic growth, price and exchange stability and balance of payments performance were more favorable than in many other parts of the developing world. There are still 800 million people living below the so-called level of absolute poverty. Moreover, the sober statistics attached to the Bank's World Development Report reveal a situation in which death rates are high, life expectancy short, the number of physicians inadequate, education facilities insufficient, and illiteracy high. To this list, one could add a number of other basic human needs which remain unfulfilled to a large extent such as housing, water supply, sanitation, roads, and electricity. It is clear that a rate of growth of 5 per cent, even if sustained, is too low to lift the majority of the human race to more acceptable levels of existence within a reasonable period. At the same time, growth per se would not be sufficient, and a strategy has to be developed in order to include all the people in the development process. Growth with equity is the clarion call sounded most clearly by the Bank's President, Mr. McNamara, to which developing countries responded, because he voiced what they have recognized all along as the only way to achieve prosperity for everyone. In my own country, we are in the process of drafting our third five-year plan and, within the target of our intended growth, the set of priorities begins with social justice, followed by growth, and then by stability.

International Monetary Fund, Annual Report 1978.

100 Within the context of the involvement of all the people in the development process, higher rates of growth are necessary. Toward this need, the post-recession achievement of the developing countries is clearly inadequate. I would like to emphasize that the development of less developed economies is not in the interest of the relevant countries only. Moral and human considerations belong to the fabric of every civilization, and they should play their role, but the progress of the Third World will automatically lead to conditions conducive to the expansion and therefore prosperity of the industrial countries. The Third World represents a potentially enormous market, and the development of its economy will consequently benefit all countries. We are in this process not in different camps, we are on the same side, and as we march to overcome poverty, we march as partners-as partners in progress, as has been so eloquently stated by the Pearson Committee some years ago. Permit me to briefly make a few comments on the constraints which we are facing at present in our common search for progress and a better world for all. As I see it, a key factor is the situation in the industrial countries. They should progress more and do so more in step with each other than is the case at present. The Fund's Annual Report and its World Economic Outlook tell us that with the exception of the United States the industrial countries as a group possess large unused capacity which gives room for increased rates of growth. Many of them are simultaneously enjoying relative price stability and favorable balance of payments and reserves and are, therefore, reluctant to move further ahead. There is, on the other hand, the United States, which has an economy operating only slightly short of full capacity, but is facing the problem of rising inflation and large balance of payments deficits. In the first group of countries, unemployment is high, in the United States, relatively low. As a consequence of the fact that industrial countries are out of step with each other, the exchange market has become highly volatile with appreciating and de- preciating currencies causing problems to investment, to deflation and inflation in the surplus and deficit countries and to protectionism, hurting both themselves and us in the developing world...... But in this scenario I have the feeling that exchange rate adjustments are being given too great importance. For one, the speed of exchange fluctuations and their magnitudes are harming other countries, developing countries in particular. The value of their export earnings and reserves has declined, as have also their terms of trade, and their development plans are subject to cost overruns. They also have to face protectionism. Such a fall-out should not be considered without concern. I would like to suggest that greater emphasis be given to domestic policies besides allowing rates to adjust. With more timely fiscal, monetary and incomes policies, the latter either statutory or voluntary, it may be

101 possible to restore stability sooner and with less fluctuation in exchange markets, and therefore with less harm to other countries. There would also be less pressure to resort to protectionism which is, as we know, both self-defeating and counterproductive. I have refrained from emphasizing intervention policies. The industrial countries, in fairness, have intervened, but volatility remains because domestic policies were either late or timid or both. However, there is a need for some degree of intervention, preferably coordinated, to smoothen disorderly fluctuations, but we all agree that Article IV of our Charter attaches great importance to addressing ourselves to underlying conditions. Therefore, with external adjustment already taking place, domestic policies have to be reinforced and, in future, they should be given priority as soon as exchange markets show signs of serious disturbance. Stability and recovery may then be achieved sooner and with fewer shocks and at less cost than seems to be the case at present. In all modesty, may I recall what the Fund's Report says about Asia. That Report attributes Asia's relative success in achieving sustained growth to its sound and timely domestic policies together, of course, with flexibility with regard to the external sector. I have the feeling that internal and external adjustment has lately been tilted more in favor of exchange rates, but it is time to restore balance and evenhandedness. These are a few of the thoughts which I would like to share with you. It remains for me to extend, Mr. Chairman, my congratulations to you who, as a fellow Asian and my country's highly esteemed neighbor, is now occupying the highest position of our two institutions, a position which you and your country so well deserve. I would also like to extend a warm welcome to Monsieur de Larosiere, our new Managing Director, who assumed his responsibilities a few months ago. I am confident that he will, with wisdom, fairness, and understanding, exercise the great authority which we have put in his hands. I am deeply convinced that he, as one of the architects of our present monetary arrangements, will always have in his mind the objectives cherished by our Articles to promote orderly economic growth with reasonable price stability as a means to arrive at a stable system of exchange rates. That stability has so far not been enjoyed by us. I would also like to express our appreciation and gratitude to Mr. McNamara, who in all these years has been assisting us in the developing world in our efforts to pursue our goal of growth and equity. He deserves to be given the tools to help the world overcome poverty, and it is of great importance that new resources should be given to him. Let us therefore not hesitate any longer to agree on a general increase of capital subscriptions for the Bank. Finally, let me thank, on behalf of my Delegation, our host country, the United States, for its hospitality, and for the smooth and splendid arrangements both with regard to our stay here and the efficiency of our meetings.

102 IRELAND: GEORGE COLLEY Governor of the Bank and Fund The twelve months since our last Annual Meetings have seen only a slow abatement of the serious problems which beset the global economy for several years now. Slow growth, high unemployment, sluggish trade, and depressed investment have been facts of life for many countries. However, the situation as it is now emerging is showing promising signs of improvement. This is due to a significant degree to the consensus and agreements reached by the Interim Committee last April by the European Council in Bremen and by the leaders of the seven major economies in Bonn in July last. The policy initiatives which have followed create a climate in which the objectives of growth and stability can both be pursued with some confidence for the period ahead. That confidence could be considerably strengthened. Last year when I had the honor to preside at these proceedings, I took the opportunity in my closing address of putting forward a point of view which I was interested to note was stressed yesterday by President Carter and by some of my fellow Governors in their contributions. It was this. Every country, however great or small it may be, has an obligation to strive for the maximum growth rate consonant with its economic situation. Apart from the actual addition to the growth in world trade which this would represent, the climate of confidence so created would itself constitute a further substantial increment in that growth. We in Ireland have practiced what I am preaching. It is my view that no government is entitled to demand greater efforts to achieve growth from the major economies in the world-vitally important as this is-while itself failing to make such efforts. It is too easy to adopt a very cautious approach while blaming other governments and external conditions generally for the consequences of one's own failure to act. Since the efforts to arrive at a coordinated international approach to economic recovery and growth are now beginning to bear fruit, it is op- portune to thank the various international bodies-the Commission of the EEC, the OECD and, more particularly, the International Monetary Fund, which helped, through careful analysis and patient advice, to promote a consensus and translate it into a plan of action. It is vital that implementation of the common strategy should lead to lasting recovery. There has been a heartening note in many of my fellow Governors' contributions over the last few days of a determination that this recovery will be successful and sustained. This spirit of cooperative determination is most welcome to a small and open economy like Ireland's. Despite the unfavorable international environment, we in Ireland have, of late, been able to achieve a high rate of growth and a lowering of unemployment, while simultaneously registering

103 a marked deceleration in inflation. The pursuit of our domestic policy objectives will be less difficult in the better external conditions in prospect for the coming year. In this context, the scenario sketched by the Fund is relevant. It envisages policy action to sustain growth, and at the same time to pursue the adjustment process into the medium term. I believe that the end-1978 review of progress, envisaged by the Bonn Summit participants, should have regard to this analysis...... We are indebted to the President of the World Bank for his inspiring remarks on Monday. For many developing countries the continued success and expansion of the activities of the World Bank Group will be a vital element in their progress. The achievement of further expansion in the Group's work will not be easy. The difficulties encountered point to the continued need for a strong commitment on the part of all members of the Bank Group to its further expansion and particularly that the financing of the Group be approached in a realistic manner. Forthcoming discussions on the Sixth Replenishment of IDA's resources and on the question of a general capital increase in the Bank will give us an opportunity to express this commitment in a concrete form. In setting the general context for these discussions the publication of the Bank's "World Development Report, 1978" has been timely. The Re- port is a significant addition to the excellent analytical work previously undertaken by the Bank. All the reports before us highlight the magnitude of the tasks facing our two institutions. I trust we have the resolution to accomplish them. May I conclude by wishing the distinguished heads of the institutions, the President of the Bank and the Managing Director of the Fund, and their staffs, continued success in their difficult assignments.

ISRAEL: ARNON GAFNY Governor of the Bank After three decades of belligerence which has frequently flared into war, the Middle East now appears to be moving toward peace. With the attainment of peace, our region will be able to redirect its resources toward the solution of serious socioeconomic problems. Large sectors of the region's population live in abject poverty. Peace, and the mutual cooperation which, we trust, will follow close behind, can promote economic growth. Thus peace can make a significant impact upon the well-being of all, and most especiaily, of the poor. We are confident that cooperation among the nations of the Middle East, based upon mutual respect, can restore this region to the glory it knew, centuries ago. Israel's balance of payments deficit has declined appreciably in the past two years, from a level of $4 billion in 1975 to a level of $2 billion in

104 1977. Despite its contraction, this deficit still constitutes a very serious problem. Large balance of payments deficits, coupled with regional instability, frequently lead developing countries, such as my own, to adopt restrictive exchange and trade controls. It may be added parenthetically that under serious deficit conditions some developed countries have also implemented restrictive policies. Despite difficult conditions, Israel implemented one year ago a far- reaching liberalization of its foreign exchange system. The steps taken abolished almost all the direct administrative control mechanisms used for regulating international trade and payments. The Reform eliminated export premiums and import levies, thus unifying the exchange rate. At the same time, the exchange rate was permitted to float, opening the economy to the forces of the market mechanism. The Reform's first year is drawing to a close and its initial evaluation can now be made. By and large, the Reform, which constituted implementation of the Fund's basic tenets, can be regarded as a success. Public confidence in our exchange system has increased markedly. Furthermore, negative side effects frequently associated with liberalization have failed to materialize: there has been no flight of foreign currency, nor have exports been adversely affected. In fact, signs are now appearing which indicate that exports have begun to benefit from the Reform. It is, we believe, fair to say that all countries seek, but few are able to maintain, the appropriate balance between economic growth and price stability. By implementing the described Reform, we believe that we have taken an important step toward ultimately attaining that goal. However, a long, hard road to price stability still lies ahead. Whereas some countries have succeeded in slackening inflation rates, for most of the developing countries-my own among them-inflation still constitutes a very major problem. One of the central concerns of this Meeting, as both Mr. de Larosiere and Mr. McNamara have pointed out, is the dangerous resurgence of protectionism and growing barriers to free trade. The Fund and the Bank must utilize all the means at their disposal to bring about the removal of restrictive trade practices, both overt and covert. Free trade throughout the world is essential, if developing countries are to expand and diversify their trade, and improve their balance of payments position. Without this, socioeconomic progress in the developing world will be stifled, and the repercussions for the whole world community may be dire indeed...... As Mr. McNamara has clearly indicated, progress toward the elimination of poverty is exceedingly slow. The Bank must, therefore, direct most of its resources to this problem. We are pleased to see that within the framework of the Bank's program, Mr. McNamara has also given a place of prominence to enlarging the use of the Bank's co-financing facilities. As

105 we pointed out at the 1977 Annual Meeting, expanded co-financing could serve extensively to increase capital flows to those developing countries which do not qualify for the Bank's softer, poverty-oriented funds. With Bank involvement in project loan preparation and supervision, and its retention of a minor funding role, the private capital market would readily undertake provision of the remaining funds for many developing countries' projects. The recent turn of events in our region has indeed been momentous. A peace agreement will mean not only the end to conflict, but the opening of a new era. With the economic barriers eliminated, with the borders opened to trade and joint ventures, opportunities and benefits lie ahead not only for the region itself but for the entire world economy. It is on this note of trust and optimism that I wish to close.

ITALY: FILIPPO MARIA PANDOLFI Governor of the Fund I wish to begin by joining previous speakers in expressing our sincere thanks to the Government of the United States for its hospitality and courtesies and to the management and staff of the Fund and the Bank for the efficient organization of our Thirty-Third Annual Meeting. I would also like to welcome Maldives, the Solomon Islands, and Suriname which have recently joined our institutions, and to express to Mr. de Larosiere our best wishes of success in his important and difficult task. I am grateful both to him and to President McNamara for their opening addresses which contain a clear and stimulating appraisal of the world economic situation and provide valuable suggestions for our discussions.

Economic Outlook in Industrial Countries The pace of economic recovery in the industrial countries since the recession of 1975 has been on the whole insufficient to restore the basis for full-employment growth and our economic systems still experience unacceptably high levels of unemployment and idle capacity. The resurgence of inflationary pressures in the United States and in other countries is particularly worrying. Some of the major deficit countries have succeeded in restoring equilibrium in their balance of payments, but with foreign demand growing at a slow rate, this has been achieved mostly by a severe containment of domestic output and of imports. The OPEC surplus has been falling, and is now smaller than the surpluses of a few industrial countries. Under these circumstances, instability has prevailed in exchange markets. The unsatisfactory evolution of the world economy is why the major industrial countries came together at the Bonn Summit and agreed upon

106 the main features of a concerted strategy designed to achieve, through the adoption of mutually reinforcing policies, a substantial improvement in the entire range of issues affecting the working of the world economy. Since then, some of the measures envisaged to implement the strategy have been introduced. Nevertheless, the latest available forecasts seem to suggest that the stimulus imparted by countries with favorable balance of payments position will be limited. Thus, in a climate of inflationary expectations, I see the risk that instead of a coordinated effort to sustain the growth of our economies there will be widespread recourse to policies of domestic demand containment. I believe that if we limited ourselves to such an approach, we would only worsen our problems, since at present inflation derives mostly from cost pressure, and therefore specific measures designed to curb such pressures are likely to be more effective than aggregate demand policies. To be credible and to elicit the necessary consensus among the social partners, policies of containment of the growth of prices and incomes should be coupled with measures to bring about a strong revival of investment activity, which is essential to absorb structural unemployment. Since private investment is likely to continue to be sluggish, it would be appropriate for governments to take the lead in promoting investment, particularly in industrial sectors where restructuring is needed to meet shifts in demand patterns, in the energy field, and in the area of environmental protection. I believe that the approach I have suggested is entirely consistent with the spirit of the Bonn Summit declaration. In fact, the goals of the concerted strategy include the establishment of a new climate in the international economic scene: a climate of predictability in policymaking, of determination in the pursuit of higher growth rates, and of greater consideration for the medium-term implications of the structural imbalances that have emerged over the last few years. The temptation to revise the objectives of the strategy whenever the behavior of economic aggregates differs from the forecast pattern looms large these days as we have unfortunately become increasingly afraid of losing control over the evolution of our economic systems. But the temptation should be strongly resisted, as it would seed uncertainty and mistrust among investors, trade unions and consumers regarding the ability of our countries to lift themselves from the doldrums of stagnation, unemployment and inflation....

... The Problems of Development Concerning the problems of economic development, I would like to pay a special tribute to the President and staff of the World Bank for the excellent work they have done in preparing the Development Report, where the issues confronting the Third World are analyzed. In particular, we agree on the importance the report gives to the interdependence between the industrial and developing economies as this will help us not only to

107 understand better the nature of development problems, but also to shape a more effective strategy to cope with them. The lending program of the World Bank deserves our full support, as it provides for increased financial assistance to the poorest countries and additional resources for investment in crucial sectors. In this respect, we note with satisfaction that the obstacles that have delayed agreement on the general increase in the Bank's capital appear now to have been overcome. Despite our domestic difficulties, I would like to report that the Italian Parliament has under examination draft bills for the replenishment of IDA resources covering periods ranging from three to four years, as well as contributions to other multilateral financial institutions. Moreover, we remain prepared to make available our technical and managerial experience in developing countries, and to participate in the Bank's operations, also by providing bridging financing of supplies from Italian firms.

The Situationi of the Italian Economy Before turning to the problems and prospects of the Italian economy, I wish to dwell briefly on the resolve of the EEC countries to create a zone of greater monetary stability, which might lead eventually to monetary union. The Minister of Finance of Germany has already spoken on this subject in his capacity as Chairman of the EEC Council, but I think it is not inappropriate for me to outline the Italian position on this matter. Italy, as a member of the European Community, has pledged its support and is actively participating in the preparatory work. Its contributions to the definition of the scheme are guided by the awareness that greater Eu- ropean monetary stability and cohesion can, and should, be achieved in a way that helps to strengthen the international monetary system as a whole. With this end in view, Italy holds that regional arrangements should not in their basic philosophy conflict with, or neglect, worldwide arrangements which EEC countries themselves have, of course, a part in defining and managing. Concurrence in the basic philosophy should be reflected in the technical features of the European monetary system. If I may illustrate, it would seem to me that interventions in third currencies should not be barred, especially when intervening in EEC currencies would risk creating problems within the EEC itself. To be efficient and realistic the approach should not overlook the fact that the dollar is the currency most used in international transactions and will in all probability supply the link to unite regional monetary areas. Concerning economic conditions in Italy, I should like to begin by recalling the results achieved through the stabilization measures introduced by the Government since the autumn of 1976. The current account balance of payments has recorded a remarkable turnaround from a deficit of $2.9 billion in 1976 to a surplus of $2.3 billion in 1977 and prospects for 1978

108 point to a surplus of around $5.0 billion. Official reserve holdings have risen to a more satisfactory level and foreign indebtedness has considerably declined. In other areas, however, the results have been less satisfactory as the effects of those measures are wearing off. The rate of inflation, after the marked drop from 22 per cent in early 1977 to 13 per cent in recent months, does not show a clear tendency toward further rapid declines, and unit labor costs are still rising at a faster pace than in other industrial countries. These results have been achieved at a price. Manufacturing production continued to fall until the fourth quarter of 1977 and has only risen slightly since then; unemployment, the socially most important problem, shows no signs of decreasing; and the prospects of attaining better regional equilibrium seem still remote. If we do not change the stance of our present policies, the rate of unemployment would remain at the present level, which is the highest for the past 15 years; inflation would continue at a rate of between 12 and 14 per cent. Owing to the trends in raw materials prices and the changes in the exchange rates of major currencies, 1978 seems to be a year in which the competitiveness of our products has not been fully eroded. But similar developments are not likely in the future. For, should prices and costs continue to rise faster in Italy than abroad, it would be difficult to avoid in the future a negative impact on the exchange rate and the balance of payments. Thus, instead of the hope of stable growth, these prospects carry with them the threat of a new upsurge of inflation. A radical change is therefore necessary to correct slowly but steadily the structural conditions of the economy. To achieve this goal, the Govern- ment has proposed a strategy for the three-year period 1979-81. The program is designed to achieve a GDP growth rate sufficient to permit an increase of employed workers of between 500,000 and 600,000 during the three-year period, preponderantly in the South of the country, together with a gradual reabsorption of the balance of payments surplus on current account and a steady fall in the inflation rate, which in the course of 1979 would already be measured by a one-digit figure. To this end, we plan first of all to reduce both the current deficit and the total financing requirement of the enlarged public sector in relation to gross domestic product. At the same time, we intend to bring about an increase in public investment as a ratio of GDP, so that on balance the expansionary effect of public finances will not be weakened. Indeed, for 1979 we envisage a reduction in the borrowing requirement of the enlarged public sector of Lit 6,100 billion despite an increase in cash expenditure on public investment of Lit 2,250 billion. The total financing requirement as a proportion of GDP would thus fall from a tendential 18.2 per cent to 15.7 per cent in 1979. Second, the program calls for a labor policy during the three-year period that would not allow real increases in wages.

109 Third, we plan to bring about greater mobility and flexibility in the employment of the labor force. The proposals made for 1979, which will be incorporated in the Budget and the Finance Law to be submitted to Parliament by end of September, are the start of a longer-term action. Whether the results of the program will turn out to be better or worse than expected will depend to a large extent on the strength and determination with which the Government and the whole country abide by the strict requirements of the strategy and endeavor to improve the performance of our economic system. The success of our program, however, depends also on a positive evolution of the international economic environment. In this forum, many have advocated faster growth of world demand in a context of relative price stability as the necessary precondition for the expansion of sustained flows of trade and investment and the elimination of the painful waste of human and capital resources. It only remains for me to add my voice to theirs and to suggest that the time has come for us, through our deliberations, to maintain our undertaking and ratify the desire for action and change which has grown up during the recent years of stagnation and instability.

JAPAN: TATSUO MURAYAMA Governor of the Bank and Fund ... Japanese Economy Now let me turn to the subject of the Japanese economy-its present conditions and our policy stance. Thanks to the concerted efforts of our people and sound economic management by the Government, we successfully recovered from the economic difficulties after the autumn of 1973. We quickly overcame the problems of severe inflation and large balance of payments deficits. Since 1976, our economy has been growing at high rates. Our balance of payments meanwhile, started to record a large surplus since 1977; and, realizing our international responsibility, we have set it as one of our major national goals to promptly correct this imbalance. In order to achieve this goal, we have been carrying out the following policy measures with major emphasis on reducing the imbalance through domestic demand generation. First, we set our real growth target for FY1978 at 7 per cent, exceptionally high among industrial countries, and have been employing expansionary fiscal policies to achieve this target. More precisely, we dared to resort to an extraordinarily large amount of public bond issues equal to almost 10 per cent of GNP, and to increase government expenditures significantly. We have also substantially relaxed our monetary policy and reduced our official discount rate to 3.5 per cent, the lowest level since the end of the War.

110 Second, we are trying to expand imports by opening up our domestic market further. For this purpose, we have taken such measures as advanced tariff reductions and import quota increases. Third, we have been encouraging such capital outflows as overseas investments and loans, and yen-denominated bond issues, and significantly intensifying our aid efforts. Fourth, we have been further liberalizing our foreign exchange controls. We are also in the process of preparatory work for changing the present legal framework for controlling foreign exchange transactions from the present system of "banned in principle, free in exceptional cases" into a system of "free in principle, banned in exceptional cases." Finally, we have been conducting our foreign exchange market policy in line with the agreed principles of the IMF. I would like to emphasize the critical implication of the recent sharp yen appreciation. The yen has appreciated by about 36 per cent against a basket of currencies of our major trading partners since the last Annual Meeting. Such yen appreciation must eventually bring about a substantial equilibrating effect on our payments position. As I explained thus far, Japan has been making maximum efforts for the balance of payments adjustment. In view of the growing interdependence of the world economy today, however, corresponding efforts on the part of our trading partners are also called for in order to make our efforts effective. First, we need monetary stability, particularly the stability of the key currency. The adjustment process normally requires a fairly long time to work itself through, but the exchange market is impatient, and tends to show short-term speculative movements. Such movements could have a damaging effect on business confidence and economic recovery. Second, price stability in our trading partners' home markets is called for. If an inflationary trend continues in these markets, our exporters can easily mark up their export prices denominated in foreign currencies. Thus the desired effects of the yen appreciation for the balance of payments adjustment will be substantially curtailed. Third, we hope that the trading partners will increase their export efforts. They should fully study our market characteristics and distribution system, and adjust their export strategy to suit them. I will now explain to you the situation of the Japanese economy since the start of this year in the light of the foregoing policies. I am pleased that our economy has recorded a reasonably solid growth for the first half of 1978 mainly through domestic demand expansion-domestic demand expansion accelerated from an annual rate of 7.4 per cent for the first quarter to 9.5 per cent for the second quarter, owing mainly to increased public investments. On the other hand, the current external surplus decreased substantially because of a significant fall in exports. The export

111 volume started to show a decline last April, 5.8 per cent below April last year, and a further decline in recent months. On the other hand, the import volume recorded a 5.3 per cent increase last April over the same month last year, and has been gradually increasing since. The import value of manufactured products has recently shown a remarkable increase. Al- though these changes in trade volume have not yet been fully reflected in our trade balance on account of the reversed J-curve effect, we expect their full effects to take place in the coming months. Finally, we have been recording long-term capital outflows at the rate a little above $1 billion per month since last April. We expect this trend to continue. Thus, the effect of the policy measures which we took this year is gradually emerging. On September 2, the Government decided upon a package of additional economic measures. The major component of this package is an addtional public investment program totaling about 2.5 trillion yen. The package also includes other measures to stimulate domestic demands, promote imports, and expand our aid program. We expect that this package of stimuli will push up GNP by about 1.3 per cent, and will further ensure the achievement of our growth target for this fiscal year.

World Economy and Balance of Payments Adjustment Process Now, let me present my views on the world economy and the balance of payments adjustment process. I am pleased to note that many countries have shown a significantly improved performance in economic growth, price stability, and balance of payments. Particularly encouraging are the achievements in these areas by several deficit countries which took proper adjustment measures. However, there are still some major problems left. First, we can observe some disturbing signs of renewed inflationary pressures in several countries. Second, in many countries, business investment, housing construction, and private consumption have not fully recovered; thus their governments are forced to resort to a substantial deficit financing to stimulate their economies. Third, the employment situation has not improved in many countries, and, against this background, the pressure for protectionism remains very strong. Fourth, we have witnessed such erratic and excessive fluctuations in exchange rates before the adjustment process works itself through. Mone- tary instability has been detrimental to the steady recovery of the world economy. It has also made economic management in developing countries more difficult. I believe that the points just indicated imply that stimulative measures by a few surplus countries and exchange rate changes alone cannot solve our present problems; they should be supplemented by other adjustment

112 measures. Therefore, I believe that it is necessary for all of us to jointly implement the following strategy. First, economic discipline is called for on the part of deficit countries; they should intensify their fight against inflation, reduce their oil imports, and promote their exports. At the same time, countries less constrained by their balance of payments position and inflationary pressures should pursue higher economic growth without rekindling inflation. Second, we should strengthen business confidence and revitalize the private sector. For this purpose, we should enhance our efforts to solve energy problems, expand our activities to develop new technology, and expedite structural changes of our economies. Third, we should cooperate with each other to maintain and strengthen the open trade system. In this regard, the successful conclusion of the Multilateral Trade Negotiations within this year is crucial. Fourth, along with the foregoing efforts in the area of economic fundamentals, we should, together with the IMF, intensify our joint efforts to maintain monetary stability. Based on such perception of the present situation of the world economy as I have stated so far, I would like to make some observations on the international monetary system....

... Development Assistance I should like to express my views on development assistance. The persisting unfavorable conditions of the world economy have had particularly serious impacts on developing countries. Japan, as a country of Asia where more than a half of the population of the developing world lives, has deepened her understanding of the problems of the developing countries through her experience in that region. The take-off of developing countries will not succeed without aspiration and efforts for economic development by their own people. At the same time it also requires further expansion of development aid by industrial countries. Our Government recently announced its intention, based on this belief, to double its official development assistance within three years ending in 1980. Difficult conditions prevailing in poorer developing countries deserve special consideration. In accordance with the international resolution on debt relief for these countries adopted in March, 1978, we decided to take the following policy measures. We will extend new untied grant aid equivalent, in principle, to (a) annual debt service payments, in the case of the least developed countries, and (b) a part of annual interest payments in the case of the Most Seri- ously Affected countries. We have already incorporated this fiscal year's requirements into our Supplementary Budget.

113 These measures will cover about 20 countries including 11 LDCs, and the maximum total cost is estimated at about 1.2 billion dollars. The World Bank Group has performed an important role throughout the history of the development aid. Japan has always supported their activities. We are determined to positively participate in the Bank's General Capital Increase and the IDA's Sixth Replenishment. I believe our shares in the Bank Group institutions should be harmonized to properly reflect our active contributions to their operations. Last July, the World Bank issued bonds amounting to 75 billion yen, equivalent to approximately $390 million. I may add that this is the largest yen-denominated bond issue by nonresidents which has taken place on the Tokyo market. Thus the Bank has issued yen-denominated bonds equivalent to $710 million within one year. On top of this, the Japanese private financial institutions extended, to the Bank, yen loans amounting to an equivalent of $530 million during the past two months. I believe that the Bank Group, under Mr. McNamara's continued leadership will further succeed in resolving difficult development tasks. We are also vigorously supporting, along with the World Bank Group, regional development financial institutions which are trying to meet particular needs of the respective regions. We announced our intention to contribute approximately $720 million to the Second Replenishment of the Asian Development Fund, and approximately $110 million to the Second General Replenishment of the African Development Fund. We are actively participating in negotiations for the Fifth Replenishment of the Inter-American Development Bank resources. It is vitally important for developing countries to start raising funds by themselves in the world capital markets. The Tokyo market's recent contributions in this field are remarkable. Especially this year, partly helped by favorable market conditions, the yen-denominated bond issues by developing countries have rapidly increased. They have already recorded about $1.1 billion, more than twice last year's actual figures. In recent years, we all have tended to look at economic situations and our ability to manage our economies with overly pessimistic eyes; this, I am afraid, can give adverse impacts on business confidence. Actually, we should rather be encouraged by the fact that our sound economic management and our concerted actions are gradually showing their full effects, and that the world economy is beginning to show signs of recovery. What is most called for today is to regain confidence in ourselves, and to further intensify our concerted efforts. This is why we in Japan are doing our best in reducing our balance of payments imbalance and in expanding our development assistance. I am looking forward to seeing you all again next year under better world economic conditions which have been further improved through our joint efforts.

114 KOREA: YONG HWAN KIM Governor of the Bank and Fund Our fellow governors have already expressed their deep concern about the various problems which confront the world economy and have suggested some laudable solutions. For my part, I would like to focus my address today on three specific aspects of world trade and finance which call for priority action from the international economic community at this time. They are worldwide trade protectionism, exchange rate instability, and the pressing need for equitable growth in the developing countries. For years after the worldwide resources crisis, unemployment remains widespread and inflation continues to threaten the growth and stability of the world economy. Furthermore, recent forecasts indicate that, this year, world economic growth wi!l not exceed last year's unsatisfactory performance, while the prospects for 1979 are similarly unpromising. In the light of these unfavorable economic conditions, there has been a tendency for many countries to concentrate exclusively on their internal problems without regard for the implications of this shortsighted policy on the world economy as a whole. This tendency has given rise to the so-called new protectionism, characterized by nontariff trade barriers, such as import quotas and voluntary export restraints. In particular, these nontariff barriers discriminate specifically against the exports of the semi-industrialized developing nations, with the effect that the latter are being forced to restrain their own growth in order to sustain uncompetitive industries in countries much richer than themselves. Let there be no misunderstanding. This increasing protectionism not only contravenes the spirit of the international organizations-not only discriminates specifically against the developing countries-not only slows down the growth of world trade to the detriment of all countries, but also these trade barriers quite simply fail to provide any permanent solutions to the structural and employment problems they are designed to solve. I exhort member nations, therefore, not to let short-term expediency take precedence over long-term good judgment. Many semi-industrialized countries have made rapid progress through an export-oriented economic strategy. In the process, they have provided a model which has inspired many other developing countries. However, if this proliferation of protectionism continues, it will arrest the continued development of these middle-income nations, and inhibit the many countries which aspire to break out of the vicious circle of poverty by following this same pattern of export-led growth. I would also ask the advanced countries to acknowledge that the application of protectionist measures, without prior consultation with the exporting nations, is unnecessarily unfair. The message is quite clear. All nations must cooperate with one another and coordinate their policies to turn back this tide of protectionism. The failure to do so could lead to consequences reminiscent of the dark experi-

115 ence of the 1930s. In particular, I look to the developed countries to assume a leadership role, because, after all, they share the bulk of world trade. For their part, the semi-industrialized developing countries should accelerate their own import liberalization programs and, thereby, not only improve their industrial efficiency but also contribute to world trade expansion. As you may be aware, my own Government has already taken several important steps in this direction and we intend to pursue this policy in parallel with our economic development. Through close cooperation among all nations, I am confident that we can bring the multilateral trade negotiations which began in 1973 in Tokyo to a successful conclusion. One of the reasons I have dwelt on the protectionism issue at such length is because its damaging influence on world trade adversely affects the developing countries' prospects for economic advancement. The unilateral aid and financial cooperation extended to these nations by the advanced countries is, of course, immensely important, and I will be referring to it again shortly. However, the most effective and lasting contribution which the better endowed nations of the world can make to the developing countries is through the vigorous promotion of world trade. It is this which will allow them the dignity of standing on their own feet and of earning the foreign currency they need to pay for their own vital imports...... In the past, we have devoted much attention to the urgent need for equitable growth in the developing nations through the effective exploitation of their growth potential. We must, nevertheless, face the fact that we have so far failed to achieve significant visible results. The realization of the economic potential of the less developed member countries is vital for the elimination of absolute poverty from the world. In addition, however, in order to ensure an equitable and balanced pattern of development, the weight of our efforts should be directed to rural development, education and manpower training, economic infrastructure projects, and the expansion of health and social services. To accomplish these tasks, it is essential that the donor countries make an increasingly large proportion of their gross national products available as official development assistance and that the international financial institutions enlarge their credit facilities. In this respect, I would note the outstanding contribution of the World Bank under the imaginative leadership of Mr. McNamara. In addition, however, I look forward to a further increase in lending and co-financing directed at long-term manpower development and the exploration of natural resources. In closing, I would again like to stress the need for closer cooperation between nations in the determination of economic strategy and in the resolution of economic problems. Although the recent cooperative efforts of the international organizations and industrial countries have been impressive, and will no doubt contribute to restoring the health of the world economy, much still remains to be done. The adoption of a coordinated strategy for steady noninflationary growth and trade expansion at the Bonn Summit is especially welcome. The IBRD should also be congratulated for producing the World Development Report, 1978, and for its excellent

116 analysis of the world's economic problems during the period up to 1985. Good resolutions, however, are of no avail unless they are acted upon promptly by all parties concerned. All nations must work together to promote the positive development of the world economy.

LUXEMBOURG: JACQUES F. POOS Governor of the Bank and Fund As at previous Annual Meetings, the prevailing sentiment in the minds of most representatives of Fund and Bank members seems to me to be an ambiguous feeling of hope and of disappointment, as regards both past developments and prospects for the future. There is disappointment that in spite of continued efforts over the past years, the objectives of economic growth, full employment, stabilization of exchange rates, and promotion of Third World development have not been attained. There is hope because of the slowing of inflation in 1977 and early 1978, and above all regarding the success of the recovery plan worked out by the members of the EEC and the OECD. In fact, with the exception of the United States, the industrial countries have not achieved the gradual rate of expansion that they intended for their economies. This being so, their aim-albeit a modest one-of a return to satisfactory levels of employment toward the end of the present decade remains problematic. On the other hand, inflation rates have continued to decline as was expected by most industrial countries. At the same time, the gaps between actual and potential production in the manufacturing sector continue to be sizable, as Mr. Witteveen again noted at the Tenth Meeting of the Interim Committee held in Mexico. These results, which vary widely between countries, are determined by the approach and the means used by each nation in light of its own problems of domestic stabilization and adjustment at the international level. These differences in assessment and policy implementation are manifested in part in the place assigned under national economic policies to the three overall objectives: the struggle against inflation, reduction of unemployment, and external adjustment. But they are likewise reflected in the importance attached to the role of regulating demand, the deliberate stimulation of which has often run into difficulties. In any event, governments have continued to experiment with new forms of economic policy, in terms of both ideas and techniques, to achieve moderate growth while curbing inflation. Nevertheless, government officials have become fully aware that in seeking solutions for problems in a necessarily narrow domestic context, they risk a loss of momentum in the recovery. Consequently, there has gradually emerged a broad consensus to study the possibility of implementing a concerted growth strategy.

117 This agreement is reflected in the implementation of the joint recovery strategy for the world and European economies decided upon by the Euro- pean Council in Bremen on July 6 and 7, 1978, and by the Bonn Economic Summit on July 16 and 17. The renewed economic growth of Luxembourg's major economic partners, which I trust will result from these decisions, will bring about an increase in Luxembourg's exports of goods and services. This increase, combined with a substantial recovery of our investments, should lead to a growth in our GDP of slightly over 3 per cent for 1978. As Luxembourg is a large exporter of industrial products, it is particularly sensitive to any rebirth, whether veiled or manifest, of protectionist practices. That is why it fully supports the Fund's efforts to prevent the introduction of such practices and to preserve fair competition in international trade. In the area of prices, owing to the struggle waged by the Government against inflation, Luxembourg's consumer price index will probably show an increase (December 1978/December 1977) of approximately 3.5 per cent for 1978, against 4.3 per cent in 1977. Should it prove possible to step up the economic growth expected of the major industrial countries in 1979 without thereby rekindling inflation, Luxembourg could expect even more moderate price increases in that year. My Government likewise expects a stimulating impact on the employment level. In this regard, the concerted efforts of the Government and other elements of society have thus far made it possible to reduce the unemployment rate to less than 1 per cent of the labor force, despite the reorganization and rationalization efforts made by the steel industry which employs nearly one third of Luxembourg's industrial labor force. This result has been achieved thanks to a wide variety of measures adopted by the Government: early retirement, improved training for young people, programs to bring young workers into the mainstream of economic life, etc. Finally, certain developing service sectors have also helped to maintain employment at an acceptable level. As regards the guidelines for the 1979 proposed budget, these were set in accordance with the recommendations made by the Council of Europe, which defined in particular the contribution that each member country is to make in the area of budget policy to the concerted recovery of the European economies. Luxembourg will share in this concerted action through a budgetary contribution equal to more than 1 per cent of GDP, by means of tax reductions, increased transfers to certain kinds of activities as well as assistance for investment and for industrial conversion. On the whole, the economic situation of my country has therefore remained satisfactory from the standpoint of prices, employment, and government finances, but its future will depend basically on the recovery of the European and world economy, as well as on international trade un- burdened by protectionism.

118 However, beyond measures of economic stimulation, the proper functioning of the monetary system holds major interest for Luxembourg. For this reason, we reaffirm our preference for a monetary system involving stable, though adjustable, exchange rates which are capable of checking erratic fluctuations of exchange rates and waves of monetary speculation. We expect to cooperate fully in the future European monetary system which, in our view, should be as solid as the European agreement on floating (the Snake). The latter will need to be maintained until the new European system becomes operational and has proven itself. In addition, the Government of Luxembourg favors an expanded role for international financial markets and particularly Euro-markets in covering balance of payments deficits. It congratulates itself on the growing role played by Luxembourg's financial market in this regard. Accordingly, Luxembourg reiterates its initial position in favor of establishing an international system to centralize data on risks and increased cooperation between the authorities responsible for control...... Before concluding, I should like to add a number of observations on the situation of the developing countries and the activities of the World Bank Group. I am pleased to inform you that Luxembourg has completed the legal formalities approving the supplementary capital subscriptions to the Bank and IFC as well as the Fifth Replenishment of IDA Resources. Having already paid in the first tranche of its contribution to the IFC capital increase, Luxembourg is taking measures to pay its full contribution to the Bank's capital and two thirds of its part of the Fifth IDA Replenish- ment. It seems to me superfluous here to give detailed statistics illustrating the precarious situation in which the developing countries find themselves or to emphasize the necessity of providing a remedy. In its 1978 Annual Report, the World Bank once again calls attention to "the 800 million individuals who continue to live in absolute poverty- with incomes too low to allow them an adequate diet and without access to such essential public services as education and health-and who are the inescapable indicator of what remains to be done." Development strategies have been the subject of innumerable debates and since the beginning of the 1970s ideas have appeared in extraordinary profusion. The path leading to the new international economic order is not an easy one. It is essential that we define our priorities and remain aware of the commonality of certain interests between the developing and industrial countries. Obstacles impeding the flow of trade between the two groups of countries must be progressively eliminated if there is to be a better equilibrium. For instance, the value of developing country exports to the industrial countries was about US$26 billion in 1975, while that of the flow in the other direction was US$123 billion. The complexity of the world economic development process calls for a

119 multitude of coordinated actions. It is essential that we formulate our policies so that they complement one another. And may I say here that I agree with Professor Tinbergen's assertion that planning is an example of parallelism of interests; in other words, our national plans will meet with no success unless they form part of a more general world plan for prosperity. A very widely accepted means for improving the conditions of life in the developing countries is naturally to accelerate their economic growth. The success of a policy for concerted growth in the industrial countries will have a definite effect on the growth rates of the developing nations, and more particularly on those of the middle-income countries. As far as the poorest countries are concerned, it is of the utmost importance that they be assisted by real transfers and thus enabled to increase their purchasing power. Furthermore, their internal institutional conditions for development must take the forefront in their development strategies. Indeed, one may question the usefulness of growth in GNP if it does not affect the poorest strata of the national community. A plan for the distribution of economic gains and employment opportunities must therefore be an integral part of the development plan. The fact that World Bank staff take these institutional conditions into account is certainly reflected in the results obtained through the Bank's assistance projects-excellent results, judging from the study made by its Operations Evaluation Department. The fact that in over 90 per cent of cases economic rates of return prove on re-examination to be very nearly equal to or higher than those projected at the time of initial appraisal confirms the effectiveness of Bank operations. It also confirms the wisdom of my own Government's policies, which, as far as aid to developing countries is concerned, tend to favor a multilateral rather than a bilateral approach. Luxembourg in fact allocates more than two thirds of its foreign aid budget to multilateral contributions, thus acknowledging both the importance of the role played by the large international agencies and the superiority, in many cases, of untied over tied aid. Nevertheless, the fact remains that in financing their economic growth, the developing countries are obliged to rely increasingly on external capital. Over the period 1970-75, 90 per cent of this capital came from private sources, with a rapid rise in volume: loans made by private financial institutions to governments, or to the private sector under government guarantee, have increased by 50 per cent a year. Yet one can only share the sentiment expressed by a member of the Brandt Commission at the North-South dialogue held recently in Istanbul, to the effect that these choices, favoring as they do the market economy and private enterprise, and being based on self-interest rather than solidarity, benefit three groups of countries in the main-those that export petroleum, those that are semi-industrialized and those that produce raw materials-while many others are left unaided. Official development assistance, especially that made available through IDA, should therefore focus as a matter of priority on countries not in a position to base their development plans on the exploitation of subsoil resources.

120 It is in this same context that one must hail the decision of some industrial countries to allow a remission of debts owed by developing countries. I believe this is a suitable occasion to state that the Government of Luxembourg, conscious of its responsibilities, has included in its proposed budget for 1979 bilateral and multilateral aid appropriations to developing countries totaling Lux F 214.5 million. This figure is 10.6 per cent above the same item for 1978, an increase higher than that proposed in the budget as a whole, namely 6.1 per cent. In general, it may be said that the greatest development assistance effort has come from the industrial countries of medium size. Furthermore, the Managing Director of the Arab Development Bank was not mistaken when he declared that disarmament would release additional funds. As a first step in this direction, the international arms trade should be discouraged, and even limited, through recourse if need be to international agreements. Since the Sixth General Assembly of the United Nations presented its 1974 action program for a new world economic order, an important change in attitudes has taken place. It is generally admitted by now that the time has come for basic changes in the international economic system and in the relationships that characterize it. It is with the greatest interest that we await the conclusions on this fundamental problem which the Brandt Commission is expected to announce in 1979. My wish for these Annual Meeting is that they may help bring about a meeting of minds and lead us closer to those solutions without which we shall never rescue the neediest people of the world-more than a quarter of the population of our planet-from the absolute poverty in which they now exist.

MALAYSIA: DATUK NEO YEE PAN Alternate Governor of the Bank It is a distinct honor and pleasure for me to address distinguished fellow Governors on behalf of the Delegation of Malaysia at the Thirty-Third Annual Meetings of the International Monetary Fund and the World Bank Group. I would like to join other distinguished Governors in expressing our thanks to the Government of the United States for the excellent arrangements made for the Annual Meetings in Washington. I would also like to convey our warm appreciation to Mr. de Larosiere, Managing Di- rector of the Fund, Mr. Robert S. McNamara, President of the World Bank, and their staffs, for their continued dedication and efforts in fostering economic development and striving to achieve a more effective international monetary system. We are meeting in an international economic environment that con-

121 tinues to be unfavorable. Similar to the situation at the time of the last Annual Meetings, the world economy is still characterized by slow growth of real output and global trade, high levels of unemployment and continuing rapid inflation, a pattern of serious imbalances in international payments, and a generally low level of confidence and business investment. Recurrent bouts of unsettled monetary conditions in recent months, pre- cipitated by a significant weakening of the U.S. dollar, have added a new dimension to growing uncertainty about prospects for the self-sustaining expansion of the world economy at a higher rate than recently achieved. The unfavorable international economic climate has continued to adversely affect not only the export growth of the non-oil developing countries, but also their growth prospects in output, investment and employment. As a result, the dampening of export prospects will lead to a sharp increase in their combined current account deficit to US$32 billion in 1978, while there are currently poor prospects for any significant improvement in their economic growth rates, levels of employment and inflows of foreign investment. The non-oil developing countries need a stronger and more sustained pace of noninflationary economic growth in the industrial world, a significant liberalization of tariff and nontariff barriers, and a more permanent improvement in their terms of trade in order to significantly expand their exports, particularly manufactured exports, to enable them to cope adequately with their increasing debt servicing burden and the problems of development and poverty reduction. It is within the powers of the distinguished Governors gathered here to create such an environment to successfully nurture the economic health of the world and the smooth functioning of the international monetary system and adjustment process, and to overcome the present malaise of the international economy for the common welfare of all nations. It is toward these questions of vital concern to all that we must address ourselves in the next few days. At the tenth meeting of the Interim Committee in April, the international community committed itself to a coordinated program of concerted refla- tion and combating inflation, according to the balance of payments and domestic price situation of each country, in order to promote a steady noninflationary growth of the world economy, while at the same time facilitating the international adjustment process and reducing currency instability as well as protectionist pressures. Support for such a program was also reaffirmed at the meeting of OECD ministers in June this year and at the Bonn Economic Summit meeting of the seven leading industrial countries in July. We welcome these accords and call for the effective implementation of the coordinated international strategy which is of such vital concern to Malaysia and other developing countries-indeed, to the entire world. The road ahead in attaining the sustained noninflationary growth of the world economy, for the stability of exchange rates, and for resisting the rising forces of protectionism is not easy, but we must persevere in our conviction that this is perhaps the only feasible path to the restoration of world prosperity in the next few years. The community of interests and the interdependence of nations are never so clear as they are now, and we must cooperate to attain the objectives laid down in the

122 strategy adopted in the Interim Committee last April and reaffirmed by the Committee a few days ago...... In the longer term, it is equally vital to continue the transfer of real resources to the developing countries. The international community is indebted to the President and staff of the World Bank for providing an appropriate framework for discussion of major development issues in the World Development Report. I note with concern some disturbing conclusions in the World Development Report, particularly the expected slowing down, despite "mildly optimistic assumptions," in the growth rates of the middle-income countries and the fact that, even with major efforts, the number of people in absolute poverty would remain massive at the turn of the century. Here is a challenge to the entire international community that must be met if the problems of development are to be overcome. The World Development Report provides the framework for the international community to cooperate. In the area of international trade, the economic growth of developing countries and the buildup of their industrial structure has been, and would continue to be, dependent on a rapid growth of world trade. The industrial countries also depend on the developing world for a steady pace of economic expansion since developing countries absorbed 25 per cent of their total exports and 30 per cent of their exports of industrial products in 1975. This is an obvious case of the growing interdependence and mutuality of interests of both industrial and developing countries. Yet, there has been more frequent use of protectionist trade measures, as reported in the Fund's Twenty-Ninth Annual Report on Exchange Restric- tions, that have been detrimental to the balanced growth of world trade. Protectionist trade measures have taken many forms, ranging from quantitative limits to imports, use of dumping and countervailing duties, and reliance on so-called "bilateral arrangements" or "restraint" agreements, but all have an adverse effect on the emerging industrial capacity of developing countries and their economic growth and employment prospects. We reiterate our increasing concern about the rising tide of pressures for protectionist measures in some industrial countries, not only against the manufactured goods of developing countries but also against some of their primary products. According to GATT, an estimated US$30-50 billion of trade has been affected annually by restriction or disruption through protectionist trade measures. In this connection, I must stress that a steady expansion of the economies of developed countries, especially their industrial sectors, can only take place in an open international trading system that recognizes the legitimate desires of the developing countries for a larger share of the global trade in manufactured products. As reaffirmed by the Interim Committee at its last few meetings, the international community must continue to resist strongly the tendencies toward protectionist trade measures which, as we stated last year, would be merely short-term palliatives and not a permanent cure for the global problems of excess capacity and unemployment. The issues to be resolved by the international community in order to attain an open world trade system that promotes the economic growth and

123 the industrial sectors of the developing countries are clearly laid down in the World Development Report and we must have the courage to deal with them effectively. There must be increasing willingness on the part of the industrial countries to facilitate the process of structural adjustment to changes in comparative advantage and the increasing industrial capacity of the developing countries. There must also be avoidance of further protectionist trade measures as well as relaxation of earlier measures already imposed. In addition, developing countries should play an increasingly important role in promoting world trade by reducing high protection in their countries and fostering trade among themselves. Lastly, there needs to be more vigorous economic growth in the industrial world, which I have mentioned earlier. In the area of capital flows, the middle-income countries will need increasingly larger amounts of official development assistance and commercial capital. Commercial capital must flow in larger amounts, both from private capital markets and from multilateral development institutions. The low-income countries will need more official development assistance. Doubts are expressed in the World Development Report as to whether the private banking system can continue to expand lending at the rate projected. Some of the issues raised in the World Development Report on commercial capital flows are not new in that they have been discussed in the Development Committee previously. What is needed now is positive action on the part of the capital-exporting countries to improve the regu- latory environment to improve access by the developing countries to their capital markets. Urgent action is also needed to raise the lending capacity of the multilateral development institutions, particularly to increase significantly the capital of the World Bank. In the area of ODA, we are again disappointed at the poor performance in achieving the target of 0.7 per cent of GNP laid down in the United Nations Second Development Decade, the ratio of ODA to the GNP of the DAC countries being only 0.31 per cent in 1977. We welcome the commitments by some industrial countries at the recent Bonn Economic Summit to significantly increase their ODA. I would stress, however, that the supply of ODA should increasingly be directed to the low-income countries which are more dependent on concessional aid. We agree that the additional support from the international community must be supplemented by efforts made by the developing countries for achieving a more rapid rate of economic development. In Malaysia, we are very aware of the critical factors of increasing domestic savings, using investment resources more productively, and establishing programs and targets for the reduction of poverty. Indeed, our Third Malaysia Plan is primarily based on these crucial elements to achieve the targets of our New Economic Policy. We are also continuously searching for new methods of effectively implementing programs to raise the productivity and incomes of the rural sector. But, we need an improved international economic environment, particularly stable commodity prices that rise in real terms over time, in order to increase resources for these purposes. Therefore,

124 the elements of the international effort that I have outlined will be crucial to us and many other developing countries. It is also of utmost importance that the export earnings of developing countries which provide the vital resources for their development efforts, should be stabilized and increased over time. The study by the Develop- ment Committee on the stabilization of export earnings is therefore timely, and we hope that agreement will be reached in the international community soon on appropriate measures for the compensatory financing, in larger amounts than previously available, of any export shortfalls that may be experienced by developing countries due to the volatility of commodity prices. It is also important that the international community reach agreement on the Common Fund and the UNCTAD Integrated Programme for Commodities that would result in the stabilization of the export earnings of developing countries and an increase in real terms of these earnings over time. We feel strongly that urgent steps should be taken to establish the Common Fund now that the massive current account deficit of the developed countries is expected to persist in the years ahead. The measures under the Integrated Programme for Commodities and the Common Fund will help in a significant manner to improve the current account deficit of the developed countries and alleviate their increasing external debt burden. As the Chairman has clearly pointed out, the Fund and the Bank could make a major contribution in the fight against poverty, if they could exert their best efforts to facilitate the early realization of viable commodity stabilization schemes. I would, therefore, urge the Fund and the Bank to give this matter their priority attention.

MALDIVES: AMIR ABDUL SATTAR Governor of the Bank and Fund I am, indeed, privileged to represent my country at these Thirty-Third Joint Annual Meetings of the International Monetary Fund and the World Bank and its affiliates. I am most grateful to you, Mr. Chairman, the Managing Director of the Fund, the President of the Bank and fellow Governors, for the warm welcome you have extended to Maldives. I would also like to join other speakers in congratulating the new Managing Di- rector of the Fund, Mr. de Larosi&e, and paying highly deserved tributes to his predecessor Mr. Witteveen. My congratulations also go to President McNamara, and the Executive Directors and the staffs of the Bank and the Fund for their excellent and dedicated work. At the same time, I wish to express our appreciation of the most appropriate working arrangements made for the meeting. Maldives is a very small country, surrounded by the sea. Dependent almost entirely on our fisheries and shipping until very recently, we began to develop our tourist industry only a few years back. Having depended on our own extremely limited earnings for a considerable time, we have now begun to realize the absolute need for accelerating economic development, as well as bringing overall development to other sectors. In fact,

125 the Maldivian Government's decision to seek membership in the Inter- national Monetary Fund, the World Bank and its affiliates, and other similar bodies, is a step taken with great expectations of improving our economy and bringing about accelerated development. It is our fervent hope that these expectations will not be betrayed. As we assemble here to focus our attention on the economic issues that face the member countries of the Fund and the Bank and to review the economic situation of the world in general, it is a matter of considerable satisfaction to us that in fiscal 1978, the World Bank Group's lending and investment commitments recorded an increase of $1,475.6 million over the figure for fiscal 1977. We have also learned that the technical assistance activities of the Bank continued to increase in fiscal 1978. The President of the Bank is to be congratulated for publication of the World Development Report. This is a document which will undoubtedly highlight the problems that the developing countries are facing and thus give a true picture of development issues, as faced by these countries. It is essential for the developed countries to have a full understanding of these problems. In this context, the World Development Report will prove to be an immensely useful document...... The projection that 600 million people will be living in absolute poverty even at the end of this century is shocking. However, it is for us all to make a determined effort to improve that situation, so clearly explained by Mr. McNamara in his address to us. In concluding my remarks, I would like to express the confident hope that, under the able leadership of Managing Director de Larosiere and President McNamara, the fine record of the Fund and the Bank will be continued at an accelerated pace to serve the economic interest of member countries.

MAURITIUS: VEERASAMY RINGADOO Governor of the Fund With the passage of each year we welcome our new members. With the entry of Maldives, Suriname, and the Solomon Islands, the membership has grown to 135 countries. The country structure of the IMF and the World Bank has changed substantially since Bretton Woods. Moreover, the very concept of "small" has changed drastically over the years. While the Nordic and Benelux countries epitomized the small countries at Bretton Woods, these countries in the context of 1978 could hardly qualify as being "small" as there have been in recent years the emergence of micro- scopic nation-states. This is the era of the small nation-state with these countries predominant in numbers. Although the particular problems of these countries have often been voiced in various international forums, their problems continue to be acute and need urgent attention. Vulnerability of Small Open Economies While "small" is not always beautiful, since it may be inefficient, it is increasingly recognized that growth and employment can be rendered

126 compatible in these economies by transformation through foreign trade. However, this does imply that these small open economies have no choice but to go along with the vicissitudes in the international economy. The developments in the international economy during the past two years- slow rate of growth in world trade, high rates of inflation, instability in exchange markets and increasing protectionism-have been of considerable concern to the small open economies. In particular, these developments have been harmful to countries which have endeavored to use nontraditional exports as the locomotive of growth. The portents are that 1979 will be a year of slow growth in the international economy which would further aggravate the problems for the small open economies. Several developing countries, including our own, are heavily dependent on cane sugar exports for their foreign exchange requirements and also for providing employment to a large proportion of the population. We are concerned that the industrialized countries have now developed new technologies for the production of sugar from new sources. This would be a serious threat to the economies of the developing countries. Since the world sugar market is unstable, we consider that efforts should rather be made toward finding new uses of sugar instead of increasing its production by innovative and sophisticated methods. While welcoming the World Development Report, we are at the same time very much disturbed by the conclusions reached in that report. How- ever, since the report contains an in-depth analysis of the current world economic situation, it is as such a valuable document which should receive our consideration when formulating policies for development of a country, or when taking decisions which are likely to affect the economies of other countries.

World Bank Assistance In the context of long-term development, the World Bank has a catalytic role in the very small open economies in providing resources for projects of overriding priority. The most disadvantaged groups in any developing country are located in the remote rural areas. It is indeed gratifying to note that one of the most successful projects undertaken by the World Bank is the Rural Development Project in Mauritius. The first Rural Develop- ment Project which was initiated in 1974 covered only a fraction of the countryside, but in view of the tremendous success of the project it has been decided to extend the program to cover the entire country. An integrated Rural Development Program provides an opportunity to the underprivileged group to participate effectively in the growth of the country and also to share the fruits of development. We have a fundamental commitment to provide the lowest income group in our country with the basic amenities which are a prerequisite to human existence-this means a right to food, shelter and education. Two years ago we took the unprecedented measure of providing free education for the entire population. We would like to state that in this sector also the World Bank is generously participating in the financing of the extension of our school-building program....

127 ... The Mauritian Experience I would like to take this opportunity of illustrating the acute adjustment problems faced by the small open economies by briefly presenting the Mauritian experience of recent years. During the 1950s and 1960s the Mauritian economy was stagnant and many eminent experts wrote off the country as a prospect for permanent stagnation with typical Maithusian pressures at work. Yet today, the picture is one of a vibrant pulsating economy, albeit with certain problems emanating from the growth of the economy. The "sugar boom" of 1974 and 1975 certainly had something to do with the changed prospects of the country. When the sugar boom came, a conscious policy was adopted to attempt only some measure of stabilization of incomes. The boom was, however, permitted to permeate through the economy and wages, prices, imports and the Government's budgetary operations all achieved a major quantum jump. The permeation of the boom into the economy was not entirely dissipated in mass consumption as there was a major increase in the investment-GNP ratio from 20 per cent in 1972-74 to 35 per cent in 1976, and this ratio has been sustained in 1977 and 1978. The existence of time-dependent response of income to changes in monetary and fiscal policy provides a strong argu- ment against an overly zealous use of stabilization policies especially when one is equipped with inadequate information on the responses in the economy. Faced with choosing between a procedure which yields, at best, precise results of little or no meaning and one which yields meaningful results of little or no precision, it is understandable that small economies like Mauritius felt that the latter alternative represented a more hopeful course. In other words, we opted for a free growth of the economy rather than an interventionist stabilization policy. Admittedly, our decisions during the boom do account for some of the problems of the economy today but our choice has been, as I indicated earlier, to let the boom permeate through the economy and to undertake the adjustment thereafter. The adjustment required has indeed been far- reaching. With a GNP of a little less than Rs4,000 million our balance of payments deficit reached a peak of Rs500 million in 1976 and our budget deficit (in Fund terminology) in 1977/78 was in the range of Rs800 million. By any standards these figures would point to the need for substantial adjustment. During the past two years we have undertaken a major adjustment effort and our balance of payments deficit in 1978 is expected to be around Rs200 million. We have used monetary policy to effectively bring down the rate of domestic credit expansion and we have used interest rate policy as a useful instrument. While the budget deficit still remains very high, we have raised current revenue from a range of Rsl,000 million in 1975/76 to an estimated RsI,500 million in 1978/79; more importantly we have reduced the reliance of the Government on central bank credit from a range of Rs400 million in 1976/77 to RslO0 million in 1977/78. We obviously recognize the link between central bank credit and the loss of foreign exchange reserves and by cutting the Gordian knot we hope to be able to achieve a monetary correction of the economy by

128 1979/80. I am sure that this brief survey of our adjustment process would convince anyone of the staggering correction that economies like ours have to go through....

MOROCCO: ABDELLATIF GHISSASSI Governor of the Bank It is truly a pleasure for me to address your distinguished meeting today and to bring you the wishes of the Kingdom of Morocco for full success in our efforts. I should like to add my voice to those of previous speakers in thanking the people of the United States of America for their warm hospitality and President Carter for the undertaking he has made on behalf of his Govern- ment with a view to effectively contributing to a recovery of the world economy...... And, also, on behalf of my delegation, I want to welcome the three countries that have recently joined our institutions. Perturbed by a complex crisis since 1970, through eight years of intensive labor the world has not succeeded in establishing a calm climate for the equitable economic and social development that would benefit the international community. Far otherwise-inflation continues to rage everywhere, unemployment remains at high levels, developing countries are afflicted in various degrees by the disorder still rampant in the economic and monetary sphere, poverty extends its woes to ever-increasing numbers, and the international community takes refuge in selfish protectionist policies that prejudice dynamic international relations. I am, all the same, convinced that the genius of mankind will manage to find the necessary solutions for this state of affairs; for this reason the successes we are able to achieve by a collective effort will be meritorious and inspiring in proportion of the gravity of the difficulties we encounter...... The results we obtained on Sunday at the eleventh meeting of the Interim Committee, as regards both the new allocation of SDRs and the 50 per cent increase of quotas, are undeniably progress on the path of international monetary cooperation. We firmly hope that the Committee's recommendations on economic policy and on the reinforcement of aid to development will be followed up. All reports describe the world economic situation as difficult and disturbing. The developed countries have not yet succeeded in reviving, internally speaking, substantial economic growth in a stable and serene monetary, financial, and social climate. Furthermore, they are adopting a defensive attitude of protectionism which, in the end, will be prejudicial both to them and to the developing countries. For the latter, particularly the non-oil exporting countries, the economic situation is deteriorating, with a continued very low growth rate, intolerable inflation, and excessively high disequilibria on current account. Their aim of realizing sustained economic growth is still principally dependent on the

129 mobilization of substantial foreign exchange resources, and these can come only from their export receipts, the international capital market, the development financing agencies, or official development aid. We regret to note that the latter is steadily declining and amounts to barely half the rate fixed by the international community, of 0.70 per cent of the wealthy countries' GDP. The capital market and the international development organizations have been able to extend considerable resources to the developing countries in recent years, but countries' capacity for indebtedness restricts their recourse to additional financing from this market. All that is left, then, is the export receipts of the developing countries, which-by reason of the policy followed in the industrial countries-are subject either to pressures on raw material prices or to protectionist bars on manufactured products. And yet it is export receipts that constitute for our developing countries the most dynamic and the most adequate resources for assuring a harmonious and well-balanced development. By entrenching itself in protectionist practices, the industrialized world is depriving the developing countries of their real chance to set in motion a dynamic process of growth that will definitely and substantially benefit the industrial countries supplying the goods and services necessary to the success of this policy. The normal reaction of the developing countries would have been likewise to enclose themselves in such protectionist policies and import limitations and conserve the little foreign exchange at their disposal to be sparingly used for priority domestic needs. Despite their precarious situation, the developing countries have maintained a high rate of imports by absorbing, in particular, 28 per cent of the industrial countries' manufactured goods and thus contributing considerably to the development of those countries' exports. A rapid return to liberal rules permitting free access to the markets, and even the granting of incentives for developing countries to develop their exports, will create a climate favorable to the development of international trade. Such an approach will afford developing countries national resources in foreign currency and will substantially increase their capacity for indebtedness, which are two means of creating, in our interdependent world, a potential demand for goods and services for the industrial countries. It is in the interests of the international community that the industrial countries should facilitate access by developing countries to their capital markets, considerably improve the level of their official development assistance, more firmly support the activities of development financing agencies-both international and regional-and throw their markets wide open to developing countries' exports. It is through this effort that the well-being of mankind, the fight against poverty, and the safeguarding of human dignity will be achieved. In concluding these remarks, I should like to describe to you in broad outline the economic and social policy followed by my country. Morocco, an international crossroads, is pursuing a dynamic policy of economic and social development to benefit the broad strata of its population. The results of this policy can be measured by the achievements of the last Five-

130 Year Plan, which was concluded in 1977. These results are the more satisfying for having been attained in the context of an international economy in crisis. The annual rate of growth in real terms reached an average of 6.8 per cent, despite the relatively low agricultural yield throughout the period of the plan. Such a performance was attained through the intensification of national investment, the rate of which increased from 14 per cent in 1973 to 32 per cent in 1977. This effort of economic expansion was undertaken and maintained at a time when our exports were feeling the repercussions of the economic recession in the world and the effects of the protectionism practiced by our major trading partners. Such a situation made it essential for us, in order to achieve the aims of our development plan, to have recourse to the international capital market where we were eminently successful by reason of the underutilization of our capacity for indebtedness and the confidence of the world of finance in the economic potentialities of my country. Faced by the uncertainties that are still burdening the economic situation in the world and most particularly the recovery of demand in the industrial countries, the Government of the Kingdom of Morocco decided in 1978 to adopt a Three-Year Transitional Plan designed to combine the fundamental equilibria of our economy with the pursuit of our growth policy. I would like to conclude by wishing you all every success.

NEPAL: BHEKH B. THAPA Governor of the Bank Once again we are assembled here to grapple with the twin problems of ensuring growth and stability in the world economy and of providing an adequate resource base for what has now become our collective task of alleviating poverty in the developing world. As we take stock of the progress we have made since our last meeting, we have noted that though there has been some improvement in the world economic outlook when compared with the serious difficulties encountered in the recent past, the situation still remains far from satisfactory. The Interim Committee has played a significant role by coming to an agreement on various important issues. While recording my appreciation, and welcoming in particular the proposals for a new SDR allocation and for an IMF quota increase in the Seventh Review, I hope that the special needs of the developing world will continue to command an adequate amount of attention from the Com- mittee and, indeed, from this assembly...... We all have a common interest in the growth and stability of the industrialized world. However, I hardly need to stress that it is the state of the developing world which threatens to put us all in jeopardy. And here we are concerned not only with today's poverty but with a situation going from bad to worse as the next generation comes along. It is in this context that I wish to add my own words of appreciation

131 for the World Development Report. Not that the Report offers any significant new revelations. There was no way that this could be done on a much discussed, written and lectured about subject like development. And that has not been the purpose of the exercise. What the World Develop- ment Report has done is to put the challenge of development in proper perspective without failing to point out where we-the developing countries and the developed countries-have faltered. Indeed, it is clear that the change in direction that we must seek is now more urgent than ever before. The developing countries are already responding to the challenge by trying to reorient their priorities to programs that attack poverty more directly. In my own country we are giving much greater emphasis to programs that benefit the largest section of the population living in rural areas. Mak- ing use of internal as well as external resources, where available, the investment pattern is being oriented to increase the productivity of the poor. The development policies that have been adopted are designed to channel resources to the production sectors and thereby to step up the process of raising the standard of living of the rural poor and to create conditions for distributing benefits to the backward regions as well as to the weaker section of the population. My sovereign, His Majesty the King, is personally touring the remotest part of the country to ensure that development programs in the backward regions proceed smoothly. This process has been a source of great impetus to popular participation in the task of nation building. The experience of the last three years has demonstrated that local initiative in the implementation of many activities in the fields of irrigation, drinking water, and afforestation can be very rewarding. The Government itself has been allocating an increasing amount of resources to the local Panchayats for the execution of such projects as irrigation, drinking water, suspension bridges and microhydroelectric plants. We have also launched a number of integrated rural development projects in different parts of the country. In short, we have accepted rural development as a decisive component of our development strategy. Even so, the fact remains that in a country like Nepal with its present stage of development, our battle against poverty is going to be long and arduous. We know that in order to fight this battle, better management and a greater volume of resources will have to be generated from within the country. In fact, it is evident that we are already doing so if we consider the rate of growth of government revenue as well as private savings in the form of bank deposits even under the constraints of an almost stagnant economy. Where we definitely need a better understanding in this respect is from the developed countries which, I have no doubt, have noted the shocking implications of the World Development Report. It is indeed disturbing to note that, while there is a greater need for external resources, the flow of official development assistance is declining in real terms. The priorities for future action outlined by our Chairman in his very thoughtful address, particularly with regard to the setting up of new targets for official development assistance, deserve urgent consideration by the donor com-

132 munity. I only hope that these targets will have a better chance of being met than the by now famous target of 0.7 per cent of GNP. Another area of concern to all of us is the capital base of the Bank. I hope none of us gathered in this assembly would like to see the scaling- down of the Bank's activities at a time when it has proved its worth by effectively helping most of the middle-income countries to bring about sustained economic growth. So far as the least developed countries are concerned, maintenance of an adequate flow of IDA assistance is a vital necessity. I therefore hope that the urgency of increasing the capital base of the Bank will receive due attention by this assembly and that some positive development will follow from this deliberation. The Bank has already started experiencing difficulty with the unavail- ability of IDA funds. In view of the critical need of the poorest developing countries for a more adequate flow of concessional assistance, I would like to join others in appealing to the donor countries to fulfill their commitments with respect to the Fifth Replenishment and to consider the Sixth Replenishment in the near future. Now I would like to comment briefly on the performance of the Bank's activities in 1978. While the Bank's loan disbursement has recorded some increase over the previous years, IDA credit disbursement has been disappointing. The Bank as well as the recipient developing countries have to pay due attention in order to improve their performance. One of the major causes for the slow disbursement of credits for agricultural and rural development projects, inter alia, is the problem of counterpart funds which form a significant proportion of the total costs. The poorest developing countries, because of their limited domestic resources, cannot adequately provide the local costs for these projects. In Nepal, the Bank has been responsive to this need and has been providing a higher proportion of local costs. We hope there will be further improvements in these terms. Another measure to increase the disbursement could be the increased use of IDA assistance for program and sector loans with as much flexibility in their specific uses as possible. Before closing I would like to take this opportunity to record my sincere appreciation to the President of the United States of America for his welcoming address. I also would like to extend my hearty welcome to the new Managing Director, Mr. Jacques de Larosiere, and wish him all success. I would also like to join others in welcoming the Honorable Governors from Maldives, Suriname and the Solomon Islands who are attending this Annual Meeting for the first time.

NETHERLANDS: F. H. J. J. ANDRIESSEN Governor of the Bank The world economic situation is still far from satisfactory. We are still faced with problems of too high inflation, too low growth, too large payments imbalances and to sharp exchange rate fluctuations. We should continue to tackle these problems with a common strategy.

133 I do not want to dwell at length upon this strategy. Several speakers, in particular the Managing Director of the Fund, Mr. de Larosiere, have already explained to us its elements very forcefully. It is quite clear that we still have a long way to go and that we need to continue and even strengthen our strategy of noninflationary growth in order to reach a more balanced world economy. Although growth prospects seem to be somewhat brighter in Europe, underutilization of capacity outside the United States will remain very substantial, and not enough progress will be made in the reduction of unemployment. The continuance of this situation entails a serious threat to free world trade. Although the rate of inflation slowed down, especially in Europe and Japan, the differences in price performance between major countries give rise to concern, especially in view of its consequences for balance of payments adjustment and exchange rate stability...... Let me now turn to the World Bank Group. The performance of the Bank has very much changed in volume and scope since Mr. Robert McNamara became President ten years ago. Yesterday in his speech, the President reminded us of the initiatives which were taken in the fields of rural and urban development, especially during the past five years. I notice with great satisfaction the increased emphasis on investments directly affecting the living conditions of the poorest people. The amounts financed by the Bank Group are extremely important to developing countries; its technical assistance, and economic and sectoral reviews are becoming more and more valuable. There is also a growing interest in the financial world to cooperate with the World Bank and the regional development banks through co-financing of projects. I attach great importance to the intended further development of this instrument by the Bank. This is one of the few effective ways to promote private capital flows to developing countries. The World Bank should continue its leading role, and the first requirement is a substantial increase of its capital. Already during the Annual Meeting of last year my predecessor pleaded for a doubling of the Bank's capital. All delegates were in favor of a substantial increase. We all know that the Exectuive Board has not yet succeeded in reaching a conclusion. The U.S. Administration hesitates to start serious negotiations on the capital increase as long as the fate of the IDA IV and V Replenishments in Congress is not clear. The United States gave a first thrust to development cooperation with the Third World. It is a sad and worrying experience for the rest of the world that this country at present does not seem able to play the stimulating role to which we have become so accustomed. I welcome the confidence the President of the United States expressed yesterday in a more forthcoming attitude of Congress. We need a quick decision to double the capital of the World Bank. We need an agreement in the course of 1979 on the Sixth Replenishment which can ensure that IDA aid keeps growing in real terms. These are indispensable steps to ensure the continuity of the lending activities of the Bank and IDA on an adequate scale. Finally, I would like to pay tribute to the staff of the Bank for the prepa-

134 ration of the very valuable World Development Report 1978. The Report spells out some of the main uphill tasks which still lie before us in the field of development. Even under optimistic assumptions, as many as 600 million people will live in absolute poverty in the year 2000. We all agree that this number is unacceptably high, but we are still groping for effective policy solutions. I would like to suggest that the World Bank staff make a special effort during the coming years to answer the important question which policies can contribute effectively to solver this most crucial element of the development problem.

NEW ZEALAND: R. D. MULDOON Governor of the Fund First, I would like to welcome the three new members, the Solomon Islands, Suriname and Maldives, into the international community of Fund and Bank membership. The last two years have not been encouraging for those countries, such as New Zealand, who rely for the major part of their export earnings on primary products. After a year of brisk recovery from the recession, the pace of growth in the industrial countries has, since the middle of 1976, slowed to between 3 and 4 per cent. At the same time, their rates of inflation have stabilized at the 6 to 7 per cent level. Both are unsatisfactory: the more so as there are no signs of improvement. Primary producers are in effect exporting to near stagnation, while at the same time we are, through purchases of manufactured goods, importing inflation. The effects are cumulative, and the more they are prolonged, the harder they are to remedy. The terms of trade of the more developed primary producing countries have, for example, fallen every year since 1973. This decline accounts in large measure for the failure of that group of countries to make much of an improvement in its aggregate current account deficit. It has frustrated a relatively strong rise in export volumes and a moderate expansion of imports. In these circumstances, the undertakings on growth reached in Bonn have a significance that goes beyond the small group of countries directly involved. I take this opportunity to welcome these commitments, which reflect a sense of awareness of the dangers of a further slowdown in growth. If they are modest in comparison with the depth of the recession of 1974 and 1975 that followed such a long period of rising prosperity, then that is a measure of the complexities of economic management after years of high inflation and dislocations in economic activity. This last point is the key to whether higher rates of growth in the major economies can in practice lead to more vigorous world trade. Since 1973, higher energy prices have changed production costs and domestic demand patterns, while inflation has altered relative prices between labor and capital. Rather than tackle these problems by diversifying into other areas of economic activity or by increasing productivity, protectionist devices have

135 been used to prop up industries, sectors or regions that have lost their comparative advantage as producers. New Zealand is feeling this effect on its agricultural exports. Other countries are obstructed in the manufacturing sector. These barriers are hindering the process of adjustment to the pattern of current account deficit and surplus that emerged at the end of 1973. The aggregate deficit of the more developed primary producing countries may at long last be showing signs of improvement. There is a long way to go yet, and if trade barriers cannot be reduced, then it is difficult to see how that aggregate deficit can be reduced to a manageable level. A further cause of anxiety has been the exchange rate instability of the last twelve months, the speed with which changes have occurred, and the disorder and uncertainty of the markets. These have had effects on us all. Most of us have chosen to peg our currencies either to a single major currency or to a basket of currencies, such as that of the special drawing right, making occasional changes as economic and financial developments made these necessary; although the fringes of the exchange rate system are rationally organized on these lines, this is not true of the core of the system-the currencies of the major economies who account for the bulk of world trade. These currencies have behaved in a manner very different from the conventional wisdom on flexible exchange rates. I am especially concerned that capital movements have sometimes added to exchange rate instability. The very rapid increase in the amount of funds which may be freely moved from one currency to another should be a matter of concern to us all. According to BIS estimates, the amount of external deposits in international banks in the industrial countries is in the order of $400 billion. The effect that movements in these "stateless" funds can and do have on exchange markets is of a magnitude which can easily overwhelm the best endeavors of national authorities in their intervention policies. The resultant exchange rate changes have had an adverse impact on international trade and thus on investment decisions and on economic activity in general. These factors have limited the growth performance of industrial countries as well as that of other countries dependent on a stable international trading environment. Given the differing domestic performances of the industrialized countries, exchange rate changes were inevitable and, indeed, necessary to help in the adjustment process. My concern is that erratic capital movements have amplified the changes to the degree that international trade has been inhibited. We need a new sense of financial discipline in the middle ground between the rigidity of the Bretton Woods System and the instability of existing arrangements. The amended Articles of the Fund give it a mandate to tackle this problem, and it is essential that this be done. In New Zealand, restraint on domestic demand and increased export earnings have reduced the current account deficit from over 10 per cent of gross national product in the 1974/75 year to under 4 per cent in 1977/78, with a further improvement in prospect for the current year.

136 This process of adjustment to new economic realities had its most immediate impact on consumption, which fell steadily. Initially, manufacturing production held up partly by increasing exports and by securing a larger share of the domestic market. However, as export growth sub- sided and import replacement levelled out, an unwarranted accumulation of stocks occurred. Business confidence, which did not take due account of these developments, remained excessive. It was only dispelled toward the end of last year. There was a sharp downturn in production, a rapid rise in unemployment and the risk of a major loss of business confidence with a decline in economic activity to a level that would have been unacceptably low. We have therefore taken steps to steady the economy during this crucial period. An improved current account position and a reduction in the rate of inflation has given us enough leeway to adopt a less restrictive monetary and fiscal stance. The intention is to restore a degree of stability to the economy, at a sustainable level, while we continue to switch resources into those areas-not only agriculture-in which we are internationally competitive. I would now like to comment briefly on some of the important issues that have been concerning the Fund and the Bank...... I would, however, like to add my voice to those earlier speakers who have deplored the lack of progress that has been made, since we met last year, on the future capital requirements of the World Bank. It is the largest single source of multilateral finance for development, with a depth of expertise that no single donor can hope to emulate, committed to the impartial support of accelerated economic growth and to the channelling of more of the benefits of that growth toward the needs of the absolute poor. I hope that discussions on a capital increase can quickly be resumed, before uncertainty over the Bank's future obliges it to taper off its current activities down to a level that it could sustain without a further capital increase. That would be a severe setback for the development process. A sizeable group of middle-income countries are now rapidly moving toward full scale industrialization. They have demonstrated their resilience by recording impressive rates of economic growth in the adverse economic environment of recent years. This does, of course, require large injections of external capital, properly tailored to imaginative development strategies, and here the role of the World Bank as a financial intermediary between borrowers and the financial market is crucial. It should have the resources for that purpose. Clearly, there is no single "right" figure for a capital increase. Too many factors are involved: the real rate of growth in the need for Bank finance, inflation, and loan terms. It will not be easy to reach agreement on these matters, and the sooner discussions can be resumed, the better. It is pleasing to note the passage of the U.S. 1979 Foreign Assistance Bill through the Senate last Friday without any major cuts or restrictive amendments. This represents significant progress.

137 NICARAGUA: ROBERTO INCER BARQUERO Governor of the Fund It is an honor for me to address this distinguished assembly as Governor of the International Monetary Fund for Nicaragua. The mere presence of the Nicaraguan delegation at this Annual Meeting-a tradition we have followed since the inception of this, the world's supreme monetary agency -is incontrovertible evidence that the political, social, economic and financial disintegration of Nicaragua, heralded with such conviction recently in certain domestic and international circles, both private and official, journalistic and political, has not in fact come to pass, the country having once again demonstrated its political maturity by preserving its economic and social stability. Furthermore, the Constitution and laws of the Re- public prevail throughout the national territory. The country is on the point of reaping an export harvest that is one of its most promising as regards both volume and prices; we have gathered and stored more grain than at any time in the last five years; the financial system is operating normally; our factories are in production; and regional and local trade continues as usual. In saying this I do not claim that we have completely overcome our political problems, major sectors of the business districts of four of our cities having been razed to the ground by pillage and fire during the recent upheavals. But I do wish to emphasize that these events have reinforced the Nicaraguan conviction, born fifty years ago, that only the electoral battle can decide the destiny of the country, and that the vote, not the rifle, must be the fundamental law of the Republic. In the economic and financial spheres, our problems, although considerable, can be overcome with effort and judicious policies. Despite the stimulus from good coffee prices, trading and industrial activity in 1978 have been affected by political uncertainty. The anticipated balance of payments deficit became considerably more serious in August as a result of transfers of private capital abroad. Financial resources have been de- pleted to such an extent that a special, coordinated effort will be required of the Central Bank, domestic commercial banks and foreign banks in order to meet final commitments associated with the financing of agricultural production for export. The objective underlying the fiscal measures introduced in August will be partially canceled out by the recent events. Public expenditure will be increased-notwithstanding the Central Government's deficit situation- in order to generate employment among those population groups whose economic activity, precarious by nature, has been disrupted as a consequence of the closing down of certain businesses and, more recently, of damage and destruction. Despite these problems, the good harvest prospects I mentioned earlier, together with our industrial production capacity, which remains unaffected, will facilitate rapid re-establishment of economic activity. In order to avoid a greater drain on financial resources and defend the country's international reserves, the Nicaraguan authorities were obliged

138 to impose certain interim restrictions on the absolutely unrestricted exchange system the country has allowed for the last fifteen years. We wish to make it very clear that these measures are designed only to prevent resi- dents of Nicaragua from remitting private capital abroad. They will not prevent or in any way hinder imports of foreign goods; they do not imply the imposition of quantitative or qualitative controls on payments going abroad; they do not impede remittances of foreign capital or dividends; they do not in any way restrict the servicing of external public or private debts with regard either to principal or interest; and they leave all foreign currency exchange operations in the hands of the private banks. The only departures from our traditional policy of unrestricted exchange arrangements are: an obligation on exporters to negotiate proceeds from invisibles within the domestic financial system; establishment of an automatic expe- dited system for verifying payments for invisibles; and a limit on funds for certain types of foreign travel, depending on its purpose. No limits or prior approval requirements are prescribed with regard to foreign exchange sales for payment of the external public debt, loans received through financial intermediaries or loans granted directly by financial institutions abroad to private parties. I should also like to add that, since the Nica- raguan financial authorities do not regard exchange control as an economic policy instrument for achieving equilibrium in our balance of payments current account, it therefore cannot relieve us of the obligation to adopt such measures in the monetary, credit and fiscal spheres as will guarantee that equilibrium...... We are confident that the help of the International Monetary Fund, of the international financial institutions, and of the international financial community, combined with the political will of our Government and the hard work of our people, will enable Nicaragua to overcome the crisis we are presently experiencing.

PAKISTAN: GHULAM ISHAQ KHAN Governor of the Bank Let me at the outset join my colleagues in extending a warm welcome to the Governors for the Maldives, Suriname and the Solomon Islands. I would also like to avail myself of this opportunity to congratulate Mr. de Larosiere on his appointment as Managing Director of the Fund. The essential purpose of this forum of the Annual Meetings of the Fund and the Bank, apart from reviewing the performance of these institutions, is to identify the current and long-term problems confronting the world economy and to consider ways and means of finding adequate solutions for them. In keeping with the complexities of the world economic order, these problems range over a wide field covering the whole gamut of national and international policies affecting the development prospects of both the developed and developing countries. These issues have been comprehen- sively covered in the two reports of the Fund and the Bank and these reports provide an excellent basis for our deliberations. Proceeding on the

139 assumption that the broad conclusions of these reports are by now already widely enough known not to need recapitulation, I intend to focus my remarks on the central issue of the development prospects and strategy for the majority of people living in the developing world. As we approach the close of the 1970s and enter the final decades of this century, it is appropriate that the World Bank, which was originally conceived as an institution for the reconstruction of the war-torn economies and development in general, should devote its fullest attention to the longer-term problems of the three fourths of mankind, crippled by poverty and deprivation, in certain respects even more severely and in a more lasting manner than those caused by a physical war. I regard the World Development Report, 1978, prepared under the auspices of the Bank, as an initial step in this direction. It is a comprehensive study of what has been achieved during the past 25 years and what can be expected to be accomplished on certain given assumptions by the close of the century. It has served a useful purpose by outlining a scenario of the likely course of events in the absence of fundamental changes in international economic policies, relations and institutions. The real challenge for the international community begins where the World Development Report leaves off. It is projected in the report that even by the end of this century the number of people living in absolute poverty will be as high as 600 million. President McNamara in his speech described this as a shocking result, and rightly characterized absolute poverty as a condition of life which defies human decency. The practical task before us then is to devise a plan of action that would ensure that global poverty on such a vast scale does not prevail and at least the most cruel aspects of poverty are eliminated by the turn of this century. I would invite you. therefore, to consider seriously the formulation of a World Plan on Poverty. This plan should spell out the concrete policies and programs through which absolute poverty can be progressively reduced and substantially eliminated by the year 2000. It should also indicate the respective responsibilities of the developing countries, the developed nations and the international financial institutions in implementng such a bold program. The plan would, of course, need endorsement at the highest political and economic level but it should be conceived and initiated and should have the operational support of the World Bank. In fact, I would suggest that the next development decade strategy should cover the 20-year period from 1980 to 2000 and should be squarely based on a perspective of this kind which can bring renewed hope for a better life to millions of people in the Third World. This also appears to be the only way to bring the whole of mankind together and ensure peace and stability on earth, to which President Carter so wisely referred in his address to the forum. In making this suggestion it is not my intention that the developing world should pass on its own responsibilities to others, even though it may be possible to demonstrate on the basis of an objective historical analysis that most of the present difficulties in many of our countries are not entirely of our own making. We in the developing world should be fully prepared to assume our own obligations in carrying out such a plan of action. We

140 should commit ourselves to undertake all such policy changes as would accelerate national growth in support of a direct attack on absolute poverty. The World Development Report outlines some of these policy actions and we fully accept our own responsibility in carrying them out. But, in a world as interdependent as ours, this must be a shared responsibility of the international community, if only for the reason that no amount of effort on the part of the developing countries to eradicate poverty will succeed on its own, given the present world economic order and relations. The burden sharing will also need to be on a more equitable basis-roughly proportional to the relative economic strength of the various constituents of the world community-than has been assumed in the present World Development Report. There appears, for example, no justification for the asymmetry assumed in the Report between the effort required on the part of the developed and the developing countries. In general, the expectation from the developed countries is merely to resist further increases in protectionism. No significant progress in dismantling trade barriers and improving access of the developing countries to the markets of the developed countries has been assumed. At the same time no significant improvement in the ratio of official development assistance from DAC countries has been projected. At 0.39 per cent in 1985, this ratio would be one quarter less than what it was in 1960. The projections of resource transfers in money terms look impressive, but when note is taken of the fact that they include the impact of inflation at a persistent rate of 7 per cent per annum, they represent no more than a money illusion. The overall significant indicator is merely a negligible change in the ratio of ODA to GNP in the developed countries, which means that the developing countries will not only have to reduce their dependence on outside resources but will be required at the same time to intensify their efforts to improve their performance in terms of growth and social justice. This cannot be the way to eradicate poverty if, indeed, such eradication is the real objective to which the world community subscribes. Similarly, the report assumes that the net foreign resource inflow to the developing countries would decline as a percentage of their gross domestic product from 4.2 per cent to 2.6 per cent. In other words, the major burden of improving performance is placed on the low-income developing countries themselves, which will have simultaneously to accelerate their growth rates to improve distribution, to increase domestic savings, and to adjust to a decline in net foreign resource inflows relative to the income levels. This again does not appear to be a workable strategy. At any rate, it appears somewhat strange that the political constraints on action required by the developed countries are given much greater weight in arriving at assumptions regarding aid flows and reduction in the level of protection. On the other hand, such constraints are assumed to be virtually non- existent in formulating likely effort for mobilizing domestic resources consistent with the objective of reducing absolute poverty and improving consumption standards of the lowest income groups. In particular, I view with concern the underlying notion in the World Development Report that we should rule out the possibility of reaching

141 the internationally accepted target for official development assistance at 0.7 per cent of GNP. The evidence of the realism of this target lies in the fact that a number of countries, not necessarily the richest in terms of per capita income, have already attained this target in their aid policies, and in the case of OPEC countries, the ratio is more than 2 per cent. The absence of political will in certain countries reflected in the current aid policies should not be regarded as permanent. In the context of the global plan on poverty that I am proposing, alternative sets of projections will need to be made on the basis of more equitable assumptions. Assumption will also need to be made regarding other changes in the policies of the rich nations which are considered essential for the success of such a plan. These should include a concrete timetable for dismantling existing tariff and non-tariff trade barriers; oper- ationally enforceable targets for concessional assistance; a liberal and widening access to the capital markets of the developed nations and a fundamental restructuring of international economic relations and institutions so that the benefits of future growth and trade can increasingly flow to the poor nations. It is important to ensure that pledges for action on these fronts do not become a matter of mere diplomatic pronouncements but are regarded as a binding political commitment to act. In order to implement a global plan on poverty of this kind, a very large responsibility will rest on the World Bank. Obviously, the World Bank needs additional resources to address this challenging task. My Gov- ernment fully supports an increase in the IBRD capital in the range of $30 to $40 billion and a significant real increase in future IDA replenishments. In fact, I believe that the need for additional resources may turn out to be considerably larger if the Bank is to play a key role in implementing such a global plan on poverty as indeed it must. The World Bank has shown tremendous dynamism under the leadership of President McNamara and attempted to reorient its policies over the last 10 years increasingly in favor of the poorer countries and, within these countries also, in favor of projects and programs of direct benefit to the poorest sections of the society. I greatly appreciate this change in direction. But the change has yet a long way to go. As a concomitant of the change in direction, it would also appear necessary to bring about suitable changes in the procedures, operational requirements and practices which have become a part of the accepted orthodoxy in the Bank. These practices adopted in relation to the types of lending operation on which the Bank focused in the early years of its operations have in many cases remained unaltered and do not appear to suit the requirements of the new-style loans in the area of agriculture and basic human needs. The disparity in the objectives and practices of such loans is in part reflected in the slow rate of disbursement of such loans. In particular, it may be necessary to give much practical recognition to the difficulties of project formulation and implementation in agriculture and social sectors and the need for flexibility. In many of these areas the foreign exchange component of project costs is low, and in order to speed up implementation it would require a more liberal approach toward local

142 cost financing and program lending than has so far been possible to adopt. I would suggest that the Bank should undertake a study to review the com- patibility of its procedures, requirements and terms of lending with the objectives of the new-type lending operations and explore the feasibility of a further liberalization of procedures. In fact, it may be useful if the study is not confined to the Bank alone and covers the entire question of the procedural and substantive changes required in the use of development assistance funds for projects directly affecting poverty.

PAPUA NEW GUINEA: BARRY HOLLOWAY Governor of the Bank These meetings provide a welcome opportunity for us to share our experiences over the past year and to exchange views on the course of developments for the year ahead, as we see them. I am delighted to be able to participate in this process. Some of the central issues have been set in clear focus for us by the Managing Director of the Fund and the President of the Bank in their opening statements. It is a particular pleasure for Papua New Guinea, as a not so very old member of the Fund and Bank, to welcome the newest member, our near neighbor Solomon Islands. We can say to Solomon Islands, based on our own experience, that membership of these institutions provides welcome and reassuring support for a newly independent nation. We also welcome into membership the Maldives and Suriname. I would also like to join others in welcoming Mr. de Larosiere as Managing Director of the Fund. We look forward with confidence to the contribution he will make. Over the course of the past year, we in Papua New Guinea have been largely focusing our attention on matters of domestic concern. We find that we have more than enough to do trying to keep our own house in order. But of course this does not mean that we are unmindful of developments in the world economy generally. That would neither be possible nor sen- sible since we appreciate only too well the essential economic interdependence of nations. And because of this we have not always been reassured by the course of events we have witnessed. This past year has shown us that the international community has still some considerable way to go in achieving that degree of consensus and cooperation which is needed to overcome the serious problems of instability and adjustment which persist. This is something which must be of concern to us all. We greatly welcome the obvious efforts that are being made by the major economies to develop and follow a coordinated economic strategy. It is clear to us all that this is fundamental to the establishment of a soundly-based growth path for the period ahead. So we lend our full support to these efforts. We recognize that the more successful these efforts are, the more we ourselves will benefit. The smaller countries have just as much interest in a stable international economy as the major countries. Indeed, perhaps they have a greater interest because of their limited

143 ability to insulate themselves against the consequences of instability. What we would ask is that the major countries continue to be mindful of our interests in their deliberations; the outcome of economic summitry touches not only the participants, but also the rest of the community of nations. The world economy has been somewhat unstable for a considerable period now, and we must ask ourselves whether our efforts to restore stability and establish a basis for growh are succeeding? There has been progress, but there have also been setbacks. We seem to be on an unsteady course which gives us a somewhat fragile foundation for the further progress we seek. What we can say with assurance is that the events of recent years have taught us there are no easy answers. But that cannot absolve each one of us from the need to firmly pursue those policies which foster stability and growth. In that regard I would observe that our degree of success, or lack of success in managing our domestic economies has lessons that will be helpful in the international context. Countries like Papua New Guinea perhaps can claim some advantage in this respect. We do not have long established policies; we are still in the process of evolving our responses to conditions as they arise, and we have therefore considerable scope for flexibility to act without the prejudice of long held traditions. I say this because I believe that we have reason to take some measure of satisfaction from our own efforts at domestic stabilization over the past year or so. We have consciously pursued policies designed to bring stability to an economy traditionally dominated by the vagaries of commodity prices. We have become acutely aware that these fluctuations do not allow us to establish the framework needed for sustained growth; they produce a situation of uncertainty and instability which mitigates against forward planning and which cuts across the framework which the Government requires to be established to sustain the momentum of development. For this reason we have taken a number of steps designed to bring a degree of stability which we could not reasonably expect to occur naturally. We have established funds to stabilize primary product incomes; we have similarly established a mechanism to stabilize highly volatile sources of funds flowing to the government budget, and we have been forceful in our pursuit of a sound currency strategy to stabilize incomes and prices and to avoid distortions between economic sectors. There is nothing remarkable about these policies in themselves. The concepts are basic and the mechanisms simple. My purpose in mentioning them is not to focus on the schemes themselves, but on their results. Our experience is that firmly pursued policies can and do work, and our economic performance gives firm support to this view. Of course stabilization measures are not necessarily popular at the time of inception. Indeed quite often the reverse is true. Our emphasis on establishing stabilization funds came at a time when many prices were high- and it is difficult to engender the interest and enthusiasm of producers in such schemes when prices are high. But governments are obliged to take a rather longer-term view, and it is even more difficult to implement them when prices are low, if the object is stabilization.

144 We consider domestic stabilization to be fundamentally important because it is an indispensable prerequisite for progress. A degree of stability brings a greater opportunity to plan and direct the future course of events. Economic development can proceed along an orderly path only when policy makers are not required to stop and start in rapid succession as the economy is bounced around by the current of events. Greater stability has, for example, enabled us to enter a new phase of forward planning. We are now better able to bring government spending into line with the priorities established by Government rather than have these priorities determined for us by the crisis of the moment. And we have instituted the National Public Expenditure Plan to execute these priorities. This would not be a meaningful exercise if we were constantly having to adjust our patterns of expenditure against a background of externally generated instability. The ability to plan more effectively has also reinforced for us the important principle of living within our means. This is perhaps the most basic of all principles but yet undoubtedly the most difficult to observe. All Governments-and ours is no exception-have an inclination to spend; that inclination is not always matched by an inclination to generate the revenue from which the spending proceeds. But by and large Papua New Guinea has managed to live within its means, and we believe the progress our economy has shown reflects the soundness of the principle. I believe that it is proper at these meetings to face a very fundamental issue. Many countries-and not just developing countries-are struggling with fiscal and balance of payments deficits and at the same time endeavoring to cope with seemingly intractable inflation. There seems to be a very real danger that we may be losing our capacity to live within our means. If this is so, it is time to reaffirm our commitment to economic responsibility. The so-called "soft options" are not options at all. Two themes have generally emerged in ministerial meetings of this kind in recent years. The first is that there is an obligation on all countries to correct internal disequilibrium by appropriate domestic adjustment policies. The second is that some countries are in a position to contribute to a better global adjustment and should adopt policies to this end, consistent with maintaining reasonable domestic stability. In one sense these two themes amount to the same thing. Adjustment is a two-way process and imposes obligations on surplus and deficit countries alike. But we should not be naively idealistic; pressure for adjustment clearly bears down more heavily in the deficit countries because it is their situation which is the less sustainable in the longer term. They must formulate economic strategy with resolution; I repeat there are no easy options. For example, where inflation is eroding the confidence of investors and entrenching distortions in the economy, inflation must be attacked. Where countries are unable or unwilling to take the necessary domestic action, it is too much to expect that the actions of other countries can be sufficient to promote adjustment and restore equilibrium. I should make it clear that I agree with those who see scope for a further significant contribution by the major surplus countries to support a better

145 global adjustment. And I join with others in welcoming the efforts these countries have made to date and in urging them to do whatever more is reasonably consistent with their own domestic stability. But there are probably few countries who could reasonably assume that such actions by themselves would have a powerful effect on their own efforts to adjust. In this regard I see a certain parallel between adjustment and what is often said about the development process. It is often argued on the one hand that what is needed if development is to proceed at an acceptable pace is greater flows of better quality development assistance. On the other hand we are told that what is needed is for developing countries to work resolutely towards generating the circumstances and climate in which development can proceed. I believe these points of view are not contradictory, but are rather mutually supporting. Development, at an acceptable pace, requires a combination of both. To draw the parallel more clearly, no amount of development assistance can of itself project a country into a sustained growth path. A fundamental prerequisite is a domestic policy framework which can draw support from an adequate supply of development assistance. As I see it-and there is nothing deep about the analysis-the same is true of adjustment. The contribution which surplus countries can make to the adjustment of other countries can only be supportive of appropriate domestic policies. Of course, just as development can founder even with the best domestic policies for lack of sufficient external support, so too can adjustment efforts fail for lack of support. The message is quite simple-each country must recognize that it has a contribution to make to better global adjustment. This need not be done in a spirit of altruism; it is in the interests of each one of us to make the necessary effort. What I have said reflects the relationship we see between domestic policy formulation and international economic cooperation and interdependence. There is one area in particular where we in Papua New Guinea believe that the concept of interdependence must not be allowed to be lost. This is the area of trade and protection. Like many developing countries ours is a small economy, but one which is particularly vulnerable to changes in external fortunes. Our stabilization policies are designed to deal with fluctuations in export earnings which result from commodity price movements. We are prepared to participate in any meaningful discussion directed towards the stabilization of primary product prices, and we urge greater attention to this very important issue. But we appreciate that even with the best will and the best machinery, commodity prices will inevitably fluctuate. That is why we have firmly established stabilization mechanisms. What we cannot reasonably cope with is that if in addition to this source of instability, we have to face further uncertainty because of our inability to secure stable and reliable market outlets for our exports. For countries like ours with a necessarily narrow export base this would present an insurmountable barrier to progress. Of course part of the answer

146 rests with ourselves; we must seek to broaden our export base, and this we are doing. But if subsequently our additional exports cannot find markets, what then? We are greatly concerned that the forum of international trade is increasingly taking on the aspect of an area of confrontation among the major trading blocs. We are concerned because the fallout from such confrontation can overwhelm the smaller countries. If that fallout is a general move away from more accessible markets for our exports, then we are denied the impetus for progress, and our strategies for development lose their foundation. It is usual at these meetings to comment on the activities of the Fund and Bank. I have not chosen to do so on this occasion because I believe the broader questions of domestic economic management and international responsibility are more pressing. However, I would not wish to conclude without remarking on the helpful and constructive relationships we are developing with the Fund and Bank. We have not been a member of these organizations for so very many years, but we have found both institutions to be competent and cooperative. I am glad to be able to use this occasion to place clearly on the record our support for the institutions and for the policies they seek to pursue. Their success-and I believe they have been successful-shows us that international cooperation can and does work. That is encouraging. These institutions are uniquely placed to offer valuable insights into the state of the world economy and the prospects for the future. They can identify the international implications of national policies, and they can highlight the issues that demand attention. They have our support to perform these tasks, and we hope they can have the assurance that their counsel will continue to be sought and heard in the international community.

PARAGUAY: CESAR ROMEO ACOSTA Governor of the Bank It is the wish of the Paraguayan delegation that the Thirty-Third Joint Annual Meetings of the Bank and the Fund be a further positive step toward a gradual solution of the problems confronting the world's developing countries-that, indeed, being the fundamental purpose of these two international institutions. We are once again happily able to report that for Paraguay the past year, 1977, was one of exceptional growth; the combination of massive capital inflows, greatly increased agricultural production and an atmosphere of tranquility and hard work enabled us to achieve an unprecedented economic growth rate of 11.8 per cent. Economic growth of this magnitude, exceeding the target set for present international development strategies, is most encouraging to Paraguay, which as a developing country depends to such a large extent on political

147 and economic factors beyond its control and therefore needs the full support of our international financial institutions if it is to continue self- sustaining growth. The World Bank Annual Report reveals that the new surge of inflation affected 88 developing countries that are not oil producers, the weighted average inflation rate being 21 per cent in 1977. Paraguay, however, is listed in the Report among the atypical countries, with inflation of only 9.4 per cent, thanks to well-integrated monetary, credit and fiscal policies. The general picture, nevertheless, is again one in which inflation, ascribable among other causes to the weakness of the dollar, and the aftermath of the world economic recession, has had an adverse impact on international financial assistance to the weaker countries; it has reduced the benefits they have obtained from that assistance and affected their external current accounts, placing them in a deficit situation and exacer- bating their financial and development problems, while leaving no hope of a solution within the forseeable future. This situation is liable to worsen if the threat of an increase in oil prices persists, the repercussions of which would mainly affect the monetary stability and balance of payments of the non-oil producing countries of the developing world. The inadequate flow of financial resources upon reasonable terms toward the developing countries-particularly the least advanced and those which are either landlocked or insular-caused them to resort largely to less favorable private-sector or supplier credits, leading inexorably to over- loading and deterioration in their external debt composition, with the consequent adverse effects on their development history. For the developing countries, high-interest short-term loans inevitably aggravate their debt-service situation, limit their possibilities as far as essential imports are concerned and compromise their growth. In the opinion of the Paraguayan delegation, the moment has perhaps arrived when the World Bank Group should introduce policies that would encourage the earlier formulation of strategies and targets to be pursued by the developing countries with its cooperation. These policies should be designed: to focus on allaying the external debt problems of these countries, which are generally in payments difficulties; to lead to revision and raising of the maximum per capita income level beyond which assistance on concessionary terms is cut off, having regard here to the marked increase in developed country income levels; to expand the scope of present financial assistance by introducing more effective systems of guarantees for small businessmen and farmers so that production and exports may be increased; and to seek practical mechanisms by which the developing countries could support one another reciprocally with their balance of payments problems and their difficulties of access to private capital. In connection with an administrative situation in which the Bank has found itself recently, and which has marred its traditional image of im- partiality in the application of loan approval criteria, now sometimes colored by subjective considerations of a political nature, the Paraguayan delegation wishes to state that it regards as essential the maintenance by the international financial institutions, and particularly the World Bank,

148 of an independent mode of conduct in their decision-making processes; they must reject all political interferences, especially when the projects to be financed have been appraised as feasible according to their own economic and social criteria and are designed to benefit the neediest population groups in the developing member countries. In this regard, the Para- guayan delegation wishes to express its support of Mr. McNamara's view that all political interference in Bank decisions must be resisted. These and other associated courses of action, carefully chosen and judiciously programmed, would in large measure reduce the vulnerability of the developing countries and consolidate a self-sustaining improvement in their potential for greater economic autonomy as World Bank member countries. The recent constant and abrupt fluctuations in world economic progress require maximum attention in forecasting likely future events, an attention that would benefit not only the weakest members of the Bank but the advanced countries as well. Who can remain unaware of the fact that numerous solutions have been proposed at these and other international meetings? Many efforts have proved fruitful, but other substantive and awkward questions remain un- answered or pending consideration. Large numbers of reasonable recommendations have been put forward, but still await the corresponding resolutions. It is worthwhile mentioning a few of these many proposals: a suggested official development assistance figure of 0.7 per cent of the GNP of donor industrialized countries, which has not yet been half achieved; reorganization of the international monetary system to provide stimulation for the developing countries; elimination of restrictions on the export of primary commodities and both manufactured and semimanufactured products to developed country markets. As far as Paraguay's own economic and financial situation in 1977 is concerned, a remarkable surge of activity occurred, the result of a favorable combination of several factors, among them a substantial increase in agricultural production, leading to accelerated industrial activity, a significant upswing in the construction industry, marked increases in the services sector, and an appreciable expansion in the impact of the large-scale investments associated with the Itaipu hydroelectric works. The external sector also showed a notable advance. GDP rose by an unprecedented 11.8 per cent in 1977, a marked improvement on the 7.5 per cent rate achieved the previous year. The agricultural production index rose by 13.9 per cent, beef production by 21.6 per cent, forestry production by 16.9 per cent and industrial production by 18.4 per cent. Income growth recorded in the rural sector, and the resulting positive impact on income generation in other sectors, led to a rapid rise in internal demand which caused upward pressure on prices; this has been mitigated by an expanded supply of goods and services, as reflected in the real growth of various economic sectors. In the first half of 1978 the monetary situation of Paraguay, in relative terms, was similar to that of the first half of 1977. The money supply increased by 35 per cent, amounting to 12.034 billion guaranies in the

149 first half of this year, as compared with an increase of 36 per cent (G 8.770 billion) in the same period last year. As at June 30, 1978, currency in circulation had increased by 23 per cent, amounting to G 16.483 billion; demand deposits on current account had increased by G 17.593 billion, equivalent to 29.5 per cent; and official bank deposits amounted to G 11.956 billion, with an increase of 70.5 per cent. Total payments media were G 45.972 billion on June 30, 1978, 35 per cent higher than the December 1977 total. In the first half of 1977, the total was G 32.522 billion, 37 per cent higher than for December 1976. Currency issued in the first half of 1978 amounted to G 52.767 billion, an increase of G 13.623 billion, equivalent to 35 per cent, and somewhat lower than the 36 per cent increase (G 10.061 billion) recorded for the same period in 1977, when the currency issue totaled G 37.691 billion. This increase was due to an expansion of G 15.560 billion in international reserves, partly offset by a reduction of G 1.937 billion in the Central Bank's net domestic assets. Savings deposited by the public in banks, in domestic currency, amounted at end June 1978 to G 29.821 billion, 18.5 per cent higher than in De- cember 1977 (G 4.648 billion). In the first half of 1977 these deposits rose by G 4.243 billion to G 23.016 billion, an increase of 23 per cent. Foreign exchange deposits rose by the equivalent of G 673 million to G 5.153 billion in the first half of 1978, an increase of 15 per cent over the December 1977 total. In the first six months of 1977 these deposits amounted to G 4.766 billion, which represented an increase of 25 per cent. The sum of the money supply and savings deposits in domestic and foreign currency amounted on June 30, 1978 to G 80.946 billion, 27 per cent more than the December 1977 total. By comparison, the total of these monetary components rose in the first six months of 1977 by G 13.970 billion to G 60.304 billion, a 30 per cent increase over the total recorded at the end of 1976. These totals exclude deposits of housing savings and loan institutions. Similarly, the net total of deposits by the public in such institutions amounted by the end of the first half of 1978 to G 6.904 billion, G 1.419 billion higher than the total for the end of December 1977 and an increase equivalent to 26 per cent. This is a more significant increase than the G 599 million rise, equal to 17.4 per cent, in deposits during the first half of 1977, when the net total was C 4.042 billion. Net international reserves of the Central Bank increased by US$123.5 million to US$383.2 million at the end of the first half of 1978, an increase of 47.5 per cent over the December 1977 total. In the first half of 1977 the increase amounted to US$83.2 million, equal to 55 per cent, with reserves totaling US$234.7 million. The increase in international reserves was due, among other factors, to inflows of foreign exchange for investments of the binational agencies, "ITAIPU" and "YACYRETA," in their respective hydroelectric projects on the Parand river, and also to inflows of private capital and official loans.

150 Paraguay's balance of payments for the first half of 1977 registered a surplus of US$92.3 million; a further surplus of US$117.6 million was obtained on international transactions effected in the first six months of 1978. Purchases of foreign currency by the banking system in the first half of this year rose by US$47.7 million to US$341.4 million, a 16 per cent increase over the US$293.7 million purchased in the same period last year. A large inflow of foreign capital was recorded in the last half-year period, totaling US$147.4 million. This was 73 per cent higher than the US$85.2 million recorded in the first six months of 1977. The new total includes US$102 million for "ITAIPU BINACIONAL" and US$7.7 million for "YACYRETA BINACIONAL." The rest, amounting to US$37.7 million, is made up of long- and short-term private and official capital from other sources. Other inflows of foreign exchange amounted to US$15.7 million, 30 per cent more than the amount recorded in the first six months of 1977. With reference to the Government's finances, the execution of the national budget in the first six months of 1978 brought in revenue amounting to G 17.075 billion, 39 per cent more than in the first half-year, whereas expenditures totaled G 13.807 billion, a 16 per cent increase over the previous period. Accordingly, at the end of the first six months of this year there was a surplus of G 3.268 billion, which is six times larger than the surplus of G 415 million obtained for the first half of 1977. The series of surpluses resulting from the execution of the budget constitutes a notable contribution to monetary stability. Turning to Paraguay's foreign trade: in the first six months of this year, total trade amounted to US$257.4 million, of which US$115.5 million accounted for exports. There was also a substantial increase in the value of imports, which for the first half of 1977 amounted to US$96 million and rose to US$141.9 million in the first six months of the current year; this signifies an increase of US$46 million, or 49 per cent. The domestic consumer price index increased by 5.5 per cent, a lower figure than that for the first half of 1977 (6.7 per cent). As for developments in the wage level, salaries of employed persons, as reflected in the General Wage Index, showed an increase of 13.7 per cent in the first half of 1978, greatly exceeding the 2.8 per cent of the corresponding period last year. This was due to the 15 per cent increase in the minimum wage which the National Government decreed in February 1978, even though some increases had already been granted by private industry or as a result of collective bargaining. This served to soften the impact of the mandatory increase on the General Index. Turning to other specific efforts made by Paraguay to promote its economic and social development, we wish to note that our country, perhaps unlike any other, is an example of the benfits that can accrue from a proper approach to international cooperation. The binational hydroelectric proj-

151 ects of Itaipu, with Brazil, and Yacyreta, with Argentina, were undertaken in the framework of a great concerted effort. These projects are already bearing fruit, even before the turbines are set in motion, by attracting capital, increasing production and trade, and stepping up regional development. In a few more days-on October 20, 1978-the waters of the mighty Parand river will be diverted to allow for the construction of Itaipu, the largest hydroelectric dam in the world. By 1983, according to the strict schedule of construction, Paraguay will thus have sufficient electric power available to sustain its industrialization and give an exportable surplus. Finally, it is our hope that, when these meetings conclude, we will have witnessed an ample debate on the problems surrounding cooperation with developing countries, and that clear ideas on practical formulas to render such cooperation more flexible will have emerged. Hopefully, likewise, we will have contributed to curbing trade protectionism, allayed fears of a possible increase in the price of oil, reduced the danger posed by world inflation, and ruled out political considerations in the decision-making processes of international lending institutions. We shall then have made further very positive progress toward fulfillment of the high aims and aspirations of our member countries. We extend to the President of the World Bank, Mr. Robert McNamara, our approbation of that institution's Annual Report, the reflection of an institutional management for which both the executives and the entire staff of the Bank deserve the highest praise. At the same time we would voice our hope that we may continue to work with the same vigor and with the satisfaction of knowing that in this way we are striving for the well-being of all the nations of the world.

ROMANIA: PAUL NICULESCU-MIZIL Governor of the Bank and Fund Accepting the invitation to save time, let me present some brief matters for consideration: In the analysis of the current economic situation, we take into account the fact that we live in an era characterized by essential transformation, continuous and profound changes in the economic and political relationships. In an important number of countries, a new social order has been declared; we note an ever-growing determination of the peoples liberated from colonial domination to organize an efficient economy, to consolidate the status of the newly created states and to strengthen their independence; in the developed capitalist countries, periods of economic progress alternate with periods of recession, growth rates vary from country to country, development in general is extremely contradictory; ever-growing social and political forces advocate serious reorganization of society. Notwithstanding last year's efforts to surmount the grave situation resulting from economic, monetary, and energy crises, the results do not

152 come up to the expectations. In a number of states, especially in the developed ones, the economic growth rate is low, production capacities are not fully utilized, unemployment is high and inflation is not controlled. To this, one can add the fluctuations of the balance of payments-surpluses in some countries along with serious deficits in others, instability of exchange rates and disorder on financial markets. Romania is seriously preoccupied with the consequences of these phenomena, which increase the justified dissatisfaction of the working people in these countries and at the same time lead to a continuous increase of contradiction between the main developed countries, between rich and poor countries, and among different groups of countries, and which stimulate tendencies to redivide markets and raw material resources, and zones of influence and domination, favor tensions and create grave dangers to peace. Although the causes of these extremely complex phenomena originate in the economic structures generating them and the lasting solutions cannot but be found in a national economic policy which will take into account concrete situations that differ greatly from country to country, we consider that these effects can be softened by enlarging international cooperation, by rules to promote the interests of all countries. In my country's opinion, under the present circumstances it is necessary to act in these main directions: The efforts of all peoples, and of the entire international community as well, must be concentrated toward eradication of underdevelopment-one of the gravest problems of the present time. Despite the numerous debates and programs on this matter, the great gaps between the developed and developing countries are maintained and growing, perpetuating the malnutrition and poverty that millions of people live in and creating serious social problems and misunderstanding in the world. Considering that realization of socioeconomic progress presupposes, first of all, sustained efforts on the part of the respective peoples, Romania is in favor at the same time of the necessity of more substantial international support, primarily on the part of the developed countries, by means including the reduction of military expenditures and transfer of part of these sums to development financing. The main thrust of this support must be stimulation of economic growth, enlargement of production forces in agriculture and industry, a fairer distribution of national income, and the strengthening of independence and sovereignty. It is necessary to undertake efficient and immediate measures to assure unlimited access for all countries, especially for the developing ones, to modern science and technology, to energy resources, and establishment of a more just relation between the prices of industrial products and those of raw materials, which will create an incentive for both industrial countries and producers of raw materials. Solving the great problems of humanity in the interest of all countries is closely linked to the reconsideration of the old type of international relations and liquidation of the policy of diktat and domination, to the establishment of the new international economic order of state-to-state relations

153 based on full equality in rights, noninterference in domestic affairs, respect for national independence and mutual advantage. Romania is steadily promoting these principles, and the active and creative contribution of Presi- dent Nicolae Ceausescu to their elaboration and implementation is unani- mously recognized. I would like to bring to your attention the necessity of common action, with more perseverence, to eliminate all kinds of barriers and restrictions in the field of trade, the consequences of protectionist and discriminatory policies, in order to overcome in the future the separation of the world in closed economic groups and to enlarge international cooperation. Immediate and decisive measures need to be taken to end inflation and its consequences which are so badly affecting the large masses of working people. I would also emphasize the importance which my country attaches to the restructuring of financial relations in order to reinforce national currencies, to assure a greater stability of exchange rates, and, first of all, of the currencies playing the main role in economic international relations. The consensus achieved during this session regarding the increase of quotas and a new allocation of special drawing rights will contribute to the expansion of financial resources, for a more substantial support to the member countries. We express our hope that the agreed measures will be implemented as soon as possible. Romania strongly supports an active participation for the solution of international problems of small and medium countries, of all countries in the world, irrespective of their social system, the size of their economic power, and, within this context, the need for participation of all countries in the activity of the international bodies and their democratization. The Romanian Government appreciates the activities of the IMF and IBRD and the cooperation of these institutions with our country, considers that they have to play a more active and efficient role in supporting developing countries-and in this context, welcomes the intention to increase the Bank's capital and trusts that this measure will be implemented as soon as possible-in equitably solving international monetary and financial problems, and in the support extended to countries to overcome more easily their financial and economic difficulties. Socialist Romania, a developing country, has to solve itself the problems of bridging the gap vis-a-vis the developed countries in as short a time as possible. It is well known that Romania is constantly achieving high rates of industrial development and has obtained good results in the reorganization and development of agricultural output, foreign trade, and other fields. We are permanently acting for the strengthening of our currency's purchasing power, and the stability of prices, for a sound money supply and financial balance. We have accordingly laid down the basis for the adoption of measures to increase, to a higher extent, the real incomes for all categories of working people, surpassing the provisions of the Five-Year Plan. I would like to stress that these achievements are, primarily and decisively, the results of mobilizing all the creative forces of the nation, and

154 the available material and financial resources. The constant allocation of more than one third of the national income for investment is a relevant proof of the huge effort our nation is making. In spite of all these achievements, Romania is still far from the level reached by the developed countries as concerns the national per capita income, the productivity of labor, and the production level for certain products. My country is faced with the difficulties related to an undertaking of such proportions. At the same time, even though Romania has an economic and social organization and mechanisms and means different from those of other countries, we have to overcome the negative influences resulting from the external economic environment. I am happy to inform you that the Romanian people are committed to firmly implementing the policy of the accelerated development of the economy in order to accomplish the historical task that it has set for itself, in order to emerge from the developing country stage in the near future and to secure a high degree of material and spiritual civilization. Let me conclude by greeting the new members-Maldives, the Solomon Islands, and Suriname, by welcoming Mr. de Larosiere as the head of the International Monetary Fund, by commending the steady efforts undertaken by Mr. McNamara in his leadership of the World Bank, and by wishing the management and staff of these bodies success in fulfilling their tasks, with the support and interest of us all.

SOLOMON ISLANDS: BENEDICT KINIKA Governor of the Bank and Fund I come before you today, representing the newest member of the Fund and the Bank. We completed the formalities for joining at 5:30 p.m. on Friday. You could not be any newer than that. Mr. de Larosiere and Mr. McNamara, I want to thank you with all those who have welcomed us during this meeting, and all those on the staff of the Fund and the Bank who have helped in smoothing our path to become a member. Of course I fully realize that very few of you, and indeed not many of the staff of the Fund or the Bank, know very much about my country. I will tell you a little now, so that those of you who want to, can be better informed. We are a small nation of just over 200,000 people, mainly Melanesians, in the Western Pacific Ocean. The Solomon Islands has a total land area of about 29,000 square kilometers, of which about 25 per cent can be cultivated. The chain of islands stretches over 1,500 kilometers from northwest to southeast. After 85 years as a British Colony, we became independent on July 7, 1978. The economy of my country is undergoing expansion and diversification, in accordance with the National Development Plan drawn up by the elected government that has taken the country into independence. Our

155 main exports are copra, palm oil, timber, fish and rice. Key points in our development strategy include -diversified and increased export industries in agriculture, forest products and fisheries, to provide a secure balance of payments base for domestic growth; -self-sufficiency in basic foodstuffs (root crops, rice, meat, fish); -improved internal transport by land, sea and air between islands and between agricultural areas and ports; -a strong base of smallholder farming and food production for local markets; -major commercial projects as joint ventures by the Solomon Islands Government and overseas partners of proven capability and integrity; -technical and vocational education for rural and urban living; -decentralized basic health services easily accessible to all; -an advanced form of local government in provinces, with wide powers to administer, plan and execute developments and services at island level, -government budgetary policy that redistributes incomes between groups and islands, by provision of economic and social services, without removing the incentive to work and generate economic growth. My country has benefited from substantial bilateral aid from Britain and Australia, and we have recently concluded an aid agreement with Japan. We have been a member of the Asian Development Bank for several years. And now we have joined the IMF and the World Bank Group. We have had access to EDF, as a British OCT, and we are now joining the ACP Group of Countries under the Lom6 Convention, in our independent right. Aid from all these sources is necessary and welcome in view of our historically low level of domestic savings and investment, our lack of infrastructure and the shortage of experienced technical staff in the Solomon Islands. We understand very well the need to do all we can to help ourselves. We have to put our own house in order, mobilize our own people, land and savings, devise policies and programs that are in keeping with the resources we can expect to have, and that both fit with and help to shape our people's aspirations for the world we have to live in. We have to exercise the greatest care about increasing our recurrent costs, and our financial liabilities faster than our economy and our incomes can be expected to grow. We have to live within our means. We define "our means" to include the wide range of assistance we believe may be available to us from multinational institutions, friendly nations, and commercial investors of skill and integrity who are prepared jointly to undertake important strategic projects with us. Though we have made a good start in our national development, we recognize how long, and how full of dangers, is the road ahead. I think we are coming to realize the importance of sound economic and financial policies, and how much our future is in our own hands, especially in this first year or two after independence.

156 As we join the Fund and the Bank, let me be honest and say that we are very conscious of the splendid array of distinguished people, the quality of thought, and the amount of work, and not least the cost, which goes into running the Fund and the Bank, and to holding these meetings. The administrative budget of the Bank alone is ten times my Government's total annual expenditures. We are keenly aware of having heard, in several important speeches in the last few days, opinions and promises from great and wise men; we shall remember these things. How far all this will benefit my own small country remains to be seen. I suppose we are hopeful, but cautious. But let me make one thing clear. We in my country, all of us, live the problems of development in our daily lives. We are face to face with economic realities every day. We have no very rich people in my country, and at present nobody is starving. We live through the extended family. We believe in interdependence, in this sense, that in our society nobody can cut himself off and pretend the others do not exist. If he does, he will wither away and die. So we are ready to take our place in the interdependent world family. If we can sell our products on reliable markets for a fair price; if we can have access to private capital investment of the right kind; and if our developed friends continue to help us, with official aid, to fill the gaps left by history, then I promise that we shall be positive, friendly and constructive actors on the international stage. We are, of course, very small on a world scale, but we are the third largest independent state in the Pacific. You will hear from us only very rarely on the world stage. But in the Pacific region we shall be very influ- ential. The South Pacific is destined to grow rapidly in economic and political importance; so you will be hearing from us, if not directly, then indirectly through our regional influence, and the terms and conditions of the South Pacific's commitment to world development. Mr. Chairman, I am pleased and proud to be here today. I thank all those who have helped us to get here. I pledge that the Solomon Islands will be as independent, as honest and hard-working, and as positive and responsible a member of the international community as the nations of the world will allow us to be by their treatment of us.

SOUTH AFRICA: OWEN P. F. HORWOOD Governor of the Fund I must also compliment Mr. McNamara and the Executive Directors and staff of the World Bank Group for their achievements during the past year and for their excellent Annual Reports. I am pleased that the World Bank Report emphasizes so strongly the importance of higher food production to feed the rapidly increasing world population. In Africa we know how difficult it is to maintain a high level of food production, particularly when climatic conditions are unstable, and

157 I am gratified that my own country has in recent years succeeded in exporting food to neighboring and other countries on a substantial scale. South Africa appreciates the important role played by the World Bank Group in promoting economic growth in developing countries, and has demonstrated this appreciation by subscribing to the new capital issues of the Bank and IDA. The Annual Report of the Fund this year is once again a model of lucid and informative economic reporting and analysis. Unfortunately, the basic message it conveys is that both the state of the world economy and the working of the international monetary system give cause for concern. It is true that there have been some encouraging developments. World output and trade, for example, have continued to increase during the past year, albeit at a slower rate, and there has been some easing of inflation in industrial Europe and Japan. Moreover, the current account deficits of several developing and some industrial countries have declined somewhat from the alarming levels of 1976. But if these comparatively favorable developments are viewed in their proper cyclical context, the picture which emerges is disconcerting. Bearing in mind that, technically speaking, the main industrial countries have been in a cyclical economic upswing for three years, the state of the world economy should by now have been far healthier. If this is the best the world economy can do as the major industrial countries approach the upper turning point of the business cycle, what, one may ask, lies ahead in the next cyclical downturn? The Fund Report points out that during the past year the pace of domestic expansion in the industrial world became slower and uneven, that historically high levels of unemployment persisted and that the growth of world trade slowed down noticeably. Even more disconcerting was the emergence of serious payments imbalances among the major industrial countries, notably the huge increase in the current account deficit of the United States and in the current account surpluses of Japan and Germany. This, in turn, contributed to the international currency turmoil of the past year. In these difficult circumstaiices my own country's economic performance has been a source of considerable gratification to me and has not gone unnoticed in international financial circles. Thus, in the group of countries referred to in the Fund's Annual Report as the "more developed primary producing countries," South Africa had the lowest inflation rate in 1977, namely, a shade over 11 per cent compared with the group average of almost 18 per cent. More importantly, South Africa was the only country in this group which showed a current account surplus in 1977. In the course of 1978 our rate of inflation has declined further to below 10 per cent, and our current account now looks set to show an even larger surplus during calendar 1978 as a whole than during 1977, probably of the order of $1 billion. These favorable developments were in large measure the result of a policy of fiscal and monetary discipline, the kind of policy so eloquently advocated by the Managing Director of the Fund in his opening address. Although we have obviously also been assisted during recent months by the substantial rise in the price of gold, our terms of trade as a

158 whole, like those of the group in general, actually deteriorated during 1977. It is only in respect of the rate of real economic growth that South Africa did not fare better than the average of the group in 1977. By comparison with the group average of 2.7 per cent, our own growth rate in 1977 amounted to less than 1 per cent. However, we began to move into a new upward cyclical phase toward the end of 1977 and should therefore show a substantially higher growth rate in 1978 and 1979. At last year's Fund-Bank Annual Meetings I expressed particular concern at the worldwide failure of fixed investment in plant, equipment and construction to increase according to the normal cyclical pattern. From this year's Fund Annual Report it is evident that my concern was justified. Even at this late stage of the upswing, the inducement to invest in most Fund-Bank member countries is clearly inadequate. In this regard one hears increasing reference to the possibility of "Keynesian secular stagnation" or a downswing of the so-called Kondratieff long cycle. Clearly more fundamental analysis of this phenomenon is called for. Against this somewhat depressing background, the Fund Report is right in stressing "the need for an effectively coordinated strategy of policies to restore satisfactory growth and price stability and to improve the functioning of the international adjustment process." However, the unfavorable reaction of the international financial markets to the recent Bonn Summit meeting proves how difficult it is going to be to meet this need. The markets are influenced rather by purposeful action than declarations contained in official communiqu6s....

SPAIN: FRANCISCO FERNANDEZ ORDONEZ Governor of the Bank For the first time, a minister of a freely elected Spanish Government has the honor of addressing this assembly. I bring you the friendly voice of a nation that is striving to consolidate its democracy, to reform its institutions, and to revive its development in a climate of equitable, free, and peaceful internal coexistence and of sincere cooperation with all peoples. As we hold these Annual Meetings the world economy is experiencing conditions that no one would venture to describe as satisfactory. We have made very little progress over the last twelve months. The Reports prepared both by the Bank and by the Fund present a picture clouded by problems and uncertainty: -rates of inflation, although reduced, continue to be very high in the great majority of countries; -disequilibria in balance of payments on current account are still serious; -exchange rates have been exhibiting very wide fluctuations, whose equilibrating tendency cannot, however, disguise the problems that cause them, the disturbances they create, or the disorder that has frequently characterized the exchange markets;

159 -there is still widespread underutilization of productive resources, with continued high rates of unemployment; real rates of growth are still low, and it is even to be feared that the sluggishness of the industrial economies may lead to a recession, allied with a new wave of protectionism. There is a general conviction that only a concerted strategy, in which each country develops an economic policy consonant with its conditions and problems within the group, can resolve the difficult and complex situation of the world economy within a reasonable time. But this conviction, so widely shared, has not so far resulted in concerted, clear-cut, resolute, and effective action. Throughout the past year, Spain has pursued the economic policy necessitated by its disequilibria, putting into effect a program of economic reform agreed by all parliamentary political parties. This program, based on the containment of money incomes, the adoption of a floating exchange rate, and the regulation of demand through a rigorous monetary and fiscal policy, has in the space of one year achieved two striking results: the reduction of inflation by 10 percentage points and the elimination of the large deficit in the balance on current account. These results have been obtained in a context of internal reforms combined with observance of the principles of international cooperation. The reforms entailed a total overhaul of the Spanish fiscal structure, which has already produced its first results in this fiscal year 1978. From the external point of view, we have eliminated the deficit without any recourse whatever to protectionist measures: we have permitted the peseta to float upward vis-a-vis world currencies as a whole; it has appreciated by 11 per cent in the last twelve months. And we have also adopted measures to liberalize imports and make the relevant general tariff reductions. I think it is interesting to point this out at a time when we are witnessing the first symptoms of new forms of protectionism. From this newly reconstructed platform we can face the year 1979 with optimism, but not with complacency. The difficulties caused by our low growth rate and the correlative increase in unemployment have not been eased by the disappointing evolution of the international economy. In fact, it cannot be said that the world economy will overcome its present problems solely through downward adjustment of economies with external deficits and high rates of inflation. This approach is globally ineffective, dangerously depressive and, in the long run, unsustainable for the countries bearing the burden of the adjustment. Economies that accept the costs entailed in the reduction of inflation and of external deficits are entitled to expect a positive contribution from those others which, having managed to cope with price increases, showing surpluses in their payments balances, and having idle resources at their disposal, are in a position to boost their present low rates of growth in a coordinated fashion. There is no question of asking countries in favorable circumstances to adopt strongly expansionary policies that might jeopardize the victories over inflation won through prudence and sacrifice. Nor is it fitting that the responsibility for more vigorous world economic growth should fall

160 on the measures taken in isolation by a very small group of countries. But neither can joint programs stop at declarations of good intentions addressed to international bodies; they must materialize in strategies less timid than those we have seen so far. The studies prepared by the International Monetary Fund for the meeting of the Interim Committee of its Board of Governors in Mexico City last April and those discussed by the Council of Ministers of the OECD in June coincided in forecasting a not very inviting prospect for the medium term should the world economy continue on its present path. It is clear that nothing less than a prompt concerted effort by member countries, geared to their differing circumstances, will make it possible to accomplish higher and converging growth rates capable of leading the industrialized countries to anything approaching a full employment situation within a four- or five-year period. In the absence of such collective action, the industrial countries will continue to underutilize their resources to a marked degree, the difficult situation in which the developing countries find themselves will worsen, and the international economic order will be increasingly threatened by disequilibria and the false remedy of protectionism. It is my view that, from any economic, social or political standpoint, this prospect is so serious as to impel us into a cooperative effort vigorous enough to give early positive results. The governments and legislative bodies of member countries must consider the problems affecting them and the remedial measures they could take over the medium term-not limiting themselves to national interests, however, but taking a broad view of possible international repercussions. Circumstances remind us daily that we share a common world in which liberty and progress will become one and the same...... I should now like to refer to the question of economic development and to the analysis of it given in the World Bank Report. The Report's macroeconomic projections provide an excellent picture of possible world developments in the near future while also drawing attention to and facilitating analysis of certain fundamental economic policy implications. The Report notes the decline in world economic growth rates and the increasingly close interdependence of rich and poor countries. Awareness of these trends should lead to urgent political decisions on development problems. Having confined myself to general aspects so far, I should now like to underscore the need to expand the lending operations of the international multilateral agencies. My delegation wishes to voice its support once again for a significant increase in World Bank resources. In concluding, I should like to take this opportunity to express thanks to Dr. Witteveen on behalf of Spain for the excellence of his work during his years at the head of the International Monetary Fund, and also to congratulate and welcome the new Managing Director of the Fund, Mr. Jacques de Larosi&re. Both Mr. de Lasoriere and Mr. McNamara may always be certain of the firm and unselfish support of Spain in this period in which the strengthening of international cooperation will so clearly be necessary.

161 SRI LANKA: RONNIE DE MEL Governor of the Bank and Fund Once again we have taken time off from our national problems and gathered here in Washington to review recent economic and financial developments and to seek a cooperative approach to uplift the standard of living and well-being of our peoples. Let me first thank the Fund and the Bank and the Government of the United States for the excellent arrangements made for this meeting. We in Sri Lanka believe in cooperation, not confrontation, to solve the world's economic ills...... I would also like to extend a very warm welcome to the newest members, Maldives, Suriname, and the Solomon Islands. Compared with the very serious situation in 1974-75, aggregate statistics on international payments give the impression that developments since then have substantially mitigated the implications for countries' balances of payments. These statistics, however, cannot even hint at the real costs involved for non-oil developing countries in containing their deficits within available resources. It meant sharp cutbacks in imports of intermediate and investment goods leading to increased idle capacity and a worsening of already acute unemployment. Once the interim arrangements dried up, it meant structural adjustment to the increased cost structure which inevitably meant deflationary economic and financial policies including exchange depreciation. The deficit of non-oil developing countries is projected to increase in 1978 over its 1977 level. This would no doubt lead to further painful adjustment. We do not want to detract from the remarkable ability of exporters in surplus industrial countries to make continuing gains in foreign markets. But it must be squarely faced that these achievements occurred against a background of lower prices for primary products, which also assisted their inflation strategy, causing increasing resort to protectionism by creating tariff and, particularly, nontariff barriers. Thus, at this time, as much as it appeared one year ago, considerable scope exists for industrial countries in surplus to contribute more to reviving the sluggishness of import growth and thereby to the expansion of international trade. Policies aimed at stimulating domestic aggregate demand in conditions of a high level of slack and unemployment encounter little risk of rekindling inflation. These countries have also had outstanding success in their inflation strategy. It needs hardly to be added that what we seek is not an export led re- flation which will only compound the assymetry. Rather, we seek a sustained growth of aggregate demand more nearly equal to the increase in real GNP so as to induce the required growth in imports. Complementary to such a development would be equality of opportunity to share in this increased level of trade. Quite apart from the dangers inherent in the rising trend toward protectionism in developed countries, in most international forums, developing countries have drawn attention to the manifest injustices in such a policy. This trend toward protectionism surely ranks very high as one of the most disturbing features of inter-

162 national economic relations today. In subscribing to a set of common objectives and a code of conduct under the aegis of the IMF we have accepted the reality of an international division of labor, and, with it, the parallel development of more liberalized trade. But this will remain an act of faith unless and until industrial countries develop an active policy for structural reorientation and rationalization of manufacturing industries to permit more room for imports from developing countries. We await the final outcome of the Multilateral Trade Negotiations under the auspices of GATT with renewed hope. But I cannot overemphasize how much the task would be facilitated if the developed countries show the necessary political will to turn their backs fully and firmly on protectionism. They have the resilience and the resources to overcome any temporary dislocation. In Sri Lanka, in the first year of office of the Government of President J. R. Jayawardene, we have set our course firmly in the direction of quick development and growth as the only sure way to overcome the pressing problems of acute unemployment and reversing the past deterioration in our economy. To divert expenditure from consumption to development, a food subsidy enjoyed by the entire population and dating back to the 1940s was limited to only half the population, the less affluent half. This was difficult politically and socially, but we have achieved it. We have moved away from outmoded dogma and adopted a practical and pragmatic approach. We have placed reliance on a more market-oriented economy. As a consequence, the exchange rate has been allowed to find its realistic level in a floating market which has been freed of most controls over trade and current payments. We did so in full awareness that the costs of adjustment will be painful because we believe this to be a more rational method of ordering our priorities and allocating resources within the country. We did not opt for liberalization, dismantling of artificial controls and an open trade policy from a position of economic strength. We mustered the necessary political will in the interests of the nation over the long term. In short, we wanted to ensure a just and free society based on democratic processes and institutions through a just and free economy. I would be failing in my duty if I did not voice my appreciation of the accord reached on the subject of external debts of least developed and most seriously affected countries at the UNCTAD meetings in Geneva earlier this year. It may be recalled that this was one of the issues most in deadlock at the North-South Negotiations. Let me congratulate the aid- donor countries who have already done so for the prompt manner in which they have implemented this accord and I would wish to urge all other donor countries to implement the agreement as quickly as possible. This favorable development is, however, tainted by the further decline in official development assistance from 0.33 per cent of GNP in 1976 to 0.31 per cent in 1977. This is the second lowest ratio since statistics on aid flows started to be gathered in the mid-1950s. Only if there is an immediate improved performance by the big donors can we expect a reversal of this trend. We in the developing countries are disturbed not only by the decline in the quantum of development assistance, but also in the considerable

163 delays in its disbursement. The people in many countries of the Third World are living on borrowed time, as it were, and delays in the implementation of their development can be counterproductive. In this context, he who gives quickly, gives twice. In a situation of large diversity in the distribution of the burden of adjustment and in the fact of continuation of policies and practices which have the effect of aggravating it, it is pertinent to point out that most of the other basic issues in establishing a new intemational economic order are still being debated with little prospect of agreement...... It is in recognition of such reality and of political imperatives that the Sri Lanka Government has given priority to the acceleration of the biggest irrigation-cum-agriculture-cum-power project ever undertaken in our country. The Mahaweli Ganga multipurpose scheme will not only add significantly to our power resources, it will also make us self-sufficient in our staple food, and create a variety of agro-based industries and ancillary services. Most important of all, it will be a primary source of employment in the years to come. Second, we have set up the Greater Colombo Economic Commission to organize and administer export processing industries in a free trade zone of 200 square miles located between the airport and the port of Colombo. Tax concessions and other incentives which are not less favorable than those prevailing in other free trade zones have been given. The first industrial ventures are already under way in this zone. The other major area of emphasis is the greater Colombo urban and housing development projects. This is designed to help the urban and rural poor to move into housing units with basic facilities and in the process generate an increase in construction activity. A program of 100,000 houses in five years is contemplated. We appreciate the cooperation of the World Bank in our efforts to implement the accelerated Mahaweli Ganga project. Even under normal circumstances, the resources required would have been formidable. Ac- celeration of the pace would necessarily involve a higher dependence on foreign equipment and services. We are indeed grateful for World Bank assistance in mounting a special effort through the aid group to mobilize external resources over and above the normal level of requirements of an economy which is looking well beyond the immediate exigencies of survival. While we welcome the proposed general capital increase of the Bank, which will permit lending to grow in real terms over the next five years, I wish to add my voice to the disappointment felt at the inordinately slow pace of progress to obtain final consents. In order to give practical effect to the policy, which, under the inspiration of Mr. McNamara, is aptly referred to as "growth at the source of poverty," we require not only a sustained increase in resources at the command of the Bank and IDA, but as a complementary feature, new and more flexible criteria for lending. Projects where the social benefits are relatively high-like irrigation and agriculture, integrated rural development, urban development, improvement of rural road and electricity networks-require a large amount of

164 local currency financing in addition to foreign exchange. To the extent that a country's economic and financial policies are adequately geared to mobilizing domestic resources, the Bank should stand ready to divert increasing amounts of the Bank's resources to finance local costs. The positive impact of such financing in the context of an overall development strategy would be no less than financing the foreign component of an industrial or agricultural project. Such a development must also result in a reversal of the downward trend observed in the last two years with respect to disbursements as a proportion of funds committed. While on the subject of resources required for the World Bank's operations, I must urge the need to complete action on Replenishment of IDA V and the need to commence very early action on the Sixth Replenishment of IDA with a view to ensuring a substantial increase in real terms in the Sixth Replenishment. A development which has gathered momentum recently and which has great potential for the future is co-financing. We hope that donors and other international development organizations will make the fullest possible use of the rich experience and technical expertise of the Bank in furthering development through co-financing of projects. Finally, I wish to draw attention to the analysis of the present prospects of world development provided in the Bank's World Development Report. Even though it projects a somewhat higher rate of growth in developing countries in the decade 1975 to 1985 than in the seventies, its gloomy conclusion is that even at the dawn of the twenty-first century, some 600 million of the world's population will continue to live in conditions of absolute poverty. Can the world's social conscience tolerate such a situation? Should we, the finance ministers of today, bequeath to posterity such a prospect? My answer is an emphatic no. We owe it to the future generations of the world to take immediate steps in cooperation with each other to abolish absolute poverty by the turn of the century. The world of today has the resources to do more than that; what is required is only the political will to do so.

SURINAME: LESLIE E. GOEDE Governor of the Bank and Fund On behalf of my Government and the people of the Republic of Suri- name I wish to express my gratitude for the cordial welcome of Suriname as a member of the Fund and Bank.... I further wish to compliment Mr. McNamara, President of the Bank, for the report he presented to these Meetings. We cherish the hope that the World Bank will be enabled to fulfill its important function of contributing to meeting the economic needs of the developing countries, bearing in mind the diversity of circumstances prevailing in the concerned regions and subregions of the world. Although it was only earlier this year that Suriname attained full membership of both the Fund and the Bank and therefore is participating as

165 such for the first time in the Annual Meetings, our relations with the two institutions date back to 1946 when we were still part of the Kingdom of the Netherlands and the latter became a member of the Bretton Woods institutions...... Moreover, in the past both the Fund and the Bank have already had several consultations with Suriname and also extended some technical assistance to my country. Thus, I am very happy today to express my Government's appreciation of the assistance and cooperation so far received by us from these two organizations. I also extend my gratitude to the Governors and Executive Directors of the Fund and the Bank for the Netherlands, who undertook the task of promoting Suriname's interests in these organizations in the years before 1976. Now that Suriname has joined the ranks of the Fund and the Bank as an independent member state, I am confident that a much stronger relationship will develop with these institutions, enabling us to make greater use of the facilities they can offer. In order to attain a high level of economic independence of Suriname, a Multi-Year Development Program, embodying one of the main objectives of my Government, was drawn up in January 1975, and is in the process of being implemented. It has been agreed upon that part of the funds necessary for the financing of this Program will be provided by the Netherlands in the framework of the independence settlement. Additional financing will have to be obtained from other foreign sources and from our own national savings. We endorse the opinion that each individual country bears a primary, responsibility to conduct a sound economic, financial and monetary policy, but we are also fully aware of the fact that only by full international cooperation in the context of global interdependence, the ultimate goals at which we aim, can be attained. In this spirit, my country will continue to strive for a more equitable distribtuion of the proceeds from the world's economic resources. I will not go into the many economic, financial and monetary problems facing us, which already have been mentioned by my fellow governors in their statements. I confine myself to expressing the hope that through the joint efforts of us all the pace of solving these problems and reducing the agonizing disparities between developed and developing countries will be accelerated, so that hundreds of millions of people in this world may be freed from the dire poverty in which they live.

166 THAILAND: CHANCHAI LEETAVORN Governor of the Bank I am pleased to join previous speakers in extending a warm welcome and best wishes to Mr. Jacques de Larosiere, the newly appointed Man- aging Director of the Fund. A cordial welcome also to new members of the Fund and Bank, Maldives, Suriname and the Solomon Islands, and the new member of the Fund Executive Board, Saudi Arabia. I have noted with satisfaction the growing consensus on economic interdependence and the urgent need for concerted efforts to achieve a more balanced growth with stability by all countries large or small, rich or poor. We are heartened to learn from the highest authorities that the necessary measures have been and will be taken to redress the immediate problems of unsatisfactory world economic recovery and adjustment process, as well as the recurrent problem of exchange rate instability. The agreement reached at these meetings on the increase of Fund quota and SDR allocation should contribute to a smooth adjustment process. It is hoped that early action will be taken by the relevant authorities to give effect to these decisions. On the long-term structural problems of growth and poverty, I also discern a growing awareness of the need to promote the transfer of resources to LDCs which comprise a major market for the export of manufactured goods and capital funds from developed countries. Clear recognition of long-term economic interdependence through linkages of trade, capital and technological transfers should be translated into meaning and concrete policy measures and action programs in the immediate future. In particular, steps should be taken by the industrial countries to reverse the growing protectionist trend through accelerated multilateral trade negotiations, more effective rules and procedures for GATT surveillance, and through intensive research into the economic costs and benefits of industrial restructuring on the basis of comparative advantage. In the field of aid, we welcome pledges made at these meetings to increase the capital stock of the World Bank and its affiliates. As a middle-income country, Thailand hopes to benefit from expanded co-financing by multilateral institutions and private sources in order to ensure an optimum mix of loan terms and management expertise. With regard to World Bank lending operations, I wish to make certain observations on certain aspects which could be improved upon. Firstly, the current practice whereby repayment obligations are denominated in hard currencies while loan servicing is based on high interest rates creates undue burdens on borrowing countries, thereby minimizing the attractive- ness of World Bank financing. The World Bank is strongly urged to initiate measures to alleviate this aspect of "automatically rising debt" stipulated in the loan agreement. Secondly, the performance criteria placed upon borrowers of World Bank loans have tended to become more of an impediment to rapid and smooth implementation of loan projects. The charter of the Bank stipulates that the Bank must ensure that the projects under its loans be carried out

167 with due efficiency and economy. While we agree and accept that many of the conditions of World Bank loans are designed to be helpful to the recipient countries, some limits should be placed on the overwhelming zeal and innate desire to force every borrower to meet the exacting standards applied to the developed economies without due regard to the prevailing local conditions, internal organizational structure of the borrower as well as social and other noneconomic factors. While the stipulation of sound financial and management standards is entirely desirable, specific means to achieve this objective should be tailored to suit the particular administrative, legal and other conditions pertaining to each project. The Thai authorities are fully aware of the difficulties faced by the Bank in raising funds through capital subscriptions and borrowings, and we are hopeful that the impasse will not be long lasting. To augment the activities of the Bank in accelerating socioeconomic development on an equitable basis, the Bank should consider and implement a technical assistance program in the areas of project preparation. The growing needs of developing countries to identify and prepare projects have been and continue to be a major bottleneck in the development process. Activities of the Bank in this area have proved to be of great benefit and we encourage further expansion of such operations on a grant basis. ...

TURKEY: ZIYA MUEZZINOGLU Governor of the Bank It gives me great pleasure to participate once again, after a lapse of six years, in the Annual Meetings of the Bretton Woods Institutions. Dur- ing the interval, I am happy to note that the activities of both the Fund and the Bank Group have expanded greatly. However, I also note from the theme that emerged so effectively out of the mutually reinforcing and complementing statements of Messrs. McNamara and de Larosiere, and from the documents presented to our Committees, that there is a lot more to be done by our institutions. One other issue is whether or not our agreements and communiques can really be effectively promoted by our institutions and by our Com- mittees. For, I also note today with great apprehension and concern that the asymmetrics in the rights and obligations of member countries, existing six years ago, are continuing against a worldwide economic background which renders them more harmful than ever for all countries. Can we promote adjustment in surplus countries? Can we, or should we, advocate adjustment for deficit countries when the facilities available to them are insufficient for a dynamic stabilization concept? What is truly at stake is the effectiveness of our institutions to pursue their objectives. Let me now expand briefly on these points. Consider the present state and prospects of the world economy: Not only is the pace of the recovery extremely slow, but also the international adjustment process is not working well. The World Economic Report provides an excellent analysis of the long-term implications of the present outlook.

168 These conditions certainly do not leave sufficient scope for reasonable optimism for a Minister of Finance, representing a semi-industrialized middle-income country, who believes in the interdependence between the welfare of his own people and that of the rest of the world. Take, for instance, the Turkish case: During the last six months of this year, the Turkish economy has effectively entered into a period of economic stabilization. Economic trends, which had been steadily worsening until the end of 1977, were arrested. This is precisely what the immediate objective was. How- ever, I am not going to pretend here that it has not been painful for both the Turkish people and therefore also for its Government. It is also a somber fact that we have just reached the end of only the first of three phases. The objective which lies immediately ahead now is to maintain and consolidate the present trends of declining inflationary pressures and decreasing payments imbalance. The next, and third objective after this is the resumption of a righ rate of growth without inflation, which the Turkish economy is recordedly capable of, and which it cannot do without in the long run. Let me underline the fact that the most important objective and phase is the second one. The inflationary spiral, once created, takes a lot of effort to arrest and to eliminate. But, above all, it takes patience, a lot of patience. The overall success of this program, therefore, depends upon how swiftly the second and third objectives can be reached. This, in tum, depends upon a number of variables, of which only two are not under my Government's control. First, and foremost among the two, is the urgent need for resumption of a high rate of growth of the world economy. Our export prospects for both goods and services depend upon the growth performance and strength of the protectionist tendencies of our trading partners. Recovery abroad should also facilitate recovery at home through significantly less financing difficulties for our diminishing current account deficit. Therefore, and this is the second variable beyond our control, our performance at home depends also on the global prospects for the capital movements. It is precisely for these reasons that my Government noted with great interest the Fund's "Medium Term Scenario of Coordinated Growth," as well as the Bank staff's thoughtful analysis in the World Development Re- port. The central themes of both reports are similar: First, the short- and medium-term policies of the member countries do not amount to a sum total which is sufficient to steer the world economy clear out of recession. Second, the slow pace of recovery in the industrial countries threatens also the welfare of the developing countries with serious implications on the future magnitude of the absolute poverty. Third, some of the adjustments needed for the industrial countries are structural in character and their response so far has not been exemplary. Finally, short- and long-term interests of all countries require a swift readjustment of the policies of the surplus and the deficit countries and of the developing as well as the industrial countries. What should we do? Considering the present economic circumstances of the world economy, I will not advocate today what is on the agenda

169 of tomorrow. However, I hope we all agree, for instance, that the need to improve on the ODA performance of DAC members, the need for developed countries to permit market penetration both in industrial and agricultural products, and the need for all countries to agree on a code of conduct for the transfer of technology, represent some of the significant steps toward a true international economic interdependence. My Govern- ment strongly hopes that a more effective Development Committee, after improvements are made in its work methods and procedures, will be able to discuss these and other issues which are so central to the development task. Even on a more modest scale of aspiration, dictated by a sense of realism, however, the agenda of today remains impressive. First, I fully agree with the view that the responsibility for the world's economic welfare rests on all countries, developed and developing alike. I also agree that pleas for responsible behavior of others should follow, not precede, the domestic policies of self-help. These points, however, have nothing to do with the one real issue confronting our institutions today. I think it is the special responsibility of our institution to advocate the recommended policies to surplus countries as persistently and strongly as they advocate stabilization policies to deficit countries. This is the first item on today's agenda. Second, my Government hopes that the governments of the industrial countries will start to make earnest efforts to permit structural adjustment in their economies and to resist the demands for more protection. I was surprised to note that the World Development Report, while exaggerating the structural adjustment difficulties of the industrial countries, seems to take for granted the ability of the developing countries' governments to make the same type of adjustment. Finally, an important area of uncertainty for the developing countries is the prospects for capital inflows. Even with a lower growth rate projection, yielding a slower rise in the capital requirements of the developing countries, the availability of supply is far from being reasonably assured. This is true for ODA flows, and especially true for the private short- and medium-term capital. Even the future magnitudes of the multilateral assistance are in doubt. It has been well over a year and a half, for instance, that further strengthening of the capital basis of the Bank was agreed upon in a number of important international forums. No progress has been achieved since then. I respectfully urge this assembly of Governors to support fully the doubling of the Bank's capital, and to instruct their Executive Directors accordingly....

UNITED KINGDOM: DENIS W. HEALEY Governor of the Fund This is the fifth Annual Meeting of the IMF/IBRD since I became Britain's Chancellor of the Exchequer four and a half years ago. Those

170 years have covered the most turbulent period since the war in the history of the world economy and of the Fund-a period in which massive imbalances of payments have been a root cause of instability. During these years the international banking system and capital markets have been more successful than most of us dared hope in helping to finance these massive imbalances. But the imbalances themselves have causes which will yield only to action by governments-and by governments acting in concert. For this reason the roles of the International Monetary Fund and the World Bank are more important than ever before. In Mexico we formally congratulated Monsieur de Larosiere on taking up his appointment as Managing Director. Let me say how glad I am to see him settling into the job filled with such distinction by his predecessor. We have already welcomed the reappointment of Mr. McNamara as President of the Bank. Both of them face formidable problems since the great international institutions which they direct have urgent and essential responsibilities to fulfill without as yet all the resources and authority required to meet them. We have been able this week to detect signs that a move toward better balance in the world economy is under way. At the Interim Committee in Mexico and later in Paris at the Council meeting of the OECD there was agreement that we must develop a coordinated strategy for fighting inflation and achieving higher growth. In Bonn the leaders of seven major countries committed themselves to specific action in support of such a strategy. I know other countries are also making progress. We are all now engaged in fulfilling these commitments. In Britain, for example, the dramatic improvement I reported in our financial situation at our last meeting is now reflected in other areas of our economic performance. At 8 per cent our rate of inflation is only half what it was a year ago. Our balance of payments is in surplus. We are repaying $2 billion of our debt to the IMF ahead of time. Output is growing well on target for the 3 per cent increase in GDP which is our aim. Investment in manufacturing industry is rising fast and profitability, though as in most countries still well below the level of the sixties, has risen substantially. And we have seen a slow but continuing fall in unemployment despite the substantial annual increase in our labor force. As a result of this and other changes in the world economy the coming year should see more convergence in the performance of our various countries both on output and inflation, bringing with it less imbalance in payments and more stability in currency. But these benefits will be achieved at a very modest level in the growth of world trade and output. There are no grounds for complacency here. The world is still wrestling with the deepest recession since the war with its monetary arrangements in disarray. Fluctuations in exchange rates regularly go far beyond what would be justified by the underlying economic facts. This instability has itself become a major obstacle to economic growth, and inadequate growth is beginning to threaten the international system of free trade on which growth itself depends. Unemployment in the industrial world, especially outside the United States, remains intolerably high and although some of us may expect to see some improvement we

171 can still have no confidence that the rates of growth to be expected in the next year or two will bring down unemployment in the world as a whole. In this new situation many of the economic relationships which we took for granted not so long ago seem to have changed their nature. The relationship between output and employment, for example, appears different in many countries from what most economists had come to assume. The contribution of exchange rates to the international adjustment process has been far less predictable than is implied by the tidy theories derived from experience in a calmer world. I do not detect today the same confidence in a floating regime as was fashionable even two years ago. Despite the frequency with which exchange rates have responded to the judgment of the market, balance of payments problems have remained a major preoccupation of governments. Differences in rates of inflation between the major countries helped to break up the fixed rate system established at Bretton Woods. But the differences are greater still today. In the decade of the 1960s the average rate of consumer price inflation in the seven largest OECD countries ranged from 23/4 per cent to 6 per cent. The range in 1977 for the same countries was from less than 4 per cent to 17 per cent. And though there has been some improvement in the last twelve months the range in the first half of 1978 was still from 1 per cent to 13 per cent at an annual rate. Yet it is obvious that however great the imperfections of the floating regime we cannot go back to the old system, which depended so excessively on the readiness of the United States immediately after the war to assume a role and responsibility which no country can be asked to carry in the modern world. And it is impossible even to conceive of improving the present situation unless governments are prepared to work together in producing the structural changes in the world economy which must be the foundation for any new monetary order. These are not problems which can be left to the blind sway of market forces alone. So the type of concerted action for growth without inflation which we have seen in the last twelve months will need renewing and extending as the key to international stability. I believe it is equally important that cooperation between governments to strengthen the international monetary system should be worldwide in its scope. It is, of course, right that countries with open economies particularly vulnerable to fluctuations in exchange rates should seek to create a zone of greater monetary stability by cooperation with one another on a regional basis. That is why my Government is so concerned to succeed in the discussions with our partners in the European Community to establish a monetary system in Europe. This must not be seen as a withdrawal from the search for a better world system. Indeed if it were so it would simply produce a new source of instability in the international environment. I hope the fact that all the European countries committed themselves on Sunday to a substantial increase in the resources of the Intemational Mone- tary Fund will demonstrate our recognition of this truth. For it is important that the search for greater stability and closer cooperation at the regional level should go hand in hand with a new drive to strengthen the

172 two central institutions of economic cooperation in the world as a whole- the IMF and the World Bank. We can therefore take great comfort from the consensus which has developed in the Interim Committee over the last twelve months. We are this week registering a common determination to increase the resources available to the International Monetary Fund. I hope we will also be able to decide very soon on a substantial increase in the resources of the World Bank...... It is no less important to increase the resources of the IBRD. We had a useful discussion in the Development Committee the other day of the excellent report from the Bank on world development. I believe this report provides the most comprehensive and penetrating analysis of the problem yet available. I understand why some of my colleagues regard its projections as unacceptable: the estimate that there will still be 600 million of our fellow creatures suffering from absolute poverty at the end of this century is a particularly shocking one. Yet we must face the fact that the assumptions on which the Bank experts made this projection were by no means overcautious. On the contrary, the developed world is still far from achieving the level of growth in the decade from 1975 which is assumed in the Report. But to the extent that the level of growth falls short of that assumed in the Report, the role of the Bank in helping to provide sufficient finance for investment in the developing world will be even more crucial in the future than it has been in the past. The Fifth Replenishment of the IDA, when implemented in full, will allow lending in real terms to the poorer developing countries to grow until 1980. I hope we will also now aim to reach agreement fast on a Sixth Re- plenishment which will be larger in real terms than the Fifth, so that the work of IDA may continue without pause. We must, too, act quickly to put the World Bank in a position to continue expanding its lending program at the substantial rate which is required. We must not forget the enormous success which the Bank has achieved over the years, not least in its major function of channeling funds to the developing world. Over the last ten years, the Bank's loan commitments have increased six-fold in nominal terms-an annual average increase of around 23 per cent. This is a very large rate of growth indeed. But unless we reach agreement quickly on a capital increase we are bound to see a serious check to the Bank's continued expansion. At last year's meeting I expressed the hope that the negotiations would be completed by this summer on a general capital increase which would roughly double the Bank's capital. It is disappointing that this has not yet proved possible. The need for agreement on such an increase is now urgent. But important as the Bank and Fund are, they cannot of course by themselves provide all the finance required by developing countries and others which are going through a period of adjustment. Outflows of capital from the major surplus countries are also important. This was one of the five points in the plan we put forward in the period before the Bonn Summit, and it remains valid. I want to see the persistent surpluses of some of our colleagues corrected,

173 for I believe they hamper world growth and are as damaging to the countries concerned as to the rest of us. But until this can be achieved, I hope these countries will be able to step up their exports of capital to the benefit of the rest of the world. In this context I might mention the steps a number of us have taken, following the conclusions reached at UNCTAD Trade and Development Board, to adjust the terms of past aid loans to countries most in need. The United Kingdom has in effect converted its past aid totaling some £900 million to 17 of the poorest countries from loans to grants. And we are increasing our aid program by 6 per cent a year in real terms. For the next five or ten years then, I see two major areas where we need to develop new policies as part of a coordinated strategy. First we have got to raise the level of growth so as to reduce unemployment and improve living standards. Given the fact that most of us are operating well below capacity I believe this can be done without refuelling inflation- and if we fail the political and social consequences will be as unwelcome as the economic. Second, we have got to improve the workings of the international monetary system, on a worldwide scale. This is desirable in its own right and will also create an essential condition for noninflationary growth. In both these areas, the Fund and the Bank must play a central role. The responsibility for ensuring that they do lies on all of us in this room as the governing bodies of these institutions. Our predecessors laid solid foundations for our work. I believe that the conclusions we have reached this week at least are not unworthy of their hopes.

UNITED STATES: W. MICHAEL BLUMENTHAL Governor of the Bank and Fund We meet at a time when the public perception of the world economy is one of uncertainty and worry: about the persistence of high inflation; about the world's unemployed and how to put them to work; about international payments imbalances and how they can be managed so as to avoid undue strain on the international monetary and trading systems. And worry also about the outlook for the economy of the United States. The message I wish to leave with you today is that we must not allow these concerns to distort our vision. To be sure, unacceptably high rates of inflation and unemployment remain a serious problem in a number of countries. And in some, including our own, external imbalances, both on the surplus and deficit side, are too large. These are serious problems that must be resolved, and that is not an easy task. But we must not lose sight of the fact that crisis points have been passed, that progress has been made, and that further improvement is under way. The progress that the nations represented in this room have collectively and individually made is significant and must not be overlooked. For it shows how far we have come, that difficult problems are not insoluble, and hence that further progress can be made.

174 The Record of World Economic Recovery Three years ago, the world faced what looked like an intractable problem-stagnating world production, rising unemployment, and surging double digit inflation. It was feared that the greatly swollen payments imbalances could not be financed, and that industrial as well as developing countries would be forced into severe financial restraint and contagious protectionism. That has not happened. Progress has been much greater than generally acknowledged. -In 1974, inflation averaged 15 per cent world-wide, and 13 per cent in the OECD. Today the global rate is under 10 per cent, and the OECD rate is under 8 per cent. -In 1975, economic output in OECD fell 1 per cent. This year it will show a respectable average growth of 31/2 per cent. -In 1974, the OPEC payments surplus was $70 billion. This year it will be about $16 billion. -In 1975, the developing countries' aggregate current account deficit was $30 billion. In 1978 it will be about $16 billion, and borrowing countries generally are in a stronger position to attract capital. In fact, the developing nations as a group have increased their official reserves by some $30 billion over the past 2½/2 years. -Most of the industrial countries facing major payments deficits in 1974 and 1975 have been able to cut those deficits substantially, in some cases to move into surplus. Obviously the world economy has not fully recovered the health and vigor we seek. But it has come a long way and we know what still needs to be done. In the IMF Interim Committee, in the OECD, and in the Bonn meeting of the seven largest industrial countries, there has been agreement on a basic strategy for achieving further progress in the reduction of unemployment, inflation and payments imbalances. That strategy is being put into effect. The Government of Japan has announced a broad series of measures to assure the achievement of its domestic growth targets and to speed up the reduction in its current account surplus. The Government of the Federal Republic of Germany has presented to its Parliament a series of measures to assure more rapid economic growth. And elsewhere in the industrial and developing world, a stronger foundation now exists to resume rates of economic growth. It is against this background that I would like to report to you on the United States economy. Our economy has performed remarkably well and today is at a more advanced stage of recovery than most other industrial countries. Since the trough of recession in 1975, we have added 10 million persons to our employment rolls. We have increased total employment by 12 per cent. Unemployment has come down from more than 9 per cent to below 6 per cent. Industrial production has increased 31 per cent. It is now 10 per cent higher than the pre-recession peak, a far stronger expansion than in any other industrial country. We achieved 5.7 per cent

175 growth in 1976 and 4.9 per cent growth in 1977. Our real gross national product increased almost 18 per cent since 1975. This has been a substantial accomplishment in the aftermath of the shocks and strains of the early 1970s. The U.S. economy is now approaching optimum utilization of productive capacity. We now expect a tempering of growth to a rate more consistent with the underlying rate of increase in the productive potential of our economy. We will pursue this growth path while reducing the federal budget deficit, the rate of inflation and the current account deficit. In 1976 the federal budget deficit exceeded $66 billion. For the fiscal year ending next week, the first budget submitted by the Carter Adminis- tration will result in a deficit of around $50 billion or less-a $16 billion reduction. For the next fiscal year, we expect to cut the deficit by at least another $10 billion, and in fiscal year 1980 it is the President's intent to make a further major cut in the deficit. This increasingly tight fiscal policy is essential to achieving domestic goals of reduced inflation and to reinforcing the movement toward external balance reflected in the strategy recommended by the IMF. With regard to the U.S. balance of payments, a number of key factors making for improvement are coming into place. We are at long last making progress on energy. The Congressional committees have already agreed on several measures that will promote con- servation and improve the efficiency of energy use. Final passage of these measures is expected soon. I am heartened by the decision to put the Natural Gas Bill to a vote in the Senate this week. Passage of this Bill alone will result, as early as 1979, in a reduction of oil imports of as much as 500,000 barrels per day from levels that would otherwise obtain-an annual import savings of more than $2 billion. The Congress recognizes the great importance that the world community attaches to this issue because of its implications for our balance of payments and the stability of the dollar. I am confident that the Senate vote will reflect this recognition. While dependence on oil imports is being reduced, efforts are being made to expand U.S. exports. The President will announce this afternoon the first elements of a national export policy which will encourage our manu- facturers and our farmers to take advantage of the export opportunities which are now available to them. It is not an instant solution to our laggard performance. But it will begin giving export markets the priority they require if we are to eliminate our current account deficit. I am confident that these efforts, combined with the slowing of the U.S. economy and more satisfactory growth world-wide, will substantially reduce our current account deficit-by perhaps as much as 30 per cent to 40 per cent from current levels. If at the same time there is a major reduction inrJapan's current account surplus, and further reductions in the surpluses of Germany and the OPEC nations, we can expect a world payments pattern which will be more conducive to orderly foreign exchange markets. Critical to the achievement of this goal is the reduction of inflation in the United States. In the first half of the year the cost of living rose at an

176 annual rate of over 10 per cent partly as a result of adverse weather and its impact on food prices. For the second half of the year we expect a considerable moderation in this rate of inflation as clearly reflected in the July and August figures. Nevertheless, it is clear that these levels are still too high and that further action must be taken. As said yesterday, the President views this as the most urgent priority of his Administration. He will shortly announce an intensification of our effort designed to achieve further steady progress in bringing inflation down. This intensified anti-inflation effort will not be a one-shot affair. It will dovetail with the monetary policy currently being pursued by the Federal Reserve-a policy designed to reduce the rate of inflation while permitting our economy to grow at a rate consistent with its underlying potential. It will dovetail also with the tax proposals that the President has put before the Congress. These proposals are aimed at encouraging a higher rate of capital formation and expansion of our industrial capacity. This facet of our economic program is critical both to the maintenance of noninflationary growth and to the international competitiveness of our industry. In sum, the world's economic and financial system is a great deal stronger and more resilient than is commonly perceived. The strains of the past few years have been severe. But the system has weathered the storm. The private markets have responded to unprecedented demands for financing. Governments have complemented private lending with increased concessional aid. The World Bank and the regional development banks have expanded their development lending. The International Monetary Fund has effectively financed the official balance of payments needs of its members. The system has demonstrated its capacity to adapt to rapidly changing world economic conditions....

... The Developing Countries and the World Bank I turn now to the second half of our agenda-the problems of the developing nations and the actions needed to support the World Bank Group in carrying out its major responsibilities. I am greatly encouraged by the economic progress the developing countries continue to make. Economic growth has remained strong in the face of the deep economic disturbances of a few years ago. The developing nations' trade has been robust, and their foreign exchange reserves have been greatly strengthened. Thus the flexibility, strength and dynamic character of the world economic system have effectively served the interests of developing as well as industrial countries. All this is promising, but it is far from enough. President McNamara yesterday painted a broad, balanced and vivid canvas for all of us to ponder. The Bank's World Development Report also gives us an invaluable guide to the tasks ahead. We confront a somber situation. Even if the present encouraging trends continue, there will still be 600 million people in the world facing absolute poverty by the end of the century. If the economic pace should falter, or if

177 family planning programs do not expand, that number could be one billion. A tolerable world for the next generation requires that the developing economies grow faster, and that the benefits of that growth be dis- tributed more widely. This outcome will depend on greater efforts in a number of areas by both industrial and developing countries, and closer cooperation among them. First, the developing countries must have the opportunity to earn their own way through trade. The United States will do its share, along with other industrial countries, to maintain an open world trade system. In the GATT negotiations, the United States supports a 40 per cent across-the- board reduction in present tariffs using the principle of normalization to reduce higher tariffs by larger amounts. It supports easing of nontariff restrictions. It will resist pressures for safeguards to limit the market access of developing countries. For their part, the developing countries-particularly those whose trading interests are already strong-must participate as partners in this endeavor, providing reciprocal concessions and doing their share to support the rules that make an open trading system possible. Otherwise, the prospects for trade liberalization will be diminished. Second, the developing countries must have access to a growing flow of non-concessional capital from abroad. This is particularly needed by the middle-income countries. Here again mutual obligations exist. The industrial countries must make sure that capital markets remain open and that mechanisms are in place that will enable them to operate smoothly. To sustain this flow, the borrowing countries must demonstrate that they can use this capital productively, and that they can maintain an encouraging investment climate. Third, concessional capital flows must increase in real terms, must go predominantly to the poorer countries, and must produce tangible benefits and enlarged economic opportunities for the poorest people in those countries. The United States proposes to increase its concessional aid in the future and expects to appropriate $6.8 billion for such aid in fiscal year 1979. Fourth, the objectives we seek to achieve will require greater policy emphasis on efforts to alleviate rural and urban poverty, to increase the productivity and employment opportunities of the poor, and to increase food production. Energy is another high priority area. The high cost of oil greatly increases the need to develop new sources of primary energy fuels in the developing countries. The United States strongly supports World Bank initiatives in this area and stands ready to help with technical and other assistance for energy development. The World Bank stands at the center of this exercise in economic cooperation. It is the largest single source of development capital and a catalyst for the mobilization of private foreign capital. Bank projects are increasingly concentrated on improving the productivity of the poor and on fostering a wider distribution of the benefits of economic growth. Be- cause of its sustained and wide experience in development, the Bank is in

178 a position to provide sound advice to borrowing governments, and because of its financial structure, the Bank ensures a fair system of burden sharing for lenders and donors. For these reasons, the United States will continue to provide firm support for the World Bank Group along with the regional development banks. -This year the United States expects to appropriate $2.6 billion for its share in financing the multilateral development banks. -At the Bonn Summit meeting the United States joined other nations in pledging to support an increase in IDA lending in real terms. I can assure you that my Government will play an active, constructive role when IDA VI negotiations begin this year. -The United States believes that the World Bank lending should increase by roughly 5 per cent a year over the medium term and supports a substantial increase in the capital of the World Bank to make this possible. I hope that discussions on a general capital increase can resume this Fall and that agreement in principle will be reached soon. In sum, my Government supports an expansion in the operations of the World Bank and the redirection of its effort in the fight against poverty. This is an essential underpinning to a healthy international economic and political order. Mr. Chairman, in addressing this meeting I find myself following the convention of commenting separately on the activities of the Fund and the Bank. This is a useful convention, but somewhat artificial. Those who participated at Bretton Woods were keenly aware of the interrelationships in the work of the twin institutions they founded in a world recovering from war. Recent events have once again demonstrated that the course of world inflation, international payments, international trade and economic development are inextricably linked. The progress that nations have made on all these fronts since the world recession has been considerable. But more must be done. My Government will do its part to promote this progress, by supporting an open world economy, by continuing to assure the free flow of goods and capital, by increasing aid flows, and by working to strengthen its own policies at home.

URUGUAY: VALENTIN ARISMENDI Governor of the Bank I would first like to say what a great honor it is for me to address this Annual Meeting of Governors of the International Bank for Reconstruc- tion and Development as spokesman for Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, the Dominican Republic, Ecuador, El Salvador, Guatemala, Haiti, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, the Philippines, Venezuela, and my own country, the Republic of Uruguay. I should also like to join previous speakers in expressing our thanks to the Government of the United States of America, which is once again our host.

179 To begin with, the gratitude of the countries I represent goes to the President, Mr. Robert McNamara, and the management of the Bank, for their unceasing efforts to reinforce the institution. We also wish to pay tribute to the International Finance Corporation for its endeavor to channel increasing amounts of resources to our area. Likewise, I would like to express our appreciation to Dr. A. Krieger Vasena, ex-Regional Vice President for Latin America and the Caribbean. His action was a decisive factor in maintaining our area's relative share in the Bank's overall lending. The results of his brilliant administration should, then, receive special mention. In addition, we wish to welcome Dr. Nicolas Ardito Barletta, who has joined the Bank as Dr. Krieger's successor. His professional background and his knowledge of the area's problems make him eminently suitable to discharge with efficiency the responsibilities of his new post. I would like now to go on to discuss the problems that constitute a cause for concern to the countries I represent, and the solution to which will contribute to a better equilibrium in world development. We support the proposals for a new increase in the Bank's capital, which should at least be doubled, thus enabling the Bank to expand its lending at an annual rate of growth of 8 per cent in real terms. The countries I represent likewise consider it advisable to maintain a reasonable equilibrium in the allocation of resources between countries at different stages of development and between sectors. This equilibrium will be a means of safeguarding the soundness of the Bank's investment portfolio. Otherwise, the Bank will need to increase the differential for its operations, so as to cover the greater risks it will have to assume. Furthermore, we reiterate the need for a more rapid conclusion of the contributions to the Fifth Replenishment of IDA resources and the holding of negotiations well in time for the Sixth Replenishment. In addition, we wish to reiterate our position of total support for the regulations agreed in 1944, prohibiting the introduction of noneconomic considerations in the concession of loans, which are to be decided exclusively in the light of their technicoeconomic evaluation and the corresponding macroeconomic analysis. With respect to a similar cause for concern, we consider that the Bank must adopt measures for the solution of problems that are threatening the maintenance of the high professional and technical quality of its staff. I should like now to allude to the difficulties that borrowing countries are encountering by reason of the continuous changes in parity of the leading currencies in the international monetary system. It is known that the loans the Bank subscribes with borrowing countries are denominated in U.S. dollars or the equivalent in other currencies. As a result, when the loan is disbursed, the Bank debits the borrower for the currency that country actually used, or for the currency disbursed by the Treasurer's Department to purchase the one requested by the borrower. We understand the technical reasons which lead the Bank to adopt this procedure and so preserve its resources from the exchange risks of the various currencies used by borrowers. However, the system is causing

180 a number of uncertainties and inconveniences. It does in fact mean that the actual cost of applying the criteria I have mentioned eventually proves to be excessively high for the payments already made and uncertain for future ones. Calculations made in certain countries of the region show that application of these criteria results in effective costs that almost double the nominal interest rates consented to in loan agreements, not including commitment charges. In these circumstances, we therefore request that the Bank urgently consider this problem and adopt measures that take borrowers' interests into account without endangering its financial solidity. Another matter of concern to the countries I represent, and which we find it necessary to raise again here, is the reappearance of protectionist policies in the industrial countries, a problem we referred to at last year's meetings. In the twelve months that have elapsed since then, the world community has seen a resurgence of commercial and financial protectionist practices and of pressures for their extension. Intensification of such policies by the industrial nations can only harm both the countries they are designed to protect and the countries they discriminate against, a fact that has been proclaimed on numerous occasions already. Neoprotectionism of this type-reflected in tariff and nontariff restrictions such as the introduction of countervailing duties, negotiation of bilateral agreements arbitrarily limiting trade, additional requisites as to quality and size, new health requirements, etc.-will obviously not solve the unemployment problems faced by the countries referred to or remedy their current account deficits; on the contrary, it can only perpetuate them. For the developed countries, a protectionist policy may result in short- term alleviation of unemployment problems among semiskilled workers, but to the detriment of the employment situation in the highly skilled sector, with the consequent decline in revenues. In this regard, it would be prudent if the countries in question, at the time they took measures to mitigate their protectionist tendencies, were also to adopt policies to effect the necessary reallocation of resources in their economies. As far as the developing world is concerned, these obstructions to international trade close off one avenue of economic growth and add to its external financing needs. The less advanced countries hope to see such protectionist practices eliminated so that world commercial and financial dealings may be conducted in a manner that guarantees the self-sustaining growth of international trade. In conclusion, I should like to say that the countries I represent hold the view that the Development Committee should retain its present joint structure, revitalizing its political will so that it may continue to serve as the appropriate forum for questions dealing with the transfer of real resources to the developing countries, questions which transcend in importance the specific activities of either the World Bank or the International Monetary Fund.

181 WESTERN SAMOA: VAOVASAMANAIA R. P. PHILLIPS Governor of the Bank and Fund I wish to join other Governors in extending a welcome to the Governors of Maldives, Suriname, and the Solomon Islands, whose countries have joined the Fund and Bank since the last Annual Meeting. The World Development Report prepared by the World Bank and released last month has attracted wide public attention, and this must surely be a most positive factor in assisting with public education and thus acceptance of the need for a greater flow of resources between the developed and developing world. While the Report does not offer solutions, it is both useful and sobering, providing as it does an assessment of the world as it is now and the world as it will be in the medium-term future, if we do not take appropriate and urgent action. Of particular concern to the developing world must surely be the failure of virtually all developed countries to even approach the initial annual aid transfer target of 0.7 per cent of GNP. In fact aid resource transfers in real terms are less now than in the early 1960s. The Report, very appropriately stresses the interdependence of all countries, and it is surely in the developed world's interest to narrow the gap between the rich and the poor as increasing prosperity of the developing world must yield positive benefits to the industrialized world. Quite apart from the tardiness in aid resource transfers, it is also most disturbing to note the rise of protectionism on the part of many developed countries which has occurred over recent months, with adverse effects on many Third World countries. Protectionism is both selfish and negative and reduces the possibilities for the developing countries to help themselves. Again, with the realization of the essentiality of interdependence of all countries, increased trade flows must surely assist both developed and developing countries alike. I welcome the greater attention now being paid by the international institutions to the special problems of smaller developing countries. It is most important for these organizations to realize that such economies suffer from a variety of constraints which are rather unique to them, that special development techniques are required for these countries, and that in dealing with them it is necessary for the international organizations to display sensitivity and flexibility on the one hand and simplicity of operations on the other. In this respect, the use of per capita lending as a major lending criterion is felt to be unrealistic and inequitable as applied to smaller developing countries. A very modest amount of funding provided to such countries may appear to be relatively large on a per capita basis but I would point out that the minimum cost for basic infrastructural projects is much higher on a per capita basis in a smaller country. Western Samoa shares, with other developing countries, a sense of urgency in the need for various economic reforms to take place. Despite many words and voluminous literature, actual achievements in the field of the much heralded "New World Economic Order" over the last twelve months have been very slender indeed. We also share a sense of great con-

182 cem about delays in the implementation of a number of matters relating to the Fund and Bank...... Western Samoa considers with a sense of great urgency the need for a further capital increase of the IBRD, and trusts also that the IDA Sixth Replenishment will be concluded rapidly. With IDA funds being made available to assist particularly the poorest of the developing countries, it is disheartening that there should be unreasonable delays in obtaining replenishment commitments from some of the richest countries in the world. We support the growth strategy endorsed by the Interim Committee, involving as it does differentiated action, as appropriate for each country, covering growth, inflation, energy and trade, with the objectives of some rapid noninflationary growth, reduction in external imbalances, exchange rate stability and reduced protectionism. What is really required, however, is to see these noble concepts translated into action. The expanded IFC 5-year program is greatly welcomed, aiming as it does to reorient the direction and focus of IFC activities with a view to maximizing IFC's contribution to the development process. In implementing this program it will be imperative for IFC to recognize the smaller countries' special requirements and to act accordingly with appropriate flexibility. While I have voiced so far some of the expectations of the developing countries for increased resource transfers from the richer nations, it was with great interest that I listened to President McNamara's assessment of the various actions required of developing countries to help themselves. We in Western Samoa have initiated positive efforts and have already achieved encouraging results from our own actions in increasing our domestic savings, agricultural production, and expanding exports. Overall rural development is the linchpin of our program, which is gathering rapid momentum. We are endeavoring to help ourselves to the maximum but local resources are insufficient when compared with our necessary development requirements, and we are finding serious limitations to our ability to obtain sufficient external financing for vital development projects. Notwithstanding the above comments, which have been put forward in a constructive spirit, I wish to acknowledge with appreciation the good working relationships Western Samoa enjoys with the Fund and Bank management and staff, who are increasingly aware of the problems of small economies and are dealing with us with sensitivity and flexibility. We believe that the Fund and the World Bank Group represent organizations which are contributing positively toward promoting world economic prosperity and that the role of these organizations can and must be extended and expanded in the future. In concluding my remarks, I would like to welcome President Mc- Namara's assessment of the urgency of the stark economic situation that will prevail up to the end of this century unless immediate and positive steps are taken. Western Samoa, therefore, trust that the large developed countries that are in a position to play a significant role in influencing the realization of world development objectives will boldly accept this challenge and take appropriate action without harmful procrastination.

183 YUGOSLAVIA: PETAR KOSTIC Governor of the Bank This is the fourth consecutive year that the world economic situation has been burdened by slow and uneven growth, high unemployment, inflation, large payments imbalances, and instability in foreign exchange markets. Clearly we are not faced with temporary difficulties of a cyclical nature, but with deeper structural problems in the world economy. It is regrettable that differences in the appraisal of the nature of these problems and in the approach to their solution have not yet been overcome. The basic feature of the situation is, in our view, that the existing system of international economic relations has become inadequate and incon- sistent with the requirements of the world today, with the aspirations of a great number of countries for an accelerated growth through equitable cooperation. The present economic situation, unfavorable for all countries, exerts particularly serious negative effects on developing countries. They have all experienced severe deterioration in their terms of trade. The most seriously affected were the least developed among them, which due to the relative weakening of official development aid efforts by a large number of developed countries, had to slow down their development and suffer even greater poverty. The more developed of the developing countries continued to expand their economic activities, but at the cost of heavy external borrowing. By the import demand thus expended, they reduced the severity of recession in the world economy. Today, however, they find themselves in the extremely difficult position of carrying a heavy debt burden incurred because of unfavorable market terms, and of rising protectionism against their exports by the markets of developed countries. If such a situation were to continue it would pose a threat of even greater disturbances. Therefore, extension of development finance on more favorable terms and a reduction in protectionism are in the best interests of the world economy as a whole, and also of the developed countries. Allow me to refer to the role and activities of our organizations in this situation...... The valuable World Bank study, "World Development Report, 1978," reveals the unfavorable economic environment for the developing countries and a multitude of problems that they face. The prospects for developing countries, especially for those least developed, with its implications on the world economy as a whole, cause our deep concern. The unsatisfactory attitude of the majority of developed countries toward the transfer of resources provokes a great deal of anxiety. Official development assistance continuously declines in relative terms. Instead of reaching an internationally set target of 0.7 per cent of GNP for developed countries by 1980, it declined from 0.34 per cent in 1970 to 0.31 per cent in 1977. At the same time, due to the deterioration in the terms of trade of developing countries and the reduction of opportunities for their exports to developed countries, export receipts of developing countries are depressed, their indebtedness is growing rapidly, and debt

184 servicing presents a growing burden on their resources and available foreign exchange. All this adversely affects development prospects and the international economy. This is why we urge measures conducive to a substantial increase in the transfer of real resources through bilateral as well as multilateral channels. A major increase in official development assistance is primarily expected from the largest donor countries which fall behind in the implementation of intemationally set targets. My country greatly appreciates the contribution to development financing of the International Bank for Reconstruction and Development, under the able leadership of its President, Mr. McNamara. We, therefore, consider that the Bank's capital should be doubled and that negotiations for the general capital increase should be started very soon. Any delays in the general capital increase would seriously jeopardize the Bank's lending program, so vital in the overall development effort. We also support the proposed increases in the capital of regional development finance institutions. On this occasion, we should again like to stress the important role the IDA has in financing the least developed countries. It is necessary to ensure a continuous flow of resources through this channel. Yugoslavia strongly supports an early start in consultations on the Sixth Replenish- ment of IDA resources, and it will participate in that Replenishment. We expect the Development Committee to be more active in devising ways and means to improve the access of developing countries to long-term capital markets. International finance institutions can assist in the process through the promotion of different forms of co-financing, and supporting other schemes for cooperation in development financing. Now that the capital increase of the International Finance Corporation has been successfully accomplished, we expect a more active role for this institution as a catalyst in mobilizing capital for development. Yet experience has taught us that the transfer of financial resources alone cannot ensure satisfactory results if it is not accompanied by a fuller activation of domestic economic resources of developing countries. Hence, my country attaches great importance to the establishment of the commodity fund as an instrument for the improvement and stabilization of the terms of trade for raw material exporting countries, as well as to the substantial improvement for developing countries in international trade through the current multilateral trade negotiations. Along the same lines, we see an important role for improved compensatory financing. The world remains in need of the establishment of a new, more equitable, universal financial and monetary system which would decisively contribute to the termination of excessive fluctuations in exchange rates, of uncontrolled growth in international liquidity and inflation which would ensure equality between developed and developing countries in the decision- making process and which would be more adequate to the financial needs of developing countries. We expect that the recognition of the interdependence of all countries in solving the problems of the world economy should be translated into

185 specific measures for accelerating development and a more comprehensive integration of developing countries in the world economy. The carrying out of this objective implies a more determined effort of the international community in the transformation of the existing system and the establishment of a new system of international economic relations, which would effectively improve the position of developing countries in world production, trade, and finance. Special responsibility rests with the most economically advanced countries, which, to date, have not demonstrated the necessary willingness to transform existing international economic relations. In conclusion, may I emphasize that my observations and suggestions reflect the wish of my Government that our financial institutions even more effectively play the important role which they have in present international economic relations. We are confident that with the full support of all of us they will be capable of adjusting themselves to the rapidly changing world of today. We believe that we shall be able to note a meaningful progress in the implementation of our conclusions by the time we meet in Belgrade next year. In referring to our next annual meetings, Mr. Chairman, I wish to assure you of the warm welcome that will be accorded to this assembly in Belgrade.

CONCLUDING REMARKS BY MR. McNAMARA During our deliberations this week it became clear that a broad consensus has emerged on a number of fundamental issues. There has been widespread acceptance of the twin goals of development -the acceleration of economic growth, and the attack on absolute poverty -and general agreement that they should serve as the foundation both for the operational plans of the developing countries themselves and for the efforts of those, including the Bank, who are seeking to assist them. In this connection, we are particularly pleased with the interest and support expressed by many Governors for the World Development Re- port-both for the initial effort this year, and for its continuance in future years as a monitor of progress and problems in the field of development. There was near unanimity on the necessity for prompt discussions leading to a formal decision by the Executive Directors early next year on the IBRD's General Capital Increase-an increase that would permit the Bank's lending to grow by at least 5 per cent a year in real terms. Similarly, there has been general agreement that negotiations for the Sixth Replenishment of IDA should begin before the end of the year, with the objective of achieving a substantial increase in IDA's resources in real terms. In commenting on the steps to be taken by developed and developing countries to accelerate economic growth, many Governors have stressed the importance of moving away from the trend towards protectionism, and in addition have called for an expansion of capital flows to the developing world: greater flows particularly from the private capital markets in the

186 case of the middle-income developing countries, and more concessional assistance to the poorer countries. Further, a number of Governors have referred to the desirability of the Bank's initiating studies of the potential energy resources in the developing nations. This we are doing, and we expect to send a report to our Board of Directors within the next 60 days. The report will provide an analysis of the domestic petroleum potential in our developing member countries, and the degree to which the Bank-both by its own efforts, and by its role as a catalyst in mobilizing the efforts of others-can assist in realizing that potential. Finally, I am most grateful for the many compliments and expressions of support that the Governors have paid to the management of the Bank in the pursuit of our mandate to assist our member countries in the overall development task. We appreciate those compliments, and are encouraged by them. But we know-and we are confident that you appreciate-that the success of the work of this institution does not depend merely on the quality of its management, but on the dedication, and drive, and the superb professionalism of its staff. It is our individual staff members who are our most valuable-and our most indispensable-resource, and we are immensely proud of their achievement. Mr. Chairman, I want to thank you for the care and patience with which you have presided over our meetings. And, Ladies and Gentlemen, I look forward to seeing you all again at next year's meeting in Belgrade, and extend to all of you my warm wishes for a safe and pleasant journey home.

CONCLUDING REMARKS BY THE CHAIRMAN H.E. TENGKU RAZALEIGH HAMZAH As I opened these meetings, so it is my privilege to bring them to a close. I would like at the outset to thank the Governors for their cooperation in concentrating our Annual Meetings into a shorter time span. Our meetings have not only been successful in form; they have also been successful in substance. They have resulted in considerable agreement, and understandings that will greatly strengthen the work of both the Fund and the World Bank over the years to come. In a broader context, the industrial countries have reaffirmed at these meetings their resolve to adhere to a strategy of coordinating their approach to the problems of worldwide inflation, stagnation, and external payments imbalance. It has also been heartening to note the understanding shown at these meetings of the severe problems faced by developing countries and the expressed determination of all of us here to help to solve them. There has also been widespread agreement that the bleak picture of human poverty and deprivation set forth in the World Development Re- port should not-and cannot-be tolerated. Governor after Governor has taken this stand to urge that this human waste and suffering should not be allowed to continue. I very much hope that specific actions will now follow our words, and within definite time targets.

187 I have noted that one theme has recurred as these meetings progressed: the need to maintain and expand world trade as a prime mover of economic growth for developing and developed countries alike. The specter of trade barriers-tariff and non-tariff-has also been alluded to in our meetings of the past few years. Never, however, has it seemed so imminent. And never has the answer been so clear. Political strength is called for to resist the dangerous pressures toward protectionism. Concerted, cooperative action is called for through commodity and export earnings stabilization agreements to alleviate the dangers faced by the more vulnerable developing countries dependent on the export of primary products. There has been widespread support for bringing the Multilateral Trade Negotiations to an effective conclusion. As I mentioned in my opening remarks last Monday, the world economy needs structural adjustment. The economies of the industrialized world and developing countries must be better integrated. The fruits of further economic development must be spread more widely and equitably among and within countries. We have made some progress in these meetings at addressing our common problems, but there is a long way to go. It remains for me to thank our host country for the arrangements that they have made for these meetings and President Carter for his address. Finally, let me wish you all a safe and speedy journey home.

REMARKS BY R. D. MULDOON Governor of the Fund for New Zealand New Zealand is honored to accept the chairmanship of the Board of Governors on the International Monetary Fund and the World Bank Group for the coming year. It is an honor not only for the people of New Zealand, but also for our region. We will endeavor to carry out the duties of the office in the same efficient and cordial manner as has characterized this meeting under the chairmanship of Tengku Razaleigh Hamzah, Minister of Finance and Governor for Malaysia. In the course of last year, we have seen some progress toward resolving important outstanding policy issues necessary to improve the operation of the international monetary system, and also in continuing and enhancing international cooperation on the development effort. I hope in the next year progress will be more rapid so that essential decisions are both made and implemented. I should like to, again, congratulate Mr. de Larosiere and Mr. Mc- Namara, the Executive Directors, and the management and staff of both institutions for their leadership on these important questions. I shall look forward to working with them in the coming year and at the 1979 Annual Meetings. I look forward to meeting with the Governors of the Bank and Fund in Belgrade next year.

188 DOCUMENTS OF THE BOARDS OF GOVERNORS

SCHEDULE OF MEETINGS'

Monday September 25 10:00 a.m.-Opening Ceremonies Address from the Chair Annual Address by Managing Director, IMF Annual Address by President, IBRD, IFC and IDA 2:30 p.m.-Joint Procedures Committee 3:00 p.m.-Annual Discussion

Tuesday September 26 9:30 a.m.-Annual Discussion 3:00 p.m.-Annual Discussion IMF Election of Executive Directors IBRD Election of Executive Directors

Wednesday September 27 9:30 a.m.-Annual Discussion 3:30 p.m.-ICSID Administrative Council 2

Thursday September 28 9:30 a.m.-Annual Discussion 12:35 p.m.-Joint Procedures Committee 4:30 p.m.-Joint Procedures Committee Reports Comments by Heads of Organizations Adjournment

'AlI sessions were joint sessions with the Board of Governors of the International Monetary Fund. 2The summary of proceedings of ICSID are published separately.

189 PROVISIONS RELATING TO THE CONDUCT OF THE MEETINGS'

ADMISSIONS 1. Sessions of the Boards of Governors of the Fund and the Bank, IFC and IDA will be joint and shall be open to accredited observers, the 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 Di- rector 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 Members. 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 com- municate to the press such information concerning the proceedings of the Annual Meetings as they may deem suitable.

'Approved on June 23, 1978 pursuant to the By-Laws, IBRD Section 6(d), IFC Section 4(d) and IDA Section l(a).

190 BANK AGENDA'

1. 1977/78 Annual Report 2. Financial Statements and Annual Audit 3. Allocation of Net Income 4. Administrative Budget 5. Membership of the Republic of Cape Verde 6. Executive Directors' Administrative Arrangements 7. Joint Development Committee 8. Rules for 1978 Regular Election of Executive Directors 9. Place and Date of 1980 Annual Meetings 10. Officers and Procedures Committee for 1978/79

IFC AGENDA'

1. 1977/78 Annual Report 2. Financial Statements and Annual Audit 3. Administrative Budget

IDA AGENDA'

1. 1977/78 Annual Report 2. Financial Statements and Annual Audit 3. Administrative Budget 4. Membership of the Republic of Cape Verde

'Approved on August 11, 1978 pursuant to the By-Laws, IBRD Section 6(a), IFC Section 4(a) and IDA Section l(a).

191 REPORTS OF THE JOINT PROCEDURES COMMITTEE

Chairman ...... Malaysia Vice Chairmen...... El Salvador Norway Reporting Member ...... Canada

Other Members Argentina Saudi Arabia Colombia Senegal France Turkey Germany United Kingdom Japan United States Korea Western Samoa Mauritius Yemen Arab Republic Morocco Yugoslavia Zambia

Report I

September 26, 1978 The Joint Procedures Committee met on September 26, 1978 and submits the following report:

Review of Performance of Joint Development Committee The Committee considered the report of the Chairman of the Joint Ministerial Committee of the Boards of Governors of the Fund and the Bank on the Transfer of Real Resources to Developing Countries (Devel- opment Committee) on the review of the Development Committee's performance . .. 'pursuant to paragraph 7 of Resolutions No. 29-9 and 294 as amended by Resolutions No. 31-9 and 305 of the Fund and the Bank, respectively, and draft resolutions thereon 2 The Committee recommends that the Boards of Governors adopt the draft resolutions 2

'See page 218. 2See page 201.

192 Annual Report of loint Development Committee The Committee noted that the Annual Report of the Development Committee has been presented to the Boards of Governors of the Fund and the Bank pursuant to paragraph 5 of Resolutions No. 29-9 and 294 of the Fund and the Bank, respectively ... 1 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.

Approved:

/s/ Tengku Razaleigh Hamzah /s/ Wm. C. Hood Malaysia-Chairman Canada-Reporting Member

This report was approved and its recommendation was adopted by the Boards of Governors on September 28, 1978.

Report II

September 26, 1978 The Joint Procedures Committee met on September 26, 1978, and submits the following report:

Membership of the Republic of Cape Verde The Committee considered the report and recommendation of the Executive Directors regarding admission of Cape Verde to membership in the Bank and IDA. The Committee recommends that the Boards of Governors of the Bank and IDA adopt the draft resolutions .2

Approved:

/s/ Tengku Razaleigh Hamzah /s/ Wm. C. Hood Malaysia-Chairman Canada-Reporting Member

This report was approved and its recommendation was adopted by the Boards of Governors on September 28, 1978.

'See page 289. 'See pages 202 and 214.

193 Report IV'

At the meeting of the Joint Procedures Committee held on September 28, 1978, the items of business on the agendas of the Boards of Governors of the Bank, IDA and IFC were considered.

A. The Committee submits the following report and recommendations on Bank and IDA business:

1. 1978 Annual Report The Committee noted that the 1978 Annual Report and the activities of the Bank and IDA had been discussed at these Annual Meetings.

2. 1978 Regular Election of Executive Directors The Committee noted that the 1978 Regular Election of Executive Directors of the Bank 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 1980.

3. Financial Statements, Annual Audits and Administrative Budgets The Committee considered the Financial Statements, Accountants' Reports and Administrative Budgets contained in the 1978 Bank and IDA Annual Report, together with the Report dated August 14, 1978. The Committee recommends that the Boards of Governors of the Bank and IDA adopt the draft resolutions . . .2

4. Allocation of Net Income of the Bank The Committee considered the Report of the Executive Directors dated August 1, 1978, on the Allocation of Net Income... 3 The Committee recommends that the Board of Governors of the Bank adopt the draft resolution . . .4

5. Report of the Executive Directors on Executive Directors' Administrative Arrangements The Committee noted the Report of the Executive Directors dated August 8, 1978 entitled "Executive Directors' Administrative Arrange- ments" . . .5

'Report III related to the business of the Fund. 2 See pages 203 and 216. 'See page 250. 'See page 204. 5 See page 251.

194 B. The Committee submits the following Report and Recommendations on IFC Business:

1. 1978 AnnualReport The Committee noted that the 1978 Annual Report and the activities of IFC had been discussed at these Annual Meetings.

2. Financial Statements, Annual Audit and Administrative Budget The Committee considered the Financial Statements and the Ac- countants' Report contained in the 1978 Annual Report, and the Admin- istrative Budget attached to the Report dated August 14, 1978. The Committee recommends that the Board of Governors of IFC adopt the draft resolution . ..

Approved:

/s/ Tengku Razaleigh Hamzah /s/ Michael G. Kelly Malaysia-Chairman Canada-Reporting Member

This report was approved and its recommendations were adopted by the Boards of Governorson September 28, 1978.

Report V

September 28, 1978 The Joint Procedures Committee met on September 28, 1978 and submits the following report:

1. Place and Date of 1980 Meetings The Committee recommends that the 1980 Annual Meetings be convened in Washington, D.C. in late September.

2. Officers and Joint Procedures Committee for 1978/79 The Committee recommends that the Governors for New Zealand be Chairmen, and the Governors for Belgium and Nigeria 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 Chairmen normally by correspondence and, if the occasion required, by convening; and that this Committee shall consist of the Gov- emors for the following members: Algeria, Belgium, France, Gabon,

'See page 213.

195 Germany, Greece, Guatemala, India, Japan, Jordan, Mali, New Zealand, Nigeria, Peru, the Philippines, Qatar, Sri Lanka, Sweden, the United King- dom, the United States, and Uruguay. It is recommended that the Chairmen of the Joint Procedures Com- mittee shall be the Governors for New Zealand, and the Vice Chairmen shall be the Governors for Belgium and Nigeria, and that the Governor for Sri Lanka shall serve as Reporting Member.

Approved:

/s/ Tengku Razaleigh Hamzah /s/ Michael G. Kelly Malaysia-Chairman Canada-Reporting Member

This report was approved and its recommendations were adopted by the Boards of Governors on September 28, 1978.

196 RESOLUTIONS ADOPTED BY THE BOARD OF GOVERNORS OF THE BANK BETWEEN THE 1977 AND 1978 ANNUAL MEETINGS

Resolution No. 321

Agreement with the United Nations Development Programme

RESOLVED: THAT the agreement between the United Nations Development Pro- gram and the Bank, attached to the report of the Executive Directors to the Board of Governors dated November 1, 1977, is hereby approved. (Adopted December 30, 1977)

Resolution No. 322

Agreement with the International Fund for Agricultural Development

RESOLVED: THAT the agreement in the form of the Coooperation agreement between the International Fund for Agricultural Development and the Bank and the International Development Association, attached to the report of the Executive Directors to the Boards of Governors dated February 14, 1978, is hereby approved. (Adopted March 31, 1978)

Resolution No. 323

Direct Remuneration of Executive Directors and their Alternates

RESOLVED: THAT, effective July 1, 1978, the annual rates of remuneration of Ex- ecutive Directors of the Bank and their Alternates pursuant to Section 14(e) of the By-Laws shall be as follows: (i) As salary, $45,700 per year for Executive Directors and $35,900 per year for their Alternates. (ii) As supplemental allowance (for expenses, including housing and entertainment expenses, except those specified in Section 14(f) of the By-Laws), $5,000 per year for Executive Directors and $4,000 per year for their Alternates. (Adopted July 27,1978)

197 Resolution No. 324

Benefits of Executive Directors and their Alternates

RESOLVED: 1. THAT, effective July 1, 1978, the following shall apply to Executive Directors of the Bank and their Alternates: (i) The changes in Education Benefits as to instruction in languages and specified subjects and as to subsistence grants made applicable to the staff of the Bank as of May 1, 1977 and September 1, 1977, respectively, (ii) the provision as to emergency travel made applicable to the staff of the Bank as of April 11, 1977, and (iii) the elimination of the principal income earner test as to certain benefit policies applicable to the staff of the Bank as of April 15, 1977. 2. THAT, effective for the academic year commencing on or after July 1, 1978, the changes in Education Benefits as to education travel made applicable to the staff of the Bank for the academic year commencing on or after May 1, 1977, shall apply to the Executive Directors and their Alternates. (Adopted July 27, 1978)

Resolution No. 325

Rules for the 1978 Regular Election of Executive Directors

RESOLVED: (a) THAT the proposed RULES FOR THE 1978 REGULAR ELEC- TION OF EXECUTIVE DIRECTORS are hereby approved; and (b) THAT a Regular Election of Executive Directors shall take place at the Annual Meeting of the Board of Governors in 1980. (Adopted August 28, 1978)

Resolution No. 326

Membership of the Solomon Islands

WHEREAS the Government of the Solomon Islands has applied for admission to membership in the International Bank for Reconstruction and Development in accordance with Section 1(b) of Article II of the Articles of Agreement of the Bank; and

198 WHEREAS, pursuant to Section 20 of the By-Laws of the Bank, the Executive Directors, after consultation with representatives of the Govern- ment of the Solomon Islands, have made recommendations to the Board of Governors regarding this application; NOW, THEREFORE, the Board of Governors hereby RESOLVES: THAT the terms and conditions upon which the Solomon Islands shall be admitted to membership in the Bank shall be as follows: 1. Definitions:As used in this resolution: (a) "Bank" means International Bank for Reconstruction and De- velopment. (b) "Articles" means the Articles of Agreement of the Bank. (c) "Dollars" or "$" means United States dollars of the weight and fineness in effect on July 1, 1944. (d) "Subscription" means the capital stock of the Bank subscribed to by a member. (e) "Member" means member of the Bank. 2. Subscription: By accepting membership in the Bank, the Solomon Is- lands shall subscribe to 17 shares of the capital stock of the Bank at the par value of $100,000 per share. 3. Membership in the Fund: Before accepting membership in the Bank, the Solomon Islands shall accept membership in and become a member of the International Monetary Fund. 4. Payment on Subscription: (a) Before accepting membership in the Bank, the Solomon Islands shall pay to the Bank on account of the subscription price of one-half of such shares: (i) Gold or United States dollars equal to 2% thereof; and (ii) An amount in its own currency which, at the appropriate prevailing exchange rate, shall be equal to 18% thereof. (b) With respect to the subscription price of the other one-half of such shares, the 2% portion payable in gold or United States dollars and the 18% portion payable in the currency of the member shall be left uncalled, as set forth in Resolution No. 129, on the same basis as the 2% and 18% portions of subscriptions made pursuant to Resolution No. 128 of the Board of Governors. 5. Representation and Information: Before accepting membership in the Bank, the Solomon Islands shall represent to the Bank that it has taken all action necessary to sign and deposit the instrument of acceptance and sign the Articles as contemplated by paragraph 6(d) and (e) of this resolution and the Solomon Islands shall furnish to the Bank such information in respect of such action as the Bank may request.

199 6. Acceptance of Membership: The Solomon Islands shall become a member of the Bank with a subscription as set forth in paragraph 2 of this resolution as of the date when the Solomon Islands shall have complied with the following requirements: (a) become a member of the International Monetary Fund; (b) made the payments called for by paragraph 4 of this resolution; (c) furnished the representation, and such information as may have been requested, pursuant to paragraph 5 of this resolution; (d) deposited with the Government of the United States of America an instrument stating that it has accepted in accordance with its law the 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 its obligations under the Articles of this resolution, and (e) signed the original Articles held in the Archives of the Govern- ment of the United States of America. 7. Limitation on Period for Acceptance of Membership: The Solomon Islands may accept membership in the Bank pursuant to this resolution until December 29, 1978, or such later date as the Executive Directors may determine. (Adopted September 5, 1978)

200 RESOLUTIONS ADOPTED BY THE BOARD OF GOVERNORS OF THE BANK AT THE 1978 ANNUAL MEETING

Resolution No. 327

Committee Review of the Performance of the Development Annual Meeting adopted WHEREAS the Board of Governors at its 1974 Joint Ministerial Committee Resolution No. 294 entitled "Establishment of the Fund on the Transfer of of the Boards of Governors of the Bank and Real Resources to Developing Countries"; and that at the end of WHEREAS paragraph 7 of that Resolution provides Governors of the Fund and two years from its effective date the Boards of Committee, and shall take the Bank shall review the performance of the such action as they deem appropriate; and Boards of Governors in WHEREAS this period was extended by the 1976 for a further two years; and submitted to the Board WHEREAS the Development Committee has of the Develop- of Governors a report on the Review of the Performance ment Committee; affirming the impor- NOW, THEREFORE, the Board of Governors, adopting Resolution No. of furthering the objectives of Members in tance potential importance of a copy of which is attached,' recognizing the 294, the effectiveness of the Development Committee, and desiring to enhance in its work methods the Committee, including in particular improvements of the Committee. and procedures as a means for achieving the objectives RESOLVES: HEREBY pursuant to paragraph (a) THAT the review of the Board of Governors carried out; of the said Resolution is deemed to have been 7 date of this at the end of two years from the effective (b) THAT the Fund the Boards of Governors of the Bank and Resolution, and shall take shall again review the performance of the Committee account (i) the action as they deem appropriate, taking into such of the Fund and recommendations of the Executive Boards views later than Bank, expressed at an appropriate time but not and the of the June 30, 1980, and (ii) the views and recommendations Committee; and Development the President the Chairman of the Development Committee, (c) THAT will consult Bank, and the Managing Director of the Fund of the work of the on ways to improve the effectiveness of the together at its next Committee, and they will report to the Committee meeting. (Adopted September 27, 1978)

'See page 301.

201 Resolution No. 328

Membership of the Republic of Cape Verde

WHEREAS the Government of the Republic of Cape Verde has applied for admission to membership in the International Bank for Recon- struction and Development in accordance with Section 1 (b) of Article II of the Articles of Agreement of the Bank; and WHEREAS, pursuant to Section 20 of the By-Laws of the Bank, the Executive Directors, after consultation with representatives of the Gov- ernment of the Republic of Cape Verde, have made recommendations to the Board of Governors regarding this application; NOW, THEREFORE, the Board of Governors hereby RESOLVES: THAT the terms and conditions upon which the Republic of Cape Verde shall be admitted to membership in the Bank shall be as follows: 1. Definitions: As used in this resolution: (a) "Bank" means International Bank for Reconstruction and Devel- opment. (b) "Articles" means the Articles of Agreement of the Bank. (c) "Dollars" or "$" means United States dollars of the weight and fineness in effect on July 1, 1944. (d) "Subscription" means the capital stock of the Bank subscribed to by a member. (e) "Member" means member of the Bank. 2. Subscription: By accepting membership in the Bank, the Republic of Cape Verde shall subscribe to 16 shares of the capital stock of the Bank at the par value of $100,000 per share. 3. Membership in the Fund: Before accepting membership in the Bank, the Republic of Cape Verde shall accept membership in and become a member of the International Monetary Fund. 4. Payment on Subscription: (a) Before accepting membership in the Bank, the Republic of Cape Verde shall pay to the Bank on account of the subscription price of one-half of such shares: (i) Gold or United States dollars equal to 2% thereof; and (ii) An amount in its own currency which, at the appropriate prevailing exchange rate, shall be equal to 18% thereof. (b) With respect to the subscription price of the other one-half of such shares, the 2% portion payable in gold or United States dollars and the 18% portion payable in the currency of the member shall be left uncalled, as set forth in Resolution No. 129, on the same basis as the 2% and 18% portions of subscriptions made pursuant to Resolution No. 128 of the Board of Governors.

202 the 5. Representation and Information: Before accepting membership in Bank, the Republic of Cape Verde shall represent to the Bank that it has taken all action necessary to sign and deposit the instrument of acceptance and sign the Articles as contemplated by paragraph 6(d) and (e) of this resolution and the Republic of Cape Verde shall furnish to the Bank such information in respect of such action as the Bank may request. 6. Acceptance of Membership: The Republic of Cape Verde shall become 2 of a member of the Bank with a subscription as set forth in paragraph this resolution as of the date when the Republic of Cape Verde shall have complied with the following requirements: (a) become a member of the International Monetary Fund; (b) made the payments called for by paragraph 4 of this resolution; (c) furnished the representation, and such information as may have been requested, pursuant to paragraph 5 of this resolution; (d) deposited with the Government of the United States of America an instrument stating that it has accepted in accordance with its law the 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 its obligations under the Articles of this resolution; and (e) signed the original Articles held in the Archives of the Govern- ment of the United States of America. 7. Limitation on Period for Acceptance of Membership: The Republic this reso- of Cape Verde may accept membership in the Bank pursuant to Directors lution until June 29, 1979, or such later date as the Executive may determine. (Adopted September 27, 1978)

Resolution No. 329

Financial Statements, Accountants' Report and Administrative Budget

RESOLVED: THAT the Board of Governors of the Bank consider the Financial in Statements, Accountants' Report and Administrative Budget, included V, the 1977/78 Annual Report, as fulfilling the requirements of Article By-Laws Section 13, of the Articles of Agreement and of Section 19 of the of the Bank. (Adopted September 28, 1978)

203 Resolution No. 330

Allocation of Net Income RESOLVED: 1. THAT the Report of the Executive Directors dated August 1, 1978 on "Allocation of Net Income" is hereby approved; 2. THAT the Bank transfer to the International Development Association by way of grant the equivalent of $100 million out of the net income of the Bank for the fiscal year ended June 30, 1978 (of which the Association may use up to the equivalent of $10.2 million for grants for agricultural research and up to the equivalent of $1.75 million for grants for the control of onchocerciasis), such transfer to be made at the time and in the manner to be decided by the Executive Directors; 3. THAT the allocation of the balance of the net income of the Bank for the fiscal year ended June 30, 1978 to the General Reserve is hereby noted with approval. (Adopted September 28, 1978)

204 RESOLUTIONS ADOPTED BY THE BOARD OF GOVERNORS OF IFC BETWEEN 1977 AND 1978 ANNUAL MEETINGS

Resolution No. 100

Increase of Capital

Finance Cor- WHEREAS the authorized capital of the International United States poration (the Corporation) is $110,000,000, in terms of one thousand dollars, divided into 110,000 shares having a par value of issued; and United States dollars each, of which 107,611 such shares are that it is WHEREAS the Directors of the Corporation have concluded subscriptions desirable that the capital of the Corporation be increased and there- to the increased capital be authorized and have submitted proposals for to the Board of Governors on the basis set forth below; and to facilitate WHEREAS the Board of Govemors expects that, in order to subscribe such proposals, members will not wish to exercise their rights 2 (d) of the a proportion of such increase pursuant to Article TI, Section Articles of Agreement of the Corporation; RESOLVES NOW THEREFORE THE BOARD OF GOVERNORS THAT: increased A. The authorized capital stock of the Corporation is hereby the creation of to $650,000,000, in terms of United States dollars, by thousand United 540,000 additional shares having a par value of one being authorized States dollars each, the issuance of certain such shares as set forth herein; member on or B. In the absence of notice to the contrary from any to have waived before September 1, 1976, such member shall be deemed authorized its right to subscribe its proportionate share of capital stock but unissued; or from time to C. Each member of the Corporation may at any time, as the Directors time, on or before February 1, 1978 (or such later date of capital stock may determine), subscribe up to the number of shares in the table of the Corporation set opposite the name of such member attached to this Resolution; Directors may D. After February 1, 1978 (or such later date as the not subscribed determine under paragraph C hereof) any remaining shares, 1, 1979 (or under paragraph C, may be subscribed on or before February member or mem- such later date as the Directors may determine) by such as the Board bers, in such amount or amounts and at such time or times of Governors may determine; 205 E. The provisions of this Resolution shall become effective when Governors exercising not less than three-fourths majority of the total voting power shall have voted in favor of this Resolution on or before December 31, 1976, or such later date as the Directors may determine; F. Each subscription authorized hereunder shall be on the following terms and conditions:

1. The subscription price per share shall be $1,000 in terms of United States dollars and such subscription price shall be paid in United States dollars or other freely convertible currency or currencies; provided that, if payment is made in such a currency or currencies other than United States dollars, the Corporation shall exercise its best efforts to cause such currency or currencies to be promptly converted into United States dollars and the same shall constitute payment of, or towards, the subscription price only to the extent that the Corporation shall have received effective payment of United States dollars. 2. Payment of the subscription price for shares subscribed shall be made either: (a) in cash in full, for all such shares at any time or for some such shares from time to time, provided that such payment shall not be made in amounts and at times less favorable to the Corpora- tion than those specified in paragraph F.2 (b) of this Resolu- tion; or (b) in the manner and on the dates following: in respect of 40% of the total number of shares subscribed, on August 1, 1977, or, at the election of the subscribing member, within a period of six months after such date. Pay; ment in respect of not less than one half of such 40% (i.e. in respect of not less than 20% of the total number of shares subscribed) shall be in cash in full. Payment in respect of not more than one half of such 40% (i.e. in respect of not more than 20% of the total number of shares subscribed) shall be represented by an unqualified commitment of the government of the subscribing member to make payment in cash in full on August 1, 1978, or, at the election of the subscribing member, within a period of six months after such date; payment in respect of 20% of the total number of shares subscribed, in cash in full on August 1, 1979, or, at the election of the subscribing member, within a period of six months after such date; payment in respect of 20% of the total number of shares subscribed, in cash in full on August 1, 1980, or, at the election of the subscribing member, within a period of six months after such date; payment in respect of 20% of the total number of shares subscribed, in cash in full on August 1, 1981, or, at the 206 election of the subscribing member, within a period of six months after such date; provided that, if any member shall so request, the Directors may, at any time, determine that any one or more of such periods shall be extended by an additional period, not in any case exceeding six months; and provided further that, if any member shall, pursuant to this Resolution, be authorized to subscribe after the expiry of any one or more of such periods, such member shall, upon subscription, pay in cash all amounts theretofore expressed to be payable according to the foregoing schedule (as the same may be extended by the Directors) and the balance in accordance with such schedule (as the same may be so extended); or (c) in the case of any member which shall be in circumstances of economic hardship, on such date or dates not, in any case, later than August 1, 1983, as the Directors may determine at the request of such member. 3. Each subscription shall be made by the subscribing member deposit- ing with the Corporation not later than February 1, 1978 (or such later date as the Directors may determine) in a form acceptable to the Corporation, an Instrument of Subscription whereby the member: (a) subscribes to the total number of shares specified in such In- strument; and (b) commits itself to pay for such total number of shares in a manner consistent with paragraph F.2 of this Resolution; provided that, in cases where qualification is required by legislative procedures, such commitment shall be unqualified as to payment for not less than the first 40% of the total shares subscribed but may be qualified by a condition that payment for not more than 60% of the total shares subscribed is subject to appropriate legislative action which that member undertakes to seek as soon as practicable; and (c) represents to the Corporation that it has taken all action necessary to authorize such subscription; and (d) undertakes to furnish to the Corporation such information as to the foregoing matters as the Corporation may request. 4. Shares of capital stock shall be issued to a subscribing member, which has delivered an Instrument of Subscription in accordance with paragraph F.3 of this Resolution, only as full cash payment is made for such shares at any time or from time to time, and such member shall hold such shares upon such issue; provided always, however, that no shares shall be issued before August 1, 1977, or the date on which the provisions of this Resolution become effective in accordance with paragraph E of this Resolution, whichever is later. G. To the extent that any shares of capital stock, which have been subscribed pursuant to this Resolution, shall not have been paid for in

207 cash in full on or before the last date prescribed for payment for such shares in accordance with this Resolution, the subscription of such shares shall become void. H. Any shares of capital stock remaining unsubscribed after the last date prescribed under paragraphs C and D hereof shall remain authorized and unissued, issuable by the Corporation in accordance with its Articles of Agreement. (Adopted November 2, 1977)

208 INTERNATIONAL FINANCE CORPORATION

(Table Attached to Resolution No. IFC-100)

Capital Stock for Subscription

Maximum Maximum Number Number Member of Shares Member of Shares

Afghanistan 563 Israel 3,136 Argentina 6,547 Italy 17,120 Australia 9,976 Ivory Coast 869 Austria 4,531 Jamaica 955 Bangladesh' 1,615 Japan 22,777 Belgium 11,231 Jordan 396 Bolivia 412 Kenya 857 Brazil 9,006 Korea 2,311 Burma 937 Kuwait 4,164 Cameroon 379 Lebanon 195 Canada 17,352 Lesotho 105 Chile 1,940 Liberia 407 China, Republic of - Libya 2,702 Colombia 1,695 Luxembourg 440 Costa Rica 223 Madagascar 440 Cyprus 468 Malawi 285 Denmark 4,026 Malaysia 3,644 Dominican Republic 284 Mauritania 190 Ecuador 639 Mauritius 334 Egypt 2,534 Mexico 5,284 El Salvador 234 Morocco 1,940 Ethiopia 273 Nepal 251 Finland 3,622 Netherlands 11,412 France 23,713 New Zealand 2,630 Gabon 374 Nicaragua 175 Germany 29,549 Nigeria 5,206 Ghana 1,427 Norway 3,979 Greece 1,500 Oman 270 Grenada 50 Pakistan 3,303 Guatemala 284 Panama 427 Guyana 279 Papua New Guinea 376 Haiti 284 Paraguay 107 Honduras 173 Peru 1,583 Iceland 418 Philippines 3,081 India 15,357 Portugal 1,701 Indonesia 6,133 Rwanda 206 Iran 9,430 Saudi Arabia 9,140 Iraq 1,587 Senegal 551 Ireland 2,057 Sierra Leone 285

Bangladesh and United Arab Emirates have not completed membership formalities. The number of shares shown represents an increase over initial subscription.

209 Maximum Maximum Number Number Member of Shares Member of Shares

Singapore 1,538 United Arab Emirates' 1,752 Somalia 223 United Kingdom 23,500 South Africa 5,447 United States 111,493 South Vietnam 1,243 Upper Volta 190 Spain 7,469 Uruguay 764 Sri Lanka 1,672 Venezuela 6,990 Sudan 1,237 Western Samoa 52 Swaziland 149 Yemen Arab Republic 137 Sweden 5,815 Yugoslavia 2,288 Syria 847 Zaire 1,996 Tanzania 674 Zambia 991 Thailand 2,679 Total Shares Togo 285 Allocated 468,829 Trinidad & Tobago 1,138 Available for Tunisia 25876 Allocation 11,171 Uganda 551 GRAND TOTAL 480,000

Resolution No. 101

Increase in Subscription by Argentina Pursuant to Article II, Section 2(d) of the Articles of Agreement of the International Finance Corporation

WHEREAS on November 2, 1977 the Board of Governors of the International Finance Corporation (the Corporation) adopted Resolution No. 100 entitled "Increase of Capital" (hereinafter called the Capital In- crease Resolution) authorizing an increase of US $540 million in the authorized capital of the Corporation and increases in individual members' subscriptions as set forth in the table attached to the Capital Increase Resolution. WHEREAS pursuant to the Capital Increase Resolution the Govern- ment of Argentina was offered up to 6,547 shares of capital stock of the Corporation for subscription. WHEREAS the Government of Argentina, pursuant to Article II, Sec- tion 2(d) of the Articles of Agreement of the Corporation, has notified the Corporation of its intention to exercise its pre-emptive right and, accordingly, the said Government is entitled to subscribe up to 8,159 shares of capital stock of the Corporation. WHEREAS it has therefore become necessary for the Corporation to determine the terms and conditions under which such subscription may be made.

210 NOW THEREFORE THE BOARD OF GOVERNORS RESOLVES THAT: A. The Government of Argentina may subscribe up to 8,159 shares of capital stock of the Corporation. B. The subscription and payment for the shares referred to in paragraph A shall be on the same terms and conditions as those set forth in the Capital Increase Resolution. C. The provisions of this Resolution shall become effective when Governors exercising a majority of the total voting power shall have voted in favor of this Resolution on or before January 20, 1978, or such later date as the Directors may determine. (Adopted January23, 1978)

Resolution No. 102

Membership of the Republic of Mali

WHEREAS the Government of the Republic of Mali has applied for admission to membership in the International Finance Corporation in accordance with Section 1(b) of Article II of the Articles of Agreement of the Corporation; and WHEREAS, pursuant to Section 17 of the By-Laws of the Corporation, the Board of Directors, after consultation with representatives of the Gov- ernment of the Republic of Mali, has made recommendations to the Board of Governors regarding the application of said Government; NOW, THEREFORE, the Board of Governors hereby RESOLVES: THAT the terms and conditions upon which the Republic of Mali shall be admitted to membership in the Corporation shall be as follows: 1. Definitions: As used in this resolution: (a) "Corporation" means International Finance Corporation. (b) "Articles" means the Articles of Agreement of the Corporation. (c) "Dollars" or "$" means United States dollars. (d) "Subscription" means the Capital Stock of the Corporation subscribed by a member. (e) "Member" means member of the Corporation. 2. Subscription: By accepting membership in the Corporation, the Re- public of Mali shall subscribe to 116 shares of the capital stock of the Corporation at the par value of $1,000 per share. 3. Payment of Subscription: Before accepting membership in the Corpora- tion, the Republic of Mali shall pay $116,000 to the Corporation in full payment of the capital stock subscribed.

211 4. Information: Before accepting membership in the Corporation, the Republic of Mali shall furnish to the Corporation such information relating to its application for membership as the Corporation may request. 5. Acceptance of Membership: The Republic of Mali shall become a member of the Corporation with a subscription as set forth in paragraph 2 of this resolution, as of the date when the Republic of Mali shall have complied with the following requirements: (a) made the payment called for by paragraph 3 of this resolution; (b) furnished such information as may have been requested by the Corporation pursuant to paragraph 4 of this resolution; (c) deposited with the International Bank for Reconstruction and De- velopment an instrument stating that it has accepted without reservation in accordance with its law the Articles and all the terms and conditions prescribed in this resolution, and that it has taken all steps necessary to enable it to carry out all its obligations under the Articles and this resolution; and (d) signed the original Articles held by the International Bank for Reconstruction and Development. 6. Limitation on Period for Acceptance of Membership: The Republic of Mali may accept membership in the Corporation pursuant to this resolution until December 31, 1978, or such later date as the Board of Directors may determine. (Adopted March 22, 1978)

212 RESOLUTION ADOPTED BY THE BOARD OF GOVERNORS OF IFC AT THE 1978 ANNUAL MEETING

Resolution No. 103

Financial Statements, Accountants' Report and Administrative Budget

RESOLVED: THAT the Board of Governors of the Corporation consider the Finan- cial Statements and the Accountants' Report, included in the 1977/78 Annual Report, and the Administrative Budget attached to the Report dated August 14, 1978, as fulfilling the requirements of Article IV, Section 11, of the Articles of Agreement and of Section 16 of the By-Laws of the Corporation. (Adopted September 28, 1978)

RESOLUTION ADOPTED BY THE BOARD OF GOVERNORS OF IDA BETWEEN 1977 AND 1978 ANNUAL MEETINGS

Resolution No. 106

Agreement with the International Fund for Agricultural Development

RESOLVED: THAT the agreement in the form of the Cooperation Agreement between the International Fund for Agricultural Development and the Inter- national Bank for Reconstruction and Development and the Association, attached to the report of the Executive Directors to the Boards of Gov- ernors dated February 14, 1978, is hereby approved. (Adopted March 31, 1978)

213 RESOLUTIONS ADOPTED BY THE BOARD OF GOVERNORS OF IDA AT THE 1978 ANNUAL MEETING

Resolution No. 107

Membership of the Republic of Cape Verde

WHEREAS the Government of the Republic of Cape Verde has applied for admission to membership in the International Development Associa- tion in accordance with Section 1(b) of Article II of the Articles of Agree- ment of the Association; and WHEREAS, pursuant to Section 9 of the By-Laws of the Association, the Executive Directors, after consultation with representatives of the Government of the Republic of Cape Verde, have made recommendations to the Board of Governors regarding this application; NOW, THEREFORE, the Board of Governors hereby RESOLVES: THAT the terms and conditions upon which the Republic of Cape Verde shall be admitted to membership in the Association shall be as follows: 1. Definitions: As used in this resolution: (a) "Association" means International Development Association. (b) "Articles" means the Articles of Agreement of the Association; (c) "Dollars" or "$" means dollars in currency of the United States of America (d) "Board of Governors" means the Board of Governors of the Association. 2. Initial Subscription: (a) The terms and conditions of the membership of the Republic of Cape Verde in the Association other than those specifically provided for in this resolution shall be those set forth in the Articles with respect to the membership of original members listed in Part II of Schedule A thereof (including, but not by way of limitation, the terms and conditions relating to subscriptions, payments on subscriptions, usability of currencies and voting rights). (b) Upon accepting membership in the Association, the Republic of Cape Verde shall subscribe funds in the amount of $80,000 expressed in terms of United States dollars of the weight and fineness in effect on January 1, 1960. (c) Before accepting membership in the Association, the Republic of Cape Verde shall make all payments on its initial subscription which would have been payable on or before the date of acceptance had it become a member of the Association as an original member listed in Part II of Schedule A of the Articles.

214 3. Acceptance of Membership: The Republic of Cape Verde shall become a member of the Association with a subscription as set forth in paragraph 2(b) of this resolution as of the date when the Republic of Cape Verde shall have complied with the following requirements: (a) become a member of the International Bank for Reconstruction and Development; (b) made the payments called for by paragraph 2(b) and (c) of this resolution; (c) deposited with the International Bank for Reconstruction and Development an instrument stating that it has accepted in accordance with its laws the Articles and all the terms and conditions prescribed in this resolution, and that it has taken all steps necessary to enable it to carry out all its obligations under the Articles and this resolution; and (d) signed the original of the Articles held in the archives of the Inter- national Bank for Reconstruction and Development. 4. Limitation on Period for Acceptance of Membership: The Republic of Cape Verde may accept membership in the Association pursuant to this resolution until June 29, 1979 or such later date as the Executive Directors of the Association may determine.

5. Additional Subscription under Third Replenishment Resolution: (a) Upon or after acceptance of membership, the Republic of Cape Verde shall be also authorized at its option to make an additional subscription in the amount of $3,120 (expressed in terms of United States dollars of the weight and fineness in effect on Janu- ary 1, 1960) which shall carry 1,250 votes plus one vote for each $80 of such additional subscription (that is, 1,289 votes). (b) The rights and obligations of the Association and the Republic of Cape Verde with regard to such additional subscription shall be the same as those which are applicable to the subscriptions authorized for Part II members under Part D of the Third Re- plenishment Resolution adopted by the Board of Governors on February 17, 1971.

6. Additional Subscription under Fourth Replenishment Resolution: (a) Upon or after acceptance of membership, the Republic of Cape Verde shall be further authorized at its option to make a further subscription in the amount of $2,975 which shall carry 3,850 votes plus one vote for each $25 of such further subscription (that is, 3,969 votes). (b) The rights and obligations of the Association and the Republic of Cape Verde with regard to such additional subscription shall be the same as those which are applicable to the subscriptions authorized for Part II members under Section F of the Fourth Replenishment Resolution adopted by the Board of Governors on January 31, 1974.

215 7. Additional Subscription under Fifth Replenishment Resolution: (a) Upon or after acceptance of membership, the Republic of Cape Verde shall be further authorized at its option to make a further subscription in the amount of $1,200 which will carry 1,700 votes plus one vote for each $25 of such further subscription (that is, 1,748 votes). (b) The rights and obligations of the Association and the Republic of Cape Verde with regard to such further subscription shall be the same as those which are applicable to the subscriptions authorized for Part II members under Section D of the Fifth Re- plenishment Resolution adopted by the Board of Governors on June 16, 1977. (Adopted September 27, 1978)

Resolution No. 108

Financial Statements, Accountants' Report and Administrative Budget

RESOLVED: THAT the Board of Governors of the Association consider the Financial Statements, Accountants' Report and Administrative Budget, included in the 1977/78 Annual Report, as fulfilling the requirements of Article VI, Section 11, of the Articles of Agreement and of Section 8 of the By-Laws of the Association. (Adopted September 28, 1978)

216 REPORT OF CHAIRMAN OF DEVELOPMENT COMMITEE

September 25, 1978 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 authorized me, as Chairman, to present herewith to the Boards of Governors a report containing the review of the Committee's performance prepared in accordance with the resolutions of the Boards of Governors of the Fund and the World Bank at their meeting in Manila in October 1976. The Annual Report' referred to in the report has been submitted to you with my letter of September 23, 1978. The report was considered by the Development Committee on Septem- ber 23, 1978. 2 A draft resolution prepared by the Development Committee is attached. /s/ Cesar E. A. Virata Chairman Development Committee

'See page 289. 'See page 201.

217 REVIEW OF THE PERFORMANCE OF THE DEVELOPMENT COMMITTEE

1. The Development Committee, together with the Interim Committee of the Fund, was established on the recommendation of the Committee of Twenty on the completion of its work in June 1974. It was conceived as as a forum for discussion of issues relating to the transfer of real resources at a high political level between all members of the Bank and Fund representing developed, OPEC and other developing countries and with observers in attendance from regional development banks and other relevant agencies. The intention was that the Committee should not duplicate or supplant existing organizations but would complement them and, where feasible, suggest courses of action or give political impetus to matters under consideration in the relevant fora. The objective, as noted in the preamble of the Resolution establishing the Committee, was to help provide ". ... a focal point in the structure of international economic cooperation for formation of a comprehensive overview of diverse international activities in the development area, for efficient and prompt consideration of development issues, and for coordination of international efforts to deal with problems of financing development . . ." 2. The parallel Resolutions dated October 2, 1974, with which the De- velopment Committee was established also contained a provision that at the end of two years from the effective date of the Resolutions, the Boards of Governors of the Fund and the Bank should review the performance of the Committee, and should take such action as they deemed appropriate. This period was extended in 1976 for two years by the Boards of Gov- ernors and the present review is in compliance with that decision. 3. The attached annual report gives details of what has been done in the past year ending June 1978. As regards the work in the preceding three years, the Committee, apart from its important global overview function, was naturally concerned initially with short-term issues which arose from the dramatic changes in the world economy during 1973-74. Its strong support helped the establishment of a temporary intermediate lending facility of the Bank (Third Window) and an IMF Trust Fund to provide additional concessionary resources to meet balance-of-payments needs of the low-income countries. Both these matters had been under active consideration of the Boards of the two institutions. The long-term issues of development aid flows, both bilateral and multilateral, remained under constant examination in the context of the World Bank studies of the capital requirements and prospects of developing countries and the IMF's periodic review of the world economic situation and outlook. The contribution of the Committee here cannot always be measured in concrete terms but the fact that these critical issues and proposals for improvements in flows remained under constant review did help to focus the attention of Finance Ministers and at least held the line and made some improvements under admittedly difficult economic conditions and a generally unfavorable

218 climate. The Committee also undertook extensive and useful work with some positive results in the area of access to capital markets of which full details have been given in the annual report relating to the period in question. 4. It is generally recognized that the Committee is well suited and capable of playing an important role. Its continuance was strongly urged by the G-24 at its meeting in April 1978 in Mexico City. Some disappointment has however been expressed on the achievements of the Committee so far and in particular on its ability to produce concrete results relating to the transfer of resources. There have also been some expressions of concern that the Committee was tending to pursue issues of a largely technical nature and that its work lacked focus. It is therefore important to use the occasion provided by this review for a clear reiteration of the Committee's assigned role and a frank discussion of the Committee's limitations and the impediments which it has faced in its operation. The review therefore comprises an examination of its mandate, its structure, and its work methods with a view to improving the Committee's effectiveness for the attainment of its objectives in the period ahead. 5. There has perhaps been some misconception of what can be accomplished in a forum like the Development Committee, and this may account for at any rate some of the disappointment that has been voiced with its performance. It was not conceived as a decision-making or formal- negotiating body. It has no collective executive responsibility and no funds of its own to control. Rather it is a forum-the only one which exists- where Finance Ministers from the developing countries can discuss broad problems of development and resource transfers with their counterparts from the developed countries in the presence of all the main multilateral organizations concerned with North-South development issues. The mandate of the Committee was kept deliberately very wide to provide Finance Ministers an opportunity for a comprehensive overview of diverse international activities in the development area. The intention was that such discussions would illuminate the subject through a frank exchange of views and lead, in a number of cases, to a consensus at a high political level on what should be done. Of course any consensus can only be translated into action in other fora, e.g. in the governing bodies of other international institutions or in the governments of the individual member states. There is an inevitable timelag between these two processes and it would be unrealistic to suppose either that a consensus on many of the intractable problems of development can easily or quickly be reached or, once reached, can be quickly implemented. One can only really judge the effectiveness of a Committee of this sort in the longer term. 6. It is sometimes suggested that the process of decision-making would be assisted if the Committee were to be restructured as a Bank-only Com- mittee, rather than a joint Bank/Fund Committee: it could then be the counterpart of the Interim Committee of the Fund, have a more clearly defined role, a more focused agenda and intensive preparatory work in the

219 Bank Board with the full backing and direct involvement of the Bank management resulting in a possibly more concrete outcome from its deliberations. A Bank-only Committee would, however, inevitably be a somewhat different type of committee from the present one. Its mandate would tend to be more restricted since it would be difficult for it to deal, as the present Committee does, with some issues of concern to the Fund, and to take an overall view of problems which straddle both the Fund and the Bank-e.g. the general problems of medium-term adjustment and the current study of export earnings stabilization. Bearing in mind the development aspect of many of the topics dealt with by the Fund, and the institution's past and potential future contribution to the Committee's work, the loss of the Fund as one of the sponsors of the Committee would need to be weighed very carefully against any marginal gain from a Bank-only Committee. 7. Furthermore, it is not easy to see how a Bank-only Committee could, in practice, be any more "decision-oriented" than the present Committee. It seems unlikely that there will be many purely Bank issues that would require the intercession of a Committee of Ministers in the decision-making process-it is the Executive Board which is empowered under the Articles of Agreement to take decisions and make recommendations to the Board of Governors as a whole. And insofar as a Bank-only Committee were to consider issues of wider significance it would surely find itself up against the same difficulties as the present Committee in reaching "decisions" and generating the political will necessary for consensus. 8. As regards the Committee's methods of work, the improvements introduced in the 1976 review related to having a more sharply focused agenda, holding of meetings only when issues are ready for active consideration at ministerial level, and better preparation through closer liaison with Execu- tive Directors and increased high level political consultation in advance of meetings in order to define the issues for discussion, to narrow differences and thereby assist in reaching agreement. 9. Some of these changes in procedure have been adopted with beneficial results but more still needs to be done to enhance the effectivness of the Committee. There could be greater selectivity of suitable issues even within an agreed work program. Unfortunately, the interests of Members on different subjects, if not conflicting, are seldom equal or uniform and when some subjects get picked up which do not enjoy adequate or wide enough support among the Members, then those not in agreement tend to consider the work as unsuitable or lacking in focus. This further highlights the need for care in identifying and selecting important issues of general appeal which might be advanced through debate and consensus at a high political level. Matters of peripheral interest, however important to some, should be given a low priority or even excluded altogether. 10. At present, documents are prepared largely with the assistance of the Fund and Bank Group staff. They are then discussed as necessary at a technical level in the Working Groups and are screened and prepared for

220 ministerial consideration by preliminary discussion between Senior Officials from national capitals. The access to Ministers which Senior Officials enjoy and their feel of what can be achieved at political level now provide an important element of political preparation which was not present to the same degree in the past. This process helps to sift those issues which need not go beyond the Senior Officials from those which because of their importance or policy content require consideration at ministerial level. The process is time consuming, but many of the issues before the Committee are complex and do not admit of easy or quick solutions. Consideration of these issues in the currently unfavorable economic climate, which inevitably makes it more difficult to reach a consensus, accounts perhaps for a good deal of the present sense of frustration and lack of adequate progress. 11. The process of achieving closer contact with Executive Directors as representatives of member governments has been further strengthened. The recently evolved device of periodic informal meetings between the Execu- tive Secretary and Executive Directors, in addition to formal Board discussion of issues within their purview has been found to be helpful. 12. Careful adherence to the improvements mentioned above should lead to better preparation and selectivity of subjects and greater effectiveness of the Committee which, in the last two years, has also been somewhat constrained by parallel discussions on the same issues in other fora like the CIEC. The attached annual report, apart from indicating what has been done in the past, also gives details of what work is in hand and remains to be done from the current agreed work program, including important topics such as the continuing examination of issues relating to ODA, the stabilization of export earnings, the role of MDIs, and annual consideration of a World Development Report. For a sharper focus and for assigning the right priorities, a detailed work program for each year should be worked out by the Senior Officials. 13. A new perspective for the Committee's work would be provided by the World Development Report. This will present an excellent opportunity for annual consideration of broad development issues and will facilitate their comprehensive and continuing analysis in a manner which will help in the formulation of development strategies particularly for accelerating growth and alleviating poverty in countries at various stages of development. There is also the expectation that the Brandt Commission's deliberations may succeed in creating a wider and deeper understanding of the growing interdependence and mutuality of long-term interests of both industrial and developing countries and thus help generate the political will so crucial to the success of the Committee. The Committee could be one of the important fora for follow-up discussion at intergovernmental level of those sections of the Brandt Commission report which are the concern of Finance Ministers. 14. With greater selectivity of suitable topics, sharper focus on issues of interest to Ministers, improved work methods outlined above involving

221 more political preparation and closer contacts with Executive Directors as well as with Senior Officials from national capitals, the Committee should provide a unique opportunity for constructive and profitable dialogue between industrial and developing countries in an eamest and cooperative search for mutually beneficial solutions to economic problems. The Com- mittee, given of course the political will, could thus play an effective role in increasing the transfer of resources to developing countries in the future.

222 REPORT OF THE EXECUTIVE DIRECTORS OF THE BANK AND IDA

February 14, 1978

Proposed Cooperation Agreement with the International Fund for Agricultural Development

1. The President of the World Bank has proposed that the Bank and the Association enter into an agreement with the newly established Inter- national Fund for Agricultural Development (IFAD), outlining the basic principles which would underlie cooperation between the two organizations in promoting food production in the developing countries. 2. IFAD was established to promote such production, with particular emphasis on the "poorest food deficit countries" and the welfare of the poorest segment of the population. For this purpose it has been provided with sizeable financial resources. Structurally, it is unusual in being more than a "fund" and yet not a self-contained lending agency. Thus the agreement establishing IFAD, which came into force in November 1977, makes provision for a management responsible for negotiating and proposing loans and an Executive Board responsible for approving them, but requires IFAD to employ the services of other agencies for project appraisal and loan administration. The World Bank could help to provide IFAD with these services (a) through co-financing, and (b) by appraising projects to be financed exclusively by IFAD and administering the IFAD loan. 3. The proposed Agreement would establish a framework within which working arrangements governing these cooperative efforts could be agreed. It provides for consultation and cooperation between the World Bank and IFAD in areas of mutual interest; for the co-financing of suitable projects; for World Bank staff to undertake appraisal and loan administration responsibility, and to provide other services, in connection with projects to be financed exclusively by IFAD; and for reimbursement by IFAD for the costs incurred in project work undertaken on IFAD's behalf. IFAD projects to be appraised by World Bank staff would be selected by mutual agreement and appraisals would be conducted under agreed terms of reference. In undertaking these appraisals and administering loans for IFAD, World Bank staff would apply the methods, standards and procedures employed in the World Bank's own operations. Projects to be financed exclusively by IFAD would be appraised in accordance with IFAD's lending policies and criteria. As provisionally approvad at the first meeting of IFAD's Governing Council, these would be consistent with the World Bank's own policies in agriculture and rural development. However, the management of the World Bank has called IFAD's attention to the fact that if future development of IFAD policies were to give rise to conflicts, the World Bank would have to decline to appraise or administer loans for particular projects.

223 4. The proposed Cooperation Agreement, attached as Annex A, was approved by IFAD's Executive Board on December 15, 1977. The documentation submitted to the Executive Board, included, at the request of the World Bank, the statement referred to above concerning future development of IFAD policies (attached as Annex B). The Agreement requires the approval of the Boards of Governors of the Bank and of IDA pursuant to Article V, Section 2(b) (v) of the Articles of Agreement of the Bank and to Article VI, Section 2(c) (v) of the Articles of Agreement of IDA, under which formal agreements to cooperate with other international organizations must be approved by the respective Board of Governors. The Executive Directors believe that conclusion of the Agreement is in the best interests of the World Bank.

Recommendations The Executive Directors recommend that the Cooperation Agreement with IFAD be approved by the Boards of Governors and that: (a) the Board of Governors of the Bank adopt, by vote without meeting, the draft resolution attached as Annex C1 to this report; and (b) the Board of Governors of IDA adopt, by vote without meeting, the draft resolution attached as Annex D2 to this report.

ANNEX A

Agreement between the International Bank for Reconstruction and Development and the International Development Association and the International Fund for Agricultural Development

AGREEMENT, dated May 20, 1978, between the INTERNA- TIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and the INTERNATIONAL DEVELOPMENT ASSOCIATION (hereinafter collectively called the World Bank) and the INTERNATIONAL FUND FOR AGRICULTURAL DEVELOPMENT (hereinafter called the Fund). WHEREAS the Articles of Agreement of the World Bank provide that it will cooperate with international organizations having specialized responsibilities in related fields; WHEREAS the Agreement establishing the Fund provides that it will cooperate closely with the organizations of the United Nations system and, to that end, will seek their collaboration in the Fund's activities; WHEREAS the World Bank and the Fund wish to establish a framework for their cooperation in the achievement of the common purposes of

'See page 197. 'See page 213.

224 the Bank's Articles of Agreement and the Agreement establishing the Fund, and for their collaboration in the Fund's activities, in the best interest of the developing countries of common membership; NOW THEREFORE it is hereby agreed as follows:

I. AREAS OF COOPERATION

1.1 Consultationand Cooperation (a) The World Bank and the Fund shall consult together and exchange views on all matters of mutual interest, and shall make appropriate arrangements to keep each other regularly informed of their programs of activities for agricultural development, food production, nutrition and related purposes in countries of common membership. (b) Subject to such limitations as may be necessary for the safeguarding of confidential material, the World Bank and the Fund shall arrange for the exchange of information, reports and other documents of mutual interest on a regular basis. (c) The World Bank shall invite the Fund to participate in groups or attend meetings of groups convened by the World Bank for the purpose of coordinating development aid to countries of common membership and the Fund may participate in or attend as an observer such meetings. (d) In the provision of technical assistance and advice for agricultural development, food production, nutrition and related purposes to countries of common membership, the World Bank and the Fund shall cooperate to the fullest extent practicable in order to avoid undesirable duplication of their activities and services relating to such assistance and to ensure consistency and effective coordination of their advice. (e) The World Bank and the Fund may consult together concerning the possibility and desirability of secondment of staff of one organization to the other, on a reimbursable basis, and other administrative arrangements designed to promote administrative efficiency and effective coordination of their respective activities in countries of common membership. (f) The World Bank shall be entitled to attend meetings of the Gov- erning Council of the Fund, and the Fund shall be entitled to attend meetings of the Bank's Board of Governors. 1.2 Identification and Preparationof Projects The World Bank and the Fund shall closely cooperate in the identification and preparation of development projects which are likely to be suitable for financial assistance from both organizations or to be appraised by the World Bank's staff at the request of the Fund with a view to their financing by the Fund. To that end, the World Bank and the Fund shall make appropriate arrangements to enable both organizations to plan, program and coordinate their respective activities relating to the identification and preparation of such projects in the most economic and efficient manner, including arrangements for the active participation of the Fund's staff, at the discretion of the Fund, in the identification and preparation of projects in which the Fund has indicated an interest.

225 1.3 Co-financing The World Bank and the Fund shall bring to each other's attention specific development projects in countries of common membership for which financing from both organizations appears necessary or desirable with a view to arranging with the country concerned and any other interested source of external financing appropriate methods for effectively coordinating the various sources of financing in the interest of a prompt, effective and economic execution of the projects. Appropriate arrangements for appraisal, negotiations, timing of approval and administration of such projects shall be agreed upon between the World Bank and the Fund. The World Bank's and Fund's staffs shall participate in the negotiations, either jointly or separately, as appropriate.

II. PROJECTS EXCLUSIVELY FINANCED BY THE FUND 2.1 As provided in Sections 2.2 to 2.4 of this Agreement, the World Bank's staff shall undertake at the request of the Fund and with the agreement of the country concerned, the appraisal of specific development projects which the Fund is considering for financing exclusively out of its own resources. The Bank's staff shall also assist the Fund's staff in the process of negotiation and shall, as prescribed in Section 2.4, administer such projects after such approval by the Fund's Executive Board. In carrying out these functions, the World Bank's staff shall take into account the Fund's lending policies and criteria as prescribed from time to time by the Fund and communicated to the World Bank. In order to ensure timely cooperation between the two organizations, the Fund and the World Bank shall, on the basis of requests made by the Fund, agree, from time to time, on projects for which the World Bank shall assume the responsibilities herein set forth. 2.2 Appraisal of Projects (a) Each appraisal shall be conducted on the basis of terms of reference agreed between the two organizations and in accordance with the lending policies and criteria of the Fund, and the methods, standards and procedures applied by the World Bank in the appraisal of comparable projects financed out of its own resources. (b) Staff of the Fund shall participate actively in each appraisal at the discretion of the Fund. (c) A detailed report by the World Bank's staff on the appraisal of such projects, in such format as shall be agreed by the two organizations, shall be furnished to the Fund with appropriate recommendations concerning the design of the project, the conditions required for the efficient and economic carrying out of the project and the achievement of the benefits expected therefrom. The Fund's staff shall be invited to comment on the draft Appraisal Report and such comments shall be taken into account in preparing the Appraisal Report. 2.3 Loan Negotiationsand Approval (a) Members of the World Bank's staff shall be invited to assist the Fund's staff in negotiations between the Fund and the recipient concerned

226 regarding the Fund's loan for a project so appraised by the World Bank's staff and, if so requested by the Fund, in meetings of the Fund's Executive Board at which the approval of such loan is to be considered. (b) At the Fund's request, the World Bank's staff shall assist in the preparation of any documentation necessary for the negotiation and approval of loans and grants for projects appraised by the World Bank's staff. 2.4 Loan Administration (a) The administration of loans made by the Fund for any project appraised by the World Bank pursuant to Section 2.2 of this Agreement including the supervision of the carrying out of the Project shall, as a general rule, be entrusted by the Fund to the World Bank's staff, after securing concurrence of the country concerned, unless the World Bank informs the Fund that it does not wish to assume such responsibility. (b) The administration of the Fund's loans shall be carried out by the World Bank's staff in accordance with the financing agreement between the Fund and the recipient concerned. In applying the provisions of the financing agreement, the World Bank shall utilize the methods, standards and procedures applied by the World Bank in the administration of loans or development credits made out of its own resources for similar projects. (c) For each loan under its supervision, the World Bank shall furnish to the Fund periodic reports on project implementation at such times and in such form and details as shall be mutually agreed upon. (d) The World Bank shall promptly inform the Fund of any major dispute between the recipient and the World Bank, as administrator of the Fund's loan, concerning the interpretation or application of the financing agreement in order to enable the Fund to take necessary steps for settling the dispute in accordance with the financing agreement. (e) Without limiting the generality of the foregoing provision, the World Bank agrees to bring to the attention of the Fund, promptly upon notice thereof by the World Bank, any substantial violation or non- compliance by the recipient or beneficiary of the loan made by the Fund, of any covenant or agreement in the Fund's loan or grant documents and recommend to the Fund appropriate remedial action.

III. REVIEW, MONITORING AND EVALUATION

3.1 Review and Monitoring (a) The Fund shall have the right to review and monitor at any time the progress of any project for which the World Bank shall have assumed responsibility for loan or grant administration. The World Bank shall be kept fully informed of the results of any such review. (b) In evolving and implementing systems for monitoring the benefits derived from development projects in fields in which the World Bank and the Fund may collaborate, the World Bank and the Fund shall closely cooperate to achieve the most effective and consistent results practicable and to avoid duplication of efforts.

227 3.2 Post Project Evaluation The Fund and the World Bank shall make proper arrangements for consultation in respect of the post evaluation of projects appraised and administered by the World Bank in accordance with the provisions of this Agreement.

IV. FINANCIAL MA TTERS

4.1 (a) The World Bank and the Fund shall make appropriate administrative and financial arrangements for the planning, programming, execution, reporting, auditing, and accounting of activities to be carried out by the World Bank's staff at the request of the Fund in accordance with the provisions of this Agreement. The additional costs incurred by the World Bank in carrying out identification, preparation, appraisal or loan administration activities at the request of the Fund shall be reimbursed by the Fund to the World Bank in accordance with appropriate arrangements to be agreed between the two organizations. (b) The Fund shall be directly responsible for the collection of all amortization payments, interest and all other charges on all loans made by the Fund and administered by the Bank.

V. FINAL PROVISIONS

5.1 (a) This Agreement shall come into force upon its approval by the Board of Governors of the World Bank and the Executive Board of the Fund. (b) The World Bank and the Fund may enter into such supplementary arrangements within the scope of this Agreement as may be appropriate in the light of their operating experience. (c) This Agreement may be amended by the concurrence of both the World Bank and the Fund. An amendment shall enter into force after each Party has satisfied its necessary legal requirements. 5.2 This Agreement may be terminated by either Party on June 30 of any year by notice given to the other Party not later than December 31 of the preceding year; provided, however, that, unless the Parties otherwise agree, the activities carried on by the World Bank under this Agreement and the financial undertakings of the Fund in relation to a particular project shall, notwithstanding notice of termination, continue unimpaired until such time as such project shall have been completed. 5.3 (a) The World Bank and the Fund shall forthwith inform the Eco- nomic and Social Council of the terms of this Agreement. (b) Upon this Agreement coming into force, it shall be communicated by either Party to the Secretary-General of the United Nations for filing and recording in accordance with the Regulations to give effect to Article 102 of the Charter of the United Nations.

228 DONE in two copies, one for each Party, as of the date first abovementioned. INTERNATIONAL FUND FOR THE WORLD BANK AGRICULTURAL DEVELOPMENT

BY BY_

ANNEX B

Excerpt from Document "Agreements with Cooperating Institutions," IFAD Executive Board, First Session

"The World Bank, with its letter of 2 November 1977, made the following clarifications regarding IFAD's Lending Policies and Criteria and Sec- tion 2.2(a) of the proposed draft cooperation agreement, to the Prepara- tory Commission: 'We wish to make clear that in agreeing to appraise development projects in accordance with the lending policies and criteria of IFAD, the Bank has relied on the Report of the Preparatory Commission on Lending Policies and Criteria of IFAD (GC l/L.9) being submitted to the First Session of the Governing Council. We recognize that IFAD policies are likely to be subject to review and revision over time, and that it may be necessary to spell out policies in greater detail in ways that will have significant operational implications. Such future developments concerning IFAD's lending policies and criteria could materially affect the ability of the Bank to appraise and supervise projects on IFAD's behalf in a manner consistent with the methods, standards and procedures applied by the Bank to comparable projects financed out of its own resources. It is our sincere hope that any such developments will be avoided through consultation between us in accordance with the general provisions of the draft Cooperation Agreement for consultation and cooperation between the two institutions. However, it must be recognized that issues may arise in connection with the application of IFAD's lending policies and criteria to individual projects that could make it necessary for the Bank to decline to appraise or administer loans for the projects in question.'"

229 REPORTS OF THE EXECUTIVE DIRECTORS OF THE BANK

November 1, 1977

Proposed Agreement with the United Nations Development Programme

1. The President of the Bank has proposed that the Bank enter into an agreement with the United Nations Development Programme (UNDP), governing the relationship between the Bank and the UNDP in the execution of UNDP technical cooperation activities. The principal purpose of the agreement would be to standardize the arrangements applicable as between the UNDP and the Bank when the Bank serves as Executing Agency for technical assistance and pre-investment projects financed by the UNDP. 2. The UNDP is the primary source of technical assistance financing within the United Nations system. The projects it finances, all on a grant basis, include pre-investment studies and surveys, fellowships and training, advice on economic planning, and institution-building. The UNDP itself does not usually carry out the projects for which it provides funds. It looks to other parts of the United Nations system, particularly the specialized agencies, to execute them. 3. The Bank first served as Executing Agency in 1959, for the predecessor of the UNDP, the U.N. Special Fund. As of June 30, 1977, it has been Executing Agency for a total of 229 projects. In the case of other U.N. organizations acting as executing agency, administrative and procedural arrangements with the UNDP have been covered in a "Basic Ex- ecuting Agency Agreement" between the UNDP and the organization. The Bank has in the past preferred to handle these arrangements on an ad hoc, project-by-project basis. However, the range and diversity of activities financed by UNDP has been growing, and there is a trend toward decen- tralization of UNDP decision-making and project administration, with authority being delegated to an increasing degree to UNDP Resident Representatives in some 100 developing countries. The ad hoc approach has become increasingly burdensome to the Bank and has had the consequence of complicating and slowing negotiations and approval of UNDP- financed Bank-executed projects. It would therefore be desirable for the Bank, like other executing agencies, to standardize arrangements with the UNDP. 4. To that end, a proposed agreement (Annex A) has been negotiated with UNDP. It covers such matters as the circumstances under which the Bank is prepared, in principle, to serve as Executing Agency; the relationships with the government and UNDP Resident Representatives during the period of execution of the UNDP-financed project, financial, administrative and reporting arrangements; and suspension and termination of project arrangements. The proposed agreement follows generally the text of UNDP's model basic agreement with executing agencies, with certain mod-

230 ifications considered necessary by the Bank. The Executive Directors believe the proposed agreement will facilitate and enhance the effectiveness of the Bank's performance as Executing Agency, and that conclusion of the agreement is in the interests of the Bank. 5. The agreement requires the approval of the Board of Governors, pursuant to Article V, Section 2 (b) (v) of the Bank's Articles of Agreement, under which formal arrangements to cooperate with other international organizations must be approved by the Board of Governors. 6. The Executive Directors recommend that the agreement with UNDP be approved by the Board of Governors and that the Board of Governors adopt, by vote without meeting, the draft resolution....'

ANNEX A

Agreement between the United Nations Development Programme and the International Bank for Reconstruction and Development

The United Nations Development Programme and the International Bank for Reconstruction and Development (hereinafter called the Parties), Considering that the General Assembly of the United Nations has established the United Nations Development Programme (hereinafter called UNDP) to support and supplement the national efforts of developing countries to accelerate their economic and social development, Mindful of the desire of the General Assembly that organizations of the United Nations system should play the role of partners in this common endeavor, Aware that the General Assembly has called upon the Administrator of the UNDP to establish and maintain close and continuing relationships with the Specialized Agencies, Conscious of the readiness of the International Bank for Reconstruction and Development (hereinafter called the Executing Agency) to participate in activities designed to give effect to the resolutions and decisions of the General Assembly in this matter, Determined to enhance the effectiveness of the UNDP as an instrument of international development co-operation with developing countries, Have agreed as follows:

Article I Scope of This Agreement The Parties hereby agree to join efforts and to maintain close and continuing working relationships in order to achieve their individual and com-

'See page 197.

231 mon purposes. The Parties also recognize their separate and complementary roles within the United Nations system for the achievement of those purposes, and the Executing Agency agrees to carry out such relevant activities as it (the Executing Agency) may accept at the request of UNDP. Those activities shall include the execution of specific UNDP technical co-operation activities with Governments. The relationship between the Parties in the execution of such UNDP co-operation activities shall be governed by this Agreement.

Article 11 Conditions of Co-operation Activities 1. The basic conditions of execution of technical co-operation activities by the Executing Agency hereunder shall be those set forth in the relevant and applicable resolutions and decisions of the competent UNDP organs and in such basic Agreements as the UNDP may enter into with recipient Governments. The particular conditions of and the specifications relating to each such activity shall be as set forth in such Project Documents or other similar instruments (hereinafter called Project Documents) as the UNDP, the Executing Agency, and the recipient Government may conclude with respect to each technical co-operation activity. 2. The text of the Standard Basic Assistance Agreement with Govern- ments in current use by UNDP is annexed to this Agreement. The UNDP shall consult with the Executing Agency on any substantial variation in that text which it proposes to adopt for general use, and shall provide the Executing Agency with copies of individual signed Agreements.

Article Ill The UNDP Resident Representative The Parties recognize that the UNDP Resident Representative in a country has full responsibility and ultimate authority on behalf of the Administrator of the UNDP for all aspects of the UNDP programme in the country concerned, and that in this respect his role in relation to the representatives of the Executing Agency in the country is that of leader of the team, taking into account the professional competence of the Executing Agency and its relationship with appropriate organs of the Government. The Executing Agency further recognizes a central coordinating role of the Resident Representative at the country level in respect to technical cooperation programmes of the United Nations system and agrees to consult him and to keep him informed, to the extent feasible, on the planning and formulation of its technical co-operation activities and to provide him with reports on the execution of those activities. The term Resident Repre- sentative as used in this Agreement includes a regional representative, representative and officer-in-charge of a UNDP field office, and any other official performing the functions of a Resident Representative.

232 Article IV Project Co-operation

The Parties hereto shall co-operate fully with one another and with the Government concerned in the execution of UNDP technical co-operation activities with a view to the realization of the objectives described in Project Documents. The Parties shall consult with one another with respect to any matters which might affect the successful completion of any such activity.

Article V Information Regarding Projects 1. The Parties shall from time to time exchange views with one another and with the Government on UNDP technical co-operation activities, including the progress and costs thereof and the benefits derived therefrom, and each shall comply with any reasonable request for information which the other may make in respect of such matters. The Executing Agency shall furnish the UNDP with periodic reports on the carrying out of UNDP technical cooperation activities at such times and in such forms as may be agreed by the Parties. 2. The UNDP and the Government may observe at any time the progress of any technical co-operation activities carried out by the Executing Agency under this Agreement, and the Executing Agency shall afford full facilities to the UNDP and the Government for this purpose.

Article VI Conditionsof ProjectService; Procurement 1. With a view to securing the highest standards of efficiency, competence and integrity in the execution of technical co-operation activities, the UNDP shall develop general conditions of service for project staff in consultation with appropriate organs of the U.N. system. The Executing Agency agrees to give sympathetic consideration to the adoption of any such conditions of service recommended to it by the UNDP, and shall adopt such conditions of service to the maximum extent possible. 2. To the extent appropriate in the circumstances of individual cases, the Executing Agency agrees to apply the principles of international competitive bidding in the procurement of goods and contractual services for technical co-operation activities, with due regard to the requirements of the project, the principle of equitable geographical distribution, the need for economy, and the need to make the fullest possible use of various currencies available to UNDP.

233 3. Experts, consultants and suppliers of goods and contractual services and in general all persons performing services for the Executing Agency as part of a technical co-operation activity shall in all cases meet appropriate standards of qualifications or acceptability.

Article VII Agency Status and Accountability In the execution of technical co-operation activities, the Executing Agency shall have the status of an independent contractor vis-a-vis the UNDP. The Executing Agency shall be accountable to the UNDP for its execution of such activities.

Article Viii Intellectual Property Except where a Government and UNDP shall have agreed otherwise, patent rights, copyright rights, and other similar rights to any discoveries or work resulting from technical co-operation activities shall belong to the UNDP, it being understood that the recipient Government shall have the right to use any such discoveries or work within the country free of royalty or any charge of similar nature. The Executing Agency agrees to co-operate with UNDP in regard to such steps as the UNDP may decide to take in each case concerning such rights.

Article IX Cost of Co-opertion Activities 1. The UNDP undertakes to meet all costs directly incurred by the Ex- ecuting Agency in the execution of technical co-operation activities, in the amounts set forth in project budgets forming part of Project Documents or otherwise agreed between the Parties. It further undertakes to provide the Executing Agency with advances of funds in such amounts and such currencies as will assist it in meeting current expenses on such activities. 2. The UNDP undertakes to meet Executing Agency overhead costs covering the clearly identifiable additional expenses incurred by the Executing Agency in the provision of services to UNDP under this Agreement, in amounts determined in pursuance of such resolutions and decisions as the competent UNDP organs may adopt from time to time.

Article X Currency and Rates of Exchange 1. The Parties shall consult from time to time regarding the use of currencies available to them, with a view to the effective utilization of such currencies.

234 2. The UNDP may establish operational rates of exchange for transactions between itself and the Executing Agency under this Agreement. Such rates of exchange may be revised by the UNDP in accordance with its Financial Regulations. The Parties shall consult one another, if necessary, on such rates of exchange.

Article XI FinancialRecords and Accounts 1. The Executing Agency shall maintain accounts, records and supporting documentation relating to UNDP technical co-operation activities, including funds received and disbursed by the Executing Agency, in accordance with the Executing Agency's Financial Regulations and Rules, insofar as applicable. 2. The Executing Agency shall furnish to the UNDP periodic reports on the financial situation of such activities at such times and in such form as the UNDP, within reason, may request. 3. The Executing Agency shall cause its External Auditor to examine and report on its (the Executing Agency's) accounts and records relating to UNDP technical co-operation activities, and shall make its External Au- ditor's reports available to the UNDP. 4. Without restricting the generality of the foregoing provisions, the Executing Agency shall as soon as possible after the close of each financial year submit to the UNDP audited statements of accounts showing the status of funds provided to it by the UNDP to finance technical co-operation activities. 5. The Executing Agency shall close the accounts of each technical cooperation activity as soon as practicable but normally no later than twelve months after the completion of the work set out in the Project Document or termination of the activity. Provision shall be made for unliquidated obligations valid at the closing of the accounts.

Article XlI Suspension or Termination of Assistance 1. The Parties hereto recognize that the successful completion and accomplishment of the purposes of a technical co-operation activity are of paramount importance, and that the UNDP may find it necessary to terminate a UNDP technical co-operation activity, or the responsibility of the Executing Agency for execution of such technical co-operation activity, should circumstances arise which jeopardize successful completion or the accomplishment of the purposes of such an activity. The provisions of this Article shall apply to any such situations. 2. The UNDP shall consult with the Executing Agency if any circumstance arises which, in the judgment of the UNDP, interferes or threatens

235 to interfere with the successful completion of a technical co-operation activity, or the accomplishment of its purposes. The Executing Agency shall promptly inform the UNDP of any such circumstance which might come to its (the Executing Agency's) attention. The Parties shall co-operate towards the rectification or elimination of the circumstance in question and shall exert all reasonable efforts to that end, including prompt corrective steps by the Executing Agency where such circumstances are attributable to it or within its responsibility or control. 3. The UNDP may at any time after occurrence of the circumstance in question and appropriate consultations suspend execution of the technical co-operation activity concerned by written notice to the Executing Agency and the Government, without prejudice to the initiation or continuation of any of the measures envisaged in the preceding paragraph. The UNDP may indicate to the Executing Agency and the Government the conditions under which it is prepared to authorize a resumption of execution of the technical co-operation activity concerned. 4. If the cause of suspension is not rectified or eliminated within fourteen days after the UNDP shall have given notice of suspension to the Govern- ment and/or the Executing Agency, the UNDP may by written notice at any time thereafter during the continuation thereof: (a) terminate the technical co-operation activity concerned, or (b) terminate the Executing Agency's execution of such activity, and take over its execution or entrust it to another Executing Agency, with effect on the date specified in the written notice from UNDP. 5. (a) In the event of any termination under the preceding paragraph, the UNDP shall reimburse the Executing Agency for all costs it may incur or may have incurred (and for which provision has been made in the Project Document) to execute the technical cooperation activity concerned up to the effective date of the termination including: (I ) such proportion of the Executing Agency overhead costs al- lowable for the activity (if any) as the amount expended on such activity by the Executing Agency (counted to the effective date of termination) bears to the entire UNDP allocation on the activity (as determined in the Project Document); and (2) reasonable costs of winding up its execution of the technical co-operation activity. Reimbursement to the Executing Agency under this provision when added to amounts previously remitted to it by the UNDP in respect of the activity shall not exceed the total UNDP allocation for such activity. (b) In the event of transfer of the Executing Agency's responsibilities for execution of a technical co-operation activity either to the UNDP or to another Executing Agency, the Executing Agency shall cooperate with the UNDP in the orderly transfer of such responsibilities. 6. The Executing Agency may withdraw from execution of any UNDP technical co-operation activity if it deems that conditions have developed

236 which compromise or prevent the Executing Agency's successful accomplishment of its role under the project. In the event of the Executing Agency's withdrawal from execution under this paragraph, and unless the parties agree otherwise, the UNDP shall reimburse the Executing Agency for costs it may have incurred or may reasonably incur on the basis of legal commitments entered into (and for which provision has been made in the Project Document) to execute the technical co-operation activities concerned up to the effective date of the withdrawal. The Parties shall consult as to the amounts to be paid in connection with such withdrawal.

Article XIII Waiver of Immunities

In the event the Executing Agency retains the services of operational experts or consultant firms or organizations to assist it in the execution of a technical co-operation activity, the privileges and immunities to which any such operational expert or firm or organization and its personnel may be entitled under any agreement between the UNDP and a Government may be waived by the Executing Agency where, in its opinion, the immunity would impede the course of justice and can be waived without prejudice to the successful completion of the activity concerned or to the interests of the UNDP or the Executing Agency; the Executing Agency shall give sympathetic consideration to the waiver of such immunity in any case in which the UNDP so requests. Nothing in this provision shall be construed to affect any rights of waiver of such immunities which UNDP may have under relevant Agreement(s) between the UNDP and recipient Govern- ments and/or under general principles of law.

Article XIV General Provisions 1. This Agreement shall enter into force upon signature, and shall continue in force until terminated under paragraph 3 below. 2. This Agreement may be modified by written agreement between the Parties hereto. Any relevant matter for which no provision is made in this Agreement, or any controversy between the Parties, shall be settled in keeping with the relevant resolutions and decisions of the appropriate organs of the United Nations. Each Party shall also give full and sympathetic consideration to any proposal advanced by the other under this paragraph. 3. This Agreement may be terminated by either Party by written notice to the other and shall terminate sixty days after receipt of such notice, provided that termination shall become effective with respect to on-going technical co-operation activities only with the concurrence of both Parties.

237 4. The provisions of this Agreement shall survive its expiration or termination to the extent necessary to permit an orderly settlement of accounts between the Parties and, if appropriate, with each Government concerned. IN WITNESS WHEREOF, the undersigned, duly appointed representatives of the UNDP and of the Executing Agency, respectively, have on behalf of the Parties signed the present Agreement at Washington, D.C. the 7th day of February, 1978.

For the United Nations Development Programme: For the Executing Agency:

238 ANNEX A.1

AGREEMENT BETWEEN

AND THE UNITED NATIONS DEVELOPMENT PROGRAMME

WHEREAS the General Assembly of the United Nations has established the United Nations Development Programme (hereinafter called the UNDP) to support and supplement the national efforts of developing countries at solving the most important problems of their economic development and to promote social progress and better standards of life; and WHEREAS the Government of wishes to request assistance from the UNDP for the benefit of its people; NOW THEREFORE the Government and the UNDP (hereinafter called the Parties) have entered into this Agreement in a spirit of friendly cooperation.

Article I Scope of this Agreement 1. This Agreement embodies the basic conditions under which the UNDP and its Executing Agencies shall assist the Government in carrying out its development projects, and under which such UNDP-assisted projects shall be executed. It shall apply to all such UNDP assistance and to such Project Documents or other instruments (hereinafter called Project Documents) as the Parties may conclude to define the particulars of such assistance and the respective responsibilities of the Parties and the Executing Agency hereunder in more detail in regard to such projects. 2. Assistance shall be provided by the UNDP under this Agreement only in response to requests submitted by the Government and approved by the UNDP. Such assistance shall be made available to the Government, or to such entity as the Government may designate, and shall be furnished and received in accordance with the relevant and applicable resolutions and decisions of the competent UNDP organs, and subject to the availability of the necessary funds to the UNDP.

Article II Forms of Assistance 1. Assistance which may be made available by the UNDP to the Govern- ment under this Agreement may consist of: (a) The services of advisory experts and consultants, including con-

239 sultant firms or organizations, selected by and responsible to, the UNDP or the Executing Agency concerned; (b) The services of operational experts selected by the Executing Agency, to perform functions of an operational, executive or administrative character as civil servants of the Government or as employees of such entities as the Government may designate under Article I, paragraph 2, hereof; (c) The services of members of the United Nations Volunteers (hereinafter called volunteers); (d) Equipment and supplies not readily available in_ (hereinafter called the country); (e) Seminars, training programmes, demonstration projects, expert working groups and related activities; (f) Scholarships and fellowships, or similar arrangements under which candidates nominated by the Government and approved by the Executing Agency concerned may study or receive training; and (g) Any other form of assistance which may be agreed upon by the Government and the UNDP.

2. Requests for assistance shall be presented by the Government to the UNDP through the UNDP resident representative in the country (referred to in paragraph 4(a) of this Article), and in the form and in accordance with procedures established by the UNDP for such requests. The Govern- ment shall provide the UNDP with all appropriate facilities and relevant information to appraise the request, including an expression of its intent with respect to the follow-up of investment-oriented projects. 3. Assistance may be provided by the UNDP to the Government either directly, with such external assistance as it may deem appropriate, or through an Executing Agency, which shall have primary responsibility for carrying out UNDP assistance to the project and which shall have the status of an independent contractor for this purpose. Where assistance is provided by the UNDP directly to the Government, all references in this Agreement to an Executing Agency shall be construed to refer to the UNDP, unless clearly inappropriate from the context. 4. (a) The UNDP may maintain a permanent mission, headed by a resident representative, in the country to represent the UNDP therein and be the principal channel of communication with the Government on all Programme matters. The resident representative shall have full responsibility and ultimate authority, on behalf of the UNDP Administrator, for the UNDP programme in all its aspects in the country, and shall be team leader in regard to such representatives of other United Nations organizations as may be posted in the country, taking into account their professionial competence and their relations with appropriate organs of the Govern- ment. The resident representative shall maintain liaison on behalf of the Programme with the appropriate organs of the Government, including the Government's co-ordinating agency for external assistance, and shall inform the Government of the policies, criteria and procedures of the

240 UNDP and other relevant programmes of the United Nations. He shall assist the Government, as may be required, in the preparation of UNDP country programme and project requests, as well as proposals for country programme or project changes, assure proper co-ordination of all assistance rendered by the UNDP through various Executing Agencies or its own consultants, assist the Government, as may be required, in co-ordinating UNDP activities with national, bilateral and multilateral programmes within the country, and carry out such other functions as may be entrusted to him by the Administrator or by an Executing Agency. (b) The UNDP mission in the country shall have such other staff as the UNDP may deem appropriate to its proper functioning. The UNDP shall notify the Government from time to time of the names of the members, and of the families of the members, of the mission, and of changes in the status of such persons.

Article III Execution of Projects 1. The Government shall remain responsible for its UNDP-assisted development projects and the realization of their objectives as described in the relevant Project Documents, and shall carry out such parts as may be stipulated in the provisions of this Agreement and such Project Documents. The UNDP undertakes to complement and supplement to Government's participation in such projects through assistance to the Government in pursuance of this Agreement and the Work Plans forming part of such Project Documents, and through assistance to the Government in fulfilling its intent with respect to investment follow-up. The Government shall inform UNDP of the Government Cooperating Agency directly responsible for the Government's participation in each UNDP-assisted project. With- out prejudice to the Government's overall responsibility for its projects, the Parties may agree that an Executing Agency shall assume primary responsibility for execution of a project in consultation and agreement with the Cooperating Agency, and any arrangements to this effect shall be stipulated in the project Work Plan forming part of the Project Document together with arrangements, if any, for tranfer of such responsibility, in the course of project execution, to the Government or to an entity designated by the Government. 2. Compliance by the Government with any prior obligations agreed to be necessary or appropriate for UNDP assistance to a particular project shall be a condition of performance by the UNDP and the Executing Agency of their responsibilities with respect to that project. Should provision of such assistance be commenced before such prior obligations have been met, it may be terminated or suspended without notice and at the discretion of the UNDP. 3. Any agreement between the Government and an Executing Agency concerning the execution of a UNDP-assisted project or between the Gov- ernment and an operational expert shall be subject to the provisions of this Agreement.

241 4. The Cooperating Agency shall as appropriate and in consultation with the Executing Agency assign a full-time director for each project who shall perform such functions as are assigned to him by the Cooperating Agency. The Executing Agency shall as appropriate and in consultation with the Government appoint a Chief Technical Adviser or Project Coordinator responsible to the Executing Agency to oversee the Executing Agency's participation in the project at the project level. He shall supervise and coordinate activities of experts and other Executing Agency personnel and be responsible for the on-the-job training of national Government counterparts. He shall be responsible for the management and efficient utilization of all UNDP-financed inputs, including equipment provided to the project. 5. In the performance of their duties, advisory experts, consultants and volunteers shall act in close consultation with the Government and with persons or bodies designated by the Government, and shall comply with such instructions from the Government as may be appropriate to the nature of their duties and the assistance to be given and as may be mutually agreed upon between the UNDP and the Executing Agency concerned and the Government. Operational experts shall be solely responsible to, and be under the exclusive direction of, the Government or the entity to which they are assigned, but shall not be required to perform any functions incompatible with their international status or with the purposes of the UNDP or of the Executing Agency. The Government undertakes that the commencing date of each operational expert in its service shall coincide with the effective date of his contract with the Executing Agency concerned. 6. Recipients of fellowships shall be selected by the Executing Agency. Such fellowships shall be administered in accordance with the fellowship policies and practices of the Executing Agency. 7. Technical and other equipment, materials, supplies and other property financed or provided by the UNDP shall belong to the UNDP unless and until such time as ownership thereof is transferred, on terms and conditions mutually agreed upon between the Government and the UNDP, to the Government or to an entity nominated by it. 8. Patent rights, copyright rights, and other similar rights to any discoveries or work resulting from UNDP assistance under this Agreement shall belong to the UNDP. Unless otherwise agreed by the Parties in each case, however, the Government shall have the right to use any such discoveries or work within the country free of royalty or any charge of similar nature.

Article IV Information concerning Projects 1. The Government shall furnish the UNDP with such relevant reports, maps, accounts, records, statements, documents and other information as it may request concerning any UNDP-assisted project, its execution or its

242 continued feasibility and soundness, or concerning the compliance by the Government with its responsibilities under this Agreement or Project Documents. 2. The UNDP undertakes that the Government shall be kept currently informed of the progress of its assistance activities under this Agreement. Either Party shall have the right, at any time, to observe the progress of operations on UNDP-assisted projects. 3. The Government shall, subsequent to the completion of a UNDP- assisted project, make available to the UNDP at its request information as to benefits derived from and activities undertaken to further the purposes of that project, including information necessary or appropriate to its evaluation or to evaluation of UNDP assistance, and shall consult with and permit observation by the UNDP for this purpose. 4. Any information or material which the Government is required to provide to the UNDP under this Article shall be made available by the Government to an Executing Agency at the request of the Executing Agency concerned. 5. The Parties shall consult each other regarding this publication, as appropriate, of any information relating to any UNDP-assisted project or to benefits derived therefrom. However, any information relating to any investment-oriented project may be released by the UNDP to potential investors, unless and until the Government has requested the UNDP in writing to restrict the release of information relating to such project.

Article V Participationand Contributionof Government in Execution of Project 1. In fulfillment of the Government's responsibility to participate and co-operate in the execution of the projects assisted by the UNDP under this Agreement, it shall contribute the following in kind to the extent detailed in relevant Project Documents: (a) local counterpart professional and other services, including national counterparts to operational experts; (b) land, buildings, and training and other facilities available or produced within the country; and (c) equipment, materials and supplies available or produced within the country. 2. Whenever the provision of equipment forms part of UNDP assistance to the Government, the latter shall meet charges relating to customs clearance of such equipment, its transportation from the port of entry to the project site together with any incidental handling or storage and related expenses, its insurance after delivery to the project site, and its installation and maintenance.

243 3. The Government shall also meet the salaries of trainees and recipients of fellowships during the period of their fellowships. 4. If so provided in the Project Document, the Government shall pay, or arrange to have paid, to the UNDP or an Executing Agency the sums required, to the extent specified in the Project Budget of the Project Docu- ment, for the provision of any of the items enumerated in paragraph 1 of this Article, whereupon the Executing Agency shall obtain the necessary items and account annually to the UNDP for any expenditures out of payments made under this provision. 5. Moneys payable to the UNDP under the preceding paragraph shall be paid to an account designated for this purpose by the Secretary-General of the United Nations and shall be administered in accordance with the applicable financial regulations of the UNDP. 6. The cost of items constituting the Government's contribution to the project and any sums payable by the Government in pursuance of this Article, as detailed in Project Budgets, shall be considered as estimates based on the best information available at the time of preparation of such Project Budgets. Such sums shall be subject to adjustment whenever necessary to reflect the actual cost of any such items purchased thereafter. 7. The Government shall as appropriate display suitable signs at each project identifying it as one assisted by the UNDP and the Executing Agency.

Article VI Assessed Programme Costs and Other Items Payable in Local Currency 1. In addition to the contribution referred to in Article V above, the Government shall assist the UNDP in providing it with assistance by paying or arranging to pay for the following local costs or facilities, in the amounts specified in the relevant Project Document or otherwise determined by the UNDP in pursuance of relevant decisions of its governing bodies: (a) The local living costs of advisory experts and consultants assigned to projects in the country; (b) Local administrative and clerical services, including necessary local secretarial help, interpreter-translators, and related assistance; (c) Transportation of personnel within the country; and (d) Postage and telecommunications for official purposes. 2. The Government shall also pay each operational expert directly the salary, allowances and other related emoluments which would be payable to one of its nationals if appointed to the post involved. It shall grant an operational expert the same annual and sick leave as the Executing Agency concerned grants its own officials, and shall make any arrangement neces-

244 sary to permit him to take home leave to which he is entitled under the terms of his service with the Executing Agency concerned. Should his service with the Government be terminated by it under circumstances which give rise to an obligation on the part of an Executing Agency to pay him an indemnity under its contract with him, the Government shall contribute to the cost thereof the amount of separation indemnity which would be payable to a national civil servant or comparable employee of like rank whose service is terminated in the same circumstances. 3. The Government undertakes to furnish in kind the following local services and facilities: (a) The necessary office space and other premises; (b) Such medical facilities and services for international personnel as may be available to national civil servants; (c) Simple but adequately furnished accommodation to volunteers; and (d) Assistance in finding suitable housing accommodation for international personnel, and the provision of such housing to operational experts under the same conditions as to national civil servants of comparable rank. 4. The Government shall also contribute towards the expenses of maintaining the UNDP mission in the country by paying annually to the UNDP a lump sum mutually agreed between the Parties to cover the following expenditures: (a) An appropriate office with equipment and supplies, adequate to serve as local headquarters for the UNDP in the country; (b) Appropriate local secretarial and clerical help, interpreters, translators and related assistance; (c) Transportation of the resident representative and his staff for official purposes within the country; (d) Postage and telecommunications for official purposes; and (e) Subsistence for the resident representative and his staff while in official travel status within the country. 5. The Government shall have the option of providing in kind the facilities referred to in paragraph 4 above, with the exception of items (b) and (e). 6. Moneys payable under the provisions of this Article, other than under paragraph 2, shall be paid by the Government and administered by the UNDP in accordance with Article V, paragraph 5.

Article VII Relation to Assistance from Other Sources In the event that assistance towards the execution of a project is obtained by either Party from other sources, the Parties shall consult each

245 other and the Executing Agency with a view to effective co-ordination and utilization of assistance received by the Government from all sources. The obligations of the Government hereunder shall not be modified by any arrangements it may enter into with other entities co-operating with it in the execution of a project.

Article VIII Use of Assistance The Government shall exert its best efforts to make the most effective use of the assistance provided by the UNDP and shall use such assistance for the purpose for which it is intended. Without restricting the generality of the foregoing, the Government shall take such steps to this end as are specified in the Project Document.

Article IX Privileges and Immunities 1. The Government shall apply to the United Nations and its Organs, including the UNDP and the U.N. subsidiary organs acting as UNDP Executing Agencies, their property, funds and assets, and to their officials, including the resident representatives and other members of the UNDP mission in the country, the provisions of the Convention on the Privileges and Immunities of the United Nations. 2. The Government shall apply to each Specialized Agency acting as an Executing Agency, its property, funds and assets, and to its officials, the provisions of the Convention on the Privileges and Immunities of the Specialized Agencies, including any Annex to the Convention applicable to such Specialized Agency. In case the International Energy Agency (the IAEA) acts as an Executing Agency, the Government shall apply to its property, funds and assets, and to its officials and experts, the Agreement on the Privileges and Immunities of the IAEA. 3. Members of the UNDP mission in the country shall be granted such additional privileges and immunities as may be necessary for the effective exercise by the mission of its functions. 4. (a) Except as the Parties may otherwise agree in Project Documents relating to specific projects, the Government shall grant all persons, other than Government nationals employed locally, performing services on behalf of the UNDP, a Specialized Agency or the IAEA who are not covered by paragraphs 1 and 2 above the same privileges and immunities as officials of the United Nations, the Specialized Agency concerned or the IAEA under Sections 18, 19 or 18 respectively of the Conventions on the Privileges and Immunities of the IAEA. (b) For purposes of the instruments on privileges and immunities referred to in the preceding parts of this Article:

246 (1) All papers and documents relating to a project in the possession or under the control of the persons referred to in sub-paragraph 4 (a) above shall be deemed to be documents belonging to the United Nations, the Specialized Agency concerned, or the IAEA, as the case may be; and (2) Equipment, materials and supplies brought into or purchased or leased by those persons within the country for purposes of a project shall be deemed to be property of the United Nations, the Specialized Agency concerned, or the IAEA, as the case may be. 5. The expression "persons performing services" as used in Articles IX, X and XIII of this Agreement includes operational experts, volunteers, consultants, and juridical as well as natural persons and their employees. It includes governmental or non-governmental organizations or firms which UNDP may retain, whether as an Executing Agency or otherwise, to execute or to assist in the execution of UNDP assistance to a project, and their employees. Nothing in this Agreement shall be construed to limit the privileges, immunities or facilities conferred upon such organizations or firms or their employees in any other instrument.

Article X Facilitiesfor Execution of UNDP Assistance 1. The Government shall take any measures which may be necessary to exempt the UNDP, its Executing Agencies, their experts and other persons performing services on their behalf from regulations or other legal provisions which may interfere with operations under this Agreement, and shall grant them such other facilities as may be necessary for the speedy and efficient execution of UNDP assistance. It shall, in particular, grant them the following rights and facilities: (a) prompt clearance of experts and other persons performing services on behalf of the UNDP or an Executing Agency; (b) prompt issuance without cost of necessary visas, licenses or permits; (c) access to the site of work and all necessary rights of way; (d) free movement within or to or from the country, to the extent necessary for proper execution of UNDP assistance; (e) the most favorable legal rate of exchange; (f) any permits necessary for the importation of equipment, materials and supplies, and for their subsequent exportation; (g) any permits necessary for importation of property belonging to and intended for the personal use or consumption of officials of the UNDP, its Executing Agencies, or other persons performing services on their behalf, and for the subsequent exportation of such property; and (h) prompt release from customs of the items mentioned in sub- paragraphs (i) and (g) above.

247 2. Assistance under this Agreement being provided for the benefit of the Government and people of , the Government shall bear all risks of operations arising under this Agreement. It shall be responsible for dealing with claims which may be brought by third parties against the UNDP or an Executing Agency, their officials or other persons performing services on their behalf, and shall hold them harmless in respect of claims or liabilities arising from operations under this Agree- ment. The foregoing provision shall not apply where the Parties and the Executing Agency are agreed that a claim or liability arises from the gross negligence or wilful misconduct of the abovementioned individuals.

Article XI Suspension or Termination of Assistance 1. The UNDP may by written notice to the Government and to the Ex- ecuting Agency concerned suspend its assistance to any project if in the judgment of the UNDP any circumstance arises which interferes with or threatens to interfere with the successful completion of the project or the accomplishment of its purposes. The UNDP may, in the same or a subsequent written notice, indicate the conditions under which it is prepared to resume its assistance to the project. Any such suspension shall continue until such time as such conditions are accepted by the Government and as the UNDP shall give written notice to the Government and the Executing Agency that it is prepared to resume its assistance. 2. If any situation referred to in paragraph 1 of this Article shall continue for a period of fourteen days after notice thereof and of suspension shall have been given by the UNDP to the Government and the Executing Agency, then at any time thereafter during the continuance thereof, the UNDP may by written notice to the Government and the Executing Agency terminate its assistance to the project. 3. The provisions of this Article shall be without prejudice to any other rights or remedies the UNDP may have in the circumstances, whether under general principle of law or otherwise.

Article XII Settlement of Disputes 1. Any dispute between the UNDP and the Government arising out of or relating to this Agreement which is not settled by negotiation or other agreed mode of settlement shall be submitted to arbitration at the request of either Party. Each Party shall appoint one arbitrator, and the two arbitrators so appointed shall request a third, who shall be the chairman. If within thirty days of the request for arbitration either Party has not appointed an arbitrator or if within fifteen days of the appointment of two arbitrators the third arbitrator has not been appointed, either Party may request the President of the International Court of Justice to appoint an

248 arbitrator. The procedure of the arbitration shall be fixed by the arbitrators, and the expenses of the arbitration shall be borne by the Parties as assessed by the arbitrators. The arbitral award shall contain a statement of the reasons on which it is based and shall be accepted by the Parties as the final adjudication of the dispute. 2. Any dispute between the Government and an operational expert arising out of or relating to the conditions of his service with the Government may be referred to the Executing Agency providing the operational expert by either the Government or the operational expert involved, and the Ex- ecuting Agency concerned shall use its good offices to assist them in arriving at a settlement. If the dispute cannot be settled in accordance with the preceding sentence or by other agreed mode of settlement, the matter shall at the request of either Party be submitted to arbitration following the same provisions as are laid down in paragraph 1 of this Article, except that the arbitrator not yet appointed by either Party or by the arbitrators of the Parties shall be appointed by the Secretary-General of the Perma- nent Court of Arbitration.

Article XlII General Provisions 1. This Agreement shall [enter into force upon signature, and] [be subject to ratification by the Government, and shall come into force upon receipt by UNDP of notification from the Government of its ratification. Pending such ratification, it shall be given provisional effect by the Parties. It] shall continue in force until terminated under paragraph 3 below. Upon the entry into force of this Agreement, it shall supersede existing Agreements concerning the provision of assistance to the Government out of UNDP resources and concerning the UNDP office in the country, and it shall apply to all assistance provided to the Government and to the UNDP office established in the country under the provisions of the Agreements now superseded. 2. This Agreement may be modified by written agreement between the Parties hereto. Any relevant matter for which no provision is made in this Agreement shall be settled by the Parties in keeping with the relevant resolutions and decisions of the appropriate organs of the United Nations. Each Party shall give full and sympathetic consideration to any proposal advanced by the other Party under this paragraph. 3. This Agreement may be terminated by either Party by written notice to the other and shall terminate sixty days after receipt of such notice. 4. The obligations assumed by the Parties under Articles IV (concerning project information) and VIII (concerning the use of assistance) hereof shall survive the expiration or termination of this Agreement. The obligations assumed by the Government under Articles IX (concerning privileges and immunities), X (concerning facilities for project execution) and XII

249 (concerning settlement of disputes) hereof shall survive the expiration or termination of this Agreement to the extent necessary to permit orderly withdrawal of personnel, funds and property of the UNDP and of any Executing Agency, or of any persons performing services on their behalf under this Agreement. IN WITNESS WHEREOF the undersigned, duly appointed representatives of the United Nations Development Programme and of the Govern- ment, respectively, have on behalf of the Parties signed the present Agree- ment in the English and languages in two copies at this day of

For the United Nations Development For the Government of Programme:

Allocation of Net Income

1. The Bank's net income available for allocation for the fiscal year ended June 30, 1978 is estimated at $238 million. A net translation adjustment due to exchange rate changes of $110 million has been credited directly to the General Reserve. As of June 30, 1978 the Special Reserve created under Article IV, Section 6 of the Bank's Articles of Agreement totalled $293 million and, without regard to the 1978 fiscal year's income, the Gen- eral Reserve amounted to $1952 million. Total reserves including accumu- lated net income therefore amounted to $2481 million, of which the $293 million in the Special Reserve is kept in liquid form, the remainder being used in the business of the Bank. 2. The Executive Directors have considered what action to take, or to recommend that the Board of Governors take, with respect to the net income for the fiscal year ended June 30, 1978. 3. The Executive Directors have considered what portion of that net income, if any, they should recommend that the Board of Governors transfer to the International Development Association and what portion thereof should be allocated to the General Reserve. The Executive Directors have concluded that that part of such net income which it is not necessary to retain in the Bank's business amounts to $100 million. They have further concluded that the interests of the Bank and its members would best be served by the transfer of that amount to the International Development Association by way of grant. 4. The Executive Directors consider that from this grant there should be available to the International Development Association (i) up to the equiv-

250 alent of $10.2 million for grants by it during calendar year 1979 for agricultural research programs supported by the Consultative Group on International Agricultural Research and (ii) up to the equivalent of $1.75 million for grants by it during calendar year 1979 for the control of onchocerciasis in the Volta River basin. Such grants would in each case be subject to specific approval by the Executive Directors of the International Development Association. If less than the equivalent of $11.95 million is used for such grants, the unused amount will be available for lending by the International Development Association. 5. The Executive Directors have allocated the balance of such net income to the general Reserve. 6. As far as drawings on the transfer are concerned, the attached draft resolution provides that the transfer would be made at the time and in the manner to be decided by the Executive Directors. 7. Accordingly, the Executive Directors recommend that the Board of Governors approve the present Report and adopt the draft resolution. ..

This report was approved and its recommendation was adopted on Sep- tember 28, 1978.

Executive Directors' Administrative Arrangements

1. On April 16, 1974 the Executive Directors approved a report of the Chairman, Committee on Directors' Administrative Matters, recommend- ing that minor modifications to existing benefits, which do not change the basic nature of such benefits, and which are made in accordance with the authority delegated to the Executive Directors under the By-Laws, should be notified annually to the Board of Governors. 2. The following modifications to benefits in FY1978 are reported accordingly, with effective date, where applicable, in parentheses: (a) Revision of representation allowances at the 1977 Annual Meet- ings to take account of price increases; (b) Provision to interchange air and surface entitlements for shipment of personal and household effects on resettlement within the theoretical maximum costs of the entitlements (September 22, 1977); (c) Change from $20 to $36 in per diem under the education travel benefit policy for each overnight stop en route on long journeys, to conform with changes in staff allowances (March 1, 1978);

'See page 204.

251 (d) Change from $70 to $75 in the special per diem allowance for official travel for certain high cost cities, and in the mixed rate formula, whereby actual hotel charges plus 50% (previously 45% ) of the authorized per diem to cover meals, tips and valet may be claimed, to meet increasing costs (April 14, 1978); and (e) Change in mileage allowance from 15¢ to 17¢ a mile on authorized travel by private automobile, to conform with changes in staff allowances (April 14, 1978).

This report was reviewed and noted without objection by the Board of Governors on September 28, 1978.

1978 Regular Election of Executive Directors

1. Pursuant to Resolution No. 303 of the Board of Governors, a Regular Election of Executive Directors will take place at the 1978 Annual Meet- ing of the Board of Governors. 2. The Executive Directors recommend that, at the 1978 Regular Elec- tion, 15 Executive Directors be elected. 3. The Executive Directors recommend that the maximum and minimum percentages of eligible votes required for election be 10 percent and 4 percent respectively. 4. The Executive Directors recommend that the effective date for the 1978 regular Election be November 1, 1978, and that the subsequent regular Election of Executive Directors take place at the Annual Meeting of the Board of Governors in 1980. 5. The Executive Directors believe it desirable that the present balance of representation between developed and developing countries remain generally unchanged. As in the case of the two previous Ad Hoc Committees, there was a strong feeling among many Executive Directors that lack of wide geographic and balanced representation would call for prompt corrective action. 6. The draft resolution, embodying the above recommendations, is proposed for adoption by the Board of Governors.. . I1

This report was approved and its recommendation was adopted by the Board of Governors on September 28, 1978.

'See page 198.

252 RULES FOR THE 1978 REGULAR ELECTION OF EXECUTIVE DIRECTORS

1. DEFINITIONS: In these Rules, unless the context shall otherwise require, a) "Articles" means the Articles of Agreement of the Bank. b) "Board" means the Board of Governors of the Bank. c) "Chairman" means the Chairman of the Board or a Vice Chairman acting as Chairman. d) "Govemor" includes the Alternate Governor or any temporary Al- ternate Governor, when acting for the Governor. e) "Secretary" means the Secretary or any acting Secretary of the Bank. f) "Election" means the 1978 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 the 1978 Annual Meeting of the Board at a time to be fixed by the Board. 3. BASIC RULES-SCHEDULE B: Subject to the adjustments set forth herein, the provisions of Schedule B of the Articles shall apply to the conduct of the election, except that: a) "four percent" shall be substituted for "fourteen percent" in Para- graphs 2 and 5 and "ten percent" shall be substituted for "fifteen percent" in Paragraphs 3, 4 and 5 thereof; and b) "fifteen persons" shall be substituted for "seven persons" in Para- graphs 2, 3 and 6, "fourteen persons" shall be substituted for "six persons" in Paragraph 6, and "the fifteenth" shall be substituted for "the seventh" in Paragraph 6, thereof. 4. EXECUTIVE DIRECTORS TO BE ELECTED: Fifteen Executive Directors shall be elected. 5. NOMINATIONS: a) Any person nominated by one or more Governors entitled to vote in the election shall be eligible for election as Executive Director. b) Each nomination shall be made on a Nomination Form furnished by the Secretary, signed by the Governor or Governors making the nomination, and deposited with the Secretary. c) A Governor may nominate only one person. d) Nominations may be made until 12 o'clock noon on the day preceding the election. The Secretary shall post and distribute a list of the persons nominated. 6. SUPERVISION OF THE ELECTION: The Chairman shall appoint such tellers and other assistants and take such other action as he deems necessary for the conduct of the election.

253 7. BALLOTS: One ballot form shall be furnished before a ballot is taken to each Governor entitled to vote. On any particular ballot only ballot forms dis- tributed for that ballot shall be counted. 8. BALLOTING: Each ballot shall be taken as follows: a) There shall be a call of members whose Governors are entitled to vote and each ballot, signed by the Governor, shall be deposited in the ballot box. b) When a ballot shall have been completed, the Chairman shall cause the ballots to be counted and shall announce the names of the persons elected as soon as practicable after the tellers have completed their tally of the ballots. If a succeeding ballot is necessary, the Chairman shall announce the names of the nominees to be voted on and the members whose Governors are eligible to vote. c) If the tellers shall be of the opinion that any particular ballot is not properly executed, they shall, if possible, afford the Governor concerned an opportunity to correct it before tallying the results; and such ballot, if so corrected, shall be deemed to be valid. 9. When on any ballot the number of nominees shall not exceed the number of Executive Directors to be elected, each nominee shall be deemed to be elected by the number of votes received by him on such ballot; provided, however, that if, on such ballot, the votes of any Gov- ernor shall be deemed under Paragraph 4 of Schedule B to have raised the votes cast for any nominee above ten percent of the eligible votes, no nominee shall be deemed to have been elected who shall not have received on such ballot a minimum of four percent of the eligible votes, and a succeeding ballot shall be taken for which any nominee not elected shall be eligible. 10. If, as a result of the first ballot, the number of Executive Directors to be elected in accordance with Paragraph 4 above shall not have been elected, a second and, if necessary, further ballots shall be taken. The Governors entitled to vote on such succeeding ballots shall be only: a) those Governors who voted on the preceding ballot for any nominee not elected; and b) those Governors whose votes for a nominee elected on the preceding ballot are deemed under Paragraph 4 of Schedule B to have raised the votes cast for such nominee above ten percent of the eligible votes. 11. If the votes cast by a Governor raise the total votes received by a nominee from below to above ten percent of the eligible votes, the votes cast by the Governor shall be deemed under Paragraph 4 of Schedule B not to have raised the total votes of the nominee above ten percent. 12. If on any ballot two or more Governors having an equal number of votes shall have voted for the same nominee and the votes of one or more,

254 but not all, of such Governors could be deemed under Paragraph 4 of Schedule B to have raised the total votes received by such nominees above ten percent of the eligible votes, the Chairman shall determine by lot the Governor or Governors, as the case may be, who shall be entitled to vote on the next ballot. 13. ABSTENTION FROM VOTING: If a Governor shall abstain from voting on any ballot he shall not be entitled to vote on any subsequent ballot and his votes shall not be counted within the meaning of Section 4(g) of Article V towards the election of any Executive Director. If at the time of any ballot a member shall not have a duly appointed Governor, such member shall be deemed to have abstained from voting on that ballot. 14. ELIMINATION OF NOMINEES: If on any ballot two or more nominees shall receive the lowest number of votes, no nominee shall be dropped from the next succeeding ballot, but if the same situation is repeated on such succeeding ballot, the Chairman shall eliminate by lot one of such nominees from the next succeeding ballot. 15. ANNOUNCEMENT OF RESULT: After the tally of the last ballot the Chairman shall cause to be dis- tributed a statement setting forth the result of the election. 16. EFFECTIVE DATE OF ELECTION: The effective date of the election shall be November 1, 1978. Incum- bent elected Executive Directors shall serve through the day preceding such date. 17. GENERAL: Any question arising in connection with the conduct of the election shall be resolved by the tellers, subject to appeal, at the request of any Governor, to the Chairman and from him to the Board. Whenever possible, any such questions shall be put without identifying the members or Governors concerned.

255 EXECUTIVE DIRECTORS ELECTED AT 1978 REGULAR ELECTION

Elected by Number Executive Director the Votes of: of Votes

Moncef Belkhodja Afghanistan 550 (Tunisia) Algeria 1,359 Ghana 984 Iran 1,830 Libya 450 Morocco 1,210 Oman 310 Tunisia 623 Yemen, People's Dem. Rep. of 498 7,814

Jacques de Groote Austria 2,946 (Belgium) Belgium 7,518 Luxembourg 450 Turkey 1,536 12.450

Earl G. Drake Bahamas 421 (Canada) Barbados 361 Canada 11,372 Grenada 267 Guyana 421 Ireland 1,516 Jamaica 696 15,054

Said El-Naggar Bahrain 335 (Egypt) Egypt, Arab Rep. of 1,671 Iraq 948 Jordan 437 Kuwait 944 Lebanon 340 Maldives 256 Pakistan 2,250 Qatar 421 Saudi Arabia 5,149 Syrian Arab Republic 671 United Arab Emirates 378 Yemen Arab Republic 335 14,135

Ernesto Franco-Holguin Brazil 3,983 (Colombia) Colombia 1,425 Dominican Republic 425 Ecuador 618 Philippines 1,965 8,416

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

R. A. Johnston Australia 6,700 (Australia) Korea, Republic of 1,556 New Zealand 2,057 Papua New Guinea 421 Solomon Islands 267 Western Samoa 267 11.268

Anthony IJ. A. Looijen Cyprus 528 (Netherlands) Israel 1,358 Netherlands 7,929 Romania 1,871 Yugoslavia 1,428 13,114

Austin H. Madinga Botswana 293 (Malawi) Burundi 400 Equatorial Guinea 314 Ethiopia 364 Gambia, The 303 Guinea 450 Kenya 650 Lesotho 293 Liberia 463 Malawi 400 Nigeria 1,402 Sierra Leone 400 Sudan 850 Swaziland 318 Tanzania 600 Trinidad and Tobago 785 Uganda 583 Zambia 898 9,766

Einar Magnussen Denmark 2,774 (Norway) Finland 1,871 Iceland 434 Norway 2,298 Sweden 3.926 11,303

Eduardo Mayobre Costa Rica 357 (Venezuela) El Salvador 370 Guatemala 373 Haiti 400 Honduras 334 Mexico 2,530 Panama 431 Peru 985 Spain 3,621 Suriname 412 Venezuela 2,222 12,035

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

M. Narasimham Bangladesh 1,360 (Inidia) India 11,583 Sri Lanka 1,077 14,020

Armand Razafindrabe Benin 350 (Madagascar) Cameroon 450 Central African Empire 350 Chad 350 Comoros 266 Congo, People's Republic of 350 Gabon 370 Guinea-Bissau 277 Ivory Coast 615 Madagascar 469 Mali 423 Mauritania 350 Mauritius 438 Niger 350 Rwanda 400 Sao Tome and Principe 264 Senegal 612 Somalia 439 Togo 400 Upper Volta 350 Zaire 1,210 9,083

Giorgio Rota Greece 986 (Italy) Italy 8,775 Portugal 1,050 10,811

Alberto Sola Argentina 4,951 (Argentina) Bolivia 460 Chile 1,193 Paraguay 310 Uruguay 661 7,575

Zain Azraai Burma 757 (Malaysia) Fiji 361 Indonesia 2,450 Lao People's Dem. Rep. 350 Malaysia 1,837 Nepal 396 Singapore 570 Thailand 1,393 Viet Nam 793 8,907

/s/ R. Ortiz Avalos (El Salvador) /s/ P. M.0lberg (Norway) Teller Teller

258 REPORTS OF THE BOARD OF DIRECTORS OF IFC

May 4,1976 Increase in Authorized Capital of the Corporation and Increase of Members' Subscriptions thereto 1. The Board of Directors of the International Finance Corporation (the Corporation) has considered the Memorandum to the Board of Di- rectors from the President, dated February 4, 1976, on the subject of an increase of the Corporation's capital. This Memorandum is attached. 2. After considering the President's Memorandum, the Board of Direc- tors concluded that the Corporation's available resources will not support a satisfactory level of future operations, and that none of the alternatives to a capital increase through members' subscriptions is satisfactory. 3. The Board of Directors, having duly considered the matter and having taken into account the President's Memorandum dated February 4, 1976, has found the proposals set out in paragraph 30 of such Memoran- dum to be desirable. Accordingly, the Board of Directors submits to the Board of Governors, for a vote without meeting, the proposal which is set out in the draft resolution. . 1 4. The Board of Directors recommends that the Board of Governors of the Corporation adopt such draft resolution.'

This report was approved and its recommendation was adopted by the Board of Governors on November 2, 1977.

'See page 205.

259 FROM: The President February 4, 1976 MEMORANDUM TO THE BOARD OF DIRECTORS

SUBJECT: Increase in Capital 1. This memorandum recommends that the resources of the International Finance Corporation (IFC) be enlarged through additional subscriptions to its capital stock and that the Board of Directors submit a proposal to the Board of Governors accordingly. This recommendation is in line with the views expressed by a number of Governors at the 1975 Annual Meeting. IFC's loan and equity commitments have grown rapidly in recent years and current projections show that its present resources will not be adequate to support its planned level of operations beyond FY1978. If an increase in capital were not to be forthcoming, IFC would have to begin to restrict its commitments, in particular its equity commitments, in advance of FY78 in order to conserve resources. Not only would the volume of IFC's operations contract in real terms, but it would become a more conservative institution, with a smaller proportion of its resources available for its developmental and promotional role. I, therefore, ask the Directors to approve now the recommendations set out in this memorandum. In this way IFC would be able to continue its operations at the present level and, in addition, to increase its loans, investments and services in order to better serve its member countries. ROLE OF IFC 2. IFC was established in July, 1956, to further the economic development of member countries by encouraging the growth of productive private enterprise. Two major steps since then have enabled IFC to enlarge and diversify its activities. First, in 1961, IFC was empowered to invest in equity as well as long-term loan financing. Secondly, in 1965, the Articles of Agreement of both IFC and the International Bank for Reconstruction and Development (the Bank) were amended to permit the Bank to lend to IFC so long as IFC's total borrowings do not exceed four times the amount of IFC's unimpaired subscribed capital and surplus. The amendment further provides that monies lent by the Bank to IFC could be used by IFC only "in its lending operations." The amendment enabled the World Bank Group to meet the need for long-term loans to the private sector in larger amounts than IFC by itself could then supply. 3. IFC invests, in association with private investors, in productive enterprises in the developing countries. It brings together investment opportunities and domestic and foreign private capital and management, and it seeks to stimulate the flow of private capital into productive investments. In these endeavors IFC supplements the activities of the Bank. IFC invests without government guarantee and IFC subjects each investment to the tests that (1) it must make a useful contribution to the development of the economy of the member country concerned, and (2) it must show a high probability of being profitable. IFC is able to participate in projects in which governments have a substantial interest, which is particularly im-

260 portant in its least developed members where private investment capital is not available. In its activities, IFC cooperates with private institutions and it does not compete with them. 4. IFC has established a special role as a source of funds, experience, confidence and technical assistance as follows: (a) As a partner in joint ventures between foreign investors and domestic private and public interests, IFC assists member countries who welcome foreign private investment as a means to diversify their economies and to gain access to external markets. IFC equity investments not only help to fill gaps in the financing of such ventures, but IFC's policy of selling its shares to domestic purchasers helps balance local and foreign holdings. IFC's involvement in such ventures is an important source of confidence for both the local and foreign interests involved. (b) IFC invests its own resources in local enterprises either private or mixed (joint public/private ownership) for new ventures or expansion of existing operations. In this area the provision of risk capital by IFC, often in substantial amounts, supplements the resources of local investors. (c) IFC helps companies in its less developed member countries obtain private capital from abroad. IFC's experience in evaluation of investment opportunities and its access to capital sources, make this an increasingly important contribution. (d) IFC helps create and finance local institutions, such as development finance companies, capital market institutions, and other intermediaries, designed to raise funds abroad or to mobilize domestic capital for the private sector. (e) IFC helps to promote projects, particularly in the least developed areas. Identification of markets and bringing together entrepre- neurial talents and sources of finance are the principal ingredients of this work. IFC has made a beginning in this field, which, experience shows, requires large inputs of highly skilled staff time and, even then, the risks are great. (f) IFC, from the experience of its daily operations, provides policy advice to its members. The development of domestic capital markets is an example of an area of increasing importance in which such advice has been welcomed. 5. In terms of volume, IFC's commitments have grown rapidly, as shown in Annex I and summarized in the following table: 6. The cumulative total of IFC's gross investment commitments stood at $1,262 million as of June 30, 1975. As of the same date, IFC's own investment portfolio on a commitment basis was $659 million, nearly twice the amount outstanding in FY71. The volume of annual commitments has also doubled during this period, a growth rate of 20.4% per annum (approximately 8.5% in real terms using the IFC commitment deflator for FY71-75). By obtaining participations in its own investments, IFC has mobilized $358 million, of which, as of June 30, 1975, $237 million was outstanding and being administered by IFC.

261 IFC Volume of Operations ($ Millions) Total Total Fiscal Year Total Annual Cumulative Total Participations (Ended June 30) Commitments Commitments Portfolio Held Administered

1971 $101 $ 578 $350 $ 66 1972 116 694 418 94 1973 147 848 465 144 1974 203 1,049 550 218 1975 212 1,262 659 237 7. In summary, IFC is responding in a flexible manner to diverse needs of its less developed member countries as they relate to the private sector. IFC's operations have become a significant factor in the international private investment scene. The presence of IFC in an investment has been, in many cases, a determining factor as to whether foreign investors and technical partners would enter into a project in the developing countries. It is our experience that, for every one dollar that IFC invests, four dollars are obtained from other sources for the same venture. Thus, since its inception, IFC has been associated with close to $6.4 billion of investments and has financed some 250 enterprises in 57 developing countries. Among these are participations and loan financing for 35 development finance companies and institutions designed to develop local capital markets. 8. The majority of the recipients of this flow have been medium-sized enterprises, controlled by indigenous groups and with indigenous management. Net worth of the median company in which IFC has made an investment was about $5 million. Approximately three enterprises out of four financed by IFC are controlled by domestic owners.

IFC RESOURCE POSITION 9. The expansion in IFC's operations in recent years has caused changes in IFC's financial structure, as shown in the following table comparing FY71 with FY75: (Approximate Figures) June 30, 1971 - June 30, 1975

(US $ Millions) Total Assets (Net of Undisbursed Commitments, Reserve Against Losses and Accruals) $219 $451 Financed by Equity 70% 40% Borrowing 30% 60% Dept Outstanding as % of Disbursed Loans 47% 78% Equity Investments as % of Portfolio 30% 22% Participations Administered $ 66 $237 Year's Commitments $101 $212 Investment Portfolio (Number of Companies) 128 174

262 10. IFC has developed into an institution with a significant loan portfolio and increased reliance on borrowings in its capitalization. IFC's debt to equity ratio has increased rapidly, from about 1.3 to 1 at the end of FY71 to about 2.5 to 1 at the end of FY75. 11. For loan operations resources, IFC relies primarily on borrowings from the Bank, but is limited in the amounts of its borrowings by the restriction prohibiting total debt from exceeding four times IFC's net worth (unimpaired subscribed capital and surplus) so long as IFC is indebted to the Bank. As of June 30, 1975, IFC's net worth was $178 million, placing the limit upon IFC borrowings at $712 million. As of the same date, IFC had already borrowed $448 million, leaving $264 million of its borrowing authority unused. 12. Additional resources are available to IFC for lending from its future net cash flow arising principally from repayments to IFC which, during the foreseeable future, substantially exceed the repayments which IFC has to make on its borrowing. During FY75, IFC investments to be financed out of future net cash flow amounted to $21 million and IFC expects to increase such investments in FY76 to $122 million. 13. IFC's equity investments may not exceed its unrestricted resources. As of June 30, 1975, these resources totaled $183 million, consisting of share capital of $107.3 million, retained earnings of $70.7 million, and a loan from the Government of the Netherlands of $5 million. At the same time, total IFC equity investments amounted to about $127 million (equal to $143 million committed or approved for commitment, less attributable reserve against losses of $16.2 million). Working capital requirements amounted to $4.9 million. The balance available on June 30, 1975 for new equity investments was $51 million. 14. These resources will not support a satisfactory level of future operations for IFC. A projection, which is based on a 5% per annum increase in real terms in the volume of IFC's commitments, is given in Annex I and is summarized below: Fiscal Year (Ended June 30)

1976 1977 1978 1979 1980

(US $ Millions)

Borrowings 512 641 777 916 1,067 IFC Net Worth 184 192 200 208 216 Debt/Equity Ratio 2.8 3.4 3.9 4.41 4.91 Resources Available for Equity Investment 34 15 (4) (26) (51)

'This exceeds the borrowing limitations referred to in Paragraph11. On this basis, IFC will be near its borrowing limitation and will exhaust the resources available for equity investment during FY78.

263 15. In the absence of some remedial action, IFC commitments for its own account beyond FY78 would have to be limited to the resources which become available from net profits, turnover of portfolio repayments and modest new borrowings. These restrictions would cause a substantial decline in real terms in the level of both IFC's new lending commitments and its new equity investments.

CO URSES OPEN TO IFC 16. The alternatives to a capital increase through members' contributions are unsatisfactory: (a) One way for IFC to expand its current level of lending beyond FY78 would be to seek to increase its present debt/equity limitation of 4:1 to perhaps 5:1 or 6:1 by amending the Articles of Agreement of the Bank and of IFC. This would permit IFC to borrow additional funds for relending. However, it would not increase IFC's capacity for additional equity investment. More- over, as a lender, with increasing leverage in its capitalization, IFC would need to adopt more conservative investment policies. It would have to reduce its willingness to finance worthwhile but risky ventures. (b) IFC might try to attract larger participations in its investments, thus reducing the amounts committed for its own account. In the past, IFC has financed about 30% of its commitments in this way, and projects that in the future participations in its loan commitments will continue at a rate rising to 35%. This is an ambitious target which will be difficult to achieve. It would be, unrealistic for IFC to rely on a higher level of participations as a long-term solution to its needs. (c) IFC might seek to augment resources available for equity investment by increasing its profitability. If IFC were an ordinary financial institution, it could try to do this by reducing its administrative expenses (and, consequently, its range of services) and by seeking investments with more immediate profitability. Our first concern, however, is the maintenance of IFC's special character as a development institution. Therefore, we do not think that IFC should move in these directions; nor do we think that if it did, its profitability could be increased to a degree which would have a significant effect upon its resource requirements over the next few years. (d) IFC could plan on increasing the funds available for investment in equities by increasing sales from its own equity portfolio. Since FY70 approximately $40 million was obtained from this source and $65 million is projected to become available from such sales during FY76-80. IFC has concluded, however, that it is unrealistic and costly to plan for much acceleration beyond the existing program. As a matter of policy, IFC endeavors to sell its shares to local investors but local equity markets generally are not sufficiently developed to enable IFC to arrange early secondary offer-

264 ings in meaningful amounts. Moreover, a significant part of IFC's equity commitment is in new or start-up ventures which take years to mature and to establish a dividend record which could attract investors. (e) IFC has under study a proposal whereby it might mobilize resources from capital surplus countries, the basic concept being that IFC would manage an open-ended pool of money largely contributed by capital surplus countries and by private investors, in this way supplementing its own financial resources and maximizing the use of its experience and expertise. We cannot now say to what extent this proposal, which resembles an international investment fund, would enjoy the support of investors. In any event it would appear to be more directed to expanding IFC's role as an intermediary than as a source of finance for IFC's traditional activities. (f) We have also considered the possibility of augmenting the resources available for equity investment by the use of borrowed funds. In 1971, the Netherlands lent $5 million to IFC upon terms that would permit its use for equity investments. In making this special contribution the Netherlands expressed the hope that its initiative would be followed by other members. This has not occurred. Technically, it would be possible to propose an amendment to the Articles of Agreement of the Bank to permit monies lent by the Bank to IFC to be used for investment in equities. We have rejected this course, however. Considering the risks involved in equity investments and the real possibilities of fluctuations in earnings, it would not be appropriate for IFC to finance such investments on a substantial scale by the use of borrowed funds. (g) We have considered and rejected the possibility of issuing a new class of capital stock for subscription by private investors. Even if the new stock could be marketed, such action would result in fundamental changes in the nature of the IFC which we do not wish to propose. 17. My conclusion is that IFC should now seek additional subscriptions to its capital stock from its members, with the new monies becoming available in FY78.

SIZE OF CAPITAL INCREASE 18. Our view is that IFC should now endeavor to obtain an amount which will insure that it can continue its business and develop its activities, without further capital increases, for the period FY78-FY85. The long lead times necessary to plan and build up IFC operations, and the complexities and delays involved in any capital change of IFC, make it necessary to plan IFC's capital base for a long period. The proposed planning period means that no new approach to the members should become necessary for 7 or 8 years, assuming that monies from a capital increase begin to be paid to IFC in FY78.

265 19. We recommend that IFC should seek to increase its subscribed capital by $480 million. An increase of this magnitude would strengthen IFC's ability to help meet an increasing need for private funds in the lesser developed countries, a need which is recognized by various studies, including the Bank's memorandum to the Executive Directors entitled "Capital Re- quirements of Developing Countries: 1975-1980" (SecM75-292, dated April 28, 1975). In terms of capitalization, IFC's relative position in the World Bank Group has declined since its formation in 1956. During this period the Bank's subscribed capital has increased three times, with further increases now contemplated, while IFC's capital has increased only through retention of its own earnings. In addition, the new regional banks and special funds have further increased the resources of institutions oriented toward lending to governments, in relation to the resources of IFC, which remains the only major international institution concerned primarily with financing the private sector with equity investments and through loans without government guarantees. 20. The proposed new equity base for IFC reflects the following objectives and considerations: (a) IFC's lending operations and equity investments should expand at a reasonable rate in real terms, in order to help meet the increased needs described above. For planning purposes IFC has set the objectives of (i) a major increase in commitments after the first amounts of new capital are received with the rate of annual increase in real terms tapering to 6% per annum by 1985, and (ii) achieving an equity element of about 20% in IFC's commitments, somewhat higher than in the recent past but consistent with earlier patterns and with IFC's role as an equity financing institution. IFC's financial projections on this basis are shown in Annex II and the detailed assumptions in Annex III. The projected annual commitments are summarized below: IFC's Projected Total Annual Commitmentsa Fiscal Year (Ended June 30)

1976 1977 1978 1979 1980 1981 1982 1983 1984 1985

US $ Millions 250 282 375 420 470 527 590 658 734 815 No. of Commitments 33 35 41 44 47 50 53 56 60 63 'These projections of IFC's commitments largely reflect commitment capacity: Utilization of that capacity would be dependent on private sector decisions and world economic conditions. Therefore, actual results may fluctuate from year to year and for the period as a whole they may differ from the projections.

For the period FY76/85 cumulative commitments of about $5 billion are implied, i.e., about 10 times the recommended capital increase. The annual rate of increase in commitments in real terms (using the IFC commitment deflator) would approximate 9%. These commitments would be financed as follows:

266 Fiscal Years 1976- 1985

(US$ Millions) Resources Available for Commitment as of June 30, 1975 32 Income and Other Cash Flow 1,445 Capital Subscriptions 481 Participations 1,401 Portfolio Sales 127 Net Additional Borrowings 1,512 Increase in "Future Cash Flows Available for Commitment" 350 Total Resources 5,348 Total Commitments 5,121 Resources Available for Commitment on June 30, 1985 227

The recommended increase in capital would support the amount of borrowing necessary for the projected level of investment commitments. At present, IFC's borrowings from the Bank amount to about 2% of the Bank's loan portfolio. On the basis of the projections shown above, the percentage of loans to IFC in the Bank portfolio would initially decline and then rise slightly in the early 1980's, assuming that IFC continues to borrow from the Bank only. As can be seen from the table, participations are assumed to cover a substantial portion of loan commitments. If these participations, which are sold without recourse to IFC, do not fully materialize, which is a possibility under adverse capital market conditions, the commitment targets would require larger exposures for IFC's own account. The proposed capitalization of IFC would leave room for such a contingency since, even if half of the projected participations were to be replaced by commitments for IFC's own account, IFC's debt/equity ratio would remain within the limits prescribed by the Articles. The administrative expenses projected assume that the number of professional staff will nearly double over the forecast period. This assumption includes provision for a significant increase in IFC's service activities, such as project promotion and institution building. (b) IFC must expand its role in its least developed member countries. IFC has greatly increased its efforts to serve its least developed members in the last few years, but more needs to be done. IFC projects greater participation in promotional ventures, more assistance to small scale industries, additional technical assistance to both the private and public sector in developing projects, and larger equity exposure to make up for a lack of domestic risk capital. IFC needs additional resources to fund these efforts which require a large expenditure of time and money with very little financial return. These services must be supported by the income from a portion of IFC's equity capital. In FY75 IFC's service and technical assistance activities, other than those directly associated with investment operations, cost about $2 million, which corresponds roughly to the income from $20 million capital. The major portion of these services are spent in

267 IFC's least developed member countries. By FY85 these activities are projected to cost about $8.7 million as a result of both staff growth and inflation. This means that the capital required to support this effort would increase to about $85 million. (c) IFC should be able to assume an increased role as a catalyst in larger projects. Frequently these projects are joint ventures between foreign and local interests (often a government) in which IFC involvement as a neutral intermediary is critical in structuring the project for the benefit of both groups. IFC's equity base limits the maximum size of its commitments for its own account in individual projects. As a matter of policy IFC has kept its exposure in any single company to a sum which is now approximately 10% of IFC's equity, i.e. about $20 million. IFC's effectiveness as a catalyst depends on having a significant stake in a project. As inflation and project size in developing countries have increased the cost of projects, larger calls are made on IFC. A wider role for IFC in the development of natural resources will also result in larger exposure for IFC. With the increased capitalization, IFC will be able to make investments in the $60-$70 million range for its own account in single projects and thus assume a more significant role in helping to mobilize resources for such larger ventures. (d) IFC should expand its services to its members, particularly in the development of capital markets and in resources mobilization. Through its Capital Markets Department, IFC has already developed a substantial role in this field. But if IFC is to have an increasing impact, it must strengthen its ability to offer technical assistance and advice to member governments in the development of capital markets, new types of financial institutions, and in other areas designed to promote the flow of capital into productive enterprises. In an area which combines both project promotion and policy advice, IFC has begun to investigate existing bottle- necks to the development of the private sector. In the long run a solution to these restraints would generate additional investment and would have a major impact on the economies of countries which desire private sector development. However, these efforts represent an increased cost to IFC and must be funded out of the income on its equity resources. (e) IFC should increase its role in financing institutions such as development banks, in cooperation with private capital. IFC is increasingly being asked to help raise financing from private markets for financial institutions. This is a valuable service to those institutions which are seeking to diversify their sources of capital. While IFC expects to raise the bulk of such financing through participations, such participations are usually subject to the condition that IFC retain for its own account a portion of the financing arranged. Such investments will account for an increasing proportion of IFC's portfolio, with a correspond- ingly increasing part of IFC's capital being utilized for this purpose. (f) IFC's capital structure must be sufficiently strong to protect it against fluctuations in its investment income. IFC must plan its financial affairs in such a way that it can absorb

268 income fluctuations, which are much more likely in IFC type investment operations than in lending to public entities. To test the vulnerability of IFC's net income to fluctuations, a sensitivity analysis has been carried out on the assumption that in any one year interest income, dividends and capital gains may be at 10%, 25% and 50% respectively, below the projected levels. The analysis shows that, at the projected volume of operations the recommended capital increase would protect IFC's profitability against such declines. 21. In sum, the increase in subscribed capital would permit significant qualitative and quantitative changes in IFC's operations which cannot be achieved in any other way. 22. A smaller capital increase would restrict IFC's ability to respond to new tasks and to expand traditional activities. With a smaller increase IFC's role in major projects would be more limited, the resources allocated to service activities reduced, and equity investments could not be expanded to desirable levels. For example, if the capital increase were $240 million, IFC would have to reduce its single project exposure by at least one-third below the assumption underlying the projections in Annex II. Projected commitments during the period would be reduced by about 30%. The growth in commitments in real terms would approximate 3% per year. IFC's sensitivity to fluctuations of income would be much greater, particularly in later years, which might compel a reduction of growth even below this level.

METHOD OF CAPITAL INCREASE 23. In 1955 the subscription for each original member of IFC was fixed on a formula related to that member's current subscription to the Bank and since that time, the same formula has been applied in the case of new members of IFC. No account has been taken hitherto, in subscription to the capital stock of IFC, of the doubling of the Bank's capital or of special increases in subscriptions to the Bank. 24. It would be reasonable, and consistent with original concepts, if new shares of IFC were to be subscribed on such a basis that, after subscription, shares in the capital stock of IFC would be held in approximately the same relative proportions as in the capital of the Bank. In this context it should be noted that the composition of IFC's Board of Directors corresponds to that of the Executive Directors of the Bank, although the voting powers of the Directors of IFC may differ. 25. Accordingly, all members would be invited to subscribe to new shares of capital stock of IFC so that the aggregate of these subscriptions would be $480 million; and these new shares would be offered for subscription at par payable in US dollars. The new subscriptions would be offered in such amounts that, if all were taken up, the subscriptions of members to IFC's capital stock would be substantially in the same proportions as those in the Bank, assuming approval of an increase in the

269 capital of the Bank which established relationships among members paral- leling those in the IMF after the quota increases. No member would be obliged to subscribe. Members who wish to subscribe to shares not taken up by other members may do so. Members would be asked to waive pre- emptive rights to enable new subscriptions to be made on the basis proposed. 26. Annex IV attached shows (a) amounts and percentages of capital subscriptions in IFC as at January 1, 1976, but assuming that the memberships of Bang- ladesh and of United Arab Emirates are completed; (b) percentages of the capital of the Bank, used for the determination of IFC members' total subscriptions; (c) amounts that members would be invited to subscribe; and (d) voting percentage on the basis of members' maximum subscriptions. 27. It will be observed that the new subscriptions set out in column 5 of Annex IV aggregate US$468,829,000 leaving a balance of US$11,171,000 unallocated. If the Bank's proposed capital increase results in a different relative increase in the subscription of some members (for example, in line with Case A presented in the President's Memorandum dated No- vember 5, 1975-Review of IBRD Capital Structure-R75-215), then the numbers of shares attributed to such countries in column 5 of Annex IV would be changed to reflect these relative increases. In any case, it is possible that some members will wish to increase their relative holdings in IFC. The unallocated balance referred to above (presently US$11,171,000), may be taken up, in whole or in part, in this way; and there would be a sufficient reserve of authorized but unissued capital to meet further demands. If it becomes necessary, the Directors would be asked to submit to the Governors a proposal for an additional offering of shares to the few countries concerned. 28. The projections set out in Annex II show that it is not necessary that the full amount of all new subscriptions be paid at one time although this would be welcome. Instead, members could be given the option to pay the subscriptions in five equal annual installments beginning in FY78, with choice as to payment date within a specified six months period in each year. The proposals should be flexible so as to allow extensions by the Board of Directors of dates for subscription and for late subscribers to "catch-up" by making past due payments. Also, in the case of particular members in circumstances of economic hardship, it would be appropriate to provide greater flexibility as to dates of payment by authorizing the Board of Directors to extend the payment schedule but not beyond a seven-year (instead of a five-year) period. 29. This proposal would require an affirmative vote by a three-fourths majority of the total voting power. It is hoped this vote may be completed promptly so IFC may have reasonable certainty as regards its future, although it is realized that the resolution would not in itself obligate any

270 member to subscribe to the capital stock of IFC. In some member countries legislative action will be necessary to authorize payment of additional subscription. It is contemplated that no later than February 1, 1978, each subscribing member would deposit an Instrument of Subscription with IFC, whereby such member would obligate itself to pay for a specified total number of shares. It is proposed that, if the option of payment by installments is selected, the subscribing member may, where necessary because of legislative procedures, condition payment of not more than the last 60% of the subscription price upon obtaining the necessary further legislation which the member would undertake to seek as soon as practicable. Shares would be issued as full cash payment is made. No subscription would become effective before August 1, 1977 so as to allow fair opportunity for all subscribing members to acquire shares and the voting privileges attached thereto at the same time.

CONCLUSION 30. In conclusion, it is recommended that: (a) The authorized capital stock of IFC be increased from $110 million to $650 million by the creation of 540,000 shares having a par value of $1,000 each. This provides a reserve of unissued capital for new members. (b) Each member waive its pre-emptive rights in respect of shares of capital stock authorized but unissued. (c) Each member of IFC be offered the opportunity to subscribe, in cash at par, up to the aggregate number of shares set opposite the name of such member in column 5 of Annex IV. Subscrip- tions to be made on or before February 1, 1978, or such later date as the Directors may determine. (d) Any remaining shares not so subscribed may be subscribed by any member or members as the Board of Governors may determine. (e) Payment for shares subscribed be made in US dollars either: (i) in cash in full for all such shares at any time or for some such shares from time to time, but not at a pace less favorable to IFC than that specified in the next following sub- paragraph; or (ii) in respect of 40% of the total number of shares subscribed on August 1, 1977 or within six months thereafter. Of this 40%, payment in respect of not less than 20% to be in cash in full and payment in respect of not more than 20% to be represented by an unqualified commitment of the government concerned, to make payment in full in cash on August 1, 1978 or within six months thereafter; Payment for 20% of the total number of shares in cash on August 1, 1979 or within six months thereafter; Payment for 20% of the total number of shares in cash on August 1, 1980 or within six months thereafter;

271 Payment for 20% of the total number of shares in cash on August 1, 1981 or within six months thereafter. Provision to be made for late subscribers to catch-up by paying installments past due according to the above schedule. (iii) In the case of any member which shall be in circumstances of economic hardship, payment to be made on such date or dates, not in any case later than August 1, 1983 as the Directors may determine at the request of such member. (f) Each subscription to be made by the subscribing member de- positing with IFC an Instrument of Subscription, whereby the member commits itself to pay for a total number of shares in a manner consistent with sub-paragraph (e) above; provided that, in cases where qualification is required by legislative procedures, such commitment may be qualified by a condition that payment for not more than the last 60% of the total shares subscribed is subject to appropriate legislative action, which that member undertakes to seek as soon as practicable. (g) Shares to be issued as full cash payment is made, but no shares to be issued before August 1, 1977 or the date on which the increase of capital stock and authorization of subscriptions becomes effective, whichever is later. (h) To the extent that any shares subscribed are not paid for in cash in full on the last date prescribed for payment, the relative subscription to become void. (i) The Directors approve, for circulation to the Board of Governors the following attached draft documents: (i) Report of the Board of Directors to the Board of Governors (Annex Va) (ii) President's Memorandum to the Board of Directors (iii) Resolution attached thereto for adoption by the Governors (Annex Vb) (iv) Letter of Transmittal to the Board of Governors (Annex Vc) (j) The Secretary take such action as he shall deem necessary or appropriate to carry out the purposes of the foregoing.

Robert S. McNamara

This report was approved and its recommendation was adopted by the Board of Governors on Nov. 2, 1977.

272

INTERNATIONAL FINANCE CORPORATION Financial and Operating Data Thru FY1980 with 5% Real Growth Starting from FY1977 and no Capital Increase (US$ millions)

Thea 1963 1964 1965 1966 1967 1966 1969 1970 1971

BALANCE SHEET Cash & Securities 71.5 66.4 63.5 57.0 46.5 31.7 30.8 10.6 lIt In-vstments--L-aa 46.2 45.9 49.4 60.7 81.8 105.1 127.0 190.7 243.9 -Equity 13.2 21.4 24.2 35.0 52.0 55.7 72.4 985 106.0 Less: Reserve Against Losses. 1.5 3.0 3.5 4.6 6.0 7.8 9.6 12.9 15.8 Net AccruaIs and Other As.sets 1.9 2.2 1.8 1.3 1.7 2.2 5.2 5.7 6.6 TOTAL ASSETS 131.3 132.9 135.4 149 4 176.0 186.9 225. 282 6 351.8 Undishursed Cer-sinents -Lonns 10.6 11.4 12.5 17.5 32.6 41.8 62.1 85.3 110.4 -Equity 7.0 5.3 4.3 8.7 14.8 10.6 18.1 269 22 I Undisbh-sed Leans and Equity 17.6 16.7 16.8 26.2 47.4 52.4 80.2 112.2 132 5 L[nns fero IBRD aed the Netherlands 100.0 106.0 166.0 200.0 205.0 Lust: Undrawn Leans 1000 100.0 100.0 102.5 142.1 Withdrawn Leans 17.5 62.9 Capital and General Resuer 113.7 116.2 118.6 123.2 128.6 134.5 145.6 1529 156.4 TOTAL LIABILITIES ANI) CAPITAL 131.3 132.9 135.4 149.4 176.0 106.9 225 8 282.6 351.6 INCOME STATEMENT

Operating acomu 27.3 5.4 5.7 7.5 9.2 t01 12.0 15.4 14.7 Less: Administeatise Enpenses 11.2 2.5 2 7 3.0 3.2 3.5 4.1 5.4 6 5 Charges n IBRD Loans .4 .4 .8 3 8 Inu-re Betere Investment Gains & .asses 16.1 2.9 3.0 4.5 6.0 6.2 75 9.2 4.4 Reuliird Capital Gats .9 .4 .3 .8 .3 .5 .4 1 I 1.8 Peesision fer Lenses 1.5 1.6 .9 1.1 1.4 2.3 2.0 3.4 2.9 NET INCOME 15.5 1.7 2.4 4.2 4.9 4.4 5 9 6.9 3.3 RESOURCES AVAILABLE FOR COMMITMENT Net Income efdue Pren-sion foe Losses 17.0 3.3 3.3 5.3 6.3 6.7 7.9 10.3 6.2 Receipts flrn Capital Sabhcriptiti 98.2 .8 .4 .5 1.5 5.2 4 .2 Repaid te IFC en L[ant 3.7 2.3 3.0 3.4 3 3 3.9 0 7 5.7 6.1 Sales of I-nestrert.-Lans 15.5 5.0 5.4 5.1 6.9 9.7 39.4 159 11.3 -Eqaily 4.3 5.0 7.8 4.7 5 8.8 5.3 5.7 4.2 Net Loans ftom IBRO & Netherlands 100.0 190.0 5.0 Increase in FPtace Cash Flows Avatlable afr Coemitment Aath-rity- TOTAL RESOURCES 130.7 72.2 71.4 67.5 149.6 131.4 145 4193.0 1996 Less: Commilmeets (N, ., -Leans 69.7 7.1 12.1 19.9 31.3 37.4 674 75 4 80 6 Carcella-iens and -Equity 13.2 13.2 10.7 15.5 17.5 12.5 22.2 31.8 11.7 Etuhange Adjaslents--Telal 82.9 20.3 22.8 35.4 48.8 49.9 89.6 107.2 92.3 UNUSED COMMITENT AUTHOR. ITY AVAILABLE AT YR-END' 55.8 51.9 48.6 32 1 100.8 80 5 55.8 86.6 27.3 SOURCES AND APPLICATIONS OF FUNDS Net Iuere I5.5 1.7 2.4 4.2 4.9 4.4 59 6 9 3 3 Pravisien lee Losscs 1.5 1.6 .9 1.1 1.4 2.3 2.0 3.4 2.9 Receipts ef Capital Sab-sriplions 98.2 .8 .4 .5 1 5 5.2 .4 2 Drewings ef IBRD end Nntherle,ds Leans 17 5 45.4 Repayments to IFC 3.7 2.3 3.0 3.4 3.3 3.9 6.1 5.7 6.1 Receipts frem Portflolt Sales 4.7 3.0 3.0 .9 3 0 3.1 91 2.7 5 7 Calls an Participants 11.2 1.4 3.7 4.8 2.2 3 6 7.2 29.0 9 8 TOTAL SOURC:ES 134.8 10.8 13.0 14.8 15.3 18.0 355 656 73.4 Disbursereuls: F.r IFC 40.7 14.2 12.6 17.0 23.2 295 26.2 56.3 622 Fer Participans 11.2 1.4 3.7 4.8 2.2 36 72 29.0 96 Repayments to IBRD & The Netherlands Increase in Net Accruals and Other Assets 2.4 .3 .4 5 .4 5 3.0 .5 .9 TOTAL APPLICATIONS 63.3 15.9 15.9 21.3 25.8 33.6 30.4 5.9 72 9 Increase in Cash and Securities 71.5 5.1 2.9 6.5 10.5 -14. .9 -20.2 .5 Cash Balance-End of Year 71.5 66.4 63.5 57.0 46.5 317 30.8 10.6 11.1 MEMO ITEMS Nunber of Opetaiions 68 18 16 19 it 10 20 26 23 Aments af Crnilnmeets' 88 20 26 35 49 51 93 112 10l Debt/Eqaily 0.8t 0.7t 0.7t 1.3n 13t Retaurces Available at Year-End fls Nc- Equity Corritments 99 94 95 90 79 82 75 59 61

IPeejecnd equity -vesimerts -- ced projecled equity resources. Applcable to Acres I only. ' Prjcted horrernius exceed fter times projected capital and surplus. Applicablr te Anecs I only "See1 Beard recormendalion dated Septerber 23. 1975 (IFC/R75-48). ln1lades 34.9 r. adjustment for working capital in FY75. IFC commilments etclade amen.s of less than S100.000 repr--ent,ng osortifns. eseicime of stock tepte-ns pilet pr-iects. and promotioeal nativities. Cemmii-ents signed. before caccellatin. and Iclading original participalions. ilneestment lessee charged to Reserve Against L-sses total 6.10 mllion thra FY75.

274 ANNEX I

Actual Projected 1972 1973 1974 1975 1976 1977 1978 1979 1980 1964-68 1969-73 1974-78 1976-80

21 2.6 3.0 9.1 3.0 3.0 3.0 3.0 3 0 317 2.6 3.() 3.0 301 3 345 9 422.4 5172 637.5 771.2 98.2 1013.6 1130.4 105 1 345.9 098.7 1130.4 1163 1193 127.9 1418 169.8 200.6 233.4' 269.1 308.0 55.7 119.3 2334 300.0 173 164 20.0 24.5 3044 36.7 44.0 522 6144 7.0 164 44X1 61.4 6.5 6.1 4.3 4.4 4.4 4.4 4.4 4.4 4.4 2.2 6.1 4 4 4.4 40989 457.5 517.6 648.0 704.3 942.5 10950 1237.9 13844 1869 4575 10950 1384.4

117.1 156.2 160.2 1694 198.3 231.5 245.2 261.8 285.7 418 1562 245.2 285.7 267 25.3 26.4 27.7 42 2 45.0 53.7 61.2 67.3 10.6 25.3 53.7 67.3 1913 106.661. 197.1 240 5 276.5 298.9 323.0 353 0 52.4 181 5 298 9 353.0

265.11 3)2.4 405.7 440.4 511. 640.9 777.1 91 57h 1066.7 10(H.0 302 4 7771 1066.7 102 3 193 0 227.2 175.5 151.6 166.5 180.9 209.1 251.7 1000 1930 1809 251.7 877 1(194 1785 272.9 360.1 474.4 5962 706.6 8150 1-094 596.2 015.0 1624 1666 172.5 17801 183.7 191.6 199.9 208.3 216.4 1345 166.6 199.9 216.4 41109 4575 537.6 640.0 784.3 942.5 10950 1237.9 1384.4 1869 457.5 1095.0 13844

189 196 26.2 34.2 42.2 54.4 67.1 79.1 90.6 379 80.0 224.1 333.4 7 I 7 5 9.2 10.4 12.1 11.6 15.3 16.9 18.7 149 30.6 60.6 76.6 60 7. 11.5 16.9 22 317 419 52.2 62.3 .4 166 124 8 210.9 5 2 4 1 5.5 6.9 7 3 9.1 9.9 10.0 9.6 22 6 30.6 3. 7 45.9 5 19 40 531 4.0 43 57 6.6 7.8 23 77 73.1 204 1.7 20 36 66 5.9 6.3 73 8.2 91 7.3 120 297 370 6 0 42 5 9 5.4 5.4 7.1 803 8.4 8.1 17.6 26 3 32.1 37.3

77 6.2 9 5 12.0 11.) 13 5 15.6 16.6 17.4 24.9 38.3 61.9 74.4 .) .1 .3 .8 3.2 5.9 1.2 1.1 7.3 21.2 16.0 26 5 31 9 38.0 51.5 78.0 95.8 15.9 46.4 164 8 295.2 35.8 61 4 84.2 49 7 65.5 73.6 96.1 104.1 114.5 32.1 1658 368.9 453.6 4 3 5 77 2.8 46 5.8 76 8.8 9.9 26 8 22.7 28.5 36.7 6(1.0 17.4 10)14 42 7 63 3 129.1 136.2 130.7 151 0 100.() 202.4 474.7 618.3

45 0 538 36.3 27.4 16.7 11.5 162.4 145.6 14421 1589 241.9 2267 2624 309'5 361.9 4098 467.9 258.7 563.0 12826 1656.9 )00 6 1295 177 7 1724 217.5 245.3 274.6 297.5 327.1 107.0 453.5 11187.4 1362.0 14 4 9.2 16.3 17.4 32.5 36.7 40.4 44.5 489 69.4 89.3 143 4 203.0 15 0 130.7 194.0 189.8 250.0 282.0 315.0 142.0 376.0 177 2 542 8 12-308 1565.0

27.1 20.2 47.9 32 0 12.4 27.5 46.9 67.8 91.9 81.5 20 2 46 9 91.9

6.0 42 5.9 5.4 5.4 7.1 0.5 8.4 8.1 17.6 26 3 32.1 37.3 1 7 20 3 6 6.6 5.9 6.3 7.3 8.2 9.3 7.3 12.0 29.7 37.0 1 1 .3 .8 3.2 5.9 12 1.1 19 8 29.3 758 101.7 96.0 125.9 136.4 128.9 141.6 112 0 536.6 629.6 7. 21.2 169 265 31.9 360 51.5 78.0 958 15.9 46.4 164.0 295.2 5 3 3.6 7.3 209 46 5.0 7.6 0.8 909 13.0 26.4 20.1 316.7 11 6 3)10 58.2 55.9 9540 51.1 760 92.0 100.3 15.7 886 336 2 422.4 51)7 914 1677 199.0 239.9 235.0 287.1 324.3 373.0 72 7 317.6 11287 1459.3 492 57 1 1143 128.5 141.4 172.4 196.4 213.8 231.6 96.5 251.0 743 0 955.6 )I 6 31 0 58.2 55.9 95.0 51.1 76.0 92.0 108.3 15 7 08 6 336.2 422.4 3.2 66 84 9.6 11.5 147 18.5 331 3.2 508 87.4 .1 .. 4 -1.0 .1 .3 3.9 -1 7 6(07 40.9 1673 102.9' 246.0 2350 287.1 3243 373.0 112.5 346.7 11283 1465.4 -90 5 3.0 9.1 3.0 3.0 3.0 3.0 3.0 31.7 26 3.1) 3.0 2 1 26 4 6 _6.1 -39.8 -29.1 0.4 -6.1

19 23 12 3) 33 33 37 39 41 74 113 164 185 116 147 203 272 270 282 315 342 376 181 569 1262 1565 1.6. 1 8x 2.4. 2 5x 2 80 1 4. 3 9x 4 4x 4 9e 7x l.. 3.9. 4.9x

58 59 60 51 34 15 (4) (26) (51)

275 INTERNATIONAL FINANCE CORPORATION Financial and Operating Data Thru FY1980 with 5% Real Growth Starting from FY1977 and no Capital Increase (US$ millions)

Theu 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973

BALANCE SHEET Cash & Securities 71.5 66.4 63.5 57.0 46.5 31.7 30.8 106 11.1 2.1 2.6 Invest-ents-Loa-c 46.2 45.9 49.4 60 7 81.8 105.1 127.0 180.7 243.9 301.3 345.9 -Equity 13.2 21.4 24.2 35.0 52.0 55.7 72.4 985 106.0 116.3 119 3 Less: Resee Against Lossess 15 3.0 3.5 4 6 6.0 7 8 9.6 129 15.8 173 16.4 Net Accruals aed Other Asse-s 1.9 2.2 1.8 1.3 1.7 2 2 5.2 5.7 6.6 6.5 6.1 TOTAL ASSETS 131.3 132.9 135.4 149 4 176.0 186 9 225.8 2826 351.8 408.9 457.5 Undisbursed Commitments -Loans 10.6 11.4 12 5 17.5 32 6 41.8 62 5 85.3 110.4 137.1 156.2 -Equity 7.0 5.3 4.3 0.7 14.8 10.6 18.1 26.9 22.1 26.7 25.3 Undishursed Loans.. od Equity 17.6 16.7 16.8 26.2 47.4 52.4 80.2 112.2 132.5 163.8 181 5 Loans from IBRD and The Netheel,nds 100 0 100 0 100.0 200.0 205.0 265.0 302.4 Less: Udeawn Loans 1000 100.0 1000 1825 142.1 182.3 193.0 Withdrawn Loans 17.5 62.9 02.7 109.4 Capital and Gn-rot Neserve 113.7 116.2 118.6 123.2 128.6 134.5 145.6 1529 156.4 162.4 1666 TOTAL LIABILITIES AND CAPITAL 131.3 132.9 1354 149 4 176.0 186.9 225.8 282.6 351.8 408.9 457.5 INCOME STATEMENT Operating Income 27.3 5.4 5.7 7.5 9.2 10.1 12.0 15.4 14.7 18.3 19.6 Less: Administraive Esprn-sr 11.2 2.5 2 7 3.0 3.2 3 5 4.1 5.4 6.5 7.1 7.5 Chasges on IBRD Looan -4 4 8 3.8 6.0 7.8 Income Before Investment Gains and Losses 16.1 2.9 3 0 4.5 6 0 6.2 7.5 9.2 4.4 5.2 4 3 Realined Capifta Galns .9 .4 .3 .8 .3 .5 .4 1.1 1.8 2.5 1.9 Provision for Losso- 1.5 1.6 .9 1.1 1.4 2.3 2.0 3.4 2.9 1.7 2.0 NET INCOME 15.5 1.7 2.4 4.2 49 4.4 59 6.9 3.3 66 4.2 RESOURCES AVAILABLE FOR COMMITMENT Net Income Before Provision for Losses 17.0 33 3 3 5.3 6 3 6.7 7.9 10.3 6.2 7.7 6.2 Receipts from Capital Sobhcription 98.2 .8 .4 5 1 5 5 2 .4 .2 .1 Repuid to IFC on Loans 3.7 2.3 .. 0 3.4 3.3 3.9 61 5.7 6.1 7.3 21.2 Salos of Investments-Loans 15.5 5.0 5.4 5.1 69 97 39.4 159 11.3 35.8 63 4 -Equity 4.3 5.0 7.8 4.7 .5 8.0 5.3 5.7 4.2 4.0 3.5 Net Loans from IBRD & The Netherlands 10 0 100.0 50 600 37.4 Increase to Fatorn Cash Flows Avuilahle for Commitment Authority' TOTAL RESOURCES 138.7 72.2 71.4 67.5 149.6 131.4 145.4 193.8 119.6 142. 1589 Less: C -mmitmeols(Net -Loons 69.7 7.1 12.1 19.9 31 3 37.4 67 4 75.4 80.6 100.6 129.5 of Cancellations and-Eqolty 13.2 13.2 10.7 15.5 17.5 12.5 22.2 31.8 11.7 14.4 9.2 E-ch-o Adjust- m_ets) 0 -Totol 82.9 20.3 22.8 35.4 48.8 49.9 896 107.2 92.3 1150 1387 UNUSED COMMITMENT AUTHORITY AVAILABLE AT YR-END' 55.8 51.9 48.6 32.1 100.8 81.5 55.8 866 27.3 27.1 20.2 SOURCES AND APPLICATIOtNS OF FUNDS Net Inom 15.5 1.7 2.4 4 2 4 9 4 4 5.9 6.9 3.3 6.0 4.2 Prviion for L-- 1.5 1.6 .9 1.1 1.4 2.3 2.0 3.4 2.9 1.7 2.0 Receipts of Capital Subscriptions 98.2 .8 .4 5 1 5 5.2 .4 .2 .1 Drowings of IBRD and The Netherlands Loans 17 5 45.4 19.8 29.3 Repayments to IFC 3.7 2.3 3.0 3.4 3.3 3.9 6.1 5.7 6.1 7.3 21.2 Receipts from PoeIfolio Sales 4.7 3.0 3 0 .9 3.0 3.1 9.1 2.7 5.7 5.3 3 b Calls 00 Poeticiponts 11.2 1.4 3 7 4.8 2.2 3 6 7.2 290 9.8 11.6 31.0 TOTAL SOURCES 134.8 10.8 13.0 14.8 5 3 10.3 35.3 65.6 734 51.7 91.4 Disbursemeets: For IFC 49.7 14.2 12.6 17 0 23 2 29 5 26 2 56.3 62.2 49.2 57.1 F.c Participants 11.2 1.4 37 4 8 2.2 3.6 7.2 29.0 9.8 11.6 31 0 Repayments to IBRD & Thu NetheraInds 3.2 Iucrease In Net Accruals and Olhe Assets 2.4 .3 -. 4 -. 5 .4 .5 3.0 .5 .9 -. 1 -. 4 TOTAL APPLICATIONS 63.3 15 9 15.9 21 3 25 8 33.6 36.4 85 8 72.9 60.7 90.9 Increaso in Cash and Socorittos 71.5 -5 1 -2.9 -6 5 -10 5 -14.8 -. 9 20.2 .5 -9 ( .5 Cash Balance-End of Year 71.5 66.4 63.5 57.0 46.5 31 7 30.8 106 11.1 21 2.6 MEMO ITEMS Nomber of Oper.tions- 68 IS 16 19 11 t0 21) 26 23 19 25 Amouets of Commilments' 88 20 26 35 49 51 91 112 101 116 147 Debt/Eqoity 0.6v 0 7s 0.7x 1.3x 1.3o 1.6x lOt Resoarces Available at Y-ar-Eird foe New Eqoity Commitmeuss 99 94 95 90 7i 82 75 59 61 58 58

276 ANNEX n

Cumulative 1974 1975 1976 1977 1978 1979 1980 1981 1982 1981 1984 1985 76-80 81-85

3.0 9.1 3.8 3.0 3.0 3.9 3.0 3.8 3.0 3.8 3.8 1.8 422.4 517.2 637.5 771.2 940.2 1102.1 1263.3 1426.1 1598.5 1786.5 1996.9 2232.7 127 9 141 8 169 8 200.6 253.0 3114 387.8 477.0 5812 695.1 820.6 956 9 200 34.5 30.4 36.7 448 551 681 83.6 101.8 122.7 146.3 1728 4.3 44 44 44 4.4 4.4 44 44 4.4 4.4 44 4.4 537.6 646a0 784.3 942.5 1155.8 1365.8 1590.4 1826.9 20853 23663 26785 3024.2

160.2 169.4 198.3 231 5 281.8 319.6 347.9 379.1 413.1 457.0 5089 5659 26.4 27.7 42 2 45.0 68 4 86.8 109.6 131.4 155.4 177.7 199.8 222.8 186 6 197.1 240.5 276.5 350.2 406 4 457 50 5 568.5 634.7 708.7 788.7

405 7 448 4 490 4 524.7 587.6 668.4 750.0 849.9 1868.4 1328 2 1631.2 1960.1 227.2 175 5 1301.3 49.2 78 4 116 8 141.8 181.1 320.6 411.5 514.8 618.7 1785 272.9 360.1 475 5 50)9.2 551.6 608.1 668.8 739.8 916.6 1116.4 1341 4 172 5 178.0 183 7 190 5 296 4 407.8 524.8 647.6 777.0 815.0 853.4 894 1

537 6 648o 784.3 942.5 1155 8 1365.8 1590.4 1826.9 2085.3 2366 3 2678.5 3024 2

26.2 342 427 544 67.4 812 96.2 112.5 129.0 1464 1654 187.1 341.4 740.4 92 104 12.1 15.0 17.6 208 24.1 27.2 29.9 32.6 36.0 39 1 89.6 1648 115 16.9 22.8 314 -376 41.2 45.9 514 579 69.5 86.5 106.0 178.9 371.3

55 69 7.3 8.0 12.2 19.2 26.2 33.9 41.2 44 3 42.9 42 0 72.9 204 3 4.0 51 4.0 4.3 5.7 6.6 7.8 8.4 10.4 14.6 19.1 25.2 28.4 77.7 3.6 66 5.9 63 8.0 10.4 130 15.5 18.2 20.9 23.6 26.5 43.6 104.7 5.9 5.4 5 4 6.0 9.9 15.4 21.0 26.8 33.4 38.0 38.4 40 7 57.7 177.3

9.5 12.0 11.3 17.3 18.0 25.8 34.0 42.3 51.6 58.9 62.0 67 2 101.4 282.0 .1 .3 8 960 96.0 96.0 96.0 96.0 289.1 192.0 16.9 26.5 319 38.0 51.5 78.0 95.8 118.9 134.4 154.1 171.3 188.0 295 2 766.7 84.2 49.7 65.3 73.6 94.4 112.9 126.6 145.1 165.2 184.3 205.5 228 2 472.8 928.3 7.7 28 4.6 5.8 7.6 8.8 9.9 11.0 13.7 17.7 214 266 36.7 90.4

103.4 42 7 42 0 34.4 62.9 80.7 81.6 99.9 218.6 259.8 303.0 328.8 301.6 1210.1

45.0 75.)) 1322 64.0 38.9 50.8 33.5 -66.7 10.0 .6 11 5 360.9 -111 2419 226.7 2624 3095 421.9 488.0 562.7 6394 725.2 8200 925.8 10421 18897 3551.1 177 7 172 4 217 5 245.3 315.0 352.8 383.6 426.9 472.0 526.4 587.2 652 0 1514.2 2664.5 16.3 17.4 72.5 36.7 60.0 67.2 86.4 100.1 118.0 131.6 1468 163.0 282.8 659.5

1940 1898 250.0 282.0 375.0 420.0 470.0 527.0 590.0 658.0 734.0 815 0 1797.0 3324.0

47.9 32.0 124 27.5 46.9 68.0 92.7 1124 135.2 162.0 1918 227 1 92.7 227.1

5.9 54 5 4 6 0 9 9 15.4 21.0 26.8 33.4 38.0 38.4 40.7 57.7 177.3 36 6.6 5.9 6.3 8.0 10.4 13.0 15.0 18.2 20.9 23.6 26 5 43.6 104.7 1 3 8 96.0 96.0 96.0 96.0 96.0 289.1 192 0

75.8 101 7 968 127.0 48.5 60.9 81.6 93.5 114.3 231.7 269.5 3208 414.7 1029.8 16.9 26 5 31.9 38.0 51.5 78.0 95.8 118.9 134.4 154.1 171.3 188 0 295.2 766.7 7.3 7 8 46 5 8 7.6 8.8 9.9 11.0 13.7 17.7 21.4 26.6 36.7 90.4 502 55.9 95.0 51.1 70.5 94.6 112.2 129.0 146 6 165.8 186 0 187.9 4314 815.3 1677 1990 2399 2350 30L. 3641 429.5 490.7 556.6 628.2 710.2 790.5 1568.5 3176.2 104.3 1265 141 4 172.4 206.8 251.0 292.3 328.8 3668 407.5 4545 5069 1063.9 2064.5 58.2 55 9 95 ( 51 I 78.5 94.6 112.2 129.0 146.6 165.8 186.0 187 9 431.4 815.3

6.6 64 96 11.5 147 18.5 250 32.9 43.2 54.9 69.7 95.7 79.3 296.4

I.6 .1 167.7 192.9 246.0 235.0 300)) 364.1 429.5 490.7 556.6 628 2 710.2 790 5 1574 6 3176.2 .4 6 -6.1 -6.1 3.0 9.1 70 30 30 3.0 3.0 3.0 3.0 3.0 30 30 3.0 3.0

32 31 13 75 41 44 47 50 53 56 60 63 200 282 20)3 212 250 282 375 420 470 527 590 658 734 815 1797 3324 2.4x 2 5x 2 7x 2 9x 2.Ox 1.6x 1.4. 1.3x 14x 1 6x 1 9x 2 2x 60 'I 34 14 73 134 183 229 268 208 138 65

277 ANNEX III

Assumptions for Financial Projectionsa

Assumptions for New Commitments Contracted in FY1976-1985: 1. Volume of New Commitments New commitments of $5.1 billion are planned for FY1976-1985. The growth would be modest in fiscal years 1976 and 1977 but a major increase in the volume of commitments is planned from FY1978 after the first instalment of the additional capital is received. Equity investments in the fiscal years 1976 and 1977 will be maintained within the resources currently available, but after the increase in equity resources, they will be increased to 20% of the annual commitments from FY1982. The table below shows the volume of commitments year-by-year. Projected Commitments (US$ millions)

Fiscal Years Total 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 FY76-85

Loan 217.5 245.3 315.0 352.8 383.6 426.9 472.0 526.4 587.2 652.0 4,178.7 Equity 32.5 36.7 60.0 67.2 86.4 100.1 118.0 131.6 146.8 163.0 942.3 250.0 282.0 375.0 420.0 470.0 527.0.0590 658.0 734.0 815.0 5,121.0

Real Growth Rate After Allowing for IFC Commitment Deflators 10.2 5.0 26.7 6.9 7.0 7.0 7.0 6.5 6.5 6.0 8.9 (Ave.)

2. Participations IFC plans to sell 30% of the loan commitments in FY1976-78, increasing to 35% of each year's commitments by FY1982, as original participations. 3. Composition of Equity Investments It is assumed that 80% of the new equity investments would be made in new companies and the remaining 20% in expansion projects. 4. Interest Rate and Term on New Loan Investments New loan investments would, on an average, be contracted at 2% above the borrowing rate. For the purposes of the projection, it is assumed that the borrowing rate would be 8.5% per annum and the lending rate would be 10.5% per annum. New loans are assumed to be repaid in eight years after a grace period of 2½/2 years. 5. Dividend Yield Dividends are assumed to commence four years after the original commitment for new company equity (ie., commitments made in FY1976

'Projections into 1985 are, of course, highly conjectural. They are presented only to illustrate general orders of magnitude.

278 would yield the first dividend in FY1980) and two years after the original commitment in the case of equity investments in expansion projects. Divi- dend yields are assumed to increase gradually from 3% to 10% for new company equity and from 4% to 10% for equity in the expansion projects over a ten-year period following commitment. The rate of increase is slower for equity investments in new companies than for those in the expansion projects. 6. Equity Sales and Capital Gains Sales of equity investments in new companies are assumed to commence four years after the original commitment was made (the first sales from FY1976 commitments are assumed made in FY1980). By the time an investment has been held six years, an average sales rate of 4% of the original commitment is assumed, and by the eleventh year, this rate is assumed to have increased to 10%. It is assumed that sales of equity investments in expansion projects commence three years after commitment at rates which are assumed to increase from 2% of the original commitments to 10% by the tenth year. As in the case of dividends, the sales rate increases more rapidly for equity in the expansion projects than that in the new companies. It is assumed that equity is sold at a price commencing at 50% above the cost and increasing so that the average percentage gain over cost (unweighted) during the forecast period is 85%. 7. Disbursement Rates Based on IFC's experience new loan and equity investments are assumed to be disbursed at different rates. The assumed rates are shown below: Percent Commitments Disbursed Duration Since the Commitment Year

0/1 1/2 2/3 3/4 4/5 Loan 13% 46% 30% 10% 1% Equity 25% 31% 23% 14% 7% All commitments would be disbursed in five years.

Assumptions for Portfolio Outstanding on June 30, 1975: 1. Interest Yield on Loan Investments On an average, yield on the loan portfolio is expected to increase gradually from 9.1% per annum in FY1976 to over 10.3% by FY1985. 2. Dividend Yield Dividend yield on the disbursed portion of the equity portfolio is estimated at about 4.1% for FY1976. It is estimated to increase gradually to 9.0% by the end of FY1985. 3. Equity Sales and Capital Gains It is assumed that IFC would be able to sell increasing portions of its equity portfolio held on June 30, 1975. The FY1976 sales estimate is

279 based on the knowledge of sales completed or those in process. For FY1977 the sales are estimated at about 4.1 % of the portfolio and the percentage is progressively increased to about 8.0% in FY1985. The estimate of capital gains for FY1976 takes into consideration the sales completed or those in the process. For the later years, it is assumed IFC would realize capital gains at the rate of 75% of the cost of the equity. The gains are expected to increase gradually as the equity investments mature and for FY1985 the gains are assumed to average 100% of the cost of equity sold. 4. Disbursements of Loans and Equity Based upon the knowledge of investments and the historical experience, the following amounts are expected to be disbursed out of undisbursed holding of June 30, 1975.

Amounts Disbursed (US$ millions)

Fiscal Years

1976 1977 1978 1979 Loans 97.5 52.2 16.8 2.8 Equity 15.9 8.6 2.8 0.4 The investments would be fully disbursed by the end of FY1979.

Other Important Assumptions 1. Administrative Expenses The estimate of administrative expenses takes into consideration a major increase in the volume of commitments in FY1978 which would require an increase in the staff level in FY1977. Later on they are increased on the basis of the growing volume of workload for new business, supervision of portfolio and developmental activities. The total manyears is assumed to grow from 122 in FY1975 to 226 in FY1985, a compounded growth rate of 6.4%. Year-by-year estimates of expenses are shown below: Projected Administrative Expenses (US$ millions)

Fiscal Years 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985

Administrative Expenses 12.1 15.0 17.6 20.8 24.1 27.1 29.9 32.7 36.0 39.1 Price Index 100 109 119 128 137 145 155 165 176 187

2. CapitalIncrease It is assumed that IFC's capital would be increased by $480 m. in five equal annual instalments of $96 m. each in FY1978-1982.

280 3. Borrowing Term It is assumed that starting FY1977 the term of borrowings would be 12 years including the grace period. 4. Losses The projections make an allowance for income that may be lost as a result of the possible investment losses. For this purpose it is assumed that the investment losses may amount to 50% of the reserve provisions and income on this amount has been deducted in making the financial projections. 5. Commitment Cover Investment commitments are assumed to be fully covered either by cash flow expected from operations and capital subscriptions receivable during the disbursement period or by borrowings. To the extent to which IFC realizes the cash flow as projected, its borrowings would be reduced-in effect the "Unused Commitment Authority" represents a safety cushion protecting against an unforeseen decline in cash flow from operations. On this basis, undisbursed commitments are projected to be covered as follows:

Fiscal Years

1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 Total Undisbursed Commitments 240.5 276.5 350.2 406.4 457.5 510.5 568.5 634.7 708.7 788.7

Resources Available to Finance Undisbursed Commitments

Excess Cash 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 Undisbursed IBRD Loan 130.4 49.2 78.4 116.8 141.8 181.1 328.6 411.5 514.8 618.7 Future Cash Flows 120.0 252.3 316.2 355.1 405.9 439.3 372.6 382.7 383.2 394.6 Total 252.9 304.0 397.1 474.4 550.2 622.9 703.7 796.7 900.5 1015.8 Margin for Cash Flow Fluctuations 12.4 27.5 46.9 68.0 92.7 112.4 135.2 162.0 191.8 227.1

281 INTERNATIONAL FINANCE CORPORATION Distribution of Capital Subscription and Voting Power (US$ 000's)

Percentage IFC IFC Voting Subscription Subscription Percentage Country As of 1/28/76 As of 1/28/76 of Total (1) (2) (3)

Part I Countries Australia 2215 2.04 1.83 Austria 554 0.51 0.59 Belgium 2492 2.30 2.03 Canada 3600 3.32 2.85 Denmark 753 0.70 0.74 Finland 421 0.39 0.50 France 5815 5.36 4.50 Germany 3655 3.37 2.90 Iceland 11 0.01 0.19 Ireland 332 0.31 0.43 Italy 1994 1.84 1.66 Japan 2769 2.56 2.24 Kuwait 369 0.34 0.46 Luxenibourg 111 0.10 0.27 Netherlands 3046 2.81 2.44 New Zealand 923 0.85 0.87 Norway 554 0.51 0.59 South Africa 1108 1.02 1.01 Sweden 1108 1.02 1.01 United Kingdom 14400 13.28 26.25 United States 35168 32.44 10.86 Total Part I Countries 81398 75.08% 64.22%

282 ANNEX IV

Percentage IBRD Additional Subscription After Subscription IFC Voting Parallel Fund Quota Required to Increase Subscription After Percentage After Related Increases Capital by $480 m. Capital Increase Capital Increase (4) (5) (6) (7)

1.99 9976 12191 2.02 0.83 4531 5085 0.87 2.24 11231 13723 2.27 3.42 17352 20952 3.45 0.78 4026 4779 0.82 0.66 3622 4043 0.70 4.82 23713 29528 4.84 5.42 29549 33204 5.44 0.07 418 429 0.11 0.39 2057 2389 0.43 3.12 17120 19114 3.15 4.17 22777 25546 4.19 0.74 4164 4533 0.78 0.09 440 551 0.13 2.36 11412 14458 2.39 0.58 2630 3553 0.62 0.74 3979 4533 0.78 1.07 5447 6555 1.11 1.13 5815 6923 1.17 8.01 235002 37900 6.20 23.94 111493 146661 23.89 66.57% 315252 396650 65.36%

283 INTERNATIONAL FINANCE CORPORATION Distribution of Capital Subscription and Voting Power (US$ 000's)

Percentage IFC IFC Voting Subscription Subscription Percentage Country As of 1/28/76 As of 1/28/76 of Total (1) (2) (3)

Part 11 Countries Afghanistan 111 0.10 0.27 Argentina 1662 1.53 1.42 Bangladesht 713 0.66 0.71 Bolivia 78 0.07 0.24 Brazil 1163 1.07 1.05 Burma 166 0.15 0.31 Cameroon 111 0.10 0.27 Chile 388 0.36 0.47 China, Republic of 4154 3.83 3.26 Colombia 388 0.36 0.47 Costa Rica 22 0.02 0.20 Cyprus 83 0.08 0.25 Dominican Republic 22 0.02 0.20 Ecuador 35 0.03 0.21 Egypt 590 0.54 0.62 El Salvador 11 0.01 0.19 Ethiopia 33 0.03 0.21 Gabon 55 0.05 0.23 Ghana 166 0.15 0.31 Greece 277 0.26 0.39 Grenada 11 0.01 0.19 Guatemala 22 0.02 0.20 Guyana 89 0.08 0.25 Haiti 22 0.02 0.20 Honduras 11 0.01 0.19 India 4431 4.09 3.47 Indonesia 1218 1.12 1.09 Iran 372 0.34 0.46 Iraq 67 0.06 0.23 Israel 50 0.05 0.22 Ivory Coast 111 0.10 0.27 Jamaica 148 0.14 0.29 Jordan 33 0.03 0.21 Kenya 184 0.17 0.32 Korea 139 0.13 0.29 Lebanon 50 0.05 0.22 Lesotho 18 0.02 0.20 Liberia 83 0.08 0.25 Libya 55 0.05 0.23 Madagascar 111 0.10 0.27 Malawi 83 0.08 0.25 Malaysia 277 0.26 0.39 Mauritania 55 0.05 0.23 Mauritius 95 0.09 0.26 Mexico 720 0.67 0.72 Morocco 388 0.36 0.47 Nepal 55 0.05 0.23 Nicaragua 9 0.01 0.19 Nigeria 369 0.34 0.46 Oman 36 0.03 0.21 Pakistan 1108 1.02 1.01 Panama 2 * 0.19 Papua New Guinea 114 0.11 0.27 Paraguay 16 0.01 0.20 Peru 194 0.18 0.33 Philippines 166 0.15 0.31 Portugal 443 0.41 0.51 Rwanda 100 0.09 0.26 Saudi Arabia 111 0.10 0.27

284 ANNEX IV (Cont'd)

Percentage IBRD Additional Subscription After Subscription IFC Voting Parallel Fund Quota Required to Increase Subscription After Percentage After Related Increases Capital by $480 M. Capital Increase Capital Increase (4) (5) (6) (7)

0.11 563 674 0.15 1.34 6547 8209 1.38 0.38 1615 2328 0.42 0.08 412 490 0.12 1.66 9006 10169 1.70 0.18 937 1103 0.22 0.08 379 490 0.12 0.38 1940 2328 0.42 2.31 -9 4154 0.72 0.34 1695 2083 0.38 0.04 223 245 0.08 0.09 468 551 0.13 0.05 284 306 0.09 0.11 639 674 0.15 0.51 2534 3124 0.55 0.04 234 245 0.08 0.05 273 306 0.09 0.07 374 429 0.11 0.26 1427 1593 0.30 0.29 1500 1777 0.33 0.01 50 61 0.05 0.05 284 306 0.09 0.06 279 368 0.10 0.05 284 306 0.09 0.03 173 184 0.07 3.23 15357 19788 3.26 1.20 6133 7351 1.24 1.60 9430 9802 1.63 0.27 1587 1654 0.31 0.52 3136 3186 0.56 0.16 869 980 0.20 0.18 955 1103 0.22 0.07 396 429 0.11 0.17 857 1041 0.21 0.40 2311 2450 0.44 0.04 195 245 0.08 0.02 105 123 0.06 0.08 407 490 0.12 0.45 2702 2757 0.49 0.09 440 551 0.13 0.06 285 368 0.10 0.64 3644 3921 0.68 0.04 190 245 0.08 0.07 334 429 0.11 0.98 5284 6004 1.02 0.38 1940 2328 0.42 0.05 251 306 0.09 0.03 175 184 0.07 0.91 5206 5575 0.95 0.05 270 306 0.09 0.72 3303 4411 0.76 0.07 427 429 0.11 0.08 376 490 0.12 0.02 107 123 0.06 0.29 1583 1777 0.33 0.53 3081 3247 0.57 0.35 1701 2144 0.39 0.05 206 306 0.09 1.51 9140 9251 1.54 (Cont'd) 285 Percentage IFC IFC Voting Subscription Subscription Percentage Countr-y As of 1/28/76 As of 1/28/76 of Total (1) (2) (3)

Part 11 Countries (Cont'd) Senegal 184 0.17 0.32 Sierra Leone 83 0.08 0.25 Singapore 177 0.16 0.32 Somalia 83 0.08 0.25 Spain 1108 1.02 1.01 Sri Lanka 166 0.15 0.31 Sudan 111 0.10 0.27 Swaziland 35 0.03 0.21 Syria 72 0.07 0.24 Tanzania 184 0.17 0.32 Thailand 139 0.13 0.29 Togo 83 0.08 0.25 Trinidad & Tobago 148 0.14 0.29 Tunisia 133 0.12 0.28 Turkey 476 0.44 0.54 Uganda 184 0.17 0.32 United Arab Emirates' 86 0.08 0.25 Upper Volta 55 0.05 0.23 Uruguay 155 0.14 0.30 Venezuela 116 0.11 0.27 Viet Nam (South) 166 0.15 0.31 Western Samoa 9 0.01 0.19 Yemen Arab Republic 47 0.04 0.22 Yugoslavia 591 0.55 0.62 Zaire 332 0.31 0.43 Zambia 295 0.27 0.40

Total Part 11 Countries 27012 24.92% 35.78%

Available for Allocation

GRAND TOTAL 108410 100.00% 100.00%

-Less than 0.01%. 'United Arab Emirates and Bangladesh have not completed membership formalities. 2United Kingdom subscription adjusted. 3No additional subscription.

286 ANNEX IV (Cont'd)

Percentage IBRD Additional Subscription After Subscription IFC Voting Parallel Fund Quota Required to Increase Subscription After Percentage After Related Increases Capital by $480 M. Capital Increase Capital Increase (4) (5) (6) (7)

0.12 551 735 0.16 0.06 285 368 0.10 0.28 1538 1715 0.32 0.05 223 306 0.09 1.40 7469 8577 1.44 0.30 1672 1838 0.34 0.22 1237 1348 0.26 0.03 149 184 0.07 0.15 847 919 0.19 0.14 674 858 0.18 0.46 2679 2818 0.50 0.06 285 368 0.10 0.21 1138 1286 0.25 0.15 786 919 0.19 0.50 2587 3063 0.54 0.12 551 735 0.16 0.30 1752 1838 0.34 0.04 190 245 0.08 0.15 764 919 0.19 1.16 6990 7106 1.20 0.23 1243 1409 0.27 0.01 52 61 0.05 0.03 137 184 0.07 0.47 2288 2879 0.51 0.38 1996 2328 0.42 0.21 991 1286 0.25

31.11% 153577 180589 32.82%

11171 11171 1.82%

97.68% 480000 588410 100.00%

287 December 16, 1977

Increase in Subscription by Argentina Pursuant to Article II, Section 2(d) of the Articles of Agreement of the International Finance Corporation

1. On November 2, 1977 the Board of Governors of the International Finance Corporation (IFC) adopted Resolution No. 100 entitled "Increase of Capital" (the Capital Increase Resolution) authorizing an increase of US $540 million in the authorized capital of IFC and increases in individual members' subscriptions as set forth in the table attached to the Capital Increase Resolution. The Capital Increase Resolution provides that in the absence of notice to the contrary from any member on or before September 1, 1976, such member shall be deemed to have waived its right (hereinafter called pre-emptive right) to subscribe its proportionate share of the increase in the authorized capital stock. 2. By the close of business on September 1, 1976 Argentina had notified IFC that it intended to exercise its pre-emptive right. 3. Pursuant to Article II, Section 2(d) of the Articles of Agreement of IFC, a member exercising its pre-emptive right is entitled to subscribe to a portion of the US $540 million increase of authorized capital equivalent to the proportion which its stock theretofore subscribed bears to the total authorized capital stock of IFC before such increase (i.e., its share of US $1 10 million). 4. Prior to the date on which the Capital Increase Resolution became effective, Argentina's subscription to IFC capital was $1,662,000. This subscription represented 1.5109% of the then IFC authorized capital of $110 million. As a result of exercising its pre-emptive right, Argentina is entitled to a portion of the capital increase amounting to $8,159,000 (8,159 shares) which represents 1.5109% of the increase of $540 million in the authorized capital of IFC. 5. The Directors have concluded that it would be reasonable that the terms and conditions under which Argentina's subscription may be made should be the same as those set out in the Capital Increase Resolution. 6. Accordingly, the Directors recommend that the Board of Governors adopt the draft resolution. ..

This report was approved and its recommendation was adopted by the Board of Governors on January23, 1978.

'See page 210.

288 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 1977-June 1978

I. INTRODUCTION 1. This is the fourth annual report of the Joint Ministerial Committee of the Boards of Governors of the Bank and the Fund on the Transfer of Real Resources to Developing Countries (Development Committee). It covers activities from July 1977 through June 1978. 2. The Development Committee was established to maintain an overview of the development process and to consider all aspects of the broad question of the transfer of real resources to developing countries. During the year under review the Committee continued its work aimed at creation at the highest political levels of a consensus on a number of issues of mutual interest to the developed and developing countries. 3. The Committee held one meeting during the year-in Washington on September 25, 1977 at the time of the Annual Meetings of the Boards of Governors of the Bank and Fund. Two meetings were held at Senior Offi- cial level, one in Paris on September 15, 1977 and one in Mexico City on April 28, 1978. At the technical level of Working Group there were five meetings during the year. 4. The main emphasis of the discussion at the Committee's meeting in September 1977 was on the need to increase the flow of assistance. It was recognized that the continued slow per capita growth of low-income countries was the main development issue on which the attention of the international community should focus. In this context, Members stressed the need for larger flows of concessional assistance and more effective use of both external and domestic resources to improve the situation of those 750 million people still living in absolute poverty. At the same time Members agreed that the continued successful growth of the middle-income countries depended upon their continued access to the capital markets of the industrialized countries as well as on the steady increase in their export earnings. The need for a satisfactory conclusion of the current multilateral trade negotiations, and for the maintenance of an open trading system, was strongly advocated. 5. At this meeting the Committee also endorsed recommendations regarding the access of developing countries to capital markets. They agreed that (a) the IFC should at the request of a developing country test the feasibility of promoting a program of bond issues for that country; (b) the IBRD and other development banks should consider requests from member countries for full or, preferably, partial guarantees of bond issues; (c)

289 the IFC should be invited to undertake simulation of operations and results of international portfolio investment such as might be done by an Inter- national Investment Trust; and (d) the IMF should be asked to prepare an annual progress report on the elimination or reduction of restrictions affecting developing country access to capital markets. 6. A future work program was agreed which, in keeping with the Com- mittee's terms of reference, included ongoing reviews of the overall economic situation and prospects of developing countries; and the volume, distribution and quality of official development assistance (ODA). The review of the prospects of the developing countries would be based on the World Development Report, to be prepared annually by the IBRD. In addition, the Committee decided to study the following subjects: (i) the role of the various multilateral development institutions in financing development; (ii) the role of private direct foreign investment in promoting development; (iii) the role of external borrowing in financing development; and (iv) the stabilization of export earnings. As suggested by the Conference on International Economic Cooperation (CIEC), the Com- mittee will also monitor the progress of the Special Action Program of US$1 billion of additional concessional assistance.

II. COMMITTEE CONSIDERATION, OF MAJOR QUESTIONS AFFECTING RESOURCE TRANSFER

A. Economic Prospects and Capital Requirements of Developing Countries 7. The Committee discussed a paper prepared by the IBRD on the economic situation and prospects of the developing countries up to 1985. The paper indicated the broad magnitudes of external capital requirements based on alternative assumptions about growth rates and export performance. 8. It was noted that the growth rates of different groups of developing countries had been and would remain quite uneven. In particular, the low growth rates of low-income countries during the past decade were projected to remain around 1.7 per cent per capita between 1978-85, though even this level would be dependent on sustained inflows of concessional funds equivalent to about 2.5 per cent of GDP and on an improved export performance. Raising the growth rate even moderately above this figure would require continued improvements in domestic policies, better export performance and increased availability of concessional assistance. The outlook for such additional flows was not promising and Members viewed with particular concern the decline in real terms that had taken place in 1976 in the volume of official development assistance. Members strongly stressed the importance of larger flows of concessional assistance to augment the domestic resources of this group of countries and of making the optimum use of both external and domestic resources.

290 9. So far as the middle-income countries are concerned, Members noted that for the group as a whole the outlook for 1978-85 was for substantially higher growth that had been achieved in the past four years-i.e., around 4 per cent per capita as compared to 2.9 per cent per capita in the period 1974-77. However, for the poorer countries in this group this projected growth performance would depend on continued inflows of public capital. A substantially improved export performance together with an increase in capital flows would be necessary to raise growth rates beyond these projected levels. This underlined the need for a satisfactory conclusion of the current multilateral trade negotiations and for the maintenance of an open world trading system. 10. The Committee agreed that extreme poverty remained the most pressing problem of development. It was pointed out that some 750 million people were currently lacking minimum needs of nutrition, clean water, functional literacy, basic health services, and shelter. Members felt that growth policies must be supplemented by a direct attack on poverty involving a reorientation of donor programs and the domestic policies of developing countries in order to ensure that the benefits of development would reach the poorest section of society.

B. Official Development Assistance (i) Volume and terms of ODA flows 11. Members reviewed the situation regarding official development assistance (ODA) against the background of a report from the Working Group on Development Finance and Policy. The main emphasis of the discussion was on the need to increase the flows of assistance which, as mentioned in para. 8 above, had declined in real terms in 1976. Members particularly urged the need to channel more concessionary funds through the multilateral development institutions. Members noted that the collective effort of the OECD countries expressed as a percentage of GDP had declined again in 1976 to a figure of 0.33 per cent, and the urgent need to reverse the process and move toward the UN target of 0.7 per cent of GDP was widely stressed. Although some of the major bilateral donors, e.g., the United States and Japan, announced plans for significant increases in their ODA programs, Members were agreed that a great deal remained to be done before it could be said that the international community was fully responding to the development needs and opportunities of the developing countries. They noted with appreciation that OPEC aid flows had increased from 0.43 per cent of GNP in 1970 to 2.20 per cent in 1976. 12. The Committee also considered other aspects of ODA. The particular need of the poorest countries for these concessional flows was repeatedly stressed. It was noted with approval that a growing number of donors were making aid available to these countries in grant form and other donors were urged to soften the terms of their assistance to these countries. Other aspects mentioned briefly in discussion were the desirability of a progressive untying of aid, the need for assistance by donors to suppliers from develop-

291 ing countries competing for orders financed from untied aid, and a larger amount of local cost financing and program aid, particularly from the multilateral development institutions. The Committee agreed that ODA should remain one of its prime concerns and that the matter should be kept under close review. In this connection they welcomed the prospects of more information being provided about OPEC aid flows by UNCTAD and the OPEC Special Fund.

(ii) Special Action Program 13. The Conference on International Economic Cooperation (CIEC) suggested that the Development Committee should monitor progress in implementing the US$1 billion Special Action Program. The Executive Secretary presented his first report on the subject to the Committee at its meeting in September 1977. This report showed that while most of the contributors were making plans for implementing their undertakings, five of them had not yet reached firm decisions. It seemed likely that in some cases the contributions would take the form, in whole or in part, of cancel- lation of debt servicing on old development loans to the poorest countries. 14. The Committee took note of the report and requested the Executive Secretary to provide a further report at the next meeting. The Committee asked that this should inter alia provide answers to the following questions: a. Would the contributions be truly additional to intended aid programs (as distinct from existing levels of aid)? b. When would the money be disbursed? and c. Would it be concentrated on the lowest income countries? This further report is now under preparation.

C. InternationalResources Bank 15. The Committee considered a report from the Working Group on Development Finance and Policy on the suggestion first put forward by the United States at the UNCTAD IV meeting for the establishment of an International Resources Bank (IRB) designed to increase investment in the developing countries in the natural resources sector. The report endorsed the views of the IBRD to the effect that the establishment of an IRB was not feasible or generally acceptable at the present time and welcomed the IBRD Board's decision that the World Bank Group should expand its operations in the development of fuel and non-fuel minerals in developing countries from the presently planned figure of $200 million to around $850 million in the year 1980. It was hoped that this program would have the effect of stimulating considerable increased private flows. They hoped that the regional development banks would also increase their activities in this sector. The Committee intends to keep this matter under review and to consider at an appropriate time the results achieved by the multilateral development institutions and whether any further action is necessary.

292 D. MultilateralDevelopment Institutions

Role of the MultilateralDevelopment Institutions (MDIs)

16. At its September 1977 meeting the Development Committee decided to study the role of MDIs as one of the priority subjects in its wok program for 1977-78. This matter has been pursued in the Working Group on Development Finance and Policy. 17. A basic document has been prepared by the Secretariat with the object of providing a survey of the existing MDIs and highlighting a number of policy issues regarding their relative roles, their funding and their operational activities. It was the first time that an attempt had been made in any forum to bring together information bearing on the activities of a wide spectrum of MDIs which together provide about one third of the total official flows to developing countries. 18. The document prepared by the Secretariat covers not only the World Bank and the three larger regional development banks (Inter-American Development Bank, Asian Development Bank, and African Development Bank) but also the European Investment Bank, the European Develop- ment Fund, the United Nations Development Programme and its associated programs, the World Food Programme, the International Fund for Agri- cultural Development, the OPEC Special Fund, the Arab Bank for Eco- nomic Development in Africa, the Islamic Development Bank, the Arab Fund for Economic and Social Development, and the Special Arab Fund for Africa. 19. The information supplied by the relevant MDIs indicated that the share of concessional flows to developing countries channeled through the MDIs had increased over the last few years and would increase further if their prospective programs were implemented. This, in turn, was dependent upon increases in their capital resources which in some cases required important decisions by the donor countries. 20. Other issues raised in the Secretariat document related to the criteria for setting up new MDIs, the procedures for replenishment particularly of soft funds, and a number of operational issues. The study indicated a shift in the distribution of MDI lending toward agriculture and the social sectors including projects particularly designed to improve the standard of living of the poorest segments of the population. This shift of emphasis was considered a direct result of a change in the perception of the development process that has received wide international acceptance. Growing attention was also being given to energy and mineral resource development and the amounts devoted to these sectors by the MDIs, though still relatively small were increasing. 21. With regard to the geographical distribution of multilateral assistance, the report showed that compared with bilateral programs as a whole, MDIs devoted a larger percentage of their soft funds to projects and programs

293 in the poorest developing countries, which in 1976 amounted to 59 per cent. In this connection, the report recalled that the Development Com- mittee at its June 1975 meeting had emphasized the urgent need to review the distribution of ODA with a view to improving the share of the poorer countries. 22. The report also raised the question of the comparative advantage of the different MDIs and whether a certain degree of specialization among MDIs according to geographical areas served or sectors financed was desirable or feasible. 23. The study contained recent information on the extent of program lending by MDIs and of their local and recurrent cost financing. The report stressed the importance and the scope for more co-financing between MDIs and both official and private sources of capital. It also highlighted the important role MDI's played in coordinating the activities of other donors, particularly through consortia and consultative groups. 24. The Secretariat's report was first discussed in the Working Group on Development Finance and Policy in February 1978. A number of issues were identified as being suitable for discussion in the Development Com- mittee in due course, while others would need further technical discussion at Working Group level. 25. The Senior Officials reviewed the progress of the study at their meeting in Mexico City in April 1978. It is likely that a report on the subject will be available for consideration by the Development Committee early in 1979.

E. Access to Capital Markets 26. The Working Group on Access to Capital Markets completed its substantive work on the subject of developing country access to the long-term (bond) market. The Senior Officials at their meeting in April 1978 discussed the IMF Progress Report on Developing Country Access to Capital Markets. They welcomed the paper and expressed the view that it would be useful for the Fund to continue to report on a regular basis on changes in capital market access for developing countries. It was noted that insufficient progress had been made since the Manila recommendations of the De- velopment Committee adopted on October 3, 1976, and that the increase in developing country issues in both foreign and international bond markets which had taken place during the period under review had been due largely to the liquidity of some of the markets and the temporary absence of some other borrowers. While progress remained to be achieved in liberalizing capital market restrictions, it was recognized that unfavorable conditions such as high interest rates, balance of payments deficits, lack of knowledge of potential borrowers' credit, also contributed to the difficulties encountered. 27. The Executive Board of the IMF decided on May 15, 1978 that in the course of regular consultations with the main capital market countries, the

294 staff should continue to inquire into recent developments regarding the implementation of the Development Committee recommendations and that a general report on this subject should be prepared before mid-1979 for consideration by the Executive Board and subsequently by the Develop- ment Committee. 28. The Senior Officials also endorsed the view of the Working Group that the major obstacles to capital market access by developing countries were lack of expertise on the part of borrowing countries and insufficient information on the part of lenders regarding the creditworthiness of potential borrowers and that, therefore, it would be useful to convene a seminar, or seminars, to bring together potential borrowers and market operators to discuss some of the technical problems involved in offering and marketing developing country issues in the capital market countries. Accordingly, a seminar is being planned for October 1978.

F. Direct Foreign Investment 29. At its meeting in September 1977, the Development Committee decided to include the subject of private direct foreign investment in its Work Program with the object of considering how it might assist in the process of transfer of resources for development. The Working Group, meeting in December 1977, identified the issues for priority consideration, and a first round of discussions took place in March 1978. The Working Group planned to continue the consideration of this matter at its meeting in July 1978.

G. Role of External Borrowing in FinancingDevelopment 30. This subject, also included in the Committee's work program for 1977/78, was considered by the Working Group at its meetings in De- cember 1977 and March 1978. Three aspects of the problem were identified, namely: (i) the review of the experience of a group of middle- income developing countries during the 1974-77 period; (ii) the prospects through 1985 for external finance to this group of countries; and (iii) the role of multilateral institutions in this field. The item was to be discussed again at the July 1978 Working Group meeting.1

H. Proposalfor a Long-Term Facility for Financing Purchasesof CapitalGoods by Developing Countries 31. At the meeting of the Senior Officials on April 28, 1978 the Mexican representatives circulated a proposal for the establishment of a long-term facility for financing purchases of capital goods by developing countries.

lAt its meeting in July 1978, the Working Group decided that no further work was required on this subject for the time being.

295 The Secretariat in consultation with the World Bank were asked to make an initial study of the proposal and report to the next meeting of Senior Officials.

I. Stabilizationof Export Earnings 32. The CIEC drew attention to the importance of effective international action to offset the adverse effects on developing countries of fluctuations in export earnings, particularly from primary commodities. Both groups of participants suggested that the Development Committee should undertake a comprehensive study of the problem. 33. At its September 25, 1977 meeting, the Development Committee invited the Fund and the Bank to prepare a report on the subject in cooperation with the Executive Secretariat of the Development Committee and in consultation with the interested international organizations (UNCTAD, EEC, etc.). 34. The terms of reference of the study were to review (a) the adequacy of existing facilities in this field; (b) the need, if any, and scope for, and the financial implications of possible improvements in these facilites; and (c) the need, if any, and scope for additional approaches, the appropriate institutional arrangements for any such approaches and their financial implications. 35. After discussion in the Executive Boards of the Bank and Fund the draft report will be considered by the Committee in September 1978.

III. FUTURE WORK 36. The year under review began just after the conclusion of CIEC. Al- though the Conference failed to realize all its aims, the examination of many of its main issues has been carried on in other international fora, including the Development Committee. However, all these discussions have naturally been affected by the difficult world economic situation, particularly the slow recovery of the developed countries which has led to increasing domestic pressure to adopt protectionist trade policies, restrict capital flows and limit budgetary appropriations for both bilateral and multilateral aid. 37. In the immediate future, the Committee will continue to provide a forum where Ministers responsible for managing their countries' economic resources can meet in a relatively small grouping for a free and frank exchange of views on development issues. It is at this important political level that many issues of vital concern can be considered and the ground- work for future agreements can be established. The general problem of resource transfers will continue to provide the Development Committee with its agenda. ODA will remain vitally important to the poorest developing countries. The more affluent developing countries will require increasing access to developed world markets to sell their exports and to borrow capital. All developing countries will continue to grapple with the

296 difficult problem of achieving reasonable rates of economic growth while at the same time giving special attention to the basic needs of the poorest inhabitants. The World Development Report, the first issue of which will be considered by the Committee in September 1978, is expected to be a first step toward building the framework for considering all these challenges. It will provide a comprehensive analysis of development problems, their complexities, their linkages and the impact of alternative internal and external policies on development strategies in countries at various stages of development. It is earnestly hoped that this Report will heighten awareness of the close mutuality of interest between the developing and developed countries and thus lead to the creation of an atmosphere more conducive to positive action to increase the growth rates and living standards of the people of the developing world.

This report was noted with approval by the Board of Governors on September 28, 1978.

297 ANNEX A

MEMBERS OF THE COMMITTEE

Member Countries 1. The Honorable Bahrain, Arab Republic of Egypt, Iraq, Abdlatif Y. Al-Hamad Jordan, Kuwait, Lebanon, Socialist Director General People's Libyan Arab Jamahiriya, Kuwait Fund for Arab Economic Pakistan, Qatar, Saudi Arabia, Somalia, Development Syrian Arab Republic, United Arab Kuwait Emirates, Yemen Arab Republic 2. His Excellency Cyprus, Israel, Netherlands, Romania, F.H.J.J. Andriessen Yugoslavia Minister of Finance The Netherlands 3. The Honorable United States W. Michael Blumenthal Secretary of the Treasury United States 4. The Honorable Bahamas, Barbados, Canada, Grenada, lean Chretien Ireland, Jamaica Minister of Finance Canada 5. His Excellency Austria, Belgium, Luxembourg, Turkey Gaston Geens Minister of Finance Belgium 6. The Right Honourable United Kingdom Denis W. Healey, M.B.E., M.P. Chancellor of the Exchequer United Kingdom 7. His Excellency Brazil, Colombia, Dominican Republic, Franklin E. Hope Guyana, Haiti, Panama, Peru, Trinidad Minister of Finance and Tobago Guyana 8. His Excellency Costa Rica, El Salvador, Guatemala, David Ibarra-Munioz Honduras, Mexico, Nicaragua, Venezuela Secretary of Finance and Public Credit Mexico 9. His Excellency Benin, Cameroon, Central African Empire, Abdoulaye Kone Chad, People's Republic of the Congo, Minister of Economy, Finance Equatorial Guinea, Gabon, Ivory Coast, and Planning Madagascar, Mali, Mauritania, Mauritius, Ivory Coast Niger, Rwanda, Senegal, Togo, Upper Volta, Zaire 10. His Excellency France Rene Monory Minister of Economy France

298 11. His Excellency Japan Tatsuo Murayama Minister of Finance Japan 12. His Excellency Botswana, Burundi, Ethiopia, The Gambia, Major General (Eng.) Rtd. Guinea, Kenya, Lesotho, Liberia, Malawi, Nasr-Eldin Mustafa Nigeria, Sierra Leone, Sudan, Swaziland, Minister of National Planning Tanzania, Uganda, Zambia Sudan 13. Her Excellency Denmark, Finland, Iceland, Norway, Lise Qistergaard Sweden Minister without Portfolio Ministry of Foreign Affairs Denmark 14. His Excellency Germany Rainer Offergeld Federal Minister for Economic Cooperation Germany 15. The Honorable Italy, Malta, Portugal, Spain Filippo Pandolfi Minister of the Treasury Italy 16. The Honorable Bangladesh, India, Sri Lanka H.M. Patel Minister of Finance India 17. His Excellency Burma, Fiji, Indonesia, Korea, Lao Suphat Sutatum People's Democratic Republic, Malaysia, Minister of Finance Nepal, Singapore, Thailand, Viet Nam Thailand 18. The Honorable Australia, New Zealand, Papua New Cesar E.A. Virata Guinea, Philippines, Western Samoa Secretary of Finance Philippines 19. His Excellency Afghanistan, Algeria, Ghana, Greece, Mustapha Zaanouni Iran, Morocco, Oman, Tunisia, People's Minister of Planning Democratic Republic of Yemen Tunisia Chile, Ecuador, 20. ' Argentina, Bolivia, Paraguay, Uruguay

of their As of June 30, 1978 this constituency had not notified the Secretariat of the name Member, His Excellency Jorge Cauas of Chile having resigned in March.

299 ANNEX B

Organizational and Administrative Aspects

Establishment: The Development Committee was formally established pursuant to Bank Governors' Resolution 294, October 2, 1974 and Fund Governors' Resolution 29-9, October 2, 1974. At the inaugural meeting of the Committee held October 2-3, 1974, Mr. Henri Konan B6di6, Min- ister 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 Develop- ment of the United Kingdom, was appointed Executive Secretary. Secretariat:As provided in the basic Resolutions, a small Secretariat was established to assist the Executive Secretary. As of June 30, 1978, it con- sisted of two Deputy Executive Secretaries, two Assistant Executive Secre- taries, and one Deputy Assistant Executive Secretary. Senior Officials Meetings: Meetings of Senior Officials were held to assist Ministers in preparing for Development Committee meetings. The Senior Officials meetings also reviewed the Committee's work program including the discussions in the Working Groups. The first meeting was held Sep- tember 15, 1977 in Paris, and the second, April 28, 1978 in Mexico City.

Working Group on Access to Capital Markets: In order to help facilitate and expand the access of developing countries to capital markets, a Work- ing Group on Access to Capital Markets was organized in August 1975. Until October 6, 1976, it operated as a twelve-member Group consisting of representatives of the constituencies headed by Canada, France, Ger- many, Japan, Korea, Kuwait, Netherlands, Philippines, Trinidad and To- bago, United Kingdom, United States, and Venezuela. From October 6, 1976, Guyana, Indonesia, and Sudan took the places of Trinidad and Tobago, Korea, and the Philippines as representatives of constituencies. At the April 1977 meeting of the Committee it was decided that representatives from all twenty of the Committee's constituencies should in future participate in the Working Group. The Working Group met three times during the past year.

Working Group on Development Finance and Policy: At the October 3, 1976 meeting of the Committee a Working Group on Development Finance and Policy was established. All of the Committee's constituencies are represented in the Working Group. The Group has discussed the volume, terms, and quality of ODA, the proposed International Resources Bank, and the role of multilateral development institutions. The Group met twice during the past year.

300 Relations with other organizations:The organizations listed below were official observers to the Development Committee during 1977-78. 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 Special Fund Organisation for Economic Cooperation and Development United Nations United Nations Development Programme United Nations Conference on Trade and Development During the year, members of the Executive Secretariat participated as observers in meetings of the African, and Inter-American Development Banks, and UNCTAD.

ANNEX C

Text of Parallel IBRD and IMF Resolutions establishing the Development Committee'

WHEREAS the Committee of the Board of Governors of the Inter- national Monetary Fund on Reform of the International Monetary System has recommended the establishment of a joint ministerial committee of the Boards of Governors of the International Monetary Fund (the Fund) and the International Bank for Reconstruction and Development (the Bank) to carry forward the study of the broad question of the transfer of real resources to developing countries and to recommend measures to be adopted in order to implement its conclusions; WHEREAS it is desirable to consider the question of the transfer of real resources to developing countries in relation to existing or prospective

'IBRD Governors' Resolution 294, October 2, 1974; IMF Governors' Resolution 29-9, Oc- tober 2, 1974.

301 arrangements among countries, including those involving international trade and payments, the flow of capital, investment, and official development assistance; WHEREAS the said Committee has invited the Managing Director of the Fund to discuss with the President of the Bank the preparation of appropriate parallel draft resolutions on the establishment of such a joint ministerial committee for adoption by the respective Boards of Governors of the Fund and Bank; WHEREAS pursuant to such discussions the President of the Bank and the Managing Director of the Fund have proposed to the Executive Direc- tors of the Bank and Fund, respectively, and the Executive Directors of the Bank have approved the submission of this Draft Resolution to the Board of Governors of the Bank and the Executive Directors of the Fund have approved the submission of a parallel Draft Resolution to the Board of Governors of the Fund; WHEREAS the Committee as envisaged would be helpful in providing a focal point in the structure of international economic cooperation for formation of a comprehensive overview of diverse international activities in the development area, for efficient and prompt consideration of development issues, and for coordination of international efforts to deal with problems of financing development; and WHEREAS the Board of Governors of the Fund [Bank] is considering the said parallel resolution; NOW, THEREFORE, the Board of Governors hereby RESOLVES: 1. Establishment and Composition of Joint Ministerial Committee (a) There is established a Joint Ministerial Committee of the Boards of Governors of the Bank and Fund on the Transfer of Real Resources to Developing Countries (hereinafter called the De- velopment Committee). (b) The members of the Development Committee shall be governors of the Bank, governors of the Fund, ministers, or others of comparable rank. (c) The members of the Development Committee shall be appointed in turn for successive periods of two years by the members of the Bank and the members of the Fund. The members of the Bank shall appoint the members of the Committee for the first period of two years, which shall run from the date of the adoption of this Resolution until the date of the regular election of executive directors in 1976. (d) Each member government of the Bank or the Fund, as the case may be, that appoints an executive director and each group of member governments of the Bank or of the Fund, as the case may be, that elects an executive director shall appoint one member of the Development Committee and up to seven associates, and, for any meeting when the member of the committee is not

302 present, may appoint an alternate with full power to act for the member at such meeting. (e) Each member and associate shall serve until a new appointment is made by the member government or member governments of the Bank or the Fund, as the case may be, that are entitled to make the appointment or until the next succeeding regular election of executive directors, whichever is earlier. 2. Chairman The Development Committee shall select a Chairman from among its members, who shall serve for such period as the Committee determines. The Chairman of the Boards of Governors of the Bank and the Fund, or a governor designated by him shall convene the first meeting of the Com- mittee and shall preside over it until the Chairman has been selected. 3. Meetings (a) Members of the Development Committee, associates, and the executive directors of the Bank and the Fund, or in their absence their alternates, shall be entitled to participate in meetings of the Committee, unless the Committee decides to hold a session restricted to members, the President of the Bank, and the Managing Director of the Fund. Participation in respect of each item on the agenda of a meeting shall be limited to one person in respect of each member government or group of member governments that appoint a member of the Committee. (b) The President of the Bank and the Managing Director of the Fund shall be entitled to participate in all meetings of the De- velopment Committee, and each may designate a representative to participate in his place at any meeting when he is not present. Each may be accompanied normally by two members of his staff, at any unrestricted session of the Committee. (c) The Development Committee shall invite the heads of other international financial or economic organizations, as well as other persons, to attend or participate in meetings of the Com- mittee relating to their areas of responsibility. 4. Terms of Reference (a) The Development Committee shall maintain an overview of the development process and shall advise and report to the Boards of Governors of the Bank and the Fund on all aspects of the broad question of the transfer of real resources to developing countries, and shall make suggestions for consideration by those concerned regarding the implementation of its conclusions. The Committee shall review, on a continuing basis, the progress made in fulfillment of its suggestions. (b) The Development Committee shall establish a detailed program of work, taking account of the topics listed in Annex 10 of the Outline of Reform. The Committee in carrying out its work shall bear in mind the need for coordination with other international bodies.

303 (c) The Development Committee shall give urgent attention to the problems of (i) the least developed countries and (ii) those developing countries most seriously affected by balance of payments difficulties in the current situation. 5. Procedures (a) The Development Committee shall meet at the time of the annual meetings of the Boards of Governors of the Bank and the Fund and, in addition, as often as required. The Chairman may call meetings after consulting the members of the Com- mittee and shall consult them on calling a meeting if so requested by any member of the Committee. (b) A quorum for any meeting of the Development Committee shall be two-thirds of the members of the Committee. (c) The Development Committee may establish sub-committees or working groups from time to time. (d) The Committee shall appoint an Executive Secretary who shall be entitled to participate in all Committee meetings. The Ex- ecutive Secretary, supported by a small staff as necessary, and drawing on the staffs of the Bank and the Fund to the maximum extent feasible, shall be responsible to the Committee for carrying out the work directed by the Committee. (e) Appropriate arrangements shall be made for the coordination of the work of the Development Committee and the work of the Executive Directors of the Bank and the Fund. (f) The President of the Bank and the Managing Director of the Fund shall arrange to carry out technical work requested by the Committee and provide administrative support for the Committee within the competence of their organizations. (g) The Committee may request assistance from international organizations or other bodies or individuals in connection with the preparation of its work. (h) In reporting any suggestions or views of the Development Com- mittee, the Chairman shall seek to establish a sense of the meeting. In the event of a failure to reach a unanimous view, all views shall be reported, and the members holding such views shall be identified. (i) The Development Committee shall report not less than once a year to the Boards of Governors on the progress of its work and may publish such other reports as it deems desirable to carry out its purposes. (j) The Development Committee may determine any aspect of its procedure that is not established by this Resolution. 6. Administrative Costs The Bank and the Fund shall make such financial appropriations, in equal proportions, as are necessary for carrying out the work of the De- velopment Committee.

304 7. Review At the end of two years from the effective date of this Resolution, the Boards of Governors of the Fund and the Bank shall review the performance of the Committee, and shall take such action as they deem appropriate.

ANNEX D

Agenda of Development Commiffee Meeting, September 25, 1977

1. Initial Procedural Items a. Adoption of Agenda (DC/77-7) b. Approval of Record of Discussion of Meeting of April 27, 1977 (DC/77-6) 2. Annual Report to the Boards of Governors (DC/77-13) 3. Statement by Managing Director, IMF Statement by President, World Bank 4. Report of the Working Group on Access to Capital Markets (DC/77- 10) a. Promotion of Bond Issues: Outline of a Possible Program b. Partial Guarantees c. International Investment Trust 5. Report of the Working Group on Development Finance and Policy (DC/77-11) a. International Resources Bank b. Volume, Distribution, Terms and Quality of Official Development Assistance 6. Economic Prospects and Capital Requirements of Developing Coun- tries (DC/77-8) 7. Future Work of the Committee in the Light of the Conclusions of the CIEC and Suggestions made at the April Meeting of the Develop- ment Committee (DC/77-9) 8. Concluding Items a. Other Business b. Chairman's Summing Up c. Place and Date of Next Meeting d. Press Communique

305 ACCREDITED MEMBERS OF DELEGATIONS AT 1978 ANNUAL MEETINGS

Cl0 AFGHANISTAN Governor ...... Abdul Karim Meesaq Alternate Governor ...... A. Wahab Assefi

°ALGERIA0 Governor ...... Mohammed Benyahia Advisers: Mohamed Benmalek Mohamed Bessekhouad Rachid Bouwaoui Slim Tahar Debagha Abdelaziz Maoui

5 ° ARGENTINA

Governor ...... Jose A. Martinez de Hoz Alternate Governor ...... Juan M. Ocampo* A dvisers: Alejandro Aliaga Garcia Horacio A. Alonso Faustino Altamirano Jose A. Alvarez Alejandro C. Antuna Marcio Arafia Alberto Ayerza Tomas Balino Mario Baratella Mariano de Bary Alberto Berisso Anibal Leopoldo Blanco Roberto Blanco Bernardo Bronstein Roberto J. Bulirich Carlos Alberto Cano Carlos A. Carballo Jorge R. Christensen Antonio E. Conde Eduardo R. Conesatt Roberto N. Deane Jorge H. B. Dellepiane Carlos F. Echeverrigaray Enrique Folcini Carlos Furlotti Jenaro P. Garcia Oliver Santiago E. J. Gilotaux Jorge R. Hayzus Juan Carlos Iarezza Miguel Iribarne Pedro Camilo L6pez Julio Augusto Macchi Eduardo R. Marquez Cesar Marzagalli Hugo G. Montagnani Narciso E. Ocampo Miguel Pampillon Jorge Pegoraro Leonardo Prati Alejandro Reynal Pedro Raul Salaberren Elias Salama Ram6n Santamarina Alberto Guido Servente Francisco P. N. Soldati Alberto Sola Carlos J. R. Sosa Domingo Torea Paz Jos6 Rafael Trozzo Alberto J. White Maximo Vasquez Llona Guillermo Zubaran

F1 IFC Member t Executive Director tt Alternate Director IDA Member Temporary

306 0 0 AUSTRALIA

Governor ...... E. L. Robinson Alternate Governor ...... J. C. Ingram Advisers: R. M. Beetham J. H. Cosgrove R. Daniel J. A. Fraser E. Ingevics J. Jepsen R. A. Johnstont R. J. Kirk C. J. Louttit M. J. Phillips E. L. Waterman R. J. Whitelaw

0 O AUSTRIA

Governor ...... Hannes Androsch Alternate Governor ...... Walter Neudoerfer Advisers: Herbert Cordt Heinz Pekarek Herbert Sutter

BAHAMAS Governor ...... Arthur D. Hanna Alternate Governor ...... Reginald L. Wood Advisers: Edgar N. Hall Livingston B. Johnson Warren L. Rolle

BAHRAIN

Governor ...... Ibrahim Abdul Karim Alternate Governor ...... Isa Abdulla Burshaid Advisers: Khalid Al Fayez Alan E. Moore

O ° BANGLADESH Governor ...... M. N. Huda Alternate Governor ...... A. M. A. Muhith* Alternate Governor ...... T. Husain* Alternate Governor ...... M. Syeduz-Zaman*tt Advisers: Humayun Kabir Abidur Rahman A. K. M. Rashid Uddin

0 IFC Member t Executive Director tt Alternate Director IDA Member * Temporary

307 BARBADOS Governor ...... J. M. G. M. Adams Alternate Governor ...... Stephen E. Emtage Advisers: Winston Cox A. DeC. Edey Charles A. Skeete Mrs. Desiree Springer

O °BELGIUM

Governor ...... Gaston Geens Alternate Governor ...... Cecil de Strycker Advisers: Roger De Beckker Jacques de Grootet Marcel De Moudt Bruno Guiot Georges Janson Ludovicus Meulemans Andre Taymans Roger Vanden Branden Jan Vanormelingen Jacques van Ypersele de Strihou

0 BENIN Governor ...... Francois Dossou Alternate Governor ...... Abou Bakar Baba-Moussa A dviser: Jer6me Ahouanmenou

O 0 BOLIVIA Governor ...... Jorge Tamayo R. Alternate Governor ...... Marcelo Montero Alternate Governor ...... Fernando Anker* Alternate Governor ...... Claudio Calderon* Advisers: Jorge L6pez P. Luis F. Saavedra Alberto Valdez Miguel Zalles Javier Zuazo

0 BOTSWANA Governor ...... Q. K. J. Masire Alternate Governor ...... B. Gaolathe Advisers: B. Mookodi E. S. Mpofu

0 IFC Member t Executive Director tt Alternate Director IDA Member Temporary

308 1 °BRAZIL

Governor ...... Mrio Henrique Simonsen Alternate Governor ...... Paulo H. Pereira Lira Alternate Governor ...... Karlos Rischbieter* Alternate Governor ...... Octavio Gouvea de Bulh6es* Alternate Governor ...... Alexandre Kafka* Advisers: Clovis L. A. Albuquerque Ant6nio Carlos Almeida Braga Marcos Amorim Netto Pedro Paulo Pinto Assump,co Eimar de Andrade Avillez Cesar Dantas Bacellar Sobrinho Jorge Amorim Baptista da Silva Luiz Barbosa Oscar Bloch Sigelman Robert H. Blocker Lino Otto Bohn Fernao C. B. Bracher Carlos Brandao Lazaro de Mello Brandao Alcir Agostinho Calliari Ant6nio Calmon Elmo de Araujo Camoes Ney Werneck de Campos Curvo Gabriel Costa Carvalho Solomon Cohn Jose Maria Sampaio Correa Raul Curro Alvaro Pinto de Aguiar Fernando de Arruda Botelho Theophilo de Azeredo Santos Constantino de Campos Fraga Alvaro da Costa-Franco Pedro Leitao da Cunha Jose Carlos Perdigao Medeiros da Fonseca Affonso Armando de Lima Vitule Mailson Ferreira da Nobrega Dilson de Lima Ferreira Jose Carlos de Oliveira Marcos de Souza Barros Peter Egon de Svastich Mario Fortes Carlos A. Garcia Mario Garnero Henri Claude Koersen Miguel Lafer Jose David Langier Carlos Geraldo Langoni Eduardo Alfredo Levy, Jr. Carlos Lyra Neto Luiz Goulart Macedo Ricardo Jorge Machado Lima Luiz Victor N. Magalhaes Robert de Moraes Maisonnave Werner Makowski Basilio Martins Ermelino Matarazzo Luiz Carlos A. Moraes Rego Humberto Mourao de Carvalho Eduardo de Castro Neiva Ezequiel Nasser Zeuxis Ferreira Neves Floriano Pecanha Ary dos Santos Pinto Paulo Jose Possas Carlos Eduardo Quartim Barbosa Fernando Quartim Barbosa de Figueiredo Ewaldo Ramos Casimiro Antonio Ribeiro Jean Paul Ricommard Horacio Sabino Coimbra Joseph Y. Safra Francisco Sanchez Ant6nio de Padua Seixas Swiatoslaw Sirks Jose Sousa Santos Horst Tiedemann Ivo Cauduro Tonin Carlos Viacava Carlos Alberto Vieira Mauro Vieira Julius Arnold Wilberg Ant6nio Carlos Yazeji Cardoso

El IFC Member t Executive Director tt Alternate Director IDA Member * Temporary

309 O a B URMA Governor ...... U Tun Tin Alternate Governor ...... U Kyaw Myint* Advisers: U Hia Shwe U Nyunt Lwin U Thein Swe

°BURUNDI Governor ...... Dominique Shiramanga Alternate Governor ...... Jean Ndimurukundo A dvisers: Etienne Barigume Bonus Kamwenubusa Serge Kananiye Laurent Nzeyimana Clement Sambira

O °CAMEROON Governor ...... Youssoufa Daouda Alternate Governor ...... Amadou Bello A dvisers: Moise Beke Bihege Martial Kandack Godefroy Nguionza Augustin J. Njawe Edouard Nomo-Ongolo Idriss Vessah-Njoya

O °CANADA Governor ...... Jean Chretien Alternate Governor ...... Wm. C. Hood* Alternate Governor ...... Michel Dupuy Alternate Governor ...... Robert K. Joyce* Alternate Governor ...... Michael G. Kelly* Advisers: Rolando Bahamonde Mrs. M. Catley-Carlson Pierre G. Cossais Bernard J. Drabble Earl G. Draket Edward P. Fine Edward S. Goldenberg George Gore David A. Hilton Robert Johnstone Alain Jubinville E. Lumley Miss Patricia Macgowan Reid Morden Peter M. Towe

0 CENTRAL AFRICAN EMPIRE Governor ...... Jean Pierre Le Bouder Alternate Governor ...... Marc-Babel Bedan A dviser: Christophe Maidou

1 IFC Member t Executive Director tt Alternate Director IDA Member * Temporary

310 0 CHAD

Governor ...... Mahamat Saleh Ahmet Alternate Governor ...... Blayo Ngartando A dvisers: Oumar Outmane Pierre Toura Gaba

O 0 CHILE Governor ...... Sergio de Castro S. Alternate Governor ...... Sergio Undurraga* Alternate Governor ...... Juan Carlos Mendez* Advisers: Jorge Bofill Sergio de Amesti Mrs. Lucia Avetikian de Renart Luis Eduardo Escobar Adolfo Goldenstein K. Francisco Ibaiiez B. Rolf Luders Ch. Luis Antonio Marchant S. Edmundo Miguel B. Mrs. Maria Elena Ovalle M. Isidoro Palma Renan Sanchez Daniel Sotta B. Enrique Tassara T. Javier Vial C.

0 o CHINA Governor ...... Philip C. C. Chang Alternate Governor ...... Martin Wong* Alternate Governor ...... Bernard T. K. Joei* Advisers: C. J. Chen Richard Chi H. W. Kung

C 0 COLOMBIA

Governor ...... Jaime Garcia Parra Alternate Governor ...... Eduardo Wiesner* Alternate Governor ...... Virgilio Barco* Alternate Governor ...... Miss Leonor Montoya* A Iternate Governor ...... Ernesto Franco-Holguin* t Advisers: Guillermo Constain Jose Gutierrez G6mez Camilo Herrera Alvaro Jaramillo Benjamin Martinez Juan Manuel Medina Alberto Mejia Jorge Mejia Palacio Jorge Mejia Salazar Eduardo Nieto-Calderon Vicente Uribe-Rendon

COMOROS Governor ...... Said Kafe Alternate Governor ...... Si Mohamed Nacr-Ed-Dine

0 IFC Member t Executive Director Bt Alternate Director IDA Member * Temporary

311 - CONGO, PEOPLE'S REPUBLIC OF THE Governor ...... Fran,ois Bita Alternate Governor ...... Andr6 Batanga Adviser: Etienne Ossibi

O ° COSTA RICA

Governor ...... Hernan Saenz Jim6nez Alternate Governor ...... Otto Kikut Croceri* Alternate Governor ...... Lonel Baruch G.* Advisers: Rodrigo Sotela Carlos Ruiz

0 0 CYPRUS

Governor ...... A. C. Patsalides Alternate Governor ...... A. C. Afxentiou Adviser: N. Dimitriou

O ODENMARK Governor ...... Mrs. Lise 0stergaard Alternate Governor ...... Mogens Isaksen Alternate Governor ...... S0ren Voss* Alternate Governor ...... Otto R. Borch* A dvisers: Klaus Dahlgaard Henning Dalgaard Finn Erskov Hans Flinch Henrik Fugmann Frede Hollensen J0rgen D. Siemonsen Niels Erik S0rensen Michael Sternberg Klaus Willerslev-Olsen

O 0 DOMINICAN REPUBLIC

Governor ...... Eduardo Fernandez P. Alternate Governor ...... Opinio Alvarez* A dvisers: George Arzeno Ram6n Martinez-Apontett

O IFC Member t Executive Director tt Alternate Director IDA Member * Temporary

312 C °ECUADOR0 Governor ...... Juan Reyna S. Alternate Governor ...... Ricardo Muihoz Chavez* Alternate Governor ...... Ivan Romero* Alternate Governor ...... Oswaldo Vaca* Alternate Governor ...... Alfredo Crespo* Advisers: Luis Borrero Eduardo Cabezas Manuel Calisto Alberto Dicapua Carlos Emanuel Hernan Escudero Celso Maldonado Jose Maria Rumazo Francisco Saavedra Miguel Salazar Eduardo Santos Nestor Vega

Q 0EGYPT Governor ...... Hamed El-Sayeh Alternate Governor ...... M. Samir Koraiem Advisers: Ezzat El-Alfi Amr Osman El-Menchawi A. Shoukry El-Nahal Aly Gamal El-Nazer Mohamed Farid Badreldin Ahmed Hamdi Fouad Kamal Hussein A. H. A. Kabodan Farouk Fouad Meshreki Farouk M. Mira Nasser Sayed Morsi Ahmed Alaa Eldin Nazmi Mohamed Nosseir Mohamed M. Omar Ibrahim Oweiss Tawfik Shamal Rashad Hussein Kamal Refaat M. Abdel Moneim Roushdy Hussein Salem

n 0 EL SALVADOR Governor ...... Roberto Ortiz Avalos Alternate Governor...... J. Eduardo Reyes Advisers: Eusebio Martell Jose Edilberto Martinez Giron Roberto Quinionez Meza Rafael Rodriguez Loucel Mauricio Daniel Vides Casanova Benjamin Vides Deneke

0 EQUATORIAL GUINEA Governor ...... Mba Oyono Ayingono Alternate Governor ...... Samuel Nana-Sinkham*

0 0 ETHIOPIA Governor ...... Teferra Wolde-Semait Alternate Governor ...... Lemma Argaw* Advisers: Tadesse Abebe Zewdie Demisse Kebede Shoandagn

Director [l IFC Member t Executive Director ft Alternate IDA Member * Temporary

313 Governor ...... S. Siwatibau Alternate Governor ...... B. Vunibobo

Q 0 FINLAND

Governor ...... Esko Rekola Alternate Governor ...... Osmo Kalliala A dvisers: Wilhelm Breitenstein Jaakko lloniemi Kaarlo V. Jlnnari Kari Pekonen Pertti Ripatti Jukka Soumela Matti Vanhala

O °FRANCE Governor ...... Bernard Clappier Alternate Governor ...... Marcel Theron A dvisers: Henri Baquiast Denis Bauchard Pierre-Henri Cassoutt Ms. Yvette Castan Jean-Louis Imhoff Gabriel Lefort Paul Mentre de Loyet Jean-Christian Metz Jean-Paul Mingasson Patrick Peroz Michel Planque Henri Pezant Patrick Ponsolle Rene-Paul Rigaud Denis Samuel-Lajeunesse

o 0 GABON

Governor ...... Michel Anchouey Alternate Governor ...... Jean-Felix Mamalepot Advisers: Jean Daniel Mambouka Aloise Mboumignanou-Mbouya Hyacinthe Mihindou Emmanuel Ondo Methogo

° THE GAMBIA

Governor ...... J. A. Langley Alternate Governor ...... T. G. G. Senghore A dvisers: A. K. Mambouray H. R. Monday, Jr. H. M. M. N'Jai J. A. Solheim

F1 IFC Member t Executive Director tt Alternate Director ° IDA Member * Temporary

314 O GERMANY

Governor ...... Hans Matthoefer Alternate Governor ...... Rainer Offergeld Alternate Governor ...... Manfred Lahnstein* Alternate Governor ...... Horst Moltrecht* Advisers: Gerhard Boehmer Dieter Bucher Wolf Dieter Donecker Werner Flandorffer Miss Lore Fuenfgelt Wilfried Haesen Lutz Halfmann Gert Haller Hans-Dieter Hanflandtt Wilfried Koschorreck Eberhard Kurtht Gerhard Laske Gert Meissner Stephen Modly Rolf Moehler Reinhard Muenzberg Kurt Nemitz Manfred Overhaus Eckard Pieske Wolfgang Rieke Hans Michael Ruyter Mrs. Ursula Schaefer Helmut Schlesinger Dieter Schmoelling Siegfried Schumm Dieter Seipp Alwin Steinke Erich Stoffers Dietmar Thorand Ruediger von Rosen Mrs. Hildegard Weindel Guenter Winkelmann

O °GHANA

Governor ...... G. T. Oddoye Alternate Governor ...... S. K. Botchway Advisers: P. K. Agboh E. W. Asumang G. K. A. Hammond R. E. Odartei-Laryea S. Ogbarmey-Tetteh Alex Quaison-Sackey Ernest H. Tetteh

o 0 GREECE Governor ...... Stavros Dimas Alternate Governor ...... Angelos Angelopoulos A dvisers: George Vlachos Michael Vranopoulos

o 0 GRENADA Governor ...... George F. Hosten Alternate Governor ...... Fabian Redhead

L IFC Member t Executive Director tt Alternate Director o IDA Member * Temporary

315 0 ° GUATEMALA

Governor ...... Hugo Tulio Bucaro Alternate Governor ...... Valentin Sol6rzano A dvisers: Carlos H. Alpirez P. Fernando Barillas Antonio Blanco Mario David Garcia Carlos Gonzalez Carlos Guzman Federico Linares M. Mario Mejia G. Julio Noriega H. Raul Sierra Ramirez

0 GUINEA Governor ...... Mohamed Lemine Toure Alternate Governor ...... Laminy Konde* A dvisers: Ibrahima Camara Mountaga Keita Mamadi Toure

O 0 GUINEA-BISSAU

Governor ...... Victor Freire Monteiro Alternate Governor ...... Augusto B. Evora* A dvisers: Javier Otero G. Jose P. Vaz

Ol °GUYANA

Governor ...... Franklin E. Hope Alternate Governor ...... Harold E. Wilkinson A dvisers: Edward M. Agostinitt Miss Joyce A. Jervis Derek Small

O ° HAITI

Governor ...... Emmanuel Bros Alternate Governor ...... Allan Nolte*

O ° HONDURAS

Alternate Governor ...... Guillermo Bueso Alternate Governor ...... Mario Flores Theresin* A dvisers: Gonzalo Carias Pineda Rene Cruz Miguel Leiva Gabriel Mejia Angel Ordofiez Mario Rietti Paul Vinelli

El IFC Member t Executive Director tt Alternate Director IDA Member * Temporary

316 O ° ICELAND Governor ...... Tomas Arnason Alternate Governor ...... Sigurgeir Jonsson* Adviser: Valgeir Arsaelssontt l ° INDIA

Governor ...... H. M. Patel Alternate Governor ...... Manmohan Singh Alternate Governor ...... M. Narasimham*t Alternate Governor ...... M. D. Godbole* Alternate Governor ...... N. A. Palkhivala* Advisers: Satish Chandra K. L. Deshpande R. L. Misra V. K. S. Nair Y. L. Rajwade Y. V. Reddy G. Venkataramanan O 0 INDONESIA

Governor ...... Rachmat Saleh Alternate Governor ...... Soegito Sastromidjojo Alternate Governor ...... D. Ashari* Advisers: Zahar Arifin M. Arief Djanin A. Effendie Miss Nani Gandabrata J. E. Ismail R. A. Kartadjoemena Byanti Kharmawan Djamalius Luddin Tj. A. Partha Sukawati Aulia Pohan Mrs. Retno Rahadjeng Srihadi Leon H. Is Sumantri

[1 0 IRAN Governor ...... Mohammed Yeganeh Alternate Governor ...... Jahangir Amuzegar Alternate Governor ...... Nasser Ganjei* Advisers: Miss Afsar Afsari-Fard Mohammad Hossein Kamali Ahmad Karimi Ahmad Kooros Ali Manavi-Rad Ahmad Minai Mohammad Shadman 1 ° IRAQ Alternate Governor ...... Hashim A. Al-Ani* Advisers: Tariq Al-Haimus A. Majid Al-Ani Adnan M. Al-Tayyar Mrs. Nisreen Janabi Mahmoud A. Uthman

[ IFC Member t Executive Director tt Alternate Director IDA Member * Temporary

317 n 0 IRELAND Governor ...... George Colley Alternate Governor ...... Tomas F. O'Cofaigh Adviser: Donal Lynch

O 0 ISRAEL Governor ...... Arnon Gafny Alternate Governor ...... Ephraim Davrath Advisers: Valery D. Amiel Miss Tamar Ben-David Zvi Dinstein Dan Drach Avraham Friedman Dan Halperin Shaul Hanono Moshe Meirav Eitan Raff Avraham van der Hal Mrs. Channa Weinberg

O ° ITALY Governor ...... Paolo Baffi Alternate Governor ...... Felice Ruggiero Alternate Governor ...... Silvano Palumbo* A dvisers: Vittorio Barattieri Pietro Battaglia Fabio Bonci Roberto Cirocco Alberto de Benedictis Lamberto Dini Ms. Fernanda Forcignano Giovanni Magnifico Luigi Marini Stefano Micossi Giuliano Monterastelli Tommaso Padoa-Schioppa Giuseppe Pasqua Giorgio Rotat Renato Ruggiero Fabrizio Saccomanni Augusto Zodda

Q 0 IVORY COAST Governor ...... Abdoulaye Kon6 Alternate Governor ...... Leon Naka A dvisers: Timothee N'Guetta Ahoua Rene Amichia Oumar Diarra Alphonse Diby Lancina Dosso Andre Hovine Camille Konan Demba Konate Souleymane Kone Louis Kouassi Kouadio Lazare Yeboue

F1 IFC Member t Executive Director tt Alternate Director IDA Member Temporary

318 O JAMAICA

Governor ...... Eric 0. Bell Alternate Governor ...... Richard Fletcher Advisers: Miss Doris Chin Trevor DaCosta L. F. Muschette Miss Maisie Plummer Alfred A. Rattray John Risden T. A. Stimpson

0 ° JAPAN

Governor ...... Tatsuo Murayama Alternate Governor ...... Tekehiro Sagami* Alternate Governor ...... Tomoo Miyazaki* Alternate Governor ...... Michiya Matsukawa* Alternate Governor ...... Haruo Mayekawa* Alternate Governor ...... Masaru Hayami* Alternate Governor ...... Masanao Matsunaga* Alternate Governor ...... Susumu Murayama*t Advisers: Akira Aoki Torao Aoki Tadao Chino Noboyoshi Doi Hiromu Fukada Toyoo Gyohten Akira lida Shinji Imanaga Fumiya Iwasakitt Tsuneo Jinma Koichi Kakimizu Yoshiaki Kanari Takayuki Kimura Toshihiro Kiribuchi Miss Tomoko Kitamura Motoo Kusakabe Rei Masunaga Fujio Matsumuro Nobuhiko Matsuno Satoru Miyamura Tadahiko Nakagawa Toshio Nagaoka Shijuro Ogata Kumiharu Shigehara Satoshi Shiibashi Shigenori Shioda Koji Tanami

O °JORDAN

Governor ...... Hanna Salim Odeh Dabbas Alternate Governor ...... Hashim A. Adviser: Mohammad Saleh

Director El IFC Member t Executive Director tt Alternate ° IDA Member * Temporary

319 Ol°KENYA

Governor ...... L. 0. Kibinge Alternate Governor ...... J. M. Gachui* A dvisers: B. M. Gecaga A. Githinji D. M. Kayanda J. M. Keriri J. A. K. Kipsanai A. N. Komora J. M. Magari T. K. B. Mbathi J. P. Mbogua W. Muriithi C. M. Mwangemi G. M. Ndoto A. F. Njagi F. M. Thuo A. Vienna C. N. Waigi

a ° KOREA

Governor ...... Yong Hwan Kim Alternate Governor ...... Byong Hyun Shin Alternate Governor ...... Yoon Sae Yang* Alternate Governor ...... In Yong Chung* A dvisers: Seung Chul Ahn Byung Ju Chang Hong Yul Chang Chong Hack Chung Jai Suk Chung Eun Shik Chuh Wi Tchol Kang Joon Sung Kim Woun Gie Kim Kyu Sung Lee Yong Sung Lee Sang Jin Nam Jong Suk Park Hoon Shim Hwa June Tchah

n 5 KUWAIT Governor ...... Abdul Rahman Salim Al-Ateeqy Alternate Governor ...... Abdlatif Y. Al-Hamad Advisers: Faisal Al-Khaled Mubarak Faleh Al-Noot Fahed Al Mohammad Al Sabah Salem Al Abdulla Al Ahmad Nabil Khalid Jaffar Al Sabah

'LAO PEOPLE'S DEMOCRATIC REPUBLIC Governor ...... Oudone Pholsena Alternate Governor ...... Phone Keovongvichith* Adviser: Khamtanh Ratanavong

E] IFC Member t Executive Director tt Alternate Director IDA Member * Temporary

320 O ° LEBANON

Governor ...... Khattar Chebli Alternate Governor ...... Sabbah Al-Haji Advisers: Farid Abboud Raja Himadeh Ali Jammal

1 °LESOTHO

Governor ...... E. R. Sekhonyana Alternate Governor ...... A. M. Monyake Advisers: T. Makeka Manfred Reichardt

n ° LIBERIA

Governor ...... James T. Phillips, Jr. Alternate Governor ...... D. Franklin Neal Advisers: Ms. Miata Beysolow William Diggs Ms. Joanna Fahnbulleh Ms. Ellen Jobnson-Sirleaf Elie E. Saleeby Ms. Louise Summerville

[1 'LIBYAN ARAB JAMAHIRIYA, SOCIALIST PEOPLE'S

Governor ...... Mohammad Z. Rajab Alternate Governor ...... Abdulla A. Saudi Advisers: Ezeddin Ben Saud Suliman Ehtash Omar Mehanni Mohammad A. Mograbi Suleiman A. Salem

O LUXEMBOURG

Governor ...... Jacques F. Poos Alternate Governor ...... Raymond Kirsch Adviser: Jean Guill

o °0 MADAGASCAR

Governor ...... Rakotovao Razakaboana Alternate Governor ...... Rajaona Andriamananjara Alternate Governor ...... Miss Renee Razafintsalama* Advisers: Andr6 Andriamampianina Hubert Andrianasolo Adolphe Rakotoarivony Norbert Rakotomalala Daniel Rakotomavo Alfred Rakotonjanahary Robert Ramelina Laurent Razafindramboa

E IFC Member t Executive Director tt Alternate Director IDA Member * Temporary

321 O ° MALAWI

Governor ...... E. C. I. Bwanali Alternate Governor ...... P. M. 0. Mbisa A dvisers: W. R. Chimuzu H. M. Mapondo C. L. Mphande F. Z. Pelekamoyo

O ° M A LAYSIA

Governor ...... Tengku Razaleigh Hamzah Alternate Governor ...... Dato' Neo Yee Pan A dvisers: Alias bin Ahmad Duleep Singh Kamal Ibrahim Anaitullah Karim Khong Kim Nyoon Lin See Yan Mustapa bin Mohamed Ramon V. Navaratnam Datuk Sallehuddin bin Mohamed Datok Zain Azraai

0 MALDIVES

Governor ...... Amir Abdul Sattar Alternate Governor ...... Ahmed Saleem

0 ° MALI

Governor ...... Bandiougou Gakou Alternate Governor ...... Mamadou Haidara Advisers: Albert Clary Adama Diarra Ismaila Diarra

5 0 MAURITANIA

Governor ...... Mohamed El Mokhtar Ould Zamel Alternate Governor ...... Assane Diop* Advisers: Naim H. Chaar Moktar Ould Haye Bocar M. Wane

O 0 MAURlllUS

Governor ...... Rabindrah Ghurburrun Alternate Governor ...... Devarajen Soopramanien Advisers: Madhukarlall Baguant P. G. Balancy Marc Bourdet Pierre-Louis Eynaud Chitmansing Jesseramsing Dipnarain Manna S. S. Tarapore

Il IFC Member t Executive Director tt Alternate Director IDA Member Temporary

322 O ° MEXICO

Governor ...... David Ibarra Alternate Governor ...... Jorge Espinosa de los Reyes Alternate Governor ...... Bernardo Sepulveda* Alternate Governor ...... Jesus Silva Herzog* Advisers: Francisco Arellano-Belloc Salvador Arriola Ariel Buira Seira Pedro Galicia Estrada Alfonso Garcia Macias Luis R. Garcia Rafael Izquierdo Oscar Levin Coppel Miss Alicia Lizarraga Mayorga Gerardo Liorente Carlos Martinez Ulloa Luis Manuel Martinez Loaeza Enrique Olivares Santana Luis M. Orci G. Arturo Ortiz Hidalgo Mauricio Ruiz

O a MOROCCO

Governor ...... Abdellatif Ghissassi Alternate Governor ...... Omar Kabbaj* Advisers: Mohamed Aissaoui Abdallah Belkeziz Lhassan Belkoura Hadj Abdelmajid Bengelloun Mohamed Benjelloun Abdel-Latif Benani Farouk Bennis Abdelkader Bensaleh Abdelkader Benslimane Habib El Fihri Azeddine Guessous Bensalem Guessous M'Hamed Tazi

O ° NEPAL

Governor ...... Bhekh B. Thapa Alternate Governor ...... Devendra Raj Panday Alternate Governor ...... Bharat B. Pradhan*tt Advisers: Singha B. Basnyat Purushottam L. Shrestha

Q 0 NETHERLANDS

Governor ...... F. H. J. J. Andriessen Alternate Governor...... J. B. Hoekman* Advisers: D. H. Boot T. de Vries F. A. Engering J. S. Hilbers A. IJ. A. Looijent E. F. Mansur H. 0. Ruding A. Szasz J. G. J. van Delden G. W. Baron van der Feltz B. F. Baron van Ittersum A. van't Veer J. J. Wijenberg

G IFC Member t Executive Director tt Alternate Director IDA Member * Temporary

323 a' °NEW ZEALAND Governor ...... N. V. Lough Alternate Governor ...... R. W. R. White* Advisers: G. S. Aburntt D. R. Andrew E. G. Buckton A. C. Fenwick M. Norrish C. N. Pinfield D. A. Smyth

O ° NICARAGUA Governor ...... Guillermo Sevilla-Sacasa Alternate Governor ...... Roger Bland6n Velasquez Alternate Governor ...... Ricardo Parrales Sanchez* A dvisers: Mario Alonso Roberto Arguello T. Mauricio Baca Mufioz C. P. Cardiff Ernesto Fernandez Holmann Denis Gallo Eduardo Montealegre C. Maximo Navas Francisco Pereira Salazar D. Rigg Mario Sacasa Guillermo Sol6rzano A. Donald Spencer

° NIGER Governor ...... Mai Maigana Alternate Governor ...... Mahamane Annou Adviser: Boukary Adji

El ° NIGERIA Governor ...... S. A. Musa Alternate Governor ...... J. J. Oluleye* Alternate Governor ...... G. P. 0. Chikelu* Alternate Governor ...... 0. Vincent* Alternate Governor ...... 0 0. Jalaoso* Alternate Governor ...... G. 0. Nwankwo* Alternate Governor ...... S. B. Falegan* Alternate Governor ...... H M. Osha* Alternate Governor ...... C E. Okobi* Alternate Governor ...... K K. Keazor* Alternate Governor ...... T. P. Enodien* Alternate Governor ...... Godwin Okurume* Alternate Governor ...... M. I. Yahaya* A dvisers: E. A. Ajayi E. G. 0. Beecroft B. M. Borodo E. A. Ekerendu S. I. Nmakwe B. I. Onwameze G. C. Oranika M. A. Uduebo A. U. Uwandulu

E) IFC Member t Executive Director tt Alternate Director IDA Member Temporary

324 O NORWAY

Alternate Governor ...... Hallvard Bakke Alternate Governor ...... Per M. Olberg* Alternate Governor ...... Eivind Erichsen* Advisers: Jon Aase Ove Chr. Danbolt Bjarne Hansen Alf Hildrum Trond M. Johansen Arne Lie Einar Magnussent Hermod Skanland Soren Chr. Sommerfelt Bernt Stangholm

O °OMAN

Alternate Governor ...... Sherif Lotfy A dvisers: Farid Al-Hinai Tariq Al Jamali Hamood Hashin Sangoor

O ° PAKISTAN

Governor ...... Ghulam Ishaq Khan Alternate Governor ...... Aftab Ahmad Khan Advisers: Ziauddin Ahmad Moenuddin Baqai Ashraf Janjua Nisar Ali Shah

O PANAMA

Governor ...... Luis Adames Alternate Governor ...... Felix A. Quiros* A Iternate Governor ...... Francisco Rodriguez Alternate Governor ...... Reinaldo Decerega* Advisers: Ms. Nilka D. Falcon David McGrath Robert McGrath Arturo Muller Ram6n A. Perez Virgilio Ramos Euclides Tejada

O PAPUA NEW GUINEA

Governor ...... Barry Holloway Alternate Governor ...... A. G. Morris Advisers: Henri Norries J. A. Spicer

Director J IFC Member t Executive Director tt Alternate IDA Member * Tem,porary

325 U PARAGUAY

Governor ...... Csar Romeo Acosta Alternate Governor ...... Augusto Colman V. Advisers: Gilberto Caniza Esiderio Enciso Magno Ferreira Falcon Julio C. Gutierrezt Contralmirante Guillermo Haywood Heriberto Insfran Ruotti Juan Alberto Lianes

C ° PERU

Governor ...... Javier Silva Ruete Alternate Governor ...... Fernando Reus Salinas* Alternate Governor ...... Oscar G. Espinosa*tt A dvisers: Carlos Garcia-Bedoya Drago Kisic Wagner Felipe Reategui Masjuan Jose F. Torres-Muga Julio Vega Erausquin

n a PHILIPPINES

Governor ...... Cesar E. A. Virata Alternate Governor ...... Placido Mapa, Jr. Alternate Governor ...... Alejandro Melchor, Jr.* Advisers: Augusto M. Barcelon Bayani L. Barzaga Manuel Bautista Mrs. Escolastica B. Bince Henry L. Co Oscar de los Santos Alberto F. de Villa-Abrille Panflo Domingo Basilio Estanislao Jos6 B. Fernandez, Jr. Benito Legarda, Jr. Ernest C. Leung Antonio H. Ozaeta Reynaldo Palmiery Alfonso Puyat Gil Puyat Antonio V. Romualdez Gabriel C. Singson Guillermo V. Soliven David Sycip Wilfrido C. Tecson Jose Tengco, Jr. Arturo Trinidad Conrado M. Vicente

O PORTUGAL

Governor ...... Jose da Silva Lopes Alternate Governor ...... Ms. Maria Alexandra G6mes Advisers: Albino Cabral Pessoa Ant6nio dos Santos Labisa Carlos Saldanha do Valle Joao Salgueiro Abdool Vakil

M IFC Member t Executive Director tt Alternate Director IDA Member Temporary

326 QATAR Al-Mana Governor ...... Abdullah Saleh Azzeh Alternate Governor ...... Jawad A dvisers: Attia Ebd El-Moneim Attia Bader Omar Aldafa

ROMANIA

Governor ...... Paul Niculescu-Mizil Popescu Alternate Governor ...... Gheorghe A dvisers: Ion Besteliu Gheorghe Crainiceanu Nicolae Eremia Stanel Ghencea Ion Petre Mada Mircea Moisescu

OJ°RWANDA

Governor ...... Denis Ntirugirimbabazi Alternate Governor ...... Jean Damascene Munyarukiko Adviser: Bonaventure Ubalijoro

° SAO TOME AND PRINCIPE Correia Governor ...... Victor Manuel Lopes Alternate Governor ...... Manuel Lomba

0 ° SAUDI ARABIA Abalkhail Governor ...... Mohamed Gosaibi Alternate Governor ...... Khalid Al Advisers: Mohamed Al-Dries Abdul Aziz Al-Dukheil Saleh Al-Omair Ahmed Al-Qahtani Abdallah Al-Qwais M. Umer Chapra Mahsoun Jalal Mohammad Jamjoom

O °SENEGAL

Governor ...... Louis Alexandrenne Diop Alternate Governor ...... Serigne Lamine Advisers: Bocar Cisse Alioune Diagne Demba Diop Joseph Golan Massata Gueye Ady Khaly Niang Famara Ibrahima Sagna Amath Samb Aly Sow Moussa Tambadou Mamoudou Toure

Alternate Director El IFC Member t Executive Director tt IDA Member Temporary

327 0 [ SIERRA LEONE

Governor ...... A. B. Kamara Alternate Governor ...... J. Amara Bangali A dvisers: E. N. Afful J. K. E. Cole Chris E. Jasabe F. E. S. Jones-Asgill J. S. Korona C. J. Smith Mohamed M. Turay

o SINGAPORE

Governor ...... Hon Sui Sen Alternate Governor ...... P. Coomaraswamy* Alternate Governor ...... F. J. D'Costa*

SOLOMON ISLANDS

Governor ...... Benedict Kinika Alternate Governor ...... Pulepada Ghemu

O ° SOMALIA

Governor ...... Ahmed Mohamed Mohamud Alternate Governor ...... Omar Ahmed Omar A dvisers: Ali Mohamed Ibrahim Isse Haji Muse

O ° S OUTH AFRICA

Governor ...... G. P. C. de Kock Alternate Governor ...... J. C. du Plessis A dvisers: C. H. du Toit D. W. Goedhuys B. P. Groenewald W. P. N. Lotz J. C. Malan C. F. Nbffke J. Pickard R. S. Schoeman B. van Staden

0 Q SPAIN

Governor ...... Francisco Fernandez Ordofiez Alternate Governor ...... Jose Barea* Advisers: Manuel Azpilicueta Alberto Cerrolaza Agustin de Alcocer Eduardo 0. de Toledo Marcelo Diaz-Egido Mariano Fernandez-Pulido Mariano Garcia Mufioz Jose Llado Miguel Martin-Fernandeztt Joaquin Muns Antonio Sanchez Pedreino Antonio Santillana Jose Pedro Sebastian de Erice Guillermo Una Fernando Varela

C] IFC Member t Executive Director tt Alternate Director IDA Member Temporary

328 [ SRI LANKA Ronnie de Mel Governor ...... W. M. Tilakaratna Alternate Governor ...... W. S. Karunaratne* Alternate Governor ...... W. Rasaputram* Alternate Governor ...... A dvisers: Mrs. Mallika de Mel L. E. N. Fernando S. Velayutham

O 0 SUDAN Nasr Eldin Mustafa Governor ...... Abdel Rahman Abdel-Wahab Alternate Governor ......

A dvisers: Osman Mirgani Mohamed Ahmed Abdel Wahab SURINAME L. E. Goede Governor ...... V. M. de Miranda Alternate Governor ......

Advisers: Lall R. W. Braam L. J. Budhu O ° SWAZILAND James Nxumalo Governor ...... V. E. Sikhondze Alternate Governor ...... Adviser: H. H. Prince Phiwokwakhe

0 °SWEDEN Gosta Bohman Governor ...... Lars Wohlin Alternate Governor ...... Advisers: Berndt Ahlqvist Rolf Bergman Bildt Mrs. Inga Bjork-Klevby Carl Johansson Ulf Dinkelspiel Sven-Olof Lars Kalderen Bo Kjellen Bertil Lund Sten Westerberg

0 ° SYRlAN ARAB REPUBLIC Sadek Ayoubi Governor...... Abdul Hadi Nehlawi Alternate Governor ...... Advisers: Dib Abou Assali Bashir Zuheiri

Director tt Alternate Director [ IFC Member t Executive IDA Member Temporary 329 O ° TANZANIA Governor ...... E. I. M. Mtei Alternate Governor ...... E. A. Mulokozi Advisers: Paul Bomani F. Byabato Herbert Lyimo R. E. Mariki Felix Mrema D. G. Rwegasira

O ° THAILAND Governor ...... Chanchai Leetavorn Alternate Governor ...... Kraisri Chatikavanij* Advisers: Miss Viuada Avilasakul Tamchai Kambhato Sukri Kaocharern Thavil Khutrakult Pravit Klongwathanakith Mrs. Suvimol Ramakomud Uthorn Tejapaibul Chaiyawat Wibulswasdi

O °TOGO Governor ...... Koudjolou Dogo Alternate Governor ...... Napo Kakaye Advisers: Messanvi Kokou Kekeh K. Klousseh Kouanvi Tigoue

0 n TRINIDAD AND TOBAGO Governor ...... Overand Padmore Alternate Governor ...... Frank Barsotti Advisers: Ms. Joyce Alcantara Patrick Edwards W. Emmanuel Ms. Eurice Isaac Cuthbert Joseph Hamid O'Brien Ms. Monica Stewart

O 0 TUNISIA Governor ...... Mustapha Zaanouni Alternate Governor ...... Salah M'Barka Advisers: Moncef Belkhodja Abdeslem Ben Younes Mokhtar Fakhfakh Habib Ghenim Moncef Guen Lamine Kassis Abdelmajid Mabrouk Chekib Nouira Hamid Zaouche Anouar Zmerli

Q IFC Member t Executive Director IDA Member tt Alternate Director Temporary

330 03 TURKEY Midezzinoglu Governor ...... Ziya Kaya Erdem Alternate Governor ...... A dvisers: Tuncay Altan Miss Gozen Altundag Atilla Arman Tunc Bilgettt Candogan Boray Yavuz Canevi Kadir Gunay Asaf Guven Alptekin Muderrisoglu Ismail Sengun Altan Tufan Alaeddin T. Yoruk

Oc°UGANDA Jumba Masagazi Governor ...... A. H. J. Geria Alternate Governor ...... Advisers: Z. Bukenya P. S. Bukumuhe T. Buruku Dima S. A. J. J. Kahoza H. Mawanda A. S. Njala H. J. Obbo A. Serwamba

OUNITED ARAB EMIRATES Al-Maktoum Governor...... Hamdan Bin Rashid Al-Tayer Alternate Governor ...... Ahmed Humaid Advisers: Yousuf Al-Hashimi Ahmed Lutfi Ali Hamad Abdul Rahman Al Madfa Nasser Al-Nowais A. S. Assaad Jean Bataillard Magdi El-Tanamli Hamid Nasr Mohd A. Gadir A. M. Mazrui Abdullah M. Saleh Jauan Salim N. A. Sarma Izzat Traboulsi

0 ° UNITED KINGDOM Gordon Richardson Governor ...... Peter S. Preston* Alternate Governor ...... Sir K. E. Couzens* Alternate Governor ...... S. Ryrie*t Alternate Governor ...... W Advisers: C. J. Bailey A. M. W. Battishill P. G. Davies R. F. R. Dearett C. P. Haddon-Cave Mrs. M. E. Hedley-Miller Miss A. P. Humm G. Ingham C. R. 0. Jones P. H. Kent J. A. Kirbyshire H. J. H. Maud J. P. McIntyre B. Quinn

tt Alternate Director O IFC Member t Executive Director IDA Member * Temporary 331 O ° U NITED STATES Governor ...... W. Michael Blumenthal Alternate Governor ...... Richard N. Cooper Alternate Governor ...... Anthony M. Solomon* Alternate Governor ...... C. Fred Bergsten* Alternate Governor ...... Sam Y. Cross* Alternate Governor ...... Edward R. Fried*t Alternate Governor ...... John J. Gilligan* Alternate Governor ...... Henry C. Wallich* Advisers: H. K. Allen Joseph W. Barr James J. Blanchard Daniel H. Brill David Bronheim Elford A. Cederberg John B. Connally Silvio 0. Conte William P. Dixontt David W. Evans Henry H. Fowler Henry B. Gonzalez Sidney Harman John G. Heimann Harold C. Hollenbeck Alan R. Holmes Robert D. Hormats Gary C. Hufbauer Mrs. Helen B. Junz David M. Kennedy Julius L. Katz James A. S. Leach John J. LaFalce Thomas Leddy Matthew F. McHugh Charles F. Meissner Joseph G. Minish John L. Moore, Jr. Arnold Nachmanoff Stephen L. Neal William D. Nordhaus Henry Owen Jerry M. Patterson Henry S. Reuss Edward R. Roybal Charles L. Schultze George P. Shultz William E. Simon John W. Snyder J. William Stanton Newton I. Steers, Jr. Louis Stokes Robert S. Strauss Edwin M. Truman Paul A. Volcker Frank A. Weil F. Lisle Widman Charles Wilson C. W. Bill Young

O 0 UPPER VOLTA Governor...... Georges Sanogoh AlternateGovernor ...... Pierre Tahita Advisers: Kassoum Congo Pierre Romuald Djiguima Gabriel Kabore Joseph Parcouda T. Yaguibou Andre Yameogo O URUGUAY Governor ...... Valentin Arismendi Alternate Governor ...... Juan Jose Anichini Advisers: Diego Cardozo Fernando Crispo-Capurro Carlos Koncke Juan A. Olascoaga

E IFC Member t Executive Director IDA Member ft Alternate Director Temporary

332 O VENEZUELA Hector Hurtado Governor ...... Guillermo Pimentel Alternate Governor ...... Bernardo Paul* Alternate Governor ...... Advisers: Claudio De Blois Mrs. Aura Osuna de Carrasco Francisco Garcia Palacios Adrian Guissarri Alain Morales Henriquez Roosevelt T. Velasquez Aquiles Viloria

O 0 VIET NAM Tran Duong Governor ...... Nguyen Manh Thuy Alternate Governor ...... Cu Dinh Ba* Alternate Governor ...... Adviser: Tran Quoc Hung

n o VVESTERN SAMOA R. P. Phillips Governor ...... Vaovasamanaia D. M. Stanley* Alternate Governor ...... A dvisers: R. H. Carruthers S. A. Pandit K. W. Taylor

O ° YEMEN ARAB REPUBLIC S. Basendwah Governor ...... Mohamed Ali Al-Bahar Alternate Governor ......

CEYEMEN, PEOPLE'S DEMOCRATIC REPUBLIC OF Awadh Bin Saad Alternate Governor ...... Guma'n

O ° YUGOSLAVIA Petar Kosti6 Governor ...... Nikola Jeli6 Alternate Governor ...... Obrad Piljak* Alternate Governor ...... Advisers: Toma Gudac Mrs. Gordana Hofmann Hazim Hasic Ilaz Ilazi Branko Komatina Mrs. Gordana Komijenovic Janko Smole Miodrag Stojiljkovictt

tt Alternate Director El IFC Member t Executive Director IDA Member * Temporary 333 O ° ZAIRE Governor ...... Emony Mondanga Alternate Governor ...... Bazundama Luzumbulu Mbandanu Advisers: Buhendwa bwa Mushaba Kasongo Mutuale Tshimbalanga Kalonji Kazadi Bukasa Muanda di Baziuki Ng'ole Iliki

O 0 ZAMBIA Governor ...... J. M. Mwanakatwe Alternate Governor ...... L. C. Sichilongo A dvisers: F. F. Bwalya P. K. Chiwenda G. B. B. Mbulo R. K. Sharma

0 IFC Member t Executive Director ft Alternate Director IDA Member Temporary

334 OBSERVERS AT 1978 ANNUAL MEETINGS

Cape Verde Bank of Central African States Corentino Santos Casimir Oye-Mba Manuel Costa Frangois Pehoua Paul A. Gibeault Djibouti Ibrahim Kassim Chaaem Caribbean Development Bank Mohamed Hassan Neville V. Nicholls

Dominica Center for Latin American Monetary Alick Lazare Studies Jorge Gonzalez del Valle African Development Bank Kwame D. Fordwor Central African Customs and Marc Manirakiza Economic Union Thomas Okelo-Odongo Vincent Efon Babacar N'Diaye Wolde Mariam Girma Central American Bank for Economic Tekalign Gedamu Integration Iddi Simba Alberto Galeano M. Masumbuko Muhima Alejo Aguilar A. Mrs. Madjiguene Diarra Alfredo B. Noyola Felix Martinez Dacosta Andean Development Corporation Julio Sanjines Goitia Central American Monetary Council Enrique Roldan Tomas Alfonso Medina States Arab Bank for Economic Development Central Bank of West African in Africa Abdoulaye Fadiga Chedly Ayari Marcel Kodjo Wahid Hadjeri Alassane Ouattara Sadok Ben Mami Patrice Kouame Ali A. Khosropur Fawzi Mahresi Commission of the European Communities Ortoli Arab Fund for Economic and Social Francois-Xavier Development Ugo Mosca Saeb Jaroudi Michel Hauswirth Bourhan Chatti Andreas Kees Philippe Petit-Laurent Arab Monetary Fund Jean-Claude Eude Jawad Hashim Corrado Pirzio-Biroli Odeh Aburdene of African El Waleed Taha Common Organization and Mauritian States Asian Development Bank Kouanvi Tigoue Taroichi Yoshida Shigemitsu Sugisaki Commonwealth Secretariat S.M.A. Kazmi C.J. Small Q.S. Siddiqi

Bank for International Settlements Rene Larre Conseil de L'Entente R.T.P. Hall Paul Kaya Alexandre Lamfalussy Charles Mann 335 Contracting Parties to the General Islamic Development Bank Agreement on Tariffs and Trade Ahmad Mohamed Ali Olivier Long Abdul Rehman Yousef Gardner Patterson Mohammad Ali Shamim

Council of Arab Economic Unity Latin American Economic System Fakhri Kaddori Jaime Moncayo Garcia Atef Sedk Angel Serrano Roberto Guarnieri East African Development BankLageoArbSts H.M. Kajura League of Arab States HM.B Kgajurga Abdel Hassan Zaizalah M.B. Ngatunga Fathalla El-Boghdady

East Caribbean Currency Authority OPEC Special Fund Cecil A. Jacobs Ibrahim F. I. Shihata Abderraouf Benbrahim European Investment Bank Yves Le Portz Organization for Economic Cooperation C. Richard Ross and Development Dieter Hartwich Emile van Lennep Andre George John D. Fay Wolfgang Thill Stephen N. Marris Christopher Lethbridge Helmut Fuehrer Christopher Sibson Stephen Potter Harry Travers Food and Agriculture Organization of the United Nations Organization of American States Cedric Fernando Helio Ribeiro de Oliveira Jose L. Restrepo Inter-American Development Bank Mrs. Dorel Callender Antonio Ortiz Mena Reuben Sternfeld Organization of Arab Petroleum John D. Blackwood Exporting Countries Norman M. Jones George J. Tomeh Henry J. Costanzo Jerome 1. Levinson Organization of the Petroleum Jose D. Epstein Exporting Countries Cecilio J. Morales Ali M. Jaidah Guillermo Moore Djemal E. Berrouka Luis Fernando Jaramillo Cyrus Sassanpour Jorge Hazera Pedro Iraneta Pernanent Secretariat of the General Treaty for Central Inter-Arab Investment Guarantee American Economic Integration Corporation Roberto Mayorga-Cortes Mamoun Ibrahim Hassan

Regional Cooperation for Development International Fund for Agricultural Mukhtar Masood Development Abdelmuhsin M. Al-Sudeary William B. Robinson Saudi Fund for Development Mahsoun B. Jalal Khalid A. Al-Massaud International Labor Office Yussuf Biyari Miss Jean Decker Mohamed Al-Sa'adi

336 Switzerland M. Stoby Fritz Leutwiler D. H. Pollock Pierre Languetin G. Rosenthal Klaus Jacobi K. Kapur Martin Thomann C. de Kemoularia Jean Zwahlen A. Inostroza Daniel Kaeser J. Razafinbahiny Raymond Probst K. Gunaratnam Peter Gutzwiller R. Lawrence Roger Grossenbacher M. D. Pollner T. Kanaan J. C. Faby United Nations S. J. Bauna K. S. Dadzie C. Perry G. Corea J. P. Benoit J. Ripert G. A. Brown Unesco I. S. Djermakoye Christian Vieyra S. Challenor E. Iglesias Ms. Herschell D. Cordovez Community S. Heppling West African Economic S. Dell Moussa N'Gom G. Arsenis Moussa Tour6 D. Feldman GH.Cavaglia World Health Organization Vigo A. J. Aizenstat Martin Vazquez N. J. Brown Colm O'Colmain

337 EXECUTIVE DIRECTORS, ALTERNATES AND ADVISORS

September 28, 1978

AIternate Advisors to Executive Directors Executive Directors Executive Directors Jacques de Groote Tunc Bilget (Belgium) (Turkey) Earl G. Drake Edward M. Agostini (Canada) (Guyana) Said E. El-Naggar Saleh A. Al-Hegelan Basil K. 1. Al-Bustany (Egypt) (Saudi Arabia) (Iraq) Ernesto Franco-Holguin Ram6n Martinez-Aponte (Colombia) (Dominican Republic) Edward R. Fried William P. Dixon (United States) (United States) Julio C. Gutierrez Eduardo R. Conesa (Paraguay) (Argentina) R. A. Johnston Gerald S. Aburn (Australia) (New Zealand) Yahia Khelif Kwaku Gyasi-Twum Mohamed Terbeche (Algeria) (Ghana) (Algeria) Eberhard Kurth Hans-Dieter Hanfland (Germany) (Germany) Anthony IJ. A. Looijen Miodrag Stojiljkovi6 (Netherlands) (Yugoslavia) Einar Magnussen Valgeir Arsaelsson (Norway) (Iceland) Paul Mentre de Loye Pierre-Henri Cassou (France) (France) Susumu Murayama Fumiya Iwasaki (Japan) (Japan) M. Narasimham M. Syeduz-Zaman (India) (Bangladesh) Eduardo Pesqueira Oscar G. Espinosa (Mexico) (Peru) Armand Razafindrabe Ali Mohamoud Kalfan (Madagascar) (Somalia) Giorgio Rota Miguel Martin-Fernandez (Italy) (Spain) William S. Ryrie Ronald F. R. Deare (United Kingdom) (United Kingdom) Timothy T. Thahane A. H. Madinga Y. S. M. Abdulai (Lesotho) (Malawi) (Nigeria) Thavil Khutrakul Bharat B. Pradhan Thein Swe (Thailand) (Nepal) (Burma)

338 OFFICERS OF THE BOARD OF GOVERNORS AND JOINT PROCEDURES COMMITTEE FOR 1978-79

OFFICERS Chairmen ...... New Zealand Vice Chairmen ...... Belgium Nigeria

JOINT PROCEDURES COMMITTEE Chairmen ...... New Zealand Vice Chairmen ...... Belgium Nigeria Reporting Member ...... Sri Lanka Members ...... Algeria Belgium France Gabon Germany Greece Guatemala India Japan Jordan Mali New Zealand Nigeria Peru Philippines Qatar Sri Lanka Sweden United Kingdom United States Uruguay

339

REFERENCE LIST OF PRINCIPAL TOPICS DISCUSSED'

International Economic Relations Access to Capital Markets 76, 110, 121, 129, 139, 174, 184 Commodities and Export Earnings Stabilization 43, 66, 83, 85, 95, 121, 143, 152, 184 Debt . . . 50, 55, 66, 76, 80, 95, 110, 117, 147, 162, 184 Development Committee . 66, 71, 76, 83, 168, 179, 184 Economic Growth and Poverty Alleviation ...... 50, 53, 66, 71, 85, 95, 100, 103, 117, 121, 129, 131, 133, 135, 139, 143, 152, 159, 162, 167, 170, 174, 184 New International Economic Order 55, 117, 139, 152, 182, 184 Official Development Assistance (ODA) . . . 43, 48, 50, 55, 62, 66, 76, 80, 85, 95, 110, 115, 117, 121, 129, 131, 139, 143, 152, 162, 168, 170, 174, 182, 184 Technology Transfers and Technical Assistance . 55, 80, 152, 167, 168 Trade and Protectionism . 48, 55, 62, 66, 74, 76, 80, 83, 90, 95, 104, 115, 121, 126, 129, 133, 135, 139, 143, 152, 159, 162, 167, 174, 179, 182, 184

Bank Group Resources Co-Financing . . 55, 62, 104, 133, 162, 167, 184 General Capital Increase (GCI) 48, 50, 53, 55, 62, 66, 71, 76, 80, 83, 85, 90, 95, 100, 103, 106, 110, 121, 131, 133, 135, 139, 152, 159, 162, 167, 168, 170, 174, 179, 182, 184 IDA Replenishments . 48, 53, 55, 62, 66, 71, 76, 80, 83, 85, 90, 95, 103, 110, 131, 133, 139, 162, 170, 174, 179, 182, 184 Valuation of Assets . . . 90

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

341 Bank Group Activities Disbursements, Program Lending, Local Cost Financing, and Foreign Exchange Risk ...... 53, 55, 62, 66, 76, 80, 131, 139, 162, 167, 179 Energy, Minerals and Natural Resources 55, 62, 71, 85, 90, 115, 174 Focus of Bank Group Operations ... 50, 55, 62, 66, 76,85, 95, 115, 126, 133, 139, 147, 167, 174 Institutional Concerns ..... 66, 76, 80, 83, 85, 117, 147, 167, 179 International Finance Corporation (IFC) ...... 55, 62, 66, 179, 182 Regional Concerns ...... 53, 55, 66, 76, 179, 182 World Development Report ...... 43, 48, 53, 55, 62, 66, 71, 74, 76, 80, 90, 95, 100, 103, 106, 115, 121, 125, 126, 131, 133, 139, 159, 162, 168, 170, 174, 182, 184

342

WORLD BANK / AF !: / IDA

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